Bank for International Settlements In its latest report, the Bank for International Securities (BIS) stated that the simultaneous surge in gold and stock prices this year is unprecedented in at least half a century, which may indicate the risk of bubbles in both asset classes.
Gold exhibits speculative characteristics
With three weeks remaining until the end of 2025, in the field of artificial intelligence... Driven by gains in the AI and technology sectors, major European and American stock indices have all achieved double-digit gains this year. Meanwhile, gold's nearly 60% year-to-date increase is poised to be its largest annual gain since 1979, sparking heated debate about whether its traditional safe-haven role has shifted.
"Gold's performance this year is quite different from usual," said Hyun Song Shin, economic advisor and head of the Monetary and Economics Department at the Bank for International Settlements, in the bank's annual closing report released on Monday. "An interesting phenomenon this year is that gold has become increasingly like a speculative asset."
The Bank for International Settlements (BIS), often referred to as the "central bank of central banks," has frequently issued warnings in recent years about potential stock market bubbles. Its current concerns about the simultaneous rise in gold and stock prices manifest on two levels:
First, if the stock market and gold both crash, where will investors seek refuge? Second, considering that some central banks have always been major buyers of gold, what will this coordinated trend mean for central banks and other reserve asset managers around the world?
Analysis by the Bank for International Settlements shows that this year marks the first time in 50 years that gold and the S&P 500 have both experienced a "surge."
Gold has risen more than 150% since 2022. In 2022, the surge in inflation following the COVID-19 pandemic began to impact the market, while the outbreak of the Russia-Ukraine conflict and subsequent Western sanctions against Russia also had a profound impact. A potential warning sign of a bubble is the large influx of retail investors into the gold market. The Bank for International Settlements (BIS) points out that the price of gold exchange-traded funds (ETFs) has consistently exceeded their net asset value (NAV) this year, indicating "strong buying pressure and obstacles to arbitrage."
Shin Hyun-song added, "The gold purchases by central banks around the world have clearly laid a very solid foundation for gold prices. Whenever asset prices perform well, other investors will follow suit, and retail investors have undoubtedly participated in this rally, and not just in the gold market."
Analysts believe that some of the factors driving up metal prices this year are similar to those in the 1970s and 80s, with geopolitical concerns and a weakening dollar widely considered to be important drivers of the price increases.
Nick Cawley, a contributing analyst at Solomon Global, said, "Persistent inflation concerns, Fed rate cuts, fears of dollar depreciation, and large-scale gold purchases by central banks are all supporting gold prices. There are no signs of these factors changing."
Axel Merk, founder and president of Merk Investments, believes that precious metals , including gold and silver, are... In this sector, some investors are seeking "diversification," especially those concerned about the declining purchasing power of currencies like the US dollar. Meanwhile, speculators are not "loyal" investors—they typically have short investment horizons and are constantly looking for trends to follow. In recent years, they have had many investment options, including meme stocks and cryptocurrencies like Bitcoin. However, price movements in recent months suggest that speculators are "returning to the commodities market."
"The current political environment could trigger a series of chain reactions." "The Trump administration has designated these commodities as strategic resources and expedited the approval process for related projects on federal lands, but much work remains to be done," Merck analyzed. "At the same time, the global economy is becoming 'less efficient.' This is an abstract way of describing 'deglobalization,' meaning the world is becoming more fragmented. Rising business costs, combined with this, could drive up commodity prices."
Increased fragility in equity markets
The Bank for International Settlements also issued a broader warning about the “increasing vulnerability” of the risk appetite environment, stemming from concerns about the valuation of the AI sector and the recent 20% plunge in cryptocurrencies such as Bitcoin.
Since November, both the European Central Bank and the Bank of England have warned of the risks of an AI bubble, fearing a sudden market collapse if investors' optimistic expectations fail to materialize. Meanwhile, Wall Street has noticed a unique circular financing chain in the AI sector. This practice of cross-investment and signing exorbitantly priced orders, where companies inflate their reported revenue and income to boost valuations, has been questioned as a "false prosperity" where one foot steps on the other. If any link in the chain fails to fulfill its orders or faces funding difficulties, the entire chain could collapse.
The Bank for International Settlements stated that AI companies are currently investing heavily in building data centers . It has already achieved profitability, which is a significant difference from the early 21st century dot-com bubble period when related companies were generally operating at a loss.
However, Shin Hyun-song also pointed out that the "core issue" lies in whether these massive investments can be justified in the long run. He added that another key determinant of the market will be the performance of the global economy next year. "So far, the resilience of economic activity has been surprisingly strong."
Oracle after Wednesday's trading session Earnings will be released soon. Given market concerns about over-investment in artificial intelligence , massive corporate bond issuance, and the fact that Oracle 's credit default swap (CDS) spreads have risen to their highest level since 2009, Charles Schwab is expected to release earnings. The report is considered a typical "two-way event" for the artificial intelligence sector, potentially impacting overall stock market sentiment. If Oracle delivers strong results, it could alleviate investor concerns about AI spending; conversely, if results fall short of expectations, it could dampen market sentiment.
"The discussion surrounding the profitability of artificial intelligence is being questioned. If this issue becomes more prominent, it will cause significant trouble for the market," said Matthew Maley, chief market strategist at Miller Tabak.
(Article source: CBN)
