Gold’s historic price surge could be nearing its breaking point, according to John Higgins, Chief Markets Economist at Capital Economics. Higgins cautioned that the precious metal has climbed well beyond its “fair” value, showing classic signs of a market bubble.
He noted that gold’s rise has not only exceeded inflation trends but also diverged from its long-term relationship with other real assets. “At the start of 2025, the price of gold was already close to its prior peak in real terms, which it had reached in 1980,” he wrote in a note. “But now, the real price of gold is nearly 60% higher than that peak, and more than three times its average since 1980.”
While gold is traditionally viewed as a safe store of value, Higgins argued that the recent rally can’t be explained by typical drivers like falling real yields or persistently high inflation. “Since gold pays no interest, the opportunity cost of holding it declines when the yields of such bonds fall. But those yields have generally been rising,” he said, pointing out that the once-strong link between Treasury Inflation-Protected Securities (TIPS) yields and gold prices has “broken down in recent years.”
He also rejected inflation as the main explanation for the boom, highlighting that “Inflation has been trending down since its post-pandemic peak, even if it remains higher than the Fed would like.”
Instead, Higgins believes speculative behavior is likely playing a key role in pushing prices higher. Potential drivers, he said, include “reserve managers diversifying out of the dollar,” increased ETF buying, “growing demand from China,” and “the simple fear of missing out.”
Still, not all of these forces are short-term. “Some of these factors may be ‘structural’ and therefore continue to underpin the price of gold,” he said. “But it also looks increasingly possible that gold is in a bubble that will burst before long.”
Gold’s climb to record levels has been supported by geopolitical uncertainty, central bank accumulation, and strong retail investor interest. But Higgins’ assessment suggests that the market’s momentum may have outpaced fundamental realities, raising the risk of a sharp reversal.
Spot gold prices fell 1.8% today, down $77 to $4,283 per ounce as of 09:38 GMT.
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