Gold and Actions They enter "Explosive Territory" Simultaneous — Retail Impulses Speculating Rally and Risk of Correction Increases

[Igor Pereira]

The Bank of International Compensation (BIS), the "central bank of central banks", has just issued a strong warning about the nature of the current gold rally. According to the Basel-based institution, precious metal deviated from its traditional historical safe harbor pattern to behave much more as a speculative asset.

By Igor Pereira, Financial Market Analyst, Junior Member WallStreet NYSE

Although institutional investors have started the movement seeking protection against stretched stock assessments, there is clear evidence that the recent high of about 20% since September has been amplified by retail investors "tender stalkers", trying to capitalize on the "media hype" around the metal.

The most alarming data in the BIS report is the rare correlation we are witnessing. The last quarters mark the only time, in at least 50 years, in which both gold and the stock market simultaneously entered what the institution classifies as "exploding territory". Hyun Song Shin, head of the BIS Monetary and Economic Department, pointed out that the price of gold went up in conjunction with other risk assets, driven by expectations of cuts in interest rates and relief in concerns about economic slowdown. While technology and artificial intelligence boosted the stock, gold surfed the same wave of liquidity and appetite at risk.

The Ghost of 1980 and the Risk of Bubble Blow

Financial history teaches us that explosive phases rarely end smoothly. The BIS warns that, after a parabolic phase, "a bubble typically bursts with an acute and rapid correction", citing the infamous gold crash in 1980 as precedent. However, the institution points out that such corrections may occur within variable and potentially long deadlines, suggesting that top timing is uncertain, but the severity of reversal is a real risk.

The Sovereign Debt Crisis and the End of the Covenant Spread

Finally, the report touches on the fiscal root of the problem. Several advanced economies issued a "heavy" amount of debt between September and November, resulting in an abundance of government bonds that reversed common spread relations. Shin noted that the "convenience spread" — the premise that a prize is paid to lend to the government — disappeared. This encouraged hedge funds to engage in relative value negotiations with interest rate swaps, signaling that the sovereign securities market has lost its premium quality of scarcity.

For ExpertFX School members, the message is extreme surveillance. When the "central bank" warns that gold is behaving as a speculative technology action and that we are in simultaneous bubble territory, the "buy at any price" strategy becomes dangerous. Gold remains a long-term strategic asset, but current behavior, driven by retail and speculation, suggests that the volatility ahead will be brutal.

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