Gold Price Bubble – Will Gold keep rising fast?

You probably think gold is in a gold price bubble. After all, it hit new highs in dollars, pounds and euros this week – and has pretty much quintupled since its lows of 2001.

What's more, everyone from Germany to China is still nuts for it. Earlier in the week, the FT reported that the Germans have been snapping up coins and gold bars faster than they did even in the aftermath of the Lehman Brothers' collapse. In the UAE, you can buy bars direct from a vending machine. At Harrods, you can pick up a variety of gold coins over the counter. And – as the gold bears are keen to point out – you can see ads for the purchase of gold all over TV.

But look at the actual price of gold and it is hard to see real evidence of a gold bubble. Gold may have hit new highs in nominal terms, but it hasn't come close to hitting its old highs in real terms. Adjust the 1980 high of $850 for US inflation and you get a price of around $2,400 – a level only the most bullish are predicting even now.

Then look to the last few years. The bears would have you believe that the gold price has somehow gone "parabolic". But, in fact, the price in US dollars has only risen around 25% in the last two years.   Read more