Gold surge sees shift to speculative asset from haven, BIS says

Retail investors drove the recent gold price surge, pushing bullion out of its traditional safe haven pattern to a more speculative asset, according to the Bank for International Settlements.

While the rally may have been stoked by institutional traders seeking safe haven exposure amid growing doubts about stretched equity valuations, there’s evidence that it was amplified by retail investors trying to take advantage. That prompted a shift away from usual patterns, the Basel-based institution said Monday in its quarterly report on market developments.

“The price of gold rose along with other risky assets, deviating from the historic pattern of acting as a safe haven,” Hyun Song Shin, head of the BIS’s Monetary and Economic Department, told reporters in Basel. “Gold has become much more of a speculative asset.”

Bullion has climbed about 20% since the beginning of September, when the institution’s review period started. Based on portfolio flow data, that gain was partly due to “trend-chasing investors” trying to take advantage of the “media hype” around gold, according to the BIS.

The advance came as expectations of interest rate cuts fueled risk-taking and eased concerns about an economic slowdown, the BIS said. Equity markets continued the rally from the lows reached after US President Donald Trump’s tariff announcements in April. Technology and specifically Artificial Intelligence-related stocks drove the gains, but there was growing unease on stretched valuations.

The BIS said that the past few quarters are the only time in at least the last 50 years in which gold and equities have entered what it calls “explosive territory” simultaneously.

“Following its explosive phase, a bubble typically bursts with a sharp and swift correction,” the BIS said. It cited the case of gold in 1980, but noted that corrections take place over variable and potentially long time frames.

After repeated warnings of strained fiscal budgets around the world, the institution also noted that several advanced economies issued a “hefty” amount of debt from September to November. A resulting abundance of government bonds led to common spread relationships turning around, encouraging hedge funds to engage in relative value trades with interest rate swaps.

“It was assumed that you pay extra for lending to a government — that’s what’s called the convenience spread,” said Shin. “The convenience spread is no longer there.”

(By Bastian Benrath-Wright)