Retail investors drove the latest rise in gold prices, pushing bullion out of its traditional safe haven pattern to a more speculative asset, the Bank of International Settlements said Monday in its quarterly report on market developments.
While the rally may have begun from institutional traders seeking safe haven exposure as doubts rose about stretched equity valuations, BIS pointed to evidence that it was amplified by retail investors trying to take advantage, which prompted a shift away from usual safe-haven patterns.
"Gold has become much more of a speculative asset," Hyun Song Shin, head of the BIS Monetary and Economic Department, told Bloomberg.
BIS said the past few quarters are the only time in at least the last 50 years in which gold and equities have entered "explosive territory" simultaneously.
"Following its explosive phase, a bubble typically bursts with a sharp and swift correction," BIS wrote, pointing to the case of gold in 1980, while also noting that corrections can occur over variable and potentially long time frames.
Gold and silver futures fell Monday as bond yields moved higher, ahead of the U.S. Federal Reserve's near-certain rate reduction for cues on monetary policy next year.
"The market is waiting for the Fed decision and for more guidance on policy," Zaner Metals senior metals strategist Peter Grant said in a note, adding that gold remains attractive as fundamentals stay strong and central bank buying continues, with a move toward $5,000/oz in mext year's Q1 within reach.
Front-month Comex gold (XAUUSD:CUR) for December delivery closed -0.6% to $4,187.20/oz, snapping a three-session winning streak, and front-month Comex December silver (XAGUSD:CUR) ended -1.1% to $57.779/oz, its fourth loss in five sessions.
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