Illustrative Image: Graph | United States of America Flag. (Image: Freepik) | Gold bars. (Image: Istock) | (By Daniella Lee Ming Yesca) 
The price of gold, it seems safe to say, will breach the $5,000 an ounce mark sooner rather than later, while the sky seems to be the limit for US and more broadly global equities.
But gold, a traditional “safe haven”, and equities usually do not scale lofty heights in tandem. If both are on the brink of a bubble, this double-barrelled blast will spray pellets across the global economy and retail investors will bear the brunt.
Last month, the Bank for International Settlements (BIS) published an analysis in its quarterly bulletin warning that the signals of gold and equities bubbles – difficult to forecast but easy to trace with the benefit of hindsight – were potentially taking shape.
“Throughout the recent market rally, US equities and gold surged in lockstep. The sharp price increases of both assets and their growing presence on the radar screens of non-specialised media have attracted substantial investment flows from retail investors and sparked a debate over the possibility of asset price bubbles,” the authors write.
Pointedly, the paper notes that this is the first time in 50 years that gold and the S&P 500 have simultaneously displayed what the authors call “explosive behaviour”.
And one of the potential sparks for an explosion – or the bursting of an asset price bubble – has been the stampede by retail investors.
“A typical symptom of a developing bubble is the growing influence of retail investors trying to chase price trends. At times of media hype and surging prices, retail investors can be lured to riskier assets that they would normally shun, compounded by herd-like behaviour, social interactions and fear of missing out,” the paper says.
“This time around, there is also evidence that retail investor exuberance and appetite for seemingly easy capital gains have spilled over to a traditional safe haven such as gold.”
Fund flow data
Indeed, fund flow data according to the paper reveals that it is mostly retail investors of late who have been piling into gold and US equities – a trend that goes against the grain of institutional investors, which have been selling off US stocks and maintaining flat positions in the precious metal.
“Although the influx of retail investors has mitigated the impact of institutional investor outflows, their growing prominence could threaten market stability down the road, given their propensity to engage in herd-like behaviour, amplifying price gyrations should fire sales occur,” the paper warns.
Retail investors are non-professionals who invest their own money in stocks and other asset classes, and their numbers have been surging since the Covid-19 pandemic, including on the JSE. This means that, if a bubble bursts, the size of the group displaying “herd-like behaviour” will be much larger than was the case in past corrections.
The price performance of gold and equities has certainly been glowing, and the twin bull runs have had many red rags to charge.
Three years ago, the gold price was under $2,000 an ounce. This week it has reached new record highs above $4,600 an ounce, with the Trump administration’s targeting of Fed Chair Jerome Powell in a ludicrous criminal probe its latest lubricant.
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As a “safe haven”, Donald Trump’s erratic and dangerous behaviour and policies – adding fuel to the fires of combustible geopolitical tensions and fanning the smoke clouds of economic uncertainty – have been like manna from heaven for gold bulls.
With madness galore still to come from the nuthouse that is the White House, gold’s price could well have plenty of turmoil to maintain its red-hot rally. But at such elevated levels, sanity could eventually prevail amid the lunacy.
And retail investors, while they may potentially suffer the heaviest losses – pain that will be inflicted on individuals and households – will hardly be alone when and if the excrement hits the air conditioning.
Another key underpin of gold’s price in recent years has been central bank demand, notably in emerging markets keen to reduce their dependence on the greenback. A sharp correction in the gold price would blow gaping holes in the reserves and balance sheets of many central banks.
Dot-com bubble
On the equities front, AI and chip makers have accounted for much of the froth – evoking for some the dot-com bubble of 2000.
But other close market watchers and players maintain that we have only seen the tip of the AI iceberg when it comes to its earnings potential on a range of fronts.
“We believe that AI tools will dramatically improve human productivity and pump up corporate profit margins,” the astute Paul Theron of Vestact wrote in his annual letter to clients this week.
“What’s our outlook for 2026? In a word, good. While we are positive, we don’t really know what will happen next. The average forecast from the ‘professionals’ is usually a 10% gain per year, but, in fact, average returns are extremely rare. Volatility is quite normal.”
Read more: 2026 brings fewer tailwinds and tougher choices for SA investors
With gold and equities soaring together in the age of Trump, volatility can certainly be expected. And if bubbles are forming, investors who have been in for the long run will be less exposed to the potential fallout than those who are still piling in.
Retail investors especially just need to be wary and not act like a herd of panicked herbivores if the bears emerge from the bush. DM