Is Gold Market Is a ‘Bubble Poised to Burst’?

Bloomberg reports that speculative demand from investors has pushed the gold market into a “bubble that is poised to burst” after prices surged to a record this year, Wells Fargo & Co. said. “We have seen the economic damage” of past bubbles and “feel compelled to ring the warning bells,” Wells Fargo analysts led by Dean Junkans said in a report dated yesterday and e-mailed today.

Gold futures have advanced 26 percent this year, following 10 straight annual gains. The price reached a record $1,817.60 an ounce on Aug. 11 on demand for an investment haven as European and U.S. sovereign-debt woes escalated.

“There could be substantial risk to gold once the fear that the world is coming to an end subsides,” Junkans said in a telephone interview from Minneapolis. “We are worried about the downward risk.”

We'd be less than forthcoming if we didn't note that George Soros and Eric Mindich cut their holdings in the SPDR Gold Trust, an exchange-traded fund, in the second quarter as prices rallied, while billionaire John Paulson maintained the largest stake, a filing with the U.S. Securities and Exchange Commission showed yesterday.

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