Gold Prices Soar—Are We in a Bubble or Facing a New Reality?

Gold prices have surged sharply in recent months, reaching unprecedented historical levels. In April, the price of an ounce approached $3,500, triggering a wave of questions among investors and analysts: Has gold reached overvalued territory? Or are there strong underlying reasons justifying its continued rise? Are markets overpricing the yellow metal, or does it reflect a changing global economic reality?

Gold and the Break from Inflation: A Shift in Historical Behavior

Historically, gold has moved in tandem with inflation rates, often seen as a primary hedge against rising prices. It was also positively correlated with U.S. Treasury Inflation-Protected Securities (TIPS). However, recent data reveals a new phenomenon: the correlation between gold and TIPS has turned sharply negative, indicating a shift in the underlying drivers of gold demand.

This decoupling opens the door to two possible interpretations:

New Drivers Are Powering Gold's Rise

These include growing geopolitical tensions, rising levels of sovereign debt across the globe, and declining trust in the traditional financial system.

Gold May Be Overvalued

That is, current prices may not be supported by the same strong economic fundamentals as in the past.

Has Gold Exceeded Its Fair Value Compared to Production Costs?

One of the tools used to evaluate whether gold is overpriced is comparing its market price to the cost of production.

In 2025, the average cost to extract an ounce of gold is estimated at around $1,400, while market prices are hovering near $3,300 per ounce.

Although this spread appears large, it does not yet reach the extreme levels seen during the peak of previous gold bubbles—such as in the late 1970s or in 2011. This supports the idea that gold may not be in a bubble, but rather entering a new pricing phase that reflects a combination of scarcity and global risk.

Gold Now Represents 4% of Global Wealth—Is That Too High?

Global wealth data shows that gold now constitutes about 4% of total global wealth, a level not recorded in over a decade. While this figure may seem high compared to historical norms, today’s world is fundamentally different:

Eroding confidence in the U.S. dollar as the world’s reserve currency

A surge in central bank gold purchases, especially from emerging markets

Rising geopolitical risks and growing uncertainty about the future of the global financial system

In this context, this higher share could be viewed as the "new normal" for gold’s role in wealth management and investment strategy.

Gold Is No Longer Cheap—But It's Not a Bubble Either

Gold is certainly no longer the "cheap" asset it was a decade ago. However, there is little definitive evidence to suggest it is entering a price bubble like those seen in previous cycles.

In a world where risks are multiplying and confidence in monetary systems is waning, gold continues to hold its appeal as a rare, liquid, and relatively independent asset.

Thus, despite its elevated price, gold may be “expensive for good reason”—not overvalued.