The Bank for International Settlements (BIS), the central bank of central banks globally, warns in its December 2025 Quarterly Review that a rare, simultaneous bubble in the price of stocks and gold has increased financial risks and the prospect of a significant correction and negative or subdued future returns:

A widely used statistical test to detect the explosiveness of a price process suggests that both the S&P 500 and the price of gold have entered explosive territory in recent months. Historically, the prices of US equities and gold have breached the explosive behaviour threshold at different times (Graph C1.A, on lower left).

This was often followed by a significant correction, such as in 1980 for gold (after having surged during the Great Inflation) and the burst of the dotcom bubble for US equities… Also note that the past few quarters represent the only time in at least the last 50 years in which gold and equities have entered this territory simultaneously.

Following its explosive phase, a bubble typically bursts with a sharp and swift correction. Graph C1.B (lower right) suggests that high values of the test statistics – hinting at an ongoing bubble – are typically followed by periods of negative or subdued returns.

In other words, we are living through a pandemic of financial fever, and those who believe they are protected by holding a ‘diversified’ portfolio of corporate securities and precious metals are at high risk of being disappointed.

Moreover, retail exuberance is a classic bubble symptom, and we are there:

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. Indeed, measures of retail investors’ interest in markets, such as internet searches, tend to surge at times of frothiness (Graph C2.A, on lower left).

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. Since the beginning of 2025, gold exchange-traded fund (ETF) prices have been consistently trading at a premium relative to their net asset value (NAV) amid growing retail investor interest (Graph C2.B, blue line, middle, below). ETF prices exceeding their NAV signal strong buying pressure coupled with impediments to arbitrage.

Fund flow data reveal it was mostly retail investors who recently poured money into US equities and gold funds. Furthermore, retail investors have increasingly taken trading positions that run counter to those of their institutional counterparts: the latter were taking money out of US equities or maintaining flat positions in gold, while retail investors recorded inflows (Graph C2.C, lower right).

 

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.