Gold prices were fractionally higher Wednesday morning as Wells Fargo cautioned investors that the precious metal is a speculative bubble that is poised to burst.
Gold exchange traded funds such as the $72.4 billion SPDR Gold Shares (NYSEArca: GLD) have risen about 25% so far this year.
“We have seen the economic damage” of past bubbles and “feel compelled to ring the warning bells,” Wells Fargo analysts said in a note, according to a Bloomberg report.
Gold prices seem to moving toward a retest of $1,800 an ounce after a margin hike took some of the wind from the sails. [Gold ETFs on the Move]
“There could be substantial risk to gold once the fear that the world is coming to an end subsides,” Wells Fargo analyst Dean Junkans told Bloomberg. “We are worried about the downward risk.”
Holdings in exchange traded products backed by gold rose to a record 2,217 tons on Aug. 8, according to the report. [Soros Again Trims Gold ETF Holdings; Paulson Lets It Ride]
In terms of assets, the gold ETF has been gaining ground on SPDR S&P 500 (NYSEArca: SPY), which is the largest ETF with $78.6 billion.
SPDR Gold Shares
Full disclosure: Tom Lydon’s clients own GLD.