The financial markets are flashing warning signs that most retail investors are either ignoring or interpreting as validation of their strategies.
The Bank for International Settlements, often called the “central bank of central banks,” issued a rare and pointed warning in its December 2025 Quarterly Review about simultaneous bubble formation in both gold and equities, a phenomenon driven predominantly by retail investor behavior that has fundamentally transformed market dynamics over the past several years.
Everyday traders have cemented their position as a dominant force through persistent dip-buying during corrections, aggressive momentum chasing during rallies, and FOMO-driven behavior that pushes assets higher regardless of fundamental valuations.
This retail dominance has created price dynamics that often override traditional institutional caution and historical market relationships that previously governed asset behavior during different economic regimes.
What makes current conditions particularly concerning is that price behavior in both gold and equities is now exhibiting statistical properties consistent with past bubbles according to BIS analysis, the kind of explosive acceleration that preceded the 1980 gold crash during the Great Inflation and the 2000 dotcom burst that destroyed trillions in market value.
Table of Contents
- The Bank for International Settlements (BIS) warns that gold and equities are simultaneously in bubble-like “explosive behavior” territory, something not seen in at least five decades.
- Retail investors are the primary force behind the surge, driving prices through constant dip-buying, momentum chasing, and FOMO rather than fundamentals.
- Gold has rallied about 60% in 2025 and over 150% since 2022, shifting from an inflation/geopolitics hedge to a largely speculative trade.
- Institutional investors are de-risking, scaling back US equity exposure and keeping gold positions flat, while retail flows continue to push valuations higher.
- Gold is no longer acting as a safe haven and is moving in tandem with risky assets, raising the risk that both gold and equities could correct sharply together, leaving retail portfolios highly vulnerable.
- Who is this for?
- Retail investors aggressively adding exposure to gold and equities, and institutional investors that are trimming risk or holding back from the rally.
- What is happening?
- A BIS-identified phase of simultaneous speculative bubbles in gold and equity markets, driven by “explosive” price dynamics and retail speculation rather than underlying fundamentals.
- When is this happening?
- The pattern has emerged over the past few quarters and throughout 2025, with record gold prices and strong AI-fueled equity gains pushing valuations to stretched levels.
- Where is this happening?
- Across global gold markets and major equity indices, particularly US benchmarks such as the S&P 500 and Nasdaq, led by Big Tech and AI-related stocks.
- Why does it matter?
- Persistent retail FOMO, momentum-chasing, and premium pricing in instruments like gold ETFs—paired with stretched equity valuations—have created late-cycle, bubble-like conditions and elevated crash risk for retail-heavy portfolios.
The Explosive Behavior Data Showing Bubble Formation
The BIS employs rigorous statistical methodology rather than subjective valuation assessments to identify bubble conditions. Their approach uses unit root tests that detect “explosive behavior” by examining whether underlying data-generating processes exhibit non-stationarity with roots above unity.
What makes the current situation historically unprecedented is simultaneity rather than just magnitude.
The BIS analysis explicitly states that “the past few quarters represent the only time in at least the last 50 years in which gold and equities entered this explosive territory simultaneously” according to reporting from SwissInfo and Nation Thailand covering the December 2025 Quarterly Review.
Historically, these assets breached explosive thresholds at completely different times. Gold during the 1980 Great Inflation when inflation fears and geopolitical crisis drove safe-haven demand, and equities during the 2000 dotcom bubble when technology optimism created valuations disconnected from earnings reality.
Gold prices rose approximately 60% during 2025, marking the best annual performance since 1979 according to FastBull analysis of BIS data. The metal hit a record high of $4,381 per troy ounce in October 2025 before slight correction brought prices back toward $4,200.
Zooming out to longer timeframes shows even more dramatic appreciation, with gold surging more than 150% since 2022, which is a move initially justified by inflation concerns and geopolitical tensions but recently driven increasingly by speculation rather than defensive positioning.
At the same time, the equity market surge concentrates heavily in technology stocks riding the artificial intelligence boom, with the S&P 500 up 17% and Nasdaq climbing 22% as Big Tech valuations expand on AI revenue hopes.
Gold and US Equity Performance Snapshot (2025)
| Asset / Metric | 2025 Change |
|---|---|
| Gold price (US$/oz) | ≈ +60% in 2025; record high around $4,381/oz in Oct 2025 |
| Gold behavior vs past cycles | Trades more like a risk asset; correlation with equities has increased |
| S&P 500 | ≈ +17% YTD 2025, driven largely by Big Tech and AI names |
| Nasdaq Composite | ≈ +22% YTD 2025, led by large-cap technology and AI-related stocks |
| Bubble signal window (BIS) | Past few quarters in 2025 flagged as “explosive behavior” for both gold and equities |
Yet the BIS warns explicitly that these gains have “raised concerns about stretched valuations and the risks a price correction would entail for broader stock markets and the economy” according to CTV News coverage of the report.
This language from an institution known for measured assessment represents serious concern about systemic vulnerability rather than routine cautionary notes.
How Retail Investors Are Driving the Bubble
The most revealing aspect of current market dynamics emerges from examining who is actually buying these expensive assets versus who is stepping back. The inflow divergence between retail and institutional behavior creates a classic late-cycle pattern where sophisticated money reduces exposure while less experienced investors aggressively add to positions near peaks.
The BIS highlights that retail investors have been “piling in” to both gold and equity markets, with gold ETFs consistently trading at premiums to their net asset value according to Discovery Alert coverage of the BIS analysis.
This premium signals “strong buying pressure coupled with impediments to arbitrage“, creating the kind of premium that historically characterizes retail-driven speculative bubbles rather than fundamental appreciation.
While retail investors accounted for the bulk of inflows into gold and US equity funds over the past three months, institutional investors have been scaling back US stock holdings and keeping gold exposure essentially flat rather than chasing the rally. This divergence creates the classic pattern where retail enthusiasm drives prices higher just as institutional capital that typically provides stability and liquidity begins reducing exposure in anticipation of eventual corrections.
Perhaps most troubling is how completely gold has abandoned its historical safe-haven characteristics during this rally.
Hyun Song Shin, the BIS Economic Adviser, stated explicitly that “the price of gold rose along with other risky assets, deviating from the historic pattern of acting as a safe haven” according to reporting from SwissInfo and Global Banking & Finance Review.
He concluded bluntly that “gold has become much more of a speculative asset” rather than the portfolio insurance it traditionally provided during equity market stress.
This transformation in gold’s behavior represents a fundamental break from the asset’s role in diversified portfolios.
When gold rallies alongside equities, technology stocks, and other risk assets rather than providing offsetting returns during market stress, it loses the diversification benefits that justified its allocation in the first place. Investors holding gold expecting it to protect portfolios during the next equity correction may discover too late that both assets decline together when sentiment shifts, eliminating the hedging properties they assumed they owned.
The retail-driven nature of this dual bubble creates particular vulnerability because retail investors historically demonstrate the weakest hands during corrections, selling aggressively during declines and amplifying volatility in ways that institutional stabilization mechanisms struggle to offset.
When both gold and equities rely on continued retail enthusiasm to maintain elevated prices, and those retail flows show classic momentum-chasing and FOMO characteristics rather than fundamental conviction, the setup resembles previous bubbles where eventual reversals proved swift and severe once sentiment shifted.
