Shocking Reading of the Gold Market: Cathie Wood Warns of Potential Bubble

SadaNews - The CEO of Ark Investment, Cathie Wood, has warned of increasing risks in the gold market, considering that current indicators may reflect the yellow metal reaching historically inflated levels, raising concerns of a potential price bubble.

Wood stated in a post on the "X" platform two days ago that the market value of gold compared to the U.S. money supply (M2) has reached its highest level ever, surpassing the peak it reached in 1980, a period characterized by record-high inflation rates and interest rates.

Worrying Comparison with the Great Depression

Wood pointed out that the most concerning aspect is that the ratio of gold to M2 has reached the same levels recorded during the Great Depression in 1934. At that historical moment, the value of the dollar against gold fell by about 70% on January 31, 1934, while a prohibition on private ownership of gold was imposed, coinciding with a sharp collapse in the U.S. money supply.

Will the Historical Scenario Repeat Itself?

Despite these comparisons, Wood asserts that the current U.S. economy does not resemble the economy of the 1970s, which suffered from double-digit inflation, nor the economy of the 1930s, which experienced a severe contraction. She believes that the economic context today is different, making the outright repetition of the historical scenario uncertain.

The Dollar Remains Resilient

Regarding the strength of the dollar, Wood clarified that although foreign central banks have been diversifying their reserves away from the dollar for years, U.S. Treasury yields for 10-year bonds peaked at 5% in late 2023 before currently declining to about 4.2%, reflecting the relative strength of the dollar.

Do Sharp Price Increases Indicate the End of the Cycle?

Wood points out that the skyrocketing increases in asset prices often push them to levels that exceed investors' expectations, but she confirms that such unprecedented moves usually indicate the nearing end of the economic cycle.

Cathie Wood concludes that the potential bubble today is not in the artificial intelligence sector, but in the gold market. She believes that any further increase in the value of the dollar could be the spark that ignites this bubble, similar to what happened between 1980 and 2000, when the price of gold fell by more than 60%.