As gold continues its rise during this bull market investors get concerned about the possibility of being in a bubble, and rightfully so.  Many people lost considerable amounts of money during the dot.com and real estate bubbles in the last 11 years.  Not to mention the “talking heads” of financial and news networks love to speculate on gold being in a bubble.

The funny thing is many analysts have been saying we have been in a bubble for years, but that is obviously not come to fruition, it is mere speculation.  It is difficult for anyone to call the top of any market when in the middle of it.

In order to determine for yourself if we are experiencing a bubble in gold you must first understand how bull markets work.  Typically bull markets will have three phases (click on three phases to learn about them in detail).  We are currently by expert accounts in the second phase.  The third and final phase is when panic buying begins, creates a blow off top or “bubble” and then a correction to fundamental values.

The chart below depicts previous bull markets in gold and the NASDAQ, and compares that performance to the current bull market.

In the chart above it becomes glaringly obvious that no “top” has formed as of yet, though it does seem that we should be getting close to hitting that third and final phase.  So it boggles my mind when people and so called experts say that we are experiencing a bubble when all you need to do is look at data and history to see that gold’s rise has been mediocre at best.

I believe that we will see much higher values from here, in fact just to equal the percentage gain from the last bull market in gold (roughly 2,400%), gold would need to rise to just over $6,000 per ounce (from $252 per ounce).  When it gets there I think we can begin to speculate that a top may be forming, but even then other variables will come into play.  If the dollar continues to lose value at a more rapid pace, it is possible that we could see much higher values in gold than $6,000 per ounce.  Time will only tell, enjoy the ride.