The Biggest Bubble - Gold Or Government Securities?

There are many articles and stories talking about the gold bubble and the end of the bull run for the precious metal. I have a very simple chart to demonstrate where the real bubble exists. 

In general, any asset class in a bubble phase will witness huge interest by all categories of investors. Hence, the asset classes share of total potential investment is significantly higher in a bubble phase. 

The chart below gives the outstanding amounts of marketable potentially safe assets. The total amount of such assets globally is $74.4 trillion.

Outstanding amount of marketable potentially safe assets (April 2012)

As evident from the chart, gold constitutes only 11% of the total outstanding amount of potentially safe assets. On the other hand, AAA/AA/A/BBB OECD Government Securities constitute 52% of the total amount outstanding in potentially safe assets. 

I have to add here that Government securities are still perceived as potentially safe assets. However, continuous default through returns in a depreciated currency does not make it a safe asset anymore (in my opinion). 

Therefore, the real bubble and the biggest bubble exist in government bonds and not gold. With the environment of accommodative monetary policies to continue, I would personally look at buying more gold on any correction and ignoring the calls on gold bubble.


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