(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, Oct 14 (Reuters) - Some investors may be buying

gold to dodge the next bubble, whether that be overheated tech

stocks, rising government debt or even elevated inflation. But

what if the scramble for gold itself is the real bubble?

The 56% rise in gold so far this year has been

remarkable mainly because it's coincided with a steep rebound in

U.S. and global stocks since April.

Global trade fears and geopolitical risks may reasonably

have explained the surge in demand for physical gold as a safe

haven or diversification tool immediately following Donald

Trump's return to the White House in January. But the bullion

boom has continued even as stock markets have recovered sharply

from the April lows and uncertainty gauges have eased somewhat.

To be sure, lax global fiscal and monetary policies -

including threats to the independence of the Federal Reserve and

other central banks - have also boosted global inflation

concerns, weighing on real interest rates and flattering the

zero-yielding precious metal.

And there's the fairly open desire of the Trump

administration to weaken what it sees as an overvalued dollar.

But determining whether a gold rally has gone too far is tricky.

Unlike stock valuations, which are pretty straightforward,

there's no consensus view on how to value gold.

So gold has more than doubled in five years and is up over

250% in the past decade. When is that too much?

What's not in doubt is that almost everyone still appears

bullish - the sort of behavior often associated with bubbles.

And that fact alone may be a good reason for investors to be

skeptical about what happens next.

Even as gold has clocked a new record of $4,100 per ounce

this week, Goldman Sachs expects another 20% rise by the end of

next year, Societe Generale sees gold's ascent to $5,000 as

"increasingly inevitable," and JPMorgan's team says its long

gold position is one of its "strongest conviction cross-asset

views".

But if everyone is loading up on gold and its gains

correlating with high-octane stocks, you may reasonably start to

be wary of its diversification properties. Could gold still

perform if equities went into tailspin for some reason?

PEAK 'TRENDINESS'?

Without accepted valuation metrics, just like all

commodities, the thrust of the bullish forecasting rests on

supply and demand.

And this is driven by continued buying of the metal by

diversifying central banks and exchange-traded gold funds that

are drawing more mainstream investors seeking more varied hedges

than increasingly worrisome long-term government bonds.

As central bank demand appears more structural and

steady-paced, forecasters continue to factor it in going forward

even as prices race higher in anticipation. What's not clear is

where that demand ends.

Private investor demand is more puzzling. While global asset

managers polled by Bank of America every month saw "long gold"

as the second most crowded trade in September after U.S. megacap

tech stocks, more than a third had no gold positioning at all

and the weighted average allocation of those who did was just

4.2%.

And yet, three things about the parabolic rise in gold

prices are starting to gnaw at the edges - the sheer speed of

the move, a creeping disconnect from uncertainty gauges and a

detachment from relative real interest rates and the dollar.

JPMorgan points out that gold's recent surge has outpaced

what would typically be implied by falling one-year real

interest rates - based on the idea that lower real returns in

other "safe" assets make gold a more attractive alternative.

It thinks that gap can be explained by the physical demand

argument and suggests buying any real-rate-related pullback.

But both JPMorgan and HSBC do raise a flag about what

happens if the presumed Fed terminal interest rate for this

current cycle were to creep higher.

As inflation expectations tick higher, the gold surge last

quarter comes as the market's implied Fed terminal rate fell

almost 50 basis points over the three months to less than 2.9%.

But that's ticked higher in recent weeks - helping the dollar -

and aided by political surprises in Japan and France.

Notwithstanding last Friday's U.S.-China trade jolt,

economic policy and geopolitical uncertainty indices have also

fallen since midyear. But gold has barely paused for breath.

HSBC says an easing of global military or trade tensions through

next year could eventually be a drag on prices.

And it's likely the momentum and technical price picture of

the latest move could trip it up even sooner.

Deutsche Bank's team say September-October may have seen a

"peak in trendiness" - where their indicators show prices

exceeding trends for far longer than average.

No one wants to call a top, it's true. But they're all

watching out for a slippery slope too.

The opinions expressed here are those of the author, a

columnist for Reuters

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