Gold Bubble To Burst When Rates Rise: Wealth Manager

Wednesday, 16 Mar 2011 | 4:49 AM ET

Gold is currently in a bubble and investors need to apply some common sense when trading it, as it will likely fall on interest rate tightening, according to Yogi Dewan, the Founder and CEO of Hassium Asset Management.

Jose Luis Pelaez | Iconica | Getty Images

“Back in the 1990s gold traded at $400 an ounce. It hit $253 in 2001 and is now trading at $1,400 an ounce,” Dewan told CNBC.com on Wednesday.

“This is a bubble and a fear trade,” he said. “As soon as the recovery takes hold and the interest-rate cycle changes you will see mass outflows from gold into riskier assets.”

When this happens, gold will head back towards $1,000 an ounce, he said.

The timing of this move is dependent on when rates, in particular US rates, begin to rise, he added.

He also expressed concern over the price of silver, but it is less worrisome due to industrial demand for the metal.

“Silver is also in a bubble but at least it has an industrial use. We prefer platinum and palladium,” Dewan said.

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