Cathie Wood Warns of Gold Bubble After $9 Trillion Market Reversal

TLDR

• Gold-to-M2 ratio hit record highs, exceeding levels from 1934 and 1980.
• $9 trillion in market value moved across assets within 6.5 hours.
• Gold dropped 8% intraday, silver fell 12%, then both recovered sharply.
• CME raised the gold margin by 47% as 100x-leveraged trades unraveled.

A massive $9 trillion in market value surged and sank within hours, sending shockwaves through metals and equities alike. Gold plunged nearly 8% before rebounding, and Cathie Wood says this violent swing is a warning sign.

The ARK Invest CEO believes the gold market is now in bubble territory. She cites its valuation against U.S. money supply (M2), which has hit levels unseen since 1934, suggesting a top may be in.

Gold Valuation Reaches Historic Extremes

Cathie Wood flagged gold’s current valuation as “out of line with macro reality.” She pointed to a record-setting ratio between gold’s market cap and M2 money supply. “Odds are high that the gold price is heading for a fall,” Wood said in a post on X. She added that the ratio is now higher than during the 1980 inflation crisis and the Great Depression in 1934.

According to her, the data implies extreme sentiment that does not align with current U.S. economic fundamentals. Unlike the past, inflation is contained, and Treasury yields have retreated from 2023 highs. Wood warned that a rebound in the U.S. dollar could trigger a sharp decline in gold. From 1980 to 2000, gold lost more than 60% as the dollar strengthened.

Rapid Unwind Across Assets in One Session

On the same trading day, gold prices dropped nearly 8%, slashing about $3 trillion in market cap before recovering roughly $2 trillion. Silver followed, falling over 12% and then regaining about $500 billion.

Equities also suffered. The S&P 500 and Nasdaq lost more than $1 trillion intraday after Microsoft dropped nearly 12% due to weaker cloud guidance and removal from a major buy list.

By the close, stocks recovered most of the losses, adding to the intraday whipsaw. Altogether, around $9 trillion moved across gold, silver, and U.S. equities in just six and a half hours.

Leverage and Margin Pressure Drove the Crash

Analysts attributed the turmoil not to new economic data, but to leveraged positioning. Futures traders had piled into gold and silver using leverage as high as 100x. Once prices dipped, forced liquidations and margin calls triggered further selling. 

The CME responded by raising margin requirements on gold futures by up to 47%, increasing pressure on traders to unwind. Market watchers described the event as a “balance-sheet reset.” With crowded trades and thin liquidity, price discovery failed, causing sharp price gaps instead of gradual moves.

Analysts Dispute Gold Bubble Narrative

Some market analysts challenged Wood’s framework. They argue that the gold-to-M2 ratio is outdated in today’s digital, post-quantitative easing financial system. Robin Brooks, a former IMF economist, dismissed the idea that central bank buying is behind the gold rally. “The share of gold in central bank reserves is going up because the price is rising,” he posted.

Brooks added that many analysts are mistaking price-driven charts for evidence of real demand. IMF data, he said, does not show a surge in gold holdings by central banks. Wood, however, stood by her analysis. “In our view, the bubble today is not in AI, but in gold,” she wrote, warning of parallels to past boom-bust cycles in commodities.

Markets Brace for More Volatility

With the dollar showing signs of strengthening and interest rates stabilizing, investors are watching closely for more unwinding. Analysts say the selloff revealed the fragility of markets fueled by leverage and crowded trades. 

Junior miners are seeing renewed interest, while banks and asset managers benefit from trading volumes. For now, the gold rally continues to attract attention, but many now question how long it can last at current valuations.

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