A Gold Bubble?

In this paper we use a test developed by Phillips et al. (2011) to identify a bubble in the gold market. We find that the price of gold followed an explosive price process between 2002 and 2012 interrupted only briefly by the subprime crisis in 2008. We also provide a theoretical foundation for such bubble tests based on a behavioural model of heterogeneous agents and demonstrate that periods of explosive price behaviour are consistent with increased chartist activity in the gold market. The identification strategy yields economically intuitive results and is a simple alternative to using more complex estimation techniques commonly used in the heterogeneous agents literature.