people are buying gold and they don't understand why they are bu

Gold a 'bubble that could deflate,' says analyst

Sat Aug 20, 2011 6:53am GMT

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KOVALAM, India Aug 20 (Reuters) - Record gold prices may be heading for a correction of about 8 percent next month, but the safe-haven metal may also rally to $2,400 an ounce next year as investors seek refuge amid global economic turmoil, a global head at INTL FCStone on Saturday. 

"Trees don't grow till heaven. I think buyers need to be beware. we are in a 'caveat emptor' market," said Jeffrey Rhodes, global head of precious metals at the brokerage and an industry expert, told reporters at a conference on gold in the southern Indian state of Kerala.

International gold struck a record of $1,877 an ounce on Friday, still on track for its biggest one-month rise in nearly 12 years in August and its biggest one-week gain since early 2009.

Rhodes said gold may retrace to $1,725 by next month, and then race ahead.

"My problem is that people are buying gold and they don't understand why they are buying gold and that's a big problem and that is a classic symptom of a bubble," said Rhodes.

Rhodes said there is an absence of "real motivation" for investors to cash in their gold holdings to cover losses from the equity markets.

On Friday, global equity markets slid anew and gold set a second-straight record high as fears of a possible U.S. slide into recession and concerns related to Europe's debt crisis kept investors on edge. (Reporting by Siddesh Mayenkar, editing by Miral Fahmy)