Is a Gold Asset Bubble Forming?

As gold prices continue to head north of $1,200 an ounce, some investors are starting to get a little jittery about the possibility of a gold bubble as investors blindly rush to get into gold and out of the U.S. dollar. Indeed, there are some who contend that the real place to be right now is silver -- gold is just too hot.

And the fact that gold is so hot is one of the subjects of a warning issued by the vice governor of the People's Bank of China, Hu Xiaolian. He warns that gold might be forming an asset bubble right now. An asset bubble that could burst at any time.

But is China really interested in staving off a gold bubble for the good of the world? With China diversifying its investments over the past year, the indications might be that there is something else at work. The Street reports on some of the rumors concerning China's motives for the warning:

It was recently rumored that China could be a buyer of the remaining 200 tons of gold from the IMF. Some analysts speculate that perhaps China is trying to bring gold prices down to more attractive buying levels. However, Jon Nadler, senior analyst at Kitco.com, argues that "central banks in general look at foreign reserve management as an ongoing policy.... Price is really not an issue, it's a percentage issue."

No matter the reason that China issued the warning, though, it is sound. Something that is gaining in value this fast really is in danger of turning into a bubble.