WHAT are the preconditions for a bubble? Perhaps there are four: easy credit conditions, a significant trend-breaking event, the lack of plausible valuation measures and an appealing story.

Gold fulfils most of these conditions. One can argue about the credit conditions; lending is still weak but crucially interest rates are low. That helps given that gold has no yield; in effect, the opportunity cost of holding gold has disappeared. The event that changed minds was the credit crunch, which caused a partial loss of faith in banks. Gold has no valuation issues (no yield or earnings); since people hold it as a store of value, it can be worth whatever they want it to be worth. And it has a plausible backstory; spendthrift governments are monetising their deficits like the Weimar Republic before them

I argued in last week's column that the strength of gold was tied up with fears of turmoil in the currency markets. Indeed, gold seems to have a very strong negative correlation with the dollar at the moment. Since the dollar is also negatively correlated with the stockmarket, that implies an end to the recent rally would sabotage bullion as well.

But whereas one can say, based on historic valuation measures, that Wall Street is currently 40% overvalued, one can make no such bold statement on gold. The next stage of a bubble would be broad-based public interest. In Britain, we have TV adverts inviting people to sell their gold by post (nothing could go wrong with that transaction).  Perhaps we will have TV programmes focusing on commodities - bullion, bullion, bullion instead of location, location, location. We will all be buying safes to store our ingots in the back bedroom. It could happen.