Bubble Watch: China's Demand for Gold Pushes Prices Even Higher

Despite repeated warnings of a "gold bubble," record gold prices have acted as a catalyst for investors to enter the gold market.

Indeed, the words "gold bubble" are on the tips of many investors' tongues, and despite the implications of such a bubble, there's been surprisingly little slow-down in gold investments.

Are investors being dense, or do they prefer to walk the line, risking higher returns and the chance to pull out before the industry bubble implodes? All signs suggest the latter.

Gold has dipped below its record high of over $1,900/oz last week down to $1,820. Such dips only seem to excite investors, who see it as a chance to buy in at discounted prices.

Adding fuel to the fire, J.P Morgan has predicted gold will hit at least $2,500 an ounce by the end of the year.

In China, gold sales have been booming in the traditionally slow month of August, up 30% from a year ago.

"The attitude of Chinese consumers -- expected to soon overtake Indians as the world's top buyers of gold -- will be an important influence on longer-term trends." (via Reuters)

"More investors are moving into paper gold because of the lower capital costs. The prospect of making big and quick bucks by betting on gold's ascent is beginning to look like a fairly easy way to make money," gold analyst He Wei reported to Reuters.

For contrarians, investors who tend to go against the crowd, this extreme optimism is flashing warning signals so strong they could induce seizures. Contrarians feel that this enthusiasm is artificially inflating the price of gold, and once investors start to calm down, prices could plunge.

Authorities are already trying to combat potential side effects of a gold bubble burst. Reuters reports on the Chinese gold market, "Investors buying gold swaps and forwards generally do so on margin, putting up only a part of the money themselves -- potentially setting themselves up for much bigger losses should the market turn sour."

In response, the Shanghai Gold Exchange (SGE), which has been experienced a surge of volume in their gold derivatives market, "raised margin requirements twice this month to 12 percent."

Yet bubbles can go on for a very long time, so it may be a while before gold reverses its rapid gains. For that reason, it might be worth keeping an eye on the market leaders in the gold industry. After all, their direction can become a good leading indicator for the group as a whole.

To help you keep an eye on the gold industry, we list this year's top performing gold miners below.

List sorted by yearly performance. (Click here to access free, interactive tools to analyze these ideas.)

1. Extorre Gold Mines Ltd. Ordinar (NYSE: XG): Gold Industry. Market cap of $943.70M. The stock has gained 204.14% over the last year. After a solid performance over the last year, XG has pulled back during recent sessions. The stock is -10.06% below its SMA20 and -18.27% below its SMA50, but remains 20.37% above its SMA200. The stock has performed poorly over the last month, losing 18.28%.

2. Banro (NYSE: BAA): Gold Industry. Market cap of $912.79M. The stock has gained 181.18% over the last year. Exhibiting strong upside momentum -- currently trading 19.18% above its SMA20, 24.08% above its SMA50, and 46.85% above its SMA200. The stock has had a couple of great days, gaining 20.1% over the last week.

3. Richmont Mines (NYSE: RIC): Gold Industry. Market cap of $310.76M. The stock has gained 115.38% over the last year. Relatively low correlation to the market (beta = 0.6), which may be appealing to risk averse investors. Exhibiting strong upside momentum -- currently trading 7.84% above its SMA20, 17.68% above its SMA50, and 44.24% above its SMA200. The stock has had a good month, gaining 25.32%.

4. AuRico Gold Ordinary Share (NYSE: AUQ): Gold Industry. Market cap of $2.41B. The stock has gained 91.74% over the last year. After a solid performance over the last year, AUQ has pulled back during recent sessions. The stock is -9.97% below its SMA20 and -4.73% below its SMA50, but remains 19.93% above its SMA200. The stock has had a good month, gaining 13.45%.

5. Allied Nevada Gold Corp. (NYSE: ANV): Gold Industry. Market cap of $3.77B. The stock has gained 85.57% over the last year. Exhibiting strong upside momentum -- currently trading 5.83% above its SMA20, 10.34% above its SMA50, and 27.79% above its SMA200. The stock has had a couple of great days, gaining 5.95% over the last week.

6. Claude Resources (NYSE: CGR): Gold Industry. Market cap of $316.29M. The stock has gained 66.38% over the last year. Relatively low correlation to the market (beta = 0.79), which may be appealing to risk averse investors. The stock has gained 66.38% over the last year.

7. Yamana Gold (NYSE: AUY): Gold Industry. Market cap of $11.92B. The stock has gained 56.92% over the last year. Relatively low correlation to the market (beta = 0.54), which may be appealing to risk averse investors. The stock has had a good month, gaining 20.32%.

8. Gold Resource Corp (Nasdaq: GORO): Gold Industry. Market cap of $1.17B. The stock has gained 56.03% over the last year. The stock is a short squeeze candidate, with a short float at 17.69% (equivalent to 10.75 days of average volume). It's been a rough couple of days for the stock, losing 11.96% over the last week.

9. Royal Gold (Nasdaq: RGLD): Gold Industry. Market cap of $4.08B. The stock has gained 51.48% over the last year. Exhibiting strong upside momentum -- currently trading 7.95% above its SMA20, 15.82% above its SMA50, and 33.7% above its SMA200. The stock has had a couple of great days, gaining 6.9% over the last week.

10. Central GoldTrust (NYSE: GTU): Gold Industry. Market cap of $407.69M. The stock has gained 46.10% over the last year. It's been a rough couple of days for the stock, losing 5.07% over the last week. The stock has had a good month, gaining 13.99%.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

Kapitall's Becca Lipman and Daniel Guttridge do not own any of the shares mentioned above.