A Glimpse into the Mind of a Gold (GLD) Bear

June 20, 2012 10:19 AM EDT
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The bull story for gold (NYSE: GLD) has been repackaged and sold a thousand different ways – inflation, hyper inflation, failed currencies and increased jewelry demand from emerging market economies. We all know the story.

Given that, on average, the bullish story for gold dominates headlines, it is both prudent and possibly very profitable to take a deeper look at the bearish-side of the argument. If nothing else, bull or bear, looking at opposing views is healthy for investors at all levels. The best investors never marry their trades, and if you're a gold bull living without a good set of divorce already papers written up, you're just asking for trouble. As for bears, more power to you.

Yoni Jacobs, author of Gold Bubble: Profiting From Gold's Impending Collapse, is one of the biggest gold bears around. He thinks that the parabolic rise in gold prices is plagued with rampant over speculation and nearly certain to come to a bloody end in short order. Like all bubbles, the bubble in gold will find a swift end, and when it does prices will be cut in half, thinks Jacobs. He expressed his views in a recent IBD interview.

The most obvious sign of a gold bubble is the extreme valuation in the metal. Jacobs thinks investor enthusiasm has already peaked. Massive risk-taking, lagging mining stocks, slowing momentum, media saturation, and smart money selling are all signs of a bubble, but that is just the beginning. Gold vending machines, speculation about asteroid mining, and the boom in we-buy-gold scrape jewelry businesses – these are all clear signs of that euphoria has outpaced reality.

Eventually the loose economic policies in the U.S. will end, rates will go up, currencies will rebound . . . and gold, well, Warren Buffet put it this way. "If you buy an ounce of gold, a hundred years from now you'll have an ounce of gold." It is a simple statement but coming from the Oracle of Omaha, gold investors better pay heed. GLD's days could be numbered.

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