All That Glitters, May Not Glitter For Long

Interview of Yoni Jacobs by Brad Zigler.

Many market observers, most notably Fed Chair Ben Bernanke, have admitted being puzzled by the vigor of a decade-long gold rally. If you’re perplexed too, don’t worry. One analyst hopes to draw the scales from your eyes, if only you’d read his new book.

Yoni Jacobs, executive director and chief investment strategist of New York-based Chart Prophet LLC, is certain gold’s bubble is set to pop, if it hasn’t already done so. REP.’s  Alternative Investment Editor Brad Zigler caught up with Jacobs to talk about the bust-up of the yellow metal’s speculative fervor.

Brad Zigler: Your book’s entitled Gold Bubble: Profiting From Gold’s Impending Collapse. Can you summarize your thesis? Why is bullion headed south?

Yoni Jacobs: The ballooning of gold’s price is similar to most asset bubbles that end up collapsing on investors. In addition to the parabolic price increases which have skyrocketed gold over 600 percent from 1999 to 2011, the signs of a bubble include rampant overspeculation, massive publicity and extreme expectations. Not only is the price rise very steep and unsustainable, but investor enthusiasm has likely already reached a peak–-signaled by massive risk-taking, lagging mining shares, slowing momentum, widespread media coverage and smart-money selling. There’s been over speculation in gold, to the point where “We Buy Gold” stores now line busy intersections and gold miners have quit hedging. Vending machines dispensing gold bars have been introduced, a Chinese taxi company has attempted to buy a mine, and a ridiculous asteroid-mining company expects profitability by harvesting orbital metal. Expectations of gold as a safe haven are tremendously misleading. Gold is an illusion of certainty in an uncertain world.

BZ: You're a Chartered Market Technician and the chief investment strategist for Chart Prophet LLC, therefore, an obvious believer in technical analysis. Was it gold’s chart that first got you thinking of a bubble? What’s your process for developing an investment idea—technicals first, then look for supporting fundamentals? Or is it the other way around?

YJ: I am definitely a believer in technical analysis because it is the number-one way to quantify risk, establish critical entry and exit levels to predict trends. However, I also know the importance of a well-rounded investment approach. At Chart Prophet, we look at all sides of an argument and all the catalysts that affect our investments. Even though we apply a heavy dose of technical analysis, we employ what we call a “Triple-Perspective.”  We look at technical, fundamental and behavioral factors to understand the economy and stocks and to make the most educated investment decisions.

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