Yoni Jacobs Sees the Gold Bubble Bursting

Yoni Jacobs is a chief executive strategist with Chart Prophet, and he writes regularly for

. He's a respected financial expert, though his new book,

should ruffle a few feathers. Jacobs spoke to Benzinga to talk about why he is bearish on gold, and what he learned while researching the book.

is available now via Wiley Press.

I'm an executive director and chief investment strategist of Chart Prophet, a hedge fund out of New York. At the same, in order to analyze the markets, it's not just about investing in them it's about researching also. We have a research side of the business also. I've been writing for

for about a year and a half. I've appeared with this research on

in Canada,

,

and

. I have investment themes and I write based on them, and then I invest based on what I research. My background's in finance in history.

I noticed that in a macro view of the global economy, gold shines a light on almost every aspect of the global economy. It goes from emerging market demands, it shows you how China and India might be growing or not growing, you see how the printing of money affects gold; we're seeing fear of the economy or fear of the stock market by investors buying gold. We see how it affects the dollar and how the dollar affects it. It also tells us based on certain ratios and investor expectations where the market may be heading to. I noticed that gold is gold is supposed to be a somewhat stable safe haven for investors, but when you see gold going from $250 an ounce in '99 or 2001 to approaching $2000 in a ten or twelve year stand, you kind of notice that it might be a little overextended and there might be too much speculation. What I notice was there are all kinds of signs pointing to the gold bubble, from investor behavior to the massive publicity that it gets, to the extreme expectations that investors have and even to the lack of hedging by the gold minors. They don't want to protect what they own, they think that gold will continue to go up.

Everyone who is involved in markets, commodities, emerging markets even. Anyone who's followed markets and wants to understand any macro view or how certain parts of the market interact with each other. It's good for anyone who actually owns gold or commodities, because even if you believe in a commodity or gold story, you still have to protect what you own.

Usually, when you see extreme behavior, extreme analysis, or complete misunderstanding of a topic, that increases rick tremendously because you have some people completely going with the theme and some people completely shunning it. If you think about technology stocks in the late '90s, you had those who really believed in the stocks and were exuberant about the stock market, and they dumped all their money into the stock market because they just thought technology stocks would be the next big thing. They were right for quite a while. Then you had a couple of people who came out and said that this was dangerous and we had to be careful. Some people even said short it. That was another situation where you had polar opposite opinion. Generally, when we have polar opposite opinions, there might be an extreme outcome, or at least one side will be long. Gold is also emotional, because we're dealing with the U.S. dollar, we're dealing with currency debasement, we're dealing with emerging market growth. People are emotionally invested in the gold story because whichever way it goes it might upset the whole economy. So we have a real, intense debate about it.

Plenty of things. That's why I wrote it - because I realized that there are so many crazy things about it. What's really interesting are the signs of a gold bubble. You have to pay attention to the behavior of investors that takes place as this bubble goes on. Forget the We Buy Gold stores on every street corner, but you have gold vending machines where people can buy gold bars or coins from a machine. That's kind of extreme. You have the gold miners who are not protecting their holdings. You have coin demand sky rocketing, especially in silver coins. Not only is gold on the front page of the

or on

, all these media outlets, but they're making shows about it. At the peak of the housing bubble, they came out with two shows -

and

. They showed the ease the ease of buying a house and reselling it right away for more money. That came out at the peak of the housing bubble. I've compared that to the gold bubble. Right now, we're seeing all kinds of new shows about making money on gold.

, and there's more. Pawn shop shows. It shows you that everyone has heard about gold going up.

I'm bearish on commodities because, in general, if there's a commodity slow down, most commodities will slow down. Just like, if there's a stock market slowdown, most stocks will fall. I'm bearish on gold although, to hedge it, I've discussed hedging it with diamonds. That way you can short gold and go long diamonds. On the other hand, I recently became bullish on natural gas even though that's a contrarian play.