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Sell the Jewelry & Fillings, The Gold Rush Is On!

Stocks in this article: GLD UXG NEM ABX NG GS

Time to take inventory of the possible Fort Knox of fillings inside our mouths, tucked away in closets and stuffed in jewelry boxes -- we are in the midst of gold mania!

Gold prices hit a record of $1,432.50 on Dec. 7, and the result is a kind of nuttiness that has encompassed gold mining stocks, gold bullion, and generous outfits like Goldline that want to take your money in return for gold. There is even a gold-prospecting TV show on the Discovery Channel, which claims to have hauled in 2.9 million viewers on its premier episode.

Now, I'm not foolish enough to judge whether this gold bubble is about to burst, or whether there is even no bubble at all, as that is clearly an area in which persons of goodwill can disagree. I can only suggest, on the basis of my own scanty evidence (and sore mouth) that gold is starting to make me nervous. It's just a gut feeling: ¿

Too many amateurs buying and sharp operators selling. The 29% 2010 run up through Dec. 7 (a day with certain unpleasant connotations to begin with) reminds me of the time when I was a kid and off-track betting was beginning in New York City. I bet my lunch money on a couple of races, won, and then proceeded to lose every single race after that. You can't even get a note from somebody on Gmail, if the subject is gold, without seeing a Goldline ad. Putting aside the politically charged nature of a major sponsor of the Glenn Beck Show, there are people I respect (like Barry Ritholtz) who say the company overcharges for coins and is generally no good. (And other people I respect saying otherwise). Putting aside that hot potato, the potential for small investors being ripped off in this commodity, or any commodity, is just too troublesome, particularly when prices are going through the roof like this. And ask yourself this question: Are our regulatory watchdogs really up to the job of policing the gold market, when they've failed so miserably with everything else? ¿

Gold is a knee-jerk contrarian's nightmare/paradise. Yes, I realize that there are sound, fundamental reasons for gold bulls to believe that gold will continue to climb, perhaps past $1,500 or even $2,000. Central bank purchases, instability in Korea, deficits and inflationary threats, etc. etc. are all good reasons for gold to increase. But if memory serves me right, wasn't global uncertainty and inflation also a good reason to invest in real estate a few years ago? There are just too many reasons for nervous people and kneejerk contrarians to get concerned (or delighted, depending upon one's long/short exposure). Personally, I get nervous when I see the like Gold SPDRs (GLD) climb through the roof as they have on immense volume. I call that sucker bait. I get nervous when I read that gold funds are beating the pants off the S&P, and that some are climbing up to 66%. This means more money pouring into gold funds from the aforementioned amateurs, who love to climb in at the top, and consequently more money pouring into gold mining stocks, which are already rallying a bit too cheerfully. (I'll be coming to that in a moment.) Besides, Goldman Sachs (GS) is predicting that gold will climb to $1,690 an ounce over the next year. Gee, they wouldn't gamble against that prediction, would they? And if they did, do you think they'd get away with it? ¿

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