The price of gold today hit a record high for the second day in a row, rising to $1,284.40 on the New York Mercantile Exchange. Some analysts predict the next stop is $1,300.
But there's an old saying on Wall Street: you should be greedy when others are fearful and fearful when others are greedy. Is gold's long run about to come to an end?
New York University Professor Nouriel Roubini, who accurately predicted the housing market collapse, isn't exactly predicting the same fate for gold. But he does believe that other investments notably the dollar, the yen and Swiss franc - are better investments than gold at this point.
They are much more liquid than the gold market, Roubini told a recent economic conference in Italy.
Walter Zimmerman, chief technical advisor for United-ICAP, sees even better reasons to avoid jumping on the gold bandwagon at this late date. In studying the charts, he told CNBC this week, he notes the momentum of new money moving into gold is actually slowing.
You never want to see a market make new all-time highs at the same time that momentum is waning, Zimmerman told the business cable TV channel.
Running on empty
He likens it to a car that has run out of gas. The car keeps moving forward but will eventually come to a stop.
Zimmerman notes that the record highs this week have been accompanied by a decline in bullish sentiment. That's a bad sign when you're trading stocks, but especially worrisome when you're trading a commodity like gold.
In a momentum play like gold, where there are no real fundamentals, its a fear-based move, Zimmerman said. You can't point to earnings, you can't point to PE ratio, (so) how do you capture when the fear has peaked?
Fear, in fact, has been one of the things propelling precious metals like gold. Beginning with the financial meltdown in late 2008, companies selling gold have marketed it relentlessly, stressing the uncertainty of the dollar and other currencies.
The rise of gold has drawn the attention of Rep. Anthony Weiner (D-NY), who has announced a hearing of the Subcommittee on Commerce, Trade, and Consumer Protection to discuss legislation that would regulate companies that sell gold.
Invitations to the hearing have been sent to the representatives of Goldline International, the Federal Trade Commission, the Consumers Union and other potential witnesses, including former Goldline employees. The hearing is set to take place on September 23, 2010.
Goldline under scrutiny
Weiner said his office recently completed an investigation of Goldline, a company he says uses aggressive sales tactics and conservative spokespeople like Fox News Glenn Beck to sell what he describes as overpriced gold coins. He says the Santa Monica, Calif., City Attorney's office launched a joint investigation with the Los Angeles County District Attorney's office into the possible criminal practices of Goldline International.
Goldlines actions have also prompted a class action lawsuit, filed in South Carolina, against the company on behalf of customers who allege they have been ripped off.
Weiner, who sits on the House Subcommittee on Commerce, Trade and Consumer Protection is proposing legislation that would force Goldline and companies like it to fully disclose their business practices. Under Weiners bill, companies would be required to disclose the reasonable resale value of items being sold and would no longer be able to make unsupported promises of profitability.
The frenzied marketplace has become rife with scam artists ready and willing to take advantage of consumers, Weiner said. The sole purpose of this proposed legislation is to protect consumers from being ripped off.
Meantime, consumers as well as investors should seek trusted, objective advice about investing in gold at these levels. Even billionaire investor George Soros, who holds vast amounts of gold purchased at a much lower price warned this week that the sky high gold market is certainly not safe and its not going to last forever.
