Three signs gold is in a bubble in 2011?

First, let me say I think gold prices will end 2011 higher than they’ve started the year. We seem to be buried deep in a bearish January snowdrift. The same thing happened to gold prices in 2010. Bullion popped through Jan. 12, then shed nearly $100 an ounce before bottoming out on Feb. 5.

Every year, though, the January calls for “bubble” seem to frighten away skittish investors. Unless, the Fed announces some unexpected interest rate hike, I can’t see much disrupting gold’s upward climb after we dig our way out of this sell-off. Apparently, I’m one of the few out there who feel the same, though.

Here are three signs that I might be wrong and we really might be in the midst of a bursting gold bubble in 2011:

1) “Capitulation and panic.” Those are strong words, but apparently, that’s how a Hong Kong dealer described the gold market on Tuesday, according to Adrian Ash of BullionVault. Gold investors truly feel scared, and they’ve pushed the price of bullion down 5.9 percent since the start of 2011. That’s gold’s worst start to a year since 1997’s 6.3 percent drop in January.

2) The “experts” say we’re in a bubble. Bloomberg’s quarterly data and news-feed terminal users poll found that more than half of the investors who use their product believe “gold is in a bubble.” “Nearly twice-as-many respondents say they will cut gold positions by July as say they will increase them,” Ash writes.

3) Hedge funds are trimming gold futures positions. Over the past week, “Small Speculators” have been accumulating bullish options in gold. Long futures’ positions held by “Large Speculators” (i.e. hedge funds) on the other hand have dropped at their fastest rate since July 2009, per the VM Group’s latest Precious Metal Investment Weekly. The large spec futures’ position tumbled by 1.24 million ounces on the Comex last week.

The only bright spot? Those same Large Speculators appear to be bullish on silver. Perhaps they don’t dislike gold so much as they expect silver to shine more brightly in 2011.

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