Was Wells Fargo Joking When It Said Gold Is in a Bubble?

 |  Includes: DZZ, GLD, GLL, WFC
by: Benzinga

By Ramon Lewis

Some holders of gold must have been spooked out of their gold Tuesday when the analysts at Wells Fargo Private Bank (NYSE:WFC) said gold was in a bubble. Not only did they say gold was in a bubble, but it was in a "bubble that is poised to burst." You have to wonder if it was a cruel joke to get weaker hands to cash in what Mr. Gold, Jim Sinclair, calls insurance against what is to come -- namely, the collapse of the US dollar.

The idea it must have been a joke comes from what one of the team members at Wells Fargo said in late 2009. In December of that year, Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank, said, "It's quite possible we have seen the peak in gold .... In 2010, I think things will go back to normal - i.e. a growing economy – and normal takes a bit of fear away from gold."

The price of gold at the end of 2009 was a few bucks under $1,100, approximately 60% less than where it is trading today.

Investors should also keep in mind that saying something is in a bubble is nothing less than a cop-out. Gold could rise 1000% from here before diving down in price, and Davidson could rightly say, "See, I told you it was in a bubble."

One should also consider this is coming from Wells Fargo Private Bank. If you were wealthy, would you go to Wells Fargo? John Paulson has stuck with his $4.6 billion stake of SPDR Gold Shares (NYSEARCA:GLD). That should mean something more than what Wells Fargo says.

Traders who believe that gold prices will rise might want to consider the following trades:

  • Buy physical gold
  • SPDR Gold Shares (GLD)

Traders who believe that gold is in a bubble and about to burst may consider these alternate positions:

  • PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ)
  • ProShares UltraShort Gold (NYSEARCA:GLL)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.