I recently wrote an article asserting that white-hot silver is due for a crash, from which it won’t bounce back for at least a lifetime or two. Aside from the expected bashing from the hyper-inflationist zealots, a couple of commenters agreed with me and asked for my gold outlook. I’ll explain where my perspective comes from, with some passive forecasting- at least compared to the silver article.

About 7 years ago and having proven to lack the technical proficiency to effectively trade equities, I gave up on stocks and committed to a precious metals trading hobby I had started in 2009. Competition was mediocre, at best, which quickly allowed me to find a way to make a supplemental income while investing in gold well below market prices. The scrap gold market is small. It is mostly comprised of highly discriminate buyers and indiscriminate sellers. One beautiful thing about the scrap market is that it lags the spot market. Exiting positions is much harder and more time consuming but you generally get yesterday’s prices tomorrow.

2013 and 2014 were close enough to 2011 that buyers in the market were plentiful and willing to pay a very large percent of gold value for scrap. Then, gold fell low enough in 2015 to scare away some supply, keeping bids up relative to spot. When gold started rallying in 2016 scrap prices didn’t budge, and supply became more abundant. Sellers saw an opportunity to get out and buyers were lacking confidence or waiting for sub $1,000 prices. My max bid at the time was about 80% of melt value, and I did not have to raise that number (absolute, not percentage) until gold passed $1,350. There was so little activity that I could buy gold for $1,000 per ounce or less on a daily basis until it got close to $1,400. Not wanting to chase or affect my cost basis too much, I reset my buy limit up 6% with gold around $1,375. I have not raised my max buy price since and, inherently, have done less buying in recent months. Still, I did more buying with gold at $1,500-1,600 than at any other price. When gold reclaimed $1,500, the scrap supply went parabolic. 2011 was firmly established in people’s minds as a bubble and a chance to sell in the $1,500s was too good to resist.

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Only when the stock market tanked in late February of this year did gold buying competition get fierce. By fierce I mean mindlessly hyper-aggressive. Not for Christmas or Valentine’s Day but around the beginning of March gold jewelry prices went through the roof. Not just scrap, for which typical prices went from about 85% of melt value to 100% or more, but gemstone premiums went up substantially. Pieces I would buy for 75% of melt value were going for 2-3x+ regularly. In this market, I have gone from buyer to seller while maintaining a Cheshire cat’s grin.

I suggest taking a moment to ponder the difficulty of exiting a physical position at a loss. A paper position should be no problem for anyone with decent discipline, it’s also much easier to reallocate that money as desired in another paper position. It takes much more to say “I guess I was off with my timing to buy this thing I consider very valuable and rare, I’ll let someone else have it and take a kick in the shin while I wait for most of my money back.” I’ve consistently gone against the herd in this market and have been given zero reason to consider doing otherwise. The behavior in precious metals markets large and small is symbolic of a major top, panic buying at record premiums suggests a prolonged shakeout for the extremely weak hands than have piled in.

Worst of all is the fake stuff. Most people overestimate risks of buying gold on eBay (NASDAQ:EBAY), which has a 100% buyer-friendly return policy. You have to test gold unless you buy from someone you completely trust, period. That was obvious from day 1. At first, I bought quite a few fake pieces, but that percentage has gone down steadily over time and the hassle of returning fake stuff is an acceptable cost of doing business. Most of the fake pieces looked questionable anyways and were purchased at prices too good to be true. The reality was that I hadn’t figured out how to spot fakes in pictures very well yet and more experienced buyers were avoiding bidding on the fakes. Lately, the fakes are going for 100%+ advertised melt value, which means clueless bidders are having money burning contests. Granted, many fake items will be tested and returned. Many also won’t. Drew Brees, blue diamond investor extraordinaire, tried to warn you kids. Price and quality always matter. But to no avail. Buyers in the scrap market, and second-hand jewelry market in general, have become the indiscriminate actors. Simultaneously, the economy has skidded to a screeching halt. The potential for deflation in the near term is massive. Physical gold is my largest investment holding, but I have reduced substantially in the last two months and continue to do so.

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Silver has bounced reflexively after making an 11-year low. Gold has been steady, inducing investors to lever up for widely expected all-time highs. It’s a well-disguised bubble, I suppose, predicated primarily on distantly historical prices. Most clearly, the sentiment is extremely bullish throughout the precious metals sector. Who are going to be the gold buyers at $2,000? My best guess is the same folks who have been piling in lately but not before they sell out at $1,400.

Disclosure: I am/we are long PHYSICAL GOLD AND SILVER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long SLV puts