If there is one asset class best avoided in 2011, it’s gold. At the expense of sounding overly dramatic, gold is an investment whose fundamentals are rotting from within, and you do not want to be anywhere near it when the bottom falls out.

In late November, I wrote a short piece for Seeking Alpha in which I added a few more jabs at the barbarous relic. For my efforts, I received over 200 comments, most of which were hate mail.

What is it about gold? It’s fairly normal for investors to get defensive about their investments, particularly after several years of a raging bull market. There is this little devil called the “confirmation bias” that leads us humans to see only what we want to see, and we irrationally ignore all evidence to the contrary. It’s analogous to a wife who, upon hearing from a neighbor that her husband is having an affair, chooses to defend her cheating husband and attack the neighbor instead. It’s not rational. But it is very human.

Given the high prices and suspect fundamentals, no rational investors would have bought tech stocks in 1999 or Miami condos in 2006. Yet plenty did because they fell victim to the confirmation bias and saw only what they wanted to see. Today, the conditions in the gold market are similar.

Unlike most commodities, gold has little industrial or intrinsic value. Its purpose is almost entirely ornamental. Gold is considered a precious metal because humans have found it attractive as jewelry for thousands of years. Its use as money and as a store of value—and the entire cult-like political ideology surrounding it—ultimately comes from its desirability as a frivolous accessory. There are plenty of elements in the earth’s crust far rarer than gold. Humans have gravitated to gold because it’s pretty. End of story.

With this in mind, take a look at the chart. In 2000, at the beginning of the bull market in gold, global demand for the yellow metal as jewelry absolutely dwarfed demand for investment. At over 3,000 tons, jewelry demand was 65 times bigger than investment demand.

Now, flash forward to 2010. As it has now become unaffordable for many would-be buyers, demand for gold in its traditional use as jewelry has been nearly cut in half while demand for gold as an investment has risen by a factor of 42.

To illustrate just how distorted the underlying fundamentals are, the Financial Times reports that supply of gold scrap has exceeded demand for jewelry in Europe and North America. Yes, you read that correctly. Not only are Americans and Europeans not buying gold jewelry, they are actually selling their existing pieces for scrap. They are net sellers.

Much of the new investment demand has come from the gold-backed ETFs like the popular SPDR Gold Trust (NYSE: GLD), but coins are also being churned out as fast as they can be minted. Hedge funds, too, have gotten in on the act, buying both physical gold and gold futures contracts.

So, let me get this straight. The core, fundamental driver of gold demand for thousands of years is in what appears to be terminal decline, while “investment” (read “speculative”) interest in the metal has jumped to unprecedented levels.

Meanwhile, the other bullish arguments are losing steam as well. Gold is traditionally an inflation hedge…yet inflation remains benign and actual deflation remains a significant risk. The Fed’s quantitative easing programs will likely be scaled back in the months ahead, and the incoming Congress has made fiscal austerity one of its rallying cries. And even if inflation or dollar depreciation becomes an issue in 2011 or beyond – how much of this is already reflected in the current, lofty price?

If gold is “insurance” against financial calamity, then the premiums would appear to be too high with gold near $1,400 per ounce.

I can hear the gold bugs now. I just don’t get it. Gold is good, and fiat money is evil. Well, be that as it may, markets are not about good and evil. They are about supply and demand. And as the global economy continues to normalize, the fear and hysteria that have driven many investors to gold will subside. When this happens, look out below.

My prediction for 2011: I see the long bull market in gold coming to an ugly end.

Charles Lewis Sizemore, CFA, is Editor of the Sizemore Investment Letter.