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Dan Dorfman: Limping Gold Posed to Run Again

December 21st, 2009, 03:12 am admin Leave a comment Go to comments

Hey, what’s up with gold? Maybe it needs a flu shot, perhaps also one for swine flu.

After barreling ahead about 130% in the past five years, 29% in the past two years, busting through $1,000 an ounce last September and then tacking on another 20% from there, the investment darling of the worry-warts has suddenly gone limp.

Gold hit an all-time high of $1,227.50 an ounce on December 3, but then retreated to $1,102, largely reflecting a strengthening greenback. This past Friday, though, gold, widely viewed as a fear investment, had one of its better days, rising $6.10 to $1,113,50 on reports of an Iranian incursion into an Iraqi oil field. That’s up sharply from last year’s close of $880.80.

For some thoughts on what’s going on with the precious metal and where it goes from here, I rang up Mark Leibovit, a dogged gold tracker who has demonstrated considerable prowess in timing moves in the metal, both up and down.

One shining example of this prowess was Leibovit’s well-timed sell recommendation to his subscribers with gold in the low $1,200s, namely to those who were trading-oriented. He made that suggestion just a few days before the metal hit its all-time peak, which was quickly followed by a speedy 9% decline.

“I think gold has entered its first serious corrective phase since the fall of 2008,” says Leibovit, an online investment adviser and editor of the VR Gold Letter in Sedona, Ariz.

The last time I spoke to him, gold was in the high $1,100s. He made then what I thought was an outrageous statement. In brief, he said he doubted that we would ever see gold trade below $1,000 an ounce in our lifetime.

Despite the metal’s slump, Leibovit is sticking to his guns. Sharp setbacks are quite characteristic of bull market corrections in gold, he says. In fact, Leibovit, who thinks gold is poised to run again, concedes the price of the metal could first be vulnerable to a further drop to the $1,020- $1,070 range.

Why so? Because, he explained, of additional erosion to some further temporary strength in the dollar, the rise in long-term interest rates and fears the Euro could become unglued as dissenting countries threaten to break away from the union, which would make the dollar begin to look more attractive.

Although he raises the possibility of additional declines in the price of gold, Leibovit thinks any drop say to the $1,020-$10.70 range would be short-lived since he believes a decrease to that level would be met with a flurry of buying.

The key reason, as he sees it, “the dollar is terminal and will seek dramatically lower levels in the months and years ahead.” The gold party is just beginning, says Leibovit, who expects the metal to rise to $1,500 to $1,600 in 12 months, followed by a subsequent advance at some point to $3,000. (Bank of America recently predicted gold would hit $1,500 in 18 months).

The basis of such gold advances is chiefly predicated on the U.S.’s serious financial heartaches, chief among them being:

–A soaring $12 trillion of debt.

–A ballooning $1.5 trillion budget deficit.

–Non-non-stop debasement of our currency by round-the-clock money printing by the Federal Reserve.

–A growing international lack of confidence in the greenback.

–The prospects that a number of countries, among them China, Japan, India and Russia, may no longer buy U.S. treasuries.

Likewise, Leibovit cites growing currency debasements globally, another significant gold plus.

Leibovit also takes note of rumors of phony tungsten gold bars showing up around the world, possibly originating in China. If true, he says, it could wreak havoc in the gold market, as more and more holders of the metal would insist on physical delivery, which would force bullion dealers to replace any bogus gold bars with the real thing, in turn pushing gold prices even higher.

If the dollar is becoming such a deadbeat, how does he explain away its recent rally. “Like the rally in the stock market,” he replied, “you’re looking at a mirage.”

Incidentally, I caught up with Leibovit just prior to a dental appointment he had to have his crown replaced. “I assume it will be gold,” I said. His predictable response: “What else?”

Costa Rican investment adviser Felix Heligmann, who manages about $88 million of his family’s and friends’ assets, has about 12% of the funds in gold and gold-related investments. He figures the economic, financial and political turmoil in the U.S. and its diminishing prestige on the world stage, which he says is sure to lead to more friction with America’s haters and international rebel rousers, are “money in the bank” reasons why the price of gold must go higher.

San Francisco money manager Gary Wollin may offer one of the best strategies for playing gold. In a nutshell, put 5% of your assets in gold and pray it goes down in price because almost everything else will then go up.

What do you think? E-mail me at Dandordan@aol.com.

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