Why Gold Won't Fold

"I don't get no respect," the late comedian, Rodney Dangerfield, repeatedly lamented. Unhappy gold buffs know the feeling. Despite mounting political, economic and financial turmoil worldwide, the precious metal, many gold traders gripe, is not getting the respect it deserves, as evident by what they view as its listless performance in recent years.

That listless showing they're complaining about refers to gold's lethargic performance since November of 2007--a 31-month period during which the metal has basically been languishing in a narrow trading range of between $800 and $1,000 an ounce.

Granted, gold, currently trading at around $955, is a bit above 9% from its 2008 close of $880.80 and it did scoot to an all-time high of $1.034 an ounce on March 17, 2008. But gold enthusiasts say the current price should be considerably greater, given the extent of global economic and political chaos, which some believe is likely to get progressively worse.

This lethargy, though, could give way to a renewed outburst of vigor, which may indeed provide the metal with the kind of respect its boosters are hoping for. At its present price, the metal is just a brief sprint away from the magical $1,000 mark, which some gold trackers believe could evolve into an established new low price once, as they see it, the $1,000 price tag is surpassed in a meaningful fashion. That's something they firmly believe is in the works.

First, though, before explaining the reasoning behind such a buoyant expectation, it's worth understanding why gold has essentially pulled a Rip Van Winkle in recent years and why some say any sustained decline from current levels is unlikely.

For starters, online investment adviser Mark Leibovit, publisher of the VR Gold Letter, attributes much of the recent sleepy showing to technical base-building following a roughly 300% gain in the price of the metal from 2000 to 2007; In other words, gold, he says, is basically stabilizing at around its current price level in preparation for its next run. That run, Leibovit predicts, will boost the price of the metal to $1,200 to $1,300 an ounce before year end and then on to $3,000 18 to 24 months later.

Many gold fans, Leibovit among them, believe gold has a major ally in President Obama, given the administration's expenditures and pledges well up in the trillions of dollars to bail out the floundering financial system and revitalize the slumping economy. That, in turn, of course, is leading to a massive buildup of government debt.

Leibovit, who views gold as "the bargain of the century," also contends that the government--in an effort to inflate the dollar--has been manipulating the price of the metal by trying to short-circuit any advance. Paul Craig Roberts, the former assistant of the Treasury during Reagan administration, recently echoed similar thoughts when he raised the question: "How long can the U.S. government protect the dollar by leasing its gold to bullion dealers who sell it, thereby holding down the gold price?"

The government's anti-gold efforts, Leibovit maintains, are not working and won't work. A key reason: he sees the weak dollar (a significant gold catalyst) falling another 50% over the next two to four years. Spurring this drop, he says, is our exploding deficit. Some countries, he notes, such as Russia, don't want our dollars anymore. "With the printing presses going 24/7---an action apt to produce rising inflation or perhaps hyper inflation--we're printing ourselves into oblivion and the world knows it."

Leibovit also questions the growing comments that the economy is bottoming. "I don't believe it," he says. "Just look at housing, which is still going through hell. Home prices are still going down and foreclosures are still going up."

Taking pot shots at the growing number of positive economic remarks, Leibovit says, "It's not the real world. They're trying to put lipstick on a pig."

He's also critical of the Obama administration's stimulus program, asserting that "we're bailing out all the Wall Street crooks who stole money from us."

To Leibovit, it means that the doldrum days for gold are nearly over, that a surge to new highs is just around the corner. Indicative of this, he says, is the sharp run-up this year in the price of many gold stocks. As measured by the GDX Exchange, an index of major gold stocks, the average share is up this year an impressive 28.4%. Historically, such a rise is a prelude to solid new advance in the price of the metal itself.

Yet another plus is his contention that we've entered a commodities boom cycle, with a number of metals, such as copper, uranium, platinum and iridium, all moving higher.

Leibovit believes that gold--which China has aggressively been buying and which he views as a safety valve--should occupy a core position in every portfolio. Among his investment favorites are Central Fund of Canada, Ltd. (CEF), Central Gold Trust (GTU), and an exchange-traded fund, Market Vector Gold Miners (GDX).

He also favors one-ounce minted gold coins, such as American Eagles, Mapleleafs, and American Buffalo, which can be purchased through any reputable gold dealer, such as Monex and Blanchard & Co.

Though a gold bull, Leibovit has some near-term reservations. He cautions that his charts show some volume reversals in gold and gold-related ETFs, which have made him defensive for the short term, especially given gold's traditional seasonal weakness in the summer. Leibovit stresses, though, that he wouldn't sell physical gold and, in fact, would fish a bit for gold shares on any decline.

The clear message from our gold bull: No ifs, ands or buts, gold is about to become golden again.