THE BLOG

Gold Shines, But Media Sees Rust

07/29/2010 01:41 pm ET | Updated May 25, 2011

Super sports feats -- like running the four-minute mile, winning the triple crown or slamming four home runs in a single baseball game -- are certain to achieve glowing media coverage.

Not so, a similar Hercules-like investment feat by gold, which has been on a rampage, shooting up about 235% in the past nine years, 100% in the past five years and 40% in the past three years. It's also up again this year, trading at around $1,164, versus its 2009 close of $1,087.50.

Despite these impressive sprints, some media outlets remain skeptical. In brief, they've turned cold on go-go gold.

Last October, for example, I did a piece in which a number of precious metals pros raised questions about a Wall Street Journal story, which had just described gold in a non-hedged headline as a "lousy investment." At the time, the yellow metal was trading in the mid-$900s.

It was one of the paper's bumbling moments as gold subsequently shot up about 35%, climbing last month to an all-time high of about $1,265 an ounce.

Now, another media gold critic has popped up, CNBC anchor Maria Bartiromo, who told viewers last week that it's time to unload the metal. She may be right, of course, but the facts and some precious metals trackers suggest her advice is as sound as that of the WSJ.

"A contrary indicator and probably very bullish for the metal" is how Bartiroma's advice is viewed by Mark Leibovit, a long-time gold tracker and editor of the on-line VR Gold Letter in Sedona, Ariz.

That doesn't mean that he thinks it's up, up and away for gold, which recently fell more than $100 an ounce, amid some strengthening in the Euro and the dollar, no significant outbreak of new European debt woes, deflationary worries, and a pickup in the U.S. economy.

To the contrary, Leibovit sees the possibility that gold could be vulnerable over the near term to a drop to about $1,100 an ounce during the usual summer lull at which point, he says, "I would pile in."

With commodities on the upswing, such as oil, copper and aluminum, Leibovit holds out the rise as a sign the gold correction could, in fact, be over and that "maybe it's ready to take off again."

If so, Leibovit, who is convinced gold is in the midst of a 20-year up cycle and has made a series of sparkling up and down and down gold calls in recent years, believes the metal could soon climb to between $1,220 and $1,230, which he would construe as a prelude to a further run to the $1,320-$1,330 range over the next few weeks.

A catalyst for such a rise, as he sees it, would be a reversal in the recent strength of the dollar and Euro, both of which, he argues, are in significant downtrends. Yet other pluses are said to be growing economic uncertainty and the mushrooming lack of faith in currencies, the latest being those of Hungary and Ireland.

"Governments are playing with money, they're printing like crazy and everybody knows it," Leibovit says.

"The wind is at gold's back," he tells me, "And I think a price of $3,000, $4,000 or $5,000 is just a few years away. That's not a pipe dream, but common sense reality."

Leibovit's favorite gold plays are two exchange-traded funds -- one traded under the symbol GDX for larger gold stocks and the other, GDXJ for smaller stocks.

Well known global money manager Jim Rogers is also at odds with Bartiroma, as are the world's central banks. "I own gold and I hope I'm smart enough and alert to buy more if it drops," Rogers says.

Meanwhile, central banks became a net buyer of gold last year for the first time in 20 years, a trend which has spilled over into 2010. In the first quarter, for example, Russia fattened its gold reserves by more than 25 metric tons, while the Phillipines boosted added 10 metric tons. In addition, China, the world's largest producer, is believed to be quietly adding large quantities to its reserves.

Yet another gold plus, according to Frank Holmes, CEO of Texas-based U.S. Global Investors, is diminishing supply. Gold mine output, he observes, is set to decline both in 2010 and 2011 after rising in 2009. He also points to strong investment demand.

Jeffrey Nichols, managing director of American Precious Metals Advisors in Cortland Manor, N.Y., cites a number of reasons why he believes the price trend in gold is unmistakably up. Among them:

  • Expectations of ongoing inflationary monetary policies.
  • Continued sovereign risks in Europe.
  • Strong Chinese demand, a reflection of its improving economy.
  • A resumption of strong buying interest in India, especially with the wedding and festival seasons coming up shortly and continued positive central bank buying.

Nichols figures gold will top $1,300 by year end and balloon to $2,000 to $3,000 in the next two to three years.

Roseland Capital LLC, a major dealer in gold bars and gold coins in Santa Monica, Ca., offers an historical perspective, noting that over the years gold prices have typically moved higher during the last four to five months of the year, with an average gain in this period of 7% to 8%.

Several brokerages have also been bitten by the gold bug, what with Credit Suisse, UBS and CIBC World Markets all raising their 2010 and 2011 price targets.

It all sounds pretty positive for gold -- and it is -- but a word of caution: the volatile metal can tumble big time at any time. For example, one study has shown a $10,000 investment made in gold in June, 30, 1980, would have dwindled to $4,776 by June 30, 1985.

"I get no respect," was the favorite line of the late comedian, Rodney Dangerfield.

Media blasts notwithstanding, the bottom line here is that gold, widely thought of as a safe-haven investment, at least at this juncture, clearly merits respect.

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