THE BLOG
10/15/2010 12:46 pm ET Updated May 25, 2011

GOP Gains Could Tarnish Gold

"Like a dog in heat; it just won't stop," says Costa Rican money manager Felix Heligmann.

No, it's not sex he's talking about, but the seemingly non-stop surge in the price of gold, the world's hottest investment and the darling of the jitters crowd.

"Gold has momentum, strong fundamentals, new buyers are rushing in daily from around the globe, and the way it's climbing, it should be stored on one of those space shuttles in Cape Canaveral because it looks like it's headed for the moon," he says.

Maybe yes, but then again, maybe no because over the next few weeks, gold could run into a cold spell, a victim no less of the upcoming elections.

Or, put another way, those letters, G-O-P, which stand for the Grand Old Party, could take on an added meaning: Gold Off Price.

That's basically a warning from Richard Bogey, the research chief of the Foundation for the Study of Cycles, a 70-year-old think tank whose work (analyzing political and economic data that dates back 5,000 years) is based on the simple fundamental principle that all of nature, and most of history, is driven by regular cyclical patterns.

Taking note of the huge run in gold -- which traded at $272 in 2000, then nearly doubled to $517 at year-end 2005 and then more than doubled again to a recent all-time high of $1,388.10 in December futures -- Bogey contends a correction in the metal (now $1.372) is long overdue.

Accordingly, he believes if there's a whiff of any kind of fiscal conservatism that could get government spending under control -- through, say, the Republicans winning the House -- gold could whacked for a loss of about $100 to $200 an ounce over the next six weeks.

But he hastens to add that "any such decline would present a buying opportunity because gold will then go right back up."

Why So? Because, he says, no politician has the guts to cut the big deficit producers, such as the defense budget, Social Security, Medicare and Medicaid. The cycles, he notes, also suggest gold could top at around $2,400 an ounce in 2012.

Heligmann, taking note of the slumping greenback, also sees gold weakening somewhat over the near term should the Republicans, as he expects, score sizable gains in the elections. But like Bogey, he thinks any gold weakness would be short-lived. "Republican gains simply assure more political gridlock, and the gold market will view that as a positive," he says.

Heligmann, who manages about $93 million of family and friends' assets, presently has about 17% of it in gold and gold-related securities, up from close to 10% a year-earlier.

"With the U. S. dollar index recently falling to a 10-month low, excessive money creation and the global economy in turmoil, you have to be nuts not to have at least a small holding in gold," he says.

Generally, most precious metal bulls expect gold to fetch a $1,400-an ounce price tag within a matter of weeks and $1,500 before year end, followed by an additional advance to $2,000, $3,000 or perhaps $5,000 over the next few years.

Goldman Sachs has also climbed aboard the gold bandwagon, recently predicting a 12-month rise to $1,650 based on another round of quantitative easing by the Federal Reserve and the possibility long-term interest rates will continue to fall.

If gold's meteoric rise and the accompanying hype strike you as a glowing example of what bubbles are all about, you may well be right. the key question, of course, as one reader aptly put it, is whether the modern gold rush is actually a mania, or in fact, a legitimate reflection of serious financial and economic stresses.

One astute online gold mind, Mark Leibovit, editor of the VR Gold Letter in Sedona, Ariz., casts his ballot for the latter, noting, too, that global debasement of currencies from 24/7 money printing is yet another catalyst that practically assures even higher gold prices ahead.

He cautions, though, that a long and bumpy gold ride is well under way. Expect to see $100 swings in gold and possibly $300 to $500 swings in the months and years ahead, he says. But those who hang on, he contends, should continue to do well.

In his latest Gold Letter issue, Leibovit warns against fully trusting the equity markets, arguing that the years ahead could host bank and stock exchange closures. In that event, he notes, owning physical gold, as well as such other metals as silver, platinum, and palladium, will feel awfully good at the time.

What about possible near-term corrections? Leibovit's view: "Any corrections along the way will be gifts, allowing us to buy gold more cheaply."

In the event of a pullback, I emailed-him, which would be his top gold buys? Among his best bets are two gold exchange-traded funds, Market Vectors Jr. Gold (GDEXJ) and iShares Gold Trust (IAU), and the Central Fund of Canada (CEF).

James Turk, chairman of bullion dealer GoldMoney, thinks the recent rally that produced record gold prices should extend itself over the next five years as the U.S. struggles out of a recession and confidence in paper currencies diminishes.

As for the risks, Turk figures the chief threat to gold is a reversal of the trend toward currency devaluations and a swing to broad monetary tightening, but he considers this unlikely over the near term, what with the U.S. in particular on a bumpy road to a significant economic recovery.

The bottom line: Whether the coming elections could temporarily take the shine off the yellow metal is anybody's guess, but for now, at least, gold's fundamentals continue to look golden.

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