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Safe-Haven Gold Could Turn Cold

03/06/2011 04:21 pm ET | Updated May 25, 2011

It's what the treacherous and fluctuating investment arena is all about. One day you're a hero. The next day, you're a bum.

Take gold, the darling of the safe-haven crowd and unquestionably one of the hottest investments on the planet. But suddenly, a lot of folks are bad-mouthing the yellow stuff. Thatt started in January and it's now intensifying despite its rising price .

"A bubble that's ready to burst" and "a disaster waiting to happen" are among the increasing warnings that have recently been making the Wall Street rounds in the face of the precious metal's spectacular 10-year sprint to several new highs last week.

Just look at its amazing Mount Everest-type climb: 228.95 an ounce in 2001, $517.10 in 2005, $880.80 in 2008, $1,227.50 in 2009, and an all-time peak last week of $1,441.30. In the past 38 months alone, the price of the precious metal has shot up more than 42%. That's more than 1% a month, a feat easily equivalent to the four-minute mile.

January, on the other hand, was a miserable month for gold, which ran afoul of a brisk wave of profit-taking, in the process skidding about 7% or around $100 an ounce to $1,320. But that decline was short-lived, given the uprisings in Egypt and Libya, and fears they could soon spread elsewhere in the Middle East, notably to oil-producing biggie Saudi Arabia.

As a result, gold, benefiting from fears that the higher oil price could trigger a new round of inflationary worries and a slowdown in global economic growth, quickly recouped its loss and then some as the price of oil shot up to more than $105 a barrel and is currently trading at a shade under that.

There's no question that the inflation fears are real, what with the average price at the gas pump, according to Triple A, up $0.28 a gallon last week to $3.47, and $4-plus conspicuous in California and New York.

Meanwhile, some investors are obviously getting nervous about gold. Indicative of this, holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, fell for the fifth consecutive month in February, the longest running outflows since the trust's inception.

In the face of all of this, a HuffPost reader in New Orleans e-mailed me: "I survived Katrina, but I don't know that I can survive what my broker has done to my portfolio. I'm thinking of buying some gold even though it's way up. Am I too late? What do you think?"

Okay, let's see what some gold watchers have to say, keeping in mind, of course, that no one knows what's going to happen next in the explosive and volatile Middle East, nor how the Libyan situation will eventually resolve itself. Clearly, if new protests break out, common sense would seem to suggest oil prices would go higher, as would the price of gold.

A number of pros I chatted with, however, see some gold vulnerability over the short run, implying that supposedly safe-haven gold may not be as safe as you might think. Longer term, though, several, citing massive currency debasement and equally massive 24/7 money printing, along with higher inflation, producing considerablyl oftier oil prices
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Caise Hassan, a trader in Amman, Jordan, has mixed views. For starters, he tells me "I wouldn't buy gold here because it's risky now," to the point, he believes, where the metal could backtrack to $1,200, or maybe even to $1,000, chiefly because of its large advance. By the same token, he says, he's long gold and he wouldn't sell it, theorizing it could rise to $1,500-$1,600 before year end. Accordingly, he's a buyer on any dips.

Why so? Hassan's rational: Demand is outstripping supply, favorable seasonal factors (most of the oil is bought between February and April), heavy buying by users and producers, and short covering by some large players.

On Friday, Bloomberg TV bombarded viewers during the day with the news that veteran newsletter writer Dennis Gartman of the Gartman Letter had gotten out of gold entirely, a clear message that he had turned bearish on the metal. Not so. You have to look at his time frame. Actually, he sees a possible $50-$75 decline in gold within a few weeks. The metal, he tells me, faltered at $1,440 when it should have moved demonstrably higher. So as of now, says Gartman, gold looks frothy and investors should move to the sidelines. By year end, though, he sees a comeback for gold, noting the long-term fundamentals remain positive, citing in particular expanded holdings by central banks at the expense of Euros, dollars and sterling. His year-end target: a range of $1,475-$1,500.

One of the more provocative forecasts I got came from Australian chartist Cornel Campeanu, a dogged tracker of commodities, who says the charts on gold continue to show much strength (the kind, judging from his outlook, that resembles the power of Hercules, Samson and Superman all wrapped up in one).

An upward move in gold of more than $100 an ounce is hardly unusual, but Campeanu believes it can happen, not over an extended period, but in just one day, say around mid-March. By the end of this month, in fact, he expects gold to top $1,500.

A major gold plus, as he sees it, is the likelihood of civil wars in a number of Mideast countries. "I think the troubles there have just begun," he says.

His favorite gold play: Randgold Resources, Ltd. ($80.48), which he thinks could top $100 before the end of the month.

Where gold goes from here is anybody's guess, but if you can look beyond its price action over the next 30 minutes, a comment from one watcher of the precious metal may sum it up best: There are about 300 economists in the world who think gold bullion (which pays no interest or dividends) is a barbaric relic. They may be right, but unfortunately there are three billion inhabitants in the world who believe in gold.

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