THE BLOG
01/20/2011 04:46 pm ET Updated May 25, 2011

Big Gold Pop Apt to Follow Gold Drop

Even Superman has his bad days. We saw that last Sunday when the New England Patriots, widely viewed as the Superman of football, were beaten by the underdog New York Jets.

We saw it again in recent months when gold, the investment arena's Superman, switched from the man of steel to a powder puff after racking up 10 straight years of gains (30% last year) during which it shot up more than six fold from $228 an ounce in 2001 to a recent all-time high in early December of $1,432.50. But since then, the yellow metal, which is looking quite toppy,has backtracked to around $1,350.

This decline, though hardly awesome, has led to a series of warnings, such as "the gold bubble is about to burst" and "a collapse in gold is imminent."

One of the country's dogged trackers of precious metals, a skilled market timer who warned of the recent gold selloff, is online investment adviser, Mark Leibovit, editor of the VR Gold Letter in Sedona, AZ. His latest thoughts: More gold weakness could be in the works into March which might knock down the price 10% to 25% from its recent high (which raises the prospects of a possible drop to as low as roughly $1,070).

But after the gold drop, he sees a likely gold pop.

The metal, as Leibovit sees it, has to overcome the lack of strong upside volume and the recent resistance to re-establish its short-term uptrend. As a result, he's sitting on the sidelines insofar as his trading position is concerned. "We always run the risk of a shakeout and where and when it ends is anybody's guess," he says.

Famed global commodities investor Jim Rogers is also hoisting warning flags, noting that gold is overdue for a rest and is likely headed lower over the short run.

Shortly after gold crossed $1,000 an ounce in September of 2009, Leibovit made what I thought was an off-the-wall forecast: "Gold will never again trade below $1,000 an ounce in our lifetime!" he told me.

Since the fluctuating metal is on a constant see-saw, how, I wondered, could he be so cocksure about the stability of such a volatile investment? Also in the back of my mind was what George Soros once told me over breakfast many years ago -- namely, "owning gold is like playing poker" and who about a year ago described the metal as "the ultimate asset bubble."

Nonetheless, Leibovit is sticking to his guns about his bold forecast. "The wind is at gold's back," he says. "We're in a big 20-year up cycle that has another 10 years to go." He also views the recent drop in gold as a gift -- an opportunity to buy the metal cheaper.

Although he holds out the possibility of a near-term drop in gold to around $1,070, he thinks a more realistic low during this period is between $1,250 and $1,300. By year-end, he figures the metal will be trading at a new high of around $1,600, on the way a few years out to between $2,000 and $3,000. He's also a bull on silver, which he sees rising from its current price of $28.75 to $36 by the end of 2011.

Adding to gold's allure at this juncture, Leibovit points out, are a bevy of worries and demand factors... Chief among them:

-- Continued quesions about the longevity of the euro.

-- A near-certain resumption of a sizable decline in the dollar, which Leibovit argues is "terminal over the long term," in large measure reflecting $80 trillion of funded and unfunded debt that will never be repaid.

-- The inevitability of higher inflation stemming from 24/7 money printing around the globe and ballooning commodity prices.

-- Increasing global demand for gold, notably from China and India.

-- America's loss of worldwide leadership as the baton is being passed to China, which is in the process of strengthening its military. A cold war between the U.S. and China is inevitable, Leibovit believes.

His favorite gold investment is the Central Fund of Canada, which holds gold and silver bullion. He also likes Agnico Gold mines Ltd., Market Vectors Junior Gold Miners ETF and Northern Dynasty.

Leibovit's bottom line on the metal: Don't let the bubble talk or the recent weakness scare you away. It's still the best financial bullet vest around because the fundamentals remain so positive that gold in the long run still looks penthouse bound.

In brief, gold, looking ahead, still looks golden.

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