Flamboyant gold forecasts have long been part of Wall Street. Most are laughable, especially from the gold bugs. But with gold booming, these far more conspicuous blue-sky predictions are starting to take on growing credibility, and even the outrageous seems plausible to the swelling army of precious metal lovers.

The wildest gold forecast around – nearly three-fold its current price of around $640 an ounce – is not from a perennial gold bug, but rather an investment adviser, Stephen Leeb, whose recommendations are generally laced with discipline and common sense. Recently, though, he fired off a shocker to subscribers of his New York-based monthly newsletter, the Complete Investor, predicting a possible explosion in the gold price to between $1,500 and $2,500 an ounce. No, not in the next 10 to 20 years but, would you believe, in just 12 to 24 months?

Granted, the yellow stuff in the ground has already had a meteoric rise, shooting up 46% to a 25-year high from its 2004 close of $438.45 an ounce and climbing about 24% from its 2005 wrap-up of $517. Nothing, of course, goes up forever, but Mr. Leeb argues the metal, despite its surge, is headed still sharply higher.

If his $2,500 prediction strikes you as off the wall, I’m with you. But Mr. Leeb counters: “Don’t sneer!” Historical relationships between oil prices and gold, he points out, suggest that if oil keeps moving up – which many Wall Streeters expect – gold could take off in an even bigger way. And even if oil prices should moderate, he comments, other forces – in particular, currency trends – should push gold higher.

Over the past five years, gold has been trading at about nine times the price of oil. This is close to an historical low and one-half the historical average of 18. But Mr. Leeb figures gold’s lagging days are over and the ratio between oil and the precious metal is about to change in a big way.

“We’re nearing a juncture where if oil prices, as we expect, go on rising, gold will soar,” he says. He figures $100 a barrel crude within the next year or two (it’s now in the low $70s) is pretty much a conservative expectation, given that practically every major oil exporter is in a political hot spot.

“Oil at $100 a barrel could mean gold at $1,500 or even $2,500 an ounce,” he says.

But why should further increases in oil cause gold to soar and outpace oil price rises rather than just climb at a more sedate pace?

Because, Mr. Leeb observes, “Our economy is approaching a key inflection point where rising oil prices finally will bring on inflation. And that will be manna for gold.”

But what happens if he’s wrong and oil should back off to around $50 a barrel?

“Gold still will be a winner,” Mr. Leeb maintains, citing its relationship to the dollar, particularly the Chinese yuan. The dollar and gold, as most investors know, move in opposite directions. When the dollar is weak, gold is strong, and vice versa. In the past two quarters, though, this relationship has been out of whack, with an apparently strong dollar going hand in hand with rising gold.

This movement, however,isn’t as contradictory as it might seem, Mr. Leeb points out, for while the dollar has been strong relative to most currencies – in particular to the euro – it has begun to slide against arguably the world’s most important currency, the yuan.

Mr. Leeb observes the cheap yuan, which has meant low prices for scads of Chinese imports imported by America, has been the key force counteracting rising commodity prices and helping to keep inflation in check. No wonder, he says, gold began to rise despite the strong dollar/weak euro late last year.

The fact that the dollar is likely to remain weak indefinitely against the yuan is another reason to believe gold will return to its historical 18-1 ratio against oil, Mr. Leeb says. The general rule, he points out, is that once inflationary forces start to gather steam – whether from oil, currencies, or any other factor – the gold-to-oil ratio rises. And from where it sits today, Mr. Leeb says, there’s tremendous room for it to rise. He points out that even if oil fell back to $40, you could make a case for gold at more than $700 as long as other inflationary forces were present (as they are today).

So what’s the best way to invest in gold?

Mr. Leeb has five favorites: street-TRACKS Gold Trust, an exchange-traded fund which tracks the price of gold, and the four largest mine operators in North America that are currently producing precious metals and turning a profit: Barrick Gold, Coeur d’Alene, Glamis Gold, and Newmont Mining.

His basic wrap-up message: Join the party; it’s go for the gold, Part 2.

dandordan@aol.com