The Sovereign Society's  Instablog

And nobody is more bullish on gold than me. But the majority of money-managers and bankers from Europe were generally bullish on gold, while a few expressed concernconcerns after a big rally over the last four weeks.

My view is that any correction should be interpreted as another in a long series of opportunities to accumulate gold in the age of violent capital markets, skyrocketing U.S. and Western government deficits and broad-based currency devaluations across the world.

Gold – though overbought near-term – remains in a formidable uptrend…

I would, however, avoid making fresh investments into gold mining stocks after a stunning 165% rally since last fall. Wait for a pullback before buying gold stocks again.

Uncertainty Drives Investors to Trusted Value; Gold

When asked at Cabo San Lucas, Mexico, whether now is the "right time" to buy gold, my reply was to apportion 50% of your allotted target right away and the balance on any impending correction. The market might run away from here – though I highly doubt it because everyone is too bearish on the dollar and the buck should muster a violent but powerful short-term rally.

I would use this opportunity (dollar strength, however short-lived) to buy more gold, silver, the Norwegian kroner, Canadian dollar, euro and Aussie.

Recent news that the Indian central bank purchased 200 tons of gold from the IMF sent prices sharply higher again – gold crossed the $1,100 mark intraday before pulling back to close at $1,095 an ounce. This morning, gold trades at $1,132 an ounce.

Though the Indian central bank is buying gold at these levels, they're defying the broader trend in Indian fabrication demand, which has collapsed since $750 gold last year. The majority of Indians, the world's largest consumers of gold jewelry, aren't lunging after gold at these prices…at least not like they have in the last few years.

Traders commenting in a recent editorial in the Financial Times believed India's $6.7 billion dollar purchase was the largest by a central bank in more than 30 years. Other central banks are likely to follow.

Clearly, global investment demand for gold is booming as investors, institutions and central banks in Asia accumulate gold at the expense of the IMF and heavily indebted Western nations.

I expect this trend to continue for many years as we witness the greatest transfer of wealth from West to East, marking the end of Anglo-Saxon global financial domination after nearly 300 years.

Sincerely,

Eric Roseman, Investment Director

Bulls and bears should both embrace portfolio hedging ahead of the next correction or panic.

Learning how to apply a hedge or a series of hedges can mitigate market risk while protecting portfolios. That's especially true today with stocks in the midst of their greatest rally in more than 100 years.

In late September 2008, I turned my European-based mutual funds and managed accounts from almost market-neutral to net short using reverse-index funds or exchange-traded-funds. For dollar-based accounts, I bought SH, the Pro Shares Short S&P 500 Index, in New York and for EUR-based accounts the Frankfurt-listed DB X-Trackers Short DAX ETF. Both positions surged more than 20% in Q4 when world markets plunged about 22%.

Without employing reverse index ETFs last year my portfolios would have declined much more. Just how badly did I fare? Insurance-related funds declined 7.8% after all fees and managed accounts fell an average 4.8% in 2009. Not bad. This compares to a hefty 38.5% plunge for the S&P 500 Index, -40% for the MSCI World Index and -20% for the CSFB Tremont Hedge Fund Index.

In the absence of organic domestic consumption, the government can't replace consumer spending indefinitely; the global economy is recovering…but $80 oil doesn't help to boost spending in a world still fractured by the loss of credit intermediation, rising unemployment and falling wages.

This is the Mother of all bear market rallies. Hedging your portfolio now is inexpensive and the wisest strategy ahead of 2010.

If market history is any guide, the best time to buy stocks is in late October and the best time to sell them is in May.