Adrian Ash (The Daily Reckoning):

The collapse in India’s gold demand during 2007-09 might seem good reason to question the fundamental strength of gold buying worldwide.

After all, if the world’s No.1 gold buyers can’t keep up with record-high gold prices, who can…?

But the plain fact, as BullionVault first forecast in spring 2009, is that China has overtaken India as the number one private gold buyer this year. The typical Chinese New Year gold rush has already begun (thanks in part to 3% discounts at major retailers), and robust demand looks likely to continue through 2010 if not beyond.

Full-year 2009 private demand in mainland China could outstrip India, the former No.1 buyer, by one quarter if not one third. Short of a (very unlikely) collapse in Q4 demand, full-year private gold buying – including jewelry and retail investment – is set to have grown 10% from 2008’s record in volume terms, rising 26% by value to equal $13.5 billion or more.

On recent trends, that would equate to more than 2.0% of China’s famously massive household savings (up from 1.0% ten years ago) and account for almost one ounce in every eight sold worldwide.

Basis the GFMS consultancy’s data (published by the World Gold Council), physical gold purchases by mainland Chinese households in 2009 was already running 19% ahead of India’s private demand for Q1-Q3.

Given China’s continued economic growth (certain to hit Beijing’s 8% target according to the Chinese Academy of Social Sciences) – not to mention the surge in money-supply and credit growth over and above GDP (put at 23 and 27 percentage points respectively by Deutsche Bank) – private gold consumption in Q4 most likely remained very robust. Whereas India’s private gold off-take during Oct-Dec. continued to shrink in the face of record-high prices. Indian bank and wholesale dealers have reported below-market bids from their clients throughout the autumn. Comments from the Bombay Bullion Association put Q4 imports 54% lower from 2008’s already disastrous finish.

Fourth-quarter Chinese consumption should be in the range of 116 tonnes (if it adds 37% to Q1-Q3 volume, as per the 5-year average) to 128 tonnes or more (if Q4 tops Q3 by volume, as it has each year since 2004). The running total to end-Sept. was 315 tonnes. It is likely to finish full-year at 431-443 tonnes.

India’s private demand, in contrast, ran 45% below 2008 levels during the first 9 months of the year, most notably depressed during Q1 (down 83% from Q1 08, with Indian investors becoming physical dis-hoarders on GFMS’s data; overall, India was a net exporter of gold for the first time since the Depression according to market historian Timothy Green). Applying the 5-year average ratio of Q4 demand to Q1-Q3 figures (27% added to 264 tonnes), full-year private off-take would come in at 336 tonnes, the lowest total since at least 1991 on GFMS’s data. . . .

Click here for the rest of Mr. Ash’s analysis at The Daily Reckoning.

I used this insight and logic to warn investors about an imminent downturn in gold prices earlier this month. I got a lot of “feedback” from disappointed gold bugs. But it didn’t take long for them to eat their words as the price of an ounce of gold fell by nearly 10% in the last month.

But as I said earlier in the week, the slide is over. Of course, unlike the nation’s leaders, I’m willing to follow my words with action.

Here is what I sent to TFN Strategic Trader members first thing this morning:

“It is time to make the move. With the dollar increasing in value, America’s fiscal future looking stronger than its European brethren and record inflows proving safety has taken a backseat to asset appreciation, the price of gold has fallen by nearly 10% over the past month.

“Just yesterday, I read my first article in nearly a year that discusses the downside of the shiny, precious metal. Now that gold is trading for $1,100 an ounce, the sentiment has turned.

“Where were these articles a month ago when I warned of a turnaround? Now that the crowd has caught on, it’s time to change our outlook.

“As option investors, that means it is time to by. All you contrarian investors are going to love this week’s play. It gives you a chance to maximize the gains from gold’s upcoming turnaround.

“With gold shedding a significant portion of its value over the last four weeks, the speculation surrounding the metal has diminished greatly. That means once we get back down to base levels – the charts show its somewhere between the $1,050 and $1,100 per ounce range – we are set for even more upside.

“Rising inflation, interest rates and economic activity will boost demand well into the new year.

“Here is how I want you to take advantage of the situation. It is simple. Buy…”

You didn’t think I would give it away did you? To get in on the action and learn what I recommended, click here.

***We have come to the end of the year. In some ways I will be glad to see it go and in others, 2009 will be missed.

As a financial pundit, there will never be another year like 2009. Between pyramid-scheme scandals, unfathomable amounts of government intervention, a market nosedive and a roaring comeback, we never had a shortage of topics to cover.

As an investor, the action was bittersweet. Nobody likes extreme volatility like we saw in the first half of the year. Sure, there was profit opportunity, but not if it means losing your hair and risking your house.

For buy-and-hold investors, the year will end with gains of about 20% from the major indices. A nice victory, but still well short of where we were two years ago.

For in-and-out traders, the sky was the limit in 2009. Over at TFN Strategic Trader, we wrapped up a significant number of triple-digit winners.

But instead of looking backwards, it’s important to look towards the future and see what is just across the horizon. For 2010, it will be all about currencies, commodities and small caps. With so many of the nation’s smallest companies restrained by lending restrictions and top lines that refuse to grow, the next twelve months will be pivotal for the smallest of publicly traded companies.

For investors with the determination and skill to uncover the companies likely to be successful during that time, expect strong rewards. You can bet we will cover this sector in great detail as the year kicks off.

Until then, enjoy the last few hours of 2009 and have fun celebrating the arrival of the New Year.

Baltimore — (TFN): I don’t know whether to laugh or cry. Down in Chattanooga, Tennessee, a four-year-old boy managed to grab a beer, walk out his front door and break into a neighboring house to steal Christmas gifts.

True story. But it gets better.

Inside of one of those gifts, was a girl’s dress. The youngster donned the new attire and continued his late-night spree. His mom tells us it was all in an attempt to get in trouble so he could spend a night in jail… with his old man.

Smart kid. He’s going to have a great career as a banker some day.

Although the names and the ages are different, it’s essentially the same story on Wall Street and in Washington. Drunk on greed and wearing a stolen cloak of authority, our elected officials and the pigs that feed at their feet have stolen from you and I once again.

Remember way back when in the days when the financial collapse was still fresh on our minds? Do you remember the pundits warning that the federal government’s decision to buy a massive stake in Citigroup was a disaster in the making?

Washington poo-pooed the notion, saying it has to be done, right now, right here. The consequences of the future don’t matter today.

Guess what… the future is knocking and it’s not wearing a frilly little dress.

In an effort to get out from Uncle Sam’s massive shadow, the boys at Citigroup decided to offer up more shares of the company and even managed to convince Geithner and his gang at the Treasury to unload their shares.

Turns out, the free market wants very little to do with owning a stake in Citigroup. It’s over a year later and the bank is still just as financially repulsive.

With news like this, does anybody really believe the notion of economic recovery is sustainable? Not me.

Judging by the quickly strengthening dollar and the drastic drop in gold prices today, the situation across the globe shares similar pessimism. When the greenback looks like the best place to park your money, you know there is trouble brewing.

That reminds me. Want to know the best Christmas gift this season? Cash. It’s the only thing going up in value these days.

You can thank your leaders in the nation’s capital for that.

*** Actually, that is an oversimplified view. Of course cash is not the only thing going up in value. Put options are soaring, too. But so is one tiny, overlooked segment of the commodities market.

During the couple of summers I spent as a fishing guide, one of my good friends was a real-live Alaskan lumberjack. After a couple of tours in Vietnam, the woods were the only place he felt “comfortable.”

Although he is the foulest man I ever met, he has great insight. One day while we were tossing streamers in front of migrating silver salmon in Alaska’s Tongass National Forest, he looked around and said, “Yep, we’re surrounded by millions and millions of dollars.”

He went on to tell me North America’s forests aren’t worth much right now, but they would be as soon as “those Asians” started buying. His words, not mine.

How right he was. I plan on calling him up this weekend to ask if he heard the news out of Shanghai. China’s largest city just changed its building codes and opened the door to wood framing.

Almost overnight, it opens the market to a construction industry that is half the size of our domestic market. And that is just one city.

As the housing market comes back to life (hopefully with a little bit of juice from Washington), we are going to watch timber prices soar. When it happens, my lumber-cutting friend will be onto to something very, very big.

But so will we. Not only did I just recommend a set of timber-related options this morning to TFN Strategic Trader readers, but the group’s publisher, J. Christoph Amberger, recently pulled the curtain on his latest research.

He recommends three unique ways to play the upcoming boom in the timber industry to Hot Stock Confidential members. It’s a down-and-dirty report you won’t want to miss.

You’ve got to read his report.

*** Finally, we got out of the natural gas markets just in time. After locking in gains of 400% on the first half of one play, 100% gains on the second half, 50% on a separate play and 56% gains on a third natural gas pick, the sector has turned around and shot right back up.

Thanks to word of a record withdraw for this time period, natural gas prices are on the rise. While we are still holding a couple of related plays and half of an original position, the plays are far enough removed from the effects of rising prices that we don’t have to worry.

But going forward, with natural gas prices on the rise once again, we are on the brink of yet another major opportunity. With word this week that Range Resources (NYSE:RRC) has nearly quadrupled its Marcellus gas production, we have all the proof we need to say the gas industry is in for a rough ride.

It’s simple supply and demand. Now that natural gas is all over the place, and far easier to pull from the ground than once estimated, the markets will continue to be oversupplied.

Even with today’s strong withdraw, storage levels remain well above five-year averages. I am convinced we will have yet another set of triple-digit winners on our hands in no time.

Bill Bonner (The Daily Reckoning, UK):

Gold rose $15 yesterday. What to make of it?

Perhaps it was because Ben Bernanke’s extended his “extended period” pledge?

He said, in effect, if this economy doesn’t come out of its slump, it won’t be his fault. He’ll keep monetary policy as loose as possible for as long as possible. Not that we had any doubt about it. He has a theory. It’s a bad theory, but it’s all he has. And it tells him that you fight a depression with loose money.

So, what do you expect? Interest rates will remain artificially low as long as Bernanke can get away with it… or until the depression ends… whichever comes sooner.

That said, he hardly has to lift a finger. Judging from the last auction of short-term Treasury debt, lenders can’t think of anything better to do with their money than to give it to the government – in return for nothing. The last auction produced a yield of zero on one-month loans.

We went to visit a pair of clever Swiss bankers yesterday. These fellows manage money for clients all over the world. What do they think? They were focused on stocks:

“This year, the people who made the most money were those who were most heavily invested in equities. And if the patterns of the past hold up, 2010 will be a good year for equities too.

“Whenever the ten-year performance goes close to zero, the next few years tend to be very good for stock market investors.

“In fact, there has never been an exception, going all the way back to 1881. Last year was one of the worst years in stock market history. This has been one of the best. And next year should be one of the best too.”

He handed us a chart to illustrate his point. It shows the 10-year performance of the stock market.

We see that very rarely are stock market returns negative over a 10-year period. In fact, there are only two worth mentioning. One was in the ‘30s, when in August ‘39 stocks had returned MINUS 4.68% for the previous ten years.

The other major losing period came in February of this year, when investors had gotten an average annual return of -3.43% since 1999.

The message seems simple enough. When the market turns down sharply… expect a sharp turn-up to follow. But studying the chart more carefully, we see two things.

Click here for the rest of Mr. Bonner’s commentary on The Daily Reckoning, UK Edition.

Steve Sjuggerud (The Right Side):

Dear Reader,

“We made three thousand dollars just yesterday in gold,” a family member told me this week.

“I know your friend Porter says buy. And I haven’t heard you tell anyone to sell. But it’s starting to feel like the dot-com days… I’m getting worried.”

This family member should have reason to be concerned… Yes, he scored big in the dot-com boom – at first. But he later gave back much of the gains.

What did he do wrong? He had no plan. He didn’t know when to sell.

So… when do you sell once you’re in a dot-com-style bubble?

First off, while it may feel like a bubble to you in gold, I think we’re just getting warmed up. The dot-com bubble peaked in March 2003. Remember, at that point, stock trading was the talk of dinner parties. We’re not quite there yet.

Also, you don’t need to believe Armageddon is near… that deficits and debt will destroy America… to believe gold will go up. Beyond the Chicken Little scenarios, we have plenty of reasons to own gold that have proven to make you money in the past. I’ve covered a few of those in recent issues of DailyWealth:

· You’d have made 17% a year in gold using a modified version of my friend Meb’s system.

· You’d have made 15% a year in gold using the “gold versus currencies” strategy.

· You’d have made 18% a year in gold using real interest rates as an indicator.

If you own gold when at least one of these systems says “buy,” chances are, you’ll do very well. All three of those are in “buy” mode right now.

OK, so when is the exact, optimal moment to sell your gold? The first two systems will get you out in plenty of time before it busts. Another idea is to use a trailing stop.

Click here for the rest of Mr. Sjuggerud’s analysis for The Right Side at Fleet Street Invest, UK.

Karim Rahemtulla (Investment U):
Of all the great investments you could have made in 2009, gold is right up there among the best of them.

The price of gold has surged this year, taking gold shares upwards with it. Readers of my Xcelerated Profits Report have rung the register with 45% profits on Goldcorp (NYSE: GG) and a triple-digit winner on Golden Star Resources (NYSE: GSS). We’re also up big on Yamana Gold (NYSE: AUY) at the moment.

All is good, right?

On the surface, perhaps. But not if you believe what the options market is saying…

Yamana Options Signal a Share Price Drop

Using Yamana as an example, the options market is betting that over the next 12 months or so, Yamana may fall from current levels of around $13 back into the single digits again.

Just take a look at the January 2011 $7.50 put options (the right to sell Yamana shares at $7.50), currently trading at $0.70 cents per contract. This means the put buyer thinks Yamana’s price will fall to $6.80 – almost 50% below current levels – in order to be in the money. The $6.80 price is derived from subtracting the price of the option from the strike price ($7.50 minus $0.70 = $6.80). This tale is similar across other gold shares, too.

These put options are expensive relative to Yamana’s share price – the result of gold prices moving sharply in previous weeks and causing the volatility in gold stocks to increase.

As a quick refresher, the price of an option is based on four major factors:

The price of the underlying shares
The options strike price
The time to expiration
The volatility of the underlying shares
Two Ways to Play Gold Prices… But Only One Viable Option

So if you’re a gold investor looking to participate in the market, what can you do to protect your profits, or buy shares at a lower price? Here are two potential ways…

Click here for the rest of Mr. Rahemtulla’s Analysis at Investment U.

Precious metals have always been intriguing to investors because they tend to hold their value. In times of geopolitical crisis or currency devaluation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, historically, precious metals have been considered a “safe haven” in times of economic and financial instability.

That brings us to why gold is on a tear today. It declined in 2008 and early 2009 as panicked investors rushed into cash in an attempt to weather the financial crisis. But sometime in the middle on 2009, when investors began to move their money from the sidelines, gold started to rally. It returned 32.59% through the third quarter of 2009, vs. 19.26% for stocks.

The question is, where can we expect gold to go from here? In order to predict whether gold prices will skyrocket or come crashing down, it’s important to understand the principal factors that affect the price of any commodity: supply and demand.

The supply side of the equation is not particularly relevant in regard to gold because gold supplies remain fairly constant. That’s because production has not significantly increased due to a lack of new mining sites. Should supplies increase, however, investors may want to be cautious.

The demand side of the equation, then, is the one gold investors must look at. And as we noted above, demand for gold tends to increase when investors have a lack of confidence in the U.S. economy and financial markets.

That’s certainly the case today. In fact, we see two factors, that could lead gold to outperform in the near future: inflation and currency devaluation. In response to the financial crisis of 2008 and 2009, the Federal Reserve injected massive amounts of liquidity into the money markets. Ultimately, that increase in the money supply could devalue the U.S. dollar and lead to inflation. In fact, the U.S. dollar is already shockingly low. On October 14, 2009, it fell to a 14-month low against the euro, hitting $1.4947, the weakest since August 2008, according to Bloomberg. And while inflation is not yet a problem, economists are on the lookout for it.

These conditions led Standard & Poor’s (S&P) to raise its gold price assumption for 2010 from $750 per ounce to $800 per ounce. “Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices,” the S&P analysts write. “The metal’s properties as a safe haven, and to a lesser extent the demand for jewelry, also support its longer-term price prospects.”

S&P’s estimate, however, may be on the low side. As of November 2009, gold was trading at more than $1,000 per ounce. And since gold exceeded $1,000 per ounce level, the price has been extremely resilient, with no meaningful pullback seen. There have been periods of profit-taking, but increased demand quickly appears on any weakness in price.

In sum, then, good old-fashioned gold fever is back—and investors who are looking for a promising trend may want to consider investing in it and other precious metals.

But don’t consider gold an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Precious metals tend to perform differently from other assets. As a result, investing in precious metals may be a good diversification strategy for a portfolio comprised mainly of stocks, bonds and real estate—in all environments.

This article was written by OilPrice.com – who offer free information and analysis on Energy and Commodities. The site has sections devoted to Fossil Fuels, Alternative Energy, Metals, Oil prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com

“I don’t know if I will live to see it,” said Brazil’s president Luiz (Lula) da Silva a couple weeks ago. “But Brazil has to transform itself into a big power in the 21st century. We have everything to make it happen. We are not talking about a little country here.”

No, indeed. Brazil is not “a little country” anymore. Any prudent investor has to consider how to hitch a ride on the Brazil growth story. Brazil is transforming into one of the world’s great powers in this century. It’s important to follow the news from Brazil. At the same time, you have to know where to look, and how to read between the lines.

By official count — what the Brazilian government will confirm — the rocks of Brazil hold nearly 20 billion barrels of proven reserves. That number is on par with the total for U.S. oil reserves, including Alaska and the Gulf of Mexico.

It’s an impressive number, but then there’s also the unofficial Brazilian reserve count. How much oil is “really” down there under Brazilian jurisdiction? It depends with whom you talk. Some Brazilian officials will smile and say the country has 50 billion barrels of resources. If the Brazilians can tap into this treasure, it adds up to more than twice the total reserves of the U.S., including Alaska.

Other knowledgeable — VERY knowledgeable — Brazilians give much larger estimates. I’ve seen estimates that place the resource number at “over 100 billion barrels.” This puts Brazil in with the largest of the large oil nations, such as Iraq, Iran and Saudi Arabia.

These massive oil resources offshore Brazil lie beneath deep water and thick layers of salt. And since it’s all within Brazilian waters, the government of Brazil is increasing its control over offshore development. This way, Brazil will have its own oilmen keeping an eye out for the overall national interest — and making big money for the Brazilian treasury.

The new level of Brazil’s state control over oil development is a strategic decision. Brazil is counting on the hydrocarbon resources to help propel it forward as one of the world’s major powers. And the development in Brazil will control the destiny of a good number of players in the OI portfolio.

Many companies whose fate is tied to the wheel of the Brazilian ship of state are in that portfolio. All of them have operations that span the globe. They’re not a pure play on Brazilian energy development. Just the same, it’s nice to know that they’ll be pulling down a big chunk of business in one booming region over the next couple of decades. As I see it, these firms are long-term core holdings for any diversified energy portfolio.

Gold on the Move

This week, the price of gold touched $1,040 per ounce. Silver also took the elevator to higher floors, to now over $17 per ounce. It’s been good news for all of the gold and silver miners in the OI portfolio.

We’re way up on many of the miners I’ve added this year to the OI portfolio. Some of the beaten-down guys are also showing us their inner Lazarus as precious metals prices soar.

What’s with the Rising Tide?

I just love it when the stocks in the OI portfolio are going up. It beats the heck out of what we experienced last October with the meltdown, that’s for sure. And it makes it easier to be the editor of a financial newsletter that focuses on precious metals, energy and other natural resources.

What’s going on? What’s with the rising tide? I believe we’re seeing some short covering in the precious metals arena. It has always amazed me in the past couple of years that there were people out there shorting gold. Huh? It’s like that scene from the movie The Deer Hunter in which Robert De Niro is playing Russian roulette with a pistol holding bullets in the chambers. You don’t have to be crazy to short gold, but it helps.

I may not have the same eyesight today as back when I flew Navy jets. But how close do you have to look to see that the U.S. dollar is in trouble? Yet people still want to bet on the dollar and against gold? Hey, it’s a free country. And I’ve spent the past few years feeling pretty lonely at times as I described my vision of monetary gloom and doom.

So now the dollar is dropping due to bad news on many fronts. The U.S. economy is NOT “recovering,” contrary to the propaganda from Washington. Unemployment is up, and it’ll stay up for a long time. There’s a structural readjustment going on within the U.S. economy, and it’ll take years (maybe decades) to play out. Meanwhile, U.S. tax policy, energy policy and the overall political process are a train wreck in living color. Can anyone explain to me how this has a happy ending?

The world, of course, is noticing. Now we read about a group of nations (the usual suspects, but add in modern allies Japan and France) trying to figure out how to ditch the dollar and use some other medium of exchange to trade oil. It’s not exactly a new rumor, but now it’s getting traction. And like people smelling smoke in a crowded theater, dollar holders are looking for the exit signs.

Is anyone surprised at this? How much fiscal and monetary abuse can the greenback stand? Hence, the precious metals prices are levitating.

We’ll probably see a pullback in precious metals prices, but that’s just going to be profit taking and the market working its magic. Long term, the metals are still going up.

It’s part of the long-term thesis of Outstanding Investments. Go with precious metals. Go with energy plays. Go with solid resource plays.

Until we meet again,
Byron King

Source: Energy, Brazil, Gold: What More Could You Want?

Unlike some stockpickers and newsletter analysts, who proudly trumpet all their winners, while shuffling the losers under the rug, I have no problem admitting when my calls go against me.

And to the delight of all the naysayers, this happened just a couple of days ago when gold prices shot to a record high. That triggered my sell-stop and, rather than let my pride come before a fall and hang on, it’s time to move on.

Don’t get me wrong, though… I’m still convinced that the yellow metal could suffer a correction for three main reasons…

• So far, inflation hasn’t reared its ugly head. If it stays in hiding much longer, disillusioned investors will probably head for the exits.
• If the U.S. economy recovers quicker than expected, investors will be inclined to abandon the safe haven of gold and reinvest in equities.
• The technicals point to a drop. The last four times gold spiked near or above $1,000 per ounce, it quickly (and sometimes precipitously) corrected.

However, giving into these convictions – and doubling down on gold – would mean abandoning two core investing disciplines that I swear by – position sizing and trailing-stops…

Have You Considered Using Trailing Stops & Position Sizing?

I know… you’ve heard about them countless times before. But indulge me for a moment, as I explain an aspect of both trailing stops and position sizing that you’ve probably never considered…

• When I speak at investment conferences, I always like to ask people to share their biggest loser. Heads go down and nary a hand rises.
• Conversely, when I ask them to share their biggest winner, it’s like I just offered free candy to an auditorium full of kindergarteners. Everyone’s hand shoots up and there’s a chorus of anxious, “Oohs!”

Nobody likes to talk about losing investments. Instead, we want to thump our chest over the latest 1,000% gainer. The reason for that is obvious, so let’s focus on the fear about talking about our losers.

Many investors turn their biggest loser into a total loss. Instead of employing a trailing-stop and exiting a trade as the price tumbles, they make it a long-term investment to save face. Or worse, they invest more at lower prices. Most times, the stock goes belly up and they lose even more.

Even the professionals can’t claim immunity here.

• For instance, take Bill Miller, the famous manager of the Legg Mason Value Trust Fund (LMVFX). Although Miller beat the S&P 500 for 15 consecutive years, he refused to man up to his mistakes when the market took a nosedive in 2008. He kept averaging down in stocks like Countrywide, Bear Stearns, Freddie Mac (NYSE:FRE), Merrill Lynch, Washington Mutual (OTC:WAMUQ) and AIG.
• He revealed the true depth of his arrogance when he was asked how he knew when to stop buying a falling stock. “When we can no longer get a quote,” he replied. In other words, the only price at which he was unwilling to buy more was zero.

Here’s my point…

Avoid Losses With A Position Sizing & Trailing Stop Discipline

When I joined The Oxford Club, I immediately stopped worrying about my losses. That’s because we religiously adhere to a 25% trailing-stop discipline and a position size of no more than 4% in any one investment. Thus, losses are always contained.

The beauty of such a simple, disciplined approach is two-fold…

• The results add up, decidedly on the plus side. Case in point: The independent Hulbert Financial Digest has ranked The Oxford Club newsletter (The Communiqué) among the top five in the nation. That’s based on 10-year returns, too.
• A trailing-stop and position sizing policy allow me to keep making bold calls without regret. The bolder they are, the smaller my position size.

For instance, for my short gold call, I only invested 2%. For a hypothetical $100,000 portfolio, that means investing  $2,000 and losing $500, or less than 1% of the total portfolio value.

Bottom line: I don’t ever let an investment turn into an unacceptable loss. And I never put too many eggs in one basket. Sure I might lose 25% here or 25% there, but when I keep my position sizes small, in the grand scheme of things, it’s no big deal.

Such a strategy leaves me with plenty of capital to re-deploy and keep gunslinging. And while gold didn’t work out, some other contrarian bets are already making up for the loss and then some.

• Take Sotheby’s (NYSE: BID), for example. Back in June, I advised readers to buy shares when everyone else believed the market for investing in fine art was going into a long hibernation. The fundamentals faltered, but they didn’t collapse. As a result, Sotheby’s rallied 68% from my entry point.
• Then there’s my recommendation last Thursday to buy into the beleaguered retail sector with hhgregg (NYSE: HGG). It’s up 5.7% since then.

If I take profits on both now, my misstep by shorting gold doesn’t even matter.

The Critical Component to a Disciplined Investment Approach: Accountability

But of course, a disciplined investment approach is useless without the critical component of accountability… In terms of position sizing, there’s only one person who can keep you honest: Yourself.

But when it comes to implementing trailing-stops, multiple options exist…

• A So-So Option: Enter the stop levels with your broker. However, this is not ideal. Market makers can manipulate prices to trigger these stops.
• A Better Option: Use a service like TradeStops (www.tradestops.com). For a nominal annual fee, it will alert you via text message and/or e-mail when your stocks hit their trailing-stops.
• The Best Option: Excuse my bias, but the best value for your money is The Oxford Club. We constantly remind you about position sizing and more importantly, notify you immediately when we hit a stop-loss or trailing-stop. And our members keep each other honest.

In addition, membership also comes with a constant stream of high quality, profitable recommendations. And they make up for the occasional downer, like my short gold recommendation! To find out more, take a few minutes to read our report on how it all works.

Good investing,

Louis Basenese

Source: Two Tips to Avoid Letting a Bad Stock Sucker-Punch You

Yesterday, it touched a new record – $1,050 – even as the dollar rose, oil slumped under $70 and stocks dipped very slightly.

Well, what do you expect? The United States added $1 trillion to its monetary base in the last year or so. The federal government is running a deficit of $1.7 trillion this year. And along comes Barack Obama with an idea to stimulate employment – spend more money! This time, Obama’s plan is a kind of ‘Cash for Workers’ program…in which businesses get a tax credit for hiring new employees.

Gold investors must think the new program will be the straw they’ve been waiting for. Government has piled on bales of costly new initiatives on this poor camel’s back. Still, he stands up straight.

So, is gold at $1,000 a bargain…or a trap? Or both.

We begin by asking: where’s the inflation? We don’t see any inflation. What we do see is deflation.

Barclays Capital says gold could go to $1,500. We don’t know where they got that number. It could go to $15,000 for all we know. Or it could go down, too.

Our guess is that it will go down enough scare the bejesus out of speculators. Then, it will soar.

But, hey, we’re just guessing – along with everyone else.

Sooner or later gold is probably headed to the lunatic moon. We’re sticking with the yellow metal. We don’t want to miss that ride.

But when?

Ah…we’re going to stick our necks out and say “eventually.” We’re sure we’re right about this. Just don’t ask us for more precision; we have none. And what bothers us is that between eventually and now there could be a lot of time and a lot of trouble. And one trouble that could come up pretty fast is another crash in the stock market.

If the stock markets of the world take another dive…like they did last year…gold will probably go down with them. Not as much, but down nonetheless. So, if we were speculating…we’d probably be short gold and short stocks too. We’d bet against bonds too – even though we think they will probably go up in the short run. The smart, long term money – in both stocks and bonds – is probably on the short side.

Here at The Daily Reckoning, however, we never speculate – except in print. As to ideas about how the world works we have plenty. We speculate daily. As to gold, stocks and commodities, we prefer to hold onto our long-term positions.

What seems fairly sure to us is that this recovery is a fraud. It’s a mountebank and a flimflam.

And now approaches a moment of truth – earnings announcements. Stock market investors bid up shares on the theory that sales and profits would rise. Will they? We don’t think so.

We think sales are going to be disappointing…and earnings will be even worse. If so, we’ll see analysts begin to change their expectations…and announce that the results are “not as bad as expected.”

If we get a few really bad announcements – with results much worse than expected – it could sink the rally. Then again, if we’re surprised with exceptionally good reports…it could send the market in the other direction.

Good results will also cause us here at The Daily Reckoning to question our position. Maybe the economy is not sinking into a chronic depression, after all. Could we be wrong?

Ha ha…are you kidding, dear reader? Of course, we can be wrong. When we were younger we were uncertain about things. But now that we’re older, we’re not so sure.

Here is what we’re pretty sure about:

1) The credit cycle has topped out.

Americans are saving – think of the poor boomers, 10 years older but not a penny richer than they were in 1999. Stocks have gone nowhere but down in real terms. Houses hit a high in 2006…now, they’re off 30%…and still going down. Jobs? Forget it…there are already 15 million people who are unemployed and about 200,000 more every month. The job market is unlikely to recover for another 6-13 years – that is, after many of the boomers are retired! And if you are lucky enough to have a job, you’re not likely to get a raise…not with so much spare capacity in the labor market.

Under those conditions, a consumer boom is very unlikely.

2) We know that a period of credit contraction is deflationary.

Prices go down as demand falls. Buyers disappear from the malls that once knew them, while the factories that produce stuff grow dusty and quiet.

But we know the feds hate falling prices. And we know they are taking extraordinary actions to get prices to go up. So far, their efforts have been a giant flop. Prices are falling in the United States at the fastest pace since the ’50s.

Most of the feds’ efforts have been directed towards keeping the bankers fat and happy…and getting themselves a bigger share of America’s output. They took funds designed to relaunch the US economy, for example, and used them to buy themselves a big position in the auto industry, the financial industry and the insurance industry.

3) We know too, by the way they conducted themselves in those affairs, that the feds have become much more aggressive…throwing their weight around in the private sector as never before.

What we don’t know is how this affects markets in the short term. So far, consumer prices are falling, but the stock market is enjoying a bounce. It is a real, new bull market? Or just a bear market bounce? It is probably a bear market bounce…but it has been going for long enough that we have to at least consider the idea that it is a genuine bull market. That’s why the numbers from this quarter are important…they’ll tell us if the companies themselves are expanding earnings fast enough to justify investors’ optimism.

4) We know too that there is a whole lot of ’flation going on.

We are just unable to tell you what kind of ’flation it is. The monetary base is way up – it increased by $1 trillion in the last 12 months. But the money-in-circulation has barely budged. The feds give the banks overnight loans at practically zero interest. Then, the banks lend it back to the feds at nearly 4% more.

What happens to it then? Well, what do you think…it is wasted on typical federal government scams and humbugs.

So, relatively little of the money actually ends up in the consumer economy. And so, we can’t tell you whether the ’flation will have a ‘in’ prefix or a ‘de’ prefix. They’re just two letters. But they will make a whole alphabet of difference to the economy and to your investments.

5) Most important, we are dead sure that the people running America’s financial policies are jackasses.

We say that with all due respect, which is probably not much. They have only one idea – and it is a bad one. They think economies are improved by more consumer spending. They don’t seem to care why consumers occasionally cut back on their spending. All that matters to them is finding ways to get the consumer shopping again. So they try tax cuts and government spending…bailouts and boondoggles…zero interest lending and federal takeovers…cash for clunkers, cash for houses, cash for employees….

…trillions worth of claptrap and folderol. But what a nuisance! The fool consumer still won’t shop!

But they’re determined to keep trying. That’s why we can be pretty sure that, eventually, they’ll get inflation rates up. One way or another. And then, gold at $1000 will seem like an outrageous bargain.

Until tomorrow,

Bill Bonner

Source: Gold Touches a New Record