Montreal, Canada

In a bull market, corrections are an opportunity to accumulate positions. That's exactly the case now with gold following a drubbing on Friday.

There is no clear and present danger to the nine-year gold bull market. Despite rumblings by the bears who warn of a growing "bubble" in gold prices, the fundamentals support another few years of big gains for the world's only currency outside of the confines of a dysfunctional global exchange rate mechanism. Gold is also one of the few assets outside of this debt-infested environment that remains nobody else's liability.

The U.S. dollar is on its way out as a reserve currency and other alternatives, like the Japanese yen and the Swiss franc, are now aggressively depressed by their respective central banks because they don't want a strong currency. And the euro is an overvalued mish-mash of quasi-debt infested nations that's vulnerable to some sort of replay of the 1992 Exchange-Rate-Mechanism (ERM) shock.

For many reasons gold will remain in a secular bull market until the Federal Reserve starts to aggressively raise interest rates or until a supply glut hits the market; neither event is likely to occur any time soon.

Historically, any time inflation-adjusted short-term rates have been below 2% gold prices have risen sharply. Inflation-adjusted rates are currently at 0.45%, which includes a 0.25% Federal Funds rate plus negative CPI of 0.20% through October.

The Fed is still waging an all-out war against falling asset prices and wants inflation. The United States can't hike lending rates because credit intermediation is still on life-support, unemployment is still in a downtrend and commercial and residential real estate is still badly fractured. There's no way the Fed will raise interest rates under these conditions. Therefore, as a consequence, the dollar must continue to fall into 2010 and asset bubbles will continue to form in risk-based assets.

And though fabrication demand for gold has collapsed since around $750 an ounce last year, the Indians, Chinese and other emerging market central banks are devouring the metal at $1,050 an ounce or higher. Whatever supply comes to market is being absorbed by non-Western central banks, institutions like John Paulson & Co. and exchange-traded gold funds. Somebody somewhere obviously perceives to see high value at $1,050 gold or higher.

But what if the Fed begins raising interest rates in 2010? How would gold react? Would this event destroy the bull market? Some would argue that gold's correction – heavily overbought over the last four weeks – was in response to fears the Fed will start tightening next summer.

Well, gold bears, not so fast…

It's instructive to look at 2005 and how the gold market responded to a series of rate hikes in the United States that began earlier in 2004.

Even as the dollar rallied against the euro and most other currencies in 2005 – after the Fed began tightening credit in 2004 – gold prices posted a calendar year gain. That's because interest rates remained historically low coming off such a low base under Mr. Bubble, or former Fed chairman Alan Greenspan.

The gobs of money the Fed and other governments are printing, including China, demands a position in gold by all investors because the endgame will result in much higher inflation down the road accompanied by another round of currency debasement.

At some point over the next 5-10 years, or sooner, a full-blown debt or currency crises will emerge, which might correspond with the Chinese currency becoming fully convertible. That event will mark the official end of the post-WW II U.S. dollar reserve role. I would argue the events of 2008 and early 2009 marked the beginning of the end of American financial hegemony and the emergence of China as reluctant leader of global finance.

It's true the Chinese are reluctant to assume a leadership role in global finance. China loves a weak currency partially tied to the dollar because of the enormous advantage it gains from export competitiveness; but after the Great Crash of 2008, the Chinese are being drawn into this role because the world starves for exchange-rate stability and financial order. The American model no longer affords stability.

I'm not sure how this new currency regime will surface or transgress over the next decade but one thing I feel pretty strongly about is that by the time it does occur, gold prices will, in retrospect, look like a bargain. At $1,050 an ounce, other investors obviously feel the same way.