Monday, September 21, 2015

Gold Once Again Being Considered Key Safe Haven Asset

It can be confusing for some not familiar with what gold is and represents, when trying to figure out if it's simply one of many commodities. For those thinking it's primarily a commodity, at this time, because most commodities considered bearish, they will consider it a depressed asset that isn't worth owning.

For gold investors who understand what gold really is, they've been baffled because the price of gold, under the economic conditions of the last several years, should have soared. My belief is the reason it hasn't is because it has been classified wrong, and that has caused the price to be suppressed.

Why gold hasn't suffered a total breakdown is because there is a significant number of people understanding it has been a form of currency for thousands of years, and to this day can be used as such.

With the global economy getting more volatile, the commodity classification of gold is slowly eroding, and it's once again being considered the safe haven it always had been. That will have strong implications as the potential for significant events grow, in which investors will flee for safety. Gold will be there waiting for them.

Impetus for gold

One thing about gold is it takes difficult times to remind the majority of investors of its store of value. When the economy is doing well, it is for the most part forgotten by the majority and lingers in the background until global events once again trigger the memory of the important role gold plays in the world.

There was a reason the price of gold soared during the last market and economic meltdown, and it appears we're closing in on the early stages of the next recession, largely because of slowing China and its Asian neighbors.

The key metrics to watch in relationship to gold price movements are volatility and fear. They work together, and one builds on the other to produce the most optimal conditions for gold; a trend that is growing at this time.

Gold has to be nudged by events to appeal to investors, and those types of events are increasing around the world.

What type of fear and volatility?

It's also important to understand there is a certain type of fear and volatility that supports gold. While I think it's not the best way to think of gold, the main driver is financial fear, not political fear.

The reason for that is the market, overall, reacts to what is happening in the moment, and the the long-term view of the consequences of specific political events isn't priced in immediately, or sometimes not understood or digested as to the potential financial consequences. One of the most recent is the tensions between Russia and Ukraine, and Russia's support of Syria in the Middle East.

Where the two can converge of course is when political events visibly affect finances. But for the most part, it's almost always financial fears alone that result in people running to gold and the price being pushed up. That is the stage being set up now, and at least part of the reason asserted by the Federal Reserve as to why it didn't raise interest rates.

On the investment side, until there is short-term pain, meaning consistent weak quarterly results, the price of gold, in general, will remain subdued. It's when the negative financial news is coupled with earnings consequences that gold will once again soar.

The reason for that is the majority of investors will only respond when they believe their capital is under siege; meaning only when events affect their money.

We can read about China and other weak Asian countries all we want. We can read about or listen to news reports about Russia and how it may respond to Western resistance to its policies. But until that is connected to the stock market in the minds of investors, it doesn't have a lot of support for gold.

This is one of the reasons those that closely watch the potential impact of political events on the economy can get frustrated with their gold investments, as they make the connection much quicker than the general investing community, and get in much earlier and have to wait for the market to come to them.

Making the connection between political and economic events

Earlier I mentioned gold being classified wrong. The reason for that is the lack of correlation between political and financial events at this time. Once gold is reclassified in the minds of investors - from a commodity to a currency - that will be a bullish trigger.

There are a growing number of news reports on the slowing Chinese economy, weakening manufacturing in the U.S., and the growing human migration problems in Europe and America. These have potential for tremendous financial upheaval, and in fact there are some ramifications already causing economic tremors, with the most obvious at this time being China, which has for so long been touted as the main driver of global economic growth.

Even now investors have been slow to see how it will impact the U.S. and other markets, because they still haven't made the connection financially. That's because while there are economic concerns growing, the latest earnings reports appear to be fairly strong, even as the macro-economic situation is looking weaker. 

Gold as money

When referring to gold as money, the idea isn't that people necessarily use it as a means of exchange of goods or services. That can and does happen in some parts of the world, but in general, that's not how business is conducted.

What I mean is gold is considered money in the sense of is being used to protect assets. After all, if it wasn't considered a form of currency, why do people always rush to hold gold when difficult and unpredictable times come about?

Remember what happened a short time ago when the stock market in China crashed, and the crazy responses by China's leaders to it. Right in their faces was the reality China's market was highly overvalued, and it wasn't reflective of its economy. In response to that, the price of gold made a quick move upward, once again confirming it's considered a safe haven asset investors in order to protect their capital. That's money, no matter how it may be spun.


For now a lot of people are in cash. Part of that is for safety, and a lot of it is for the purpose of waiting for opportunities to come to them.

When the next economic downturn comes, which as I mentioned, is probably in its early stages, the thought of bottom-feeding will change to capital preservation and growth, and under crises situations, very few assets perform like gold does, and that's why being positioned for a prolonged season of economic difficulties with some of our assets is a smart play.

Discipline is important under these circumstances. If you believe we are going to enter into a season of economic weakness, going long gold is a sure winner. I've been long gold and silver for some time, and I know I'll be rewarded significantly over time.

As for what to look for, historically the larger miners with significant gold exposure are the first to move, followed by juniors and then explorers. Juniors are my favorite play because they have proven reserves and have the most upside potential. You have to do your homework of course, but for the strongest upward potential, juniors will strong management in place will make you more money.

On the other hand, if safety is the major factor, the larger miners can preserve and grow your capital when the rest of the market is floundering.

The catalyst will be when investors make the connection between political events and the economy. Discovery of that will be the sustainable upward movement in the price of gold. The decision to get in on that should be what your outlook is in regard to economic conditions and how long it'll take for investors to recognize the risks that are quickly approaching.

Investing in gold shouldn't be considered a short-term play, traders need to go long and hold on during these times of volatility. I don't think we're quite there yet with investors sentiment in regard to fear, and until that escalates, there will continue to be up and down movements.

And while the Fed and interest rates, in my opinion, has already been priced in, the ongoing sport of reporting on and guessing as to whether or not the Fed will increase interest rates will continue, and that means having the stomach to endure volatility in the gold price.

Even if the Fed eventually increases interest rates, it's not going to be by much. And with the many potential triggers that could bring more fear to the market increasing in the world, I don't think there should be a fear of overt interest rate intrusion.

As events unfold and the realization the global economy is slowing sinks in, nothing will be able to hold back money flowing to gold, and that means much higher gold prices. Position yourself accordingly.

Friday, September 4, 2015

Druckenmiller Loves Gold, Hates Fed

Hedge fund master Stanley Druckenmiller has had one of the strongest performances in stock market history, generating a return of about 30 percent over a 30-year period. That is in line with another legendary investor, Peter Lynch, who produced an annual return of 29 percent.

Interestingly, Druckenmiller and Lynch both quit because of the toll it took on them to maintain those type of returns. Sorry. If we want to live longer, we'll just have to settle for a piddly 20 percent annual return or so.

For some time Druckenmiller has blasted the Federal Reserve for keeping interest rates near zero, saying it has changed the behavior of companies, which instead of using cash to build the businesses, they are using it for leveraged buyouts, mergers and stock repurchase schemes.

Interpreting this as a negative, Druckenmiller has taken a huge stake in SPDR Gold Shares (GLD), investing $323,626,000, which comes to 2.8 million shares. That's more than double any of his other holdings at this time.

when asked about why he put such a large portion of his investment portfolio in GLD, Druckenmiller said when he sees something that gets him excited, he's willing to take that step.

Talking a lot about risk/reward ratio over the years, he obviously sees something in gold that has a lot of potential at this time. I agree with him.

Friday, August 28, 2015

Chinese Exports Down, Consumer Spending Up?

The economic data is getting weirder and weirder. China devalued the renminbi because its exports had plummeted about 8 percent, and now we hear consumer spending in America was up 3.1 percent in the second quarter.

Have U.S. consumers suddenly stopped buying Chinese products? I don't think so. For that reason I'm very suspect of these numbers.

Once answer could be consumers slowed down spending during one part of the quarter, which could have skewed the export numbers of China for last month.

Other than that, it's very strange if we find out that wasn't the case, and somehow consumer spending exceeded expectations by a lot, but they decided to spend on goods from America or other countries. Since that hasn't happened in years, as far as what would essentially boycotting Chinese products, it's very difficult to believe these numbers are reflective of real consumer spending.

Again, the only scenario I can think of is if Americans really spend big in the first two months of the quarter, and then cut back. Otherwise, something stinks in these numbers. 

Thursday, August 27, 2015

Will Fed Raise Interest Rates in September?

When you consider the self-deception of the Federal Reserve, it's difficult to project whether or not it will raise interest rates in September.Even though global economic conditions are deteriorating, there has been no strong signal one way or the other on what Yellen is thinking.

Almost all of Asia is crashing. Countries with strong exposure to commodities, like Canada, Brazil, Russia and Australia are struggling, and Europe is weak as always. That leaves the U.S on its own. I don't see how it can maintain any semblance of growth in the near future.

One temporary answer would be for the government to increase spending like it did the last quarter to reinforce the illusion of a strong recovery. That never works over time though, which is good for gold.

As a matter of fact, if China and many other Asian countries work to strengthen their currencies by selling Treasuries en masse, even while they engage in a currency war, that would almost certainly halt the idea of raising interest rates, and some believe it may even initiate another round of quantitative easing. We all know what that would do to gold prices.

We must watch China in the weeks ahead, as it has already sold off over $100 billion in Treasuries over the last couple of weeks, and it's sure to continue to do so. Almost certainly other Asian nations will do the same, which has the potential to change the direction the Fed wants to go.

What's happening in Asia is countries are fighting to remain competitive with exports, which of course why they're devaluing their currencies. At the same time they don't want them to fall so much it wreaks havoc on imports and brings about higher inflation domestically, so they're selling Treasuries to support their respective currencies.That means Treasury yields are going to remain level or go up, which the Federal Reserve doesn't want to face when it comes time to make an interest rate decision.

Gold Not Convincing Investors Yet

It's amazing at times to see how quickly investors forget lessons in safety, and blindly believe the mainstream narrative on the state of the economy and stock market.

For that reason, along with the Fed's manipulation using its lack of commitment and visibility concerning interest rates, it is keeping investors paralyzed in regard to moving more of their capital to gold. Since they don't know what the Fed is going to do, they're seeking safety in cash or Treasuries instead.

With the world now plunging toward global recession, it's amazing the disconnect many investors have between the world and America, as if what happens everywhere else won't have an impact on the American economy.

It's going to take a harder landing to reveal the real weakness of the U.S. economy, and it will definitely come in the not-too-distant future. Smoke and mirrors can only do so much before it comes falling down.

At that time gold will be the go to place of safety, and it once again will soar in price.

Why I Wasn't Impressed With Economic Data

Sometimes it does get old when mainstream media cheerleaders gush over any news it deems irrefutable and positive about the economy. The latest data suggest an "unexpected" solid performance in the last quarter, which suggested to many the recovery remains on track.

Of course much of the response came about because of the plunge in the stock market, temporarily disrupting the media narrative, which now can be resumed as if everything is okay.

What I want to talk about most is the government spending number, which was up about 2 percent. To me, that's almost the entire story of the surprising growth numbers.

Sure, corporate and consumer spending improve, and that appears to be legitimate. But when you include a 2 percent increase in government spending, that disproportionately pushing up the numbers because of the size of the budget, which if they were removed from the data, would have resulted in an unimpressive performance.

As for the corporate expenditures, my belief is a lot of that was because of the depressed commodity prices, which companies took advantage of. China did so as well, spending over 20 percent year-over-year on over 20 commodities. With reports suggesting this isn't sustainable, I think some figured this out, and attempted to lower future expectations.

Gold is still positioned well in this economic environment, and I believe the fake economic recovery will be exposed in the near future, as it already is in many other parts of the world, and gold will start to climb.

Tuesday, August 25, 2015

Fed's Manipulative Fingers All Over Interest Rate Uncertainty

The more I watch what has happened with the price of gold recently, which while having some strength, hasn't jumped in the way it should have under these market and economic conditions.

It's obvious investors have been holding back on plowing into gold for safety because of the manipulative comments from the Fed that is may or may not be raising interest rates in the near future.

The lack of clarity, which now has to be considered a planned move, is what has been holding the price of gold down because investors don't know whether or not there is a rate increase coming soon.

This pushes capital into bonds, which is what the government and the Fed prefer. That may last for a little while, but once the Fed makes it clear what its next move is, there will no longer be any doubt. Almost certainly the next move will be to do nothing.

Once that happens, there will be an accompanying comment that will once again darken visibility in attempts to keep money from being placed in gold.

The reason why the Fed hates that is it contradicts its cheerleaders, and brings back the narrative of the consequences throwing fiat money into the financial system has.

My belief is the Fed won't be taking any steps in regard to interest rates, as the global markets aren't through getting hammered, and with China, Japan and Asia in general struggling, along with Canada and Australia, there is little in the way of positive catalysts to signify ongoing growth.

The slow growth projections of the U.S. economy confirm this.

With a lot of cash on the sidelines as well, I believe it's getting ready to be invested in gold once the central bank signals where it's taking interest rates.

By making investors wait, it's further generating pent-up demand, which when released, may even be stronger than believed at this time.

If it goes the other way and interest rates are increased, I see that as a temporary pause. The global economy is grinding to a halt, and there is no way the U.S. economy can maintain the slow growth way it's now enduring, with consumer spending. 

One way or the other gold prices are going to rise, and I don't think it's going to be a long time into the future, whether the Fed raises interest rates or not.

Monday, August 24, 2015

Gold Positioned To Jump As Markets Fall Apart

With economies around the world slowing down, currencies plummeting, and the commodity sector beaten down, there is more to the stock market correction, then, well, being a correction. That's good news for those that have been waiting for gold prices to gain some momentum.

There of course is also the tough decision ahead for the Federal Reserve, which until recently, was almost sure to raise interest rates. That's more than in question at this time, as global markets take a big hit.

Even if the Fed decides to boost interest rates, gold is still looking good, as there are just too many negative catalysts out there to make that the determining factor in the price of gold.

Not only that, but there is a growing number of people that believe not only won't the Fed raise interest rates, but the global and domestic U.S. economy may be far worse than it is, which points to the possibility of another round of quantitative easing. And we all know how gold prices would jump in case of that event. If the Fed decides to hold off for now, that is also positive for gold. So whatever way you look at it, gold prices will start to rise, and will continue to do so over the next year at least; possibly further out as well.

Safety is going to be a dominating part of the investment landscape, and gold will be one of the leading assets investors seek to protect their capital.

Friday, August 21, 2015

Hedge Funds Now Bullish On Gold

Institutional investors, including hedge funds, have reversed their aversion to gold, as they are now betting on the precious metal to move up again, according to the Commodity Futures Trading Commission.

On August 18 they surpassed gold futures and options contracts betting against gold by 18,454, said the CFTC. A week before bears had 2,794 futures and options contracts than gold bulls.

Much of this came from the stock market crash in China, and was heightened further by Chinese exports plunging by 8 percent, pointing toward the country probably being in the early stages of a recession. It also generated questions as to how healthy China's economy has really been, and whether or not the data reported was even less accurate than had been believed.

Japan has also been struggling, along with the rest of Asia. Countries more heavily reliant on natural resources, such as Canada and Australia have also been suffering a reversal in fortunes, as commodity demand has been falling.

All of this is happening in the midst of a currency war, as many nations with significant export markets fight to weaken their currencies in order to boost exports.

Recent numbers from media also show that sector is under strain, with ESPN losing a moderate number of subscribers.

Taken together this has increased the probability the Fed will hold off on raising interest rates. That's likely to play out that way, and if things get worse, we may not even see a bump up in the interest rates.

Combined with a strong U.S. dollar, which is starting to put pressure on U.S. exports, as data from the New York Fed recently stated that region of the country failed to meet expectations, it would be very surprising to see a change in interest rates by the Fed.

Things are falling apart so quickly, it's hard to see how gold prices can be suppressed going forward. Instead of an interest rate hike, we may be seeing talks of another round of quantitative easing instead.

Thursday, August 20, 2015

Gold About to Rally Big Time?

It looks like a lot of negative catalysts are coming together to provide the foundation for a major gold rally.

Emerging markets are in disarray, as are developed markets like Japan. Asia as a whole is under enormous pressure, and the latest Empire State Manufacturing report revealed U.S. manufacturing is slowing down as well, partly from the strength of the U.S. dollar.

With a currency war going on in Asia, as countries compete to boost exports, it's difficult to see how American exports can gain any traction.

Media stocks have also been taking a pounding, based primarily upon Disney's (DIS) ESPN losing a "moderate" amount of subscribers. That most likely points to a period of even more disruption, which many investors have been monitoring since the growth of the streaming video market.

Many retailers have also underperformed, especially those with a presence in malls; although Wal-Mart (WMT) has been getting crunched as well.

Add to that the underemployment in the U.S. and dubious employment numbers, and you have the makings of another perfect storm that could push the price of gold above the $2,000 an ounce market - possibly much higher, depending on how the parts of the whole hold up.

Gold and silver could be poised for a major move. I don't see how this weak economy can hide the devastating impact of endless quantitative easing, or how GDP can continue to improve when major trading partners are under economic siege.

I don't think this time around the strength of the U.S. dollar will be able to hold back the upward move once it takes hold. We could even see measures taken - possibly in the form of more quantitative easing (to hide the fact the Fed is once again entering the currency wars) - to lower the value of the dollar against competing currencies.

Either way, gold is beckoning, and it's a matter of when, not if, it starts to soar once again. I'm positioned for it in my portfolio. Are you?