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.

Conclusion

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.

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?

Will China's Silk Road Become a Ghost Train?

Even though the official numbers from China's National Bureau of Statistics suggest consumption is moving steadily along, accounting for 51.2 percent of GDP, and following on the heels of the 12 percent boost in retail sales in 2014, there are questions these numbers may not reflect the reality on the ground.

It has been pointed out that "private surveys and results from consumer product companies" paint a different picture; one that draws the conclusion that consumer spending has been level or contracting.

Other data contributing to this as being the likely scenario are the PPI in April dropped for the 37th month in a row, and manufacturing in China, with a 49.2 reading in May (-4.6%, missing analysts expectations of -4.4%), confirms it is contracting faster than believed.

The point is the decisions and proposed spending actions and focus of Chinese economic leadership reinforces the strong probability China is struggling to not only grow its economy, but to keep it from contracting.

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China Growth Down for Sixth Straight Quarter

Growth in China fell for the sixth quarter in a row, dropping to 7.6 percent for the period. That's the lowest level since the first quarter of 2009.

While it was a little better than the market had concerns over, it was still down enough to keep the inevitable stimulus for that country alive, even as Europe and the United States will soon implement another round of quantitative easing.

That's good news for gold, silver, and some other commodities, as it certainly will push up the price of the metals in a big way, rewarding patient investors.

Gold and silver are positioned well with the economic decline, as they'll go up in price without a doubt because of the resulting fall in the value of the U.S. dollar, and the assumption the buying up of more bonds will help the economy.

It won't. But many traders will use it for an opportunity to push up the value of silver and gold, which will pull up the prices of base metals as well.

Some are spinning this as a triumph, which has taken the pressure off of China's need to aggressively stimulate its economy.

Assuming the numbers are fairly accurate, China, as do a number of nations, faces the problem of overestimating the health of their economy, which would result in its taking too long to respond to a weakening economy.

If that's what happens, the stimulus measures taken by a number of governments would be even more robust than before.

China has lowered interest rates and significantly cut back on imports in response to the slowing economy (some of that is related to stockpiling commodities in the prior months), suggesting their real assessment of their economy is it'll continue to slow down, as recent comments by Chinese official confirm when talking about declining exports, which are reflective of the weak global economy.

US Dollar, Economic Influence, Waning on Global Stage

The rebuke and rejection of the request by the U.S. to pressure China to into increasing the value of the renminbi by the G-20 underscores the declining economic influence of America in the world, as well as the U.S. dollar, which has become a disaster.

Not only was the idea of pressuring China on their currency rejected, but the U.S. and the disastrous Federal Reserve were castigated by economic powerhouses like China, Germany, Brazil, France and Korea for their policy of acquiring U.S. government debt and flooding the world with U.S. dollars.

Even with all of that being true, it's interesting to see European countries hit out at the U.S. when Europe is still a disaster as far as sovereign debt goes, although Germany and France are healthy in that regard.

It's the unwillingness of the Obama administration to introduce austerity measures like most countries in Europe have that is outrageous to most, who have said the U.S. must stop the economic strategy of growth through going into deeper debt.

Europe has already proven these socialist plans don't work, and even though there will be a lot more pain to go through in Europe, the pain is coming from taking the right steps, not from misguided policies.

Many laugh at the foolishness in Europe from their coddled classes who have become "kept" by the governments, but how far is the U.S. behind that scenario, as the inability to pay for reckless promises by the U.S. government over the decades is coming home to roost.

As far as the trade surplus that always comes up in difficult economic times, American consumers have made the decision to buy quality and inexpensive products from China and other countries. This same nonsense was brought up when Mexico was producing many of the goods Americans bought.

That has to do with the overpaid American workers, especially those in unions who can't compete with their counterparts in other areas of the world. Until those problems are addressed, America will have this problem no matter which country is the latest to enter the manufacturing sector.

The Obama administration, as have most previous administrations, give lip service to this to play to their base, but the cat has been long out of the manufacturing bag, and there's no bringing back what has been a past that is no longer relevant.

America's economic day is over. They've allowed the Federal Reserve to destroy the value of the U.S. dollar and create a class of consumers based on debt consumption, which had been driving the global economy. That day is now past, and will never return to levels before the economic crisis hit.

The only reason the U.S. dollar even remains the reserve currency of the world is no one else really wants to allow their currency to replace it, as it would drastically reduce the flexibility they now enjoy.

If a country like China eventually were to allow their currency to become the reserve currency, it would only be done for national pride and not for any benefit to themselves. I wonder if they'll end up getting suckered into that?

Some nations in the East have already been making transactions without the U.S. dollar being part of it, and calls for a variety of different ways of going forward have already been suggested, including possibly a basket of currencies, or even returning to some type of gold or commodity standard currency could be based upon.

For the U.S., they need to drop their being the policeman of the world, drop being a nanny state, and get their hands out of the free market. Until that happens, the country will continue to spiral downward economically itself, and in its economic influence around the world.

Freeport (NYSE:FCX), BHP (NYSE:BHP), Teck Resources (NYSE:TCK) Down on China CPI Report

Freeport-McMoRan Copper & Gold(NYSE:FCX), BHP Billiton Limited (NYSE:BHP) and Teck Resources (NYSE:TCK) were all down Friday as uncertainty clouded the demand picture when news China's consumer price index rose to 4.4 percent (higher than what was anticipated), leading to speculation China may tighten the economy by raising interest rates in order to fight inflation.

Gold price obviously plummeted on the news, but the diversified miners also took hits because of the demand factor all continue to rely upon from China.

Copper also took it on the chin, dropping the most in a trading session in four months. In China copper, along with zinc, cotton, rubber, sugar, corn and soybeans fell to their daily limits as concerns not only inflation, but the possibility reserves may be tapped for sales, which would cut demand.

All of this and more is affecting the share price of diversified miners and commodity-based companies, and all eyes are on China as to where the market will go next.

Freeport closed Friday at $103.92, losing $4.09, or 3.79 percent. BHP was down to $86.97, falling by $2.63, or 2.94 percent. Teck Resources closed at $49.12, dropping by $1.07, or 2.13 percent.

Moody's (NYSE:MCO) Upgrades China's Credit Citing Strong Economy

Moody's (NYSE:MCO) upgraded China's debt today from A1 to Aa3, saying the sound balance of payments and the strong economic performance of the company has found support and will continue on, generating a positive outlook for their credit.

Moody's senior vice president Tom Byrne noted, "The record of the past year demonstrates that China's policy response to the 2008 crisis has been effective. Real GDP growth initially rebounded rapidly in response to the stimulus measures, and is moderating to a more sustainable rate of growth, which seems likely to be around 9%-10% this year, and perhaps 8%-9% in 2011."

This upgrade follows the opposite for the credit of the U.S., which was recently downgraded by Dagong, a rating agency based in China.

They felt the U.S. was entering into debt waters which aren't sustainable, and the U.S. won't be able to repay what it owes. They also believe the U.S. government's intention of paying the debt is suspect.

U.S. debt was downgraded because of the implementation by the Federal Reserve of another round of quantitative easing, this time $600 billion over the next eight months.

Other countries like Germany has stated similar concerns, as the first stimulus did nothing to help the economy, and this one will be a huge waste of money America can no longer afford.

Gold Explodes Again on Weak Economic News

The attempt to paint a rosy economic picture is being ignored or not believed by investors, and gold prices are again exploding upward as it's considered the safest place to put your money in these difficult times.

At just before 1:30 PM EDT, spot gold prices were at $1,247 an ounce, a gain of $16.50 for the day.

People are starting to see that every time new, negative or weak economic data come out, the term "surprising" or "unexpected" is used, implying either the economists and government are completely inept, or it's a buzzword used in an attempt to manipulate people into thinking it's a temporary situation.

That strategy is no longer effective, as what is really being seen is when you use those terms month after month, the inevitable conclusion is there is no real recovery, and it's highly unlikely we've ever moved out of the recession in the first place.

No matter, gold prices are reflecting the growing disbelief in the economy picture attempted to be painted by the Obama administration, and other governments around the world.

Date from China, Europe and the United States confirm we're still in economic trouble, and gold prices will continue to rise in response to that economic reality.

One confirmation of this is the latest consumer price index data which dropped 0.2 percent in May, the largest fall since December 2008, confirming demand is slow and retailers are having to continue to cut prices in order to encourage consumers to spend.

Freeport-McMoRan (NYSE:FCX), Copper and China

Freeport-McMoRan Copper & Gold (NYSE:FCX) has been under pressure lately based on slowing imports of copper by China.

For May, the number of metric tons imported dropped to 396,712, a decline of 9.1 percent from April, and 6.1 percent from May of 2009.

While copper imports from China are up 8.2 percent in 2010 over 2009 at the same time last year, that is expected to continue falling through the rest of the year.

All of this is the result of urban centers in China whose property markets have skyrocketed, generating inflation pressure and concerns, which resulted in regulatory measures and the raising of interest rates to cool them off.

The rural areas aren't as affected, and so the idea of a Chinese housing bubble is overplayed, as they're located almost solely in the large cities.

Either way though, Freeport and others with strong exposure to copper will be under pressure for some time, at least as far as prior expectations of a China growth rate in the lower double-digits.

That will probably fall to around 7 to 8 percent, which many feel would a much healthier and predictable China.

There will be a temporary drop in raw material demand in China, but once things smooth out, companies should be able to make more accurate projections of sustainable growth.

But add this to problems in Europe and a stagnant American economy, and times are going to be tough for a while.

Gold Prices Soar Today on EU Bank Loan Loss Fears

Gold prices took off early in the day as reports from the European Central Bank said the banks in the region could experience another round of loan losses, this time up to $237 billion over the next year and a half.

The uncertainty of the economic fallout from Portugal, Italy, Ireland, Greece and Spain have investors concerned over how deeply it will impact the economy, and how far it'll spread to other nations, making gold the choice for those looking for safety.

News that China manufacturing dropped in May also reminded investors of some of the vulnerabilities there which could dramatically reduce economic activity there and abroad.

Gold futures were trading at a two-week high Tuesday in response to the news.

Barrick Gold (NYSE:ABX) Newmont Mining (NYSE:NEM) Agnico-Eagle Mines (NYSE:AEM), Gold Fields (NYSE:GFI) Jump on China, Sovereign Debt Fears

Concerns over the sovereign debt crisis and China austerity measures have gold mining companies like Barrick Gold (NYSE:ABX) Newmont Mining (NYSE:NEM) Agnico-Eagle Mines (NYSE:AEM) and Gold Fields (NYSE:GFI) jumping today, as they have been up from 4 to 5 percent today, while gold prices today are closing in on all-time records.

After the euphoria over the almost $1 trillion being provided to bail out European countries passed, investors have taken in the potential consequences and possible irrelevance of the $1 trillion, which many are saying will just postpone the inevitable, and after spending that much will still have to deal with the underlying causes and consequences of the economies of these countries and the response of their people to having their outrageous wages and perks being taken away.

That has investors nervous, and rightly so, and gold should be the beneficiary of that in the years ahead.

As for China, they're having to face their own potential bubble bursting, and they're putting measures into place which could cut back on demand for raw materials, which will also be a good thing for gold prices, and ultimately gold mining companies.