Slower China, Cheaper Gold

Gold and silver declined on Friday morning, following data released about Chinese imports. Chinese copper imports declined 3% in May, and oil imports stayed flat at 5 million barrels a month, as reported by

Bloomberg

. Those investors who have suspected that a global economic slowdown was eminent may have had their beliefs justified. Why would gold and silver decline on the news? Silver has limited industrial uses, and therefore may be following copper downward, on expectations of reduced demand for the metal in the future. Gold, on the other hand, has limited industrial uses and has a tendency to move on an inflationary vector, inversely corresponding to the movements in the values of fiat currencies. With China slowing, and hence the global economy, expectations for inflation may be dwindling as well. However, on the other hand, if the

global economy is slowing

, investors might suspect that central banks around the world—particularly the Federal Reserve—will initiate another round of monetary stimulus. That could be bullish for the metals in the long-run. Thus, today's price pullback may be an opportune time for investors to jump into the market.

Action Items

Bullish:

Traders who believe that gold will rally from here as economic growth resumes or banks flood the world with liquidity, might want to consider the following trades:

Buy SPDR Gold Trust GLD. GLD is a pure play on the price of gold.
Buy Market Vectors Junior Gold Miners GDXJ. A potentially riskier play than GLD, but with a possibly higher return. The smaller gold mining companies might have the potential for higher upside growth than the metal itself.

Bearish:

Traders who believe that the economy is due for a slowdown and monetary stimulus has come to an end, may consider taking positions in the following:

PowerShares DB US Dollar Bullish Index UUP is a pure play on the value of the U.S. dollar. If investors flee to cash, UUP may do well if the dollar appreciates.
iShares Lehman Aggregate Bond ETF AGG is a play on U.S. bonds. U.S. bonds might prove profitable if emerging market economies are slowing down.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.