Will Demand From China Continue Moving Gold and Energy Assets?
Economic growth from China is increasing, which is leading to more demand for commodities ranging from gold to oil to natural gas to coal.
China is the biggest consumer of energy in the world. It is the second biggest customer for gold, only behind India. Investors ranging from the Central Bank of the Republic of China (in Taiwan) to individuals buy the yellow metal as an asset. By the fundamentals of supply and demand, China's growing economy should move the prices of oil, natural gas, coal and gold higher.
But that should not be happening based on market forces, which are even more powerful than consumption from China.
Gold is the traditional safe haven asset. It has no industrial usage, just its historic role as a preferred holding for when times are bad. It rises in value when there is a loss of confidence in the fiat currency of a country, due to the weakness of its economy and lack of political leadership from its government. As legendary investor Jim Rogers has often stated, "A weak currency is a sign of a weak economy, which is a sign of a weak government."
Energy assets such as oil, natural gas and coal rise due to greater demand from robust economic growth. These commodities are needed for the operations of the factories, farms, and other features of a modern economy. There should not be a correlation between oil, natural gas, coal and gold, due to the conflicting basis for higher demand.
But there is now, due to economic growth increasing in China.
For investors, the main exchange traded fund for China, iShares FTSE 25 China (NYSE: FXI), is an indicator to follow, and trade. iShares FTSE 25 is up more than five percent for the quarter. As China is, by far, the world's largest consumer of coal, so is Market Vectors Coal (NYSE: KOL), soaring more than 10% over the same time period. SPDR Gold Shares (NYSE: GLD) is up for the quarter, too.
Any time there is a change in a traditional trading relationship, there is money to be made. Gains can be booked by going either long or short on a security. China is changing the rules of commodity prices, which should be utilized for profits by savvy investors.
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