nterestingly, copper prices haven’t exactly been mimicking the action in imports i.e. rising imports suggest rising demand; rising demand suggests rising price.  In fact, it’s been more like a mirror image as prices have fallen for the better part of the last five months:

There is a key distinction to be made in the latest Chinese copper import numbers. While there has been considerable improvement, it is not necessarily indicative of an improvement in real demand, but rather demand from those looking to restock, those who will eventually sell it on to the copper consumer when demanded.

Further, copper might not be the best indicator of Chinese demand and economic strength:

“Mike I still see almost universal ignorance of gold in any investment portfolios, whether it’s on individuals, high net worth individuals or significant institutions. There’s still almost a total luck of interest in the US towards gold. But until that becomes as popular as the internet stocks or what have you, the gold market’s least resistance is up. The fact that Central Banks no longer sell gold they’re buyers, mining companies don’t hedge, countries are debasing their currencies. It’s all a green light for gold.” Peter Grandich to Michael Campbell HERE

A Shift in Asset Allocation for Gold?

The Eurozone’s outlook is still up in the air with Greece unexpectedly holding a referendum over the latest bailout package. With uncertainties abound about Europe and the global economy at large, some analysts expect gold to continue gaining momentum as a safe haven asset.

Never mind that gold global futures prices reached highs in late August to $1,891.90 an ounce, up over 50 percent from a year ago. While many argue that a continued increase in the yellow metal’s price is simply not sustainable, others point out that a fundamental shift in not only how, but which, investors hold gold amid increased economic risks worldwide will only stimulate further demand.

To be sure, much of the yellow metal’s market rally has been based on speculative buying based a great deal on fear. Yet some analysts stress that a well-rounded portfolio should have more, not less, gold as well as silver and platinum. For instance, Chicago-based Ibbotson Associates states that in order to improve their reward-to-risk ratio, conservative investors should allocate about 7 percent of their investments in precious metals, whilst more aggressive investors should allocate nearly 16 percent of their portfolio in order to increase expected returns and reduce portfolio risk. Currently, precious metals account for about 1 percent of investment allocation for the average portfolio.

A change in mindset among investors to view precious metals as they do stocks or bonds as a critical part of their investment strategy, regardless of their short-term movements, would certainly spur demand. For now, though, gold still remains very much a physical asset. According to the World Gold Council, the greatest demand for gold comes from jewelry makers, accounting for 57 percent of the global market. Gold for investment purposes, meanwhile, accounts for 31 percent, while 11 percent of overall demand is for industrial purposes. In years past, both India and China were particularly aggressive in buying up gold for jewelry as well as investment purposes, but demand for the yellow metal is growing more among Chinese and Indian investors, and that trend is expected to continue.

“The Eastern buyers, as well as sophisticated Western investors, are happy with pullbacks as they allow them to buy more gold at attractive prices, “said Nick Barisheff, CEO of Toronto’s Bullion Management Group. He also said that the Chinese government encourages its citizens to put 5 percent of their savings in gold, and it is developing infrastructure to make gold ownership as easy as possible. In particular, Barisheff pointed out that the Pan Asian Gold Exchange (PAGE) slated to open in June 2012 will dramatically shift the gold market, both in how players buy and sell the yellow metal, and who will be key players in the market.

“PAGE will appeal to gold buyers who prefer to trade in a liquid physical market over a paper market. It will increase the demand for physical gold exponentially. Confidence in paper products is rapidly waning. Easterners are simply further ahead of the West on this as they have more recent memories of the destruction currency devaluations can cause,” Barisheff said.

Whether or not investors will come to view gold as much an integral part of a robust portfolio as they to securities and bonds remains to be seen, much as the outlook for the yellow metal’s price remains in question. What is clear, though, is that gold producers have been going from strength to strength, and they remain upbeat about future prospects.

South Africa’s Harmony Gold (JNB:HAR), for instance, reported first quarter earnings ended September 30 from a year ago as a direct result of record gold prices. Barrick Gold (TSX:ABX) too reported third quarter profit rising 45 percent as gold prices surged, while Goldcorp (TSX:G)’s CEO Chuck Jeannes told Kitco News that the company will continue to ramp up production as it reported strong earnings results for the latest quarter a week ago.

Disclosure: I, Shihoko Goto, have no interest in the companies mentioned in this article.

Michael Campbell: Since I last spoke to Peter Grandich, his new book ‘Confessions of a Wall street Whiz Kid’, Peter’s thought provoking life story of the ups and downs and ups again of one of Wall Street’s half famous financial geniuses has come out. What better time to talk to Peter and his experienced and skills to  get his unique take on one of the the biggest one monthly move’s in about 30 years of markets.

Peter, at  the end of September you were telling us and telling your subscribers that you thought there was a short term bull run about to happen. Obviously that proved very prescient take and  I want to know where you stand right now that we’ve had one of the biggest monthly upside moves in about 30 years?

Peter Grandich: I wouldn’t want to confuse it with putting on a bull hat, but the market had gotten to a point where there was a false breakdown and I thought there was a fairly good chance we’d go up.  So I went 100% invested, mostly in the mining and metals related area but nevertheless really aggressive. . I didn’t imagine that the market will perform so well but I am  sure glad it did. What was significant was that there had been a lot of temptations and for a lot of months, particularly in September, a lot of people went very short and then got really burnt  because we’ve had perhaps the best month in decades.

Where do I stand now?  I have always pointed don’t worry be happy crowd and this crowd is getting into their seasons.  Their greatest fable each year is the Santa Claus rally and now that the market has actually turned positive for a year, there is going to be a lot of pressure on money managers, hedge funds managers and the like who get paid on performance to be in the market and show that they were in the market. So we can have a market that still rises another 10 or 15% even though all the fundamentals that we’ve discussed for a long time Mike, are still there. I don’t think the European actions were anything other than a big band-aid again, but at least for the balance of 2011 the buyers will push the general equity  market to the upside.

Michael: Am I hearing from you what I hear from Victor Adair, that he is not getting married to the market but he might be seeking out opportunities as part of his trading portfolio.

Peter: Victor Adair  is one of the few guys that isn’t light in the head that I’ve met over the years. So, I concur with Victor, I know Victor can be vey short term oriented and I also know he can also look at things long term. Like I said I don’t think the fundamentals have changed, but I think the bias is to the upside we get into a very seasonal period. They have already started talking about  having snow on the north east. So, the Santa Claus rally will start to take hold and be counted among the happy people. So, I think the general bias is the the upside and if you want it to be short, which I still don’t, I would wait for 2012 before pushing shorts ahead.

Michael: I think what gives so many investors a headache is these moves are just so abrupt and volatile. It keeps investors a bit frightened.

Peter: Well, I think it is more than frightened. I am still looking at companies particularly in the resource sector, despite copper heading back to 370. Look, just two weeks ago a certain constantly wrong semi famous or famous person that spends a lot of time in the media said that copper was about to die and here it’s trading up at 370. Gold has rallied back nicely above 1700 and yet I’m seeing junior resource stock selling for less than their cash value. I will give an example, and I’m biased here as  it’s a client of mine and I plan on buying a lot of stock here after how badly it closed on Friday. Formation Metals which is well advanced on building a very important cobalt project in Idaho as we know has 55 million in cash and in net asset value discounted of the current project of 88 million and the market cap is 37 million. I mean there is just no rhyme or reasoning,  technically they can stop]tomorrow, sell the project for 10 or 20 cents on the dollar and distribute the cash and it will be twice as much as the current stock. There is still value, but it takes a bit of looking now particularly in the junior resource market. It has been really hammered and I suspect and still stay under pressure because of  tax loss selling. Most speculators and all investors think on a calendar year Mike, they think just January 1 to December 31,  the gold in the the ground doesn’t know that, but investors think that way and the deeper the losses that are in the stock the more likely people are going to expel them from their portfolio so they don’t have to deal with the pain and anguish come January 1st.

Michael: I think it is very confusing for individuals when they are inundated with the bad news out of Europe especially, but also in the States there’s severe debt problems and the real unemployment rate in the States is well into the double digits. As for the sovereign debt crisis the whole idea that you can borrow to solve a debt problem intuitively feels wrong to people,  so how do they make sense of the market rallying like this?

Peter: Well, first of all, we all knew someone or know of someone that has constantly borrowed,  is always borrowing and never stops. The same is true in history, it’s just never in history has a sovereign country been able to borrow its way out of a debt crisis. Why do the markets rally sometimes in face of that? Well, we don’t have a long enough time to talk about the heavy tilter and biases that exist on Wall Street to the long side, but I will tell you this is why I continue to call gold  the mother of all  bull markets and why I consider it a stealth bull market. It’s something that’s been going up for 10 years, almost straight up other than corrections and its also why most people still don’t own it.

The great benefactor of this and what people should  be looking at versus whether the stock market is a time to buy or not is things that are going to benefit for so much more paper being out there and there’s one that is a homerun and that’s gold. I mean this move again in Europe is just another bullish log on the fire for gold, one of the reasons why gold has performed so well in recent weeks and this week. It’s because the recognition is at the end of the day governments are creating more and more paper that defaces the currency, you can’t trust the paper currency and that leaves only one real money and that’s gold. So, the real benefit and maybe not or whether or not it’s a good time to buy general equities or not is to look who really benefits from this without a doubt and I think it’s the gold market and that’s why I still remain an arch bull on gold and I’m glad that the Johnny come lately’s that got on to the gold market in August September are all gone and the market’s left us kooks nuts and tin foil hat wearers.

Michael: At least it begs the question, we don’t know the details of the European Union’s latest saga, but let’s even assume it all goes well, you still have to think of making up 1.4 trillion Euros as a starting point. What are the implications for all this?

Peter: Well, Mike first of all, this is their 20th to 21st meeting over it but now we’re all excited that on the 20th and 21st they finally got it right. You never know, a broken clock is right twice a day so that’s possible. I think the big concern is that it’s been made to look as if it’s been swept under the rug,  but I think there’s a bigger story. I’ve said all along that Europe is only the opening act to the US because the US, unlike Europe,  has not made any movement whatsoever to fix its debt crisis. In fact there was a commission formed a couple of months ago and very report out of this commission hasn’t even gotten to first base yet. Now we’re going to get into the heart of presidential election where I can assure you nothing of any real substance is going to be done and you and I are going talk after next year’s election in the US about how much more the debt has increased in the US. So, the real crisis is coming down here, regardless of what happens in Europe, is the debt crisis in the United States which I think to this moment is still going to be bigger than Europe’s ever was.

Michael: So, the US debt problem isn’t front burner, no progress seems to be being made. I guess the key is always what do investors do?

Peter: The part of the burning that maybe people don’t hear about is the latest new crisis is the student loan program, a trillion something dollar loan which basically has got to  the point where people can’t even pay that back. Mind you this is all happening at a time when there’s a very small group and it’s local and it’s getting a lot of media attention that somehow the little people have been stopped over so you know what we have to go out and take it from the rich and that may or may not be true, but one thing that’s going to lead to is it’s going to lead to anybody who thinks taxes are going lower is silly. So we know we’re going to face higher taxation. We know it’s become much more difficult job  wise. Canada is obviously doing a whole lot better than the US in jobs, it may not be close to perfect but better. The problem now we have a demographic problem that’s the whole world is facing; an aging crisis.

All these things don’t go away overnight and haven’t been solved because of what took place last week in Europe. . In fact even if the market continues higher as I noted on my blog, from my own personal expectations portfolio I’m going to use further strength to lighten up. This isn’t at a time where I want to be getting more aggressive, if I get fortunate and things start going higher I actually want to lighten up because I really think in 2012 beyond a new four letter word that hasn’t been in a lot of portfolios is going to be prudent and that’s cash. We’re going to start to see interest rates tick back up a bit. We’re going to start to see that bonds aren’t a great buy that one can lose money in principle by taking a debt now and later it’s worth 10 or 15% less. So, gold is still my favorite, equities? Yes if you’re fortunate, move out on further strength for if for whatever reason the happy people can rally it, but again I think we’re going to be talking for the 1t1h year Mike about gold being the next investment for the next 12 months.

Michael: I’m right with you on that one Peter because as I’ve like made clear really since 2001, 2002 that gold is a bet on the incompetence of government and government’s a reflection, by the way, of the people financial desires. A free lunch kind of mentality but let’s leave it at gold is the reflection on the incompetence of government and I see no reason to change that bet.

Peter: Mike I agree with you about this, if one believes what you just said is true, and I do. According to polls down here only 7% of Americans have confidence in congress. If so there should be 93% of Americans buying gold and they’re still not. Mike I still see almost universal ignorance of gold in any investment portfolios, whether it’s on individuals, high net worth individuals or significant institutions. There’s still almost a total luck of interest in the US towards gold. Until such time we start to see that,  as we started to see in August September the media get into it a little bit and probably a few people who never owned it, went out and bought. But until that becomes as popular as the internet stocks or what have you, the gold market’s least resistance is up and all the fundamentals that had got gold where it is now, the fact that Central Banks no longer sell gold they’re buyers, mining companies don’t hedge, countries are debasing their currencies. It’s all a green light for gold.

Michael: Well, it’s going to be interesting times and what I just want to explain again, I hope people are listening clearly to one of the suggestions you made there Peter, there’s going to be this continued volatility and I’m with you. I’m in that camp that sees a significant correction in 2012,, a liquidity based one that I think will shake a lot of things in the market and whether I’m right or wrong, I just want people to be aware if that’s the kind of environment we’re in,  and it’s going to be, it’s just going to be fascinating times.

Thanks for taking the time, and congratulations on the book ‘Confessions of the Wall Street Whiz Kid’. Peter Grandich, you can also find him of course at www.grandich.com.