Wednesday 28 November 2012

Weekly Gold trade wisdom 29 Nov 2012

There is an appreciable up move in gold both on weekly and monthly basis. RSI also hovering around 63 after touching 81. You must have exited December contract around 32400 on Monday as advised earlier. You may now enter the trade by picking Feb 2013 contract at around 32200-300 and stay invested through out the 2012 and early 2013.
Happy investing....
A Bull always in bullion,

Saturday 17 November 2012

Weekly gold trade wisdom 19 Nov 2012

On weekly close there is hardly any change from previous week. On monthly basis, there is only 1% up move, so I would suggest for staying invested in December contract for a target of 32300 - 32450 and think of re entering the trade in Feb 2013 contract two three day thence at around 32100-32300.
Happy Bullying...

Friday 16 November 2012

Equity or Gold???

Equity or Gold, the debate as to which is a better investment option, amongst the two, is unending.

If one were to analyse the returns generated by these two asset classes over the past five years, those of the yellow metal clearly outshine gains made by Nifty by hefty margins. In absolute terms, the prices of the yellow metal have risen almost 200% from Jan 2008 till date while Nifty has generated -8% during this period.

As 2008 was one of the worst years for the equity markets  that were crushed under the impact of the financial crisis, one may very well consider the period starting from the recovery year of 2009 till date as the period to assess the performance of these two asset classes. But here again, with over 136% absolute gains, gold has outperformed the Nifty returns of over 90% during this period.

However, this trend, despite being in favour of gold, does not construe that yellow metal is a better asset class than equities at all times.

In the current calendar year, 2012, for instance, Nifty's 22% returns from January till date are better than 17% gains clocked in by the yellow metal. Similarly, for the calendar year 2009 alone, which marked a fantastic recovery for equity markets, Nifty, with 75% returns had outpaced 24% returns generated by gold.

Thus, while gold should and will undoubtedly remain one of the most preferred asset classes for investment, it would be imprudent to completely ignore equities from one's portfolio. Equity markets, which have lagged for quite some time, will in fact be equally quick to turnaround with the first visible signs of recovery in the global economy, whenever that happens.

A prudent investor will thus do well to allocate savings to both gold as well as equity to maximise gains from investments.

Gold trade wisdom

Last week saw a rise of 1145 on weekly basis and 361 on monthly basis on December contract.
Dollar is rising against Yen thereby we may see lesser prices in dollar terms but due to equal depreciation in rupee, rupee rate of gold may be somewhat static. Gold play is becoming a game of currency only. So we would suggest to cling on the trade.
A price of 32300 may be a good exit point on December contract for keen traders but investors may be looking for roll over to Feb 13 contract at the similar prices two or three days after the exit from Dec 12 contract.
Happy bullying...

Friday 5 October 2012

Weekly Gold Trade Wisdom 8 Oct 2012

Week ending 5 Oct saw a decline of  Rs 387 on week and 729 on monthly basis on the active December contract amid lesser unemployment growth US data. Week also witnessed Indian Reforms II pending getting approval of Parliament. Overall sentiment is still bullish so investors may stay on. Next week may see rise to a levels of 31450-31600.
New investors may enter at current levels in December contract.
Happy Investing....

Tuesday 2 October 2012

GOLD – The Simple Facts

GOLD – The Simple Facts
When it comes to investing in gold, investors often see the world in black and white. Some people have a deep, almost religious conviction that gold is a useless, barbarous relic with no yield; it’s an asset no rational investor would ever want. Others love it, seeing it as the only asset that can offer protection from the coming financial catastrophe, which is always just around the corner.
Our views are more nuanced and, we believe, provide a balanced framework for assessing value. Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies.
We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio. The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve’s decision to begin a third round of quantitative easing makes gold even more attractive.
We see the Fed’s actions in the wake of the financial crisis as a paradigm shift whereby the Fed is attempting to ease financial conditions and encourage risk-taking by increasing inflation expectations. Its policies will likely result in continuous negative real interest rates because nominal rates will be fixed at close to 0% for the foreseeable future.
To be sure, gold isn’t the only asset with the potential to hold its value in inflationary times. For U.S. investors, at least, Treasury Inflation-Protected Securities (TIPS) offer an explicit inflation hedge. What’s more, TIPS tend to be less volatile than gold and, if held to maturity, are guaranteed to receive their principal back – barring a U.S. government default (which we see as incredibly improbable). Still, history shows that gold is highly correlated to inflation and has unique supply and demand characteristics that potentially lead to attractive valuations.
A unique store of value
For more than a millennium, gold has served as a store of value and a medium of exchange. It has broadly managed to maintain its real value, even as various currency regimes have come and gone. The reason is that the supply of gold is not at the whim of any governmental power; it is fundamentally supply constrained. Total outstanding above-ground gold stocks – the amount that has been extracted over the past few millennia – are roughly 155,000 metric tons. Each year mines supply roughly 2,600 additional metric tons, or 1.7% of the outstanding total. This is why gold can be thought of as the currency without a printing press.
The downside of gold is that it generates no interest. One ounce of gold today will still be only one ounce next year and the year after that. Because of this, gold is sometimes referred to as a non-productive financial asset, but we feel this characterization is misleading. Rather, we believe gold should not be thought of as a substitute for equities or corporate bonds. These have equity or default risk and therefore convey risk premiums.
Instead, gold should be thought of as a currency, one which pays no interest. Dollars, euro, yen and other currencies can be deposited to receive interest, and this rate of interest is meant to compensate for the decline in the value of paper currencies via inflation. Gold, in contrast, maintains its real value over time so no interest is necessary.
Today, the forward-looking return on holding U.S. dollars, and most other major currencies, has been artificially lowered by the Fed’s commitment to keep interest rates pegged at near zero for the next few years; real yields on U.S. government bonds are negative out to 20 years. In such a world, we believe the desire and willingness of investors to hold gold relative to other currencies increases dramatically, creating the potential for continued price appreciation.
The real price of gold
Of course, investors must also consider valuation, especially since some believe gold is overpriced. Figure 1 shows the inflation-adjusted value of gold since 1970. There is no doubt that gold prices, which averaged $1,630 in August, are high. However, in inflation-adjusted terms, gold is 12% below its 1980 peak. Inflation in 1980 hit 15% year-over-year, and inflation today is running much lower so some may question the validity of comparisons to 1980. While we believe that inflation over the next several years is likely to be higher, on average, than it has been over the past 20 years and that the tail risks are for much higher inflation, this speaks more to the outlook for the nominal price of gold.
The price of gold in real or inflation-adjusted terms is less affected by the rate of inflation and more impacted by the level of real interest rates because as discussed previously, it is the real interest rate that drives the relative attractiveness of holding gold relative to other currencies. With real interest rates negative on average for the next 20 years, it is of little surprise that gold is trading near its all-time inflation-adjusted high.


Even the inflation-adjusted value of gold doesn’t tell the whole story, however. Thanks to productivity gains and economic growth, per capita GDP is significantly higher today than 30 years ago. Thus, the average person today has more wealth and, all else being equal, can afford to pay relatively more for gold.
To Chinese, gold has never seemed less expensive
Figure 2 shows the ratio of gold prices to per capita GDP in the U.S. and China. In dollar terms, gold is still 34% below its 1980 peak, as U.S. per capita GDP is higher today. Furthermore, this is a relatively U.S. centric view, and considering that China represents the largest source of global gold demand, we believe investors take an overly myopic view at their peril. Chinese per capita GDP has grown at an 18% annualized rate for the past 10 years, compared with just 3% per year in the U.S. Thus, while gold might seem quite expensive to those of us in developed economies, its price seems much less expensive to those in faster-growing emerging economies like China.


Another way to think about the relative value of gold is to consider what a return to the gold standard might look like. In other words, what if the entire world’s gold were used to back the global supply of fiat currency? Globally there are roughly $12.5 trillion in physical and electronic currency reserves. Given that there are 155,000 metric tons of gold above ground, this equals an approximate price of $2,500 per ounce if all of the world’s reserves were to be backed by the entire stock of above-ground physical gold.
Not really so pricey
These points lead us to believe that gold valuations are not as stretched as a naïve look at its nominal price might suggest. Central banks globally are seeking to depreciate their currencies in a beggar-thy-neighbor attempt to stimulate their domestic economies (the Swiss National Bank is a prime example). Therefore, we believe investors should consider owning gold, precious metals and other assets that store value as long as central banks continue to print and maintain negative real interest rates.

Saturday 29 September 2012

Value of Gold, what is it??

When considering whether gold is a value investment, one needs to first recognize that gold does not have a balance sheet, management team, price-earnings ratio or any of the other things one needs to analyse before making an investment. Also, gold does not generate any cash flow, so it does not pay a dividend. We can therefore conclude from these observations that gold is not an investment. Indeed, it is something different, which means that normal investment analytical techniques cannot be used to determine gold’s value.
Value of course arises from an item’s usefulness, and gold is useful because it is money. Though only used as currency these days in a few places like Turkey and Vietnam, gold is still useful in economic calculation, or in other words, measuring the price of goods and services.
For example, when the Maastricht Treaty was signed in February 1992, one barrel of crude oil cost $19.00, €15.95 (Dm 31.30) or 1.67 goldgrams. Now it costs $91.79, €71.27 or 1.61 goldgrams, which makes clear that not only is gold useful in communicating prices, it preserves purchasing power. Gold has been useful in these ways for over 5,000 years, so it is logical to assume that gold will remain useful for the foreseeable future.
Some say that the gold price rises and falls, but they are grabbing the wrong end of the stick. It is the purchasing power of national currencies that rise and fall. Here is an analogy to make this point clear. When standing in a boat and looking at the shore, it is the boat (currencies) – and not the land (gold) – that is bobbing up and down.
Currency fluctuations occur in the short-term, but over the long-term, a currency’s purchasing power is continually eroded from inflation and other debasements inflicted on it, as is clear from the example above showing changes in the price of crude oil. There is, however, a subtle but more important point to make here.
Gold does not create wealth. It cannot possibly do that because it does not generate cash flow. Remember, gold is not an investment; it is money, and these two things are entirely different. So when the price of gold rises, wealth is simply being transferred from people who hold currency to people who hold gold. This wealth being transferred already exists. It is wealth held in the form of purchasing power.
Lastly, is gold good value? This is a question that each of us must answer by ourselves because value is subjective. But to me the answer is clear. Gold is indeed good value because it is a useful money, not prone to the problems perennially plaguing national currencies.
Further, gold is good value because it is not over-priced, a conclusion that can be reached by simply considering supply and demand. Even though the gold price has been rising this past decade, the supply of national currencies is being created much faster than the supply of gold. Second, the demand for gold understandably continues to rise as it offers a safe-haven from the ongoing turmoil of the interrelated bank insolvency and sovereign debt crises that have been riling national currencies. These crises have not ended, so I expect this supply/demand relationship will continue. Therefore, gold will become more highly valued in the months ahead, meaning that its purchasing power will rise.
At some point in the future, which cannot be predicted, gold will become overvalued. Its purchasing power will exceed historical norms. To give but one possible example, maybe a barrel of crude oil will only cost 0.50 goldgrams or less. When that moment arrives, it will be time to reduce your gold holdings to buy undervalued investments or to purchase some consumer goods with your savings, which is the gold you are accumulating now while it remains undervalued. I suspect that we are still many months, if not years, away from that event because gold is far from being overvalued.