Dear uppai,I agree with U on gold.I am looking into rating agency CARE.For long term investment and thinking of buying 200 shares tomorrow,its debt free business and will get a good push by rating ipos in I the next bullrun as well as next leg of ecnomical uptrend...i request you for ur valuable guidance.If I am right in my conjecture and if I should buy CARE
however, i do agree the article does not take into consideration that there could be heavy supply too if central banks opt to sell or pledge. also slow down in interest rates might force the huge retirement of PSU employees in the next three to five years could land in stocks as well in gold. So, the demand is here to stay in the medium term (in terms of gold cycle) to around four to five years.
Gold retailers would be again have days to go smiling all the way to banks.
Srini: There is some short term good news for gold bugs. Dubai has a shortage of gold bars and coins. Possibly it is expatriate workers there who are buying in great frenzy. The mild rise in gold prices after the recent falls have resulted in this panic buying -- just like the short covering rise in stock market after January 2008 and November 2010 crashes were bought into hungrily by retail investors.
Now I have a feeling that institutional selling will stop for a time. Like a fisherman keeps his net steady and silent as fish swarms in, they know that higher levels will be achieved which could very well bring gold prices to its resistance level of $1500+. Central banks of the world are also probably going to buy this dip (not in frenzy but long term decisions have been made by many countries to add to their gold reserves).
But I think that the resistance of 1500+ is unlikely to be crossed except if there is a geopolitical crisis like closing of the Strait of Hormuz, which again seems unlikely. But if there is a geopolitical crisis now, other commodities such as oil will see a far higher spike than gold.
Now, which Indian who is buying gold now will be realistic enough to sell it at 1500+? Hardly anybody. This is the trap. The trap is our own mind, not gold. This happens in the case of any asset.
Let what is going to happen an educational experience for us.
1. The current buying frenzy takes gold up to the resistance level, give or take 50 dollars.
2. During this rise there will be a lot of advertisements from jewellers, advice from TV gurus, newspaper articles, website articles etc. why gold is destined to go much higher, especially targeted at Indians who already believe in gold.
3. As soon as dumb money has bought up most of the gold which institutions are selling, the next leg of the fall starts. If the rise to $1500+ is sharp, the fall will not only breach the recent low of $1320 but fall all the way to $1200 before stabilizing there. Why does it breach 1320? Because the dumb money will panic and offload at that stage. But then central bank buying should come back again and stabilize gold prices for some time.
That will be the end of bull market in gold. There won`t be any panic falls thereafter. Gold will slowly drift down in a multi year slide. And the next bull market, if it ever occurs, will be after another 10 years.
. . . . . .
You`ll know whether this prediction will come true or not within the next few months. [I could be wrong of course.]
There is a possibility (no certainty of course!) that gold will retest its $1500-1520 resistance again before falling and retesting the support at $1320. This is because in the coming days there will be renewed efforts by WGC and institutions to sell at higher prices. In addition central banks of the world may also buy now (decision to buy may have been taken months before). So that should keep gold supported for months. If gold rallies significantly above 1520 and stays there for a few days it may become bullish again (extremely unlikely).
sir, what do you suggest on selling ? whether to wait for few days / months to reach $1520 levels and sell or sell immediately .... of course buying is definitely not an option that most of us understand ....
I can say with absolute certainty that daughters (I have two) won`t require gold at their weddings if these are to take place after 20 years. The current systems will fade away in twenty years. The world will be a totally different place. Wealth will still be needed of course. But there is no guarantee that gold will still count as wealth after 20 years.
If you still want gold I suggest you wait for ten or fifteen years and then start accumulating gold (by when the bear market might be over).
Thank you Sir. I have been reading all your posts on Gbees and that itself is an eyeopener for me (and many more i guess).
I am not installing in gold for investment purpose, I am accumulating it in small quantities for my daughter`s wedding. Which wud be after say another 20 years from now.
ETF is as of now the easiest mode for me to invest. I keep doing SIPs regularly in small quantities. I currently split my investments between Stocks, MF and gold. Now that gold is entering bear market, I just want make sensible changes to the amt I invest in gold, MF and debt. (would like to stay away directly from stocks as of now).
1. How much percentage would you suggest to invest in each of this category ? (MF, Debt and Gold) ?
2. Can you tell me in which site I can follow gold rate in dollar terms?
Jayanee: Today`s fall was the biggest in the history of gold. Such a fall is partly due to fundamentals and partly due to panic selling by short term traders in ETFs across the world. You might have seen warnings in newspapers over the last few days that gold may enter into a multi year bear market etc.
So I would say that today`s fall is likely (not certain, mind you!) to be followed by a short covering which may take it back to its support level of $1520 or so, at least till around $1500.
Thereafter selling may resume. But I don`t see any possibility at all for another bull market in gold. I don`t know where this fall is going to end, though. Last bear market in gold had lasted 21 years causing gold to fall from $850 (Jan 1981) to 250 (Feb 2002). Always study gold in dollar terms (for post WWII period) and in terms of essential commodities for the period before that, like food, agri land, cows, oxen etc.), never in rupee terms.
To understand gold you must study its history for 1000 years. Gold is not money, it is just an idea in people`s mind. There have been instances where extra gold coming into a country caused food inflation. It happened in Egypt in 15th century when the ruler of Mali (a major gold producing centre in ancient world) went for Hajj in Mecca, carrying a train of camels with him from where he distributed gold all along the way. On his return from Hajj he had finished all gold and had to borrow money for his return journey. His munificience caused temporary food inflation in Egypt and surrounding areas because there was too much gold around.
Coming back to your query, I still see a short covering rally. Just sell at that point, even if you are in a loss and use that money to buy some good mutual funds and you`ll see your money doubling or tripling (in case of midcap funds) in a matter of three years.
How true is the Wall Street adage, "Gold takes the staircase when it moves up but takes the elevator when it comes down!" Today GoldBEES is down 7% in rupee terms. Had the rupee also risen against the dollar it would have been worse.
Indian investors in gold should please realize that gold is a safe haven investment only in its bear markets (which was some ten years ago). In behaviour all asset classes behave similarly. Gold, stocks, real estate. When there is too much demand, it will seem to us that it will never fall, and we will make all sorts of arguments (which is a form of rationalization) to keep us in the belief that it has to go up indefinitely. This was our rationalization for Indian stocks till two years ago -- Indian economy HAS to grow even if the rest of the world goes to pieces. And we were wrong.
Similarly till recently (and even now) we had developed a dangerous notion that gold was "real money" and it can only go up. And here too we are being proved wrong.
Well, after such a steep fall, we might expect a pull back to $1500 levels. For God`s sake don`t think such a rise will be beginning of a fresh rally but be ready to dump gold if and when it rallies again in short covering.