Posts Tagged ‘Gold’

GOLD RUSH – Jump in or Wait out? – Final Part

Continuing from the previous post, we will see the few important consumer questions like what to look out and what can you do in this current Gold Rush period.

What to look out?

Lakshmi Iyer, head of fixed income and products, Kotak Mahindra AMC India, tells in her interview with FE, “There has been a recent break out in gold prices and into the buying of gold as an asset class. This is a little contrary to the expected trend. Normally, one would see a lot of redemptions happening now, especially since the gold prices have gone reasonably upwards after being range bound for a while.”

“However, with the festive season approaching, the demand for gold on the outside primary markets has gone up as well. The Indian investor’s mood suggests that they now feel that gold will increase in price. So far gold had been range-bound, but now it may not remain that way much longer, and I too believe the price will increase. Most financial advisors and portfolio managers are of the opinion that one should hold gold as an asset class and at least dedicate between 5-15 or 20% towards it,” Iyer adds. This is also being done as a counter-balancing measure as after a long time have people begun increasing their overall portfolio risk by now investing heavily in equity again, she says.

Iyer whilst talking about the future of gold or what is to be expected in the coming months says, “In the short-term we may see a 40-50 dollar rise in gold prices, after which as far as gold funds go, one may notice profit booking and correction phase. However, I do not expect this correction to be all that much, but it will provide investors with another entry point into gold none the less. In the long run I feel that the price of gold will definitely go up. As we go along people should get use to higher gold prices.”

She went on to add, “The world central bankers have all created liquidity within the markets, and it does not appear like they are going to withdraw this money anytime soon. In such a scenario the only hedge to inflation and money supply will be gold. This is not something that will take place instantly and gold is in no hurry. However, I would not be surprised if the price of gold goes as high as $1,500-$2,000 or even double the current market levels. This could happen in the long-run especially, and I feel a 3-5 year holding period is a reasonable frame.”

As the dollar has been weakening and risk aversion is setting into investors mind, gold is once more looking attractive and its demand is high. A shift from currency assets to gold assets is in the process and like in 2008 when gold did well due to a low risk appetite seen in investors, this time round too, a similar strategy may be seen. Inflation expectations are also building and gold is again perceived as the best hedge against inflation.”

What can I do?

The desire of gold is not for gold. It is for the means of freedom and benefit.” Ralph Waldo Emerson, a 17th century American writer’s summary on why gold is so sought after. Gold is considered an hard core asset with real appreciating characteristics in this current economy.

While facts, figures, numbers and historical data all predict that gold is going to have another wave of price rises and increasing demand this September and maybe for the coming time frame after that. Prudence is still a better route while cashing in any windfalls your gold portfolio may make it a good idea, skewing one’s overall portfolio to favour more than 20% or so of gold.

This could be counter-productive as, only last year most investors only painfully learnt that history is not the answer to the future, as things we may not have considered can always occur.

Financial advisors are very much in tune to the idea of gold being a good investment choice, but they too are weary of becoming over-dependent on it and rather use it as a safety net for their clients.

“The price movement in the last six months has been sideways and therefore while many speculators felt that the price of gold would drop and provide an opportune entry point into this asset class that, has not been the case. Also, with the weakening dollar, gold price has strengthened as well.

All in all, gold is looking to glitter all right and the third quarter, starting with magical September looks like a good time for investors to make sure their portfolios and lockers have a decent amount of gold to navigate this wave.


GOLD RUSH, Jump in or Wait out? – Part I

GOLD, the love for the glittering yellow metal has peaked in recent months and it is eyeing to reach previous highest mark of $1033.80 in March 2008. After moving sideways for the last six months, Gold price crossed the $1,000 mark for an ounce once again and strongly moving forward.

There are many factors cited as reasons – relating to economics, psychology, mathematical and of course, currency(inflation).

However, does this thousand dollar crossing mean something more? Or, is it a short-term speculation rather than a longer term trend? Also why it always happens in September? And given this situation, Can I buy some gold before moves up to add in my portfolio or wait to go down, are the critical question.

Why Gold always goes up in September?

Gold cannot escape the viscious economic cycle of supply and demand. When there is increased demand with less/normal supply, any commodity price tends to go up.

September has been the best time to buy gold in terms of its month-on-month price appreciation over the past four decades, according to Frank Holmes, CEO and CIO at US Global Investors. Statistical data from 1969 till today do not show otherwise, and so this time round ironically, gold comes into the limelight at a time it’s always been sought.

September is one of the most important months for gold due to various occurrences around the planet. Firstly, the post-monsoon wedding season in India and Diwali, one of the country’s most important festivals lead to a major increase in gold demand. Gold is restocked by jewellery makers who are preparing in advance, for the Christmas shopping season in the United States.

The holy month of Ramadan, which comes to an end by late September this year and is subsequently followed by Eid, sees a tradition of exchanging gifts on a large scale as a mark of celebration all over. Similarly, in China, the week-long National Day celebration starting from October 1 and the lead-up from then on till the Chinese new year, always fuel gold demand in China as well.

Another most consistent correlations for gold and the most commonly accepted fact is its inverse relationship with the US dollar. When gold is up, the dollar tends to be down, and vice versa. As per data going back 20 years, this relationship occurs nearly 70% of the time and September is one of the dollars favourite months to be down. Out of 39 Septembers going back to 1970, the dollar has seen negative performance 26 times, which is more than any other month of the year.

What to look out?

While reports and opinions are pointing towards the dollar weakening and gold strengthening, certain undeniable facts do lend them credibility as well. The fact that the US fiscal deficit is expected to be a record $1.6 trillion, and the White House projected last month that the deficit will grow another $9 trillion between 2010 and 2019.

These huge deficits will fan inflation fears and keep downward pressure on the dollar. This coupled with the fact that the Federal Reserve’s massive stimulus spending and the likely –hood that a low interest rate scenario will be prevalent for a few mote months, only further weakens the dollar position and strengthens gold’s.

Will be continued in next week blog post…

Sources –

Whats up with GOLD?

Gold is one of the precious metal never lost value for all these years, I should say centuries. It’s been the craze of human race from the day it was found. This yellow metal always retained its magnetic power to attract both men or women. It’s metal for one reason Britains stepped their foot into India to capture hold of the country.

Gold has been considered as a good investment thats the main reason in India they gave gold ornaments as a dowry to the bride which can be used if necessary for the family. Its also used to pass on the wealth from one generation to another.

Enough of Gold history. Let me get on the fact. Look at the chart below. Last year around the month of Jun, it started to slowly raise and hit a lower high and pulled back on Sep again to $650 range. After that it never looked back and started to soar supported by subprime crises and later by weak economy.

Nobody really expected the yellow metal to claim this high close to $1000 within just 8 months and its not looking to stop anywhere soon and aiming for higher highs every day. Its all because of the weakening dollar pushing the inflation and recession is on the brink.

Check out the 5 year chart below, it has come a long way from $300. If somebody would have invested in just 10 bullions for $3000, now its worth $10000. Just calculate the return which is 225%. Wow, who don’t want to get that much return. You and me can’t predict the economy that pushed GOLD this far. But you surely make a wise choice to buy it when its affordable and it will never let you down.

Recommedation: Long term Investor

Don’t buy now. What goes up faster is set to come down 2 fold faster. Gold will eventually come down to a price which is afforable to conservative consumers. It will sure to pullback to $700 – $800 range or much lower. That time, don’t hesitate to catch the train. It will be a good investment for long time to come. The 20year chart below is the evidence.

(Chart courtesy:

Short term Trader:

Gold has become an attractive commodity for the trader these days with market fluctuating so much dropping prices to more than $10 dollars a day. It is very good traders vehicle to put money for a short term and get a sweet lump of return in just few months. It really You can boldly make the decision to buy some gold as short term investment and reap the reward when it gets up to $1100 or $1200. But be cautions and brave enough to withstand some ups and downs on the way.

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