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Vandana Bharti's  Instablog

I have four years experience in commodities, especially in metals and energy. I manage the portfolio of commodity investors. Study the macro and micro econmic factors and have the experience of forex market too. I give my views on CNBC, Zee Business and India News on a regular basis. I also... More
My business:
SMC
  • Gold May Add More Glitter to Your Portfolio 0 comments
    Sep 17, 2009 01:04 AM | about stocks: GOLD, ETF
    Now a days, yellow metal gold has become the most popular choice for investors due to its recent spellbound upside movements. Fall in dollar value against major currencies along with ambiguity over further upside in equity market is convincing investors to park their money as a safe haven buying. Regarding the price movements in 2009, with the favorable fundamental situations, it has been trading north ward so far. We know that a cocktail of factors viz., injection of stimulus packages, excessive printing of paper money, widening trade deficit, rising debt, gold mine supply is at historic low, buying by central banks, historic interest rate cuts, deteriorating US economy, shrinking trade activities etc., are likely to keep gold in uptrend going forward.
                                                                                 However, if we talk about the latest movements in gold, it is more seasonal. Seasonally, September is the best month for investors to invest into it. It could be concluded as over the four decades, it has been giving best return on month over month appreciation.  Furthermore the chart below also depicts the same. Even festive demand gives underlying support to gold prices and fourth quarter being festive quarter bullishness in prices continue. Physical buying begins in India due to festive and wedding demand and it continues till China‘s New Year celebration. Western economies participate in buying during Christmas. It has “low season” too which runs from March to July. This pattern occurs even in secular bull markets.
    Average Monthly Movements Of Gold On 22 Year Chart In COMEX
    (Unit $ Per Troy Ounce)

    Source: SMC
    However, this September could be a challenging September due to economic slowdown but any downside in gold prices will further stimulate buying as this time rally is likely to be supported by investment demand as well. Even, investment in gold mining stocks is lucrative for investors right now. After soft months of June and July, gold mining stocks start to bounce in August and September. Apart from seasonal demand there is one major factor, which gives boost to gold prices. We have witnessed two major shifts in gold in past few years, which is showing the change of priority of uses of gold.
     
    Falling jewelry demand and rising investment demand…
    Rising gold prices has hit the gold demand which is majorly used in jewelry. In India in the first quarter, gold import declined by more than 80%, due to decline in demand for physical gold. Despite this massive fall in jewelry demand, gold is trading in an upper range and this rise could be attributed to investment demand of gold, which in 2008 alone saw the rise of around 64%. Gold coin shortages, surge in gold ETF’s, and then rising premium is depicting the investment demand of gold. According to the Financial Times, the US Mint sold 193,500 American eagles in the first seven weeks of this year (more than it sold in all of 2007 and at prices 40% lower). This investment demand has improved further in 2009 with the existing historical turmoil in the market. Investors prefer to diversify their 5-10% of their portfolio into gold in such type of economic crisis.
    Central banks increasing their gold reserve…
    Even, central banks and many governments bought gold or they are in the process of buying gold for “flight to safety” due to the fragile movements in world reserve currency US dollar. ECB (European Central Bank) has slowed its gold sales from last two-three years. According to world gold council data in current gold year which begins in September, 2008 ECB sold only 140 tonnes of gold out of 500 tonnes. Recently, it has announced that now the gold sales quota is only 400 tonnes as compared to 500 tonnes earlier. It also shows that demand for gold is everywhere. Russia increased its limit from 5% to 10%. China has planned to increase its gold reserves from 500 tonnes to 4500 tonnes. It has already doubled its gold reserve from 500 tonnes to about 1100 tonnes now targeting more. The Russian Central Bank, Middle-Eastern and the People’s Bank of China have become buyers of gold along with other nations. Central banks still hold 29,000 tonnes of gold in their currency reserves.
    The way world major economies have injected stimulus packages to get out of the wood has rekindled the concern of inflation. This would again send investors into precious metals. Historically, it is evident that when US debt rises, it pushes up gold prices. For example: From 1970 to 1972; U.S. government's debt increased by $50 billion and the price of gold went up 80% during the same period. Currently, US debt is at all-time high, which is expected that it will support gold to achieve a new high in 2009. According to World Gold Council reports, India’s bank deposits saw 22 percent year-over-year growth in the second quarter of 2009, hence even a small spending of that saving over gold can spur physical buying in India.
    Gold may touch fresh life time high in 2009 as the capital inflow is increasing day by day on the other hand dollar is losing its value gradually. At present, it is prudent to allocate at least 5-10% of the portfolio in gold via, gold ETFs, gold futures or gold coins or bars.

    Stocks: GOLD, ETF
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