Gold futures to correct lower

Comex gold futures ended lower due to an equity sell-off which triggered worries about a nascent recovery in the economic conditions. Gold prices posted their first weekly losses since the week of September 25, following four consecutive weeks of gains. The dollar rose on safe-haven buying after steep losses in the earlier sessions.

The gold trade is getting worried on developments about minor sale of Russian gold. The market also saw a series of higher gold production figures from some key miners earlier, but that news does not appear to be applying distinct pressure to gold prices. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, slipped 0.3 per cent this week as the dollar rebounded from a 14-month low against the euro.

Comex gold futures fell lower against our expectations. Corrective declines are expected towards $1,025-27, followed by a crucial support at $1,009-1,011, also being a rising trend line support point. In the near-term while below $1,055 we can expect prices to edge lower towards the support levels mentioned above. As we have been maintaining a bullish view for some time based on the big picture charts, we believe the bullishness to extend with some deeper corrections. As long as the crucial support at $1,009-1,011 remains intact, we feel gold futures could again inch higher towards $1085 or even higher towards $1,100.

Unexpected fall below $1007 could dent our bullish expectations.

Such a fall could take it lower towards $980 or even lower towards $928. Elliot wave analysis indicates a possible fifth wave move in progress. This has been confirmed above $978. A potential fifth wave target lies at $1,100. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator indicating the bullish trend to be intact. Therefore, look for gold futures to correct lower initially and then rise higher again.

Supports are at $1025, $1,011 & $982. Resistances are at $1,055, $1,072 & $1,085.

Gnanasekaar T.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

Correction mode likely to stay

Investors would look for opportunities to move into better performers.

The market went into a correction mode last week after indicating in the second half of October that it might make such a move. This week too, Dalal Street may witness a downward trend. Some observers said the Sensex may plunge to 14,000 level in the short-term.A marked increase in profit booking by a section of FIIs has changed the ball game, according to investment advisors to overseas funds.

Sensex DiVeS on FII selling

The BSE Sensex dived 230 points on Thursday as foreign institutional investors continued their selling amid negative global cues and rising inflation concerns. The benchmark index closed at 16,052.70. The broader Nifty closed 1.5 per cent down, at 4,750.55.The Sensex touched an intra-day high of 16,264, but quickly dropped to a low of 15,993.8.FIIs were net sellers on Thursday for Rs 2,546.6 crore, while domestic institutions were net buyers for Rs 977 crore. Retail investors seem to have taken advantage of the situation and bought equity worth Rs 113 crore (on BSE) in the net.Since Monday the Sensex has fallen more than 4 per cent.

Inflation rate surges to 1.51%

The wholesale price inflation rose at its fastest pace in six months, with the annual Wholesale Price Index-based inflation rate surging 1.51 per cent during the week ended October 17, up from the previous week’s annual rise of 1.21 per cent.

Inflation was recorded at 10.82 per cent during the corresponding week of the previous year. The official WPI for ‘All Commodities’ for the latest week remained unchanged at previous level of 242.2 points.

Is gold a safe-haven asset?

Gold prices are going through the roof once again with each burst of boom seeing the yellow metal scale a new high.

The world might have abandoned gold standard but the Indian middle class continues to buy for social reasons. It is this practice more than anything else that explains the relentless gold rush in India.

Drain on forex reserves

Decried as wasteful and constituting a drain on our precious and scarce foreign exchange — gold is the second largest item on the Indian import basket — gold has serendipitously placed India in an enviable position with a conservative stock of 15,000 tonnes valued at roughly $480 billion that can hasten our growth if not catapult us into the ivy league of rich nations.

Gold standard may not be in vogue and not many are pining for its return but there are intelligent governments and central banks that are seeing the writing on the wall and building their war chests like never before.

China, for example, realised its mistake in putting all its eggs in one basket — the US dollar — and is now making amends by investing its fresh forex accretions in the yellow metal.

Our government has a much easier job on hand. It has to hard-sell its gold bond scheme so that the huge gold pile strewn across the country is put to better use and the drain on our precious forex resources is staunched.

Apart from checking the drain from forex reserves, popularising the gold bond scheme would inculcate the habit of holding gold in paper.In fact, a nation’s stock of gold should remain in official vaults. Therefore, besides popularising gold bond scheme for those sitting on gold, for the wannabe gold owners, exchange traded gold must be the norm.

Given the fact that rural folks swear by gold, this won’t be an easy task unless they are won over by explaining the danger of keeping their precious possession meant for the rainy day in their houses.

Paper gold must be sufficiently publicised and the services of the ubiquitous post offices roped in to sell them at the doorsteps of consumers.

Land has also been perceived as a safe-haven asset. The Chinese government and Indian entrepreneurs have been acquiring land abroad considered favourable for cultivation of crops not possible back home due to climatic and soil deficiencies or disadvantages. But any huge land acquisition by foreigners is bound to be resented by the locals. Industrial metals no doubt are precious but they don’t lend themselves to easy storage as gold does.

Besides, the scientific community can come up with substitutes. Shares briefly held themselves out as a safe haven asset which explained a rash of Sovereign Wealth Funds (SWF) before realisation dawned that they are not. In the event, gold remains the only safe haven asset for both individuals and governments.

In the event, gold remains the only safe haven asset for both individuals and governments.Crime for gold

In the hands of individuals, though, it is an unsafe safe-haven asset. Indeed, gold-related crimes figure high in the pecking order of crimes committed universally.

But this is no major handicap if only individuals are sold on the idea of investing in paper gold whose value keeps pace with its underlying asset.

While the fear factor can be played upon to effect transfer of gold from households to government lockers, promoting paper gold in lieu of jewellery may be a harder task. Paper gold might give safety and returns but not the glitter of the real thing.

The income-tax law does its bit towards promotion of paper gold by sparing it from wealth tax while imposing tax on gold per se. In capital gains tax, once again paper gold emerges trumps.

S.Muralidharan

(The author is a Delhi-based chartered accountant.)

Courtesy: The Business Line

BSNL awaiting Government decision on IPO

The Initial Public Offering (IPO) of State-owned telecom major Bharat Sanchar Nigam (BSNL) Ltd has been deferred.

Mr Kuldeep Goyal, Chairman and Managing Director, BSNL, said, “As of now, I do not think it is on the immediate radar.”

On being asked if the IPO would happen within this financial year, Mr Goyal said it would be difficult to comment on the issue.

“The Government has to take a decision on it. We are waiting for the decision,” he added.

The government would need to time the listings of various public sector undertakings, he said.

For BSNL, there is no particular timelineas of now, he added.

BSNL had approached the Government with a proposal to divest 10 per cent stake to the public in a bid to raise about Rs 50,000 crore. The company was hoping to use the funds for expansion.

Mr Goyal was speaking at the sidelines of the launch of BSNL’s pre-paid broadband services in Karnataka.

Customers must have BSNL land line connection to avail themselves of this service. The service would be extended to other circles by the end of the year, BSNL said. The company has 4.3 million broadband customers, it said in a statement

Courtesy:The Business Line