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.)

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

Gold ETFs: High Volume shows firm recap

Record gold prices may be deterring jewellery buyers, but they are triggering trading interest in Gold Exchange Traded Funds (ETFs). All gold-ETFs have seen volumes double in the last two days. GoldBEeS, which saw an average of 22,000 units traded last week, has seen a surge to 42,000 trades in the last two days.

However, Indian investors who bet on gold-ETFs a month ago have not participated actively in the recent rally. Their returns have been depressed, capped by the rising rupee. Despite the 5 per cent run up in international gold prices in the last one month, prices for domestic gold-ETFs are where they were last month. GoldBEeS, Benchmark Mutual Fund’s gold-ETF, which closed flat in Wednesday’s trade, has been hovering around Rs 1,570-levels for the last one month.

The spurt in gold prices in the international markets, from $1,000 last month to $1,053/ounce, follows the weakness in dollar on fears of a fall in the currency’s value. However, this has lent strength to the rupee, thus muting returns for investors. GoldBEeS, Goldshare (UTI Mutual Fund) and Relgold (Reliance Mutual Fund) all are below their last month highs. When gold crossed $1000 on September 8, all these funds reported new highs.

Source: The Business Line

Gold ETF | Advantages & Disadvantages

Advantages of Gold ETF:

• First, Gold ETFs allow you to invest in gold even if you have a small investible surplus. Instead of waiting until you accumulate enough funds to buy a 50 gm gold bar, you can make an investments in gold ETFs with an outlay of just Rs 10,000, to start with.

• Second, You can also gradually build your exposures by buying additional units as and when you can afford them. Second, you can phase out your investments in a Gold ETF over a period of several months or years, so that you do not invest lump sum at a single price.

• Third, when you take the ETF route, you can invest in gold without worrying about the purity issues that usually dog jewelery purchases.

• Finally, because you can liquidate your ETF units at NAV-based prices through the stock market, they may offer better liquidity at prices closer to the market than gold bars or jewelery.

Disadvantages of Gold ETF:

• One, returns on Gold ETFs may be lower than those on physical gold by virtue of management fees, transaction costs and other operational expenses levied by the fund house on the fund's NAV.

• Second, if the ETF units are not actively traded in the stock market, you may not be in a position to exit your holdings at the time or price of your choice.

Solutions:

• However, these risks appear unlikely to play out in practice. Competition between different ETF products may ensure that these products generate returns that are pretty close to those generated by physical gold.

• The problems associated with liquidity may be sorted out if the idea of Gold ETFs really catches on with investors.

Gold demand mocks economic slowdown, hits record high

Despite the global economic gloom, demand for gold in India registered the highest growth of 66 per cent at Rs 30,600 crore in the third quarter of 2008 as investors sought a safe haven and jewellery buyers returned to take advantage of softer gold prices.

Demand in West Asia, Indonesia and China was up more than 40 per cent while it was down 9 per cent and 5 per cent in US and UK (declines of more than 25 per cent in tonnage terms).

In tonnage terms, demand in India increased to 250 tonnes in the third quarter 2008 from 190 tonnes during the same period in 2007, an increase of 31 per cent. Jewellery demand was up 78 per cent to Rs 21,900 crore against Rs 12,300 crore, while in tonnage terms it rose 29 per cent to 178 tonnes, according to Gold Demand Trends, launched by World Gold Council (WGC).
BOOST FACTORS 


After a sluggish start to the quarter, gold jewellery demand surged driven by rural economic boom, urban consumers wanting to safeguard their investments. Much of India experienced a good monsoon rainfall, which resulted in a ‘feel good’ factor boosting rural spending on gold during the festive season. 

Purchases of gold bars and coins by retail investors amounted to 71 tonne against 53.3 tonne registered in the same period last year, a rise of 36 per cent. At Rs 8,700 crore the growth in value is 72 per cent against Rs 5,073 crore recorded last year.

In certain areas, supply of small bars for retail customers reportedly dried up in the face of such unprecedented demand. 

Mr Ajay Mitra, Managing Director, World Gold Council, said: “Looking forward, we believe the uncertainties in the financial markets will continue, therefore driving investors towards gold and its safe haven and insurance policy characteristics.”
RETAIL INITIATIVES 


Retailers have taken initiatives to increase consumption by offering consumers gold accumulation plans (such as EMIs) and developing new modern designs to cater to the evolving consumer tastes, introduce gold to other retain formats like shop-in shop, kiosks and so on. 

Globally, identifiable investment demand, which incorporates demand for gold through exchange traded funds (ETFs) and bars and coins, was the biggest contributor to overall demand during the quarter, up to $10.7 billion (382 tonnes), double year earlier levels.