Monday, December 13, 2010
Monday, December 6, 2010
Monday, November 29, 2010
Thursday, September 23, 2010
ALL THAT GLITTERS “ISNT” ONLY GOLD, SILVER IS SHINNING TOO
The U.S. central bank said yesterday that it will continue to monitor the economic outlook and is “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. The National Bureau of Economic Research said Sept. 20 that the worst U.S. recession since the 1930s ended in June 2009. Still, unemployment in the U.S. may stay above pre-recession levels until at least 2013.
Key drivers for Silver price rise are, continuing safe-haven demand from an uncertain European and U.S. economic backdrop and the emergence of stronger investment demand. On the contrary, high industrial demand from Emerging markets will pave the way for price rise. The world's largest silver-backed exchange-traded fund “ISHARE” is turning bull on the commodity and started increasing its holdings since May 2010 and heading towards breaking the all time high of 9514 tonnes
For the last few years silver has moved in relative tandem with the gold price up to now. We called it the ‘Long shadow of gold’ because it would rise further and fall further than gold, but they did move together. Occasionally silver did pause as gold rose but the ‘shunt’ effect [when a train pulls forward with a line of carriages in tow and each jumps forward as their links tighten] kicked in and it jerked forward to catch up with gold’s moves. Many investors keep their eyes focused on the Gold: Silver Ratio [one ounce of gold buys x number of ounces of silver] and trade it regularly. Right now that ratio is at 1: 62. However, by coupling we also mean will they continue to act and react together on a daily basis, apart from price differentials.
Silver prices are breaking out technically and it is our belief the metal will actually outperform gold in Q410 as investors look for ways to capitalize on upside potential vs the yellow metal. Throughout the gold rally seen over the past few years, silver has largely been seen as the evil stepchild of gold. However, a case can be made that investors are becoming more hip to silver’s allure, especially for portable electronic device battery technology. The growing enthusiasm for silver is most evident by the metal quietly trading near its highest level since 1980
Gold- Silver Ratio
Keep in mind the gold/silver ratio, which measures how many ounces of silver would be needed to buy a troy ounce of gold, was above 72 in 2009. Today the level is below 62. This indicates to us that at current prices investors are viewing silver more and more as an investment alternative to gold.
We'll have to travel in time back to 2003 to find a time when the gold to silver ratio was even remotely close to where it is today. In 2003, the ratio peaked for the last time at nearly 80:1. Since that time, gold has risen from $320 per ounce to $1240 per ounce. Silver, on the other hand, has risen from $4.80 to more than $20 per ounce. Silver racked up a 416% gain in seven years while gold lagged, but still beat any other market with a 387% gain.Going back even further to 1992, silver was selling for an average price of $4 per ounce while gold traded at right around $350. That puts the ratio at roughly an average of 85:1 throughout the year. From 1992 to 1998, when silver reached its recent average ratio to gold, silver soared as high as $7.80 per ounce. Gold, however, stayed moderately flat, advancing no more than 20% and ending the year of 1998 exactly where it began six years prior. Nevertheless, in 1980, the last time silver prices saw a surge before this current rally, the gold/silver ratio was only 17 so those investors still looking to jump on silver express still have time in our opinion.
Now more than ever, appreciation in silver prices is only a matter of time, nearly guaranteed as a result of a changing market structure and a sky-high silver to gold ratio. When investment bank activity shutters for good in October, expect a surge in prices never before seen. Silver's previous seasonal autumn runs will look like blips on the radar, and many investors are positioned well to become filthy rich on the climb. If you haven't already, consider swapping a portion of your gold bullion holdings for physical silver, as history is on your side.
With silver being less liquid than gold, investing in silver could be a more strategic way to capture a larger return in the precious metals space. If silver prices are gaining upside momentum and industrial demand is still fragile, silver could see robust demand for investors when this recession finally shows signs of being over.
At COMEX, Silver is expected to create new highs and trade around $23 in near future. Therefore, I advise to buy MCX Silver around 32300 and hold for 2-3 months for 10% upside for the target of 35500.
Friday, August 27, 2010
BUY GOLD IN AUGUST AND GO AWAY
These monthly seasonal tendencies reinforce the annual analysis. Summers, especially June and July, tend to be weak during the summer doldrums. August looks strong above in monthly terms, but realizes most of these gains merely offset July’s big losses. But once summer passes, Gold tend to rally on balance in most months except October. While they can drift lower other times, these non-summer pullbacks tend to be trivial.
August is the perfect time to stock up and prepare for the highly-probable large autumn (September) gold rally. Gold tends to rally sharply in autumn because of big Asian buying. After harvest, farmers can invest in gold once they know how big their profits are. And gold demand in India in particular, the world’s largest consumer, rockets higher during autumn’s festival season and marriages.
The above chart shows monthly percentage return in COMEX Gold for last 10 years. And it has been concluded, that September and November month gives best return with average of 4.5%.
The bottom line is precious-metals stocks have exhibited very definite seasonal tendencies over the course of their secular bull. This is largely the result of gold demand spikes driven by income-cycle and cultural factors that are tied to the calendar year. While stock seasonals are often secondary drivers that can be temporarily overridden by short-term technical and sentimental extremes, prudent traders still pay close attention to these headwinds and tailwinds
Moreover, World Gold Council published report on Gold Demand Trends for Q2-2010, which suggests demand for gold will remain robust during 2010 as a result of accelerating demand from India and China, as well as increasing global investment demand driven by continuing uncertainty over public debt and economic recovery.
Demand Statistics for Q2-2010
--- Total gold demand in Q2 2010 rose by 36% to 1,050 tonnes, largely reflecting strong gold investment demand compared to the second quarter of 2009. In US$ value terms, demand increased 77% to $40.4 billion.
--- Investment demand was the strongest performing segment during the second quarter, posting a rise of 118% to 534.4 tonnes compared with 245.4 tonnes in Q2 2009.
--- The largest contribution to this rise came from the ETF segment of investment demand, which grew by 414% to 291.3 tonnes, the second highest quarter on record.
--- Physical gold bar demand, which largely covers the non-western markets, rose 29% from Q2 2009 to 96.3 tonnes.
--- Global jewellery demand remained robust in Q2 2010. In the face of surging price levels, consumption totalled 408.7 tonnes during the second quarter of 2010, just 5% below year-earlier levels.
--- Gold jewellery demand in India, the largest jewellery market, was little changed from year-earlier levels, down just 2% at 123.0 tonnes. In local currency terms, this translates to a 20% increase in the value of demand to ` 216 billion.
--- China saw demand for gold jewellery increase by 5% to 75.4 tonnes. While growth in demand in tonnage terms was hindered by extreme weather conditions, the growth in the local currency value measure of demand was 35% to RMB 19.8 billion.
--- With the return of demand for consumer electronics, industrial demand grew by 14% to 107.2 tonnes, compared to Q2 2009.
Outlook
Demand for gold for the rest of 2010 will be underpinned by the following market forces:
--- India and China will continue to provide the main thrust of overall growth in demand, particularly for gold jewellery, for the remainder of 2010.
--- Retail investment will continue to be a substantial source of gold demand in Europe.
--- Over the longer-term, demand for gold in China is expected to grow considerably. A report recently published by The People’s Bank of China and five other organisations to foster the development of the domestic gold market will add impetus to the growth in gold ownership among Chinese consumers.
--- Electronics demand is likely to return to higher historic levels after the sector exhibited further signs of recovery, especially in the US and Japan.
COMEX Gold Weekly Chart
Conclusion
In the coming period, gold may rise further with more expected physical demand from India, the world's largest gold buyer, where festival season begins next week and ends in November.
Scenario Analysis of COMEX Gold
At COMEX, Gold is currently trading at $1240 and expected to rise at least 5% in September as per seasonality chart shown above, for the target of $1300. At MCX, Gold prices are vulnerable to $/Rs movement, so table above shows the target in Rupee terms.
Currently Gold is traded at Rs 18900 level at MCX which is expected to touch Rs 19500 mark in September yielding the return of more than 3% and in leverage terms, ROI would be 100% in one month.
Long term targets for COMEX Gold are $1350 by November 2010 and $1400 by February 2011.
Wednesday, August 18, 2010
Gold changing correlation with Dollar
How quickly things have changed! On August 11th, the dollar fell to a 15-year low against the yen of ¥84.7. It perked up against the euro to $1.32, though that was still much weaker than the $1.19 it reached in early June when euro-revulsion was at its worst. On August 10th, the Federal Reserve conceded that the recovery would probably be slower than it had hoped. The Fed kept its main interest rate in a target range of 0-0.25% and stuck to its creed that rates would need to stay low for “an extended period”. In addition the central bank said that it would reinvest the proceeds from the maturing mortgage bonds it owns into government bonds to prevent its balance-sheet (and thus the stock of ready cash) from gradually shrinking.
Gold has currently 80% positive correlation with Dollar Index now and this again is expected to reverse as Dollar will lose its shine as US heads for Double Dip Recession. Gold is expected to trade inversely of Dollar Index going ahead. The leading indicators suggest that the probability of a US double-dip recession in the next 6-9 months is around 50-50%. The Economic data are pointing too gloomy picture of US ahead. U.S. trade deficit has widened in June, Job creation is stagnant, Initial weekly claims for unemployment are at the highest level since February, Construction and Home sales are sluggish, and Consumer spending remains weak. Every slim piece of economic data will be put under the microscope by financial markets now onwards in the wake of the Federal Reserve's new caution about the outlook. The data will be sliced and diced and spun in a centrifuge for signs of whether the economy is sinking into an actual double-dip downturn or whether it only has hit a soft patch. Therefore COMEX Gold is expected to cross its record high of $1260 soon and trade above $1300 in next 1-2 months.
Monday, August 2, 2010
US GDP data shows Gross Distorted Position of the Country
The advance estimate of second-quarter GDP growth came in at 2.4%, below the expectation going into the report of 2.7%, underlining a deceleration in growth. That deceleration was made starker still because first-quarter growth was revised up to 3.7%, from the previous 2.7% estimate. The report included revisions going back to 2007, and despite the upward revision to the first quarter, revisions overall reduced historical growth estimates.
Source: US Bureau of Economic Analysis