Skip to main content

Gold price likely to soften even more

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

The April trade deficit statistics caused some panic. Crude imports of course, continue to be by far the largest import item. The second largest remains precious metals. Crude imports were up 4 per cent compared to April 2012, rising to $ 14.1 billion. Gold and silver (mainly gold) were up 138 per cent to $ 7.5 billion. Therefore, out of a total import bill of $ 42 billion, the combination of crude and precious metals contributed well over 50 per cent.

 

These are very different types of goods. Crude is a necessary good. While theres plenty of speculative activity in crude, its difficult for an Indian individual to speculate in crude in any meaningful volume.

 

Crude demand isn't very elastic with respect to price.

 

Demand is also strongly correlated to economic activity. Crude prices in April 2012 were about 10 per cent higher than in April 2013. The rise in the April 2013 crude bill is due to higher imports in terms of quantity.

This is a positive signal. Higher crude consumption suggests economic activity is picking up. Incidentally, crude prices have softened in May 2013 as well, in comparison to April 2013. The gradual, long overdue rationalisation of diesel subsidy is also proceeding. So there are positive aspects to the oil import scenario.

Gold and silver are entirely different. Silver does have significant industrial usage in electronic applications, for example, but it is primarily an investment. Gold is almost entirely an investment asset, seen as a substitute for hard currency.

 

These are not necessary goods. Both metals, especially gold, have negative correlations to economic activity. People buy gold when they cannot see more productive ways to use cash - gold after all, earns no interest. Demand is driven by fear of inflation or currency weakness. There is also seasonal demand in India. Weddings and festivals like Akshay Tritiya absorb 500- 600 tonnes a year in terms of demand. Indian imports have exceeded 850 tonnes per annum in the past three years – the excess over wedding demands is largely speculative.

 

Gold has dropped in price significantly in the past six months and there was a sharp drop in mid- April. Prices have continued to soften into May though jewellers are reportedly paying premiums to restock inventory.

There has been a surge in Indian demand as a result of lower prices and due to the Akshay Tritiya festival ( May 13).

 

January saw over 100 tonnes of gold imports. April also saw the 100 tonnes mark exceeded. Given fears of RBI putting curbs on banks importing gold, May could well cross the century mark. Incidentally Chinese imports have also shot up.

 

Investment assets like gold have interesting demand- price relationships. First, demand can often climb when price goes up and momentum traders chase the asset. Demand can also rise on a price dip if investors think the price correction is temporary.

 

But if investors believe that the price has collapsed completely, demand can also evaporate. In the Indian context, physical demand will probably account for 600- 650 tonne any how. But the excess over that could disappear if there is a big bear market in gold.

 

Right now, investors believe that prices could climb back again and this is one reason why demand is strong in both India and China. Another reason is that Indian investors ( and Chinese as well) have tended to lose money chasing financial assets in the past two or three years. Inflation has eroded the value of debt and few domestic investors have made money in the equity markets.

 

Ironically, the interest rate cycle has clearly changed and there is every reason to believe that equities and debt will give good returns over the next two years. Since May 2012, the RBI has cut the policy rate by 125 basis points. Despite its cautious public statements, the central bank is likely to continue cutting rates through FY 2013- 14. That should boost returns for debt funds and it should also mean positive returns for equity. If growth picks up, so should earnings.

 

Gold is a high- risk speculative bet at 26,000- plus. It could indeed bounce back above 30,000 again as many enthusiasts expect. It could also fall further and the downside could be much more. There is a global economic recovery, gold will fall. Prices are in fact, more likely to soften than to harden, given the trend through the past six months.

 

At the risk of repeating myself, if you buy gold at these prices, you must be prepared to set a loss limit and sell if theres a further catastrophic decline. Very few investors seem to see it as just another asset with specific characteristics, but that is all it is.

 

If you buy gold at current prices, set a loss limit and sell if there is a further decline

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now