Our Call On Gold Has Come 100% Correct....What Next?

June 11, 2013

Our Call On Gold Has Come 100% Correct....What Next?

Greetings from Hitesh! Now days, I receive many calls for my views on Gold. Rather then dealing with them individually, I thought, let me just update you all. Hope it will help you in managing your gold investing.

On 3^rd April we had written an article titled “Socgen Declares “The End of the Gold Era”. What is our Call?” Most of you had liked it and appreciated the same. In that we had said….

1.   If USD moves up as expected by all experts, Rupee will also go down……so the fall in Gold prices in India may not be as much as it is in Dollar terms. ( Just see gold prce in India is still around 28000/- while Gold has already touched USD1360)

2.   In order to manage the CAD, Indian Govt has already hiked Import duty in last year. This has already increased the cost of import in India. High import cost will also take care of fall as far as Indian markets are concerned. (Govt has increased the customs duty by 2% and made it 8% now. Also all imports must be done with 100% cash margin. This has increased the import prices in India)

3.   For international market, the assumption of Termination of QE by FED by the year end 2013 looks impossible. So, we do not see fall up to USD 1375, as these guys are talking about. (To our credit, last month Mr. Ben Bernanke had said…..he is not in a hurry to stop the QE programs. We did went wrong on the USD Gold Prices. But it has not materially affected the Indian scenario)

4.   We recommend investments only and only if we can make good money during our targeted period……our goal is not to go Right or Wrong.

5.   Looking at the events till July 2013, we see cherry picking opportunities in Equities rather than in Gold. (Join us @hiteshmparikh on twitter and see our some of the calls, and you will forget GOLD).

We must understand USD movement to understand GOLD Prices:-

If you look at all the currencies and most commodities of the world at large….USD has appreciated against most of them. To that extent it is a world wide phenomenon and it has made the investing in commodities a zero sum game.

As far as India is concerned, we see the trend of USD appreciating against Rupee to continue for some more time. We will not be surprised to see USD going into the band of Rs.62 to Rs.65.

If USD goes to say Rs.62 (5 % up) and if the gold prices go down to USD 1300 (5% down), we see Gold prices remaining steady in India.

So, What do we suggest?

Last year USD had fallen to Rs.57 and covered fast to Rs.51. This time also, after going into the band of Rs.62-Rs.65, it may come to Rs.58 fast. In this case, you will see lot of volatility in Gold prices.

Moreover, Gold sellers are charging premium of Rs.500 to Rs.700 per 10 grams. They also charge you a VAT of 1% over it. So, if the price is Rs.28000, your seller would charge you Rs.500 to Rs.700 extra + Rs.280 VAT + Rs.28000, so you are paying Rs.28780 to Rs.29000/- for 10 gms.( close to 3% more).

At the time of selling, suppose the price is Rs.30000, he will deduct Rs.500 to Rs.700+Rs.300 Vat, so you end up getting Rs.29000(Rs.30000-Rs.1000). Just see the price has moved up by Rs.2000/- but you are not making any money. Do you still want to invest in GOLD?

If you are investing in gold for 1-6 months perspective, the above developments may not allow you to earn a decent return on your capital. So, we suggest avoid.

For a very long term investor we suggest to wait for coming 6 months till the above scenarios are played out. Till that time we suggest, bet on Equities.

If you need help in Investing, do approach us.

You can follow me @hiteshmparikh on twitter.

Live With Passion, Invest with Passion.

Hitesh Parikh.