Bull market for gold has a lot further to run
In this issue:
» Where are small-caps headed in 2010?
» Worst performing sector in 2009
» Outlook for crude oil in 2010
» Raise interest rates, says Bimal Jalan
» ...and more!!
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One key reason for gold's bigger mind share than stocks during 2009 we believe is - the future.
With the printing presses of central banks (led by the US Fed) working overtime, many noted experts are now predicting a return to the Gold Standard! One amongst them is Porter Stansberry, chief of the leading US-based private publishing company, Stansberry & Associates Investment Research.
Porter has been a gold bull for quite a number of years now. And his current view is that gold is 'nowhere near the top'. This he believes is because central bankers, the key players in the gold price - have begun to buy gold only since the last six months. "So this bull market for gold has a lot, lot further to run," he put its straightforward!
Like he keeps all his savings in gold, Porter also advices people to hold their savings in the yellow metal. And to own as much as they can reasonably afford.
As for Equitymaster's view, we believe that while gold can still perform very well in 2010 and beyond, one should have not more than 10% of his/her investments in the yellow metal. Stocks in good Indian companies must form the biggest portion of this portfolio, especially if it has time on its side.
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Chart of the day |
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Data Source: CMIE Prowess, Yahoo Finance
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So where are small-cap stocks headed in 2010?
We do not expect small-caps to repeat their performance of 2009, in 2010. One of the foremost reasons is valuations. These stocks (on an average) are now trading at valuations that are very close to those of mid cap and large cap stocks. In fact, the gap between BSE-Smallcaps' P/E and Sensex's P/E currently stands at just around 18% as compared to 49% in January.
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But this does not take away from the fact that there are numerous small companies out there, which are still available at attractive valuations as compared to their good long term prospects. One however has to be very cautious while searching for such valuable opportunities. After all, it's not every day that we hear about a new small company that's doing great things.
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So, will things change in 2010? Given the steep increase in raw material prices and rising competition that is threatening the margins of FMCG companies, we do not see much change in their fundamentals next year. Further, given that a host of FMCG companies derive a majority of their revenue growth from rural areas, poor incomes due to this year's drought will only act as an impediment for the sector's growth in 2010.
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Investors then have also to content with high valuations of companies from the sector. The BSE-FMCG index for instance is currently trading at around 28 times earnings. This isn't cheap by any standards!
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| 03:51 |
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Most other Asian markets also traded weak today. Stocks across Europe have however opened on a positive note. Gold is trading US$ 2 higher as compared to last week's close.
| 04:11 |
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He rightly argues that a stark action is not needed as the inflation is confined mainly to food prices. He also points out that in addition to drought, the fact that India didn't make arrangements for import of rice is also hurting matters right now. This anomaly though may be about to get corrected. With political pressure mounting, imports will have to be resorted to. But even this could come with a steep cost. Importing food grains would mean putting further pressure on the government finances, which is already delicately poised currently.
Improving farm productivity and curbing inefficiencies in the distribution system seem to be the only viable long term solution. And these measures need to be undertaken on a war footing.
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Today's investing mantra |
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10 Responses to "Bull market for gold has a lot further to run"
G.Rangarajan
Dec 26, 2009"Bull market for gold has a lot further to run".
R U sure about this statement? Gold is losing it's shine as the $ gains strength.
However I like Ur articles which are interesting and contains lot of useful info.
Thanks
Manu
Dec 22, 2009$1085/oz today (dec 22, 20:57 IST), another 25 dollar drop. The speculators seem to be getting cold feet, now that this has broken what they were calling a "psychological barrier" of $1100.
US households are selling gold in "tupperware-like" parties - see article on Amazon finance today - unlocking dead and worthless value.
This is not a value play at all - but a very risky speculation - no one should even use the words "gold" and "investment" in the same breath!!
(In my last append - "Would anyone in their right mind give an unbalanced picture if they themselves had their skin in the game", I meant, "Would anyone in their right mind give an BALANCED picture if they themselves had their skin in the game").
Manu
Dec 21, 2009On gold - central banks that are still planning to buy are from small countries - and their demand is going to be in the 2-20 tons range (like what Sri Lanka bought), and that too from the IMF, not from the open market. Thus they are unlikely to swing prices.
With the 10% drop, some speculators will be jittery, and another week of the sideways/downward movement may result in them booking profits - also because of end-of-year pressures.
Meanwhile, the dollar is climbing, and may have bottomed out, even if for a while. Most countries will be happy at that, since they hold dollar forex reserves, and a strong dollar helps their exports to the US and enhances their competitiveness vis-a-vis the US.
The so-called wedding season in India on which people were basing their hopes is also at an end.
Based on logic, the next few months should thus see the price of gold come down.
Based on fundamentals, there is no case at all for gold. It is not a value buy, it has no intrinsic returns or dividends, just a speculative price. No value investor should be ever dabbling in it. Other rare metals are different, for they have an industrial use.
Quoting someone or the other who has a large position in gold (as he admits), is like quoting some analyst who admits he has a substantial position in the stock he is recommending. Would anyone in their right mind give an unbalanced picture if they themselves had their skin in the game? Isn't this a conflict of interest for that recommender?
It is strange that every 2-3 days, this website takes one or the other random quote from the blogosphere and repeats it here in an attempt to predict a rosy picture for gold, quite contrary to their "value investment" line.
My reasoning is - whatever be the price of gold (or other "pure speculations" such as oil), I will stay away from it since it is impossible to work out its "future cash flow" (which by the way, is nil).
HEMANT
Dec 21, 2009BUYING GOLD IS REALLY GOOD INVESTMENT, BUT SILVER IS ALSO HIGHLY RECOMDETED AS INVESTMENT ,GOLD DOES NOT EVOPARATE LIVE SILVER ,SILVER IS LOST DUE TO INDUSTRIAL USE AND BE SCARCE AFTER 10 TO 15 YEARS SILVER RATEOF SILVER IS RISINGING MORE THAN THAT OF GOLD
pravin.thakrar
Dec 21, 2009Dear Sir
There are contrasting forecasts for 2010 for dollar.Gold etc.
I have read forecast of 20% dollar appreciation during 2010 from present level.
This is from a single reliable source. Main convincing and supportive arguments:all present deficits and financial
are already priced in the dollar. All major countries currencies are not in better condition than the dollar
The above forecast is really a very bold forecast against the majority thinking and beliefs. My main dilemma is that
what happens to Gold and oil prices if dollar appreciates even by say ten percent? Will the gold rise with appreciation of dollar? What would happen to oil prices?
I value Equity Masters research based feed backs. Your detailed response would go a long way for me to understand better. Would Gold bull market forecast would be reversed?
usman
Dec 21, 2009very very nice but we need other information to invest in stock market like which time invest mony? and the company analyses or foundamental please give some idea for invest in stock market thanks for you.
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Rustom Dalal
Jan 14, 2010One of your recent issues remarked on how small towns including district level towns are showing signs of prosperity. What majes you say that this years rural incomes will drop?