X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Gold Is Rising. Should You Be Happy? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Gold Is Rising. Should You Be Happy?

Jun 24, 2019

During the Second World War, there was a popular saying among the rich and powerful in England - when you hear the wails of the air raid sirens or the klaxons, buy Gold.

There was wisdom in this argument. For 3,000 years, mankind has taken shelter in gold. Both as a store of value and as an investment. Gold is not called "God's own currency" without a reason.

Let's get to something more recent, an event you will recollect - the world trade centre attacks on 9/11. Gold traded at sub US$ 275/ounce back then.

Here is what happened to gold prices in the aftermath...

US$ 290 four days later

US $ 277 a quarter later

US $ 324 a year later

US $ 383 two years later

US $ 640 five years later

What is my point?

I can give you anecdote after anecdote, whether it is the London bombings, or the govt in Cyprus confiscating its citizens money, or the ISIS entering the global terror scene...

--- Advertisement ---
The New India Is Here…This Book Reveals How to Potentially Profit From it!

The Secrets Identifying  10X StocksThe New India is already here. We see change happening all around us every single day.

Sadly, most people don't know the full story, and are hence missing out on a once-in-a-lifetime opportunity.

That's the reason our Co-Head of Research, Tanushree Banerjee, decided to write a book on this transformation. And to show people how to potentially profit BIG from it.

And for a limited time, you could get a copy of this book worth Rs 1,950 virtually FREE.

Nearly 2,000 copies of it have been claimed already. So don't delay.

Click here to find out how to get this book virtually FREE…
------------------------------

Gold is the cave investors hide in, when the mind is overwhelmed with fear and alternate investment ideas run out.

The Indian investor in gold is a breed apart. He must contend with the local currency peg as well. It's a well-known fact that the INR has a history of depreciating between 3.5% to 5% per annum on a long period average (LPA) basis. Every time the INR falls versus the Dollar, gold rises on currency considerations alone. This is why gold is off its peak in Dollar terms but it's near lifetime highs in INR. Any further depreciation and gold rises.

Let's take a look at the kind of data we are getting of late...

The M3 money supply (broad indicator of bank deposits of all types of accounts, currency notes, coins and trade receivables) has shrunk from 10.5% to 10.1% in a fortnight alone. The Bank deposit growth rate has fallen to single digits at 9.9% last week. Depositors are clamping up as interest rates fall. Look at the Indian 10-year benchmark bond yields. It has fallen to levels below 7%. People are willing to sacrifice capital appreciation for the comfort of central government guarantee.

This risk aversion indicates resistance on the part of investors to deploy their capital in high risk securities. Naturally gold which stood the test of time for 3,000 years, comes to mind as top of the mind recall.

There is another aspect as well - The ongoing trade wars and Brexit.

While a decline in cross border trade is the natural fallout, governments of the day have learnt lessons from financial market history. The Southeast Asian currency crisis of 1997 saw local currencies crashing against the US dollar and Central governments reaching the brink of bankruptcy.

Their overseas debt suddenly became unsustainable because of the currency collapse. This time around, the central governments want a gold buffer to keep their currencies strong. So the central banks of China, South Korea, India, and Singapore among others are adding gold to their balance sheets by the tons.

Now this points towards a nationalised or an internationalised fear factor. The magnitude is gigantic. If you take the micro view, gold is going up. That's good for gold buffs.

But the macro view is that sentiments across nations are taking a hit. This means your portfolio of other asset classes will probably erode in value.

Even safe havens like fixed income will yield lower returns. Remember, central banks around the world try to keep economies buoyant by cutting interest rates.

Look around you, that exactly what's happening today. America, Asia, Europe, the Pacific... To my seasoned mind, that's an admission of weakness in the economies across borders.

When I watch the gold price rising on my trading terminal screens, my mind's eye visualises the air raid sirens and the klaxons wailing loudly about the impeding attack.

Only this time, the target will be financial assets.

Have a profitable day.

Warm regards,


Vijay L Bhambwani
Editor and Research Analyst, Weekly Cash Alerts

Vijay Bhambwani

Vijay L Bhambwani, is the editor of Weekly Cash Alerts. He is a professional trader, author, trading mentor, and lifelong student of the markets. He has been an active trader since 1986. Financial markets are his life and passion. Everything else in his life revolves around his main objective - trading. Vijay believes that no matter how much a trader has lost in the market, it is possible with hard work and smart work to get it all back over time. Understanding the method behind the madness of the markets interests him more than the profits. He specialises in predictive style of technical analysis, in the commodity, currency, and equity markets. That is the foundation stone of his style of trading - Neuro Behavioural Technical Analysis. Vijay trains other professional traders. He is empaneled with the BSE & NSE as a visiting faculty for various finance market courses. He created the early course content for the Diploma in Commodity Markets (DICM), certified by the Forward Markets Commission. He was a training mentor at the MCX between 2005-2009. He is the first author to have his book - A Traders Guide to Indian Commodity Markets published by CNBC Publishing 18, in 2009 - approved and sponsored by the NCDEX. Vijay has done over 8,000 TV shows in the last 17 years and has written over 4,000 columns/articles in the print and electronic media. He is one of the first columnists to write a weekly column in the English language print media after the commissioning of the MCX, via his columns in the DNA Money, Business Standard and others. Vijay lives with his family in the posh Breach Candy area in Mumbai.


Equitymaster requests your view! Post a comment on "Gold Is Rising. Should You Be Happy?". Click here!

  

More Views on News

Jalan Committee Report and Its Impact on Modi 2.0 podcast (Views On News)

Jul 18, 2019

Jalan Committee's recommendations could have a big impact on Modi 2.0's US$ 5 trillion GDP target.

Will Rating Reform Make Investing in Debt Mutual Funds Safe? (Outside View)

Jul 18, 2019

PerosnalFN explains about the effect of the recent capital market regulator's rating reform on debt mutual fund investment.

7 Stocks to Profit From an Irreversible Trend (The 5 Minute Wrapup)

Jul 18, 2019

Credit growth is likely to accelerate in India in the next decade. Here's how you can benefit from this megatrend.

Charlie Munger Waited 50 Years to Find the Perfect Stock. But There is an Easier Way (Profit Hunter)

Jul 18, 2019

Here's an effective option for market beating returns if you don't want to wait for 50 years for finding the perfect stock.

I-T Department To Follow-up High-Value Transactions With SMS (Outside View)

Jul 17, 2019

PersonalFN explains how individuals will be intimated by Income-tax department for certain high-value transaction.

More Views on News

Most Popular

Commodities Trading: From Pits to Screen

Trading in commodities is perhaps as old as the human civilization. Find out how it will unfold in the future

These 3 Smallcap Stocks are Set to Make the Most of Smallcap Rebound (Profit Hunter)

Jul 9, 2019

As the sense of normalcy returns to the markets, the rebound in the quality smallcaps could be huge.

2 Stocks from Super Investor Sanjay Bakshi's Portfolio You Can Bet On... (The 5 Minute Wrapup)

Jul 12, 2019

Despite the current fear prevailing in the markets, both these stocks have the potential to deliver in 4-5 years.

After Disappointing Budget, Here's a Document that Concerns Largecap and Smallcap Investors (The 5 Minute Wrapup)

Jul 8, 2019

A new 'definition' of the stock universe that triggered the smallcap sell-off is back with the latest list...

Union Budget 2019-2020: More Style Over Substance (The 5 Minute Wrapup)

Jul 5, 2019

Did the Union Budget announce measures to stimulate the economy and bolster corporate earnings growth?

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jul 18, 2019 (Close)

MARKET STATS