Thursday, May 17, 2012
Trading Calls for the day with timing
Friday, May 4, 2012
Daily Report for 4th May 2012
EURUSD: Support 1.3060 – 1.3110 Pivot: 1.3144
Resistance: 1.3190 – 1.3230
Euro: The U.S. dollar remained broadly higher against its major counterparts on Thursday, as mixed U.S. economic reports and sustained concerns over the handling of the euro zone’s financial crisis weighed on demand for riskier assets. the bank left its benchmark interest rate unchanged at 1%, in a widely expected decision.. The pair was likely to test support at 1.3105, the low on April 23, and resistance at 1.3284, the high of May 1. Sustain trading below 1.3130 will indicate stop term top is placed and will bring to 1.3085 and 1.3050$ support level. Stochastic has drifted from overbought zone and is trading around 50% where turning towards oversold zone indicating short correction in the price to continue.
GBPUSD: Support 1.6130 – 1.6165 Pivot: 1.6190
Resistance: 1.6220 – 1.6250
Pound: The British Pound was higher against the U.S. Dollar on Friday. GBP/USD was trading at 1.6186, up 0.06% at time of writing. The pair was likely to find support at 1.6160, Thursday’s low, and resistance at 1.6302, Monday’s high.It is taking support at 1.6180 which is 10 DEMA and trading below the same on closing basis will open the door for 1.6110 to 1.6060 levels where 1.6240 will be resistance level. Stochastic has drifted from the overbought zone and has given negative intersection and trading below 50% moving towards lower zone where correction will continue till the time resistance of 1.6300 holds.
AUDUSD: Support 1.0200 – 1.0230 Pivot: 1.0275
Resistance: 1.0310 – 1.0350
The dollar strengthened against most major currencies on Thursday mainly due to weak manufacturing data out of Europe. AUD/USD tested the lower support level of 1.0240 and closing was just above the support level and crossover below the same will confirm the down trend to continue. Once the support is crossed on lower side target of 1.0100 to 1.0020 will be the immediate support level to be tested. Lower side 1.0020 is a strong support and after consolidation over there where some profit booking may be seen. We are looking at the bear flag pattern breakdown where the difference of the Pole is 600 points and expected breakdown target will be 0.9600 to 0.9550 levels. Stochastic are trading just below 30% zone with negative intersection and is moving towards over sold zone where some downside move is expected.
Gold: Support: 1618 – 1627 Pivot: 1640
Resistance: 1650 – 1663
Gold futures added to losses during early U.S. morning trade on Thursday, after official data showed that the number of people who filed for unemployment assistance in the U.S. last week fell by the most since May 2011. Gold traded at a low of USD1,630 after opening was seen below the level of 1650 a troy ounce during the session. After breaching the support of 1645 confirmation of the down side was seen and today support is seen at yesterday low of 1630$ and sustain trading below the same will bring to 1622$ and 1615$ in near term. Stochastic are trading below 50% area and is moving towards oversold zone where further selling in price may be expected to continue.
Silver: Support: 29.44 – 29.8 Pivot: 30.23
Resistance: 30.6 – 31.05
Silver which reverted from the level of 31.42 where resistance was respected at 31.5$ and is trading near the support of 30$ and sustain trading below 30$ will confirm the down trend where will continue in pattern breakdown moving to test 25A$ level. Sustain trading below 29.8$ yesterday low will continue for 29.2 – 28.8$ immediately where further 27.5$ and 25$ will be the medium term target. As it’s a rule after the breakdown short recovery was expected and this rise can be the selling opportunity where selling is seen from 31.2 – 31.5 range. From current level we will continue the bearish view if trading is seen below 29.8$ where before breaking the same short bounce till 30.25 will be the fresh sell opportunity. Stochastic are trading in just above oversold zoen where trading below 29.8$ will continue downtrend
Crude: Support: 100.5 – 101.5 Pivot: 103.45
Resistance: 104.5 – 106.4
Crude: Crude oil futures came under heavy selling pressure during U.S. morning trade on Thursday, after European Central Bank president Mario Draghi refrained from pledging more liquidity-boosting measures and said the economic outlook in the region was subject to “downside risks”. There are worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil. Crossover below 102.2$ will brings to 101.5 – 100.5$ levels and may go further down, where as failing to cross the same and trading above 104 will retest 107$ level. Stochastic are trading below 80% zone and is negative expecting down side move to continue.
Thursday, March 22, 2012
EUR & POUND Short Term Report
Above Chart shows a good example of a head-and-shoulders top. The three bumps are clearly visible, with the center bump being the highest of the three. The left shoulder usually appears after an extended uphill run. The entire formation seems to stand alone when viewed in the context of a year’s worth of daily price data. This stand-alone characteristic makes the head-and-shoulders top easily identified in a price series. A head-and-shoulders top formation where the center peak towers above the other two. A pullback to the neckline occurs frequently. A trend line drawn along the bottoms of the two troughs between the three peaks forms the neckline. The line may slope in any direction but slopes upward about 52% of the time and downward 45% of the time with the remainder being horizontal. The direction of neckline slope is a predictor of the severity of the price decline.
EURUSD: Technically Euro has rose from the level of 1.2620 level and has rose to the level of 1.3120 and short correction of the rise testing the level of 1.2975 forming the Left Shoulder. There after the rise from the level of 1.2975 tested the fresh high of 1.3485 was the top of the Head and again tested the lower support @ 1.3000 levels where the neck line was seen and also the double bottom was formed. Short bounce was seen from the double bottom level testing the level of 1.3285 which was the resistance of Left shoulder & rise by 61.8% of the fall where reversal in price is expected from here. On lower side support is seen at 1.3000 to 1.3030 level where the Neck Line is coming and sustain trading below the same will bring to the lower level of 1.2700 to 1.2660 level in near to medium term.
GBPUSD: Technically Pound has rose from the level of 1.5235 level and has rose to the level of 1.5925 and short correction of the rise testing the level of 1.5640 forming the Left Shoulder. There after the rise from the level of 1.5640 tested the fresh high of 1.5990 was the top of the Head and again tested the lower support @ 1.5617 levels where the neck line was seen and also the double bottom was formed. Short bounce was seen from the double bottom level testing the level of 1.5920 which was the resistance of Left shoulder & rise by 76.4% of the fall where reversal in price is expected from here. On lower side support is seen at 1.5600 to 1.5640 level where the Neck Line is coming and sustain trading below the same will bring to the lower level of 1.5300 to 1.5250 level in near to medium term.
Monday, February 27, 2012
Friday, February 24, 2012
After Europe Now China is a cause of Worry
An exclusive preview of an economic report on China, prepared by the World Bank & government insiders is alarming:
China could face an economic crisis unless it implements deep reforms, including scaling back its vast state-owned enterprises and making them operate more like commercial firms. "China 2030," a report set to be released Monday by the bank & a Chinese government think tank, addresses some of China's most politically sensitive economic issues, according to a half-dozen individuals involved in preparing and reviewing it.
It is designed to influence the next generation of Chinese leaders who take office starting this year, these people said. And it challenges the way China's economic model has developed during the past decade under President Hu Jintao, when the role of the state in the world's 2nd largest economy has steadily expanded.
The report warns that China's growth is in danger of decelerating rapidly & without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the "middle-income trap." A sharp slowdown could deepen problems in the Chinese banking & elsewhere, the report warns, and could prompt a crisis, according to those involved with the project. It recommends that state-owned firms be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship. The Chinese government must decide "whether it wants state-led capitalism dominated by giant state-owned corporations or free-market entrepreneurship."
Current forecasts by the Conference Board, a U.S. think tank, see the Chinese economy growing 8% in 2012 & slowing to an average annual growth rate of 6.6% from 2013 to 2016. Economists argue that China's annual growth rate will begin to "downshift" by at least 2% points starting around 2015. While some reduction in growth is inevitable—China has been growing at an average of 10% a year for 30 years—the rate of decline matters greatly to the world economy. With Europe & Japan fighting recession and the U.S. experiencing a weak recovery, China has become the most reliable source of growth globally. Commodity producers count on China for growth, as do capital goods makers, farmers and fashion brands in the U.S. and Europe.
How much the report will help reshape the Chinese economy is unclear. Even ahead of its release, it has generated fierce resistance from bureaucrats who manage state enterprises, according to several individuals involved in the discussions. China's political heir apparent, Xi Jinping, now vice president, has given few clues about his economic policies. Analysts expect the high-profile report will encourage Mr. Xi and his allies to discuss making changes to a state-led economic model that has alarmed Chinese private entrepreneurs while creating tension between China and its main trading partners, including the U.S.
Currently, state-managed enterprises tower over the Chinese economy, dominating the nation's energy, natural resources, telecommunications and infrastructure industries. Among other things, they have easy access to low-interest loans from state-owned banks.
China needs to restrict the roles of the state-owned enterprises, break up monopolies, diversify ownership and lower entry barriers to private firms. Currently, many state-owned firms have real-estate subsidiaries, which tend to bid up prices for land, and have helped to create a housing bubble that the Chinese government is trying to deflate. The report also recommends a sharp increase in the dividends that state companies pay to their owner—the government. That would boost government revenue and pay for new social programs, said those involved with the report. Chinese and U.S. economists say that dividend money from profitable state-owned firms now is often directed to unprofitable ones by the State-owned Assets Supervision and Administration Commission, or SASAC, which regulates the firms and tries to ensure their profitability.
China is vulnerable to a sharp slowdown, said Jun Ma, a Deutsche Bank China economist, because it relies too heavily on industries that copy foreign technology and doesn't produce enough breakthroughs of its own. South Korea was able to keep growing rapidly after it hit a per-capita income level of $5,000—about where China is today—because it pushed innovation. However, China lags behind South Korea badly in patents produced per capita, he said.
Chinese local governments often draw much of their revenue from the sale of land, rather than from taxes. The report urges that Chinese social spending be funded more by dividends from state-owned firms and by property, corporate and other taxes.
China could face an economic crisis unless it implements deep reforms, including scaling back its vast state-owned enterprises and making them operate more like commercial firms. "China 2030," a report set to be released Monday by the bank & a Chinese government think tank, addresses some of China's most politically sensitive economic issues, according to a half-dozen individuals involved in preparing and reviewing it.
It is designed to influence the next generation of Chinese leaders who take office starting this year, these people said. And it challenges the way China's economic model has developed during the past decade under President Hu Jintao, when the role of the state in the world's 2nd largest economy has steadily expanded.
The report warns that China's growth is in danger of decelerating rapidly & without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the "middle-income trap." A sharp slowdown could deepen problems in the Chinese banking & elsewhere, the report warns, and could prompt a crisis, according to those involved with the project. It recommends that state-owned firms be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship. The Chinese government must decide "whether it wants state-led capitalism dominated by giant state-owned corporations or free-market entrepreneurship."
Current forecasts by the Conference Board, a U.S. think tank, see the Chinese economy growing 8% in 2012 & slowing to an average annual growth rate of 6.6% from 2013 to 2016. Economists argue that China's annual growth rate will begin to "downshift" by at least 2% points starting around 2015. While some reduction in growth is inevitable—China has been growing at an average of 10% a year for 30 years—the rate of decline matters greatly to the world economy. With Europe & Japan fighting recession and the U.S. experiencing a weak recovery, China has become the most reliable source of growth globally. Commodity producers count on China for growth, as do capital goods makers, farmers and fashion brands in the U.S. and Europe.
How much the report will help reshape the Chinese economy is unclear. Even ahead of its release, it has generated fierce resistance from bureaucrats who manage state enterprises, according to several individuals involved in the discussions. China's political heir apparent, Xi Jinping, now vice president, has given few clues about his economic policies. Analysts expect the high-profile report will encourage Mr. Xi and his allies to discuss making changes to a state-led economic model that has alarmed Chinese private entrepreneurs while creating tension between China and its main trading partners, including the U.S.
Currently, state-managed enterprises tower over the Chinese economy, dominating the nation's energy, natural resources, telecommunications and infrastructure industries. Among other things, they have easy access to low-interest loans from state-owned banks.
China needs to restrict the roles of the state-owned enterprises, break up monopolies, diversify ownership and lower entry barriers to private firms. Currently, many state-owned firms have real-estate subsidiaries, which tend to bid up prices for land, and have helped to create a housing bubble that the Chinese government is trying to deflate. The report also recommends a sharp increase in the dividends that state companies pay to their owner—the government. That would boost government revenue and pay for new social programs, said those involved with the report. Chinese and U.S. economists say that dividend money from profitable state-owned firms now is often directed to unprofitable ones by the State-owned Assets Supervision and Administration Commission, or SASAC, which regulates the firms and tries to ensure their profitability.
China is vulnerable to a sharp slowdown, said Jun Ma, a Deutsche Bank China economist, because it relies too heavily on industries that copy foreign technology and doesn't produce enough breakthroughs of its own. South Korea was able to keep growing rapidly after it hit a per-capita income level of $5,000—about where China is today—because it pushed innovation. However, China lags behind South Korea badly in patents produced per capita, he said.
Chinese local governments often draw much of their revenue from the sale of land, rather than from taxes. The report urges that Chinese social spending be funded more by dividends from state-owned firms and by property, corporate and other taxes.
Friday, February 10, 2012
Nifty Yearly Report 2012
India Nifty: Nifty if we look from the past trend the formation has been repeating and the move was according to the past move. Looking the fall from the point a of 6240 to point b at 5725 the retracement of a-b has seen by 76.4% testing 6206 level where point c was seen. There after the fall was seen, this was 161.8% expansion of a-b from point c testing point d at 5173 level. After testing the level of 5173 reversal in price was seen and point e was seen at 5968 which as 76.4% retracement of d-e similar formation of previous fall a-b and rise to point c. after completing the retracement of 76.4% at point e selling was confirm and tested the lower level point f at 5182 which was previous bottom point d, just forming the double bottom formation confirm the short reversal. After reverting from point f the rise was similar to previous one which retraced by 76.4% of e – f where point g at 5750 was confirmed to get top out and reversal in the price was seen. Looking at the past performance the market has retraced by 161.8% expansion after the retracement by 74.6%, which states that 161.8% expansion of e-f from point g which need to test the level of 4536 where point h has been seen. But some consolidation was seen before testing the target where 4700 was the support taken twice reverted from the support level but was not sharp enough and after testing the level of 4536 point h which confirm the expected move reversal in price was seen and has moved shapely where the retirement as seen by 76.4% of g-h where the expected move is seem to get exhaust from where the reversal can be expected. Today we have seen the market has tested the level of 5450 level which is exactly coming to 76.4% retracement of g-h and is confirming the point i at 5448 and reversal in price can be expected from here.
As we have been looking the fall which is seen by 161.8% in the past, and on the same basis if we calculated the further move with expansion of g – h from i which bring the lower target of 3500 level in medium term. On the fall to reach the lower target there will be short pull back at various support levels with profit booking on the way to test the target. Further on the long term chart dating from 2004 bottom 1240 and 2009 bottom at 2500, taking the trend line which is also showing market need to give a correction and the level again comes at 3500 which is 161.8% expansion of the last formation and the time frame is getting decided where the bottom is expected by December 2012 or max by February 2013. Following in the long term chart explaining the bottom to situation and the long term positional buying opportunity at lower level where nifty may again test the all time high at 6340 and crossover above will bring NIFTY in FIVE DIGIT in following years.
Nifty looking at the long term chart from 2004 onwards with the level of 1260 has given a sharp rise and with the corrective move has tested the level of 6340, there after the crash of 2008 it made a bottom of 2525 level at point c and sharp reversal was seen but failed to cross the high which it posted at 2008 and point d was seen again at 6340 level and again reversal was seen in after taking short support of 4500 bounce was seen. Looking at the lower rising trend line its expected that market will test 3500 level covering the gap which is formed during the rise and also the previous corrective 161.8% expansion confirming the lower target to be achieved by the year end around.
Positional buying is advice at the level of 3500 around plus or minus 200 points where I am looking nifty to cross the double top of 6340 and move and trade in Five Digit in next Four to Five years.
Wednesday, February 8, 2012
GOLD LIKELY TO SEE A CORRECTION
Considered one of the safest assets,gold will probably become even more appealing to investors this year as its price is likely to come down
Shobhana Chadha
The glitter of the yellow metal could probably continue to lure investors this year too,especially those who are wary of the choppy equity markets.Last year,gold provided a splendid return of 31.1%.However,investors shouldnt be overjoyed seeing the performance of the commodity since its not a true reflection of its worth.In fact,the metal is basking in glory because the rupee is weakening against the dollar.According to data gathered from Bloomberg,the metal delivered returns of only 10.52% last year in dollar terms.
The inflated returns of Indian investors were due to the falling rupee.This is why experts are warning investors not to go overboard with gold.Many believe that the prices of the noble metal are poised for a significant correction.The magnetic appeal of gold remains weak in the near term.
Several factors are at play that can influence gold prices in the coming months.Heres a look at some of them.
A strong dollar
The greenback is regaining its safe haven appeal due to the ongoing economic uncertainty in the Eurozone,and this is likely to have a negative impact on the demand for gold.With caution over European economic status,investors will prefer holding dollar-denominated cash rather than any other financial asset, says.Investors are increasingly losing faith in the future prospects of the euro.According to Bloomberg,the Dollar Index,a measure of the dollar against six major currencies,has surged 6.05% since 28 October 2011.Considering the gravity of the global economic scenario,experts believe that the index will continue to go up.On the other hand,the yellow metal has witnessed a change in course.As investors are moving away from gold,the dollar prices have already fallen by about 16% since the record high of $ 1,900 per ounce on 5 September 2011.The magnitude of the decrease indicates that the asset class is already on the brink of a bear phase.Gold prices may see a consolidation or correction in the first half of 2012.
A slump in real demand
The demand for physical gold is cooling off.According to the third quarter report of the World Gold Council (WGC),global demand for gold jewellery slumped by 10% in the quarter as compared to the previous year.India,which is the worlds largest market for gold jewellery and gold bars and coins,witnessed a corresponding decline of 26% and 18% in tonnage demand in the two segments as compared to last year.Experts are attributing the dampening consumer enthusiasm to heightened volatility in gold price.Real demand is reducing because of the high price of the metal.I hold a very negative view regarding the performance of gold in 2012, says Sandip Sabharwal,CEO,PMS,Prabhudas Lilladher.
Affirms Arindam Ghosh,CEO,Mirae Asset Global Investments: The actual demand for the metal cannot justify its price level. According to him,gold is not a productive asset class,which is why the fund house has not launched a gold fund despite the euphoria over it.
Demand driven by investment
Gold prices are in a bubble.The asset class is dangerously inflated due to speculative positioning, says Ghosh.The WGC report shows that while the overall demand for gold rose by 6% in the third quarter as compared to the previous year,the increase was primarily fuelled by the investment demand.The demand for gold exchange traded funds and similar products rose by 58%.The surge in the price of any commodity cannot be driven by investment and speculative demand alone, says Sabharwal.
Despite this increase,a sharp recovery in gold prices in the fourth quarter was restricted due to poor investor sentiments.In fact,it seems that globally,the investment and speculative demand is beginning to wobble as gold is increasingly being seen as overbought.Many experts are developing a firm view that the rally in the metal will consolidate,if not correct.
A recent report by Bloomberg stated that many hedge fund managers have sold gold in 2011 and speculators in the New York futures have not been bullish on the commodity in the past 31 months.Investor George Soros,who made $1 billion in one day in the currency market,had cut 99% of his holdings in the first quarter of 2011.All these factors will adversely impact the investment demand to a large extent as even this channel was largely driven by the long-term,safe-haven appeal of gold,which has deteriorated in the past few months.
Magnitude of correction
Experts have their own grades of pessimism.I expect gold prices to fall by 20-25 % by the end of the year, says Sabharwal.Ghosh expects an even more severe correction and believes that it is long overdue.The price level of the commodity should come back to the mean price level of the past five-six years, says Ghosh.This would result in a correction of 33-38 % from the current levels.
On the other hand,i have a more moderate estimate.He sees a correction of up to 11% in gold prices in the first six months of 2012 as the prices may touch 25,000 per 10 gm.Thereafter,he expects the prices to rally by about 14-19 % in the remaining half of the year with target price levels of 28,500-29,800 in the domestic market.If the rally continues,the commodity could test the level of 31,800 per 10 gm in the later part of the year
However,he does not rule out the possibility of a drastic correction like the one witnessed by oil prices in 2008.The prices fell from around $150 to about $30 in just six months.If the pressure on gold prices continues,there is a likelihood of global hedge funds and speculators going short on the commodity and prices seeing a massive plunge.However,we hope that some solution will emerge for the European crisis which should help stabilise sentiments by the second half of the year.Currently,gold is performing more like a risky asset than a safe haven.
Should you book profits
If you intend to hold only for three six months,then yes,book profits.But if you plan to stay invested for three-five years,there is no need to worry as the long-term fundamentals of gold remain unchanged.Though gold serves as a hedge against inflation,it should only be used as a diversifying element in the portfolio.Dont rely strictly on current trends.Assets under management data of the past few months shows that investors are allocating larger amounts to gold.This is not an ideal move as it is not the time to enter gold in a big way, says Sabharwal.Those considering gold with a longer time frame in mind should enter the gold market in a staggered manner.A lump-sum investment can be made at around 25,000 levels.
Shobhana Chadha
The glitter of the yellow metal could probably continue to lure investors this year too,especially those who are wary of the choppy equity markets.Last year,gold provided a splendid return of 31.1%.However,investors shouldnt be overjoyed seeing the performance of the commodity since its not a true reflection of its worth.In fact,the metal is basking in glory because the rupee is weakening against the dollar.According to data gathered from Bloomberg,the metal delivered returns of only 10.52% last year in dollar terms.
The inflated returns of Indian investors were due to the falling rupee.This is why experts are warning investors not to go overboard with gold.Many believe that the prices of the noble metal are poised for a significant correction.The magnetic appeal of gold remains weak in the near term.
Several factors are at play that can influence gold prices in the coming months.Heres a look at some of them.
A strong dollar
The greenback is regaining its safe haven appeal due to the ongoing economic uncertainty in the Eurozone,and this is likely to have a negative impact on the demand for gold.With caution over European economic status,investors will prefer holding dollar-denominated cash rather than any other financial asset, says.Investors are increasingly losing faith in the future prospects of the euro.According to Bloomberg,the Dollar Index,a measure of the dollar against six major currencies,has surged 6.05% since 28 October 2011.Considering the gravity of the global economic scenario,experts believe that the index will continue to go up.On the other hand,the yellow metal has witnessed a change in course.As investors are moving away from gold,the dollar prices have already fallen by about 16% since the record high of $ 1,900 per ounce on 5 September 2011.The magnitude of the decrease indicates that the asset class is already on the brink of a bear phase.Gold prices may see a consolidation or correction in the first half of 2012.
A slump in real demand
The demand for physical gold is cooling off.According to the third quarter report of the World Gold Council (WGC),global demand for gold jewellery slumped by 10% in the quarter as compared to the previous year.India,which is the worlds largest market for gold jewellery and gold bars and coins,witnessed a corresponding decline of 26% and 18% in tonnage demand in the two segments as compared to last year.Experts are attributing the dampening consumer enthusiasm to heightened volatility in gold price.Real demand is reducing because of the high price of the metal.I hold a very negative view regarding the performance of gold in 2012, says Sandip Sabharwal,CEO,PMS,Prabhudas Lilladher.
Affirms Arindam Ghosh,CEO,Mirae Asset Global Investments: The actual demand for the metal cannot justify its price level. According to him,gold is not a productive asset class,which is why the fund house has not launched a gold fund despite the euphoria over it.
Demand driven by investment
Gold prices are in a bubble.The asset class is dangerously inflated due to speculative positioning, says Ghosh.The WGC report shows that while the overall demand for gold rose by 6% in the third quarter as compared to the previous year,the increase was primarily fuelled by the investment demand.The demand for gold exchange traded funds and similar products rose by 58%.The surge in the price of any commodity cannot be driven by investment and speculative demand alone, says Sabharwal.
Despite this increase,a sharp recovery in gold prices in the fourth quarter was restricted due to poor investor sentiments.In fact,it seems that globally,the investment and speculative demand is beginning to wobble as gold is increasingly being seen as overbought.Many experts are developing a firm view that the rally in the metal will consolidate,if not correct.
A recent report by Bloomberg stated that many hedge fund managers have sold gold in 2011 and speculators in the New York futures have not been bullish on the commodity in the past 31 months.Investor George Soros,who made $1 billion in one day in the currency market,had cut 99% of his holdings in the first quarter of 2011.All these factors will adversely impact the investment demand to a large extent as even this channel was largely driven by the long-term,safe-haven appeal of gold,which has deteriorated in the past few months.
Magnitude of correction
Experts have their own grades of pessimism.I expect gold prices to fall by 20-25 % by the end of the year, says Sabharwal.Ghosh expects an even more severe correction and believes that it is long overdue.The price level of the commodity should come back to the mean price level of the past five-six years, says Ghosh.This would result in a correction of 33-38 % from the current levels.
On the other hand,i have a more moderate estimate.He sees a correction of up to 11% in gold prices in the first six months of 2012 as the prices may touch 25,000 per 10 gm.Thereafter,he expects the prices to rally by about 14-19 % in the remaining half of the year with target price levels of 28,500-29,800 in the domestic market.If the rally continues,the commodity could test the level of 31,800 per 10 gm in the later part of the year
However,he does not rule out the possibility of a drastic correction like the one witnessed by oil prices in 2008.The prices fell from around $150 to about $30 in just six months.If the pressure on gold prices continues,there is a likelihood of global hedge funds and speculators going short on the commodity and prices seeing a massive plunge.However,we hope that some solution will emerge for the European crisis which should help stabilise sentiments by the second half of the year.Currently,gold is performing more like a risky asset than a safe haven.
Should you book profits
If you intend to hold only for three six months,then yes,book profits.But if you plan to stay invested for three-five years,there is no need to worry as the long-term fundamentals of gold remain unchanged.Though gold serves as a hedge against inflation,it should only be used as a diversifying element in the portfolio.Dont rely strictly on current trends.Assets under management data of the past few months shows that investors are allocating larger amounts to gold.This is not an ideal move as it is not the time to enter gold in a big way, says Sabharwal.Those considering gold with a longer time frame in mind should enter the gold market in a staggered manner.A lump-sum investment can be made at around 25,000 levels.
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