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Wednesday, April 17, 2013

Gold - Why the Mighty Fell

 There are lots of rumours on why Gold has fallen $200 in two days.Internationally the bullish bets have come off because Globally inflation is falling.I know its difficult to believe when you look at your grocery bill.

According to the JPMorgan index, global inflation peaked at 4 percent in 2011 and has fallen steadily since. Global prices in February were up only about 2.5 percent from a year earlier.But the evidence is clear from JPMorgan Chase’s  global consumer price index, which covers more than 30 countries that collectively represent more than 90 percent of world economic output.

After the longest rally in Gold in decades this is the first sign of a softening of rates.The consensus is that Global inflation even if it rises will do so slightly.Support kicks in at $1250 and below that things might turn bleak for those on the BUY side.

The Housing data has shown hints of growth in the US which are now more than just being green shoots.Is it time to wonder why a hedge is needed against global uncertainty and buy equities,especially in the US?Europe seems to be healing,Cyprus being a minor side show.

However,India I believe will buck the trend.The reverence placed on Gold and the investment value assumed by the rural households cannot be underestimated.All that latent demand that was undersupplied by the move from Rs14000 till Rs 30000(price per 10gms)remains unfullfilled.In India gold might not give positive returns but I assume it will not fall as sharply as the global Index.

The only threats are a selloff internationally that makes the Indian investor pause for lower rates or the Gold Loan companies like Manappuram,Muthoot and some of the private sector banks being forced to unload their collateral if support levels are broken.Real trouble for such companies will set in only if Rs 20000 gets broken where their margins get wiped out.

For the Economy the dip in Gold and crude is a huge positive due to its impact on the Current Account Deficit(CAD) and the import subsidies get pared and so does inflation.I hope the prices do come down for the country's sake and may the brides this year dance in the aisles...!!