Today, I got this email - which talked of Gold vs. silver and concluded that over the past months / years, gold has been a better investment / hedge and it concluded that gold would continue to do so.
I have no opinion about the debate between gold and silver.
(As a disclosure, I own lots of physical gold and some silver - mostly as part of family jewelery and little as investment. I am short some gold at the commodities exchange)
Please see the chart below:
I looked at this chart and I observed that this gold move is quite a parabolic move over 30 years.
Since I am a novice, I will highly appreciate readers' views on this.
About sentiment: in India, Gold has always been perceived as something of very high value. Something that is never sold - except in case of dire circumstances (like bankruptcies or last resort of financing).
As evident from the chart, throughout my generation (and before), gold's price in Indian rupees has always gone up in the long run. So, this has led to the belief that gold always goes up and never down. Also, when gold reached 15k-16k Rs. , I met a lot of gold bears ---- many of them sold out half or all of their family gold as well! But, i see noone nowadays who is doing that. Will keep hunting more for this. My jeweler kept calling me to sell gold at 18k Rs. But, now, at 19k, he doesnt!
Do note that after 1980 peak of gold in USD, gold price did fall a lot and took 25+ years to reach the same value. (ignoring inflation).
I am not so smart to predict such a long-term move for gold in INR.
But, I think even if this is not the peak for gold in INR, we are certainly closer to it than most people think. This could mean two things:
1) Price of gold actually peaks out in USD - My expectation is gold might have peaked for few weeks / months in USD; but may eventually go higher in USD.
2) INR appreciates big time and as a result, gold price in INR doesnt rise much from here or infact falls. I think this is a very very strong possibility considering that India is one of the few truly safe havens for investment money in world (sorry communists to my right (china) and sorry capitalists in US with socialist policies). 20-25% CAGR growth for so many companies (and much more than that in many instances), with 8-10% country GDP growth in a world where countries are worried about deflation / depression / double-dip recession / bla bla - is a wonderful place to invest in.
3) Both of the above.
Summary: in the long run, we are much closer the eventual gold top in INR than most people think - whether this is due to INR becoming much stronger or due to GOLD actually making a top in USD (or both), i cant say.
So, sell some gold ...
Cheers,
Sumeet Savla
PS Any help in getting me a better / bigger chart of gold in INR will be highly appreciated.
5 comments:
Not sure about this. If you trust O'neil, you are ignoring one of his lessons. You can't short something that has got the strongest price action in the market. Gold is trading at all time high and is pretty much the only LONG trade in the whole world currently.
Yes, I think you are right - shorting gold is a bad bad idea. The only problem is I dont want to sell my physical gold. (even if I want to, my family wont let me sell it.) So, I have shorted it to hedge my physical holdings.
Could you recommend some reading or method - on how to short something of parabolic nature?
I understand that at this point, risk is pretty high for my short trade; my Q is what is the correct entry point for a parabolic move (if this is one)?
Sumeet
You might want to read O'neil's book on making money shorting.
First, you need to see the evidence of break down before shorting a parabolic move. Study some charts like GMCR, STEC etc in recent months.
Something that is parabolic is not a reason ini itself for shorting it. What may happen is that the thing may not go down but might form a base before it goes up again.
Understood. Will go through the examples and the book as well. Thanks.
i am quite bullish on gold. logic which i see are as follows.
1) 6 months back investors panic due to US situation and shifted from $ to Euro, from last month shift is reversed as there is no third alternative currency available other than Gold. (in last 6 months nothing has improved so much which should result into strong $).
2) Smart Reserve Bank / Fedral Banks of India, China , Russia are incresing their reserve in gold on the name of diversification from $ and Euro.
3) No new Mine coming up in next 6-7 years as after doing Capex at current level, its not Economically viable to make commercial production of Gold at CMP of gold, once existing mines stock get over no choice left.
4) Demand from country like India where every year gold consumption increses only and existing stake not coming for sell.
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