Silver may continue to outperform others

Hindustan Zinc to benefit as silver will contribute 20 per cent to its margins next year

Rajesh Bhayani & B G Shirsat, Business Standard 22/2/2012

source: http://www.businessstandard.com/india/news/silver-may-continue-to-outperform-others/465371/

Silver has displayed a smart rally in the current year so far, rising 21.2 per cent from January onwards. And, there are indications it would continue to outperform other metals like gold and copper. This would be good news for India’s largest silver producer, Hindustan Zinc, as the metal is likely to contribute 14-20 per cent to its Ebitda (earnings before interest, taxes, depreciation and amortisation) margins.

Barclays Capital’s commodity outlook says: “The current profile of our price forecast suggests precious metals would be the strongest sector in 2012. We expect silver to reach $38 and rise even further in the third quarter of 2012, before profit booking sets in. At present, it is in a consolidation mode.”

Barclays says physical demand has been driving silver for the past few weeks.(Click here for graphs)

Following record gains in silver in late 2010 and early 2011, prices crashed towards $25. Since then, they have rebounded to $33-36. Currently, silver is facing strong resistance above $34.5 and getting support at $32.5.

Technically, we could see one more quick dip below $30. However, a decline to $25 or lower may not happen anytime soon. Silver is currently facing resistance at the critical level of $35. If it breaks to the upside, it will quickly climb to challenge the $50-mark once again and reach a high between $55 and $65 by the end of the year, technical analyst Jason Hamlin of Gold Stock Bulls says in his technical analysis.

Indications available from ratio trading suggest silver has outperformed gold, copper and crude oil since the beginning of January. The gold-silver price ratio has fallen from 56 to nearly 51 now, indicating silver outperforming gold. Similarly, crude silver ratio has come down from 3.86 to 3.57 and that of copper-silver has gone up from 118 to 129 now. Both these ratios indicate silver has done better.

As for safe-haven demand, silver traditionally tracks gold, while crude oil and copper reflect the economic scene and demand. Silver has heavy industrial use, so it tracks industrial activity, too. Whatever way economic demand moves, silver looks set to benefit.

Industry sources say, “Silver saw a high of $49 last April and has been in a consolidation mode since then. The consolidation phase for silver has lasted longer than for any other metal. Now, it should do well.”

Hindustan Zinc will be a major beneficiary of the metal’s surge, as it is the largest producer of silver in India. The company is expected to produce 250 tonnes of the commodity in the current financial year and is likely to raise its production to 500 tonnes in 2012-13.

Angel Broking senior research analyst Bhavesh Chauhan says, “Even if we take the conservative estimate of 400 tonnes and a price of Rs 50,000 a kg (which is 12 per cent lower than on Tuesday’s price), silver will contribute 20-24 per cent to Hindustan Zinc’s Ebidta margins.”

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Silver price may surge to Rs 1 lakh per kg

http://www.businessstandard.com/india/news//silver-price-may-surge-to-rs-1-lakh-per-kg//158561/on

The price of silver could surge to Rs 1 lakh per kg mark this year in the wake of international economic situation, Bombay Bullion Association (BBA) on Tuesday said.

"The silver currently ruling at Rs 57,000 per kg, is likely to go up further and might go up to Rs 1 lakh per kg this year due to the global economic crisis," BBA President Prithviraj Kothari told reporters here on the sidelines of a function.

The prices of silver in India have more than doubled in the last two years. This will affect silver imports, which may witness only marginal growth to around 5,000 tonne this year compared to about 4,800 tonne in 2011, he said.

"In 2011, we imported about 4,800 tonnes of silver, which was 70% higher than that of 2,800 tonne during 2010. This year the silver imports may be around 5,000 tonne," Kothari said.

Talking about gold, Kothari said, gold imports are likely to be similar to that of last year. India had imported 966 tonnes of gold in 2011, according to the World Gold Council report.

Gold prices are likely to move in the range of Rs 26,000-35,000 per 10 grams this year due to the current economic crisis, he said, adding internationally gold is likely to be traded in the range of $1,600-2,200 an ounce this year.

Talking about platinum, Kothari, who is also the director of RiddhiSiddhi Bullion, said he expects the prices to rise more than gold. In the international market, gold was trading at $1,740.88 an ounce and platinum at $1,670.50 an ounce today.

India annually imports 10-15 tonnes of platinum which is mainly used in the auto industry.

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Economic Times, 14/2/2012

source: http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/why-commodities-are-must-in-your-portfolio/articleshow/11879413.cms

The year 2011 was all about rising costs and expenses. This year is no different either. The liquidity-driven rally in 2012 so far has pushed up the prices of commodities such as zinc (11%), copper (8.78%), Dubai Crude oil (7%), gold (10%) and silver (21%) in US dollar terms. Firm crude oil prices pose a key risk as it can push up the inflation numbers further in India, as crude oil is the largest item on the import bill.

"India is a commodity-deficient country and a rise in commodity prices can push stock prices downwards. Also, a low correlation between commodities and equities makes commodities a good diversification option for investors. Hence, investors should have an exposure to commodities," says Arvind Bansal, vice-president and head – Multi-manager Investments, ING Investment Management India.

Though many agree on the importance of commodities as an investment option, inadequate information and limited options in this space make many investors ignore commodities. But the schemes launched by various fund houses investing in the ‘commodity theme’ make a good entry point.

Commodity Funds

Indian mutual funds cannot take direct exposure to commodities, keep aside gold. These schemes invest in commodities-related companies such as metals and oil, in India or abroad. You can choose among the schemes that invest in ‘energy’, ‘agriculture’ or ‘mining’ verticals. Each such fund, dedicated to a particular sector or theme, will help investors to invest in companies that mine, manufacture, process commodities or manufacture inputs such as equipment for commodities mining and processing.

In case of agriculture, fund managers focus on companies that manufacture agriculture inputs such as seeds, fertilisers, equipment. The rationale behind this logic is that these companies will clock profits whenever the underlying commodity prices see a spike.

To choose winners when the tide turns in favour of commodities, one can look at MF schemes that help investors pick and choose companies in this space, both in India and overseas. "Investors should invest 5-15% of their equity allocation in such funds with 3-5 year time frame," adds Bansal.

"Most of these funds relate to international commodity stocks either through the direct or feeder fund route. The one-year performance of most of such funds has ranged between 15% and 36%. Even within these, it is primarily the gold feeder funds which are more prominent," says Jayant Pai, vice-president, Parag Parikh Financial Advisory Services.

Of course, the ride may not be absolutely smooth. You are exposed to risks such as a price correction in underlying commodity, a poor sentiment in stock markets and of course currency risks as you are investing in a global environment.

Gold

There has been a rally in gold prices and industry experts are still bullish on the yellow metal. In 2011, gold delivered a return of 10.72%. Though purchase of physical gold makes many comfortable, gold exchange-traded funds (ETFs) are gaining momentum with Rs 9,201 crore invested in gold through the ETF route due to factors such as ease of transaction, efficient taxation and safety. Units of gold ETFs typically track the gold prices of half or one-gram of gold, as the case be.

"The main driver for gold is the expectation of the continuation of loose monetary policies and quantitative easing from central banks in the developed world," says Chirag Mehta, fund manager – commodities, Quantum Mutual Fund. The currency debasement is expected to push up the gold prices further as investors would prefer to protect their purchasing power.

"An individual should have 10-20% of his portfolio in gold, depending on his risk profile," adds Chirag Mehta. Of course, to invest in a gold ETF, you need a demat account. But if you don’t have one, you can still look at gold fund of funds, where an investor doesn’t require a demat account. Gold fund of funds encourage small-ticket retail investors as the minimum amount is only 5,000 and you have the flexibility of opting for SIP (systematic investment plan) or STP (systematic transfer plan).

"Gold fund of funds are costlier by at least 0.5% because of the AMC set-up. Hence, investors who have demat accounts should opt for Gold ETFs and investors who don’t have demat accounts can opt for gold fund of funds," says Swapnil Pawar, chief investment officer at Karvy Private Wealth.

E-gold and E-silver

"E-gold, an initiative by National Spot Exchange, is the best form of investment in gold. The biggest advantage is the transparent pricing and lower costs compared to other forms of gold. The second option is Gold ETFs, which attract a fund management charge of 1%," says Rishi Nathany, CEO, Dalmia Securities. Silver as an investment option has been in the limelight for a couple of years now.

Like gold, experts have been bullish on silver due to the ever-increasing demand for industrial use. "Although there has been a lull in the industrial sector in the developed economies, it will only pick up from here. Also, the developing economies look vibrant, which implies an increase in the industrial activities, and hence, higher consumption of silver," says Pawar.

Like e-gold, you can buy e-silver from the National Spot Exchange to avoid physical silver. "Undoubtedly, commodities as an asset class look very promising. But it can only be a good component of your financial portfolio. The core portfolio, however, should comprise diversified, large-cap equity funds," says Suresh Sadagopan, certified financial planner & Founder, Ladder 7 Financial Advisories.

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E Gold vs ETF Gold vs Physical Gold Comparision: http://downloads.vridhi.co.in/e gold.pdf

Also Read: http://vridhi.co.in/2011/08/20/invest-in-e-commodities/

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42% was the one-year (August 2010-August 2011) return delivered by e-gold compared with 40% for gold ETFs. While the marginal difference in returns can be attributed to the cost-effectiveness of e-gold, both these avenues provide ease of investing by allowing people to hold gold in the demat form. However, each product has its pros and cons-while gold ETF is a more tax-efficient means of investing, e-gold offers the option of physical delivery. This is perhaps the reason experts remain divided on which route makes for better investment, finds out ET. Based on their opinion and depending on your individual needs, find out whether you should go for e-gold or gold ETF.

Anjani Sinha, Managing Director, National Spot Exchange

source: fwd mail

E-GOLD
The biggest advantage that investing in e-gold has over gold ETF is that it involves no management costs or other recurring expenses. So the product is a lot more cost-effective for people who have a long investment horizon.

The only charges involved are a one-time transaction fee of 2-3 paisa per gram and a brokerage fee of 0.2-0.3%. Both these charges are also levied in case of gold ETFs, but are much higher. E-gold can be converted into physical gold for quantities as small as 8 gm, while gold ETFs offer the option of physical delivery but only for a denomination of over a kilogram. Accumulating such a huge amount of gold is not feasible for small investors.

Besides, the delivery centres of the National Spot Exchange are located in 15 cities, while ETFs have only one delivery centre in Mumbai. E-gold can also be directly converted into jewellery through select, reputed jewellers that conform with the purity and transparency guidelines. The investor only has to pay for the making charges. The National Spot Exchange aims to bring all branded jewellers under its umbrella of empanelled jewellers within a year.

The liquidity in e-gold is also increasing phenomenally, with the current average daily turnover being Rs 200-250 crore compared with Rs 15-20 crore in case of gold ETFs. Liquidity is of utmost importance for a retail investor as it makes buying and selling more efficient by reducing the impact cost (which is the bid-ask spread). The impact cost for e-gold is only 10-15 paise, as opposed to Rs 4-5 in gold ETFs.

E-GOLD
E-gold wins hands down against gold ETF. In India, the rural community and the middle-to low-income group have a tendency to flock to gold. For the typical Indian investor, e-gold is more suitable as it provides the option of delivering the yellow metal and, hence, bridges the gap between using it for investment and the traditional, auspicious reasons for buying it.

Unlike in gold ETFs, where prices are measured in terms of the net asset value, it is simple to understand e-gold because of the transparency in pricing. A small investor, who wants to accumulate gold for his daughter’s wedding or a festival, can easily do so through planned, monthly or weekly investment in e-gold. In this manner, he can also guard his investment against price volatility. E-gold has also been providing better returns than gold ETFs.

The primary reason for the differential is that in the case of investing in gold ETFs, there is a range of charges, such as management and advisory fees, marketing and distribution expenses, custodian charges and other operational expenses. The expense ratio of gold ETFs is around 1%. Apart from the charges, tracking error also brings down the returns of gold ETF’s a little bit.

Tracking error is a measure of how closely a portfolio follows the index against which it is benchmarked. A gold investor always aims to achieve returns in line with the ones provided by physical gold. While e-gold directly tracks the domestic, physical gold prices, gold ETF only mirrors them. Certain gold ETFs have the flexibility to invest up to 10% of the total net assets in money market instruments and this can lead to tracking error. Some ETF companies also invest in gold futures and in a basket of gold mining companies.

The earnings of a gold mining company may not reflect the price movement in gold, thereby reducing the impact of the price rise. As a result, the returns from ETFs may not be similar to those from investing in physical gold. The market-timing is another crucial factor that an investor should consider. One can trade in gold ETFs only till 3.30 p.m., while e-gold can be traded till 11.30 p.m., providing the investors greater flexibility and global cues while trading in gold domestically.

GOLD ETF
The idea behind both the options is the same-both e-gold and gold ETFs aim at relieving investors of the worry of storage and purity, making gold investment more efficient and convenient. However, gold ETFs make for a more sensible investing option compared with e-gold because of the different tax treatment meted out to the returns from the two.

While the short-term capital gains tax for both the products is charged according to the marginal rate (tax slabs), the tenure for the application of this rate differs. An investor has to hold e-gold for over three years for it to be considered a long-term capital gain, while gold ETFs need to be held for only over a year. Also, the long-term capital gains tax for gold ETFs is levied at 10%, while the tax is 20% for e-gold. E-gold also invites wealth tax, whereas gold ETFs don’t.

Besides, the investors have to go through the inconvenience of opening a separate demat account to be able to trade in e-gold, while one doesn’t have to do so for gold ETFs as the demat account for shares can be used for the ETFs as well. Hence, administration is not at all cumbersome. However, if an investor is primarily interested in getting physical delivery of gold then, e-gold is the ideal mode of investing. However, investors also need to keep in mind that for physical delivery, they will have to pay a charge and VAT at the rate of 1% each.

GOLD ETF FOR NOW
At present, investing in gold though ETFs would be more prudent for small investors. While it’s true that investing in e-gold is relatively cost-effective, it’s also a new product. It was launched only in March 2010 and, hence, should be given more time to evolve before retail investors venture into it.

Gold ETFs, on the other hand, have been around since 2007, are traded on reputed stock exchanges and are backed by good fund houses. The average daily volumes are significantly higher in the e-gold segment, but this could also be due to the authorised participation and contribution of high net worth individuals as the commodity markets have been seeing encouraging turnover growth for some time compared with that in the equity markets.

It is also true that being linked to physical, domestic gold prices, e-gold mitigates the currency risk better than gold ETFs. According to the norms of the Securities and Exchange Board of India, the actual benchmark for gold ETFs is not the domestic price of physical gold but the London Bullion Market Association’s (LBMA) gold price.

This price is in terms of the US dollars and has to be expressed in domestic currency, thereby allowing exchange rate fluctuations to adversely impact the gold ETF NAVs. However, not being linked to LBMA’s guidelines also has its drawbacks. The purity of e-gold is not approved by LBMA and there is no standard benchmark in domestic gold prices. E-gold will definitely overtake gold ETFs as an investment route over the next two-three years. Till then, stick to gold ETFs.

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source: Fwd Email, Author: unknown

The majority of the investing world, like countless times throughout history, has once again found itself spellbound by gold’s luster and I’m here to tell you why I think gold is a bad investment.

I’m feeling another black sheep moment coming on.

Truth is, gold has had a heck of a run. Over the last 5 years, gold has outperformed the S&P index by ~140%. It has successfully breached the $1000 psychological resistance level, and gold bulls are prognosticating that gold can go as high as $2000, maybe even $3000, if inflation slams the U.S. Dollar.

While these are impressive achievements and even more impressive projections, what concerns me is the ubiquitous bullish mentality and everyone trying to convince us that the rally can’t be stopped. When this occurs, you can bet with a reasonable degree of certainty that the gold bubble (if it exists) is about to burst.

10 Reasons Why Gold is a Bad Investment

1. Gold has become front page news. Every time I flip on CNBC or click to mainstream financial website, I have a better than average chance of being reminded gold is once again at all time highs. Anytime an investment — gold, housing, oil, or even tulips — has become front page news, the end is likely drawing nigh and the smart money is slowly exiting the playing field. Remember, the smart money sells when the news is at its best.
2. Gold Bubble? Anyone? Anyone? Remember that little thing called an oil bubble? How about the housing bubble? Maybe a stock market bubble? When any type of investment has substantially appreciated over a small time frame and everyone you know is still buying into rally, it’s time to take off the blinders. Do your due diligence, set aside your emotions, and don’t fall into the comfort of following the rest of the herd. Otherwise, you’re chasing the fast money.
3. Gold is a sure thing. When you hear that any type of investment is a “sure thing”, you should immediately declare a state of shenanigans. Moreover, you should be doubly suspect when that “sure thing” has doubled in value over the last 5 years. Anyone remember the statement the false claims that real estate was a sure thing and can never go down in value?
4. People will laugh and ridicule you for suggesting it’s a bubble. I have no doubt that I’ll receive hate mail for even insinuating a gold bubble has formed. They may be right and I might be completely wrong. But when everyone you know is on the side of the majority, and will laugh in your face at the very suggestion that you have identified another investment bubble, it’s time to start asking the hard questions.
5. Everyone trying to make money on the gold rush. The fact that so many people are piling into the gold business, whether that be making a few bucks selling gold coins to a growing number of esoteric gold-related ETFs, tells me the game may be up. For example, when you see the hard sell advertisements promising extreme returns on your investment, the ethics police might need to step in (as well as the Better Business Bureau).
6. What value does gold really have? Other than gold is pretty to look at, is chemically inert, and is the preferred metal of satellite manufacturers, what hidden value does gold really possess other than mankind’s desire to possess it? If the doom and gloom soothsayers are right, would you prefer to own bag of gold coins or a fully stocked pantry with rice and beans? Gold really only holds value to those people who put value in it, and in these days, those people have the prerogative to change gold’s “value” with a few clicks of the mouse.
7. Gold produces no tangible income. Unlike real estate, equities, or other dividend paying investments, gold does not produce income. If you were to lock away a dozen American Eagle gold coins in a safety deposit box for 20 years, you would be forced to rely on the value of gold 20 years from now to be higher than it was when you purchased them. As investors who bought during the real estate or tech bubble found out, it may take decades to make their money back, if they ever do.
8. Who even uses gold these days? As a joke, ask the checkout clerk at your local grocery store if you can pay with a gold coin that is worth $1000 instead of your debit card. Our present society is no where near geared for a conversion back to a currency that hasn’t been minted since the Great Depression, and I suspect it wouldn’t go over that well.
9. Gold might not be the best investment to hedge against inflation. Being that we live in the 21st century, there is a good chance we might put more value in other commodities. With gold, the only thing you can do is lock it away in a vault and hope someone doesn’t steal it from you once you’ve got it. Alternatively, commodities like gas, rice, even cattle, would probably have more usefulness (on the consumer level) since you can use them as food, fuel, or other things society would deem more valuable. Gold may be edible in small amounts, but I would rather have a steak any day.
10. Speculators, speculators, speculators. When hedge funds and big money traders are trading 100,000 share blocks of the Gold ETF, you know the sharks are circling. No one can deny gold has had a tremendous run, but it is partly due to fast money trading firms consistently bidding up shares looking for the quick buck. When these guys decide to start cashing in their profits, or they feel that there is a risk to their capital, they will liquidate mass quantities of shares and will push the gold market down in a hurry. They will also start piling on the shorts and that’s when things begin to turn nasty for the long term buy & hold investor.

Bottom line is that gold has significantly appreciated over the short term, has drawn the attention of every fast money trader around the world, and the advertisements are beginning to target the Mom & Pop investors. I don’t have a crystal ball so I can’t predict the future, but if history is any indicator, it looks like we’re setting up for another bubble to pop.

Whether the gold bubble bursts at $1000, or $3000, is anyone’s guess and best left up to the speculators. Not the investors.

So what’s your take?

Do you believe we’re just setting up for another gigantic bubble to burst? Will gold trade sideways for a dozen years or will it continue to shoot the moon? Do you think the Federal Reserve will allow the U.S. Dollar to continue to fall and gold (or other foreign currencies) to replace King Dollar?

Our View: We at VRIDHI believe that, though an investment may be good it does carry inherent risks. We also believe that we should post different opinions of different people which would help investors see both sides of the coin. Different opinions help a person Think! and that is the real process of Investor Education which VRIDHI intends to impart.

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Sangeetha G, Financial Chronicle, 25/8/11

source: http://www.mydigitalfc.com/news/nsel-plans-launch-e-series-products-nickel-steel-431

National Spot Exchange is launching nickel and steel under the e-series products next month. The exchange also has been witnessing over 100 per cent increase in volumes as well as the number of new accounts opened in the month of August as the gold prices started escalating to record high levels almost on a daily basis.

NSEL currently has five products in the ‘e-series’ — e-gold, e-silver, e-copper, e-lead and e-zinc. Of the two new products, e-nickel will be available in one kg contract and e-steel in one quintal. “Nickel prices have come down from Rs 2500 a kg some time back to Rs 900 and Rs 1000. The fundamentals in steel are strong and prices are expected to firm up with increased demand from the industry. We expect good interest from the retail investors as well from the metal consumers,” Anjani Sinha, CEO of NSEL told Financial Chronicle.

The exchange has been seeing increasing interest from the investor community after the gold prices started the bull-run. “Increased interest from retail investors has been evident in the e-products as they are not affected by the day-to-day volatility in the metals. Around 17,000 new accounts were opened in the month of August against the usual 8,000 to 9,000 accounts a month. The volumes too have increased over 100 per cent. From Rs 100 to 120 crore a day, the daily turnover of e-gold on some days of August has also gone up to Rs 250 crore. Similarly, the turnover in e-silver also has gone up from Rs 160 crore to Rs 300 crore,’ he said.