Author: shyam

Gold: The New Normal

Credit Suisse published a report – Gold: The Beginning of the End of an Era – back in February. The basic thesis was that the peak of the fear trade has now passed and that against any sensible benchmark gold still appears significantly overvalued relative to the long run historical experience. Its important to keep the bigger picture in mind before you rush to buy the dips.

Here are some charts from the same report.

Long run gold price, real, 2007 dollars

The real price of gold (2007 dollars) remains at an extreme level

Gold is still near the long run highs in terms of base metals

Is gold really an inflation hedge

Gold is trading 3 standard deviations below the exponential trend

 

TL;DR: gold is expensive, has broken its uptrend and is a poor inflation hedge (in terms of USD).
[stockquote]GOLDBEES[/stockquote]

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Monthly Recap

NIFTY.2013-05-31.2013-06-28

The Nifty was off 2.40% for the month where most emerging market stocks got slaughtered by all the “tapering” talk. The best performer was IT, although the latest outlook by Accenture doesn’t paint a rosy picture.

FIIs pulled close to $1.85 billion out of equity markets and close to $5.68 billion out of debt. Domestic institutionals hoovered up about Rs. 64 thousand crores of debt and blew out Rs. 98 crores of equity.

ETFs

NIFTYBEES -2.00%
PSUBNKBEES -2.21%
INFRABEES -3.22%
JUNIORBEES -5.48%
BANKBEES -6.90%
GOLDBEES -7.45%
Gold was the most under-performing asset in June with banks following a close second-to-last.

Top Winners and Losers (CNX 100)

IDEA +7.97%
TECHM +9.54%
RCOM +11.42%
TITAN -23.86%
MPHASIS -23.66%
JINDALSTEL -23.55%
Titan followed most gold retailers and miners down, hit by a double whammy of falling international gold prices and the RBI’s effort to curb gold investments.

Index Performance

indexperf.2013-05-31.2013-06-28

Sector Performance

sectorperf.2013-05-31.2013-06-28

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[stockquote]NEULANDLAB[/stockquote]

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Weekly Recap

NIFTY.2013-06-21.2013-06-28

The NIFTY ended up 3.08% for the week, bouncing back up from the ~2.5% loss last week. The energy index was up more than 6% on the back of gas price hike.

Index Performance

indexperf.2013-06-21.2013-06-28

Top Winners and Losers (CNX 100)

RELIANCE +8.80%
ADANIENT +12.72%
UBL +14.33%
RANBAXY -11.50%
MCDOWELL-N -10.05%
INDHOTEL -7.07%
The biggest winner was Reliance Industries, the gas-price hike is a big profit booster to upstream energy companies. Ranbaxy couldn’t get a break regulators…

ETFs

GOLDBEES -6.01%
JUNIORBEES -0.67%
BANKBEES +0.13%
INFRABEES +0.59%
PSUBNKBEES +0.76%
NIFTYBEES +3.26%
Gold continued to tumble with prices reaching production costs for most manufacturers. Credit for the purchase of gold has been regulated away by the RBI.

Advancers Decliners (CNX 100)

adline2.2013-06-21.2013-06-28

Yield Curve

yieldCurve.2013-06-21.2013-06-28

Sector Performance

Gold retailers and miners got creamed.

sectorperf.2013-06-21.2013-06-28

Thought for the weekend

I take it for granted, that those eat now who never ate before; And those who always ate, now eat the more. – Thomas de Quincey, Confessions of an English Opium-Eater

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Being in it for the long haul

Fidelity has an interesting study out. The whole thing is worth a full read here.

While the only predictable thing about market behavior is its unpredictability, history has shown repeatedly that continued plan contribution and diversified, age-based asset allocation has delivered better results over time. During turbulent times, a steady course is most often the best one. A reactionary approach, including a focus on short-term market activity and related attempts to time the market, typically leads to poorer outcomes in the long term.

401k chart

 
 

Besides, how you diversify matters greatly. BlackRock:

The fact is that in times of stress, correlations of stocks and bonds rises greatly. And a traditionally diversified portfolio contains a high degree of equity risk.

 
 

asset allocation

 
 

Read the whole thing here.

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Is a bottom in sight for Gold?

The price of gold in USD terms is approaching the cost of production:

gold

Simple logic would dictate that gold miners will start mothballing mines if its no longer feasible to mine and ship gold.

 

It will be interesting to see how this plays out in the days to come…

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[stockquote]GOLDBEES[/stockquote]

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