Rupee, Equity & Commodities - burp..!

                     The logic which we are familiar with says – when there is economic uncertainty, especially on the global front, the price of precious metals – gold and silver shoots up. These are the metals, which are said to be the ‘safe havens’. But currently, when global economic uncertainty is at its peak, when one would have expected gold and prices to peak to new heights, the prices are actually going down!

The price of gold, which has fallen in recent weeks as part of a broader market sell-off, has even further to fall, Marc Faber, author of the Gloom Boom and Doom Report said today. Faber, who said that the recent sell-off had come about following nervousness about industrial metals, added that a 40% correction wouldn't surprise him.

                     Gold hit a record peak on 6^th September and after having reached that high, the metal has been on the downward swing. Since the past three weeks, prices have been coming down consistently. At least one logic continues to work – when the US dollar falls, gold rises and vice versa. Thus to a large extent, it is the dollar strength which is pushing the gold price down.  Another major reason stated is liquidation by hedge funds. With stock markets all around the world turning volatile, hedge funds somehow seem to prefer liquidating their holdings and prefer to adopt and wait and watch on the sidelines. They do not seem to want take chances with gold too as they expect it to fall further and this could be the main reason for this plunge in its price. Another reason stated by a punter on Dalal Street, using simple logic of stocks is that prices are down now as profit booking had to come at the unbelievably high, logic defying price.

  

But this brings forth a very important question – is gold a safe haven in times of global uncertainties? It seems to be more of a metal which Indians buy. Coincidentally, the plunge in the price of gold coincides with the ‘pitrupaksha or siradh' is wat they say in our culture’, the period in which buying gold, homes, cars and such long term assets is considered to be inauspicious. This period which began on 13^th Sept, ends tomorrow, 27^th Sept. And from 28^th Sept, as has been seen historically, buying picks up. This is probably the cue which we need to watch out for. Indians are the largest buyers of gold in the world and following close its heel are the Chinese. Thus if gold prices see a spike up from 28^th, be assured, that the fall in gold price was not about hedge funds at all. It was just a case of Indians refraining from buying gold! 

Now the next question :

Will market hold on to 4720?

It was a volatile day of trade for the market. The indices swung violently amidst high volumes. It recovered from a sharp mid-session fall, but still ended up on the losing side. The Nifty struggled throughout the day, and finally closed at 4,835 down 32 points. The Sensex too shut shop 110 points lower at 16,051.

Billionaire investor Rakesh Jhunjhunwala feels the Indian market is well poised at the moment and investors should capitalise on the investment opportunity. 

Udayan Mukherjee, managing editor of CNBC-TV18 says, this week will be an important week for the market as futures and options contract will expire this Thursday. According to him, the set-up is not good. "Fundamentally, things are not great. Chances are that at some point, if not this week, but eventually more downsides open up for stocks."

Food for thought:  No one can predict the bottom of any market today. Best to wait for the storm to subside and once the sun starts peeking from the dark clouds, then would be the best time to invest.