When believing is knowing then ignorance is bliss......
O Ashuji
Commodities have corrected significantly in last 3-4 days with Gold Silver experiencing historic fall. Nobody is debating significant nature of Precious Metals fall but most are trying to find positives from the fall. Gold and Silver were largely range bound since their first collapse in 2011. For almost year and a half both were largely range bound. Such nature of fall after being largely range bound is very unique and indicates something more than meets the eye. If an asset class which has risen 100% in a year's time and then falls 50%, it is normal, but something which is ranged for more than a year and then suddenly collapses is not normal.
I have no idea about reason for the collapse in Precious metals nor will get into intellectual masturbation over the same. All I can say with reasonable degree of confidence is such fall is not normal and indicates something (in fact a lot) more than meets the eye. Could it be liquidity scare ? Deflation scare ?....I have no idea.
Let the DATA talk....
Top Gold Holders
1) SPDR Gold ETF is today 7th Largest holder of Gold down from 6th at the start of the year.
2) At the start of 2013, SPDR had gold holding of 1351 tons, implying the fund has sold MASSIVE 197 tons within 3.5 months.
3) Just to put things into perspective, there is lot of talk in media that Cyprus selling has caused panic. Cyprus holds 13.9 tons of Gold. There has been 4 days in 2013 when more than 13 tons of Gold was sold by SPDR (20 Feb, 18 March, 10 & 12 April)
Hence, Cyprus holding is absolutely irrelevant.
SPDR ETF Monthly change in holding (Tons)
Gold Monthly Returns (%)
1) Feb 2013 had highest ever monthly outflow of 77 tons from SPDR ETF followed by 2nd highest outflow of 67 tons (so far in April), taking 2013 tally to 197 tons.
2) April 2013 has been 2nd worst monthly fall since at least 2005 (last one being Oct 2008). Such fall in Gold Prices can't be normal. Oct 2008 was peak of crisis. Something Somewhere has changed big time.....
Gold Price Fall in Indian Context.....
Lot of experts are jumping around claiming that falling Gold/Commodities are good for India because it helps in reducing CAD. This is the best part about Funda"mental" exercise done by these so called experts who give higher weight to their views than facts or history.
Wealth effect created by boost in asset price is very counterproductive because it ALWAYS creates illusion of permanence in wealth and boosting consumption. When there is sharp fall in the asset, it can be very painful. According to world gold council estimate, Indians hold around 20k tons of gold worth around $1.1trn. Last 4-5 days alone have eroded this value by $170bn.
Many experts are excited that such sharp fall is good for Indian Equities...in that case Crude decline from $147 in July 2008 to $35odd by Oct 2008 should have been haven sent opportunity....Crude fall started most intense period of financial crises.....
Such large erosion in value of the financial asset doesn't result in shift of money seeking higher returns but safer returns. I find it amusing when experts talk that money from gold will shift into other assets. Ask any holder of gold or silver what will he do with his eroded capital....?? Its easy talk when one has no sense of how trading works....
Gold/Commodities are widely owned asset, such sharp erosion in wealth doesn't result in Risk Seeking Behavior....GOD HELP THOSE WHO BELIEVE SUCH FALL INDICATES BETTER TIMES FOR OTHER ASSET MARKETS....It clearly shows text book thinking where rationality prevails over emotion but in real world gain or loss of wealth always trumps rationality.
No comments:
Post a Comment