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Blood bath on Dalal street and what it portends for the gold price

 -- Published: Tuesday, 6 January 2015 | Print  | Disqus 

Today the Bombay Sensex fell down by more than 800 points. The decline was broad based...

I have been studying the stock markets and gold market for the last few days, and I have found an interesting pattern. Whenever the stock market is doing well... the gold prices tend to decline or at best stagnate and whenever the stock market is priced much more reasonably, Gold does well, as far as pricing is concerned. As regards Silver, it just tends to amplify the losses or gains of gold.

The top seven reasons which I see were the cause for today's sharp selloff can be summarised as follows:

1)    Falling price of crude: When the price of king oil falls, it means there is a supply glut of crude in the market, which in turn means that there is a recessionary trend in the economies around the world.

2)    Greece talks of exit from the Euro Zone: If Greece exits, who next? That is cause for some concern as to the strength of the EURO vis a vis the dollar. Lets see what the vote from Greece is.

3)    Heavy Pakistani shelling along the border: This is a local factor, and such heavy firing / shelling has been going on since the last many days. And the Defense Minister has promised to give a free rein to the Indian security forces to retaliate. Which means if this situation escalates, then we are looking at some major skirmish along the border. Which does not portend good times for the economy.

4)    Lack of buying from FII: This reason was very easy to foresee, and I have already warned in a previous essay, that if and when the FII's and DII's choose to book profits, that will be the end of this so called multi-year bull run.

5)    Low earnings expectations for the FY 2014-15: Again, as observed by the common man, and dictated by his common sense, the economy is not exactly shining, I dont see any reason to pay 18000 rupees for a single share of Bosch Ltd. When that share is paying  Rs. 55 as dividend calculates to an abysmal dividend yield, and after all, we are still to get over the ill effects of the high inflation and slow economic growth of the past few years.

6)    Lower services PMI for December: India depends on imported commodities mainly oil, and hence the economy should benefit from the cyclical low most of the commodities are undergoing. Services should be affected positively from the low commodity prices atleast to some extent. Then why is the service sector purchase manager index low? Portends a low growing economy, an economy which isnt exactly roaring, as the stock markets would have us believe.

7)    Stronger dollar: A fiat funny dollar which itself rides on chariots of hot air is doing well and going strong. Goes to emphasize, ust how fiat and funny the other world currencies are...

And by the way, I have a theory as to why two airlines of Malaysian airlines and one of Air Asia crashed / disappeared / shot down recently.

Looking at the recent attempts by terrorists to bring about some or the other incidence, I think, all three airplanes were hijacked, and then were shot down by security forces. Thats explains why, all the three airplanes strayed so much from their scheduled flight path.

Interesting times ahead for the gold community. Either keep cash or better, stock up on your gold coins...


Manish Thatte


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 -- Published: Tuesday, 6 January 2015 | E-Mail  | Print  | Source:

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