Last week I was at the “Commodity Week” conference, in Dubai. Analysts as well as fund managers spoke at length about the present and the future market. Some of the key points will be discussed in this report.
Prices of agricultural commodities are expected to remain firm over the coming years. I made a good friend with Leonardo Bichara Rocha of International Sugar organization. According to him, there has been huge investment made on ethanol and sugar industry which has been driving sugar prices lower in the short term. However once ethanol usage increases sugar prices will resume its uptrend. Even in India, ethanol blending with petrol has yet to start and once that starts Indian sugar stocks will fall and prevent prices from fall. Demand pressures due to ever rising population will prevent prices of food products from a major fall. One need not look at the global inflation numbers. Instead agri - price can be another way of looking inflation as it affects the common man. Copper price rise or a gold price rise does not affect the common man. If prices of vegetables or wheat or sugar or pulses rise sharply if affects the man on the street as it affects his living standards. Hence its better to have another set of inflation number which shows how the common man get affected due to price rise instead of the current one.
Fund management in commodities does not mean investment in metals alone or agri – commodities alone. They have to be diversified. Roland Jansen, CEO of Mother Earth Investment had an excellent presentation on diversification of portfolio.The crux is that a one needs to make a balance between agricultural commodities as well as metals.The more the number of metals and agri- commodities in the fund the better.It’s just like a stock market where some sectors perform better than others.
As far as precious metals are concerned, I am on the side of James Turk. We both continue to remain hyper bullish on precious metals in the long term as global exchange power of paper money such as currencies is slowly and steadily coming down and that gold could once again become the medium of exchange. However this may not happen overnight, it may take another ten to fifteen years for the retail investor to experience. Long term bullishness in gold is fine. But if you ask me whether make a fresh investment gold, my answer would be to wait. Gold and silver are in a neutral zone and could swing either side. Long term bullishness in gold does not mean to invest in gold at $700. The year on year return on gold and silver in Indian rupee terms is negative. This will reduce investment demand from India.
Gold jewellery demand is showing signs of a change. Earlier when one purchased gold jewellery, the content ratio of gold to items such as gems and other stones was 9:1 i.e., ninety percent of the value was gold and ten percent diamonds etc. Now this ratio has changed and our estimates put it as 7:3 i.e., seventy percent of the value was gold and thirty percent diamonds, coloured stones etc. Mr Moaz Barakat, managing director of world gold council may not agree with my view. But this is something which I have seen in different parts of India as well as in Dubai. This does not mean that global gold demand will fall. The global per capita demand of gold will rise due to stronger global growth. In India due to higher income, earlier if someone was wearing silver jewellery, now he is wearing gold jewelery. Further more and more people are wearing gold than a few years back.
Another concern was that some of the gold exchange traded fund (GETF), may not have purchased the gold out of the investment made in them. We do not have any information over the same and it could be mere speculation. However, there should be regulation to prevent such things else it will dent investor conference and we could see another enron.
GOLD -- AUGUST FUTURE
A close below $653.50 today will result in $635.40 as the immediate target. On the higher side $663.50 is the initial resistance with $668 and $671.70 as the key intra day resistance.
SILVER -- JULYFUTURE
Only a consolidated break of $1308- $1314 will result in gains $1329 while failure to break the same will result in $1278 and $1236 in the near term.
Happy Profitable Trading
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