-- Posted Wednesday, 20 July 2011 | | Disqus
“Trading is a habit inculcated over a period of time and it is even more addictive than all of the worlds drugs or alcohol put together. It ultimately goes into the veins of the trader who cannot live without it”
Times are changing in all aspects of life with the rising prices… more so in the commodity markets and even more so in the precious metal markets. Markets are flush with the U.S. distributed stimulus funds and almost nowhere for the retail investor to invest, we find a major chunk of the investment in commodities mainly gold because of the fact that it is considered a safe haven investment. Silver has also caught a major fancy with its current meteoric multifold rise.
Past 10 months….
Last year the moment silver crossed $17.73 (INR 28000) the retail investors started buying but with a small target of $23.23 (INR 35000) in mind. After $24.65 (INR 37000) we could see exiting of all open long positions and creation of short positions more and more till $29.40-$30.20 (INR 44000-45000). Then we saw stabilization for a very short time in $27.45-$30.50 (INR 41000-45000) range. After this what happened is history, people could not book losses in their open short positions by themselves… Their respective brokers had to square up their positions as per their margin limitations or financial credibility. In India many people even held on to their positions till $49.20 (INR 72000) by selling their properties and jewellery and there after being misguided by their brokers (mostly bucketeers/dibba wallas in India) that silver would go on to $68.00 (INR100000) on crossing $49.20 (INR 72000), they squared up their short positions in the $49.20-$50.00 (INR 72000-73000) range. Thus all their jewellery and properties were lost as if in a casino. Those who were literate (and financially sound ) enough to get reports from respectable consultants held on to their shorts but they too against their consultants advice exited their shorts at around $47.71 (INR 68000) and created even more open long positions around the $45.12-$47.80 (INR 65000 – 68000) levels. There were also cases of people being long in the lightning fast bull rally around $43.40-$45.50 (INR63000-66000) but could not exit at higher levels of $49.54 (INR73000). There after the long positions are still there in some cases even after seeing lows of around $33.34 (INR50000).
Current Scenario
Silver is currently trading at $40.60 (INR60000). The Investors with open long positions @ $45.50+ (INR66000+) are still waiting for their prices and even expect good profits. They mostly have deposited margins till $30.50 (INR47000). So they are not exiting now as they all forsee a weak dollar policy coupled with stable near zero interest rates as well as all the other international crisis all over Europe. News comes in almost every day about some crisis or the other. People therefore do not want to exit their open positions at any cost. You ask anyone these questions…
Q: What about silver?
A: Rise to a minimum of $68.00 (INR100000) and there after $82.00 (INR125000).
Q: what abt a dip?
A: Maximum $30.75 (INR48000).. worst case $27.20 (INR44000).. we have the margins… why exit?
So we can clearly see here that the U.S. with its stimulus packages / near zero interest rates / weak dollar has blanketed the visions of the retail investor who is not at all looking into next (the great U.S. Election) year. They have only the safe haven investing in gold in mind and taking silver to be the same. They are not seeing the options clashing or the U.S. elections ahead. Anyways in order for the fund managers to make money someone has to loose money “money changing hands” and who better than the unknowing retail investor who has been duped by these so called FUNDS over and over in the past.
In India (and other countries also) the bucketeer or dibbawala will be the person making money in most cases as they have a hold of more than 50% of the volume in commodities. These bucketeers have become even stronger in last years bull rally coz the small investor lost heavily. Now it is the turn of the HNI’s and the Big retail investors to loose their sheen.
YEAR 2012
This should be a good year for all major equity markets as we all tend to follow the U.S. bourses. The present Obama government would want their voters to have full confidence in the present governance and economy. For this they will start favoring a strong Dollar policy / strong equity markets / good GDP’s / Very good labor/payroll numbers and other economic factors which help boost the economy… and all this for the elections ahead.
Now this is what the retail investor has forgotten or is trying to oversee or has been misguided by the current economic conditions. They have very easily forgotten that the data (some numbers which can be played with) portrayed is all in the hands of the sharks and whales and never as per actuals. One should always have an in depth knowledge of the terrain one is treading on before taking steps forward or else they will loose their way just like most of the small investors lured by the commodity markets shine and glow.
All this when translated into figures should read as : Gold could rise further and make new highs of around $1625 - $1635 (INR 23500-23800) maximum till the current quarter or even as early as mid August and then those highs should remain intact in the current year. Thereafter Gold should fall to around $1400-$1450 levels. Silver could also rise a bit further till $43.55-$45.20 (INR63000-65000) and fall back to much below $30.50 (INR47000) levels and could touch $23.50 (INR37000) also. The fall in Gold Silver would again cause the small investors heavy losses. They would now be exiting their longs in both Gold and Silver at these lower levels. If the markets play around these lower levels for some time then maybe the HNI’S would also reconsider their decisions of holding on to their longs or exiting on the spurts.
This would also continue into next year with markets being steady with the 2012 U.S. elections looming ahead and Gold being lower as it is considered as a symbol of world (read U.S.) economic conditions being favorable for investors. Silver should also follow suit and remain lower for the major part of 2012 barring unforeseen conditions.
Conclusions for the trader:
Ø Don’t trade if you are new to the markets.
Ø Don’t continue trading just to recover the losses you have made as it will lead to your grave.
Ø For Jobbers(who cant help it): Daily it should be a fresh day. Forget the previous days profit or loss.
Ø For the tiny Trader: Strictly Intraday for You.
Ø Remember to take your profits home.
Ø Trade cautiously, as an Investor and not like a jobber.
Ø Never be in a hurry to have an open position.
Ø Get to know the commodity you are trading in.
Ø Have both fundamental and economic data in hand. (Look into Data only if you understand the underlying)
Ø Also take into account the major Political factors as they also tend to change the statistics.
Ø See what is there and not what others (Governments & Big Fish) want you to see.
Ø Learn to interpret the data properly. If not have an analyst who could help you with that. In the end it is your own judgment which should prevail.
Ø Never trade with little technical knowledge.. never follow RSI’s or MACD’s as they tend to overshoot and undershoot.
Ø Never go by your broker in exiting open positions specially if you know he is a bucketeer / Dibba walla.
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared By Manan Somani. Website www.insigniaconsultants.in Email: info@insigniaconsultants.in
-- Posted Wednesday, 20 July 2011 | Digg This Article
| Source: GoldSeek.com
