The fall in Gold prices (from US$ 1225 to $ 1115 levels) over the last few days, has got a lot of people worried that maybe, Gold was a bubble and that its dream run is now over. With that in mind, I wanted to take a few minutes today to map out my thoughts and readings on this subject.
So where is Gold going from here?
This actually is a very tricky subject to analyze because there is such a confluence of factors. Indeed, even if we go from what history shows us, we get mixed messages.
For starters, Gold has outperformed every asset class on the planet for the last 10 years. The last bull market in Gold lasted roughly ten years, running from 1970 to 1980. So strictly looking at Gold from a timing perspective (with no eye to fundamentals, inflation forecasts, etc.) this current Bull market is looking a little like close to ending by 2010.
In contrast, from a gains perspective, Gold looks like it’s just getting started. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. From mid-1971 to December 1974, gold rose 471%. It then fell 50% from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
In its current bull market (2000 to today) Gold has followed a similar pattern albeit at a much slower pace. The precious metal took nearly twice as long to complete its first leg up (2000-2007) rallying 300+% ($250 to $1,032).
Then, just like during the last Gold bull market, the precious metal staged an 18-month correction (Feb 2007-September 2009) though this time around it only fell 30% rather than the full 50% retracement in the ‘70s. Gold then erupted into its second major leg up a few months ago, tearing through the $1,000 price point and soaring to over $1,200+.
Here’s a chart detailing the two decades:
GOLD Bull market of ‘70s Current Bull Market
First leg up 1971-74 (471%) 2001-07 (312%)
Correction 1974-76 (-50%) 2007-09 (-30%)
Second leg up 1976-80 (750%) 2009-? (?%)
If Gold were to follow the historic trends of its last Bull Market, one could argue, from a gains perspective, that the precious metal has only just begun its second leg higher. And if history is any guide, this leg will be the big one (last time around Gold rallied 750% which would forecast a move to $7000 per ounce in today’s Dollars).
Thus, history is showing us two very different points of view. In terms of timing, this current Gold bull market is looking pretty old (if history serves as a guide it will end in 2011). However, from a historic gains perspective, Gold’s bull market is still very much in its infancy.
Another way of looking at the price of Gold is simply as a reference point for fiat currencies. If your currency is strengthening (e.g. AUD), gold prices quoted in your home currency will decline. If, on the other hand, your currency is weakening (e.g. USD), gold prices quoted in your home currency will rise. Much of gold's move in USD terms is due to the depreciation of the USD. So in real terms, gold hasn't actually appreciated as much as it seems till now. Several experts have claimed that Gold would hit the US$ 2300 mark by 2011, which is the inflation-adjusted price of Gold in 1980.
In his book “Sub Prime Resolved” Anil Selarka reasons, based on evidence and official figures compiled from the Fed & the US Treasury that, “United States has lost almost 78% of its gold through covert lending practices to certain banks, investment banks and hedge funds to depress the gold prices with intent to control the inflation numbers to help them justify lower interest rates”. An excerpt from his book follows:
“The FED and Treasury appear to have been concealing lending of gold to hedge funds by camouflaging transactions through various central banks. When those Central Banks lend to these hedge funds to short the gold, they appear to claim the gold from Fed and Treasury who earmark the gold in its balance sheets. In other words, the earmarked gold shown in Fed / Treasury balance sheets is in fact owned by foreign Central Bankers and is no longer owned by the United States. If the shorted gold does not return to Fed / Treasury, they will be obliged to show it as “sale” one day. That day of reckoning will come when the Foreign Central Banks start demanding the gold physically.
According to my own research almost 6100 tons of gold earmarked in the Fed/Treasury balance sheets are non-returnable. The hedge funds who shorted it at prices $260 to $360 can not buy back at today’s prices. If they can not return, their deposits will be at the most forfeited. In other words, the Fed/Treasury will be forced to recognize the forced sale of gold @ $260 to $360 or more, but not more than $430 at the most. That is, Americans have lost their most valuable and prized asset – Gold – due to fraud perpetrated by the Fed/Treasury officials. It happened without their knowledge because the Fed/Treasury balance sheets were never audited. The office of OCC (Office of Controller of Currency) conducts only physical verification of the gold, not the true ownership. This is why Ron Paul, Senator, introduced a bill to audit the books of Fed. That is not enough. The gold is handled mainly by US treasury – Fed merely manages the operational part.”
Building on the theory, he goes on to justify a price target of US$ 6400 per oz. for gold!
Taking a closer look at US history, the 70's bull market in gold seems to have been a result of a currency crisis that resulted from President Richard Nixon dropping the gold standard – an act which many refer to as “unconstitutional”. The ensuing increase in gold prices was a result of the excessive printing of the fiat currency (namely the US$) that had taken place prior to dropping the gold standard (while US citizens were prohibited from trading their dollars for real money i.e. Gold). Once it was legalized again, there was a decade long rush for the exits. This was also reflected in the inflation rate. Volcker put an end to the currency crisis by raising interest rates above the inflation rate.
That bought the US ten years of prosperity, which were then followed by ten years of excess under Greenspan, which resulted in the currency crisis that the US is facing now. The difference between 1980s and today is that now the US has a huge debt to deal with, which will prevent it from raising interest rates. Once the monetary inflation that has already taken place starts hitting prices, look out! There won't be a way to stop it. The dollar is on the verge of death, and the only way that individual investors are going to be able to avoid the knockout blow is to get into gold, silver, or some other tangible asset or commodity.
Happy investing!
Monday, December 14, 2009
Friday, December 11, 2009
Global Economic Factors
The Global Backdrop:
US Dollar
Currency markets have been pretty volatile right through 2009, with the Dollex (US$ Index) moving up from a level of 79 in mid-Jan to a level of 89 by March’09 and then moving down steadily to a level of 75 till last Friday. The 50 DMA currently lies at 76 while the Dollex is at 75.72. An attempted breakthrough from its 50 DMA gave the US$ some strength for a couple of days, but, proved short lived. Currently the Dollex is struggling to break through 76 convincingly, which can give strength to the US$, while a fall through 74.5 levels might quickly take it to 71 levels. Watch the Dollar, as its strength will bring down markets & commodities, while a Dollar weakness will give markets the strength to breakout of their current range bound scenario.
Bail-outs
With the Fed having pumped in at least US$ 1.7 trillion on several bail-out packages and Governments all over having followed suit with varying amounts, there are plenty of funds in the markets chasing a limited number of assets, leading to what is commonly being referred to as the asset bubble.
Interest Rates
With the Fed having brought down interest rates to near zero levels, the weak US Dollar is also chasing assets that can provide returns over the short term. As such since the fall in the Dollex starting March ’09 stock markets globally have been attracting a lot of investment and have all turned in phenomenal returns in excess of 50% till date already. Considerable funds have also flowed into emerging markets and commodities.
Commodities
With the flow of excess liquidity in global markets, commodities have risen sharply, even though industrial recovery and consumption have yet to turn up significantly. Crude on the other hand after a quick recovery from US$35 to US$ 82 per barrel levels, has lost ground and currently is struggling at US$ 70 per barrel owing to slack demand and an inventory build-up in western markets. Metals and bullion (Gold & Silver) have however commanded centre-stage in the commodity price rise. If industrial production & consumption does not pick up any further (which is a strong possibility), base metal prices may soon run out of steam. Gold & silver, however, continue to look attractive both as investment and insurance in a period when fiat currencies continue to get printed at will. Also, several Central Banks including the RBI clearly intend to bolster their gold reserves, in order to protect their currencies from further devaluation.
GDP Growth
India surprised the world with its 7.9% GDP growth rate for its Second quarter (July-September ’09) announced a week ago. The US is trying to tell the world that it is out of its recession (a fact that it did not concede till 6 months after it was in one). Australia & Norway have started increasing interest rates - a message that their woes are now a thing of the past. China’s jugglery of figures and balance sheets continues, as it continues to give messages to those within & outside that all is well. The question here is that once the interest rates are raised & liquidity pulled out of the system, will there still be any real growth? Guess we need to wait another two quarters (at least) before we are clear that we are not in for any unpleasant surprises again.
Inflation
Excess liquidity has got the inflation monster rising again. Unfortunately, with the masses having lost a record number of jobs and a majority of their savings (apart from homes) in the recent crash, this is not the time any Government would like to battle inflation. The Food Index has shot up dramatically since 2007 even though the WPI and CPI are not looking alarming, as yet. The interesting thing to note in all this is that the very same liquidity and low interest rates that help industrial recovery work against inflation. So, if inflation is to be controlled, then industrial recovery will have to be put on the back-burner for a while.
US Dollar
Currency markets have been pretty volatile right through 2009, with the Dollex (US$ Index) moving up from a level of 79 in mid-Jan to a level of 89 by March’09 and then moving down steadily to a level of 75 till last Friday. The 50 DMA currently lies at 76 while the Dollex is at 75.72. An attempted breakthrough from its 50 DMA gave the US$ some strength for a couple of days, but, proved short lived. Currently the Dollex is struggling to break through 76 convincingly, which can give strength to the US$, while a fall through 74.5 levels might quickly take it to 71 levels. Watch the Dollar, as its strength will bring down markets & commodities, while a Dollar weakness will give markets the strength to breakout of their current range bound scenario.
Bail-outs
With the Fed having pumped in at least US$ 1.7 trillion on several bail-out packages and Governments all over having followed suit with varying amounts, there are plenty of funds in the markets chasing a limited number of assets, leading to what is commonly being referred to as the asset bubble.
Interest Rates
With the Fed having brought down interest rates to near zero levels, the weak US Dollar is also chasing assets that can provide returns over the short term. As such since the fall in the Dollex starting March ’09 stock markets globally have been attracting a lot of investment and have all turned in phenomenal returns in excess of 50% till date already. Considerable funds have also flowed into emerging markets and commodities.
Commodities
With the flow of excess liquidity in global markets, commodities have risen sharply, even though industrial recovery and consumption have yet to turn up significantly. Crude on the other hand after a quick recovery from US$35 to US$ 82 per barrel levels, has lost ground and currently is struggling at US$ 70 per barrel owing to slack demand and an inventory build-up in western markets. Metals and bullion (Gold & Silver) have however commanded centre-stage in the commodity price rise. If industrial production & consumption does not pick up any further (which is a strong possibility), base metal prices may soon run out of steam. Gold & silver, however, continue to look attractive both as investment and insurance in a period when fiat currencies continue to get printed at will. Also, several Central Banks including the RBI clearly intend to bolster their gold reserves, in order to protect their currencies from further devaluation.
GDP Growth
India surprised the world with its 7.9% GDP growth rate for its Second quarter (July-September ’09) announced a week ago. The US is trying to tell the world that it is out of its recession (a fact that it did not concede till 6 months after it was in one). Australia & Norway have started increasing interest rates - a message that their woes are now a thing of the past. China’s jugglery of figures and balance sheets continues, as it continues to give messages to those within & outside that all is well. The question here is that once the interest rates are raised & liquidity pulled out of the system, will there still be any real growth? Guess we need to wait another two quarters (at least) before we are clear that we are not in for any unpleasant surprises again.
Inflation
Excess liquidity has got the inflation monster rising again. Unfortunately, with the masses having lost a record number of jobs and a majority of their savings (apart from homes) in the recent crash, this is not the time any Government would like to battle inflation. The Food Index has shot up dramatically since 2007 even though the WPI and CPI are not looking alarming, as yet. The interesting thing to note in all this is that the very same liquidity and low interest rates that help industrial recovery work against inflation. So, if inflation is to be controlled, then industrial recovery will have to be put on the back-burner for a while.
Wednesday, December 9, 2009
The Roller Coaster
Global Markets have been on a Roller Coaster ride like never before since 2005. The period 2005 – 2007 saw us pulling up slope after slope, with occasional minor drops which helped gather momentum and added to the thrill, all along. A period that had all the Bulls enjoying as they speedily raced away from the Bears, left waiting at the lows. And then, came the big one…
Pushed hard by FIIs, DIIs, HNIs, Hedge Funds, momentum players & retail investors the Roller Coaster made a big steep climb all the way to a top of 21000 by early January 2008 – a level that needed a lot more momentum to cross, which the system could not provide. And that led to a steep fall, all the way to 8000. While all Bulls were gasping for breath the Roller Coaster hit a bottom and started climbing again…
This time the climb was propelled initially by DIIs, Hedge Funds and an unprecedented Election outcome. Soon enough FIIs and ETFs joined in gleefully. Any surviving HNIs and Retail investors, looked skeptically at the slope ahead and felt that it was too early to have a big rise again and that having woken up to the reality of the next slope only around 16000 levels, this could not be as big a climb as the last one. And so they sat around to watch the gyrations around 16000 to 17000 levels, each thinking that the ride was almost over. However, now almost everyone can see one more slope ahead, and wants to enjoy the thrill of being on this one…
So where do we stand on this one? We are at 17200 and are seeing more participation again. Practically everyone who was riding in 2007 is back to enjoy the ride. The one missing participant since the last descent from 21000 has been the retail investor. The Roller Coaster has waited long enough in a range, for him to regain consciousness & enjoy the ride. Volumes and momentum have been built selectively and pockets of opportunity are visible amongst mid-caps & sectors that have either not performed or have burnt out in this rise. IPO plans in Realty, PSU, Power, Telecom - promise to take away whatever savings might still have remained with the Retail investor. The stage is hence set for the Retail investor to enter and Cats & Dogs are set to fly…
Fasten your seat-belts and prepare yourself for 2010. If you thought that the Roller Coaster ride was over, think again!
If my intuition and reading of the market forces is correct, 2010 will leave the world gasping for breath and only those with guts of steel should venture into areas they have not mastered. We are in for a ride of a lifetime…
Pushed hard by FIIs, DIIs, HNIs, Hedge Funds, momentum players & retail investors the Roller Coaster made a big steep climb all the way to a top of 21000 by early January 2008 – a level that needed a lot more momentum to cross, which the system could not provide. And that led to a steep fall, all the way to 8000. While all Bulls were gasping for breath the Roller Coaster hit a bottom and started climbing again…
This time the climb was propelled initially by DIIs, Hedge Funds and an unprecedented Election outcome. Soon enough FIIs and ETFs joined in gleefully. Any surviving HNIs and Retail investors, looked skeptically at the slope ahead and felt that it was too early to have a big rise again and that having woken up to the reality of the next slope only around 16000 levels, this could not be as big a climb as the last one. And so they sat around to watch the gyrations around 16000 to 17000 levels, each thinking that the ride was almost over. However, now almost everyone can see one more slope ahead, and wants to enjoy the thrill of being on this one…
So where do we stand on this one? We are at 17200 and are seeing more participation again. Practically everyone who was riding in 2007 is back to enjoy the ride. The one missing participant since the last descent from 21000 has been the retail investor. The Roller Coaster has waited long enough in a range, for him to regain consciousness & enjoy the ride. Volumes and momentum have been built selectively and pockets of opportunity are visible amongst mid-caps & sectors that have either not performed or have burnt out in this rise. IPO plans in Realty, PSU, Power, Telecom - promise to take away whatever savings might still have remained with the Retail investor. The stage is hence set for the Retail investor to enter and Cats & Dogs are set to fly…
Fasten your seat-belts and prepare yourself for 2010. If you thought that the Roller Coaster ride was over, think again!
If my intuition and reading of the market forces is correct, 2010 will leave the world gasping for breath and only those with guts of steel should venture into areas they have not mastered. We are in for a ride of a lifetime…
Friday, November 20, 2009
The story so far...
When I stepped into professional life, armed with an Engineering degree and a couple of post graduations in Management and Marketing, I felt I was ready to conquer the world. Working sixteen hours a day (and maybe eight hours on weekends) at an average, I wanted to learn all I could and out-perform everyone on my first job (which I did) to rise quickly to the top of the corporate ladder. Everything worked well, except that I was made to realize that hard work, loyalty and results are not everything in the structure of our organization (a major private sector corporation) and that patience and experience were required too.
Being much younger then, patience was a scarce commodity. I put my three years-odd of performance appraisals behind me and moved into a public sector enterprise, where I was told that growth would not be too fast, but, at least I would get an opportunity to learn from our R&D and play an important role in India’s development. More mature by then, I learnt whatever I could during my three year stint and waited for the right opportunity to encash that knowledge.
Within a span a two years from then (at the age of 29), I became the CEO of a software export subsidiary of a leading Indian IT company that was listed on the bourses. I guess I must have been the youngest CEO of a public-held company in India then, without being related to any members on the Board.
The joy was short lived, as I soon realized that even in listed companies the management lacks a clear business vision and at times is rather orthodox in its approach. Priorities are often misplaced and people tend to stay in their comfort zones (often bound by tradition) rather than experiment with new ideas that could transform business success radically.
I stepped out of this cocoon to start my own venture in 1991. The vision was to create an informal yet professional organization that could grow multifold through excellent services delivered to its clients by a highly motivated workforce that identified with the organization. We created a team that could snatch victory out of the jaws of defeat and became the fastest growing system integrator in India.
Revenues and scales grew and we merged with a Bangalore-based ERP pioneer in 2002, which transformed itself into an IT solution provider. The company created history by being ranked by Deloitte as one of the fastest growing technology companies in India and Asia-Pacific, three years in a row. We innovated and we thrived on innovation, reaping contracts, awards and accolades all along. The company did a successful GDR and today trades on BSE, NSE and SGX (Singapore Stock Exchange).
While I have no complaints about achieving what I did in my 26 years of hard work, I am sure I learnt everything the hard way and even so had to learn it from scratch each time. I wish I had someone who could have guided me, when I was thrown into the ocean of global business without knowing how to swim or had someone to turn to for a second opinion (or even a first). There were always new problems and rather than finding someone to solve them, I learnt to master the situation myself. From being a CEO & Managing Director, to being a Salesman, a Project Manager, an R&D engineer, a network designer, a PR professional, a Legal expert, an international trade & taxation expert, a fund raiser – amazing roleplay!
When you are ready to label yourself an entrepreneur, you need to be prepared for everything. And believe me, something new will still come up and surprise you! Your own domain expertise be damned, business will make you do everything you were never prepared for, unless your pockets are deep enough to hire the best of professionals at fees you’d rather earn yourself!
Which is why large businesses (with strong business models) keep growing larger, while most small businesses find it hard to survive. Was there a way out of this paradox?
And this is where it struck me! What if there was an organization that acted as a support system to an entrepreneur, that handled all areas wherein the entrepreneur lacked domain expertise and let him focus his energies on what he was best suited for and passionate about?
And that was the birth of Mentorpreneur…
Mentorpreneur is an organization that takes on the roles of “Mentoring” through its international network of entrepreneurs, executives, engineers, attorneys, consultants and other industry professionals who provide mentoring and advisory services to business decision-makers and leading investors from around the world. Further, it provides “entrepreneurial” guidance and seed capital of its own or guides the entrepreneur in raising Private Equity or even taking the IPO route and or GDR/ADR route to raise capital to fuel his growth plans. Mentorpreneur aspires to create enlightened leaders who can turn stumbling blocks into stepping stones, on which excellent organisations can be built.
Through this blog, I hope to reach out to all of you who have ideas and abilities that are yet to be recognized by the world at large. I wish to have experts respond to your business queries and back your ideas and abilities with sound business plans and if need be, even fund them. I intend to create a collaborative platform for professionals to interact and find their place in the Sun. In short a Win-Win for everyone…
May the spark of enterprise ignite our world!
Best wishes,
Sanjiv Bhavnani
Chief Mentor
Mentorpreneur
Being much younger then, patience was a scarce commodity. I put my three years-odd of performance appraisals behind me and moved into a public sector enterprise, where I was told that growth would not be too fast, but, at least I would get an opportunity to learn from our R&D and play an important role in India’s development. More mature by then, I learnt whatever I could during my three year stint and waited for the right opportunity to encash that knowledge.
Within a span a two years from then (at the age of 29), I became the CEO of a software export subsidiary of a leading Indian IT company that was listed on the bourses. I guess I must have been the youngest CEO of a public-held company in India then, without being related to any members on the Board.
The joy was short lived, as I soon realized that even in listed companies the management lacks a clear business vision and at times is rather orthodox in its approach. Priorities are often misplaced and people tend to stay in their comfort zones (often bound by tradition) rather than experiment with new ideas that could transform business success radically.
I stepped out of this cocoon to start my own venture in 1991. The vision was to create an informal yet professional organization that could grow multifold through excellent services delivered to its clients by a highly motivated workforce that identified with the organization. We created a team that could snatch victory out of the jaws of defeat and became the fastest growing system integrator in India.
Revenues and scales grew and we merged with a Bangalore-based ERP pioneer in 2002, which transformed itself into an IT solution provider. The company created history by being ranked by Deloitte as one of the fastest growing technology companies in India and Asia-Pacific, three years in a row. We innovated and we thrived on innovation, reaping contracts, awards and accolades all along. The company did a successful GDR and today trades on BSE, NSE and SGX (Singapore Stock Exchange).
While I have no complaints about achieving what I did in my 26 years of hard work, I am sure I learnt everything the hard way and even so had to learn it from scratch each time. I wish I had someone who could have guided me, when I was thrown into the ocean of global business without knowing how to swim or had someone to turn to for a second opinion (or even a first). There were always new problems and rather than finding someone to solve them, I learnt to master the situation myself. From being a CEO & Managing Director, to being a Salesman, a Project Manager, an R&D engineer, a network designer, a PR professional, a Legal expert, an international trade & taxation expert, a fund raiser – amazing roleplay!
When you are ready to label yourself an entrepreneur, you need to be prepared for everything. And believe me, something new will still come up and surprise you! Your own domain expertise be damned, business will make you do everything you were never prepared for, unless your pockets are deep enough to hire the best of professionals at fees you’d rather earn yourself!
Which is why large businesses (with strong business models) keep growing larger, while most small businesses find it hard to survive. Was there a way out of this paradox?
And this is where it struck me! What if there was an organization that acted as a support system to an entrepreneur, that handled all areas wherein the entrepreneur lacked domain expertise and let him focus his energies on what he was best suited for and passionate about?
And that was the birth of Mentorpreneur…
Mentorpreneur is an organization that takes on the roles of “Mentoring” through its international network of entrepreneurs, executives, engineers, attorneys, consultants and other industry professionals who provide mentoring and advisory services to business decision-makers and leading investors from around the world. Further, it provides “entrepreneurial” guidance and seed capital of its own or guides the entrepreneur in raising Private Equity or even taking the IPO route and or GDR/ADR route to raise capital to fuel his growth plans. Mentorpreneur aspires to create enlightened leaders who can turn stumbling blocks into stepping stones, on which excellent organisations can be built.
Through this blog, I hope to reach out to all of you who have ideas and abilities that are yet to be recognized by the world at large. I wish to have experts respond to your business queries and back your ideas and abilities with sound business plans and if need be, even fund them. I intend to create a collaborative platform for professionals to interact and find their place in the Sun. In short a Win-Win for everyone…
May the spark of enterprise ignite our world!
Best wishes,
Sanjiv Bhavnani
Chief Mentor
Mentorpreneur
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