Let’s learn from Crude to gain from Gold.

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September 08, 2008 5:29 PM

Dear Smart Investors

We have witnessed both bull and bear runs in many asset classes in recent past years.

Let’s understand today, what is a typical cycle of any Asset Class? What do I mean by an Asset Class, here? Asset class could be anything under the sun, which can be viewed from an investment angle?

I.e. it could be crude, Agriculture commodities, Bullion, Currency, and even Country!!!! Yes, even Country is an asset class.

Now, what is that typical cycle?

Typical cycle starts with very low price for that asset in initial few years. Then achieving fair price in subsequent years and then exceeding fair price by large margin on excessive speculation.

E.g. crude was priced $10 in 1998 and as low as $18 in 2002. It remained low priced for few years.

Then, some intelligent investors and researchers find that this is really potential asset and priced dirt cheap!!! They do further research and start accumulating for long term.

This research is sold to big companies, institutions, financial houses. They realize the potential and start investing. By this time, we see gradual upturn in asset price, but in narrow range. Like Crude moved up from $10 to $18 between 1998 to 2002.

Once, these institutions understand potential fully and game play and their future model indicators support the investment phenomenon. They start accumulation aggressively; they do also induce their colleague companies & institutions to buy explaining fundamentals. With this we see again some 15 – 30 % jump in asset prices. Like crude moved to $30 by 2004-05.

Now, reports come in the hands of investment bankers, brokerage firms and some retail players, they inflate the price to the fair level. Like crude touched to $55 -60.

Now, Please tell me very frankly, how many investors could see oil crisis coming when crude touched to $50? They thought it has risen for short time and will cool off. Isn’t it?

Next, we hear from CEOs, research analysts, heads of concerning institutions about the anticipated rise in the asset price with detail report. Here, it goes public first time since invention.

But, Investors underestimate the opportunity.

Recall, when did you hear first about crude report saying its $100 level? If I am not wrong, first when it was priced $40, but that was not detailed report, it looked more like rumour. Again, with some more detail, when crude touched $55. And we finally heard about oil wells going dry, lower production, higher demand, and a huge demand from India and China etc when crude crossed $70.

Even, that was not too bad time for investing as it doubled from that level.

Did investor listen to that call? Heck, no. They just shut their ears and kept believing its all game, it’s all inflated, and it will come down soon. How many investors bothered about studying the opportunity even? Very less.

Then, what all those investors decided? They decided to watch it zooming pass $100!!!!

Once it reached to $100.

They realized the mistake of not investing at right time, rather I would say not studying the opportunity at right time but still feared since it went up very fast. Some decided to jump some still waited and jumped when crude crossed $120 and that was the exit time for those big institutions and companies.

We saw max. retail participation in crude once crude surpassed $110 level.

Investors still made money at that level.

Then who lost? Those who were pessimistic at level of $40, $60 and even at $90, turned very optimistic and decided to hold believing in report that it will reach $200.

Has this not happened with many of you???

We have still very big opportunity in front of us to learn from past. We have reports, comments form concerning institutions, research analysts and world reckoned organizations like IMF, Economic Intelligence Unit, UN, and World Bank that US has yet to see worst, This is still not end. Dollar has still to fall much more. Economic crisis have yet to deepen in developed world like Euro zone, Japan , Australia and US, and would also partially affect emerging economies. And we know from centuries with Historical data that such financial crisis has always initiated long Bull Run in Gold.

We have even GFMS and World Gold Council comments that with every fall in dollar, we will witness rise in Gold prices like we had from International Energy Association when crude crossed $60 and subsequently when it crossed $70.

We can choose to listen & act now. Else, we can choose to become spectator watching Gold recovering lost gain in short time and than heading for $1500 level!!!!!

To know more about how to invest in Gold, can write/ call to me.

Above mentioned are my personal views.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

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3 responses »

  1. Very informative article on Crude, and I generally agree with respect to Gold.

    I recently spoke to the CEO of Bullion By Post, UK, Rob Halliday-Stein. I put the assertion that Gold could hit $50,000, with a dollar collapse (According to Jim Rogers). It would be great but is this Outrageous?

    Well his answer was that if that was the case, the dollar would have lost so much of its purchasing power that it would not mean anything anymore. Which on reflection is true, but what do you think?

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