I hope, all are cheered and celebrating twin benefits of recent market movements in Gold, Silver, Crude Oil and GSECs. One of the reader wrote –
“Gold is falling, congrats for beautiful analysis on gold.
Thanks that was very useful for me.”
First, as expected and as you had been reading for quite some time now that Gold will fall to below $1300 and possibilities of settling around $1100 before final historic up move, has come true. I hope, you all took a chance to exit at higher price. I have written four times to you in past 2-3 months advising to stay away from Gold.
Second, GSEC funds are in lime light. Those invested in March till 1st week of April are having 1.5% returns on their investments. And, as I have been writing that after fall in Gold and Crude prices, call for rate cut will embolden and huge pressure will mount on RBI to change the stance from inflation to growth.
Declining price of vegetables pulled down inflation to over three-year low of 5.96 per cent in March, core inflation moderated to 3.5 per cent and food price inflation also eased to 8.2 per cent, which is likely to prompt the RBI to consider a rate cut in its annual monetary policy next month. Further pressure on RBI will emerge from lower corporate profit in Q4, continued lower IIP numbers and GDP continue to stay around 5% level or may be slipping further.
Therefore, I suggest if you have yet not invested in GSEC, do it now, you can write to me or contact me.
What is the big idea or reason behind, assertively, suggesting GSEC ( Government Securities(Bond)) investment?
This is stepping stone to create huge and long term wealth. If I simplify the definition of wealth than it is, to increase purchasing power of capital/money/asset you possess more than prevailing inflation or returns on other assets.
The first step to build wealth starts at this point in financial markets.
During deflation, prices of all commodities and assets come down. We are passing through a deflationary period. In next 6-8 months, you will see prices of almost everything coming down. How to take benefit of crashing prices? It is simple – Just remain in Cash. Say you had Rs. 30000 few months back, when Gold was trading at Rs. 30000/10gm. You could have bought only 10gm gold. Fast forward now, You have still that Rs. 30000 and Gold is trading at Rs. 26000/10gm. Instead of 10gm Gold, with same Rs. 30000, now you can buy 11.5 gm Gold. Your purchasing power increased by 15%.
This is the year to increase purchasing power of capital remaining in cash or cash equivalents.
But, what if you can increase purchasing power by more than 30%-40% or may be more than that.
This year, overall inflation will come down by 15-20% from high. For Example– Retail petrol price will drop below Rs. 65 and may reach near 62-63. Hence, sitting on just cash will increase your buying power by 15-20%. To increase it further, I have recommended GSEC funds, wherein with every 1% cut in interest rate, it returns 10% on investments. If RBI moves as expected and cut the rate of interest by 1.75% points, it will translate into the returns of roughly 17.5% on investment. Fall in inflation will help increase the purchasing power to the tune of 15-20% and return on other side of 17-20% in GSECs. Combination of duo offer 30-40% increase in buying power of capital.
Prices fall because of fall in demand. And that is the reason, we have observed that when inflation and interest rate come down, stock prices too come down with it. Relation is quite clear. Because of lower consumer demand, industrial production comes down and that reduces demand for all commodities. Interest rates are brought down because of fall in demand or to stimulate it. Hence, by the time interest rates are down, you also have stock market down at bottom, now with 30-40% increased buying power( combination of fall in inflation + GSEC returns ), enter into stock market, which could again easily be down by 15-20%. Cumulatively, you have increased buying power of capital by 50-60%. This is how smart investors create wealth and that is why, I have been suggesting this path to you.
How low Gold will go from here?
I know many investors are eager to buy Gold. Some want to buy it early because they missed earlier phase of rally and some think that it will not remain around these low levels and will soon reach back to Rs. 30000.
Please understand, Gold has remained up for 12 straight years, hence correction, too, will take its own time. DO not buy while it is still falling. Let it stabilise. Gold may stabilise around 25000 or may be around 20000. The most probable range looks 22000-25000. Hence, wait for Gold to fall further and let it stabilise. The kind of sell off seen in Gold is very surprising!! I had expected Gold to come down but fall of 10% in a day, Fall of 200 dollars in 2 days is quite astonishing and suggests that it will take time to stabilise. Do not buy in short rallies. Gold may go up to 26500 or 27000 in next week or so, but only to come down in following days.
Hence, wait for my signal to initiate buying .
I suggest readers to join my Plateau-Mountain-Cliff Wealth Enhancement Services. Where in you will get my recommendations on India Equity, Global Equity, Gold, Silver, Crude Oil, Currency and Debt Market, all in one package. Click to read — https://investmentacademy.wordpress.com/2012/12/26/plateau-mountain-cliff-wealth-enhancement-services/
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Disclaimer: This is a free daily investment newsletter published by Investment Academy. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. Author might have open positions in the stocks and Indices recommended above.