Category Archives: Gold

Buy Silver

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Dear Investor

I am writing after long time. I hope you all are well and doing good as “ Achche Din Aa Gaye Hein”.

This short note is just to inform that this is a good level to buy Silver. Both for Indian investors and international investors.

In India it is trading near Rs 40,900 and in International market it is trading around $19.5.

I asked to exit from Silver in 2011 and since then I was waiting for Silver to bottom out. I think, we are there. As a speciality move, Silver has sometimes given sharp down swing before first leg up and in that process Silver may swing down to 38000 and in worst case 36000 for a day or two.

Nonetheless, I strongly recommend to start buying Silver at this rate. If you have 100 rupees for Silver, you can invest 40-50% at this rate.

Do not relate Silver with Gold this time as Silver has wide industrial use, Gold does not. 54% of total Silver production is used for Industrial use. Therefore, you can understand as economies world across recovering, can increase the use of Silver. Further you do not need the factors like currency devaluation, inflation, Sovereign issues, geopolitical tensions which normally are pre requirement for Gold to rise.

Soon, I will write in detail.

Thanks

Regards

Dhaval Shah

Blog: https://investmentacademy.wordpress.com/ Cell: 98255 28815

Office – Khushi Investments, GF-1, Shivalay Complex, Near Bank of India, Manjalpur Gam Road, Manjalpur, Vadodara.

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.

Urgent Update on Gold and a note on Infrastruture

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Dear Investor

In my last Update on Gold, I had shown two possibilities that either Gold will breach recent high of $1432 and will scale up newer highs or will drop below $1360 and that can lead to accelerated downside in Gold up to $1250.

Tracing last 2 days movements largely confirm me that the later scenario has higher possibilities to occur in next few weeks. Hence, I advise investors to take out the profits from the investment. An acute downside pressure may take gold down below $1200 for brief period.

If Gold closes above $1453 any time, I would reverse my position but that seems a faint possibility.

A note on Infrastructure

In 2010, largely stock market performed well. Nifty returned close to 18% in calender year 2010. Category wise FMCG returned 36%, followed by Banking 34.5%, Pharma 33.85%, Technology 26.83% followed by other categories.

In that least return was earned by Infrastructure category mere 6.87%. And, if I look at the funds, which posted negative returns in Worst Fund categories, there were 2 categories– Mid and Small cap category posted -2.57% worst fund return and Infrastructure category posted -5.27% worst fund return.

Fundamentals

The problem in Infrastructure companies was never winning contracts or order books. Almost all Infra companies have healthy order books. The challenge was to convert it into profitability for companies. In 2010, companies order books increased by 30% and crossed 2,00,000 crore marks first time.

Largely all Infra companies carry huge debt loads on their balance sheets. Shortage of labour, higher wages, sharp rise in metal prices accentuates the problem. Further, the larger problem is capital availability at lower rates for longer periods.

But, some efforts have been made in this matter. In last 6 months, many state owned companies including IFCI, L&T and SBI raised sizable funds for Infrastructure project financing. That will help in solving problem.

Some help also been extended by RBI by way of allowing Infra companies in Power, Road, Port and Airport sector to refinance their domestic loans through ECB( External Commercial Borrowing). Through ECB companies can raise debt at the rate of 4-5% against domestic base rates 7.75 to 8%. This measure has also helped companies in reducing their interest part.

According to the Planning Commission, the projected investment in the sector is set to double to US $1025 billion in the 12th plan where in the private players are expected to contribute 50percent.

Initiatives by Indian government which have spurred augmentation of private players include introduction of sector specific policies, providing incentives and tax holidays, public-private partnership approach as well as permission of 100% FDI in infrastructure sector.

According to Goldman Sachs, the country would need investments of more than $1 trillion in infrastructure from 2010 to 2019, with roads entailing $427 billion, power $288 billion and railways $281 billion.

Govt is also in process to start up Multiple Infrastructure debt funds aimed to raise $1 tn to bridge the funding gap for large infra projects.
Finance Ministry has taken initiative to allow foreign venture capital funds to enter into India Infrastructure market. It has also instructed RBI and SEBI to change policies accordingly to facilitate the entry of these funds.
News Link: http://economictimes.indiatimes.com/news/economy/finance/multiple-infrastructure-debt-funds-mooted/articleshow/7142643.cms

I feel, Govt is at critical juncture and never before our inability to build infrastructure has been exposed than in recent times. Could it be hosting Common wealth games or building road at the pace of 20km/day or building power plants to meet shortage of 20,000 megawatts??

And, now, Govt has no option but to pull out all stops and do serious work on infrastructure shortage.

Our Inflation is at 9.7% vs China’s 5.10%. Why our rate of inflation is double than China? China has more population than India. China had also severe rainfall and severe floods last year and had very severe drought year before in many parts as was the situation in India.

The difference is Infrastructure. China has built roads and bridges of more length than USA with similar quality checks. China is building world’s largest ports and airports to facilitate bulk cargo handling across the nations. The list can go on and on…

Lack of infrastructure is leading to higher and persistent inflation in India— this point has been stated by many economists and think tanks in last several years.

If I quote from today’s economic times front page storyCrisil says” IF progress on Infrastructure stumbles, even maintaining 8.4% growth would be difficult”.

Pressure is also mounting from outside world. India’s large middle class is attracting slew of MNCs to start up business in India. But, our poor state of infrastructure hesitate them from taking bold business decisions.

I believe, pressures from inside and outside are now weighing high on Govt and pressing it to pull out all stops to ensure infrastructure development at rapid pace.

I recommend to invest into Infrastructure stocks along with telecoms stocks with 2 years perspective. I do not rule out possibilities of 80-100% return in both categories in next 2 years.

Best wishes

Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Quick update on Dollar, Gold, Indian Rupee and Oil

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Dear Investor

I thought to represent quick update on major assets as volatility and price movements in last few days have accelerated.

Dollar:

I have been writing and updating you about dollar’s fall and that will push bullion prices up.

Yesterday, Dollar breached very important support and I have no doubt that Dollar index will go down to around 75 level in very short period.

Euro went up to 1.33 level. Euro should easily climb past 1.37 level in short period.

Gold:

With dollar’s fall, Gold should definitely zoom past $1350 level in coming weeks. Hence, hold your Gold portfolio and can add more even at this level.

Oil:
I recommended Oil investments to my core clients(subscribers) last week. As dollar goes down, Oil will zoom up very soon.
Reasons;
A. For most of the exploration companies, cost of production hovers around $70-75. Hence, downside is very minimum.
B. Research on Peak Oil theory suggest that we reached to peak oil level early to mid of 2000s and since then oil reserve is on decline.
C. As dollar is falling incessantly, Oil price has to adjust higher just to maintain the fair price level.
D. Normally, in winter demand of oil increases and reaches to peak in December. In west, winter is about to start.

Rupee:

With fall in dollar, rupee will zoom past all previous low levels, and will reach to Rs. 36-38 level in mid term.
Check your mail inbox tomorrow for detailed article on, why rupee will strengthen to 36-38 level?

Regards,
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Gold, Dollar, Interest Rate and Equities

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Dear Investor

I believe, my investors should be more than happy as Gold is scaling new highs, Dollar is Falling and Interest Rates are climbing as predicted earlier in previous newsletters.

Gold:
I believe, You all are still holding on Gold and reaping benefits of newer highs.

I have been writing since last 2 years, recommending Gold, forecasting target of $2200. It directly implies that Gold has traveled only half the journey it is destined for.

Does that mean, Gold can be bought at current levels?

Yes, absolutely. I have no doubt about my target projection of $2200 and Gold can be bought at current levels for multiple fold returns. I am of the opinion, now Gold is about to enter into vertical rally after long consolidation period.

Gold has remained broadly into consolidation ranging between 1080 on lower side and 1240 on higher side. Recent breakout above 1270 does pose significance.

What will drive Gold higher?
All forces, I discussed earlier like lower production, higher demand, currency devaluation, sovereign risk are still acting as catalyst for higher Gold prices. But,I would stress on later 2 forces.

Currency Devaluation: there is fierce battle being fought between the nations to ensure that its currency is cheap among competitors and its benefits can be extended to boost the exports of the nation.

Some recent facts:
US is putting constant pressure on China to increase Yuan valuation. Thus, ensuring dollar devaluation as China is largest trading partner of US.

Japan has started intervening in currency management after six years as Yen zoom passed 15 years high valuation mark against dollar.
European nations have been working to keep Euro low.

Obama has kept target to double the exports from US and to achieve the target, Obama needs to ensure dollar’s waterfall. Otherwise, US companies can not compete with Europe and rest of the World due to higher dollar valuation.

Hence, rest assured the fight to keep currency low has just begun. It will intensify as Europe,US, UK and Japan starts sinking again in last quarter of this year and in 2011.
Click on below news links to read front line battle of currency devaluation
http://www.bloomberg.com/news/2010-09-15/japan-s-solo-run-on-yen-may-reveal-flaw-in-global-drive-on-export-recovery.html
http://www.bloomberg.com/news/2010-09-15/japan-intervenes-for-first-time-since-2004-as-yen-surge-threatens-recovery.html
http://www.bloomberg.com/news/2010-09-16/geithner-says-u-s-to-urge-china-to-speed-up-too-slow-yuan-appreciation.html

Do not believe Euphoric statements of policy makers and economists. Keep an eye on facts. All recent data including housing, car sales, consumer sentiment and unemployment has been showing that US is still in recession and will remain in recession for exteneded period.

Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S. unemployment remained near a 26-year high.

US has now 1.2 crore homes for sale but there are no buyers.

What will be the outcome of currency wars?

The only wayout from current world economic mess is currency devaluation for developed nations.

Reasons: US,Europe and UK tried out to stimulate domestic consumption. Recent data reveles that domestic consumers are in denial to consume at 2007 level and instead prefers to save more. As result of that Unemployment has remained at elevated level near 10%. Home prices have reached below 2003 price levels. Consumer sentiment has remained negative.

And, US had to revise down the GDP growth from 2.6% to 1.6% and will still be revised lower in quarters to come.

Hence, the option left with US, Europe and Uk is to look outside and to increase their exports pie.
This strategy can solve all the problems of developed nations. It can jump start entrepreneurial activities, can lower unemployment level and can increase domestic consumption again.

But, Is it so simple? Heck, no.
The biggest hurdle in the way is their currency valuation. Which keep them out from the competition irrespective of skill, infrastructure and favorable policy regime. Higher currency valuation has forced all blue chip companies of developed nations either to outsource work or to establish manufacturing units in cheap currency nations. This process ships out tens of thousands jobs out of developed nations,which they want to bring back.

Hence, US, Uk and Europe will do whatsoever it may take to devalue their currency. Battle has begun and end result would look like as stated below.

By 2012, World will have new dollar, new Euro and brand new World Reserve Currency replacing existing currencies in valuation.

G20 may decide on synchronized simultaneous devaluation of currencies and thus inflating out the debt problems of the world.

In either of the above 2 scenarios, tangible assets will zoom past the horizons and precious metals will reach to the unimaginable valuations. In this case, Gold may climb upto $ 5000. This is no exaggeration.

Sovereign Risk:
People have forgotten that Greece is still on life support and condition is no different for rest of the PIIGS(Portugal, Ireland, Italy, Greece and Spain). Their Debt to GDP ratios have only climbed higher.

UK and US are also in the same boat. Fiscal deficit, trade deficit and Public liabilities of these nations have climbed further in 2010 and worse they are still in preparation for another stimulus and welfare packages as declared by Fed Governor Bernanke.

Markets:

I continue to recommend to exit from front line IT and Banking.

Broader market is also very near to tipping point.

Regards,
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Gold to explode

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In very very near future Gold is set to explode……….. Dollar is set to crash!!!!!!!

Why Dollar is set to crash?

You have been reading front line war between China and US in media but the reality is different..

US wants China to revalue Yuan and China is in denial.

But, that is to fool the public at large or in other words to appease voters in public.. ..but their real intentions are otherwise

When US has been claiming that Yuan is undervalued, statement implies that dollar is overvalued and needs correction badly but politicians would not say so!!!!!

Same is way, Chinese politicians do want Yuan revaluation but they don’t want to face fury of citizens…

Because short term consequences are negative for both the economies

How?

FOR United States

Let us think

If US allows dollar to fall or make an arrangement like one with China to persuade them to dump tens of billions of dollars from their giant coffers to ensures dollar’s inevitable crash

Short term Consequences:

With fall in dollar, price of everything under the sun will rise.. be it commodity.. be it precious metal… in short Inflation would rise imminently to very high level

And, you know, no politician want to take a blame for hyper inflation. they always want to blame it on others…

But, there are long term benefits associated with it

US economy is in dire situation. Like when your Personal Computer does not function even after several tries… you have two options… first try to reboot it and then in worst case format it.

US has no option but to try both one after another.

To ensure, economy comes back to pre crisis level….. manufacturing and services industry must start working and this time only precrisis level economic activity would not help because massive accumulation of debt by FED, by Treasury in last 2 years can not be repaid with that. The official debt is now at $ 12.78 trillion. Close to 100% of GDP.

Or in other words let me tell you, US needs to rebalance growth model from consumption led to a balanced where in export, manufacturing and industrial activity contributes higher % of GDP vs services

Or in other words from trade deficit to trade surplus i.e. more exports then imports

But, for that US has to compete in the world markets and the primary hurdle in fight is Dollar

Unless Dollar reduces to competitive level in world markets, US export industry can not function.. and policymakers know it well

Remember.. in most of the countries more than 50% population is employed by small and medium sized industries

Other benefits
US can inflate out its gargantuan debt

For China
If China allows Yuan to appreciate

Immediate negative consequences would be …. exporters on thin margin will have no option but to shut their shops and that will increase unemployment and politicians does not want to take blame on them

But benefits are many for Beijing
First
With appreciation in Yuan, China would be able scoop up natural resources at lower cost from across the world … thus marginal higher export cost from appreciation in Yuan can be set off and resultant effect would be minimal…. thus even with marginal appreciation its exports led model will have minimal effects

Second
Chinese banks have lent record loans last year, more than $1.3 trillion apart from other stimulus packages declared by Govt amounting nearly $600 bn…. China has been fearing of higher inflation

By allowing currency to appreciate… china can damp the inflation. Imports of everything will become cheaper from raw material to Ipads. Hence, China can increase domestic consumption by marginal increase in value of Yuan.

Third
China has completely opposite growth model compared with US. Consumption and services have less contribution in GDP vs manufacturing and other industrial activities.

Post Crisis, China has learned very hard way not to rely heavily on external growth, only. Domestic consumption is inevitable.
China has taken all steps to ensure to stimulate it.

By Yuan appreciation and wage increases China can achieve its goals and policymakers have acknowledged it at several occasions.

Isn’t it a win- win situation for Chian and US?

But, where are the symptoms??

Feb, 2010… first time China had trade deficit in several years and a month earlier US had first trade surplus in many years

In larger picture
Consider that US represents western developed world and China represents eastern and other developing nations…

Because, when dollar is hammered down …. rest currencies would eventually slid to remain competitive and

when Yuan rises…. rest developing nations would quickly follow the suit

Because if history is any guide
The won rose five times as fast as China’s currency in the 12 months after officials in Beijing last relaxed the foreign- exchange regime in July 2005, data compiled by Bloomberg show. Singapore’s dollar climbed three times as much, the rupiah five times and Malaysia’s ringgit twice as fast

THEREFORE BE PREPARED FOR FALL IN DOLLAR, FALL IN WESTERN CURRENCIES…… RISE IN GOLD, SILVER AND DEVELOPING NATIONS CURRENCIES.

Best Luck

Regards,
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Gold investments 8% up

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Dear Investor

I recommended Gold investment on expected correction in my December mail. ( Link: https://investmentacademy.wordpress.com/2009/12/07/alert-imminent-decline-in-market-with-rally-in-dollar/ )

I had expected Gold to correct up to $1100 from the high of $1226 and under more severe pressure up to $1080. Gold, indeed, found support at $1080 and now as i am writing, Gold is at $1155.

I bought Gold in my core client group around that level and we are on 8% profit now in 20 short days.

Last few days movement in Gold suggests me that Gold is in independent bull market which normally happens in 2 nd stage of bull run. In spite of Dollar in choppy trade, Gold has started moving higher which surely proves that institutions are exiting from other assets( could be currencies ) to take bigger benefit of Gold’s rise.

Gold has still lot more upside. If not invested yet, move fast. Chinese are moving much faster to buy gold.
First time in history, Chinese bought more Gold than Indians in 2009.
Not only Chinese Govt buying Gold but encouraging Chinese People to invest in Gold up to 5% of their income.

Economic Times reports

China sends gold prices soaring
7 Jan 2010, 0215 hrs IST, Nidhi Nath Srinivas, ET BureauAdvertisement
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India is no longer the elephant in the world’s gold dealing rooms. The Dragon has edged it out. In 2009, China bought more gold than India, making

Gold 3000949.cmsIt may be time to start selling gold
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it the world’s top consumer. China pipped South Africa in 2007 as the world’s largest gold producer. Revving up production to take advantage of record prices is understandable. But why have the Chinese suddenly fallen in love with gold? And does this affect the price we pay? ET helps you join the dots.

China is buying gold for the same reason we buy life insurance policies: peace of mind. The Chinese government has a kitty of over $2 trillion, mostly greenbacks. Unfortunately, Beijing is not terribly fond of this currency right now. It believes the dollar may well become a dud, given Uncle Sam’s economic troubles. So, it wants to stock up on something whose value does not change with one country’s policy moves. Gold fits the bill.

Since 2003, Beijing has been buying most of the gold excavated and refined locally. It was a perfect strategy. No one in the international market became the wiser and the bill was paid in yuans. Today, China has more than 1,000 tonnes in its official vaults, up 75% in six years. Its gold reserves are now the fifth-largest among national central banks after the US, Germany, France and Italy. This insurance helped mandarins in Beijing sleep easier at night.

Also Read
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Correction in gold may be temporary

But the public still had no such hedge. So, Beijing has begun actively encouraging people to invest up to 5% of their income in gold and silver. The biddable Chinese have diligently followed this advice. Full-year 2009 private demand in mainland China could outstrip India by a fifth.

“China is stepping up efforts to extend consumption in rural areas, including the newly-wealthy people who are trying to own top brand gold for social status purposes,” said Cheng Binghai, chairman of the Shanghai Gold & Jewellery Trade Association recently.

Of course, each Chinese family is still buying only a few grams, given high prices and limited incomes. But added up, consumption would cross 430 tonnes this year, 10 tonnes more than India, says consultancy GFMS. Over the next decade, more Chinese will buy gold, at a time when inflation is almost certain to be high, adding to its appeal. In short, China can permanently alter gold’s global demand-supply equation.

As top producer and consumer, surely China should control gold prices the same way it has changed the game in metals and soft commodities. But it didn’t. That’s because with no real end-use, gold’s price is derived more from the nebulous value the market ascribes it and competing investment opportunities rather than the iron laws of physical demand-supply. China’s impressive physical numbers tend to leave traders cold.

Instead, what really gets them jiving is the ‘sentiment’ that China signals to the world. China is buying gold because it is nervous about the US

Gold

dollar, and this fear is contagious. Investors in India and round the world have started accumulating gold too. The subsequent price spike, itself fraught with risk, then becomes almost a self-fulfilling prophecy. So, China’s buying definitely added to the 28% (in rupee terms) spurt in gold prices last year.

Ultimately, China’s real power comes from its hard-headed attitude. Chinese families may have just figured the virtues of gold as a safe haven, while we have passed it down generations to survive war, unemployment, debt, crop failure and marital break-up. But here is the nub: we hate selling gold. For the Chinese, sentiment doesn’t come into it, at least for now. Plus, they are far more market-savvy.

If the timing is right, they may well encash their investment. No fund manager or trader can afford to ignore this chilling fact. China’s growing presence in the physical gold market is awe-inspiring. But China’s pragmatic approach to gold makes it the really big kahuna.

Regards
Dhaval
Investment Academy | Baroda | 098255 28815
Blog: Http://investmentacademy.wordpress.com

Gold Rallying as Doallr fallsl!!!

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Dear Investor

I have been writing about Gold since past 2 years expecting it to climb upto $2000 and more.

You must have made huge profits in this spectacular rally of Gold. If you are still holding on Gold ETFs or MF or Mining Companies Shares, hold it. Dollar has declined yesterday to its 14 years low virtually breaking all supports. I believe this is a major major fall in dollar. This may continue and may turn in severe fall in days to come. If Dollar index remains below the level of 75 and continues to fall in next 7-10 days, consider it as a major attempt to devalue dollar at its fullest strength by FED.

Why FED will devalue dollar? This might be the question you asking.

As i have explained earlier too, Bernanke is completely convinced with the theory to trash the dollar to save the economy. Even in the Reseach Paper written by FED Chairman Bernanke, he concluded the same thing about 1930 crisis. He wrote, it was a biggest mistake of Fed at that time to raise the interest rates and to withdraw stimulus package too soon.

Here are the few beliefs of Ben Bernanke on the Great Depression while comparing it with recent crisis from Larry from Money and Markets, who had rightly predicted dollar’s fall and gold’s rise:

Bernanke Belief #1: Monetary Policy Was Overly Tight at the Outset of the Great Depression. Ergo, Keep Interest Rates Low Today to Avoid Another Depression.

Bernanke believes that in the spring of 1928 and in the absence of any signs of inflation, the Federal Reserve unjustifiably raised its discount rate from 4 percent to as high as 6 percent in 1929 with the explicit aim of deliberately pricking the stock market bubble.

While it succeeded, ultimately the tight money move backfired. Instead of the stock market bubble bursting naturally of its own weight and overvaluations, the stock market imploded.

Naturally, once the stock market bubble burst in 1929, the Fed started lowering rates, all the way down to 1.5 percent by October 1931. But then the Fed made yet another tight money blunder, doubling rates within the next four months to 3 percent by February 1932, and in the absence of any signs of an economic recovery.

In Ben’s mind, the Fed engaged in overly tight monetary policy from 1929 to 1932, turning what would otherwise have been a fairly normal recession into a depression. The tight monetary policy had two effects …

1. It killed off any possibility of a recovery, by raising short-term rates above market rates.

2. Importantly, the higher rates artificially boosted the value of the dollar in international markets, importing deflation.

So what is Ben’s thinking today? Keep rates as low as possible and don’t even dare think about raising them until there are plenty of signs of a rock solid economic recovery. Furthermore, don’t dare make any moves that will strengthen the dollar, for fear of importing deflation.

Keep that latter point in mind because it’s going to re-emerge in Ben’s thinking when we look at how he viewed the latter stages of the Great Depression, and particularly, the dollar.

Bernanke Belief #2: Encouraging Bank Failures Was A Disastrous Policy During the Great Depression. Ergo, Do Not Encourage Failures Today.

In the aftermath , not suof the 1929 Crashrprisingly, as dollars were being cashed out of stocks, bonds, and many other dollar-denominated assets (excluding gold, which was hoarded), the supply of money and credit in the U.S. began to implode, and banks began to fail.

But the Fed and the Treasury did not want weak banks to stay in business. Treasury Secretary Andrew Mellon actually publicly called for weak banks to close their doors.

But that policy clearly backfired, causing a banking panic, which saw more than 11,000 banks go bust by 1932. And it also started to drain the country of its gold reserves, which — because of the gold standard at the time — further caused the supply of money and credit to contract, in a virtually non-stop freefall.

Bernanke thinks encouraging financial institution failures was the wrong policy, a major blunder — especially so since in the 1930s there were no safeguards in place for depositors — the innocent victims of bank failures. Not one. There was no depositor insurance whatsoever.

Today, we have FDIC insurance and other safeguards to protect innocent investors and savings. But Mr. Bernanke still believes that encouraging banks to fail is the wrong policy.

Why? Because he knows darn well that there is no way depositors can be protected, even today, if a mass banking panic were to spread throughout the country. Washington simply does not have the resources to control an all-out panic.

Bottom line: Do not expect to see Bernanke encourage bank or broker failures, other than Lehman Brothers last year. His views on this have not changed regarding today’s great financial crisis. Nor are they likely to change.

Bernanke Belief #3: Tight Money Policy Yet Again, in 1932, Was Disastrous for the Economy. Ergo, Keep Rates As Low As Possible for As Long As Possible Today.

In February 1932, after seeing the devastation to the economy that the high interest rate policy caused, the Fed suddenly reversed course and dropped the discount rate from 3.0 percent back to 2.5 percent in June, just four months after raising rates.

That was a smart move. But they botched it up again. Just nine months later, in March 1933 — under strong pressure from Congress — the Fed cranked rates back up one full point from 2.5 percent to 3.5 percent. Again, in the absence of any solid data that the economy was recovering.

The result? The economy immediately took yet another devastating plunge, taking down thousands more banks with it, and causing unemployment to soar past 25 percent.

What will Ben do today? It’s pretty clear: He’s not likely to raise interest rates for quite a long time, until well after the economy has cleared the crisis stage and is solidly back on firm footing. That could be a year from now, or, even longer.

Bernanke Belief #4: Vigorously Defending the Dollar — Via Protecting the Gold Standard Come Hell or High Water — Was the Biggest Mistake of All.

Bernanke’s major conclusion is that almost all policy initiatives taken by Congress and the Federal Reserve during the Great Depression were designed based on one underlying motive: To protect the dollar and its underlying gold reserves, at all costs. Even at the cost of causing a Depression and 25 percent unemployment.

But that policy, according to Bernanke, had devastating unintended consequences.

Foreign countries around the world — worried that they were going to lose gold reserves to the higher interest rates offered in the U.S. at the time — began to competitively raise interest rates to defend their own gold reserves, without any concern whatsoever for deteriorating economic fundamentals.

Hence, a worldwide race toward higher interest rates broke out in the early 1930s, causing the entire globe to sink into a major economic depression that became self-fulfilling and self-perpetuating.

Furthermore …

Bernanke Belief #5: The Longer a Country Defended Its Currency — Via Defending Its Gold Reserves — the Worse the Depression.

In one of his most important papers, published in October 1990 — “The Gold Standard, Deflation and Financial Crisis In the Great Depression: An International Comparison” — Bernanke puts all the cards on the table from his years of studying the Great Depression, with the following two conclusions …

1. Supporting the dollar via the direct and indirect actions taken to vigorously defend the gold standard was the single most important factor causing the Great Depression.

And …

2. The sooner a country abandoned the gold standard during the Great Depression — and effectively devalued its currency — the faster the economic recovery.

ERGO, TODAY, DO NOTHING TO SUPPORT THE DOLLAR AND INSTEAD, LET THE DOLLAR FALL AS QUICKLY AS POSSIBLE TO HOWEVER LOW THE FREE MARKET FORCES TAKE IT, NO MATTER WHAT.

You now know pretty much how Bernanke thinks. The only questions that remain are …

1. Will his policies work?

2. Or will they backfire?

3. What unintended consequences might there be?

4. How does one protect their wealth and profit from Bernanke’s views and likely actions regarding the economy, the dollar, interest rates?

Regards

Dhaval Shah

Investment Academy | Baroda | 09825528815

Gold looks ready to ride again!!!!!!!!!

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May 07, 2009 6:17 PM

Dear Investor

I have been writing time & again that do not think for a moment that bull run in gold is over. Last few days movement shows that Gold is prepared for big rally now.

A very interesting report on gold is here under for your reference.

Crude also looks ready to shine again. Crude may go up to $80 to 90 by year end.

With Courtesy from Money and Markets

Why Gold Looks Ready to Move Higher

05-06-09

I am not a hardcore gold bug.

In other words, I am not always out looking for reasons to justify owning gold. I do not even believe gold is a productive asset!

However, I do think gold provides great insurance against political follies, especially those that will likely lead to inflation.

And while I consider life and investing most fun when there are no reasons to bet against the government, history has shown again and again that sometimes you have to take that position to protect your family and your wealth!

My point is simple: I think the only time to buy gold is when you’re critical of current monetary and fiscal policy.

So up until 2001, I didn’t see a reason to recommend the yellow metal.

Times were good, the financial markets were booming, the economy was doing okay, and the Fed and its international brethren were doing relatively little harm (other than fueling a stock market bubble).

As long as the bubble was holding together there was no need to look for a store of value or for insurance against bad economic policy outcomes.

Besides, gold was mired in a secular bear market that started back in 1980. So my technical market analysis confirmed the unattractiveness of precious metals.

In 2001, I knew it was time to bet on gold. And I turned out to be right.

Then, in 2001, I started to see an about-face happening …

The Fed implemented a highly inflationary monetary policy, and the Bush administration did the same in regards to their fiscal policy.

That was a clear starting signal for a brand new gold and commodities bull market. And when I looked to my charts for technical confirmation, it looked like there was a huge bottom forming. I knew then that it was one of those times to bet on gold, and I turned out to be right …

Gold’s price quadrupled from $255 on February 21, 2001, to a high of $1,034 on March 17, 2008.

But Now, Many Are Asking If
Gold’s Bull Market Has Run Its Course …

When the recession hit, stocks and commodities got clobbered. And gold’s price fell 30 percent.

Now, everyone wants to know if gold’s run is dead or if we’re just witnessing a healthy correction in an ongoing secular bull market.

First it was Bush. Now Obama is pumping billions into the system.

My answer: What we are witnessing right now is just a healthy correction … one that is nearing its end. Remember, I’m not a hardcore gold bug. I have no preconceived idea that gold is the best investment in the world. Instead, I’m just looking at the facts before me. And here’s what I see …

Last year was a remake of 2001, only it was a real estate bubble bursting instead of one in the stock market.

And the monetary and fiscal policy reaction has been the same … on an even grander scale!

The combined monetary and fiscal stimulus to combat the recession, the banking crisis and all the other aftermaths of the burst bubble already add up to 30 percent of Gross Domestic Product.

That’s a new record by a HUGE margin:

  • In 1974 it was 4 percent
  • In 1982 it was 2.8 percent
  • And in 2001 this figure was 7.2 percent.

The Fed and the government — first the Bush administration and now Obama’s — are pulling all available levers hoping to heal what went wrong by doing exactly the same thing that was done in 2001.

The chart below, showing all the dollars getting pumped into the system, sums it up … Isn’t that amazing? There seems to be no progress in politics or the financial markets!

In 2001, I interpreted these policies as a major signal for a gold bull market. So with today no different — but actually worse — I’m sticking to my belief that gold will continue to shine.

And I’d like to note that there are at least two more reasons to believe that gold will push higher …

Reason #1:
China says it’s a gold buyer!

According to several news services, China has admitted to having boosted its gold reserves. Since December 2002 the Chinese central bank added 600 tonnes of gold to bring its reserves to 1,054 tonnes.

And while more than a thousand tonnes of gold might sound like a lot, it is a miniscule amount in relation to China ’s total currency reserves. Just look at my table and you’ll see what I mean …

Official Gold Holdings as of April 2009
Country Tonnes Percent of Reserves
1 USA 8,133 78.9
2 Germany 3,412 71.5
3 IMF 3,217 N/A
4 France 2,487 72.6
5 Italy 2,452 66.5
6 GLD (Gold ETF) 1,104 N/A
7 China 1,054 1.6
8 Switzerland 1,040 41.1
9 Japan 765 2.2
10 Netherlands 612 61.7
11 ECB 537 23.7
12 Russia 523 4.0
13 Taiwan 423 4.2
14 Portugal 382 90.2
15 Venezuela 364 35.5
16 India 357 4.2
17 UK 310 18.7
18 Lebanon 287 30.0
19 Spain 281 40.5
20 Austria 280 50.5

Source: World Gold Council

In other words, this may very well turn out to be just the beginning of a trend for China . For years China has been rumored to be adding to its gold reserves. But until now the Chinese government refused to comment and refused to publish its gold reserves.

The obvious change in this policy is important. I think the Chinese government is sending a message, maybe as important as the one the French sent back in the 1960s. Then, under the Bretton Woods System, the French demanded delivery of huge amounts of gold from the U.S. This eventually led to the demise of Bretton Woods.

Now China reveals its growing gold reserves. At the same time it has started to openly question the international dollar standard.

Doesn’t this sound like the beginning of a new currency order? A currency order that is less dominated by the U.S. dollar and replaced with a currency order including gold.

I know the U..S. doesn’t like the thoughts and understandably so. But reality seems to be shifting in this direction since the U.S. has unnecessarily and frivolously been risking the privilege of being the issuer of the world’s reserve currency.

No matter where this development finally leads right now … it’s bullish for gold.

Reason #2:
Gold’s Charts Look Bullish

I use charts to confirm the fundamental picture. And when I look at a price chart of gold from 2001 to today I see a very orderly uptrend, interrupted regularly by healthy corrections. The current pattern since March 2008 does not deviate from this orderly trend. Take a look …

Source: www.decisionpoint.com

I interpret the action as an inverse head and shoulder formation, which is both very bullish and very reliable.

So given the strong fundamentals and an exciting chart pattern, you should expect a continuation of the gold bull market. A breakout above the resistance line of around $1,000 would send a very strong buy signal with a minimum price target of $1,300.

And in my opinion, the gold mining sector looks even more attractive because in relation to gold prices, the mining companies are extremely undervalued.

Again, I am not a gold bug. But if all the stars point to a bull market in gold and certain gold stocks, I definitely want to participate and so should you!

Best wishes,

Claus

Regards,

Dhaval Shah

Investment Avademy | Baroda | 09825528815

Urgent Update on Gold

Standard

December 29, 2008 12:00 PM

Dear Investor

Gold has shoot up quite strongly in last few days. I have reports showing more and more reasons to own gold.

In my earlier recommendation, I had suggested at least 5 % allocation to gold. Today, I raise the bar and suggest to raise the allocation to at least 10 %, aggressive investor can mark even 25 % to gold.

Gold has crossed some very important resistance marks and if stayed above $879, can form new historical high i.e. can break the previous high of $1000+.

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815

China is buying Gold!!!

Standard

November 22, 2008 2:46 PM

Dear Investor

I am in receipt of more and more reports favoring Gold. Earlier it was perceived that Gold will continue its uptrend after Gold retraced from its high of $1033 to $750.

But, as we know from stagflation and reflation to huge deleveraging and debt deflation, the latter forces dragged the economies to deflation. And this was the force, which pushed even Gold prices down.

But, now it seems many nations will follow the Tehran and Beijing . The fear is obvious, as Fed is to reduce interest rate to ZERO, soon.

Investor can start with 5 % allocation to gold.

China reported planning big shift of FX reserves into gold

Submitted by cpowell on Fri, 2008-11-14 06:32. Section: Daily Dispatches

By Benjamin Scent
The Standard, Hong Kong
Friday, November 14, 2008

http://www.thestandard.com.hk/news_detail.asp?pp_cat=30&art_id=74335&sid…

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves “in a big way,” the source said.

China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing’s reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

Until now the United States has had little choice but to issue massive amounts of debt to fund its deficits, and China has had little choice but to purchase it, as there are not many markets deep enough to absorb the mainland’s US$30 billion to US$40 billion in monthly capital inflows.

Government officials involved in the management of China ‘s reserves are beginning to see gold as an attractive place to park some of these funds. They see it as a real, tangible asset that will not lose its value over time — in stark contrast to the greenback, which is becoming more disconnected from economic realities as more bills are printed.

“It’s the right time to increase the gold reserves, as the price is about US$710 to US$720 per ounce,” said Wan Guoli, vice secretary general of the China Gold Association.

The International Monetary Fund has made reducing global payment imbalances one of its priorities in the aftermath of the financial tsunami.

“I think China probably will expand its strategic reserves into commodities during this downturn,” said a Hong Kong-based strategist.

” China will continue to buy treasuries … otherwise the system would get distorted,” he said. “But I think China will diversify its reserves.”

* * *

Iran switches reserves to gold: report

TEHRAN (Reuters) – Iran has converted financial reserves into gold to avoid future problems, an adviser to President Mahmoud Ahmadinejad said in comments published on Saturday, after the price of oil fell more than 60 percent from a peak in July.

Iran, the world’s fourth-largest oil producer, is under U.N. and U.S. sanctions over its disputed nuclear programme and is now also facing declining revenue from its oil exports after crude prices tumbled.

“With the plans of the presidency…the country’s money reserves were changed into gold so that we wouldn’t be faced with many problems in the future,” presidential adviser Mojtaba Samareh-Hashemi was quoted as saying by business daily Poul.

He gave no figures or other details.

Before oil prices plunged by more than 60 percent from a peak of $147 per barrel in July, Iran made windfall gains from its crude exports and in April estimated its foreign exchange reserves at about $80 billion.

Iranian officials in July denied reports Iranian banks were moving funds from Europe , with one report suggesting as much as $75 billion had been withdrawn and converted into gold or placed in Asian banks, because of a threat of tightening sanctions.

The International Monetary Fund said in August that if the price of Iranian crude fell to $75 a barrel, Iran would face a current account deficit in the medium term that would be tough to sustain due to Tehran ‘s financial isolation.

On Friday, U.S. crude fell $1.20 at $57.04.

Gold futures ended more than 5 percent higher on Friday and bullion ended the week about $10 higher compared with its last Friday’s close of $735.95 as investors covered short positions.

(Reporting by Zahra Hosseinian; )

Regards,

Dhaval Shah

Investment Academy | Baroda | 09825528815