Standard & Poor downgrades US rating - Dow Jones falls, SENSES nosedives - the price of yellow metal continues to soar.

On 17^th June 2011 – I circulated to my friends under the caption ‘what would you do with your salary increase’  -   If you are not the one lured by physical attraction of yellow metal, then Gold Exchange Traded Funds [Gold ETF] are the right thing. You can buy units of Gold – generally one unit represents one gram and you can buy in multiples of a gram depending upon your choice, need and of course bank balance !!  The Gold ETF was around 2200 and the rate of Gold Bees was Rs.2160/- per unit.

The tamil month of “Aadi” [July 17^th to Aug 17^th] is not considered so auspicious and hence weddings are not arranged in this month.  This is called ‘Ashada masam’ in Andhra and understand there is Ashad mahina in Northern parts of India as well. In some communities, the newly married couple remain separated during this month !

Since there are would not be marriages and other religious functions, there would not be much of purchases.  That was all years back – in recent past, astute Traders have introduced the concept ‘aadi sale’ – supposedly providing huge discounts ! and crowds are surging shops….   the busy market area of T. Nagar in Chennai holds breathtaking crowds and there is one particular street known as Ranganathan Street which bustles with activity all the days throughout the year and Aadi only adds more milling crowds – one can see only heads not faces – so much of them.

If you think that the not so holy month would bring down the purchases – you are far away from being correct ! – even at a time when there is blood bath at SENSEX with Indian equities continuing to fall below the 17000 mark during the day; the Dow Jones is taking a beating and US dollar is taking a further beating as commodities are plunging deep. 

When prices fall, generally all commodities fall ! ; one man’s pain is other’s gain – standard understanding of the market.

But the scenario is far different in the Gold shops of Chennai, in T Nagar area – and other parts – crowds surged, sometimes it looks as if something free is being distributed, people on buying spree – the yellow metal is the most sought after whether the markets tumble or inflation rises – Gold breached the Rs.2400 per gram last week still it is buoyant..  there appears no window shopping at all as no buyer seemingly leaves the store empty handed and the salesman need not display any of his skills at all – what there in a pattern or style – when it comes to gold – everything sells – most of the trade is on cash – not sure of how little a % gets accounted and how much of tax flows into the coffers of the Govt.  Sure there is bound to be a very huge % difference between the actual sales and the sales as per Sales Tax records !

Can We take a vow that anytime we buy Gold in whatever quantity, we would buy it only officially, get a receipted and ensure that 1% VAT goes into the coffers of Govt…

Yesterday it was Rs.25150/- per gram in Chennai, going by the reports.  There are reports that the futures are like to his fresh all time high today and move above Rs.26000/- as the rupee weakens and rally in the World market after nose diving of equity market.  It is reported that the most-active gold future for October delivery in MCX (Multi commodity Exchange) closed 2.4% higher.

Earlier there were predictions that global price disruptions will keep the Indian buyers away from the jewellery market atleast for a few weeks.    Some see the present rise as a bubble.  Soon there would be season of wedding and religious ceremonies and more people would be tempted to buy. 

Elsewhere in Europe, Spanish and Italian bond yields fell. Traders said the ECB had made good on its promise to solve the euro zone debt crisis by widening its bond-buying programme to include paper from those two nations. The Standard & Poor's  downgrade to the quality of US sovereign debt  was widely anticipated, but its longer-term impact on anything from mortgage rates to the economy is unclear.  There are reports quoting   Commodity Futures Trading Commission, which collects information on holdings of futures and options, and to ETF data collected by Reuters, that  investors bought over 18 million ounces of gold, or 30 percent of total identifiable investment demand in 2010, in the last month alone, compared with about 8.4 million in the year to early July.

In case you want to buy something in addition to Gold, here is the price list from the Commodity Prices :  Commodity Prices (MCX)

Commodity	Rs.	Unit
Gold	25300	10 grams
Silver	59200	kg
Crude Oil	3779	barrel
Natural Gas	178.5	mmbtu
Aluminium	107.5	kg
Copper	395.85	kg
Nickel	972.5	kg
Lead	101.2	kg
Zinc	94.1	kg

Today’s market watch confirms that there is continuance of  record-breaking rally,  and gold futures prices today hit yet another high of Rs. 26,198 per 10 grams by adding Rs. 956 as speculators created fresh positions . 

The lowering of long-term sovereign credit rating of the US to 'AA+' from 'AAA'. and  the falling Dow Jones have impacted  the Indian share market as the net foreign institutional investment inflows (FII)  went down over 5 times. Against a net inflow of $11 billion in 2010 (until August 4, 2010), the FII figure for the same period this year is $2.14 billion.  This is a major development in the financial history of the country, which has held the gold plated AAA rating since 1917.   For India, the dollar losing its fundamental strength would mean a stronger rupee. At a time when GDP growth rate has exhibited a slowing trend and also when the Reserve Bank does not mind a growth-inflation trade-off, exports could take a hit.

On the import side, a stronger rupee along with higher commodity prices would widen the current account deficit.  It appears that this trouble in US is unlikely to benefit India and one market analyst wrote - The Tomatina festival is being celebrated globally, just that it's a little too adventurous this time, as it's being played in investor's blood.

Today, the rate of unit of Gold Benchmark Exchange Traded Scheme – Gold BeES price was Rs.2481/- and here is a chart depicting it. 

Regards – S. Sampathkumar.