Gold at All time Highs What about Silver???

Since my last article on Gold dated 03/01/2007, Gold had Rallied more than 5% and is making new highs every day. Although there may be a intermediate corrections but I am very bullish on long term and I expect gold to reach at 1400$ level that will be equivalent to RS 15000 - Rs 16000.

Silver which has been a laggard till now had also caught up very well with the trend and had gained by 5% in last weeks. Silver is also looking very Bullish on charts and I will advise Investors to remain long. I expect silver to touch 23000 RS in coming weeks. Any dips can be used to accumulate these commodities whith long term view in mind.

Will Dowjones Spoil the Party

I am pasting two charts of Dowjones. From the Quarterly chart we can observe that the uptrend which started in 1990 is being tested currently. We can clearly observe that the trend line of that uptrend is being challenged and candlestick pattern is looking really week for current quarter. 12000 -12600 is very crucial level for Dowjones and if Dowjones stay below these levels for a considerable period of time there can be a big sell off in the US equity markets which will trigger a sell off in Global Equities. Although the faith of investors in Emerging markets had been high and specially so in India since only 20% of GDP is derived form exports in comparison of 40% for China and more than 50% for Korea and Taiwan. But i believe that if there is a global sell off in Equities money will flow form risky assets to safe assets like gold and money will flow away form emerging markets at a lightning speed.

From the Daily chart we can observe that Dow Jones has broken the support line at around 12900 levels and if it fails to recapture the lost territory it may fall up to 12000 levels in days to come.

Whats Happening to Small caps and Mid Caps

This is a Chart of BSE MidCaps/SmallCaps Index. We can see that a rally had started form September 2007 and had continued till first week of January 2008. We can see that the Index had got support at around 9400 levels and the mid cap should bounce back form here. At least there will be a relief rally which will take midcaps to 9750 levels and it may also touch its previous highs of 10200. If the midcap index do not cross its previous highs than there will be another round of sharp correction and the index will again touch 9400 levels. Further weakness will be observed only if midcap index breaks 9300 it may tumble upto 8200 levels which will be a Golden buying opportunity in the midcap stocks. I don't expect Mid caps to surpass this previous highs and in current month.

Nifty Weekly Review as on 14/1/2008

Sensex has given a breakout form a Diagonal Triangle and is showing strength by maintaining itself above 20500 levels which is a crucial support. As per my expectation there has been no major correction in the Large Cap index. (*Although i don't expect the market to correct but it will certainly pause around 6250 levels and any breakout form these levels will see swift gains in the index From Nifty Weekly Review as on 31/12/2007). I still expect the that markets will continue to show strength and there will no major correction in the fornt line Indices. Although market may consolidate at these levels for this current week and resume the upward journey form the next week.

GOLD: - WAY TO SAFE FUTURE

With reference to my previous mail a Global sell off in equities is looking in eminent. The question is only related to the timing. The world gdp has seen its best time in last five years growing at 5% yoy, but is expected to slow down form current year. Fed is cutting interest rates and this resulting into weakness in the value of dollars vis a vis other currencies. Global inflation is rising on the back of record Crude price and Food price. To put things into perspective Wheat prices have risen 70% in last year. China is facing a all time high inflation due to 55% increase in pork prices. India is set to become a net importer of rice form the largest exporter. Historically gold has served as the best store for value to fight inflation. It will also act as a protective asset to fight global sell off in equities markets. If we look at the chart gold has given a tremendously bullish breakout of a round bottom pattern. With one year timeframe in mind the next target for gold is 12500 and 13500. This will result into a cool 25% return on one of the safest investment. I will advise investor to shift at least a part of their investment into gold and other precious metals to wither the possible sell off in the global equity markets.

DowJones:- What Lies Ahead

The global equity markets are looking indecisive. As we all know that America consumes 20% of the world production anything that happens there will have big impact on all other markets. Although exports consist of only 20% of Indian economy and Indian economy is relatively aloof to a global downturn when compared to other Asian economy. But a sharp downtrend in American economy will lead us to sell off in Global equity markets including India. We all know that our market is so much dependent on FII money and any dampening on sentiments will result into FII’s pulling their money out of India and a resultant correction in our markets. Here we can argue that domestic investors are pumping money into the markets but I feel that the domestic demand will be grossly insufficient to arrest the resultant selling. And if markets starts falling domestic investors will be the first to panic and pull out their money.

If we look at valuations currently we are trading between a range of 20-24 times forward earning, China is trading 53 times forward earnings, Hong Kong is trading 16 times, Dow Jones is trading 15 times forward earnings. With the exception of China all other markets are trading at much lesser P/E. Here we can argue that since we are growing at a faster rate we deserve a higher P/E. But we ignore one fact that we are also having a lot of unsystematic risk which stems form weak political system, inefficient government administration and judiciary and other factors. So after adjusting these factors a forward P/E of 25 looks expensive. Although historically it has been observed that bubbles have formed a much higher P/E of 30+ and so we can say that We are not yet into a bubble market, but a bubble in certainly in formation. Moreover US economy looks very frail and may succumb to recession in next few quarters. Oil is trading at all time high of $100 per barrel. All these factors demands caution form equity investors. Just to have a technical perspective of where the Dow Jones is heading I have pasted monthly chart of Dow Jones Industrial Index. Now we can see that a uptrend started in January 2003 and is continuing since then. Historically it has been observed that the secular bull markets last for four years this has also completed four years and so the trend may reverse any time soon. Moreover the trend is very near to the support of its trend line and If Dow Jones falls below 12000 American markets will see a round of Correction. If we remember here Bull Run in Indian markets also started in 2003 and we have also completed four years of our bull run. So putting all these things into perspective I think that we should remain cautious as tough times lies ahead.