Friday, April 12, 2013

Godl, Silver are going through a mini crash today

With almost 4% declines, Gold and Silver are going through a min crash in world markets. In India, on the MCX, Silver prices opened at 51778 and are currently at 49695, more than Rs 2000 decline, almost 4%. Same is the case with Gold.

Often, in the current environment,  a rally in share prices (risk ON) is accompanied by a fall in precious metal prices. The theory is that Gold and Silver are safe havens, therefore when traders are willing to take risk (buying equities), they ignore safe havens (Gold, SIlver).

With this theory, today's decline may be attributed to increased appetite for risk. But, that is not always a valid theory.

Often, Equity and Precious Metals will fall together when investors are worried about all kinds of speculative risk. Then, there is a shift from all risk assets to risk free assets. That may be going on today. If so, it is not good news for equity investors.


1 comment:

Dinesh said...

Dear Sir,
Although US market is down but it is nearly at all time high. After rising so much, it may be cooling off.
Japan may be in the same category. In fact, after recent asset purchase program of 1.4 trillion USD, Japan is looking attractive after years of negative return.
Nifty is down by 1 odd percentage and Infosys plays a major role - down by 622 points or 21 %. We know it is down because it ran up quite a bit before the results and also the expectations built during the last quarter results did not prove correct due to 6-10% revenue growth guidance (much below NASSCOM guidance) and other components like Net Profit etc. By the way, Infosys weightage in Nifty is around 8%. So, a drop of 622 points can drag the Nifty down. Majority of the stocks in Nifty closed in Green. In fact, Bank Nifty and Oil&Gas index was up by around 1 %.
So, it may be RISK ON, which may be confirmed in couple of days. It may not translate into rise in Nifty but as long as investors have some place in the universe to invest (US, Japan etc.), they will do so ignoring gold and silver.
Regards,
Dinesh