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Should you bet on Gold now?

I just sent out this mail to my clients and friends, thought it might be useful to many people here. Here are the relevant excerpts.:
 
 
 
But this last mail in this series is not about Nifty or Rupee, its about Gold. The question is, do we bet on gold now? I think, and saying this with proper disclaimers, its not good to bet on it for sometime - unless you are a trader.

If you are looking to buy into the jewellery etc, you may want to hold on for there are possible chances that this may dip further, however entirely dependent on how Rupee behaves. But assuming Rupee stabilises after some more fall, the fall in gold prices, plus any lowering of taxes will bring the prices back to reasonable levels, say, under 30,000.

Fundamentally, gold has added lots of Geo-political risk premium over past few days (Syrian situation) but apart from that there is nothing to help it. The Fed taper for instance is Gold-negative. But if the war-costs explode into further QEs, the gold could rocket, however we are not in this situation yet and most probably, will not be.

Also, with prime consumers of China and India decelerating sharply, the demand is going to be very low. Add to that, any severe deterioration (like high inflation, (crude)) we could see some selling especially out of retail customers, and also PBOC and RBI. In other words, Gold price is likely to be capped becoz demand is capped and with possibly increasing supply.

Technically, the long term chart (attached) has broken below the 200 weekMA and the present pull back looks more in the nature of retesting the average. Successful hold of that average will open prices lower.

Flip side of this is, lower Gold means higher Dollar, and hence lower Rupee. Therefore, any downside in International markets may not be carried over to India. However, assuming the Rupee fall is somewhere close to bottom, the lower prices would carry on to Indian consumers.

To summarise, arguments rests on three key factors:

a. Rupee would stabilise sometime soon and hopefully closer to current levels
b. Syrian war is not an all-out war but a 'surgical-strike', if at all.
c. Gold holds the 200WMA, which is now around $1500.

Logical targets on the downside would be re-test of lows at $1200 levels, giving us approx 15% from current prices.
 
 

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