Vijay L Bhambwani / DNAMonday, July 26, 2010 2:51 IST
Email
Print
Share
Mumbai: The last five years have been a fruitful time for the average commodity trader who has played his cards well.
There has been an unprecedented boom in bullion and energy prices, with industrials witnessing a see-saw action with a net bullish bias.
The outlook from here onwards however, maybe selectively rewarding. This is especially so in the case of gold and to an extent, even silver.
Imagine yourself having to run up the stairs of a 10-storey building. While you may breeze through the first 3-5 floors, the climb thereafter will be laborious and difficult.
Gold is likely to witness a similar situation as the upside momentum is likely to slow down.
That by no means implies that the rally is over. In fact, any adverse occurrence on the economic, geopolitical or military front may trigger a panic buying spree that will take precious metals to a new high.
But the utility of such a rally will be lost on the trader / investor as inflation, shortages and social turmoil arising out of such fat-tail events will negate / reverse the benefits of such price appreciation.
From the point of view of risk / reward accruals, the gravy days of gold investments maybe behind us.
For, any long bets on gold can only mean take short positions on the society’s well-being.
To push gold prices higher would mean extreme events that will impact a majority of the global populace, leaving everyone directly / indirectly miserably impacted.
The fact that almost everyone was ignoring gold at Rs 12,000-14000 levels and is scurrying to add gold to his portfolio in various forms (physical / exchange traded futures/ futures) at current levels only buttresses my argument that the retail segment is probably too late in clambering on to the gravy train.
Silver is a relative outperformer compared to Gold and is likely to fare better as the white metal is used in industrial as well as portfolio applications. In times of declines, silver has been falling less than gold and rallies more than gold in times of upthrusts.
That makes it a better bet than gold in the coming few quarters / years. It offers the best of safe haven buying as well as industrial applications in a balanced trade off.
However, my bias and my money are tilted towards industrials and energy. If you are a believer in the economic recovery theory, then the most significant returns can be expected from base metals and energy in the coming year.
The recent price activity in zinc, copper, nickel and lead are prime examples. These ‘fantastic four’ counters are outperforming precious metals by leaps and bounds, and may well continue to do so.
Crude oil is another dark horse that is likely to test the 3-digit mark in the coming year, thereby giving above average returns to the patient bulls.
The sum and substance of the analysis is base metals, energy and precious metals maybe invested into, in that order of preference. In case you wish to invert the selection or stick to bullion alone, place your bets on silver rather than gold.
Because that is where better investment returns will lie. The coming year promise to be one of the best for an average Indian commodity trader.
The analyst is based in Mumbai and the author of India's first commodity trading guide book - A Traders Guide to Indian Commodity Markets. He invites feedback at vijay@BSPLindia.com
