Slump in Gold Prices Likely
By Commodity Online
03 Dec 2007 at 09:19 AM GMT-05:00
MUMBAI (CommodityOnline.com) -- If the present indications are anything to go by, the gold market will see more profit booking and the prices may come down to $770 an ounce this week.
Last week also witnessed profit booking, and hedge funds are closely watching developments in the precious metals market to enter active buying for the New Year.
According to analysts, gold has already hit the lows of this phase. But market technicals indicate a marginal decline that could push the metal to between $765 and $770 an ounce.
Any price below $770 may take gold below Rs 10,000 per 10 gram in India, which could trigger domestic buying for wedding and other occasions.
India’s total gold imports are expected to touch 1,000 tonnes this year compared with 850 tonnes last year.
Fresh bookings usually dry up during December and contracts remain illiquid on year-end profit taking. But a price decline, despite strong fundamentals, may entice traders to take fresh positions.
Analysts said the next rally in gold may take the price to $830. But if it hits the benchmark $848 an ounce, the rally may see an all-time high of $900 before the end of this calendar year.
Standard gold in India, which hit the psychological barrier of Rs 10,695 per 10 gram earlier last week, declined to Rs 10,235 per 10 gram as consumers kept away from fresh buying.
During the week, pure gold too declined by Rs 460 to Rs 10,285 per 10 gram.
Fall in Crude Prices Will Pull Down Gold Prices
Will gold prices come down in line with crude oil? Industry leaders predict that gold prices may soon come down thanks to the fall in crude oil prices globally.
Crude prices fell below $91 last week, and there has been a correction in dollar prices.
According to B N Vaidya Associates' Chief Bhargav Vaidya, gold prices may see a correction following unwinding of position by funds internationally in futures and OTC (over the counter) market.
He said wholesale gold prices will fall below Rs 10,000 and retail buying will pick up only after 14 January, considered the beginning of the auspicious period.
Gold climbed to the highest level in 27 years earlier this month, driven mainly by oil's ascent towards the $100 level and steep declines in the U.S. dollar. But with these trends stalling or in reverse, at least temporarily, investors have shifted funds out of the safe-haven metals in the international market.
"The falling crude oil prices and a strengthening dollar is causing pressure on gold prices," Kotak Commodity Services' Analyst Raghavan Sundararajan said in the company's research report.
Though de-hedging has fallen to its lowest level since 1992, the pace of further de-hedging is expected to be slow, thus also indicating lower prices in gold.
In the Indian markets, however, a weakening rupee could limit the downside in prices, Sundararajan said.
By arrangement with www.commodityonline.com.
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The Grinch that steals the January Effect
Commentary: Why exploiting year-end seasonal tends is harder than it looks
By Mark Hulbert, MarketWatch
Last update: 12:01 a.m. EST Dec. 3, 2007
ANNANDALE, Va. (MarketWatch) -- Profiting from the stock market's positive year-end seasonal tendencies certainly looks easy.
But appearances can be deceptive. There are several crucial features of positive year-end seasonality that can sabotage naïve attempts to exploit it.
For starters, contrary to what most investors assume, this positive seasonality -- known as the January Effect -- is misnamed. According to some academic research, in fact, it actually begins in mid-December and is largely spent by mid-January.
So if you wait until January to initiate any year-end strategies, you'll be late to the party.
Another feature of the January Effect that sabotages efforts to exploit it: It is not a market-wide phenomenon. It instead is concentrated in the stocks of the very smallest companies. Even so-called small-cap stocks may be too large; the sweet spot for the January Effect really is the micro-cap category.
How small must a company be a microcap? By way of an answer, consider the Dimensional Fund Advisors U.S. Micro Cap Portfolio
DFSCX 14.80, +0.01, +0.1%) , an index fund that was birthed out of some of the same academic research that first discovered the January Effect. The average market cap of the stocks owned by this fund is $555 million, according to the latest data on the DFA Web site, and the median is just $182 million.
That's small. To put these averages in perspective, consider that the average market cap of all 500 companies in the Standard & Poor's 500 index (SPX:
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SPX 1,480.36, -0.78, 0.0%) is $26.9 billion, and the median is $13.1 billion. Even the company with the smallest market cap in this benchmark has a market cap of $1.3 billion, according to S&P.
By the way, don't be seduced into thinking that the January Effect also exists among the larger-cap stocks but is merely more muted than it is among the microcaps. Some research has actually found that large-cap stocks' returns in January are below average. So if there is a January Effect among the large caps, it might be a negative effect rather than a positive one.
Even with this additional knowledge, however, one still doesn't have all the information needed to make an intelligent bet. That's because the stocks of the companies that truly qualify as small-cap typically have huge bid-asked spreads. Those spreads can be so big, in fact, that a January Effect strategy that is very profitable on paper can turn out to barely break even in the real world, or even lose money.
In order to overcome this final hurdle, therefore, one needs a way of minimizing the spread while investing in small-cap stocks.
Theoretically, one could jump over this hurdle by investing in a small-cap no-load mutual fund that charges no redemption fee or back-end load for a trade lasting a month or less. This would work because mutual funds calculate their net asset values using the closing prices of the stocks they hold, and those closing prices on average lie half way between the stocks' bids and offers. So such funds in effect enable investors to buy and sell stocks at half way between the spread.
The stumbling block for this mutual fund strategy in practice, however, is that I know of no mutual funds that fit the bill. Most small-cap mutual funds invest in stocks whose market caps are many orders of magnitude larger than what would be needed to satisfy the definition of a pure small-cap stock. And of those few funds that are purely small cap -- such as the DFA U.S. Micro-Cap Portfolio -- none encourages or allows the kind of short-term trade necessary to exploit the January Effect.
Exchange-traded funds (ETFs) are a better alternative for those wanting to exploit year-end seasonality, since they can be bought or sold just like a regular stock, and their bid-offer spreads typically are less than that of the stocks they hold. Once again, however, we must be careful to invest in those ETFs that truly invest in micro-cap stocks, since only a few satisfy.
The three that most closely fit the bill would appear to be the
iShares Russell Micro Cap ETF (IWC:
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IWC 53.36, +0.15, +0.3%) , the PowerShares Zacks MicroCap (PZI:
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PZI 15.47, -0.04, -0.3%) , and the First Trust Dow Jones Select MicroCap ETF (FDM:
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FDM 22.59, +0.07, +0.3%) .
Even so, however, these ETFs' bid-asked spreads sometimes can still be sizeable. A quick perusal of recent pricing data showed a few trading days in which their spreads were as large as 5%. So it is important to enter and exit these ETFs with care, using limit orders to minimize the impact of bid-asked spreads.
What if you want to exploit the January Effect via purchasing a basket of small-cap stocks? If you care to try, you most definitely should employ limit orders, as with the ETFs. For example, you could place a limit order that is half way between the bid and the offer, or even closer to the bid side when buying and closer to the offer side when selling, fully expecting that you won't always get your order filled. But if you place such orders on a big enough basket of stocks, you can end up with a decent-sized portfolio of small-cap stocks without getting killed via outrageous spreads.
With that thought in mind, I turned to Hulbert Interactive, the premium section of the MarketWatch Web site that is based on the Hulbert Financial Digest database. I wanted to find those micro-cap stocks that are most popular among those select investment newsletters with the best long-term records (defined as beating a buy-and-hold in the stock market over the last decade).
The list I came up with includes all stocks whose market caps as of the end of November were less than $400 million and which are also recommended for purchase by at least two of these ten-year market beating newsletters:
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