In an enlightening session on Gold at the Moneylife Foundation Knowledge Centre today, Debashis Basu, editor and publisher of Moneylife used decades of data to expose many myths about gold that are (freely available and strongly propagated on the Internet) and strongly held by both retail and institutional investors. He also suggested what should be the correct approach to gold buying
On occasions such as Akshaya Tritiya and Dhanteras, which are considered as auspicious days for buying gold, the demand for gold as investment and jewellery goes up. In India, gold is bought for various occasions. The demand peaks around the festive and the wedding seasons. But should gold be a significant part of your investment? In nominal terms the price of gold has more than tripled in the last 20 years, despite the recent crash, this makes it a very attractive asset class—with the benefit of hindsight. But what we do really know of gold prices? In a special seminar on investing in gold conducted by Moneylife Foundation, Debashis Basu, Moneylife Foundation trustee and editor of Moneylife magazine, explained the various myths about gold as an investment and what really drives the price of gold. Similar to the seminars exclusively on gold in the past, this one too received a huge participation of Moneylife Foundation members.
Mr Basu gave the participants a brief of the history of gold. Gold may go back to a thousand of years, but it’s only in the recent century where its fondness as investment has grown. Mr Basu explained why gold is such a unique commodity and then further explained how gold was used as money. On going into history Mr Basu showed that crashes such as the recent one is inherent with all market-linked products and since gold is one, nobody should be surprised. Many investors just look back 10-15 years, but to get the true sense of an asset one needs to go deeper into history. Mr Basu took the participants through the gold bubble and bust of the 1980s. Many buy gold because they consider gold as a safe haven or an inflation hedge. But these are all myths as they are not supported by long term historical facts. Through the help of graphs and charts, Mr Basu addressed five different myths regarding the precious metal.
If you are interested in reading more on the myths about gold, go ahead and read our Cover Story: Gold Turns Cold
Finally, he explained the six main factors that drive gold demand and how little we know about them. Unlike other assets there is no way to value gold. There are many complex and global factors that affect the price of gold, he explained. Not even institutional investors keep a regular track of them or have a model to use them to arrive at a fair value of gold.
The presentation was followed by an interactive session where the participants put forth their queries on gold.
Following the arrest of Vijay Singla, the nephew of railway minister Pawan Kumar Bansal while accepting a bribe, activists have demanded an enquiry of the promotion and transfer process of the Indian Railways
Following the arrest of Vijay Singla, the nephew of Railway minister Pawan Kumar Bansal, activists have demanded an enquiry into the promotion of Mahesh Kumar as member of Railway Board as well as the role played by the minister.
Mumbai-based activist Samir Zaveri has been sending letters to the prime minister and railway minister as well as Railway Board to dismiss Mahesh Kumar for failing to detect several frauds when he was heading the vigilance team at Western Railway in Mumbai.
Similarly, Lucknow-based social activist Dr Nutan Thakur has demanded that in the light of Pawan Bansal’s nephew episode, the Central Bureau of Investigation (CBI) should also enquire into railway officer Mahesh Kumar’s recent promotion to the post of Member, Staff.
In her letter written to director of CBI, prime minister and secretary, ministry of personnel, she has said that now there is an immediate and imminent need to look into Mahesh Kumar’s promotion process from general manager of Western Railways to Member of the Railway Board.
Suggesting to treat the entire episode in two distinct stages—promotion from GM to Member from Staff and attempted change to Member from Electrical, Dr Thakur has demanded to act against all those, including the railway minister, involved in the previous decision-making of promoting Kumar from GM to Member, Railway Board, in case circumvention of rules and foul play is found there.
On Friday, the CBI arrested Vijay Singla, nephew of railway minister Pawan Kumar Bansal, for allegedly accepting a portion of the Rs90 lakh bribe to ensure the appointment of a Railway Board member.
The agency also registered a case against three other people—including the accused member (staff) Mahesh Kumar who had taken up his position on the board only a day earlier—after conducting raids in several cities.
Singla, son of Bansal’s sister and one of the leading businessmen in the region, was picked up by a CBI team from New Delhi on Friday evening.
Singla is accused of accepting the money in return for ensuring that Kumar, a 1975 graduate from University of Roorkee who had been the general manager of Western Railway, would be appointed to the Railway Board, which the ministry announced on 2nd May.
According to Zaveri, Mahesh Kumar as chief of vigilance at Mumbai failed to detect and take any action on several frauds in his jurisdiction. “It is open secret that there is a price for getting selective transfers and promotiona anywhere in the Indian Railways from top to bottom. I had sent several requests through emails with supporting evidence to the President of India, the prime minister and others to investigate into the transfer and posting scams in Rail Protection Force at Central Railway as well. However, there is still no action,” he said.
Zaveri said, during Mahesh Kumar's tenure as head of vigilance at Western Railway, the CBI raided a divisional railway manager (DRM) from Ahmedabad and found Rs80 lakh in cash, one kg of gold and 30 wine bottles (prohibited in Gujarat) subsequently arresting him. Citing media reports, Zaveri claimed the CBI was more active in detecting frauds and arresting railway officials than the WR vigilance department headed by Mahesh Kumar.
Incidentally, Subhodh Jain, general manager of Central Railway, was also promoted recently as member of the Railway Board, Zaveri pointed out.
A fall below the low of 5,868 on the Nifty may mean that a new phase of decline has started
The market ended the holiday shortened week on a positive note as investor sentiment was boosted by better-than-expected corporate results and hopes that the Reserve Bank of India (RBI) will cut key rates in its annual monetary on Friday. Signs of a revival in the global economy, after the US reported good macro-economic indicators, also aided the gains. Investors will now shift their focus on fund inflows by foreigners and news about the progress of the monsoon rains, a key indicator of growth.
The Sensex closed 289 points (1.50%) higher and the Nifty finished the week at 5,944, up 73 points (1.24%), making it the third weekly close in the green. A fall below the low of 5,868 on the Nifty may mean that a new phase of decline has started.
The market closed in the positive on Monday on support from consumer durables and fast moving consumer goods after FMCG leader Hindustan Unilever’s results beat market expectations. The benchmarks closed higher on Tuesday as gains in the FMCG sector continued for the second day. The bourses were closed on Wednesday for May Day.
Hopes of a rate cut by the RBI in its annual policy announcement saw all-round buying, resulting in the market closing near its three-month high on Thursday. The market snapped its three-day winning streak on Friday after the RBI sounded caution saying that there is “little room” for further policy easing.
BSE FMCG (up 8%) and BSE IT (up 5%) were the top sectoral performers in the week while BSE Bankex (down 1%) was the lone loser.
Hindustan Unilever (up 23%); Wipro, Sterlite Industries, Mahindra & Mahindra (up 8% each) and Infosys (up 4%) were the top performers on the Sensex. The chief losers were Bajaj Auto, GAIL India, Tata Motors (down 4% each), State Bank of India (down 3%) and Cipla (down 2%).
The key gainers on the Nifty were HUL (up 23%), HCL Technologies (up 10%), M&M (up 8%), Reliance Infrastructure (up 7%) and Sesa Goa (up 6%). Bajaj Auto, GAIL India (down 5% each), Punjab National Bank, Tata Motors (down 4% each) and SBI (down 3%) were the main laggards on the benchmarks.
The RBI, in its annual monetary policy released on 3rd May, announced a 25 basis point cut in the repo rate to 7.25% but kept the cash reserve ratio (CRR) unchanged at 4%. In the macro economic report released Thursday, the RBI said it had “little space” for cutting interest rates as it tries to maintain a balance between growth and inflation.
The HSBC Manufacturing Purchasing Managers' Index (PMI), a key indicator of manufacturing growth, fell for the second straight month in April, declining to 51 from 52 in the previous month. The reading for April was the lowest since November 2011.
The core sector production of eight key industries rebounded with a 2.9% growth in March 2013 from a negative (-) 2.5% growth registered in February 2013. The growth was mainly on account of buoyancy in the production of cement and steel and a marginal increase in electricity generation.
In the corporate scene, Hindustan Unilever, one of India’s leading fast moving consumer goods (FMCG) company, reported 12% year-on-year (y-o-y) increase in net sales to Rs6465.81 crore for the quarter ended 31 March 2013. Likewise, its net profit is up 14.65% y-o-y, and touched Rs787.20 crore for the March 2013 quarter. This was driven by strong performances in domestic consumer business as well as home and personal care divisions.
This apart, HUL’s parent company, Unilever Plc, has announced a buyback of roughly 487 million shares, or 22.52% of the share capital, through an open offer. The buyback will take Unilever Plc’s total shareholding to nearly 60% and thereby gaining firm control over HUL and its decision making activities.
In international news, US stocks closed out the week with good gains as Wall Street cheered a better-than-expected April non-farm payrolls report. US employers added 165,000 jobs in April, while the unemployment rate fell to a four-year low of 7.5%. But the unemployment rate remained well above the 6.5% level at which the Federal Reserve has said it will start raising interest rates.
On the flip side, the rate of growth in the US services sector slowed in April, hitting its weakest pace in nine months. And factory orders saw their biggest decline in seven months.