Monday, December 27, 2010

GOLD INTO BASKET ETF


THE AWARD GOES TO……..

The “BEST INVESTMENT PRODUCT” award for the year 2010 does not go to Indian or china stock market neither to any particular economy. The award goes to Gold and Silver. Yes gold and silver have been the best investment and most favored and choice investment product for the year 2010.

In this year we found the price and demand of gold coming out aggressively as well as from all economies. As the emerging economies are having a higher savings rate and global imbalances are exerting pressure on the currency, the demand for gold will rise constantly. According to the Reuters Global Banking Summit Report gold is being used as an income and alternative savings instruments. This means the paper currency is replaced by Gold.

CONVERSION INTO ETF DEMAND

Moreover the more tight belts are being developed the more demand of gold will rise. The People's Bank of China said in August it would let its banks export and import more gold in a program to drive the development of the country's market in the precious metal. China is having a savings rate of 40% and hence its promotes among its citizens to save under gold.

China is doing massive advertisements through TV, Radio, SMs and other communication means to invest and convert the savings into Gold. Inflation is another blessing for the gold price. Uncertainty among investors forces them to turn to Gold as a hedge against unforeseen disasters. Whether it’s a recession or inflation Gold will act as the only way to survive any crisis among all situations.

In 2007, Mumbai-based Benchmark Mutual Fund became the first financial institution to offer a gold ETF . Since then, gold-based ETFs have drawn more and more Indian investors away from equity mutual funds. We have found in the recent figures that Equity Mutual funds schemes are reflecting outflow of cash. That outflow is the inflow in ETF made of gold. In India more raw gold prices and jewelry prices will increase the demand for gold ETF will increase taking this as an alternative investments avenue.

THE NEW BASKET

Once gold becomes more expensive, investors will start their quest for a search of a new metal. At that point of time we find silver making a similar rally like gold. Silver is being held by mankind about 250 million ounces to up to 650 million ounces of silver (These numbers don’t include silver jewelry).Hence the silver has more opportunities of further mining.

Once the gold mining comes to some stagnate level the price of gold will zoom up like any thing. This will make the yellow metal more expensive where as silver has yet to go a long way to catch up gold mining levels.

Moreover gold is only being used as an investment avenue from central banks to the one sitting next you doing trading in gold commodity. Where as silver are electronics, photographs, and jewelry. Now all these will exert pressure from various corners on the gold and silver price in the new decade.

As gold will become a scare resource in the coming year’s silver and platinum will see new decade of growth. All these will force the global and Indian market to come up with a Basket of ETF. In other words we will need Metal ETF. Already in this year 2010 we find the first metal ETF got to see the light. The strangest part is this that more gold and silver is being consumed industrially and investment wise, other metals are coming out to replace and balance the expensive price at retail level.

Silver and Platinum and basket of ETF will be the next phase of tremendous growth. Very recently first ever precious metals basket ETF which consist of Gold, Silver, palladium and platinum, launched allowing investors to have ownership of each share equal to about 0.03 troy ounces of gold, 1.1 ounces of silver, 0.006 ounces of palladium, and 0.004 ounces of platinum.

As gold and silver is becoming more expensive for retail investors across the world ETF is becoming the most favored investment choice. Silver, palladium and platinum are used in a wide range of industrial applications and hence the demand is increasing more than the Gold.
Below is the Chart of all Metal Basket ETF


PALL - Palladium Metal ETF (holds physical metal)


GLD - Gold ETF (holds physical metal)

SPY - S&P 500 Benchmark Index

JJT - Tin ETF

JJC - Copper ETF

FXF - Swiss Franc

PPLT - Platinum ETF (holds physical metal)

GDXJ - Junior Gold Miner ETF

SLV - Silver ETF (holds physical metal)

PAAS - Pan American Silver Corp - Silver miner
It’s nice to note that the trend call was a good one. Especially the pick of Tin and metals with an industrial double use like Silver and Palladium as an alternative to gold.
WHAT WE NEED?

The Indian markets have only witnessed the growth of Gold ETF. We don’t need any data to justify or bring the growth of Gold ETF in India. But we must understand and design products where apart from Gold ETF basket of ETF is required to bring consistent growth for Indian investors. We should not focus on particular product based ETF. We should look for long term growth where basket of ETF will give consistency in growth and not the risk of a particular focused product/metal. For example if today a gold price goes for a toss and there is a correction in the price Gold ETF will loose the sheen. Investors will face tremors of the crash. But if we do investments in Basket of Metal we will not face the tremors similar to Gold or any particular metal based ETF.

The new decade starting from 2011 needs products more focused to give maximum risk management and protection in consistency in generating return to the investor. In the year 2011 investors needs and preference of investments is getting shifted from the conventional investments theory to more higher levels more ranged bound products. The Indian financial gurus need to capitalize on this part of investment products. The composition of basket of metal ETF should consist all the metals which are expected to become expensive like Platinum, Palladium, Aluminum, Copper, Zinc, along with Gold and Silver. All these metals will keep on giving return to an investment irrespective of any time any recession any boom phase of the world economy.

Indian financial market is still far off from the innovative products cycle. What we have seen in the past decade was the first baby steps of product information and investments. It can be called as the Stone Age. Since it was the age of experimenting and not the age of Wheel Invention. The next decade belongs to the Wheel decade where an innovative product needs to be invented. Now its time to see whether Indian financial market enters into the Wheel Age or not and how well the Wheel spins.

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