A good time to invest in platinum

Platinum has traditionally outperformed gold, but its prohibitive pricing made it difficult to invest in. Now, with gold prices at par with platinum, it may be the right time to bet on it.     Outshined by the glitter of gold is a more rare, but equally precious, metal—platinum. Investing in this noble metal has not caught up in the country mostly because, till date, it has commanded a higher price than gold. However, the zooming price of the yellow metal over the past few years has made platinum more competitively priced (see graph). Currently, one gram of platinum costs 3,062 compared with 3,178 for gold (as on 24 October). "Since the price of platinum is lower than that of gold, it's a favourable time to buy it," says Prithviraj Kothari, president, Bombay Bullion Association.  Where is platinum headed?  Platinum was quoting at a premium of nearly 150% to gold till a few years ago, but its price is almost level to that of the yellow metal now. In fact, over the past year, its trading price has been lower than that of gold. Will platinum continue to stagnate or will it beat gold again after a few years? Experts believe that the current situation may continue for some more time. This is because the global economy is going through a painful restructuring, and the recent jump in gold is due to the easy monetary policies followed by the global central banks to support their economies, as well as the investors' decision to move their money to a safe haven like gold. Till the global economies stabilise and central bankers start withdrawing excess liquidity, gold may move up faster than quasi-precious metals like platinum and silver.      Though platinum may remain under pressure in the immediate future, its outlook is bright in the long term. "Platinum may remain in the range of $1,500-1,700 an ounce ( 2,857-3,238 per gram) in the next few months. However, it should recover within a year," says Naveen Mathur, associate director, commodities & currencies, Angel Broking.      What are the factors that point towards this bullishness? Firstly, there is no fall in demand from investors or jewellers. In fact, the global platinum jewellery demand increased by 3% in 2011, and with the prices already at lower levels, the demand is expected to hike further this year. China is the biggest consumer of platinum and the appreciation of the yuan against the dollar will also help the Chinese consumers.      Secondly, the key platinum producing countries (South Africa, Russia and Zimbabwe contribute around 93% to the global mine production) are struggling with several constraints, such as electricity shortages and increased labour costs, and are unable to increase the production substantially. Platinum prices jumped by 8-9% in September due to labour unrest in the South African mines (it contributes 74% to the global output). While mine production contributes around 80% to the total supply, recycling of platinum from auto catalysts scrap (13%) and jewellery scrap (7%) makes up for the remaining. Since users are delaying vehicle replacement, even the recycling segment has not expanded.      The lower production or increased investment/jewellery demand has failed to lift platinum prices because the global auto industry, which constitutes around 40% to the global platinum consumption, is still suffering from the economic crisis. This means that the price of platinum is expected to remain rangebound with a downward bias in the near term. However, the global economy is going to recover at some point, and when this happens, platinum will start outperforming gold. Buying options  Jewellery  While most consumers in the country prefer to buy platinum in the form of ornaments, they should be careful while buying jewellery. This is because while the making charges may vary depending on the      size and design of the jewellery, these are      double that for gold ornaments. "Platinum is much harder than gold and needs a very high temperature to melt it. Therefore, platinum jewellery is made only in a few places, which pushes up the labour cost," explains      Hasmukh Bafna, president, Gold      Chains & Jewellery Wholesalers Welfare Association. Platinum is also more dense than gold (an identical ring in platinum would be around 40% heavier than the one in gold) and, hence, costlier.      Another thing buyers need to be sure of is the purity of the metal. Platinum is mixed with other metals to make jewellery and the most commonly used are those from the platinum group, such as iridium, palladium, ruthenium and rhodium. Since most of these metals are cheaper compared with platinum, buyers should make sure that the jeweller quotes a lower price than that of pure platinum in the market. The jewellery should be hallmarked, specifically mentioning its purity. For instance, jewellery containing 85% platinum will be marked as 850, while that consisting of 95% of the metal will be marked as 950.      Traditionally, Indians buy jewellery as a back-up plan to bail them out during difficult periods. Ideally, when you sell jewellery, you lose out on the making charges, but in reality, the loss percentage is much more than that for gold. This is because the demand is low, making it difficult for jewellers to resell ornaments. The other issue is checking the purity of the metal. "Almost all jewellers can check the purity of gold themselves and pay the price accordingly, but very few have testing facilities for platinum," says Kothari. So, even if you have no plan to resell the jewellery, ask the retailer about the buyback facility at the time of buying the ornaments. Also, check whether you will get back cash or you will only be able to exchange it for another ornament.  Bars and coins  Since platinum has begun emerging as an investment option, some high-end jewellers have started selling pure platinum (purity of 999) coins and bars. These are available in weights of 1 g, 5 g, 10 g, 50 g, 100 g, etc. In this case also, you need to ask about the buyback facility, expected price deduction and authenticity certificates.  E-platinum  Unlike for gold, there is no exchange traded fund or savings fund for platinum. The only way to buy platinum in paper form is through the e-platinum route available on the National Spot Exchange. This is the best mode for investors as these units are held in the demat form and there are no 'deductions' at the time of selling them. Since the trading of e-platinum has started recently, is there enough volume for investors to participate? "There is enough liquidity in the e-platinum space though the bid-ask price may widen once in a while," says Praveen Singh, senior commodities analyst, Sharekhan.

Are gold prices likely to rise?

After several months of rallying, gold prices in the country have recently corrected, albeit marginally. After mid-May, when spot prices were hovering around the 28,000 per 10 g mark, gold prices got a booster shot from the depreciating rupee and crossed the 32,000 mark in mid-September, despite a fall in international gold prices. The prices in the country continued on their upward trajectory, mainly due to the sharp depreciation of the rupee against the dollar. However, prices have declined since then as the rupee has witnessed a turnaround over the past few weeks. 

What lies in store for gold? 
Central banks across the world are still experimenting with stimulus measures to prop up their respective economies. Such actions will result in currencies losing value and, consequently, add lustre to gold. For instance, the European Central Bank has promised to buy an unlimited quantum of Euro bonds in the future. Chirag Mehta, fund manager, Quantum Gold Fund, says, "As global central banks continue to debase their respective currencies, the inevitable consequence will be higher prices of gold, which will merely reflect the diminishing purchasing power of the global fiat currencies." 
Risks remain 
There appears to be no respite from the global economic uncertainties. Even though fears over Europe's debt contagion have eased for now, the risk of a blowout remains. The US economy continues to grapple with a persistent slowdown, while China is witnessing a decline in growth. All this should bode well for gold, believes Raviprakash Sharma, fund manager, SBI gold fund. "The fundamental drivers for higher gold prices still remain in place and make a case for portfolio allocation towards the asset class," he adds. 
    However, the rupee will play a crucial role in how gold prices move in the domestic market. Lalit Nambiar, fund manager, UTI Gold ETF, says, "It is tough to predict but the rupee is likely to hold at these levels for some time. A slight depreciation in the rupee and pick-up in gold buying will help push gold prices higher." Renisha Chainani, commodity analyst, capital markets, Edelweiss Financial Services, says, "The recent consolidation in gold prices is healthy in the context of a sustained bull market. Investors should consider every dip as a buying opportunity."

Should you opt for a gold savings scheme?

Gold schemes offered by jewellers help build a steady corpus for special occasions, but read the fine print to know whether you gain from them     Kick-starting with Dussehra, the festival season has begun in earnest, and so has the gold-buying season. The celebration will peak next month during Diwali and Dhanteras, which are considered the most auspicious for buying gold. Most Indians still prefer to hoard gold the old-fashioned way—jewellery and coins—rather than invest in paper gold. Should you shell out a chunk of your savings to buy gold now, considering its high price? Over the past few months, the price of gold has zoomed from 28,000 per 10 g in mid-May to 30,765 on 26 October.      Of course, if you buy a sizeable piece of jewellery, such as a bracelet or necklace, during this season, you may end up burning a hole in your pocket. This is why many popular jewellers offer gold schemes. You can enroll in such a scheme for as low as 500 a month for a tenure of 11-36 months. At the end of the chosen period, you will get extra cash from the jeweller, which you can use to buy the ornaments you want. However, before you jump on to such a scheme, here are a few things you should consider.  How does it work?  Gold or jewellery savings schemes come in two forms. A typical one allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweller) at a value that is equivalent to the total money deposited, including some bonus amount. This conversion is done at the gold price prevailing on maturity. In most cases, the jeweller adds a month's instalment at the end of the tenure as a cash incentive or may even offer a gift item. For instance, popular branded jeweller Tanishq runs the 'Golden Harvest' scheme, wherein you need to invest a fixed amount every month (minimum 500) for 11 months. The twelfth instalment, is paid by the retailer.      There is another form of savings scheme, which lets you book small quantities of gold every month at the prevailing rates, instead of converting the savings into gold at the final price. For instance, multibrand jewellery store Gitanjali Jewels offers a scheme 'Swarna Mangal Kalash', wherein you can book gold every month in multiples of 1 g at the existing gold rate for 18 months. At the end of this period, you can redeem the total amount of gold booked, regardless of the price on the redemption day. However, both types of schemes allow you to buy only jewellery, not gold coins or bars.  What to watch out for  Pay for making charges: At the end of the term, when you actually buy the ornament, the seller will levy making charges. Usually, these are very high and can go up to 30% of the value of the item, depending on the extent of workmanship involved. A high making charge could effectively wipe out any saving you make through the additional instalment or bonus. Some jewellers throw in a 30-50% discount on the making charges, while a few waive it completely in case of plain gold jewellery.  No control over gold price: In many schemes, the jewellery you purchase at the end of the tenure is available at the prevailing market rate. Since there is no way to lock in to the purchase price, you cannot know the actual cost of conversion. If this final price is much higher, your money will fetch a smaller quantity of gold than the one you would have got by booking at the current price. You will only benefit if the price of gold at the end of the term is lower. To avoid making a loss, you could opt for a price protection scheme that lets you buy gold every month at existing rates rather than doing so at the end of maturity. Says Santosh Srivastava, MD, Gitanjali Jewels: "Such a scheme will help customers average out their cost of purchase over a period of time, in the same manner that a systematic investment plan (SIP) in a mutual fund does."      It is also a better alternative as the impact of the final gold price on your actual purchase is nullified. Says Neeraj Chauhan, financial planner, Financial Mall: "Under the fixed price option, you know for sure the quantity of gold you will ultimately get, instead of worrying about the fluctuating gold prices."  Agree to seller's terms: When you opt for any of these schemes, keep in mind that you will have to ultimately buy gold from the same jeweller. This means that you cannot negotiate with him on making charges, which differ from seller to seller. In the normal course, you could have hunted for a good deal by haggling with multiple sellers.  Should you go for it?  These savings schemes make sense if you cannot pay a lump sum to buy expensive jewellery. Buying gold or putting away money for it in small instalments is less of a burden on the wallet than paying a hefty price for it at one go. Srivastava says, "With our gold savings scheme, we help customers plan in advance for any particular occasion, such as a wedding or festival." The schemes that offer a higher cash incentive for a longer maturity savings plan will give you higher benefit.      However, if you are considering gold as an investment avenue, you are better off putting your money in other instruments. The high making charges, higher price of jewellery, and fluctuating gold prices will eat into any returns that these schemes claim to offer. If you want to accumulate cash to buy gold, you can get better returns if you invest in a recurring deposit. This will also give you more control over the place from which you buy and the price at which do it. Another good option is to invest in gold exchange traded funds (ETFs), wherein you can buy units and convert them to physical gold later. There are no making charges or premium involved and the income from gold ETFs is treated as long-term capital gains and taxed at a lower rate if you hold them for one year, compared with three years in case of physical gold. Physical gold also attracts wealth tax.

Scientists change colour of gold

London: Scientists have for the first time found a way to change the colour of the world's most iconic precious metal — gold. 

    Researchers from the University of Southampton have discovered that by embossing tiny raised or indented patterns onto the metal's surface, they can change the way it absorbs and reflects light — ensuring our eyes don't see it as 'golden' in colour at all. 
    Equally applicable to other metals like silver and aluminium, this breakthrough opens up the prospect of colouring metals without having to coat or chemically treat them, delivering valuable economic, environmental and other benefits. 
    The technique could also be harnessed in a wide range of industries like manufacturing jewellery to making banknotes and documents harder to forge. 
    It can be used to produce a wide range of colours on a given metal. ANI

Gold has biggest 1-day drop since July on eco fears

Gold fell over 1 percent to a one-month low on Friday, its biggest daily drop in more than three months, hit by technical selling and tumbling U.S. equities on economic uncertainty around the world.

Gold fell over 1 percent to a one-month low on Friday, its biggest daily drop in more than three months, hit by technical selling and tumbling US equities on economic uncertainty around the world.

Silver and platinum group metals also slid broadly after several US multinational manufacturers led by General Electric CO. gave earnings forecasts that disappointed investors, citing weaker demand in Western Europe.

Also read: Sell MCX Gold Dec around Rs 31350; target Rs 31100: Geojit

Bullion appeared to find support at its 50-day moving average after it briefly broke below that key technical support. It has now erased all of its gains posted after the Federal Reserve in early September launched a third round of bond-buying known as quantitative easing to stimulate economic growth.

"People who rushed in for QE expecting to get a significant lift are getting out of the market," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.

"The longer we don't make a new high, the more people start getting nervous about where gold is trading," McGhee said.

Gold also notched a near two-percent decline this week, its biggest weekly drop in about 4 months. The metal has so far failed to trade above $1,800 an ounce this year.

Some traders said profit-taking could further pressure gold prices, after hedge funds and money managers raised their gold futures positions to their most bullish in nearly 14 months last week, the U.S. Commodity Futures Trading Commission (CFTC) Commitment of Traders report showed.

Spot gold was down 1.2 percent at USD 1,720.90 an ounce by 2:38 PM EDT (1838 GMT), after hitting a low of USD 1,715.79, which marked the cheapest price since September 7.

US COMEX gold futures for December delivery settled down USD 20.70 an ounce at USD 1,724, with trading volume about 10 percent below its 30-day average, preliminary Reuters data showed.

Bullion weakened as German Chancellor Angela Merkel raised new hurdles to using the euro zone's rescue fund to battle the region's debt crisis. Gold was already under pressure from disappointing economic data this week including U.S. home resale and a jump in jobless claims, and signs China's economy has slowed.

BULL MARKET IN QUESTION

Gold's trading well below its record high during European debt worries suggests the metal could see further weakness, veteran trader Dennis Gartman told clients in a note.

"Something's amiss in the gold market and its health is growing more and more suspect," Gartman said.

Gold hit an all-time high of USD 1,920.30 set in September last year.

Spot gold's relative strength index (RSI) fell to below 40 on Friday, down sharply from an overbought level of over 80 in September, indicating some investors might start to look for bargains.

Among other precious metals, silver dropped 2.2 percent to $32.06 an ounce, down over 4 percent for the week for its largest weekly decline in almost four months.

Platinum was down 1.7 percent at USD 1,611.70 an ounce, while palladium slid 2.7 percent to USD 621.70 an ounce.

What is driving prices in guar gum?

Market experts explain price rally for guar gum in terms of its inelastic demand

The January contract of guar gum futures traded at Rs 31,783/100 kg on Friday up more than 25 per cent in just a month. At Rs 9,604/100 kg, guar seed too was at its life-time high.

What is driving this frenzied momentum in the guar complex? Is there strength in the commodity's fundamentals? What are the risks of trading in the commodity at the current levels?

DRIVEN BY DEMAND

From around Rs 6,000/100 kg in the beginning of 2011, guar gum prices have shot up to Rs 23,000/100 kg by end of the year. Guar seeds have trebled in price.

The increase in export demand for guar gum — a derivative from guar seed which is used in petroleum refining, food processing and pharmaceutical industry fuelled the price rally.

In 2010-11, India exported 4.03 lakh tonnes of guar gum, an 85 per cent jump over 2009-10.

Anticipating a similar demand in the following year and eyeing higher realisations on the depreciating rupee, the domestic guar gum exporters started procuring additional quantities of the crop from the market.

This created a tight supply situation in the market stoking prices.

Market experts explain the price rally for guar gum in terms of its inelastic demand. There are no identified substitutes for it, say experts.

Any spurt in global demand for guar gum will see prices hardening in India as the country is the key exporter of the commodity. India produces 80 per cent of the world's total guar gum output in a year.

EXPORTS FIRM, OUTPUT DROPS

We can't, however, completely rule out the speculative hand in price rally in guar gum and seed futures. While the country's total guar gum production for a year is only around 11 lakh tonnes, the National Commodity exchange has already recorded a volume double of this in three months.

While demand has jumped compared to last year, a drop in guar production in the current year, low carry over stocks from last year also support prices.

The Agriculture and Processed Foods Export Development Authority has reported that the exports of guar gum rose 68 per cent to 2.85 lakh MT in the April- September 2011 over the previous year. But, if this demand sustains, it is likely that there will be a supply shortage of guar gum in the country.

The production of guar seed in 2011-12 season has been estimated at around 11.4 lakh tonnes against 15.5 lakh tonnes last year, a 25 per cent drop, on a below normal rainfall in Rajasthan.

SEASONAL COOLING OFF

Prices in the futures market over the last three years suggests a seasonal cooling off for guar seed and guar gum between February and April every year.

Prices move sideways in this period as new arrivals trickle down. This year again, we may find the trend repeating.

Giving his outlook on the guar complex, Mr D.K. Aggarwal, CMD, SMC Investments and Advisors said, "The rally in guar complex is overstretched now; hence upside is restricted in near- to mid-term. One should, however, not expect vertical decline in this counter as fundamentals will remain supportive in 2012."

In the short-term, the Forward Market Commission's action may have some negative impact on prices.

The margin on futures contracts of guar gum and seed have been raised recently to 41.88 per cent and 40.77 per cent respectively from less than 10 per cent.

At current prices, a buyer of one futures contract in guar gum will pay a total margin of around Rs 6 lakh (Rs 1.4 lakh earlier) and Rs 3.5 lakh on guar seed futures.

But as this didn't help cool prices, the market regulator is now considering putting the guar complex in trade-to-trade segment.

Commodities in the trade-to-trade segment are not open for intra-day trades, meaning traders can't square off their intraday position.

There is also concern that if guar prices continue to rise, the watchdog may increase the export duty on guar gum.

Keywords: guar gum futures, Commodity Corner, frenzied momentum, increased global demand in guar seed

NBFC gold loan biz loses shine over tough norms

FADING GLOW New Delhi: After registering rapid growth for the past few years, the gold loan business has taken a hit in the first two quarters of this financial year, owing to the tightening of norms by RBI. Non-banking finance companies (NBFCs) offering gold loans say growth has declined despite increased prices of gold offering better leverage (more loans) to the consumer.      Even as companies expect a slight revival in the third quarter, executives say gold loan growth will be in the range of 10-15%. This is a sharp fall as compared to the last year when major gold loan companies posted an over 50% growth rate.      Earlier this year, RBI had capped the loan-to-value (LTV) ratio for NBFCs at 60%. Prior to that, most NBFCs had been offering LTVs up to 70% of the gold value. Consequently, a large customer base has shifted to the unorganized segment for better returns.      The central bank had also directed NBFCs having half of their assets in gold to have a Tier-1 capital of 12% of riskweighted assets by April 2014. Loans against bullion and gold coins for NBFCs too were banned and the RBI had asked  banks to bring down the credit exposure to a single NBFC from existing 10% to 7.5% of total exposure in the segment. Analysts say these steps are intended to check imports of gold in the country as the government is "highly uncomfortable" with the increased demand for gold loans.      Kerala-based Muthoot Finance, a leading gold loan company, said it witnessed a 5% fall in growth in the first quarter this year as compared to the same period last year. Gold under custody too declined from 137 tonnes to 130 tonnes in March-June. "We are looking at a flat growth in the second quarter. We hope growth picks up to at least 10-15% in the third quarter," Muthoot Finance CFO, Oommen Mammen, said. Because of the new regulatory framework, the company is currently in a consolidation phase. Muthoot Fincorp, another gold loan company, is looking at coming up with 50-100 stores. It witnessed a growth rate of 3% over last year.      However, industry experts remain positive.      "The business will definitely continue despite the government doing everything to see that it does not pick up," said Gnanasekhar Thiagarajan, director, Commtrendz Research.