Gold OverviewLike in 2008, Gold exhibited a stellar performance in 2011 as well. Among the major asset classes, It is probably one of the rare assets that gave a double digit positive returns in 2011. Gold made a new high and gave positive return for the 11th year in a row. Gold closed the year ending December 2011, 10 per cent higher at 1563.7 USD/Oz. The performance has been even more splendid in Indian Rupee terms where it gave returns above 30 per cent during the year 2011. Needless to state returns in gold has been a grace saver for many investors as most of the other investments have not been able to give positive returns.
Concerns driving down global financial investors’ confidence are still very much intact. Sovereign debt crisis still rattles the global growth momentum, especially the growth in Euro area. As per ECB forecast, Growth in 17- nation euro region will slow to just 0.3 per cent from about 1.6 percent during the year. ECB cut its benchmark interest rate to 1 per cent to boost growth and ease liquidity crunch. ECB’s balance sheet soared to a record 2.73 trillion Euros during December 2011, from 1.9 trillion Euros during June 2011, as leading to Euro area banks intensified. Banks are afraid to lend further and instead park it back with ECB. Hence such a kind of scenario is harming more than its helping. It seems what lies ahead is even more dreadful – as in an attempt to solve liquidity squeeze they are increasing solvency risk evident from expanding balance sheets.
Needless to state that global growth will be highly influenced by what happens in Euro area. But, data releases during December 2011 hints towards modest acceleration in global economy into midyear. After months of stability, global PMIs and new orders index were encouraging. US is doing better and weathering tuff times. Employment numbers are better than expected. However, it would required a lot more then few quarters of good data releases to make investors comfortable during such testing times.
Another issue threatening the global economy is the supply of crude oil. Iran threatens to block the Straits of Hormuz if fresh sanctions are slapped on Iran. Roughly 90 percent of all Persian Gulf oil (40 per cent of all sea borne trade oil and around 18 per cent of all oil traded worldwide) must pass through Straits of Hormuz. Possibility of a military confirmation remains low as of now but tail risks are extreme. To safeguard their own interest US maintain a large naval presence in the region and other are likely to join. Any disturbance in this area can spike up crude oil prices and start hurting global growth.
China is dominating world gold demand off lately. Though, Beijing does not disclose imports number, Hong Kong data are considered a proxy for China’s over all gold imports. China’s gold imports via Hong Kong set a record in November 2011 for fifth consecutive month, up 20 per cent from a month earlier to 103 tons. Demand is likely to strengthen further as investors will likely intensify buying gold bars and coins for Chinese New year. Gold investments in India may strengthen as prices correct and volatility decreases. On COMEX, world’s largest futures exchange for gold, Investors have further reduced their net non commercial position in gold without corresponding price fall and ease concerns on further liquidation – It is likely considered as a bullish sign.
Outlook Around a year back world was toying around with a buoyant investment mood and most of us were worried about Asian asset bubble. Today we seem to be in a completely different world. Few are of the opinion that deflationary environment lies ahead of us and other others are expecting inflationary environment. Given the fact that there were aggressive bailouts and quantitative easing, global economy is either going to remains subdued or its going to show good growth numbers along with higher inflation. Either ways gold tends to benefit as it is seen as an alternative asset as well as protective tool against inflation.
The long term outlook for gold looks positive as per fundamentals .Central banks continue to buy, uncertainties surrounding financial markets remains intact, sovereign debt is becoming a bigger concern. Depreciating local currency does make gold richer in local currency of investors. Gold seems even more palatable to investor at this juncture as investors have once again seen gold saving the grace of their investment portfolio.
Again, geopolitical tensions are on a rise. Pakistan’s government is heading for a collision with the country’s powerful military leadership. Iran seems to be strong headed and not willing to succumb to western pressure. Such political events have the potential to spike up gold prices as gold may tend to benefit uncertain environment.
Gold does not have statistically significant correlation with other financial assets and has comparatively lower volatility. Hence, besides being an absolute performer, gold may be considered for portfolio diversification.
The long term outlook for gold may remain positive. Any correction can be looked at opportunity to accumulate as it may help improving risk adjusted returns for the portfolio.
Common Source for Gold View: Bloomberg, Reuters, World Gold Council
DisclaimerThe views expressed herein constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Certain factual and statistical (both historical and projected) industry and market data and other information was obtained by RCAM from independent, third-party sources that it deems to be reliable, some of which have been cited above. However, RCAM has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained in these materials reflect the belief of RCAM, which belief may be based in whole or in part on such data and other information.
The Sponsor, the Investment Manager, the Trustee or any of their respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given are fair and reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice, verify the contents and arrive at an informed investment decision before making any investments.
None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material.
The Sponsor, the Investment Manager, the Trustee, any of their respective directors, employees including the fund managers, affiliates, representatives including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) / specific economic sectors mentioned herein.
Statutory Details: Reliance Mutual Fund has been constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882. Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Company Limited. Investment Manager: Reliance Capital Asset Management Limited (Registered Office of Trustee & Investment Manager: "Reliance House" Nr. Mardia Plaza, Off. C.G. Road, Ahmedabad 380 006). The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus.
RGETF is an open-ended Gold Exchange Traded Fund that tracks the domestic prices of gold through investments in physical Gold.) The investment objective is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical Gold (and Gold related securities as permitted by Regulators from time to time). However, the performance of the scheme may differ from that of the domestic prices of Gold due to expenses and or other related factors. Asset Allocation Pattern: Physical Gold or Gold Related Instruments as permitted by regulators from time to time - 90 to 100%, Money Market instruments, Bonds, Debentures, Government Securities including T-Bills, Securitised Debt & other debt securities as permitted by regulators from time to time – 0 to 10%.Load Structure – Entry Load & Exit Load – Nil. Terms of Issue - As the units of the scheme are listed on the Exchange, subsequent buying or selling (trading) by Unit holders can be made from the secondary market on all trading days. The minimum number of Units that can be bought or sold on the exchange is 1 (one) unit.
Risk Factors: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Reliance Gold Exchange Traded Fund is only name of the Scheme and does not in any manner indicates either the quality of the Scheme; its future prospects or returns. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. The NAV of the Scheme may be affected, interalia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures. For details of scheme features and for Scheme specific risk factors, please refer to the Scheme Information Document which is available at all the DISC / Distributors / www.reliancemutual.com. Please read the Scheme Information Document and Statement of Additional Information carefully before investing. |