What are the different types of investments we can make in Gold?
Yes, investments in gold market have suddenly been in boom, especially after the recent stock market debacle. There are many modes which you could consider while you choose to invest in gold. Few popular options given below.
1> Buying Gold in physical form: This is one such type of investing in gold, which most people would be familiar with.You could either buy gold biscuits or even buying gold ornaments can also be an alternative. But there are few questions you must ask yourself before you choose these options: > Is your investment in gold for a long term or short term ? > Are you buying it with an intention of using it for a specific occasion like a marriage, birthday or for any other such eventful occasions? OR Are you buying it only for a purpose of investment? OR with a Multi Purpose Idea? More questions like these will certainly help you in your choice of buying gold. For Ex: If you decide to buy gold with a multi purpose idea, it’s always better to buy gold in denominations of certain smaller grams rather than a gold biscuit. Why? It’s only with a simple reason that, you can avoid any wastage that might be shoved off while you convert it into ornaments. For Ex: If you bought gold in the denomination of 5 grams/bar, so if you wish to make an ornament worth 25 grams… you could use 5 quantities of 5 grams bar. And conversely, if you instead bought a biscuit of around 100 grams… there are high chances of enormous wastage while you choose to dissolve 25 grams out of 100 grams gold biscuit.
Dis-Advantages of buying gold in physical form:
Yes Off course, buying gold in smaller quantities has its own dis-advantages too, that’s one reason why suggest you to ask your self, If your investment is for long term or short term? Why? It’s for simple reason that, its easier for you to convince your self to use 5 grams of gold for … “not so relevant purposes” OR ”purposes not accounted for earlier”. So it’s always advisable to buy gold in biscuits in denominations of 100 grams or 250 grams, if your investment is for longer term there by giving yourself less chances for probable irrelevant usages.
Also few more dis advantages too… Knowing how to safe guard physical gold, is something that you must & should be aware off before you make buying decisions. For example: if you wish to have it in a bank’s safe deposit locker [SDL], make sure it’s a trust worth move. Checking credential’s of banks SDL rules & the charges for it along with insurance coverage are few things that is worth while spending few minutes to think.
Where should I buy it from?
Gold is more accessible to the average person because an investor can easily purchase gold bullion (gold in its physical form), from a dealer or, in some cases, from a bank. It’s always advisable to buy gold from prominent banks as you get recognized certificates which can be redeemed in multiple commercial outlets in exchange for money. As per latest information, gold can be bought in the denominations of 2.5 grams & above.
2> Buying gold as Exchange Traded Funds [ETF’s]: Yes, this is another popular mode of investment in the western part of the world, but trend seems to be rolling in Asian countries too off late. Why Asia is given more prominence while calculating such statistical measures? Coz Asians are the largest consumers of gold & leads the market share world wide. Since gold is an internationally traded commodity, a globally accepted base value is given for it in the global market. For Ex: Usually gold value derived from New York stock exchange is considered as the true value globally & its denoted in US dollar as currency. Gold is currently trading @ $900/ ounce of gold. Note 1 ounce is equal to 31.1 grams of gold. Also please note, gold in measured in terms of Troy Ounce & not the normal Ounce… which is used for measuring liquid.
How do I know the right price of Gold? - The value of gold is indicated just like any other traded commodity in an exchange. For Ex: The gold is currently valued in Indian market @ 1,412 / gram. Many recognized sites on the web, provide details of such rates all most live. Usually these rates are denoted in terms of US dollar. So check out this hint to covert the rates from $ into INR. For Ex: If Gold = $900 & Value of 1 dollar in INR = 50 rs. Multiply 900*50 = 45,000/ounce. I Ounce = 31.1 grams. Divide 45,000/31.1 = 1,446 rs/gram.
[NOTE: ETF valuation in US is based on 1\10th of an ounce & is not based on fixed price/gram basis. Above valuation is valid only in India.]
Where do I buy ETF’s from? - All most every bank offers, Gold ETF’s off late in India. Amongst all others, UTI has been one prominent bank, that has seen consistent raise in public interest when it comes to ETF buying in India.
3> Trading Gold in Commodity Markets: This has been a comparatively lesser popular mode of investment in Gold. You can trade on Gold in commodity market, just like any other bullion or precious metals available in the market. MCX & NCDEX are two most popular commodity markets in India which you can rely for trade.
What does Chapter 11 actual mean? Is that the end of road, for businesses?
Yes, off late this has been the most widely used terminology in the US & has got almost everybody thinking more about this. Chapter 11 is a chapter in the United States Bankruptcy Code. It controls the reorganization of a business that is no longer viable in terms of paying creditors with its current financial burden. The actual Bankruptcy Code of the United States is called Title 11 and has various chapters within it. For example, Chapter 7 deals with the process of liquidation bankruptcy.
Is that the end of road, for businesses? Absolutely not! when a business finds that it is in trouble and no longer able to pay its creditors or maintain its debts, it can file with a bankruptcy court for protection under Chapter 11. A Chapter 11 filing means that the business intends to continue trading while the bankruptcy court supervises the company's debt and contractual obligations. The court has the power to cancel all or some of the company's debts. With this the company becomes eligible for financial relief, & thus the company has the chance to make a fresh start. But again, the fresh start may even mean change of mode of operations too.
Is Chapter 11 applicable in India too?
No, this is not applicable in India. As told earlier, chapter 11 is a bankruptcy code which comes only under the purview of US policy law suits. Now don’t be surprised if I told you, that we do not have such a policy in India. The current laws on the Indian books, such as the 1985 Sick Industrial Companies Act (Sica), are not designed to address reorganization questions. The Board for Industrial and Financial Reconstruction (BIFR) is expected to revive companies that have gotten into operating trouble or those which are headed for liquidation. But we need a completely different approach for companies where operations may be wholly, or even partially, quite sound. Now that’s why you recently saw, Indian software company Satyam struggled to get it’s name under the government purview, coz we don’t have a rule where we can fix Satyam for getting some kind of additional aid.
What are the possibilities ahead of United States of America, since the current recession is almost eating up every business done here?
- This is one certain question, which is catching up the minds of most people all around the world. You either choose to call it a “fear factor” or an “intuitive break down”… all that we say is that… it’s getting on, to make people think ahead, with more caution. Based on how, history of the earlier recessions were handled by the world… we have drawn few probabilities, which can help you all to get more views to think ahead of times.
Consumer Spending: For any kind of a boom, to begin all over again in the market … the first thing you need to find out is, are there any buyers… who can buy what you sell. If yes, What can they buy & how much can they afford to buy? Until now, most consumers in USA used their home's equity as an ATM, are finding it out of cash now. And now they're strapped with big payments they can't afford. And let us tell you, with home values cut in to half in some parts of the country, most people aren’t able to get more money into their pockets which can be spent, even if they want to. Some will lose their jobs and will have to give up their homes too. If were to do little bit more of straight talking then we would say, it’s only now that US consumers have started to get the message of "saving for a rainy day." Unfortunately, only because it's raining. This rules out, a possible boom any time soon in Consumer Spending, which is the key recession liberator.
Manufacturing Boom: Every day, we read about another company laying off workers, in response to a drop in its business. It's not too surprising, given the slowdown in consumer spending, the virtual shutdown of automobile sales, and the lack of consumers and businesses buying "stuff." It's very likely that unemployment percentages will reach double digits later this year nationally. In some regions it's there already.
Hey but hold on, there are few other sectors in US which is more often ignored by most analysts across the world. Going by the developments seen in US FDA norms the health care industry looks more attractive to us ahead of times.
Which country will be the first to bounce back post this recessionary trend? What’s your view on emerging markets?
- This is one certain question which is purely perception based. As you all may be knowing, all economic trends of countries purely moves based on interpretation of available facts & is 100 % speculative. It’s more of “it may be” factors that leads to more of “it can be” which later transforms to “yes, it is” kind of thinking. J So we would wish to channelize your thoughts towards, our view about existing markets … so go on, project the trend for your self based on your interpretation.
Talking about the current trend, emerging markets are in deep trouble because most of their economies are so dependent on exports. Mind you, if we are doing much of the talking about US, it’s only because US is the largest consumer of most goods sold in the economy i.e. you need a buyer, for what you export… so its US that was the biggest consumer all these while. Meaning that, as goes the U.S., so go these markets. And as we've seen, it's not going so well for the U.S. So when ever you spot a country which has high exports, don’t jump in saying “ this is the next super power” … but instead try to see who is buying the goods from them.
Now coming to Asia, if you analyze history the Asian markets have had their problems from the in the late 1990s, because they have borrowed very heavily in dollars and other hard currencies. And when things have started to come to terms now, their currencies have collapsed. So, they not only had huge debts, but they have got bigger, and their local currencies have fallen against the dollar and other hard currencies. The problem in Asia now, is their too much dependence on exports. Directly or indirectly, we estimate over half of them go to the U.S. consumer, and the U.S. consumer is in the tank. And for every 1% decline in U.S. consumer spending, the imports go down 2% to 3%. That's just the nature of the beast, you see..
Few Key Observations:
1> The key factor that decides the growth of any country post this recession period would be, its respective government spending habit. Any country, that exhibits maximum intelligence in its government spending policy that it would undertake during this recessionary period, can be categorized as an emerging economy in terms of growth. If you could turn few history pages in the back ward direction, it clearly tells … it were these revolutionary thoughts that reformed most economies of countries during the times of great depression.
2> Once again, we wish to re-iterate that, it’s purely a myth if you just believed … a country with high exports stands a better chance to get through as a winner during recessionary times. Japan, during the last 10 years, they've gone from about 30% of GDP in exports to 50%. China has been our favorite on this too. As a matter of fact, getting to know who would be their consumer if a country exports, holds the key. Let’s face it, the U.S. is no longer going to be there. And it’s going to be interesting to know how does world perceive this fact.
3> Why do most people believe China has the potential? - There are about 110 million people in China who have over $5,000 in income--and that's what it takes to have meaningful discretionary spending. And those are the people that can support the economy domestically. But 110 million is only 8% of the Chinese population. But as a matter of fact, going by the general savings policies of people across the world, it’s the Asians who stand most intelligent of the lot & has been seen that it’s the people of Asia who have potentially saved more money by spending less & interestingly it’s still safe in their pockets.
As we have been known for, we @ The Club Sharewala would like to endorse only views, that can help everybody think. Interpretation of information, is purely a subjective matter & can change depending on how an individual perceives it to be…
Above how much percentage of the shares if an individual holds, they have to publicly disclose? What does the SEBI norms actually suggest? Please let us know.
- Yes, there are certain policies framed by SEBI for individuals who hold shares in a listed company. It may be a director, officer or substantial share holder it applies to all. The policy suggests:
1> Any person who holds more than 5% shares or voting rights in any listed company must disclose to the company, the number of shares held by that person, on becoming such holder, within 4 working days of: a> the receipt of intimation of allotment of shares, OR b> the acquisition of shares or voting rights, as the case may me.
2> Any person who holds more than 5% of shares or voting rights in any listed company must disclose, even if such change results in his shareholding falls below 5% or any such changes which creates a difference in his share holding pattern. Or there is another sub regulation which also suggests he has to disclose in case if there is an exchange of total shareholding exceeding 2% in a company.
3> There is another sub regulation from SEBI also suggests, a disclosure has to be made if the change exceeds rupees 5 lakh in value [or] 25,000 shares [or] 1% of total share holding, which ever is lower to be disclosed by such high net worth individual.
Phew :), this is what big fat books of SEBI suggests. Please don’t ask us, how many people adhere to these laid rules in India… our answer to it may either sound too vague [or] indeed may not be upto the point of your question [or] we could even say we do have such a research data :).
All queries could be directed to Analyst@theclubsharewala.com. Topic on US economy is wide opened for everybody to comment up on. Please write to us, if you had a different view on this or if you felt that this issue has another phase which is never seen.
