Why Gold is a buy again!

Gold is down today to USD 1,587 due to new rules from China to control the gold speculation.

If we look at the attached chart, we see that Gold has been consistently rising since 2001, when it touched USD 280 levels.

We can also see a downward blip in Sept 2008 when the world's financial system was almost about to collapse and only Lehman Brothers went bankrupt but various other 'insolvent' banks of the USA were allowed to continue at the cost of the American taxpayer and the '99%' masses who continue to pay the price for the high handedness of the American banking system through more debt, more job losses, weak real estate pricing, no lending, weak stock and bond markets and insolvent businesses. We have entered a vicious cycle of DEBT - BANKRUPTCY - JOBLESSNESS -

Until Lehman collapsed in Sept 2008, we can see gold rising gradually, however, thereafter, as Governments around the world started printing more and more money, Gold started rising in a parabolic manner instead of a gradual arithmetic rise. Hence, we can actually time the rise of gold and show high degree of correlation to the 'bailing out' of privately owned banks and other large financial companies despite allegations of wrong doing and fraud.

Gold has always remained over its 50 day average and now is at that level again. This level indicates strong support and gold has remained above this level since 2002 except for the 5 month period Aug 2008-Dec 2008.

Of course, if gold drops below its 50 day average of USD 1,583, then it may go slightly more lower, but chances are quite low.

Next support of 100 day average is at USD 1,414 and 200 day average at USD 1,173.

Meanwhile, Historical price of Gold and US 10 year bond yield:

Dec 96 - USD 367      6.41%
Dec 97 - USD 289      5.74%
Dec 98 - USD 288      4.64%
Dec 99 - USD 288      6.44%
Dec 00 - USD 272      5.11%
Dec 01 - USD 278      5.05%
Dec 02 - USD 348      3.81%
Dec 03 - USD 415      4.24%
Dec 04 - USD 438      4.21%
Dec 05 - USD 517      4.39%
Dec 06 - USD 636      4.70%
Dec 07 - USD 833      4.02%
Dec 08 - USD 882      2.21%
Dec 09 - USD 1,096    3.83%
Dec 10 - USD 1,420    3.29%
Dec 11 - USD 1,587 - as on date...US 10 yr Yield 2.00%

There is a strong negative correlation between interest rates on USD bonds with Gold, when USD 10 year bond yields go down, gold rises.

Meanwhile, doubling of Gold price took over 8 years from 1997 to 2006.

From 2006, gold doubled only in less than 4 years from 2006 to early 2010.

While from Dec 2008, it took only two years to double up, from  USD 882 to USD 1,600 levels today.

Point here is that gold is doubling up due to:

1. More money in circulation and debasement of the 'value of money' in almost all currencies. More money in reality means higher national debt, which is the cause of problems in Ireland, Greece, Portugal etc and ultimately leads to higher prices in precious metals. US debt is over USD 15 trillion and rising while Eurozone debt is at USD 10-12 trillion and rising. Japanese debt is legendary and the highest.

2. Rising global population of upto 7 billion now, which was 6 billion only until 12 years ago, 1999, hence rising demand.

3. Declining mining and exploration of all major commodities such as oil, gold, silver etc.

4. 'Safe haven' status of gold since it not backed by any 'unstable' or 'risky' sovereign Govt.

5. Until the 'real' rate of return, i.e. actual/nominal yield on US bonds less inflation which is running high due to oil and other increases such as fertilisers, food, pharmaceuticals, car prices etc. This applies to all countries where inflation is higher than both GDP growth or respective yields.

In my view, today and this week is a great buy of physical gold and averaging it on purchases on a weekly or bi weekly basis, at every dip and holding it over the next few years until the global crisis can be controlled and some sort of stability and growth is seen.

I expect gold to rise to USD 2,000 levels shortly as most major banks such as UBS (USD 2,050), Barclays (USD 2,000), Goldman (USD 1,810), Citibank, JP Morgan, Morgan Stanley (USD 2,200) have already said in their research over the last few weeks! Some of these banks may be wrong or trying to once again 'frontrunning' their clients, but all cannot be wrong!

Lost Decade?.... but Axis Bank: BBB-/A-3 Ratings Affirmed

Following are various data points to conclude how the various companies and markets have evolved over the past decade.

Is it a lost decade, as far as the Western World is concerned? What will be the next mega trend over the next 5-10 years? India? China? Gold? Gold in EUR? Is indexing in India and China a great investment strategy? Finding the next Apple is impossible, so which will be the next best trend? Let's analyze....

Share Price of UBS, World's largest Private bank

On 8 Dec 2000 was CHF 38.61
Today 5 Dec 2011 is CHF 11.44
Decline of 70.3% over 10 years

Citibank, Another Largest Bank in the world

On 8 Dec 2000 was USD 479
Today 5 Dec 2011 is USD 28.17
Decline of 94.11% over 10 years

HSBC, Another World's Largest Bank

On 8 Dec 2000 was GBP 13.05
Today 5 Dec 2011 is GBP 5.12
Decline of 60.76% over 10 years

S&P 500 Index Largest 500 companies of USA
On 8 Dec 2000 was at 1,369
Today 5 Dec 2011 it is at 1,244
Decline of 9.13% over 10 years

UK FTSE 100 Index of Largest 100 companies of UK
On 8 Dec 2000 was 9,104
Today 5 Dec 2011 it is 5,558
Decline of 38.95%

Apple, the best performing US stock and the darling of everyone for last few years.
On 8 Dec 2000 was USD 7.53
On 5 Dec 2011 is USD 389.70
A Gain of 5,075% !!!!

However, most other US stocks are down, as indicated, by S&P 500 and Citibank etc above. Some conglomerates like 3M and Johnson and Johnson and IT companies like Microsoft and Oracle have not declined but neither have they risen. GE has declined despite being a conglomerate and stellar medical companies such as Merck and Pfizer have gone down because they operate in a competitive environment and also have high value of sales in Emerging Markets where the costs are high but FX reduces their margins as well so Merck is down from USD 80 to USD 35 over 10 years and Pfizer is down from USD 45 to USD 20 over the past 10 years.

Let's talk about our bank, Axis Bank, for a moment.

Axis Bank's stock price being the 9th largest Bank across India and second largest private sector bank in India.

On 8 Dec 2000 our stock price was INR 45.50
Today Axis Bank stock price is INR 1,019 on 5 Dec 2011
A Gain of 2,139% over 10 years.

We are listed in London exchange too, who wish to buy our stock being non Indian, which is currently down about 34% from peak of last year and is one of the most robust stocks in the current climate and could be accumulated on dips.

Indian Stock Exchange SENSEX
On 10 Dec 2000 was 4,156
On 5 Dec 2011 it is 16,819
Gain of 304% over 10 years

State Bank of India, India's largest bank
On 10 Dec 2000 was INR 185
On 5 Dec 2011 is INR 1,893 (despite being 50% down from its peak 6m ago)
Gain of 923% over 10 years

Our closest rival, ICICI Bank, which is the largest Private Sector bank and second largest bank in India

On 10 Dec 2000 was at INR 169
On 5 Dec 2011 is at INR 782
Gain of 362% over 10 years

ICICI was 8 times larger than Axis Bank in 2008 as per balance sheet size, however, since then until today, not only our stock performance is better from the same start date in 2000 or since our birth in 1995 or over the last one year and we are now about 60% the size of ICICI bank (from 12.5% in 2008).

In terms of safety and growth, Axis has been a steady and solid performer, whether by employee strength at 35k employees and rising at 6-7k per annum forlast few years, growth in India or abroad (70% growth in 2009, 40% in 2010 and 27% in 2011), number of branches (over 1,500 and 400 branches opened in 2010), profits or asset size or lowest non performing loans!

And recently, S&P has altered its rating methodology due to which most Western banks were downgraded last week and 2 Chinese banks were upgraded, while our Bank has been reaffirmed at same ratings.

S&P also indicated that Govt of India will provide support if required and they do not see any decline in profits or any risks in the near future.

Please read the report for your information.

Axis Bank Ltd: 'BBB-/A-3' Ratings Affirmed ; Outlook Is Stable

S&P has affirmed 'BBB-/A-3' rating on Axis. The outlook is stable.

The rating on Axis reflects the bank's 'bbb-' anchor, "strong" business
position, "moderate" capital and earnings, "adequate" risk position,
"above-average" funding, and "adequate" liquidity. The rating also factors
in potential extraordinary government support in the event of financial
distress as Axis has "moderate systemic importance.".

Axis' "strong" business position represents the bank's strong retail
franchise, stemming from its brand equity, good geographic and income
diversity, and adequate management strategy.

The bank's funding profile is "above-average" and its liquidity position
"adequate."

Axis is the ninth-largest bank in India, in terms of deposits, and
accounts for about 3.2% of system deposits.

The stable outlook reflects the expectation that Axis will maintain its
strong business position and adequate asset quality.