News Column


August 31, 2014

One can invest in ommodities for which demand spikes during the festive season

INDIANS celebrate a string of festivals between August and November. Then comes the peak marriage season. The result is the rise in demand for some farm commodities and precious metals.

This makes a lot of big investors bet on these in the last five months of the year.

For instance, gold, silver and wheat prices have never fallen between August and December in the last five years. So, as the festive season begins, we bring you the price outlook for commodities for which demand generally rises in this period.

Gold: In the last five festive seasons (August- December), gold prices rose 12.8 per cent in 2009, 15.7 per cent in 2010, 17 per cent in 2011, 2.72 per cent in 2012 and 1.23 per cent in 2013. This year, prices have fallen 3.18 per cent between January 1 (` 28,815 per 10 gm) and July 28 (` 27,900).

" Gold prices slid mainly due to sharp fall in demand.

The demand from India and China, the world's biggest consumers, fell 35- 40 per cent and 19 per cent, respectively," says Kunal Shah, head, commodity research, Nirmal Bang Commodities.

Latest data from the US indicate the economy there is gaining strength. This usually means a rise in demand for US dollars and fall in gold sales. This is because both these assets compete in the global markets for ' safe haven' status.

A rise in demand for one is usually bad news for the other.

Experts say festive demand will rise by 10- 20 per cent in the second half of 2014. " We have seen that even a small recovery in demand in the festival season leads to a rise in prices. But we are not expecting any sharp rise.

Brighter outlook for the US economy and expectation of rise in interest rates there in 2015 will keep prices in check," says Shah.

Factors that affect gold prices can be classified into traditional and non- traditional. The traditional ones include demand/ supply, buying by central banks and changes in gold ETF (exchangetraded fund) holdings. The nonthe end of 2012, when the Fed began tapering of quantitative easing programme.

Fundamentally, silver lacks impetus as the US economy recovers and its appeal as a safe investment in difficult economic conditions wanes. Also, the market will factor in an early rise in interest rates, which will make many debt instruments more attractive than precious metals. Falling demand in India and China will also impact prices. Renisha Chainani, manager, research, Edelweiss Comtrade, says silver is in a long- term downtrend. " The festive and marriage season can help, but prices have to sustain above $ 22 an ounce on the COMEX if they have to head towards $ 25." Wheat: Wheat prices fell 4.42 per cent to ` 1,585 per quintal between January 1 and July 28. The main reason was comfortable stock of 39.8 million tonnes as on July 1, good arrivals during the April- May season and falling exports. According to the government, wheat production in 2013- 14 was 95.8 mt, higher than the target of 92.5 mt and the previous year's production of 93.5 mt. Still, experts are bullish on the commodity. " The demand for making various dishes and sweets for festivals can push up prices by 4- 5 per cent to ` 1,690 per quintal in the second half of the year," says Nidhi Chandel, research associate, Globe Commodities.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Mail Today (India)

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