Posts Tagged ‘deflation’

GOLD SILVER RATIO………. “PLAY SAFE”

If you are concerned about deflation, devaluation, global economies downturn, currency replacement, etc. – this tool of Gold/Silver ratio (GSR) will probably make sense to you. And that’s because precious metals have a proven record of holding their value in times of economic traumas..

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Note: For calculating the ratio, divide the price of gold by the price of silver.

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IMPLICITY

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The rate effectively measures how much silver one would have to sell at any given time in order to purchase one troy ounce of gold, or alternatively, how much silver one could buy if one were to sell one troy ounce of gold. Implicitly, the higher the rate the stronger the comparative performance of gold, effectively its increased purchasing power of silver. Likewise, a lower GSR signals comparative weakness in gold (or strength in silver) and the lack of purchasing power for the yellow metal.

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The GSR also offers us an insight into how the comparative values of the two metals shift during times of recession and economic recovery. Looking at previous global recessions over the past twenty years, the GSR has rallied during the downturn and seen its apex as the global economy began to recover.

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Historically speaking, the ratio has averaged at 58.0 & during the height of the economic crisis in late 2008; the ratio peaked at its highest level in four years at 78.0. Looking at this level compared with just about every historical average, the rate was significantly overbought gold, as a flight to safety across the markets pushed the yellow metal to outstrip its industrious counterpart.

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ASSESSING THE POTENTIAL

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Analyzing the data, it’s clearly noticeable that the lower the ratio/number, the more expensive silver is, as compared to gold. Conversely the higher the ratio/number, the cheaper silver is as compared to gold. So how can we use the rate to assess potential future moves across the precious metals complex? Firstly, by definition, as the global economy recovers and broader m a r k e t s b e g i n t o stabilize, risk appetite will return back to the market. As the necessity for a safe-haven reseeds, capital will naturally begin to flow away from gold and into the higher volatility securities.

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Interestingly this is likely to also involve some of these funds moving from gold into silver, which has always been a higher beta metal; that is to say has a higher volatility and higher price elasticity than the precious metals complex as a whole.

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A rising GSR in a rising Gold and Silver Environment means that that a premium is being placed on safety / risk aversion.

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Wrap-Up

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Silver often tracks the gold price due to store of value demands, although the ratio can vary. As a final point, it is important to note that this assessment of the ratio does not necessarily imply that gold prices will fall and silver prices will climb. This may mean silver will climb at a higher rate than gold does over the coming year, or it may mean silver remains steady while gold slides back towards previous ranges. Either way, when considering if or where to invest in the precious metals complex, this traditional.

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Rising Food Prices Burden the Poor

Hello Friends here we come up with the Latest Agri Commodities updates from various parts of the country.

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Rising Food Prices Burden the Poor

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Rising prices burden the poor:

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Rising prices of essential commodities coupled with wage deflation and increasing joblessness are pushing the poor households in India to a point of distress.

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Cosmetic measures of the government are unable to address the situation.

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The government of the day is harping upon the idea that an annual GDP growth rate in the range of 7% to 9% would be able to address the situation.

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The country has already experienced a GDP growth rate of 7.9% in the second quarter of the current fiscal 2009-10, but the situation has not improved.

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This is enough to prove that the GDP growth rate alone would not solve the problem.

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Government’s heavy dose of fiscal stimulus can give a big push to the corporate performance and post a good industrial growth which has already been possible in the second quarter of the current fiscal year.

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🙂

In Other major Commodities Updates we have information regarding dip in sugar output and regarding centre’s direction to state govts to rationalise taxes on food items in order to check price rise.

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Sugar Output dips 2 lakh tonne:

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India produced 7.84 million tonne (78.4 lakh tonne) sugar till January 15 in the current season (October-September), lower by 2 lakh tonne compared to the output in the same period last year, industry body Indian Sugar Mills Association (ISMA) said.

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ISMA attributed the fall in output to sluggish supply of the cane in Uttar Pradesh, the second largest sugar producing state.

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Centre to ask state govts to rationalise taxes on food items to check price rise:

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The central government is expected to strongly emphasize on states the need to rationalize their tax structure on food grains and sugar to bring down price of essential commodities at the forthcoming meeting of state chief ministers later this week.

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Prime Minister Manmohan Singh will hold the review meeting on food prices with state chief ministers.

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According to official sources, agriculture minister Sharad Pawar is also expected to list the steps taken by the central government including :

extension of deadline for white and raw sugar, extra allocations of wheat and rice over normal PDS supplies—announced after the meeting of cabinet committee on prices last month.

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🙂

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Inflation at -1.61%; what it means for India?

Inflation at -1.61%; what it means for India

Inflation at -1.61%; what it means for India

India’s wholesale price index for week ended June 6 stood at -1.61% in the 12 months to June 6 as compared to the previous week”s annual rise of 0.13 percent. Inflation has fell to negative for the first time since 1977-78.

Inflation in India turned negative 1.61 for the first time in 32 years but the prices of food items like fruit and vegetables, cereals and oil were still higher than last year.

The annual inflation rate was 11.66 percent during the corresponding week of the previous year.

India possibly is the only major economy moving into a deflationary zone though the European region is near zero level due to recessionary pressures.

The stock markets immediately welcomed the development and jumped by about 200 points as analysts expect this to help ease the monetary policy restrictions and pave the way for cut in banks’ lending rates.

However, food articles were costlier by 8.7 per cent from the comparable week last year!

India would most perhaps see deflation or reduction in general price level from next month due to slackening demand.

Period of deflation may begin in April, which could last till end-2009 due to not only continuing demand destruction but also a sharp step-up in the base.

Deflation would be surely a hinder to a strong economy like India than inflation. 😦


Note : Low inflation does not mean that prices will remain low.

It means that prices are rising at a slower pace than before. Negative inflation can also be termed as deflation.

Deflation is a fall in the price of goods and services. When the inflation rate is negative, the economy is in said to be in a deflationary period.

This is when there is less money (supply of money) chasing the same amount of goods and services, leading to the increase in the value of the money.

The decline in the supply of money and credit thus leads to deflation.

For more info on Deflation, Refer SMC Gyan Section or click Here