Keeping this principle in mind, let us analyze whether gold as an asset class is still the favorite from an investment perspective.

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1 GOLD THE BEST PERFORMER Gold is a favorite among investors across the globe whether in times of uncertainty or as an investment; the demand for this commodity remains irrespective of the host of fundamentals affecting the commodity prices. Keeping this principle in mind, let us analyze whether gold as an asset class is still the favorite from an investment perspective. Gold is traditionally considered as a safe bet against inflation and investors bet on this asset class when they fear that inflation will go up. It is also the best safe haven perceived by investors across the globe. One potential explanation for this rationale is that while government policy (low rates, quantitative easing, and huge deficits) looks inflationary, the economic environment (high unemployment, anemic growth) looks deflationary. So should one buy gold, as the safe haven asset it has proven in the past? Inflation, which is generally assumed to be gold-positive just has not happened despite the vast amounts of liquidity the U.S. Fed and other central banks have pumped into the markets. The question now is whether money needs to pour in to asset class just for the sake of it or the intention is really to enjoy the benefits/returns vis-à-vis the risk taking ability of an investor. Host of factors have been at the helm of affairs for trajectory of gold prices in the past one year in the international as well as domestic market. International factors supporting gold prices From last Diwali till date spot gold prices have gained by around 17 percent in the international markets while MCX gold prices have risen by 18 percent in the same time frame. The reason for gold gaining by this significant margin is on account of financial stability concerns and global growth; mixed trends in global equities, inflows into bullion funds and buyer s interest on dips for the yellow metal. Besides, the speculative interest in the commodity has had a fair share of play for the price rise in both the metals. Also, Investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETPs has jumped by $3 billion in SPDR gold trust, the world s largest gold exchange traded fund gives a good indication to the investors about sentiments in the yellow metal. Investors have been buying gold for most of As on 26 th October 2016, SPDR gold holdings stood at tonnes, which is an increase of around (42%) when compared to tonnes last Diwali. 1

2 The speculative interest in the money is also on the rise wherein hedge funds have increased exposures in the commodity for most of this year. As on 18 th Oct 2016, money managers are net longs in the yellow metal at contracts, when compared to net longs of contracts as on 10 th Nov Indian demand for gold in 2016 Although gold has given good returns of around 18 percent from last Diwali to this Diwali, the demand side of gold does not represent a good picture. India's gold imports have declined by percent to 270 tonnes from January to September 2016 from 658 tonnes that were shipped-in during the corresponding period of last year. The prime reason for low demand from one of the biggest consumers of gold was on account of prolonged strike by jewelers to oppose the 1% excise duty move by the government and continuation of 10 percent custom duty on imports. On the other side, the investment demand for gold has also taken a back seat. Investor s interest in Gold ETF s has been declining since past three financial years as they remain bearish on these funds. Funds have witnessed an outflow of Rs.903 crore, Rs.1,475 crore and Rs.2,293 crore in , , respectively. Net inflow/outflow of Gold ETF's (Rupees in Crores) Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug According to the latest data available with the Association of Mutual Funds in India (Amfi), Gold ETF s have witnessed a net outflow of Rs.462 crore in the period April-Aug 2016 versus an outflow of around Rs.363 crore in the same period the previous year. Similarly the asset base of gold linked ETF s have dropped to Rs.6,349 crore at the end of August from Rs.6,499 crore in July end. International factors create an uncertain environment safe haven play might increase The worries over the health of the global economy have not been completely removed and markets will still be closely watching economic data to be released from US and the Euro-zone and China in the coming months. Gold is a unique asset class which is constantly used to rebalance the risks in the volatile, uncertain, complex and ambiguous environment. The allure for this commodity is seen the most when the risk 2

3 increases in any part of the globe. There is a demand for the commodity somewhere, something to be aspired or as an investment. November Presidential election outcome in the US, US Federal Reserve meeting scheduled in December are two key events that will drive further direction in gold prices. The indications of Hillary being in favour for a presidential candidate look more likely after the third and the final Presidential debate between Clinton & Trump (Which was scheduled on Oct 19). These events could impact gold, with prices perhaps correcting below $1200 mark. Diwali and gold buying should not be co-related For investors in India, the sentiment towards gold buying remains very high irrespective of the rise/fall in prices. Like always, Diwali has been a special traditional occasion and time to buy gold, the most preferred asset for Indian investors. Indians believe that buying the yellow metal is auspicious on Dhanteras, instead of physically buying the yellow metal, our advise to investors whose focus is just pure returns, is to invest in Sovereign Gold Bond Scheme 6 th tranche (Oct 24 th Nov 2 nd 2016), and subscribe to the issue and support the cause of the government to limit gold imports which in turn will help lower our current account deficit (CAD) and lower our outflow of foreign exchange reserves. For those who allure to hold the physical metal, our advice is to accumulate on every dip rather than concentrating all the purchases at one go and take the benefit of value-cost averaging. As far as consumption for festival purposes go, India gold imports for October 16 are estimated at around 60 tonnes vis-a-vis 30 tonnes a month before. Hence, the festive demand for gold will support a price rise in India in the short term. However, our assumption for gold price correction holds true if all the events discussed above go as planned. If there is any change in the likelihood of chances for a victory for Trump in the presidential candidature and US Fed delaying the rate hike in 2016, gold prices in the international markets ($1266/oz) could move higher towards $1400/oz mark while MCX gold prices (CMP: Rs.29865/10gms) can move higher towards Rs.32500/10 gms from a three month perspective. Our advice to investors would be to allocate at least 8-10 percent of the portfolio in the yellow metal as drastic change (downfall) in the global economy (especially euro-zone and China) at large will be driving factor for run up in gold prices again in the long-term. While the current fundamentals remain dynamic on account of changing investor perceptions, we feel that demand for the commodity in the long-run will continue to remain intact, given the traditional aspect of demand attached to it, especially in India. 3

4 Technical outlook on Gold In the quarterly price chart of Gold, prices have been trading higher since the first quarter of year This year, the Open and Low (24913 per 10 grams) were the same and in the month of Feb 2016, prices had breached the trend line successfully and currently prices are trading above it. In July 2016 prices made a high of 32,455 mark, however, it could not sustain at higher levels and corrected, recently making a low of 29,300 mark. Prices are following the long term positive trend line indicating that the trend is still positive. In this year prices are forming bullish candlestick pattern which is sign of optimism. As per the Fibonacci retracement from Point A to B, prices may test 50% retracement levels of A to B which is around 28,700 levels and also a strong support zone on the charts. Technical indicators RSI (14 quarter) has recovered from lover levels towards higher side but currently it is displaying mixed trends. MACD is attempting to recover from negative to positive zone which is sign of positive divergence. 4

5 Resistance is now observed in the range of 31,000 31,500 mark. Trading consistently above 31,500 levels would lead towards the strong resistance of 33,000 mark and then finally towards the major resistance of 35,000. Gold may find support in the range of 28,200 28,700 levels. Trading consistently below 28,200 levels would lead towards the strong support of 26,800 and then finally towards the major support of 25,500 levels. Looking towards positive chart pattern, bullish candlesticks patterns and bullish indicators, we are recommending Buy in Gold. Buy Gold between , SL 26800, Target / Key Levels from Diwali 2016 to Diwali 2017 Commodity CMP Support 1 Support 2 Resistance 1 Resistance 2 Gold Gold $ Silver Silver $ Research Team Prathamesh Mallya Chief Analyst (Commodities & Currency) prathamesh.mallya@angelbroking.com (022) Extn :6134 Anuj Gupta A.V.P Technical Research anuj.gupta@angelbroking.com (011) Extn :6136 Angel Commodities Broking Pvt. Ltd. Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai Tel: (022) MCX Member ID: / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX: Member ID / FMC Regn No: NCDEX / TCM / CORP / 0302 Disclaimer: The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy, completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not be reproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without prior permission from Angel Commodities Broking (P) Ltd. Your feedback is appreciated on commodities@angelbroking.com 5