Gold Outlook. Gold price performance of last 5 years 44% -36% 30% 10% 7% -28% -5% 2010 2011 2012 2013 YTD Year 2014 Bear bug hits gold!!! CMP - $1150 Global commodity prices have remained in a downward spiral since mid-2014 amid worries over economic growth in China and Europe. The recent positive economic data out of the US and prospects of higher US interest rates from next year pushed the dollar to a two-year high against the euro, keeping the precious metal s complex close to multi-year lows as investors showed better risk appetite and stayed away from the traditional safe-haven commodity. The strength in the dollar, the new wave of stimulus out of Japan and expectations that Europe may follow suit are all providing headwinds for bullion. In this report, we review the long term price charts of gold to gauge the future course of direction. Pressure on gold price to continue: International spot gold prices plummeted to four-year lows during this week. In the process, they breached the yearly low of 2013 ($1180). The violation of yearly lows signals a shift of trend from sideways to negative and opens up further lower avenues for prices towards $1000 levels over a medium-term horizon Exhibit 1: Gold International Spot Yearly Candlestick Chart November 5, 2014 Bearish Engulfing The violation of yearly low of 2013 signals a shift of trend on yearly chart from sideways to negative and opens up further lower avenues for gold prices towards $1000 levels over a medium-term 1180 Analyst Dharmesh Shah dharmesh.shah@icicisecurities.com Dipesh Dagha dipesh.dagha@icicisecurities.com Long term Trend line running through yearly lows since 2002 Source: Bloomberg, ICICIdirect.com Research ICICI Securities Ltd. Retail Equity Research
Exhibit 2: Gold International Spot Monthly Bar Chart 1921 1433 1392 Breakout area of 2009 @ $1000 12 Month EMA 2013 low $1180 Gold prices breached the 2013 low ($1180) and triggered a breakdown from bearish Descending Triangle pattern signalling continuation of the down trend. Measuring implication of the price pattern will see the bullion prices head to re-test the 2009 breakout area of $1000 levels over the medium term Monthly MACD remained in negative territory below its 9 period average during entire 2014 consolidation highlighting underlying weakness in the trend Source: Bloomberg, ICICIdirect.com Research ICICI Securities Ltd. Retail Equity Research Page 2
Gold - Heading towards $1000 International gold prices topped out in late 2011 and entered into a correction mode thereafter. After consolidating for most of 2012 the bullion registered its first yearly negative close in 12 years in 2013. The sharp decline in 2013 saw the bullion breach the long term rising trend line connecting the yearly lows since 2002. The violation of this major trend line halted the 12 year long bull run and triggered a major trend reversal The correction of over 28% in 2013 resulted in an Engulfing line bear candle on yearly charts, which is a bearish reversal pattern. Prices posted a negative follow through below the Engulfing line bear candle s base by violating the 2013 low of $1180 indicating continuance of the downward momentum over the medium-term horizon After the sharp decline during 2013, bullion prices remained in consolidation mode throughout 2014 and oscillated in the broad range of $1180-1390. The floor of this consolidation rested upon the yearly low of 2013 at $1180. Over the past year, prices tested the 2013 low of $11180 on two occasions and produced a rebound. However, on both occasions, pullbacks were of a diminishing magnitude, which clearly indicated lack of strength. Pictorially, the entire price action since June 2, 2013 till date has taken the shape of a Descending Triangle formation. A descending triangle formation is a bearish continuance pattern, which marks a temporary pause after a correction before resumption of the downward journey The sharp decline over the last two weeks has seen bullion prices violate the yearly low of 2013 ($1180) and in the process registered a breakdown from the descending triangle pattern. We believe the breach of the 2013 low signals the end of the consolidation phase and resumption of the preceding downtrend. Following the breakdown, we expect gold prices to remain in a downward trajectory and head towards $1000 over a medium-term horizon The measuring implication of the descending triangle pattern ($1390+$1180=210) projected from the breakdown point of $1180 indicates potential downside towards $1000. The previous major breakout area of 2008-09 consolidation is also placed around $1000, making this a key medium-term support for prices The overall medium-term price structure remains weak. We expect the breakdown area of $1180 to reverse its role and act as a resistance from hereon. Pullback attempts, if any, from current levels will run out of steam around $1180 and resume the downward journey Among oscillators, the monthly MACD (E-12/26/9), which measures the strength in the underlying trend remained in the negative territory and below its nine period average throughout the entire consolidation over the past year. It highlights the underlying weakness in the trend and indicates continuance of downward momentum in the mediumterm ICICI Securities Ltd. Retail Equity Research Page 3
NOTES: It is recommended to enter in a staggered manner within the prescribed range provided in the report Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis Trading Portfolio allocation It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products Please avoid allocating the entire trading corpus to a single stock or a single product segment Within each product segment it is advisable to allocate equal amount to each recommendation For example: The Daily Calls product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation ICICI Securities Ltd. Retail Equity Research Page 4
Recommended Product wise Trading Portfolio allocation Products Product wise allocation Allocations Max allocation in 1 stock Number of Calls Frontline Stocks Return Objective Mid-cap stocks Duration Daily Calls 8% 2-3% 3-4 Stocks 0.50-1% 2-3% Intraday Short term Delivery 6% 3-5% 7-10 p.m 4-5% 7-10% Opportunity based Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technical 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Technical Breakout 15% 5-10% 1-2 Stocks 10% and above 15% and above 3-6 Months Cash in Hand 10% - - - - - 100% ICICI Securities Ltd. Retail Equity Research Page 5
Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai 400 093 research@icicidirect.com Disclaimer The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Ltd (I-Sec). The author may be holding a small number of shares/position in the above-referred companies as on date of release of this report. I-Sec may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd. Retail Equity Research Page 6