“Why didn’t I buy Google? Like Stalin? :) I should have listened to Dennis Gartman!” Heh.

Here’s the gold & gold miners charts:

OK, I admit you have to be a bit of a PM geek to truly appreciate the ‘re-mixxed’ video.

Here is the intra-day spot gold price action for the past 3 days:

It has gone up from $780 to $920 (+18%) and back down to $840 (-8.7%). Given the 10-20x leverage in commodity markets, there will be huge amounts of money won (& lost) this week by nimble-footed (or wrong-footed) traders.

PS: Indian gold prices went from Rs 10900 per 10 gms to over Rs 13000 and back down to 12500.

PPS: Sure enough, margin requirements were raised today; Bloomberg: Comex Raises Margin Rates on Gold Contracts by 47%, Silver 20%

The Comex division of the New York Mercantile Exchange raised margin payments on gold and silver futures by as much as 47 percent after price swings accelerated.

The margin rate for Comex members advances to $5,500 a gold contract from today, from $3,750, the exchange said in an e- mailed statement late yesterday. One contract represents 100 ounces.

The contract size is 100 oz * $840/oz = $84000. So the margin requirements went from 4.5% (22x leverage) to 6.5% (15x) leverage.

Gold had its largest one-day gain last night, up 11% and is now trading at Rs 12,700 per 10 gms (it crossed Rs 13000 during the trading day):

Pity the folks who were short MCX gold futures. Although the exchange remains open until 11.30pm, I doubt many folks here were expecting such a move. Never say never.

• BCA Research: Energy-Led Correction: Capitulation Selling Underway?

• Mint: Number of new accounts halved in meltdown

NSDL holds around 9.5 million demat accounts with securities worth Rs42 trillion. Rai admits that with the stock market meltdown, the number of new accounts opened has halved, from 200,000 to 100,000 a month.

How many investor accounts do you have? How many accounts have you frozen due to non-compliance of PAN and KYC (know your customer) norms?

As of now, we have 9.5 million accounts. Of these, 0.8 million accounts have been frozen due to non-PAN compliance.

Yet another reason to be wary of brokerage stocks.

• MarketWatch: Gold bugs’ arguments sometimes involve disingenuous logic

In recent weeks I have written several columns wondering what it would take for the editor of the average gold-timing newsletter to give up believing that gold was in a bull market. And it would appear that we still don’t know.

That’s because the HGNSI didn’t budge at all on Tuesday, despite bullion’s fall, remaining at 27.9%. To put that level in perspective, it is higher than where it stood in early August, when bullion was trading above $900 per ounce.

From a contrarian perspective, the bottom of gold’s decline will come when enough of the gold timers throw in the towel. Ironically, from that perspective, the gold bugs’ bullish persistence is extending the agony and postponing that eventual bottom.

Here’s a chart view of my attempt at a trade involving gold mining stocks, via the DSPML WGF:

As you can see, I didn’t quite catch the bottom while getting in, and didn’t quite catch the top while getting out. Factor in entry & exit loads totaling 3.25% and yet, my net loss was only 4.8%! I say ‘only’ because gold mining stocks self-destructed over the past week - as did gold - and the fund is down a further 15% after I got out.

MotS: Cut your losses!

Well, today’s certainly shaping out to be a horrendous day for crude (down $8 to < $107) and gold (down over 4% to $795/oz). I put in a sell order for my gold mining position this morning, but am guessing I’ll get out only at tomorrow’s prices, which means a 6% haircut.

Trade outcome

• Break-even on gold ETF
• Loss of 5% on gold mining stocks (after including 2.25% entry load, 1% exit load)

Lessons learnt

• Entry wasn’t too bad for gold mining (2 days before bottom).
• Instrument chosen was highly inefficient (entry & exit loaded mutual fund) - not that I had much of a choice in terms of what I could trade.
• Exit was tricky & poor, should have quit the gold miners within a week with a small profit - of course, it looks obvious in hindsight.

Bottom-line: This trade doesn’t set up too often (maybe once or twice a year) and has a good risk-reward profile; but unless we have liquid, low-cost instruments, it doesn’t make sense to trade anything but the (MCX/NCDEX) gold futures for such short-term moves.

• Hindu Business Line: Fall in coal prices may ease cement cos’ burden

Coal cost for the cement companies is likely to range between $190 and $200 a tonne (cost, insurance and freight) in the second quarter of the financial year 2008, against $170-240 a tonne in the first quarter.

On the domestic front, the electronic auction undertaken by Coal India has pushed up coal prices by 30-40 per cent to Rs 1,600 a tonne as the demand has gone up many folds, said another cement company official. Indian coal is of low calorific value compared with imported coal.

• DB: Indian Brokerage Sector

Despite a strong correction of 50-60% YTD, we believe it is still not too late to Sell as these brokerage stocks are currently trading at a premium to market multiples despite having higher betas.

In India the turnover has been steadily growing in the past few years as more FIIs have entered the market and more F&O contracts have been introduced in various securities. However, during the recession of 02 volumes declined 50% yoy.

The Indian broking industry is fairly large and fragmented with 9,000 odd brokers in the cash
segment and around 24,000 sub-brokers. The top five brokers in India command around 15-16% market share.

We expect volumes to decline 16% in FY09E followed by 20% growth in FY10E and FY11E.

Not too encouraging if you are a broker or shareholder.

• MarketWatch: Big jump in gold sale spurs manipulation talk

Recent heat from Congress and regulators, along with public speculation, over whether commodity prices are being manipulated has also reached gold pits, where the debate was stirred by a surge in bets last month that gold prices would fall.

Three unidentified U.S. banks held 86,398 short positions, or bets that gold prices will fall, in the COMEX gold market as of Aug. 5 — 10 times more short positions than a month earlier.

“What you have here is the footprints of hedge funds exiting the commodities markets en masse,” said Kitco’s Nadler.

Manipulation or exodus - does it matter? Price tells all.

2 weeks ago, while gold & gold mining stocks were being dumped mercilessly, I went long the gold miners via a mutual fund: Buy Gold Mining Stocks

I found the DSPML-WGF to have a 85%+ correlation with the XAU, so it’s a good enough proxy for this purpose.

• Entry: Scale in, starting today (I got in @ NAV of 11.7077 11.5965)
• Exit (stop loss): If trade not profitable in 2 weeks
• Exit (book profits): When gold:XAU ratio drops below 5

Bought more of DSP-ML WGF @ 10.8248 on August 11

I also followed that with a long gold ETF trade, which I closed at break-even. GOLDBEES then went all the way to 1220 before dropping back. Oh well!

As for gold miners; my average buy was @ 11.21 and the latest NAV is 11.52. After factoring in the 2.25% entry load & 1% exit load, I am about breakeven and the stop-loss isn’t triggered. Doesn’t look like this one is going to make 10%+ for me, but let’s see what happens next week.

Note that using a mutual fund is probably the most inefficient way to trade these short-term moves. But this was an experiment, and there is no other way for us in India to trade gold miners.

Well, the long gold trade didn’t quite work out - Buy gold

Why? Because:

1. After I bought, gold dropped further & then recovered
2. Indian gold ETFs were trading at a 5-10% premium due to shortage of physical gold. This premium has now dropped, thus negating the benefit from the small up-move in the gold price.
3. I don’t like the way gold prices are behaving. There was not much of a bounce given how oversold it got, and the commodity sector in general continues to crap out. [See platinum's drop early this week.]

I bought @ 1175 & sold @ 1185 - essentially broke even after factoring in brokerage, STT, etc. I am still holding on to the long position in gold mining stocks, via the DSP-ML WGF: Buy Gold Mining Stocks.

They are performing much better than the precious metal itself, and have the potential to move up another 10% rather quickly.

PS: And right on cue, GOLDBEES crossed 1200 today, after I got out. Sorry for holding it back!

The next step in trying to make some money from oversold precious metal & mining stocks is to buy some gold: I bought some via the Benchmark Gold ETF - GOLDBEES @ 1175.

[Yes, I managed to get in a good entry compared to today's range - only because I had put in a limit order all day. Also, very good entries on longs usually mean the thing is headed down. ]

Why go long now?

• Oversold technicals
• ‘Bargain buying’ by jewellers
• Sentiment
• Overbought dollar
• Because mean reversion works well (sometimes).

Risks:

• Oversold can get more oversold
• Oil & industrial metal down-trends take gold further down with them
• Indian farmers don’t buy gold this year, and instead go shopping at the South China Mall

My target is a 8%+ return on gold & 15%+ return on gold mining stocks, within a few weeks. Let’s see if this experiment succeeds.