1. http://www.moneycontrol.com/news/commodities/how-should-you-play-gold-
now_429104-0.html
Here is a verbatim transcript of the exclusive interview with Shamik Bose and Sanjiv Shah
on CNBC-TV18. Also watch the accompanying video.
How should you play gold now?
Published on Fri, Dec 04, 2009 at 14:00 | Updated at Fri, Dec 04, 2009 at 15:52 | Source : CNBC-TV18
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Gold has been breaking new highs every day. Yesterday, it touched a high of Rs
18,300 per 10 gm. The yellow metal is up 15% in one month and 37% year-to-
date. So, where is the yellow metal headed?
Shamik Bhose, Executive Director, Microsec Commerz, is most bullish on the
yellow metal. He expects gold to hit USD 1,320 per ounce eventually and USD
1,700 per ounce next year. Goldman Sachs has raised its 12-month target to USD 1,350 per
ounce, while UBS sees gold hitting a high of USD 1300 per ounce in 2010.
However, Bose expects a minor correction in gold. He advises investors to buy on dips.
Why should you buy gold?
- Central banks across the world have been buying gold. The metal was found favour during last
year's financial crisis and is up now on account of weak sentiment post the Dubai debt crisis.
- India had recently bought 200 tonne in the International Monetary Fund's 403.3 tonne sale. China
has also been buying gold.
- A weak dollar and huge liquidity in the financial system is also increasing interest for the metal.
- New investors are entering the market. Also, a lot of fund action is being seen in the metal.
- Rising inflation concerns are also adding to the metal's sheen.
ETF action:
The gold holdings of exchange-traded funds stand at 7.05 tonne. Funds have delivered returns of
above 36%, 21.5%, 17.5%, and 15% in 12 months, 6 months, 3 months, and 1 month. Sanjiv
Shah , Executive Director, Benchmark Asset Management, says investor base in gold funds has
tripled in the last 3-4 months.

2. Q: For a one quarter perspective, is it good to get into gold even now since
one can get it through benchmark, you don’t even have to buy the physical
gold, is this a good buy even now, do you now see the run in gold continuing
for one or two quarters?
Bose: Yes most definitely because in September we were looking at a target of USD 1,240 per
ounce by February 2010 but that seems to have been achieved already. That is why after a
correction which is overdue, we expect to see USD 1,320 per ounce and maybe USD 1,700 next
year whether that will happen in quarter one or quarter two, I do not know. But considering that
you have raised the points that Central Banks are buying, one more big issue is that the miners
are lifting their hedge. I expect by next year first quarter, you will see USD 1,320 per ounce and
perhaps maybe by second quarter you could be doubling it from its USD 850 per ounce high in
1980 and you could be targeting USD 1,650-1,700 per ounce by next year.
Q: Is this the time to buy or do you think that having run up so much, you could get a more
attractive level in the month of December itself?
Bose: Yes, you could. If you have noticed the recent corrections –they have been USD 30-40
only per ounce. From USD 1,030 per ounce it fell to USD 990 per ounce, from USD 1,120 per
ounce to USD 1,100 per ounce. So every dip has been seen as a buying opportunity. It is a
wealth buy, it is a hedge buy and it is also an alternative as a diversification buy. Everybody is
doing it. It is a real thorough bull market, every dip you can buy and if you have the patience not
just one-two quarters, even over one-two years - - you will see a lot of gains in gold.- everybody
is speculating it is the timeframe that is different
Q: The ETF holdings at this point of time in India are above seven tonnes but
isn’t it lesser when you compare it to the Indian imports of around 300 tonnes
or the Standard & Poor's Depositary Receipt (SPDR) holdings at 1,100 tonnes,
how have you read the participation in the recent months?
Shah: If you compare to the total physical holding in India, the ETFs are very miniscule. But if you
look at what is happening in the ETF space is more and more people are coming in and buying.
In the last three-four months, our investor base has really tripled, infact in the last three months,
our holding – I am talking about gold Benchmark Exchange Traded Scheme (BeES) – has gone
up from about two tonnes to nearly 3.5 tonnes now. So the demand from the retail sector in India
is just ballooning.
We have investors from 650 towns. So our belief is that more and more people slowly are getting
into paper gold which is in a sense they were holding physical gold because they wanted to
diversify their investments. We think that investments are coming through the ETF market. That
has been buoyant especially in the last one month.
Q: As a view going forward is that the prices could double up or atleast go to USD 1,300
per ounce in the coming year, are you seeing any redemptions coming in these levels or
are people still buying at more than USD 1,200 per ounce gold?
Shah: They are still buying at these levels infact in the last one month we have seen huge
amount of creations in our ETF. That shows that more and more people are coming in, more and
more retail participation is coming in at this level. One might say that basically they are not buying
physical gold but our belief is that people who are basically converting some amount of their
portfolio into investments to diversify is happening in through the gold ETFs.
Q: If there is such bullishness, why don’t some of the funds go ahead and guarantee the
principal, buy a hedge and guarantee a sum assured of 5-6%. Since everybody says it is

3. going to go up 20% then go ahead and buy a guarantee because finally gold is flight to
safety, I don’t want the same risk as stocks, which means if it falls by 30%, I don’t want to
take the risk. Why isn’t that happening, why aren’t we getting principal guarantees and
guarantee on returns at least as much as the Indian government gilt perhaps so that it
becomes an instrument?
Shah: Let me break your question in two parts. One is, why aren’t people coming up and giving
principal protected instruments on gold? First of all it is very difficult for mutual funds to do it
because we aren’t allowed to basically participate in the commodity futures markets, so if
somebody wants to hedge and provide the hedge to the investors, it is difficult in terms of how
you basically provide that kind of a structure.
So in India it is difficult. If you look at international markets, those structures are prevalent. But I
should point out one more thing that basically when people buy gold, they buy gold as a
diversifier. They buy gold because in a portfolio, they want to make sure that the total risk in the
portfolio comes down.
Q: Are you saying that you feel confident that it is going to deliver 15-20% in a six-month
scenario?
Shah: No, we do not know how much it will deliver. But one thing we can definitely say is that if
you have Rs 100 of your portfolio, out of that if Rs 50 goes to equity and you have zero exposure
to gold, by buying in gold about 15-20%, you are reducing the risk.
Now asset allocation is a critical part of your portfolio and we believe that basically rather than
looking for principal protected instruments, it is better to buy a pure commodity like gold because
it is a monetary asset and diversify your portfolio.
So that is what we communicate to our clients and that is that at the end of the day if you have Rs
100, you cannot have all your eggs in one basket and all your eggs in one asset possibly equity
or debt. You have to have different asset classes, an alternative asset class which at least in
India is available through gold.
Q: You see the markets from all the perspectives Shamik, we have rarely seen in history
that gold and stocks both see speculative buzzers and in this case, it is gold, stocks,
commodities. Gold has usually been a hedge, what is going to happen, something out of
the three has to give away, this seems to be a slot machine no matter what button I press,
it gives me money, tell me when in history have you seen a phenomenon like this where
gold, stocks and commodities all appreciating at the same time?
Bose: Never. You saw a similar situation for gold and commodities and properties in the late
1970s when there was high inflation during the( Paul Volcker at the Federal Reserve years) when
gold went to USD 850 per ounce, and silver went to USD 49 per ounce. But at that point in time,
equities didn’t rally.
They have all rallied here because of liquidity since money has been very cheap; it is
money value which has been eroded. That is what makes your previous question very
pertinent is that why cannot you give instruments where your principal is safe.
You can do that in Canada or America where you have master limited partnerships or royalty
trusts which buy into crude oil fields or gold mining companies where a certain amount of gold or

4. crude oil’s income is passed through to the royalty trust investors. But in India, the laws don’t
allow you to do so.
As far as your second question is concerned, you have so much of a liquidity rush that one
reason when commodities fall off - commodities meaning metals or crude oil or when equities fall
off the ladder - gold will continue because gold is attracting a certain amount of investor class
who are worried about the monetisation of debt, who are worried about the stimulus programmes,
who are basically worried that money values are eroding, too much of money is being printed and
debt created in US or UK.
That is why your question will be answered in the next one or two years when you will find
certain other commodities like metals or certain stocks will fall off the radar but gold will
continue. That is a very dangerous situation for you and me as an investor or as a tax
paying citizen. But that is what will happen eventually.
That is why I will ask you to hold on to that thought……. You had seen the situation in the
late 1970s after the second OPEC crisis and you will see it again.