India will keep Gold market flat to bullish for a long time

The Indians are some of the biggest consumers of Gold worldwide-the country's fascination for gold jewelry has no limits. As long as the economy of this giant keeps growing strongly, gold will maintain it's bullish trajectory. That's the demand side.

On the cost and supply side the situation is a bit worrisome. Mining companies are having to dole out more bonuses and pay increases to their employees (I am writing this blog from Chile, the biggest copper producer in the world. There are strikes in major copper mines by workers demanding higher wages and a share of the spoils of the metal's meteoric rise over the last couple of years). While this is not bad in itself-increasing salaries is not the best way to help employees participate in a volatile commodity market. If there is a downturn because of new mines coming online, or the Indian economy slowing a bit, the mining companies will be in trouble. Unlike in the United States, many mining companies do not have incentive schemes like stock options in South Africa, Far East and South America, the major metals producing belts of the world. Bonuses, stock options to employees are okay; hefty salary increases are not, because people tend to get used to salary levels and it is very hard to cut someone's salary.

Given Gold's tremendous run over the last few years, a healthy consolidation is not a bad thing for the market. However, markets are rarely rational (which is why we can profit from them!) and irrational exuberance in the Gold Markets if the metal shoots up in price like crude has done would be a good opportunity to lighten up your long positions in the metal or the mining stocks.

Sanjay John G.