P1 / Message From CEO

Technical Analysis

P2 / Commodity Profile - Gold /

Price Movements

P3 / Traders Behavior in Trading

Worst Hyperinflation

P4 / Producers Price Index

NSE Spotlight

V olum e 1

I ssu e 7

O ct. 2012

Nepal Spot Exchange

Message From CEO
he commodities markets have been the subject of much press interest over the past month with stories of unchecked increasing investment, complexity and diversity of the markets, where the market participants interest lies and on where and how the regulatory requirements emerges and ends. On behalf of NSE, I appreciate the initiation taken up by SEBON to address the concerns of the media and general investors by taking up the responsibility of formulating the regulatory requirements to systematize and safe guard the commodity market participants. It is true that the past years have seen increased 'speculative' investment in the commodity market, both for reasons of diversification and capital gains. But when there shall be regulation in place and Exchanges have to ensure that they as well as the firms trading under them comply with existing rules, totally discouraging speculative investments might not be a need. The reality is such that the users of all investment markets including commodities are becoming ever more diverse and if we want efficient capital markets we need to embrace diversity at the same time as seeking to ensure good behavior and practices by the market participants.

Commodity Vibes
One Platform.
e all know that markets function is price discovery whereas an analysts function is price forecasting to make profits. To earn profit,

Technical Analysis In The Commodity Market

analyst can use two different types of market analysis tools i.e. fundamental and technical analysis. The fundamental analysis predicts future price movements on the basis of the market environment whereas technical analysis uses market data to predict its future price movements. The concept of technical analysis was developed by Charles Dow in around 1900 in the Dow Theory. Analyst states that it is not feasible to study more than 18000 fundamental factors to predict the price movements. But one thing we can do is to make detail analysis of technical data which will automatically incorporate fundamental factors as well. Technical analysis is the science and art of identifying behavior of crowd in order to join crowd and take advantage of its price momentum. Thus, if we are able to effectively scrutinize market data and trace out the nature of prices, support and resistance level, confirmation and divergence then we can avoid unquantifiable Meta factors like hopes, opinions, moods of market participants, etc. As it is said that History repeats itself the pattern drawn on basis of price movements can be observed and is predictable, such pattern are called as signals. The price can move either up, down or sideways. Therefore, the main objective is to determine strengths, direction of trend and change in its direction. Weakness of Technical Analysis

Spot

As a market facilitator, NSE expects the upcoming regulation to be focused on:

Maintaining confidence in the derivatives market system; Promoting public understanding of the derivatives market; Secure the appropriate degree of protection for clients; Development of prerequisites and infrastructure for delivery mechanism; Help reduce the financial crimes. We feel that there is a need to formulate and enforce regulations and policies considering the local market size, the investment scenario and only after accessing the viability of any rules and policies in the context of Nepalese economy/ the financial sector. There are challenges that lie ahead for all commodity market participants but with proper collaboration, practical approach and hard work, we believe that SEBON and existing entities can minimize the risks looming on so far gained market confidence and embrace the well prepared and diverse entrants to this market in order to promote commodity markets enviable position at the forefront of Nepalese financial sector. The commodities markets have come closer to center stage and NSE is considering its options for better preparedness to embrace the requirements of much anticipated Commodity Market Regulation. - Tejaswi Sharma

Technical analysis is subject to open interpretation. The same price trend can be perceived in different ways by different individuals. Its like a cup half empty or half full i.e. depends upon the perception of an individual. By the time charts or trends are identified and analyzed, it becomes too late to take position and earn higher profit. History doesn't necessarily repeat itself. Traders come across a numerous patterns and indicators with rules to match. So, it becomes conflicting to take their decision at times.

Futures

Strengths of Technical Analysis

The analysts consider that success of trade depends upon

psychology (60%), money management (30%) and Technical analysis focuses on price movement. It is easy trading system (10%). But the first two factors are to analyze by paying attention to the past data. subject to individuals, whereas trading system which It is not necessary to make any presumptions about the includes technical analysis tools is available worldwide market; its signals will indicate which position to take and there is no doubt in its legitimacy. There are some (long or short) and which one to liquidate. universal principles and rules which can be applied for Trends are easily found. We can find technical analysis trends in most of trading software, also charting is very technical analysis and are very much effective. quick and inexpensive. Therefore, it is always advisable to use the technical The trends and charts can be easily drawn with different interval of time. Usually monthly charts are used by long term traders and minutes charts are used by day traders to make trading decisions. The traders can find wealth of information through charts itself after being familiarize with it. analysis tools while trading. Sanjeev Acharya Senior Assistant Manager Warehouse Department

Infinite Possibilities..

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Risk comes from not knowing what youre doing.

Commodity Vibes

Volume 1, Issue 7

Commodity Profile: Gold

G
purposes.

Price Movements in September

Gold

old is a finite resource that was traditionally used as money and ultimately as a reserve assets. It is the oldest international currency of the world and

Factors Affecting the Price of Gold

1) 2) World macroeconomic indicator movements such as major currencies, interest rates and inflation rates. Supply of gold from mines, recycled gold and sale of gold from banks. Gold reserves in central banks. Geo-political tensions. Comparative return on stock market. Producer/ miner hedging interest. Demand by Central Bank. Demand of gold Jewellery mainly in India, China & US. Change in Exchange rate especially US Dollar against other currencies.

plays an important role in global monetary reserves. Gold is the only monetary metal which has the record of 5000 years for maintaining its purchasing power. It is also taken as a commodity which can be stored in the form of bars, coins, Jewellery and gold deposits. Researchers believes that total amount of gold existence in the world can be occupied into two Olympic sized swimming pools. Gold is mainly used for jewellery, investment and industrial 7) 8) Major Producers: China, Australia, United States, Russia, South Africa, Peru, 9) 3) 4) 5) 6)

Silver

Major Consumers: China, India, Hong Kong, Taiwan, Japan, Indonesia, South Korea, Thailand and Vietnam

10) Relationship between Interest rate and Price of gold.

Contract Specification for NSE GOLD

CONTRACT GOLD MGold Nano Gold Gold (GC) Contract Months CONTRACT SIZE in Gram 1000 100 1 500 INITIAL MARGIN REGULAR 1.75% 3.00% 6.00% 1.75% BTST 1.25% 2.50% NA 1.25% INTRADAY 0.60% 2.00% NA 0.75% TICK SIZE 2.41 2.41 0.24 2.41

Copper

Feb,April,Jun,Aug,Oct,Dec

Crude Oil

The Price Trend for Gold

Natural Gas

Manisha Shrestha Senior Assistant Manager Warehouse Department

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I am a better investor because I am a businessman and a better businessman because I am an investor.- Warren Buffet

Commodity Vibes

Volume 1, Issue 7

Traders Behavior In Commodity Market

ommodity trading is an opportunity for investment if we know how to grab it. As an investment alternative it is necessary to identify how professionals make money. Recently, this market has been criticized on

the decided plan. As a result, they loose money. This market demands patience to wait for right signal for trading. Traders must show discipline towards trading and take all the signals. There is no any secret formula for trading. When traders start making profit they push themselves towards an illusion that they have found some secret. They expand their investment haphazardly with greed of earning immense wealth. Opposite to it, they think of giving up trading when they lose. This is where they lack Money Management. We cannot control our emotions completely, but at least we can control our elation and despair. If we can master on self-understanding, balance and self-control with proper finding and implementing a proven, integrated methodology that follows market trends then we can master in the commodity market.

the grounds that most of the investors are losing in this market. But the fact behind it is, few investors are losing it due to the lack of proper analysis and trading haphazardly. Like in other investments, before investing we have to develop the proper strategy and gain the knowledge about the market and products listed. In other words, we should take it as a business not as a hobby. This is the important aspects of winning traders over the losers. Trading is not an easy business; we must have a plan considering the amount of money involved and the risks associated with it. Decisions should be based on current economic affairs, updated news and regular market analysis. Unsuccessful commodity traders believe prices move in unsystematic way and there are some secret tips to earn profit in this market. Once they are able to get the clue, then only its possible to earn within a day or two. But the fact is they are entering into the market without adequate knowledge of the market which is similar to gambling rather than trading wisely. Psychological traits also matters when its about trading. Only proper analysis and carefully tested trading plan is not enough. We must follow it consistently. This is not an easy job when our real money is invested. Emotions drive traders away from

Avishek Gyawali Research & Development Dept. Himalayan Commodity Brokers Pvt. Ltd.

The Worst Hyper Inflation of All Times

Germany, Oct. 1923
Highest monthly inflation: 29,500% Prices doubled every: 3.7 days Causes Causes Resulted directly from the government printing money to pay war reparations. In 1914, Germany abandoned backing their currency with gold and began financing their war operations through borrowing instead of taxation.

Greece, Oct. 1944

Highest monthly inflation: 13,800% Prices doubled every 4.3 days

The main cause of Greece's hyperinflation was World War II, which loaded the country with debt, dissolved its trade and resulted in four years of Axis occupation.

Hungary 1946
Highest monthly inflation: 13,600,000,000,000,000% Prices doubled every: 15.6 hours

Causes

When World War II hit, Hungary was in a weak economic position and the central bank was almost entirely under the government's control; printing money based on the government's budgetary needs without any sort of financial restraint.

Yugoslavia, Jan. 1994

Highest monthly inflation: 313,000,000%

Causes

The causes of Yugoslavia's hyperinflation stem from conflict in the region, local economic crises and governmental mismanagement.

Zimbabwe, Nov. 2008

Highest monthly inflation: 79,600,000,000%

Causes

When Zimbabwe gained independence in 1980, the country adopted a new currency that was originally valued at approximately $1.25 US. The country's eventual out-ofcontrol inflation was caused entirely by governmental mismanagement.

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The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell. -John Templeton

Commodity Vibes

Volume 1, Issue 5 Volume 1, Issue 7

Producer Price Index (PPI)

NSE Spotlight

roducer Price Index (PPI) is an economic index that keeps track of the cost of production as well as it measures the average overtime changes in prices of goods produced and service being generated. It shows the trends within the wholesale markets, manufacturing plants and commodities markets.

To enhance and update the knowledge of technical analysis

tools among our broker members and valued clients, a training program was organized on Demystifying Trading Techniques in Commodity Market by Vishal Mehta on 1st and 2nd September, 2012. The event was supported by NSE.

PPI are usually weighted index of goods at wholesale price which is divided into 3 levels. PPI commodity index (Raw): This shows the average price change over a certain time period (monthly) for commodities such as crude oil, coal and steel scrap. PPI stage of processing (SOP) Index (Intermediate): This shows the goods that are in a work in progress stage between raw and finished, and will be sold to other who manufacture the finished goods. The examples of such goods are cotton, gasoline and steel. PPI Industry Index (Finished goods): Finished goods are the one that have undergone their final stage of manufacturing and are ready to be sold to the ultimate consumers. For example: textile, wires, petrol, etc. The source of the core PPI is the finished goods. Core PPI is a price index for finished goods apart from food and energy sectors due to their high price volatility. It is the primary economic indicator which also indicates the near-term level of the Consumer Price Index (CPI).CPI is the primary indicator to measure inflation whereas PPI is a preview of change in the rate of inflation. Because of the wider domain of the PPI with major commodities and finished goods, it has a great role for the investors in the trend and price pattern analysis and leads to a profitable trade. Thus, PPI is a giant market mover and carries with itself the potential of the profit for the traders. Susir Acharya Assistant Business Manager Business Development Dept.

With the objective to impart the basic knowledge about the

various products traded through the exchange, NSE has developed the products leaflets of four different products (gold, silver, copper, and crude oil) which can be downloaded from its website.

To familiarize the new traders on the trading modalities and the

latest updates in the traders work station, new version of NSE trade manual NSE TWS Manual 2.0.3 has been released which can be downloaded from exchange website.

NSE also being the member of Forum of Commodity Markets,

is actively involved in various rounds of meetings & press conferences related to the formulation of commodity market regulation.

Traded Lots For September

Voting Result

A= It Should be Regulated by SEBON B= It Should be Left as it is C = It should be closed

Survey done by Ahiyan Daily on their website

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Charter Tower, Sano Gaucharan, Gyaneshwor Phone: +977-977-1-4435977/78 Fax: 00977-1-4435666 Email: info@nsenepal.com , web: www.nsenepal.com
Editorial Board: Sanjeev Acharya, Manisha Shrestha, Kamal More

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In rendering the information in this newsletter, we relied upon the sources we believe to be consistent as to the accuracy or completeness without our independent verification. Thus, the contents do not constitute professional advice or provision of any kind of services.