Gold, Apple and a Coal Monopoly


Gold is all charged up ….. again !! 

  • After some steadiness in the last 6 months, Gold prices are rising sharply once again, see graphs:
Gold Prices, 1 year, JainMatrix Investments

Fig 1 – Gold Prices, 1 year, JainMatrix Investments

  • The Gold Price has broken above 2900 after several attempts.
  • Over the last 10 years, the price path is an accelerating rise.
Gold Prices, 10 year, JainMatrix Investments

Fig 2 – Gold Prices, 10 year, JainMatrix Investments

  • Fundamental strength in Gold comes from worldwide demand by Consumers, Central Banks and investors. Supply will only increase 4% in 2012.
  • Reports claim that demand in India has fallen, and Indian gold imports in Q2 2012 plunged 56% to 131 tonnes (source World Gold Council). However, this is official data, and news reports on customs hauls indicate that of late unofficial import channels (smuggling) is up.
  • Part of the gold appreciation in India has been due to INR weakening against the USD. Its possible that the big INR slide of 2012 can be arrested if inflation and current account deficits are tamed over the next one-year.
  • Having said this, the economic/ debt troubles of USA and Europe are still at large. This strengthens the gold case.
  • Gold prices may rise sharply in the next 1-2 years, I feel. Then the global economy may truly start recovery, and there will be better avenues for cash, so price graphs may flatten or even fall.
  • You can read an article of mine – Gold as an Investment
  • My preferred investment mode is Gold ETFs. Selling is easier and cheaper.

Apple V/s Rest of World

  • Apple’s just won a case in the US courts over Samsung. The case was over copying of patented technologies, shape, size and user navigation aspects. Both Apple and Samsung accused each other of infringements.
  • Apple won, and was awarded over $1 billion in damages. More importantly, Samsung may be restricted in selling its products in some regions. Samsung is also a proxy for Google and its Android operating system. So the loss may have wider ramifications for other Android based producers of mobile phones. Of course, Samsung is appealing in the Supreme Court.
  • It’s an amazingly complex subject, IP and patents protection. But somewhere in these legal battles, common sense is being lost. How can a consumer design aspect be patented? It is only technologies that can be either open source or patented. So any unique new technology that Apple’s R&D has created – wireless, software code, application, sync tool, etc. should not be copied or built upon, competition has to redevelop in order to match features.
  • But a shape, color, design or navigation feature that is consumer and visible to all may be popular, and can become a standard and be copied. As long as Samsung sells the product by prominently branding it as Samsung, it cannot be mistaken as an Apple. In consumer products, the product developer only has the advantage of being first in the market, nothing more.
  • Lets see if better sense prevails, or Apple wins again and gobbles up the global mobile phone market :-)

Coal India and the Coal Monopoly

  • India’s rapid economic strides in recent times are attributed to the opening up of the economy and dismantling of the license and permit Raj. Conversely, the negative effects of this Raj, even today, are apparent in a sector not yet opened up, of Coal.
  • Ever since coal nationalization in 1973, Coal India has a monopoly over mining of coal. It also lords over India’s coal riches, and with estimated reserves of over 200 billion tons, India has the world’s third-largest reserves.
  • What have we actually got from this monopoly?
    • A 5% per annum growth in Coal production over the last decade. At a time when power demand is galloping at 10-12 %. The result is expensive Coal imports and stressed power production assets working below capacity. See graph 3.
    • Coalgate – an issue that is rocking Parliament as of now, as political parties blame each other for essentially the inefficiencies of Coal India.
Coal Production in India, JainMatrix Investments

Fig 3 – Coal Production in India, JainMatrix Investments

  • In today’s times, the monopoly of Coal India has outlived its usefulness. Coal mines and mining in India are no longer an issue of national importance to be protected by PSU ring fencing. In fact they are an inefficient and poor utiliser of these assets.
  • Private firms are quite capable of mining coal. Many have already been allotted mines.
  • Coal India needs to be broken up, perhaps like the breakup of the telegraph giant in USA AT&T into Baby Bells. This ushered in a telecom revolution in USA over decades after 1984.
  • The breakup of CIL should be followed by a lifting of monopoly, opening up to the private sector and a re-listing of the breakup Coal PSUs.
  • This will be easier as CIL is a holding company with seven coal producing subsidiaries and a mine planning and consultancy company.
  • Coal pricing should be based on open market and eAuctions mode. Let the real aspects like coal quality, logistics, demand and supply decide coal prices. Market forces will provide answers, and drive improvements.
  • A Coal sector regulator needs to be set up that oversees the CIL breakup, pricing deregulation, opening up to the private sector, R&D and technology improvements in the sector and environmental oversight.

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Gold as an Investment – Should you buy Gold now?

September 2011

Introduction: Gold has been in the news of late for a number of reasons, including the recent steep rise in prices.

  • This metal caused a ‘gold rush’ – the migration in USA from East to unexplored West in the 1800s
  • It has been a currency and a store of value for man since centuries.
  • In the year 1971 a certain US president freed the US dollar from the Gold standard. Today 40 years on, the USD has fallen considerably in value, and leaders in the US have come full circle, and are mulling a return to this standard.

The main uses of Gold are:

  • A store of value. For governments, their currency is backed up by gold
  • For individuals – gold is bought in the form of jewellery and gold coins
  • Other minor uses like in electronics, computers, dental, idols, etc.
  • Investments in Gold – Commodity trading or ETFs

Some Perspectives: The fig 1 graph below shows that Gold has been ignored as a store of value in recent decades.

Gold as asset, jainmatrix investments

Fig 1 – Gold as asset – Click to enlarge image

The key factors that influence the price of Gold today are:

  • Financial uncertainties like Currency and Debt problems
  1. The US government has taken on too much debt to fund their domestic and international spending. The economy has been downgraded by S&P for this, and the USD is no longer a safe store of value.
  2. Unless the US debt situation recovers – unlikely given their monetary policy – gold will continue to be safe haven for governments in their Forex baskets.
  3. The European Union is also facing challenges due to economic slowdown and the inability of member countries to control government spending.
  4. Under such circumstances, Gold tends to appreciate
  • The developed economies of North America, Europe and Japan are not doing very well in 2011, with slow economic growth and high debt plaguing these countries
  • Individuals from India & China continue to buy gold. High inflation means that cash is losing value. Higher affluence means more spending in gifts and jewellery. Indian marriages will always need gold, right?

Price Action: Is it any wonder that the value of Gold has appreciated in recent times? See fig 2

Gold prices, jainmatrix investments

Fig 2 – Gold prices – Click to enlarge image

The trend, as we can see, is that Gold is appreciating.

The main question is, till when? The answer I feel is linked to the events in the two key developed regions of the global economy.

  • USA:  This country is struggling with a weak economy, high government expenditures, and high overall debt. The debt recently hit pre-set limits, and they had to raise the limits for the government to continue normal functioning
  1. Until the growth in debt is arrested – by both increased taxes and reduced spending, and the economy starts on the recovery process, Gold will be an important store of value in this, the largest economy with the greatest wealth
  • Europe: Iceland, Portugal, Spain and Italy have imbalances in their economies with low growth, high debt and deterioration in assets like real estate
  1. Germany and UK are seeing low growth
  2. As the common currency is the Euro the countries do not have the flexibility of devaluing their currency to battle internal economic ills
  3. There is now a tension in the European Union, and the challenge will be to repay debt and still keep these countries together through these tough times. It may take 1-2 years for the situation to stabilize. Until this happens, Gold will continue to be a safe haven

Projections and Investment advise:

  • Gold will appreciate for the next 1-2 years, until the above economic problems at least appear to be receding.
  • Gold price rise will gather momentum, till it ends with a sharp rapid peak.
  • Investors are advised to invest with a 1-2 year perspective.
  • Investments should be in monthly SIP form, and the recommended investment instruments are Gold ETFs, from companies like Kotak, UTI, Reliance, etc. (For more on SIP investing check article)


  • Gold, unlike stocks is only a store of value. It does not give dividends. The investment in gold is not productively utilized.
  • The price of Gold has appreciated rapidly in the recent past. The peak followed by a change of direction can be rapid, and the fall very steep. Investors need to track headlines and prices and make an informed exit call.
  • Short term trading in gold has increased substantially, causing volatility in prices. This is an early indication of excessive interest in gold as an asset class
  • Check back on the website for updates.
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These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at

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