REFERENCES
Index
PartTopicPage No.
a.Industry Profile7
b.Company Profile10
c.Theoretical aspects of concept23
d.Research Methodology28
Objective of study and Benefits of the study.28
Research design, Sample Design, Data collection tools,
etc.29
Limitations of study31
Detail Study32
e.Analysis of data93
f.Findings103
g.Conclusions105
h.Recommendations107
i.Annexure108
j.Glossary of terms114
k.Bibliography115
Industry ProfileIt is financial advisory Industry specializing
in risk management, hedge funds and derivatives, commodity,
managing the portfolio.
It provides institutional investors, Retail investors, funds of
funds, hedge fund managers, mutual funds, traditional money
managers, banks/investment banks, and law firms with consulting
services including:
Policy, procedures and guideline creation or review
Market, credit, operational and legal risk diagnosis
Legal Outsourcing
Legal Risk Management
New product development
Structuring and analysis of transactions
Portfolio construction
Reviews of practices vs. best practices
Litigation support/financial forensics
Corporate/Risk Governance
Compliance Reviews
Regulatory Advice
Risk Partnership
Portfolio diagnostics
Risk benchmarking
NAV/Mark to market verification
Portfolio construction
Risk budgeting
Risk Branding
Transitioning from asset to risk allocation
Creating your integrated, risk-adjusted efficient frontier
Portfolio optimization
Establishing hedge funds and funds of funds
Designing and Implementing Compliance Programs
Providing Regulatory Updates
Customized Fund of Funds
Research and advisoryRisk Management Experience In depth
understanding of complex instruments and strategies.
Strong quantitative skills.
Experienced in new business development.
Experienced with establishing standards for transparency and
disclosure.
Designed risk management infrastructure for large, institutional
asset management group, including performance and risk reports.
Experienced with valuation issues across broad array of illiquid
instruments.
Experienced with identifying and resolving problematic
situations, including but not limited to, valuation issues, risk
issues, trader issues, and operational issues.
Extensive Market, Credit and Operational Risk Management
experience, including hedge funds, traditional asset management,
trading desks and prime broker operations.
Extensive hedge fund and fund of funds due diligence
experience.
Extensive experience teaching funds of funds and institutional
investors how to de effective due diligence.
Skilled at interviewing and selecting traders and trading
managers.
Experienced at firing traders.
Extensive network of contacts in the trading world provides
unique access to the real story on reputations - we create our own
references.
Ran repo, stock loan, prime broker, swaps businesses and options
businesses.
Experience with liquidity management.Legal Experience Litigation
and expert testimony for a variety of complex securities and
derivatives cases.
Advisor to many U.S. and foreign banks, broker dealers,
investment advisors and funds.
Experienced in setting up funds.
Extensive SEC, bank regulatory and CFTC experience.
Experienced in new product development.
Experienced in all aspects of compliance.
Company ProfileMotilal Oswal Securities Ltd.( MOSt) History
& MilestonesThe story of MOSt goes back many years, when Mr.
Motilal Oswal and Mr. Raamdeo Agrawal met each other as students in
a Mumbai suburban hostel in the early eighties. Both the young
chartered accountants hailing from a rural & an unpretentious
background had a common dream viz 'to build a professional
organization with strong value systems, to provide reliable &
honest investment advice to investors'. Thus was born their first
enterprise called "Prudential Portfolio Services" in 1987.2006
Places 9.29% with two leading private equity investors - New
Vernon Private Equity Limited and Bessemer Venture PartnersAcquires
a leading south Indian brokerage firm - Peninsula Capital
MarketsEnters Private Equity and plans entry into Investment
Banking businessesValue PMS gives 390% returns to its investors
between Feb 2003 and March 2006First advice-based online trading
proposition in the Indian marketsAnother milestone in distribution
- 1019 outlets, 375 cities, serving 1.61 lakh clientsHas a 1400
member team working to achieve the company's vision
2005
Asiamoney Brokers Poll 2005 rates Motilal Oswal Securities -
Best Local Brokerage, Most Independent Research House, Best in
Sales and ServiceLaunches two new Portfolio Management Schemes -
Value Hedging for derivatives and Discover Value for the Rs5 lakh
to Rs50 lakh categoryAcquires local brokerage Gayatri Capitals from
Andhra Pradesh and Varghese from BangaloreDeepest distribution in
the stock broking segment with 700 outlets in 320 cities and 1.2
lakh clients
2004 Presence expanded to 270 outlets in 150 cities and 20
states Value PMS delivers a whopping 160% post tax returns for the
period ended April 2004 Bulls Eye PMS - A momentum based PMS
launched Start of the Solid Research Solid Advice campaign
2003 MOSt Portfolio Management Services launched with Mr.
Raamdeo Agrawal as the Portfolio Manager. Uniquely structured
performance related fees. Inquire team is successful in capturing
the uptrend in Banking, Auto and Infrastructure sectors. 15,000
Depository clients acquired. 9 own branches setup at 7 cities to
provide Equity Advisory Services. More in the pipeline. 150 outlets
in 110 cities across 18 states & one Union Territory in India
manned by 1000 people servicing over 15,000 Retail and
Institutional Investors.
2002 Mr. Navin Agarwal, Head of Equity Research &
Institutional sales, is inducted in the Board of Directors MOSt
consolidates its retail operations & upgrades its IT / Back
Office infrastructure to cater to its growing network of branches,
Franchisees and Channel Partners. Retail network completes coverage
of 100 cities in India. Direct servicing of HNI clients is
initiated. 10,000 Depository clients acquired.
2001 Legendary marketing guru Shunu Sens services taken to
revitalise retail marketing strategy and branding efforts. Starts
offering Derivatives products and advisory services on both BSE as
well as NSE
2000 Both Mr. Motilal Oswal and Mr. Raamdeo Agrawal receive
Rashtriya Samman Patra from Central Board of Direct Taxes for being
amongst the top 50 tax payers in India from FY94-FY98 Acquires its
100th Franchisee / Channel Partner and emerges as a leading player
in the Indian Broking Sector Becomes a Depository Participant of
Central Depository Services Limited (CDSIL)
1999 Mr. Raamdeo Agrawal starts attending legendary billionaire
investor Warren Buffetts Annual General Meetings of Berkshire
Hathway Inc. He still continues to attend it every year. The Wealth
Creation Study started in 1996 culminates into Wealth Creation
Seminar and Awards function in 1998. First Stock Broking house to
brand its services as a research and advise based broker.
www.MotilalOswal.com launched. First broking house in India to go
on the web. Becomes a Depository Participant of National Securities
Depository Limited (NSDL). Inducts Mr. Ivan Mathias, former country
head of Watson Wyatt Worldwide, on its Board to Directors to shape
HR initiatives.
1998 Mr. Motilal Oswal joins the Governing Board of The Stock
Exchange, Mumbai.
1996 Wealth Creation Study started. First of its kind study
initiated to identify biggest and fastest wealth creating companies
in Indian Stock markets.
1995 Motilal Oswal gets incorporated as Motilal Oswal Securities
Ltd.
1994 MOSt acquires NSE Membership and plans for major expansion
of its retail network.
Inquire (Indian Equity Research) is formally created at a 2500
sq. ft office in South Mumbai with bigger and better quality
infrastructure than the corporate office. Since then nearly 20% of
revenue is allocated to research. First Domestic Stock broking
house to have such a strong Research focus
Motilal Oswal enters Institutional Broking business.
1990 After just three years in the business, Motilal Oswal is
formed through acquisition of membership on The Bombay Stock
Exchange (BSE). Three more memberships taken in later years.
1987 Mr. Motilal Oswal and Mr. Raamdeo Agrawal lay the
foundation of a great partnership by starting a sub-broking firm.
The venture stands out from the rest due to their approach of
Research-based broking even when sub-brokers.
Motilal Oswal Securities is a leading research and advisory
based stock broking house of India, with a dominant position in
both institutional and retail broking. Asiamoney Brokers Poll 2005
has ranked us the best Indian brokerage firm. There are various
other categories where we have been rated number one most
independent research, sales and service etc by the Brokers
Poll.
In March 2006, AQ Research, a firm that analyses the accuracy of
a brokers research call, declared Motilal Oswal Securities the best
research house for Indian stocks.
Motilal Oswal Securities has witnessed rapid organic growth due
to favorable market conditions as well as efforts put in by the
company itself. FY05 and FY06 saw the company grow inorganically
through acquisition of three significant regional broking firms
from Andhra Pradesh, Karnataka and Kerala. Over a period of time
many more regional broking firms may be acquired to gain solid
footing in various regions of India.
The company was founded in 1987 as a small sub-broking unit,
with just two people running the show. Focus on
customer-first-attitude, ethical and transparent business
practices, respect for professionalism, research-based value
investing and implementation of cutting-edge technology have
enabled us to blossom into an almost two thousand-member team.
Our institutional business unit has relationships with several
leading foreign institutional investors (FIIs) in the US, UK, Hong
Kong and Singapore. In a recent media report we were rated as one
of the top-10 brokers in terms of business transacted for FIIs.
The retail business unit provides equity investment solutions to
more than 150,000 investors through 900 outlets spanning 340 cities
and 24 states. We provide advice-based broking (equities and
derivatives), portfolio management services (PMS), e-Broking,
depository services, commodities trading, IPO and mutual fund
investment advisory services. Its Value PMS Scheme gave a 402.74%
return since inception ( Feb 2003) , ( Sensex is 270.69% &
Nifty is 245.11%). The perfomance of Value Hedging since inception
( Oct 2005) is 32.76%.
Such an outstanding performance can be only attributed to our
single-minded focus on research-based value investing. Motilal
Oswal Securities invests almost 5-10% of its revenue on equity
research and hires and trains the best resources to become advisors
to its valued clients.
Our unique Wealth Creation Study, authored by Mr Raamdeo
Agrawal, Managing Director, is now in its eleventh year. Investors
keenly await this annual study for the wealth of information it has
on how companies created wealth during the preceding five
years.
The organization finds its strength in its team of young,
talented and confident individuals. Qualified professionals carry
out different functions under the able leadership of its promoters,
Mr.MotilalOswal and Mr.RaamdeoAgrawal. Stringent employee selection
process, focus on continuous training and adoption of best
management practices drive the quest to achieving our Vision.
MOSt Vision
MOSt Guiding Principles & Core Values
Customer interest is paramount
Ethical and transparent business practices
Respect for professionals,associates and business partners
Research based value investing Cutting edge technology to ensure
world-class customer servicePeople behind the organizationMr.
Motilal OswalChairman and Managing DirectorMr. Motilal Oswal is the
promoter of Motilal Oswal Securities Ltd. He is an member of
Institute of Chartered Accountants of India and started the
business along with the co-promoter Mr. Raamdeo Agarwal in
1987.Business Administration is his forte, Honesty, transparency
and client goodwill form the core of his business practice.
Service is required in everything, in research, in execution and
in settlement. It is going to be the key to survival. If you give
good service and value to your clients, it will translate into good
business. This has been a strong belief of Mr. Motilal Oswal and he
has not only practiced it himself but also made efforts to
inculcate similar values in the employees of the organization. He
had been elected as a Director of BSE and joined its governing
board in 1998. He is currently a member of various committees of
CDSIL and SEBI.
Mr. Raamdeo AgrawalJoint Managing DirectorMr. Raamdeo Agrawal is
the co-promoter of Motilal Oswal Securities Ltd. A member of the
Institute of Chartered Accountants of India & an equity
research stalwart, he is the man behind the strong research
capability at MOSt.He is respected by all in the research and
broking industry for his valuable insights on issues related to
equity research. His firm belief in Value-Investing, as practiced
by the legendary Warren Buffett and Charlie Munger, forms the core
of MOSt investment philosophy.
Management TeamMOSt management team is regularly engaged in
finding ways to improve operational efficiencies and customer
satisfaction. You will find CAs, CFAs, ICWAs, CSs, MBAs and IT
professionals managing crucial functions, to bring you best
products and services - from research & advice to trade
execution & settlement. At MOSt we practice meritocracy and
each of the team members is provided extensive training.Training
& Manpower DevelopmentMOSt conducts various training and
development programs regularly to enhance the capabilities of its
team. As much as 5% of the salary bill is spent on such programs,
which is amongst the highest for a broking organization in India.
MOSt is truly a learning organization with lead being taken by the
Directors, who regularly participate in top management learning
programs like Strategic Management Program at Indian School of
Business, Hyderabad, Strategy Summits with Management Gurus like
Tom Peters and Dr. Lester Thurow, Dean, Sloan School of Management,
(MIT) and Brand Management Seminar by Al Ries etc.Motilal Oswal
Commodities Broker Pvt. Ltd MOSt is one of the leading equity
research & broking houses of India (Best Local Brokerage
House-India By Asia Money Poll-2005). MOSt provides end-to-end
equity solutions to institutional & individual investors. MOSt
provides products & services such as e-broking, derivatives,
depository service, portfolio management & equity research.
Recently, Motilal Oswal Group has floated Motilal Commodities
Brokers (P) ltd to provide commodity trading facilities &
related products and services.Global Investment Assets
Equities
Commodities
Real Estate
Bonds
Value Added Services
Daily view Commodity wise compared to International markets.
Fundamental and technical report are uploaded Daily on our site.
Advisory given on basis of daily reports.
Technology Support as in Equity.
Similar Front end and BO as of equity.
Stable Systems for Payin/Payout.
Client Security Strong Compliance.
F Focused in New Avenue and is committed to serious Business
E Experience in Settling pressure of 1.5 lakh trades per day in
Equity
A Recognised Brand Name for equity Advisory.
R Tested Risk Management Systems.
Motilal Oswal Commodities Broker Pvt. Ltd.(MOCB) a fully owned
subsidiary of Motilal Oswal Securities Ltd. (MOSL), Clearing Member
and Trading Member with NCDEX .
Initiated the trading operation in 2004
Presence in all the four zones. Commodity exchanges have
collectively clocked a turnover of Rs 92,226 crore in April, lower
than Rs 98,000 crore in March. According to data provided by the
Forward Markets Commission (FMC), only two exchanges have posted
nearly 90% of the total April turnover. Daily Volume on National
Level Online Commodity Exchange reached 12500 Cr. Approx.
NCDEX MCX NMCE
Benefits of Commodities in Balanced Portfolio Low correlation
with other Asset Class
Positive correlation with Inflation
Cash Return
Unexpected Events
Business Cycle
By Nature a global productManagement Integrity
Widely respected in the Indian Stock Broking fraternity for its
high standards of corporate governance and adherence to ethical
business practices
SANMAN PATRA awarded by the Government of India to both the
promoters for being amongst the top 50 income tax payers in the
country for the period 1994-96
Research
Popularly known as Inquire, companys research is highly
respected by FIIs, MFs, FIs and Retail clients
Rated by Asiamoney Brokers Poll as among the best domestic
research brokers
Sectors covered in depth include :-
Automobiles,Banking,Cement,Engineering,IT, Media,Metals ,Oil &
Gas,Pharmaceuticals & UtilitiesProduct Range
Equity Broking
Portfolio Management Services
Depository Services
Derivatives
Commodities
Internet BrokingIndian Market
Bullion (only GOLD)
Large consumer (Rs 400 bn) -traditional form of investment
Large stocks of unaccounted metal (approx.13000t)
Skill in hand made jewelry
Market Participants
Hedgers, Speculators, Investors, Arbitragers, (same as Equity
markets) Producers Farmers Consumers refiners, food processing
companies, jewelers, textile mills, exporters & importers
Institutional proprietary trades currently disallowedFUTURES
TRADING IN COMMODITIES India has a long history of presence of
commodity trading.
Worldwide commodities markets are bigger than equity markets in
size as well as penetration.
Commodities markets are useful for producers, manufacturers
& traders to hedge their risk of price movement.
Like equity market, Speculation provides the much needed
liquidity & depth.
Futures market help in Price Discovery of commodities under
transparent organized & institutional market set up.
HOW TO TAKE PART IN COMMODITY MARKET!
Hedging for manufacturers & users.
Arbitrage between different months & with spot market &
International markets.
Speculation based on technical & fundamental view.
Some Thoughts
Plan your investment and play your plan
Research before you invest and not after
Theoretical aspects of conceptWhat is commodity?Commodity
includes all kinds of goods. FCRA defines "goods" as "every kind of
movable property other than actionable claims, money and
securities". Futures' trading is organized in such goods or
commodities as are permitted by the Central Government. At present,
all goods and products of agricultural (including plantation),
mineral and fossil origin are allowed for futures trading under the
auspices of the commodity exchanges recognized under the FCRA. The
national commodity exchanges have been recognized by the Central
Government for organizing trading in all permissible commodities
which include precious (gold & silver) and nonferrous metals;
cereals and pulses; ginned and unginned cotton; oilseeds, oils and
oilcakes; raw jute and jute goods; sugar and guar; potatoes and
onions; coffee and tea; rubber and spices, energy etc.Trend
Analysis is the examination and evaluation of the relevant
information to select the best course of action from among various
alternatives.Purpose:
Main purpose of this analysis is to aware with the historical
scenario of the domestic and International Bullion Commodity
Market. And Using this Information can be able to Predict the
Future price, Demand, Supply of the Bullion Commodity in the
World.
It also consist History of Gold and Silver, Fundamental of Gold
and Silver, Historical Prices of Gold and Silver in Domestic as
well as in International Market which can help to predict the
future trend of the market.
Features of Indian Gold Economy, Properties, Uses and
Characteristics of Gold and Silver also help to aware with the
bullion commodity. Gold and Silver Production all Over the
World
World Gold and Silver Demand and Supply
Mine Production by Countries
Gold and Silver Jewellery Demand in the World
Official Gold Reserve in the World
World Gold Holding
Gold Mining Production Process
Top 20 Silver Producing Country
All Above Information helping to know the historical trend of
the Bullion commodity Market all over the world. And It helps to
Investor to predict the future trend of the Bullion Commodity
Market. Trend analysis is based on the idea that what has happened
in the past gives traders an idea of what will happen in the
future.There are three main types of trends: short-, intermediate-
and long-term.Trend analysis tries to predict a trend like a bull
market run and ride that trend until data suggestsa trend reversal
(e.g. bull to bear market).Trend analysis is helpful because moving
with trends, and not against them, will lead to profit for an
investor.
Outsourcing Trend Analysis to India
Get the competitive advantage with Trend Analysis. Get
significant insights into customers and markets to guide your
company's marketing, investment, and administration objectives.
"With the past, we can see trajectories into the future - both
catastrophic and creative projections. John Ralston Saul.
Importance of ConceptData analysis including Trend Analysis is
essential for a firm's competitive intelligence program. The
ability to accurately gauge customer response to changes in
business and other environmental parameters is a powerful
competitive advantage. Trend Analysis is essential to running an
organization's value chains and in acquiring and consolidating
corporate success. It allows business users to make analytical
decisions about those business processes that maximize revenue from
core customers.
With the information explosion, an incredible amount of
information is available to organizations. However, raw data by
itself does not provide much information. It is the conversion of
this raw data into significant facts, relationships, trends and
patterns, that could otherwise go unobserved.
This makes Trend Analysis an essential part of running an
organization's value chains and in acquiring and consolidating
corporate success. It allows business users to make analytical
decisions about what direction the business should target its
resources on and to focus on those business processes that maximize
revenue from core customers.
Trend Analysis Proper - Allows you to plot aggregated response
data over time. This is especially valuable, if you are conducting
a long running survey and would like to measure differences in
perception and responses over time. Thus Trend Analysis provides an
insight into the following:
Changes and trends in customer needs and behavior, and shifts in
the customers' perception of value.
Trend in price change and cost drivers for the industry and/or
specific segments
Change and evolution of the industry in terms of new entrants,
and competition, threat of substitutes and relationship with buyers
and suppliers
Upcoming business models and changing best practices of the
industry and related emerging sectors
In depth analysis of long term industry, domestic and global
economic cycles and trends. What are the benefits of Trend
Analysis? 1. Detailed Trend Analysis - to predict the threat of new
entrants and allows management to develop competitive strategies
thus enabling industry position as well as pursuit of
leadership.
2. It provides security of strategic investments and protection
of assets.
3. Enables crucial decisions on mergers and acquisitions as well
as the ability to develop alliances and partner relationships.
4. Trend Analysis data can be further used for various
cost/benefit analyses. And can be extremely valuable as an early
warning indicator of probable issues with product line and service
level changes.
5. Trend Analysis enables a business to view strategies from a
long-term perspective with respect to effective asset and
investment deployment and can safeguard against costly errors in
relationship management and strategic positioning. The advantages
of Trend Analysis The ability to accurately gauge customer response
to changes in business and other environmental parameters is a
powerful competitive advantage. Furthermore O2I's trend analysis
includes the process of studying data to gain insights into
long-term trends such as failure patterns that can be applied to
incident and problem management as well as capacity management.
Internal and external users can apply Trend Analysis to determine
weaknesses and strengths. This will enable internal users to
enhance administration efficiency of the company when necessary and
external users to form valuation models of the company based on how
well the company is managed. What if you could make your investment
decision at the very first idication that a trend is beginning,
before most everyone else? Here are 10 ideas to consider when
investing. Risk Diversify Information moves the markets You can
count on human behaviour Look everywhere Timing is everything. When
does the news begin to have an impact on sector prices? All sectors
are not created equal. Trend Pointers monitors the most intriguing
sectors and those that are just emerging If you only could know one
thing You need a trend partner. You cannot rely just on the
financial experts- they are often wrong . I adapted my professional
marketing andbehavioural research expertise to a more personal
need- effectiveinvesting advice The EvidenceResearch
MethodologyResearch ObjectivesIn general sense research means
search and analyse the knowledge, as a scientific and systematic
search for pertinent information on the related topic.
The research objective addresses the purpose of the
investigation. It will give us the exact information about what is
being planned. Research objective as under.The following points
reflect the core of the objectives and the essence, which also
directly focuses on the coverage of the project work
undertaken.
The first and the most important object are to be comparing the
theoretical work with practical scenario. To study various aspect
of trend Analysis and its implementation on investors decision, for
his investment decision as well as knowledge purpose of the Market.
To know about the Bullion commodity Sector i.e. factor affecting
the sector and how to provide valuation to the Bullion commodity of
the sector for the investment to earn max profit. Develop a
creative and innovative attitude and if possible come out with some
new suggestions and recommendation for the organisation.Data
Collection
In research methodology, data collection is mainly two types;
Primary data collection and Secondary data collection. Various
fruitful discussions have been made with the brokers to collect the
financial information of the company as well as for understanding
of the sector. Data collection as under:
Primary Data Collection:
Primary data collection is those, which are collected fresh, and
for the first time happen to the original in character.
Here, I had Collected data from the one of the area survey using
the questionnaire with employees of the Motilal Oswal Securities
Ltd., brokers, and the individual investors in the Market.
Topic: A survey Report on Factors Influencing The Investment
PatternSamples are randomly taken from the Market.
Sample Size : 50 sample.
Secondary Data Collection:
Secondary data means are those which have already been collected
by someone else and which have already been passed through the
statistical process.
Here, I had collected all the data related to Bullion commodity
from the different web sites. Which are as under.For gold
www.google.com
http://www.gold.org/links/index.php
www.gfms.co.uk
www.lbma.org.uk
www.nymex.com
www.tocom.com.jp
www.gold.org
www.kitco.com
www.dmcc.ae
www.iab.gov.tr
www.usagold.com
www.thebulliondesk.com
www.goldprice.com
www.mcx.com
www.ncdex.com
www.thebulliondesk.com
www.moneycontrol.com
www.advfn.com
www.bambooweb.com
www.personalfn.com
For silver
www.google.com
www.silverinstitute.uk
www.lbma.org.uk
www.nymex.com
www.tocom.com.jp
www.gfms.co.uk
www.kitco.com
www.mcx.com
www.ncdex.com
www.silverprice.com
Benefits of the Study
During the training in Motilal Oswal Securities Ltd., which is a
broking firm, and the topic is the Trend Analysis on Bullion
Commodity Market As this is totally new area of study. Benefit of
the study as under:
With the help of trend analysis of Bullion commodity and world
market, the present situation of the bullion commodity market and
future prospects can be known.
The project helps for get practical exposure to the Market.
The project helps in getting knowledge of Bullion Commodity
market, i.e. the factors that affects the performance of the
Market, Trend in the market, how international market affects the
domestic market in bullion commodity.
By survey discussion of the different investors, brokers &
experts of the market, to know about investment pattern they use
while investing and factors keep in mind while investing.
Limitation of the Study
Coin has two sides, same as every matter has advantages and
disadvantages, though put all the full efforts for the completion
of the project, there are some limitations are as under:
The first and the most important limitation is that, do not have
practical experience and knowledge and about the topic. This report
help just as theoretically get the knowledge. Here, statistical
data collected are used for this time only because there is always
market is volatile so there may be different scenario in the market
after some years. And the other limitation is that the figures for
projected analysis are based on the assumption because no one can
able to predict the real situation of the market.
In spite of full efforts made the findings of the analysis that
whether to buy or sell or hold the commodity may not be 100%
accurate.
In this project, while determining the efficiency of the market
only trend analysis is taken, where as other approach like
technical analysis, economical analysis also exist which affects
the price of the commodity.
Benefits of Exchange Traded Commodities Low margin requirement
and stable market
Hedge against future markets volatility.
Fair Price Discovery based on Demand/Supply ratio.
Transparency, Screen Based Trading ( Process, Prices and
Volume)
Creates Opportunity for Arbitrage between Two Exchanges,
Contracts.
Provides quality Specifications or quality Norms.
Large Expanding Volumes
MCX (Multi commodity exchange)
Gold Exchange captures more than 85 percent market share in gold
futures Multi Commodity Exchange of India Ltd (MCX), the golden
exchange has emerged as the No. 1 commodity exchange in India by
capturing more than 85 percent of the total gold futures trading
volumes.
The daily volume in gold futures contracts exceeds 400 Kilograms
and records open interest of more than 300 gilograms.
Commenting on the expanding bullion market, Mr. Jignesh Shah,
managing director, MCX said, "We believe that the Indian gold
market is on the verge of a huge transformation with the
introduction of futures trading. Indian gold fabricators and
exporters are participating in a large way to hedge their market
risk on MCX. With increased participation and trading volumes, MCX
is emerging as the Golden Exchange of the country"
He added that, "conservatively estimates have found that the
Indian gold futures market is expected to multiply at 10 times the
rate of the spot market in the next three years and this will
create a market of 8,000 tons of Gold, valued at Rs. 4,80, 000
crores.
Optimistically calculating with a multiple of fifty, a standard
multiple factor in markets of TOCOM and COMEX, the Indian gold
futures market is expected to grow to a staggering size of 40,000
tons of gold, valued at Rs. 24,00,000 crores. The collective market
size of all commodities put together is expected to be of the order
of US$ 600 billion.
Further, this market is expected to reach over 5000 cities in
all 550 districts of India, riding smoothly on state of the art
technology & industry friendly facilities provided by MCX."
MCX began live trading from November 10, 2003. On the first day
of trading, the maximum trading interest was witnessed in gold and
that too in the first contract month. In the New Year, volumes
surged to a new high of 214 Kgs (single side) as observed on
January 5, 2004. Same bullish trends were noticed in the open
interest and daily turnover figures.
At MCX the 'Trading Volume to Open Interest Ratio' is well in
comparison to what is being witnessed in the globally established
and matured commodity exchanges. It's distinguishingly noticed that
there is not a single trading day on which the Open Interest has
been reduced to ZERO, which is a positive signal of an emergence of
extremely healthy market.
Key Shareholders:NSE(National Stock Exchange)Financial
Technologies (India) Ltd.
State Bank of India Union Bank of India
State Bank of Indore Bank of India
State Bank of Hyderabad Canara Bank
Bank of Baroda Corporation Bank
Bank of Saurashtra SBI Life Insurance Co.
India in world gold market
ParticularIndia (in tons)World (in tons)% Share
Total stocks130001450009
Central bank holding400280001.4
Annual production226000.08
Annual recycling100 3001100 1200 13
Annual demand800370022
Annual Imports600
Annual Exports60
MCX Bullion Plus : MCX is amongst the top 3 Bullion Exchanges in
the world
Average daily turnover in bullion is Rs. 1000 Crores
Average spread between Buy & Sell is Re. 1
With the Government of India allowing futures trading in Gold
and Silver since October 2003,
For centuries Gold and Silver are well ingrained in the
Indian
MCX has commenced futures trading in Gold & Silver on its
online nationwide platform in November 2003 through its member
network spread across the country and it is presently the most
successful and liquid futures contract in India.
Indian Gold Market
Gold is valued in India as a savings and investment vehicle and
is the second preferred investment after bank deposits. India is
the world.s largest consumer of gold in jewellery as investment. In
July 1997 the RBI authorized the commercial banks to import gold
for sale or loan to jewellers and exporters. At present, 13 banks
are active in the import of gold.
Domestic consumption is dictated by monsoon, harvest and
marriage season. Indian jewellery offtake is sensitive to price
increases and even more so to volatility. In the cities gold is
facing competition from the stock market and a wide range of
consumer goods. Facilities for refining, assaying, making them into
standard bars in India, as compared to the rest of the world, are
insignificant, both qualitatively and quantitatively.
Characteristics of World Gold Market Gold market is highly
liquid and gold held by central banks, other major institutions and
retail jewellry keep coming back to the market. Due to large stocks
of Gold as against its demand, it is argued that the core driver of
the real price of gold is stock equilibrium rather than flow
equilibrium. Economic forces that determine the price of gold are
different from, and in many cases opposed to the forces that
influence most financial assets. South Africa is the world's
largest gold producer with 394 tons in 2001, followed by US and
Australia. India is the world.s largest gold consumer with an
annual demand of 800 tons.Important World Gold Markets London as
the great clearing house
New York, the home of futures trading
Zurich as a physical turntable
Istanbul, Dubai, Singapore and Hong Kong as doorways
to high consuming regions
Tokyo where TOCOM sets the mood of Japan
Silver
Indian Scenario
Silver imports into India for domestic consumption fell sharply
in 2002, down by 25% to a touch under 3,400 tons as against a
record year in 2001 when around over 4,540 tons was imported.
Indian industrial demand is estimated to have fallen by around
13% in 2002, down from a record 1,579 tons the previous year to
1,375 tons. In spite of this fall, India is still one of the
largest users of silver in the world, ranking alongside those
Industrial giants, Japan and the United States.
GFMS data shows that Indian jewelry and silverware fabrication
fell by close to 30% in 2002. Probably there are two main reasons
for this, namely the price and the agricultural/ rural economy.
World Silver Markets
Silver is predominantly traded on the London Bullion Market and
Comex in New York. The former, as the global hub of OTC
(Over-The-Counter) trading in silver, is the metal.s main physical
market. Comex, in contrast, is a futures and options exchange. It
is here that most fund activity is focused. Silver is invariably
quoted in US dollars per troy ounce.Factors Influencing Uncertain
Supply & Demand of Silver
World mine production is more a function of the prices of other
metals.
Often a faster growth in demand against supply leads to drop in
stocks with government and investors. Silver demand stands on three
pillers . jewellery & silverware, industrial and photography,
which are in turn factors of monsoon & agricultural output,
overall industrial growth and performance of the tourism &
services industry
at large, respectively. In India the real industrial demand
occupies a small share in the total industrial demand of silver in
sharp contrast to most developed economy like Japan and US.
In India like Gold the Silver demand is also determined to a
large extent by its price level and volatility. Hedging
Futures contract have been used as financial offsets to cash
market risk for more than a century. Hedging allows a market
participant to lock in prices and margins in advance and reduces
the potential for unanticipated loss or competitive
disadvantage.
A hedge involves establishing a position in the futures market
that is equal and opposite to a position in the physical market.
For instance a Gold jeweller who holds 1 Kg of Gold will hedge by
selling (going short) on 1 Kg Gold contract. The principle behind
establishing equal and opposite positions in the cash and futures
markets is that a loss in one market should be offset by a gain in
the other market.
NCDEX(national commodity and derivatives exchange)
Worlds Major Commodity Exchanges
Exchange Contract size Start date Price quotation Nature of
trading Outright Initial margin (April 06)
NYMEX
HYPERLINK "http://www.nymex.com/" 100 oz 99.5% purity 31Dec74
US$/oz Continuous open outcry plus electronic trading via ACCESS
Clearing member; member & hedge customer; $1,750 Non-member
speculative $2,363
TOCOM
HYPERLINK "http://www.tocom.or.jp/" 1 kilo, 99.99% purity
23Mar82 Yen/gramme Continuous computerised 90,000
MCX
HYPERLINK "http://www.mcxindia.com/" 100g 1kilo, 3 kg 10 Nov
2003 Rp/10g Continuous computerised 4% (5% for the 100g
contract)
NCDEX
HYPERLINK "http://www.ncdex.com/" 100g, 1 kilo, 99.99% purity 15
Dec 2003 Rp/10g Continuous computerised Membership fee: as a cash
free security deposit
CBOT100 oz (Full-sized), 33.2 oz (Mini-sized), not less than
99.5% purity6 Oct 2004US$/ozContinuous computerised Per 100 oz
contract: $2,430 (initial); $1,850 (maintenance).Per 33.2 oz
contract:$743(initial);$550 (maintenance)
TurkDEX 100g4 Feb 2005 Turkish Lira/gramme Continuous
computerised 'auction'Initial margin: 250 Turkish Lira per
contract; Maintenance margin: 187,5Turkish Lira per contract
DGCX1Kilo 99.5% purityJune 2005 US$/oz Continuous
computerisedUS$ 480 per contract
Gold
Where does the word Gold come from?
The word gold appears to be derived from the Indo-European root
'yellow', reflecting one of the most obvious properties of gold.
This is reflected in the similarities of the word gold in various
languages: Gold (English), Gold (German), Guld (Danish), Gulden
(Dutch), Goud (Afrikaans), Gull (Norwegian) and Kulta
(Finnish).Gold is a unique asset based on few basic
characteristics. First, it is primarily a monetary asset,and partly
a commodity. As much as two thirds of golds total accumulated
holdings relate to store of value considerations. Holdings in this
category include the central bank reserves, private investments,
and high-caratage jewelry bought primarily in developing countries
as a vehicle for savings.
A heavy, soft, ductile, malleable element. Most of this metal is
kept in reserves but some is used in jewelery. Gold is commonly
alloyed with Cu and Ag. Used in plating, dishes, and electronic
parts. Gold is a precious metal, since gold has been prized for as
an ornament, as a concentrated form of wealth, and for monetary
use. The foremost use of gold is for monetary purposes, most of it
being kept as bullion in reserve for notes issued. The next most
important use is for Jewelery using either white, yellow, or green
gold. Because of its softness the gold has to be mixed with copper,
silver, nickel, or palladium. Its purity or fineness is designed in
carats. 1 Carat means 1 part gold in24.Gold is used in dentistry,
glass making and in the chemical industry.Gold has served as the
most important monetary standard throughout history. It is measured
in troy ounces and the price of gold is typically stated in terms
of the cost of one ounce. Historically, the United States has fixed
the price of gold. The price of an ounce of gold was fixed at
$20.67 for many decades until 1934 at which point the price was
raised to $35.00. In 1968 a two-tiered pricing structure was
established, and by 1975 the price of gold was allowed to
fluctuate. In January of 1980 the price of gold reached its peak,
and by the year 2000 the price dropped to $272.
How much gold is there in the world?
At the end of 2001, it is estimated that all the gold ever mined
amounts to about 145,000 tonnes.
Who owns most gold?
If we take national gold reserves, then most gold is owned by
the USA followed by Germany and the IMF. If we include jewellery
ownership, then India is the largest repository of gold in terms of
total gold within the national boundaries. In terms of personal
ownership, it is not known who owns the most, but is possibly a
member of a ruling royal family in the East.
If all the gold was laid around the world, how far would it
stretch?
If we make all the gold ever produced into a thin wire of 5
microns (millionths of a metre) diameter the finest one can draw a
gold wire, then all the gold would stretch around the circumference
of the world an astounding 72 million times approximately!How much
new gold is produced per year?
In 2001, mine production amounted to 2,604 tonnes or 67% of
total gold demand in that year. How much does it cost to run a gold
mine?
Gold mining is very capital intensive, particularly in the deep
mines of South Africa where mining is carried out at depths of 3000
meters and proposals to mine even deeper at 4,500 meters are being
pursued. Typical mining costs are US $238/troy ounce gold average
but these can vary widely depending on
mining type and ore quality. Richer ores mined at the surface
(open cast mining) is considerably cheaper to mine than underground
mining at depth. Such mining requires expensive sinking of shafts
deep into the ground.
History of Gold
4000 BC Gold is first known to be used in parts of Central and
Eastern Europe. The Egyptians master the arts of beating gold into
leaf and alloying gold with other metals to achieve variations in
hardness and color. They also develop the ability to cast gold,
using the lost-wax technique still used in today's jewelry
industry. The Sumer civilization of southern Iraq uses gold to
creat a wide range of jewelry, often using sophisticated and varied
styles still worn today. 1352 The young Egyptian King Tutankhamun
is interred in a pyramid tomb laden with gold, his remains laid in
an extravagant gold anthropoid sarcophagus. 1350 The Babylonians
begin to use fire assay to test the purity of gold. 1091 Squares of
gold are legalized in China as a form of money. 560 The first coins
made purely from gold are minted in Lydia, a kingdom of Asia Minor.
58 Julius Caesar seizes enough gold in Gaul (France) to repay
Rome's debts. The Byzantine Empire resumes gold mining in central
Europe and France, an area undeveloped since the fall of the Roman
Empire. Artisans of the period produce intricate gold artifacts and
icons. 1100 Venice secures its position as the world's leading gold
bullion market due to its location astride the trade routes to the
east. Venice introduces the gold Ducat, which soon becomes the most
popular coin in the world, and remains so for more than five
centuries. Great Britain issues its first major gold coin, the
Florin, which is followed by the Noble, the Angel, the Crown, and
the Guinea.
1511 King Ferdinand of Spain sends explorers to the Western
Hemisphere with the command to "get gold." Isaac Newton, Master of
the London Mint, sets price of gold that lasts for 200 years. 1787
First US gold coin is struck by Ephraim Brasher, a goldsmith.
1792 The Coinage Act places the young United Sates on a
bimetallic silver/gold standard, defining the U S Dollar as eq i
alent to 24 75 grains of fine gold and 371 25 grains of fine silver
the U.S. Dollar as equivalent to 24.75 grains of fine gold, and
371.25 grains of fine silver.
1803 North Carolina site of first US gold rush. The state
supplies all the domestic gold coined for currency by the US Mint
in Philadelphia until 1828.
1848 The California gold rush begins when James Marshall finds
specks of gold in the water at John Sutter's sawmill near the
junction of the American and Sacramento Rivers.
1850 Edward Hammong Hargraves, returning from California,
predicts he will find gold in Australia within one week. He
discovers gold in New South Wales within one week of landing.
1859 The Comstock Lode of gold and silver is discovered in
Nevada. As a result, Nevada is made a state five years later.
1886 George Harrison, while digging stones to build a house,
discovers gold in South Africa.
1887 Glasgow doctors, Robert and William Forrest, and chemist
John S. MacArthur patent the process for extracting gold from ore
using cyanide.
1896 Two prospectors discover gold while fishing in the Klondike
River in northern Canada, richer finds were rumored farther south
in Alaska's Yukon, spawning the Alaska Gold Rush in 1898 -- the
last gold rush of the century. 1900 US adopts the gold standard for
its currency.
1903 The Engelhard Corporation introduces an organic medium to
print gold on surfaces. First used for decoration, the medium
becomes the foundation for microcircuit printing technology.
1922 King Tutankhamun's tomb (1352 BC) opened to reveal a 2,448
lb. gold coffin and hundreds of gold and gold-leafed objects
(including the mask pictured at the beginning of this section).
1927 A Medical study in France proves gold to be valuable in
treatment of Rheumatoid arthritis.
1933 President Franklin D. Roosevelt bans the export of gold,
halts the convertibility of dollar bills into gold, orders US
citizens to hand in all the gold they possess and establishes a
daily price for gold. 1934 Roosevelt fixes price of gold at $35 per
ounce.
1935 Western Electric Alloy #1 (69% gold, 25% silver and 6%
platinum) finds universal use in all switching contacts for
AT&T telecommunications equipment.
1944 The Bretton Woods agreement sets an international gold
exchange standard and creates two new international organizations,
the International Monetary Fund (IMF) and the World Band. The new
standard sets par values for currencies in terms of gold and
obligates member countries to convert foreign offical holdings of
their currencies into gold at these par values. 1947 The first
transistor, the building block for electronics, is assembled at
AT&T Bell Laboratories. The device uses gold contacts pressed
into a germanium surface.
1960 The laser is invented using gold-coated mirrors to maximize
infrared reflection.
1961 Modern-day mining begins in Nevada's Carlin Trend,
ultimately making Nevada the nation's largest gold-mining
state.
1968 Intel introduces a microchip with 1 024 transistors
connected by gold circuits
1969 Gold coated visors protect the astronauts' eyes from
searing sunlight on the moon (Apollo 11 moon landing).
1970 The charged coupled device is invented, using gold to
collect electrons generated by light, eventually used in hundreds
of military and civilian devices, including video cameras.
1971 The colloidal gold marker system is introduced by Amersham
Corporation of Illinois. Tiny spheres of gold are used in health
research laboratories worldwide to mark or tag specific proteins to
reveal their function in the human body for the treatment of
disease. 1973 The U.S. Dollar is removed from gold standard, and
gold prices are allowed to float free. By June, the market for gold
in London reaches more than $120 per ounce.
1974 On December 31, US government ends its ban on individual
ownership of gold.
1976 The Gold Institute is established in Washington, D.C., to
promote the common interests of the gold industry by providing
statistical data and other relevant information to its members, the
media, government, and the public. 1980 Gold reaches intra-day
historic high price of $870 on January 21 in New York.
1986 Gold-coated compact discs are introduced.
1987 Airbags are introduced for cars, using gold contacts for
reliability.
1996 The Mars Global Surveyor is launched with an on-board
gold-coated parabolic telescopemirror that will generate a detailed
map of the entire Martian surface over a two-year period.
1997 Congress passes Taxpayers Relief Act, allowing US
Individual Retirement Account holders to buy gold bullion coins and
bars for their accounts as long as they are of a fineness equal to,
or exceeding, 99.5 percent gold. 1999 The Euro, a pan-European
currency, is introduced, backed by a new European Central Bank
holding 15 percent of its reserves in gold.
2000 Astronomers at the Keck Observatory in Hawaii use the giant
gold-coated mirrors of the observatory's twin telescopes to produce
the most detailed images of Neptune and Uranus ever captured.Market
IntroductionAs a gold market, New York has only really come into
its own since 31 December 1974 when Americans were once again
permitted to buy and sell gold freely for the first time since
1933. In the intervening years the gold business had been strictly
licensed through a handful of banks, such as Republic National Bank
of New York and Rhode Island Hospital Trust National Bank which
supplied gold to authorised jewellery and industrial fabricators.
But once those restrictions were lifted, the New York market
developed in its own unique way through futures (and later options)
trading. The concept of futures had developed in Chicago in the
1830s essentially for agricultural projects. The application to
gold came only in the 1970s, initially at the Winnipeg Commodity
Exchange in Canada, but then on COMEX (Commodity Exchange Inc.) in
New York and at the Chicago Board of Trade and the Chicago
Mercantile Exchange from 1975. They brought a completely new
dimension to gold trading, but ultimately it was COMEX which set
the pace, so that today it is COMEX (now a division of NYMEX) that
is the heart of America's gold market. As one writer put it, "The
world of gold stays awake for COMEX".
In parallel with COMEX as the great terminal market, however, an
increasing amount of gold trading is done outside the exchange by
market-makers in spot, forward and over-the-counter options. This
is often known as 'the upstairs market'. But its volumes are not
recorded. So COMEX remains supreme in terms of a formal market with
its transactions closely recorded and
observed by analysts.
Features of Indias Gold Economy
India has been known to possess large stocks of gold and studies
show that they are mostly accumulations from centuries of trading
rather than result of production of her mines. What is of
contemporary interest, however, relate to the demand, supply and
price-movements and their link with policy. Some broad
generalizations on these aspects would be appropriate to review
the
policy and identify the issues.
First, on the demand side, while there are no authentic
estimates, the available indications are that about 80 per cent is
for jewellery fabrication (mainly of over 22 carat purity) for
domestic demand, 15 per cent is for investor-demand (which is
relatively elastic to gold-prices, real estate prices, financial
markets, tax-policies, etc.) and barely 5 per cent is for
industrial uses. The demand for gold jewellery is rooted in the
societal preference for a variety of reasons viz. Religious,
ritualistic a preferred form of wealth for women and as a hedge
against inflation. It will be difficult to prioritize them but it
may be reasonable to conclude that it is a combined effect, and to
treat any major part as exclusively a store of value or hedging
instrument would be unrealistic. Nor would it be realistic to
assume that it is only the affluent who create demand for gold.
There is reason to believe that a part of investment demand for
gold assets is out of black money. The annual consumption of gold
which was estimated at 65 tons in 1982 has increased to 505 tons in
1995. Although it is likely that with prosperity and enlightenment,
there may be deceleration in demand, particularly in urban areas,
it would be made good by growing demand on account of prosperity in
rural areas. In the near future, therefore, the annual demand will
continue to be high at around 400 to 500 tons.Second, as the
domestic production of gold is very limited, around 2 tons per
year, and supply from fabricated old gold scraps estimated at
around 62 tons per year being not adequate, the rising demand has
to be sourced from outside the country. In the face of a virtual
ban on official import of gold for domestic consumption till 1990,
the rising demand was met by illegal imports. During the period
1968 - 1995, smuggled gold into India varied in the wide range of
10 217 tons per year with the sole exception of 1980 when 9 metric
tons were reported to have been smuggled out of the country to take
advantage of the soaring gold prices in the international market.
However, the situation changed drastically during the nineties
since the proportion of smuggled gold in our total supplies has
gone down substantially. While currently there are some efforts to
promote gold mining domestically, especially involving private
sector, there are no indications that domestic supply would
increase in any perceptible manner.
Third, the strong domestic demand for gold and the restrictive
policy stance are reflected in the higher price of gold in the
domestic market compared to that in the international market at the
available exchange rate. During the 19-year period from 1977-78 to
1995-96, the average spread between Mumbai and London market prices
(Mumbai price less London price in rupee terms) of
gold has been positive except for a brief period during 1980-81
when the international gold price zoomed briefly, following the oil
crisis, the persistent weakening of the US dollar resulting in
flight of dollar resources into gold and accelerating world-wide
inflationary trends. The average spread was as high as 41.3 per
cent during 1977-79 which rose to 46.6 per cent during 1981-85 and
further to 56.6 per cent during 1986-91. In the post-liberalisation
period, with changes in the exchange rate regime and some
relaxations on the import regime of gold, the average spread
between domestic and international prices has come down from 53.1
per cent in 1991 to 20.6 per cent in 1993, 20.1 per cent in 1994,
19.9 per cent in 1995 and further to 17.5 per cent in 1996 (up to
October). In the absence of open import, the domestic gold prices
relative to international prices appear to have been governed by
two factors: (i) the spread between the official and market
exchange rate of the rupee and (ii) the customs duty,
transportation cost, storage cost, risk premia, etc.Fourth, the
value of gold imports through official channels increased from $
1.25 billion in 1992 to $ 3.4 billion in 1995 while that of
smuggled gold was in the range of $ 1.2 to $ 1.7 billion. Viewed
from any angle, gold import has emerged, in terms of importance in
our foreign trade.
Fifth, as the policy-debates would show, the management of
demand and supply of gold has important policy implications for
fiscal policy and exchange rate management, and in the recent
times, use of gold as a financial instrument, especially
mobilisation of domestic gold has attracted attention.What makes
Gold Special?
Timeless and Very Timely Investment:
Gold is an effective diversifier: Gold is the ideal gift: Gold
is highly liquid: Gold responds when you need it most: Gold
Production Company (000) Ounces
American Reclamation5
Apollo Gold107
Barrick Gold Corp.1,949
Canyon Resources Corp.30
Coeur Rochester, Inc69
Cripple Creek & Victor Gold Mining329
Glamis Gold Inc.154
Golden Phoenix Minerals, Inc.4
Hecla Mining0.2
Kennecott465
Kinross Gold Corp.435
MK Resources Co./Quest4
Newmont Mining2,376
Placer Dome Inc.1,263
Plum Mining Co., LLC3
Queenstake Resources USA, Inc.243
Robinson Nevada Mining Co.12
Round Mountain Gold Corp.763
Western Goldfields, Inc.27
Wharf Resources, Inc.76
Other40.8
Total8,355,000
Properties of GoldResistance to Corrosion: Gold is the most
non-reactive of all metals. It is benign in all natural and
industrial environments. Gold never reacts with oxygen (one of the
most active elements), which means it will not rust or tarnish. The
gold death-mask in the tomb of Tutankhamun looked as brilliant when
it was unearthed in 1922 as when it was entombed in 1352 BC.
Electrical Conductivity: Gold is among the most electrically
conductive of all metals. Since electricity is essentially the flow
of charged particles in a current, metals that are conductive allow
this current to flow unimpeded. Gold is able to convey even a tiny
electrical current in temperatures varying from -55 to +200
centigrade. This makes gold a vital component for electrical
connectors in computers and telecommunications equipment.
Ductility and Malleability: Gold is the most ductile of all
metals, allowing it to be drawn out into tiny wires or threads
without breaking. As a result, a single ounce of gold can be drawn
into a wire five miles long. Gold's malleability is also
unparalleled. It can be shaped or extended into extraordinarily
thin sheets. For example, one ounce of gold can be hammered into a
100 squarefoot sheet.
Infrared (Heat) Reflectivity: Gold is the most reflective and
least absorptive material of infrared (or heat) energy. High purity
gold reflects up to 99% of infrared rays. This makes gold ideal for
heat and radiation reflection, as in life-saving face shields for
astronauts and firefighters.
Thermal Conductivity: Gold is also an excellent conductor of
thermal energy or heat. Since many electronic processes create
heat, gold is necessary to transfer heat away from delicate
instruments. For example, a 35% gold alloy is used in the main
engine nozzle of the Space Shuttle, where temperatures can reach
3300 centigrade. Gold alloy is the most tenacious and
long-performing material available for protection at these
temperatures.
Gold and the money supply
In January 1959 US M3 money supply was $288.8 billion, and the
Official Gold Holdings of the United States was then 17'335.1
Tonnes, or about 557 million ounces (there are 32,150.7 Troy Ounces
in a Tonne). That means that in 1959, there were $518 in
circulation for every ounce of gold reserves held by the USA.
Although the theoretical price should then have been $518 per
ounce, the actual price, as fixed under the gold standard was only
$35 an ounce.
By August 2005, the US M3 money supply had risen to $9'873.9
billion, whilst at the same time the Official Gold Holdings of the
United States had fallen to just 8'133.5 Tonnes, or about 261
million Troy Ounces. This means that today, in 2005, there are
$37'831 in circulation for every ounce of gold held by the United
States.
Gold in investment portfolios
As a tangible investment gold is sometimes held as part of a
portfolio because over the long term gold has an extensive history
of maintaining its value. It has in the last century gained ground
in relation to fiat currencies owing to inflation. Gold becomes
particularly desirable in times of extremely weak confidence and
during hyperinflation because gold maintains its value even as fiat
money becomes worthless. People who enjoy investing in gold are
known as gold bugs. Futures contracts based on gold currently trade
on various exchanges around the world. In the US this occurs
primarily on COMEX (Commodity Exchange) which is a subsidiary of
the New York Mercantile Exchange. Recently, gold-based ETFs like
GLD have emerged as a more convenient investment vehicle.
WORLD GOLD
DEMANDCOUNTRY1996(tons)1997(tons)1998(tons)1999(tons)2000(tons)
India506.98736.84814.91838.86855.34
USA331.56362.04428.29459.71387.55
China374.48406.83314.45343.38329.38
SE asia329.69204.0451.63265.62267.18
Saudi184.75199.06208.39199.37221.14
Turkey153.03201.86172.00139.03207.15
WORLD GOLD
PRODUCTION1840-18501851-18751876-19001901-19251926-19501951-19751976-2000
557 4790 5670 14852 21779 30649 45235
List of London Bullion Market Association Approved Gold
Suppliers
Belgium
Brazil
Canada
China
Colombia Germany
Hong Kong Indonesia Italy
Japan
Kazakhstan KoreaKyrgyz Mexico
Netherlands
Philippines
Russia
South Africa
Spain Sweden Switzerland
United Kingdom USA
Uzbekistan
Zimbabwe
Why invest in gold?
portfolio diversification preservation of wealth risk factors
HOW TO BUY GOLD? Coins and small bars
Exchange traded gold
Gold accounts
Gold certificates
Gold oriented funds
Structured productsIndian Government Policy for Bullion 1947 -
Complete ban on Import of Bullion
1956 - Mysore Government controlled production of Gold
1962 - Govt. floated 15 years 6.5% Gold Bond by which around
16.30 MT Gold was collected
1962 - Ban on Forwarding Trading
1963 - Declaration of Gold holding made compulsory for
individual. Restriction on manufacturing of jewellery above 14
Ct.
1964 - Restriction on private trade, Gold handling canalised by
Govt only
1965 - Floating of 15 years 7% Gold Bonds (6.1 MT Gold
Collected)
1965 - Floating of 15 years 6.5% National Defence Gold Bond
(13.7 MT Gold Collected)
1966 - Restriction on manufacturing of jewellery above 14 Ct
removed
1966 - Ceiling on holding of Gold by individual
1966 - Control imposed on refinery & dealer
1968 - Formulation of Gold Control Act, 1968
1975 - Introduction of Voluntary disclosure of Income and Wealth
(amendment) Ordinance 1975 - for declaration of income and wealth
in the form of Gold
1978 - Govt. auctioned Gold through RBI to control inflation and
banned further auction
1991 - Amendment brought into Gold Control Act permitting
holding of Gold not only in the form of jewellery but also in the
form of bars
1991 - Import of Gold against SIL permitted
1991 - NRI to bring 5-Kgs Gold against payment of Custom duty @
Rs.220/= per 10 Gram
1992 - Recommendation by RBI to Govt for Formation of Gold
Management corporation
1992 - Proposal of formation of Gold Bank rejected
1992 - Formation of Gold Standing committee to keep track of
movement of Gold and other precious metals
1993 - 41 MT of Gold mobilised under gold Bond Scheme
1997 - Gold Import put under OGL through nominated agencies
1997 - Gold import by NRI increased to 10 Kgs.
1998 Custom duty increased to Rs.250/- per 10 Gram of Gold
against Rs.220/=
1999 - Gold Bond Scheme announced by RBI (15/9/99)
2003 Custom duty reduced to Rs.100/- per 10
BULLION REPORT BY NCDEX
The Bullion Report March 2006
Precious metals shot to fresh multi year peaks in March, with
silver marking a
23 year high at $11.76 /troy oz and gold putting on its best
performance since
1981 to touch $ 584 / troy oz. The month saw gold stage a
dramatic recovery after slumping to a low of $ 535 on March 10, to
rise by nearly 9% to close the month at $ 582 per troy ounce. This
steep rise was facilitated to a significant extent by a weaker
dollar against the euro especially during the last week of March
(see Figure 1). The domestic market was in line with the firm trend
in overseas markets as gold prices scaled an all time high of Rs
8542 / 10 grams by the end of the month.
Factors Driving up Gold Price
Depreciation of the Dollar against the Euro
The US dollar had its first quarterly decline in a year against
the euro on speculation that interest rate increases by the
European Central Bank will begin to outpace moves by the Federal
Reserve. The fresh fall of the dollar by more than 2 percent this
month on a point to point basis boosted gold buying. A weaker
dollar makes dollar denominated bullion cheaper for other currency
holders and thus lifts gold buying.Expectation of Silver
ETF(Exchange Traded Fund) Golds recent gains are largely the result
of speculators encouraged by silvers rally. Demand for gold is
expected to rise as ETFs make it easier for investors to own
bullion. Silver has risen on anticipation of the approval of the
first fund of the precious metal. Curb on Central Bank Sales Gold
is likely to receive support from the European Central Banks recent
announcement that it had sold 57 tonnes of gold as part of the 2004
central banks gold sales agreement and that it does not plan any
further gold sales in the next six months.Likely Silver Spot
Trading on Shanghais Gold Exchange Also driving the bullish
sentiment were reports that Chinas Shanghai Gold Exchange hopes to
launch the countrys first ever spot silver trading on the bourse in
July this year.
sentiment and spurring inflationInvestment Funds driving up
price Interest in commodities by investment funds have also helped
fuel the rally in gold prices. Funds have been the biggest buyer
this year, going beyond the level of purchases by jewelers, who
accounted for 73% of demand last year. Investment in StreetTracks
Gold Funds has increased to $6.5 billion since the funds began
trading on the New York Stock Exchange in November 2004.
Factors affecting GoldA constant issue in the gold market is
what influences the price. Most people logically believe the supply
and demand figures in the physical gold market will determine the
price.However, the futures market in New York is the single largest
place in the world where more gold contracts are traded than any
other. The price at which the physical gold changes hands, in
almost all cases, depends on the price at the New York exchange.
Practically all gold bullion and gold coin dealers will base the
price of their transactions on this price.
Therefore, the supply and demand at the NY exchange is probably
the single most important factor (at least in the short term) in
determining the outlook for the gold price. We can see large
changes in the supply or demand in the physical market, but if the
price does not first change at the exchange it is not likely to
change the price of the physical gold.
Of course, in the longer term, supply and demand in the physical
market will cause the futures market to change accordingly, but
significant and sustained changes in the physical gold market are
few and far between.
Weak US Dollar Projections about a declining dollar due to an
ever-increasing twin deficit supported by many investment veterans
are met by much denial from politicians as well as from investors.
As long as foreigners are willing to pour in the amount of $2
billion dollars every working day, the dollar won't crash. But if
foreign confidence were to wane, the US dollar will be heading
south. No matter how you look at the US twin deficits and America's
future fiscal liabilities, this problem is huge and some painful
adjustments not only seem to be necessary but unavoidable as well.
It should be obvious that one of these major painful adjustments
will be a massive devaluation of the US dollar. It seems that the
idea of a dollar devaluation is gaining support from the Fed when
the President of the Dallas Fed, Robert McTeer recently said: "over
time, there is only one direction for the dollar to go - lower."
Former ECB president Wim Duisenberg, quoted by Spanish Newspaper El
Pais, recently said: "A dollar devaluation seems inevitable due to
the tremendous US Current Account deficit." Furthermore he recently
said on Dutch television that we can only hope and pray for a
smooth economic transition in the US. Why is this so important?
Simple, the US dollar is the key driver for Gold; as the dollar
goes, so will gold; but in the opposite direction. Gold is the
anti-dollar with a high inverse correlation to the dollar! In the
end, gold is still a monetary asset and trades like a currency.
Growth in Demand for JewelryIn spite of the convergence of Diamond
and Palladium, the demand for gold jewelry has seen a regular
growth year on year. Countries which are primarily responsible for
this growth are India, China, Italy, Turkey and the USA. The demand
for consumption of gold in jewelry was 6% higher at 735 tonnes and
also comprised a new first-quarter record. The US, which accounts
for 10 % of world gold demand, is also one of the markets where
public taste in gold jewelry is enjoying a renaissance. The renewed
interest in gold also extends to Japan, a market which showed a 19%
increase in demand. The Indian market the worlds largest for gold
demand was 23 % higher following the marriage and festival period
which, in turn, has led to restocking by retailers. The earthquake
in India, however, is unlikely to hit demand significantly as it
occurred in an area which comprises only 5% of the total Indian
consumption. There were sharp falls in demand in Turkey and Taiwan
- down 38% and 31% respectively. This was due to economic
difficulties and continued weakness in investment demand.
Increase in demand for exchange traded paper backed productsFor
the first time in history, gold can be purchased like any listed
stock at select stock exchanges of the world like London Stock
Exchange, Australian Stock Exchange (Gold Bullion Securities) and
New York Stock Exchange (StreetTracks Gold). The World Gold Council
initiated Electronic Traded Funds have displayed very good
performance and growth in volumes since launch.
Which Way the Gold Price Change? Our Opinion It may come as a
surprise that we do not often venture a strong opinion as to the
future direction of the gold price. We do not pretend to be experts
at prediction of market prices, indeed we believe that there are
very few people who could claim consistent success at predicting
future gold price movements. We also prefer to point out obvious
and potential fundamental factors, and allow our customers to form
their own judgements. As at February 2000, we believe we can
envisage one important factor which may have a significant effect
on the gold price over the next few years. First, The Past! In any
attempt to foresee the future, it is necessary to look at history,
to see what insights we may be able to glean from the past. We do
not intend to give here a full analysis of past gold prices, but we
will attempt to give a brief summary. From 1100 AD to 1931 AD, when
Britain abandoned the gold standard, the price of gold remained
steady at about 3.89, apart from a few brief "blips" in either
direction. In 1935 the US Treasury fixed the price of gold at $35
per ounce, although the aim was to stabilise the dollar. Britain
devalued the pound from $4.03 to 2.80 in 1949, or in terms of gold,
from 8.68 to 12.50 per ounce. In December 1971 (we have seen a date
quoted as August 15th), the dollar was devalued to $38 per ounce
from $35, and again in February 1973 to an "official" price of
$42.22, and even this was abandoned by November 1973. From then the
dollar "floated" although "sank" may be a more accurate
description, until gold reached $850, just under 400, per ounce in
1974. As with most huge price upheavals, this increase was
overdone, and gold has since fluctuated down to about $270, back to
$350, and is currently around the $300 per ounce level. Until the
past few months, our view of gold trends is that the price would
stay in the recent range for the next few years and more. Central
Bank SalesDuring the last decade, many central banks have been
reducing the proportion of gold held as part of their currency
reserves. We believe that this is probably a reasonable, sound move
in keeping with modern theories of currency and foreign exchange
management, after all most currencies are now token currencies,
their value being related more to the general perception of their
worth, dictated by trade imbalances and supply and demand. Whether
it proves to be a completely sound principle will probably not be
fully known for another fifty years or so. We are aware that the
World Gold Council has consistently argued against Central bank
sell-offs, but as it is financed by the gold producers, this is
only to be expected. The effect of the Central bank sales has been
to significantly increase the supply to the market, and it has
understandably has the effect of reducing gold prices. Within the
next few years, we believe that Central bank sales will slow down,
perhaps stop, and it is entirely possible that they may eventually
return as net gold buyers, particularly on any weakness in the gold
price. Obviously the reduction or cessation of a flow of Central
banks gold onto the market will exert an upward pressure on
prices.
Producer HedgingAlthough prices recently rose on announcements
that several gold producers were to stop or reduce their hedging
activities, whereby they borrow gold, sell it, invest the proceeds,
and repay the gold from future production, we believe that this
probably reflects their longer term views of market fundamentals,
rather than being in itself a prime influence on market prices. If
the gold miners believe that it will in the near future be
advantageous for them to stop short-selling, then presumably their
analysts believe that firmer prices are likely. An Upward Trend As
the world demand for gold has absorbed quite large quantities of
Central banks gold stocks over the past decade, with only a fairly
small downward effect on prices, we believe that gold prices are
more likely to increase over the next few years than to decrease.
Certainly the upside potential must now be considerably stronger
than the downside potential. THE USES OF GOLD
Gold's superior electrical conductivity, its malleability, and
its resistance to corrosion have made it vital to the manufacture
of components used in a wide range of electronic products and
equipment, including computers, telephones, cellular phones, and
home appliances.
Gold has extraordinarily high reflective powers that are relied
upon in the shielding that protects spacecrafts and satellites from
solar radiation and in industrial and medical lasers that use
gold-coated reflectors to focus light energy. And because gold is
biologically inactive, it has become a vital tool for medical
research and is even used in the direct treatment of arthritis and
other intractable diseases.
ELECTRONICS AND TELECOMMUNICATIONS
COMPUTERS/SEMICONDUCTORSMillions of computers are manufactured
worldwide each year and gold plays an active role in their many
components. The most important use of gold is as a fine wire that
connects circuits to the semiconductors.
POWERCHAIRSComputerized wheelchairs, called power chairs, allow
disabled patients further control over their movements and a
renewed sense of independence. At the heart of the computerized
controls is a tiny, but powerful, Motorola microprocessor connected
to the wheelchair's controls by gold wire and gold-coated connector
pads. SPACECRAFT
To protect the onboard computers in the Galileo space probe from
short circuiting as a result of heavy bombardment, NASA developed a
Heavy Ion Counter (HIC). The HIC contains silicon wafers with gold
electrodes that detect the heavy ions as they penetrate the wafers.
Use of the HIC allows NASA engineers to monitor the functioning of
onboard computers and make adjustments when
necessary.TELEPHONES
Behind the protective cover of every telephone mouthpiece is a
miniature transmitter that contains gold in one of its central
components, the diaphragm. A gold-plated dome in the diaphragm
works with the other mouthpiece components to transcribe voice
vibrations into an electrical current. Gold is used in this
application because of its permanence, particularly in public
phones that are exposed to outdoor weather conditions.TELEPHONE
WALL JACKSBecause gold conveys a superior signal, it is used to
coat billions of contacts for phone jacks and connecting cords
throughout our nationwide telephone system. The phone wall jacks
are goldcoated to assure the customer of the convenience of moving
the phone from one wall jack to another while maintaining clear
static-free conversation.TVs AND VCRs
The micro circuitry in televisions is composed of fine lines of
gold circuits connected by hair-thin gold wires to the
micro-electronic circuit chips that process broadcast signals into
a TV picture. Cables connecting television sets to videocassette
recorders are coated to assure clear relay of television signal.
MEDICINE AND HEALTHGold is valuable to modern medicine because it
is non-toxic and biologically benign; one of the most efficient
conductors of electricity, and its density enables it to be seen
under electron microscopes. And although gold is virtually
indestructible, it is a soft metal, easy to work with, shape,
flatten or draw out into microscopic strands. DENTISTRYMost gold
used in dentistry is in the form of alloys, which are mixtures of
gold and other metals, such as platinum, palladium, silver, copper
and zinc. Gold is non-toxic and biologically inert, which makes
gold ideal for use in dental procedures. It is easy for the dentist
to manipulate, but strong, stiff, durable and tough -- it never
wears or tarnishes. It is a very resistant to chemical attack and
does not corrode.
EYE SURGERYAccidents, disease or surgery may cause a condition
called Lagophthalmos, which is the inability to close the eyelids
fully. In order to keep the eyelids moist, doctors previously
resorted to sewing the eyelid half shut, but a new gold eyelid
implant is now the current form of treatment. These gold "eyelid
load implants" are surgically inserted into the upper lid and
allows the eye to blink normally. The muscle that opens the eyelid
works to hold the eyelid open; then, when the muscle relaxes,
gravity exerted on the gold causes the eyelid to drop. Gold is the
best choice for this device as it does not corrode and will not
react with tears. LASERSOne of the most promising new areas of
medical treatment is in the use of ion lasers, the interior
surfaces of which are coated with gold to control the focus of the
beam. In one development, gold vapor lasers create a high intensity
red light with the required wavelength to seek out and selectively
destroy cancerous cells without harming healthy neighbouring cells.
A new lightweight laser, designed by the military and using gold
plated contacts, enables medics to seal battlefield wounds in the
field, thereby reducing blood loss and improving survival chances
for the seriously wounded. In hospitals, this new design will allow
lasers to be brought to critically injured emergency patients
without moving them, saving minutes and lives.Surgeons use gold
instruments to clear clogged coronary arteries. Injection of
microscopic gold pellets helps retard prostate cancer in men. Some
forms of cancer are treated with colloidal gold. Lasers with
gold-coated parts literally give new life to patients with
once-inoperable heart conditions and tumors. Thermometer:Gold is a
key component of modern thermometers that can read human body
temperature in two seconds, just by holding the thermometer against
the outer ear. The readings are accurate because the eardrum shares
the same blood vessel system as the hypothalamus, the organ that
controls the core body temperature. The thermometers contain a gold
coated tube -- known as a "waveguide" -- that directs heat from the
ear to the temperature sensing element in the device. Waveguides
have been essential components of electronic systems such as radar
and microwave telecommunications. Since gold is the most
heat-reflective metal, none of the heat radiated from the ear will
be lost warming up the tube of the thermometer. Research:
Laboratory coupling of tiny gold particles with DNA has produced
new microscopic structures that are opening a range of research,
treatment and diagnostic possibilities in fields such as
biochemistry, genetics and medicine. Soon doctors will be able to
test patients for infections, cancer, AIDS, and other diseases and
get immediate results by using genetic probes affixed with clusters
of gold molecules that adhere to targeted DNA material. Scientists
at the Massachusetts Institute of Technology (MIT) developed a
microchip, the size of a human thumbnail, with more than 1000
separate tiny compartments that can hold medications in solid,
liquid, or gel form, and dispenses them from under the patient's
skin. The silicon chip is covered with thin gold foil. Medicine is
released when a tiny electrical charge is applied between the gold
cover and a gold electrode, opening the desired compartment.
Astronomy: The world's largest telescope, located at the Keck
Observatory, uses gold in its internal workings. Located atop the
13,796-foot-high Mauna Kea volcano in Hawaii, the observatory is
composed of twin telescopes, Keck I and Keck II, and each is
equipped with a 2l-inch secondary mirror that is coated with
99.9-percent pure gold. Copy Machines: Copy machines use very high
temperatures to affix the copy image onto the paper. These machines
use gold-coated mirrors to reflect the heat efficiently, and
produce copies for millions of businesses every day.
Photo CDs: Eastman Kodak Company has developed a Photo CD System
that uses gold as the reflective surface. Photofinishers can
transfer, in a digitized format, 35mm negatives or slides to
compact discs holding up to 100 images on a disc. Once on disc,
images can be viewed on television or computer screens. An
interesting example of how this system can be used is demonstrated
in a project for the National Park Service in which all items left
at the Vietnam Veterans Memorial are photographed, catalogued, and
compiled onto gold-coated photo CDs.
Satellites: Military and commercial communications satellites
circling the Earth use gold in many important ways. Circuitry and
chemically clean gold wires provide permanently static-free signals
in rebroadcasting signals back to Earth. Electronic circuitry boxes
are gold coated to protect the electronic devices from cosmic ray
degradation and solar bursts. Gold-coated Mylar sheets are wrapped
around the main body of satellites to reflect away the intense
solar heat that would otherwise degrade the satellites'
performance. Gold is essential in satellites because of its
reflectivity, conductivity, and resistance to corrosion.
Security Systems: Security systems require long-term unattended
reliability. The infrared reflective properties of gold are used in
infrared viewing equipment for home and office security systems.
These nighttime security cameras can view areas at night without
the need for visible light.
Industry and Aviation
Airbags: Gold is used in automobile airbag deployment systems,
where a sensor device is placed inside the car near the front
bumper. This sensor contains gold-plated electrical contacts that,
when activated, send the signal for the airbag to deploy. Because
of its dependable electrical conductivity and its resistance to
corrosion and tarnish, gold is the only metal that meets the
quality requirements for this life-saving feature.
Aircraft Engines: Gold plays a vital role in the engines of
military and civilian aircraft. Gold is a major constituent of a
brazing alloy used in the manufacture of two assemblies -- stators
and tubes. These two assemblies are integral to maintaining airflow
and air compression necessary for combustion engine operation. Gold
also plays a key role in aircraft electronics and guidance
systems.
Aircraft Windows: Many domestic and military aircraft use
gold-coated acrylic windows in the cockpit. In cold weather, these
windows, carrying an electric current, help eliminate frost that
might diminish the vision of the pilots. These thin coatings of
gold also help avert fogging as the plane ascends through
moisture-laden clouds. During warmer weather, gold's reflectivity
helps maintain cool cockpit temperatures on hot runways. In flight
at high, cold altitudes, gold's thermal conductivity helps retain
the heat of the cabin, keeping the crew warm.
Engine Systems: Gold-plated connectors in the sensors for
ignition and exhaust monitoring ensure long-term efficiency of
automobile engine operation. Gold is integral in maintaining car
efficiency. Gold plated connectors and contacts that operate in a
car's engine require materials that can withstand the
high-temperature and corrosive environment.
Fire Bunker Gear: When a disaster occurs, such as an airplane
crash or hazardous chemical fire, firefighters must wear protective
"bunker gear" so they can get close enough to the fire to control
it. In close proximity to intense heat, firefighters need to
protect their eyes while maintaining the ability to see the fire
scene clearly. Bunker gear head coverings have protective face heat
shields that are coated with a thin layer of gold. Gold has been
used for several years in this safety-related application because
of its heat and infrared reflectivity.
Food- Freshness Sensors: Gold-coated sensors provide the food
industry with a system for measuring carbon dioxide gas, which is
necessary to prevent spoilage of fruits and vegetables. Gold
sensors are also important in maintaining carbon dioxide levels
required to extend the shelf life of packaged and stored foods. The
sensors containing gold are unaffected by high humidity, an
environment that is needed for growing mushrooms, for example. Gold
is inert, so it will not react with other elements
Protection of Air Force One: Air Force One, the airplane used by
the President of the United States, is equipped with gold-plated
reflectors. These reflectors confuse an incoming missile's
heat-seeking signal, making it difficult for missile's guidance
systems to focus on their target.
Biome