GOLD INVESTMENT Chapter 1 Introduction Gold the Seed of Desire Welcome to a world! That is so limited that it can be contained in a web, measuring 24 inches on each side, yet it is so immense that it enrolls each one of us. A world in which generations of men and women have fought for died for and slaved for. It is a world of generations of infinite possibilities of its own. Gold, the yellow metal, has captured man’s interest everywhere and at all times. As a symbol of perfection, immorality and prosperity, gold is the substance that myths and legends are made of. Gold is a very ductile and malleable, precious metal that is resistant to air and water corrosion. It is a precious metal that is very soft when pure (24 Kt.). Gold is the most malleable (hammer able) and ductile (able to be made into wire) metal. Gold is alloyed (mixed with other metals, usually silver and copper) to make it less expensive and harder. The purity of gold jewelry is measured in karats. 1 GURU NANAK KHALSA COLLEGE
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GOLD INVESTMENT
Chapter 1
Introduction
Gold the Seed of Desire
Welcome to a world! That is so limited that it can be contained in a web, measuring 24
inches on each side, yet it is so immense that it enrolls each one of us. A world in which
generations of men and women have fought for died for and slaved for. It is a world of
generations of infinite possibilities of its own.
Gold, the yellow metal, has captured man’s interest everywhere and at all times. As a
symbol of perfection, immorality and prosperity, gold is the substance that myths and
legends are made of.
Gold is a very ductile and malleable, precious metal that is resistant to air and water
corrosion. It is a precious metal that is very soft when pure (24 Kt.). Gold is the most
malleable (hammer able) and ductile (able to be made into wire) metal. Gold is alloyed
(mixed with other metals, usually silver and copper) to make it less expensive and harder.
The purity of gold jewelry is measured in karats.
Traditionally a major market for gold, India has once again retained its position as the
largest market for the yellow metal. The Geneva based World Gold Council, the
marketing arm of the gold mining industry, also identifies India as the fastest growing
market for this precious metal. Unlike the Westerners who invest largely in stocks and
other options, Indians believe in gold as an all time safe investment. For one, gold gives
the security against any financial crisis because of its easy liquidity. Besides the
investment angle, what makes Indians duck the globe trend is the traditional values
attached to the yellow metal. Gold, in Hindu culture is considered auspicious and is
symbolic of Goddess Lakshmi (Goddess of wealth).
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Chapter 2
History
Since ancient times, gold has always been an important asset and a value store. Gold was
used as an exchange medium even before the Roman Empire existed. The gold was also
used for currency by Chinese and Hindu cultures. This shows that the gold was used not
only by the western cultures but the eastern cultures also.
Great Britain started the suit by adopting a gold-backed paper currency and the rest of the
industrialized world followed this. The United States also started using gold in its
currency and by the end of 1933. Gold backed up the United States Dollar under an
agreement known as the Bretton Woods agreement. Under this agreement, a specific
value of gold tied the Dollar and also the other global currencies. This specific value was
$35/oz of gold from 1934 to 1968. That made it illegal for the citizens of the US to own
gold so that the level of gold and subsequently the value of dollar could be protected.
When the Gold Standard was evocated, it became a popular investment medium. Since
then, no matter whatever happened, be it famines, floods or even world wars, gold’s
importance as a savings and investment medium hasn’t changed at all in the economy.
Since 17th century, London has been the center of gold trading. It was because the gold
was brought to London for refining and distribution purposes. Meanwhile, it began a
method for disseminating the price of Gold known as the "Fix" in 1919 as the center of
distribution. The price, at which the most buy and sell orders, of the members or Fixing
Seat Holder's, matched, or balances, is known as the Fix. A large volume of physical
Gold can be bought or sold at a single, clearly posted price, the fix. The fix is a
benchmark price for many transactions worldwide, whether for mines, fabricators or
central banks, because it is undisputed prices at which all six of the largest Gold trading
houses are willing do business.
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Indian History of Gold
Mythological Origin
It is interesting to trace this fascination for gold. The Satapatha Brahmana, an ancient
Hindu text describes as the seed of Agni, the God of Fire. Gold came to be called
Hiranya, derived from the root Hri meaning imperishable. The Dharmashastra, another
ancient Indian text says. “This universe was enveloped in darkness. He (the Lord)
desiring to produce various creatures from his own body, first created the waters and in
the deposited a seed. This seed became a golden egg, resplendent as the sun, in which He
himself was born as Brahma.” Brahma is therefore called Hiranyagarbha or born of gold.
Gold is seen to be the reference point in mythology whenever the highest form of prayer,
perfection or beauty is described. The Goddess Lakshmi, symbolizes fertility,
productiveness and prosperity, is said to have been bathed by elephants that carried pure
water in golden vessels. Urvashi, believed to be one of the most beautiful women in
Hindu mythology, is supposed to have complexion of golden hue. The golden colored
deer plays an important role in the famous Indian epic, ‘The Ramayana.’
It is said that lord Shiva taunted his wife Parvati saying her skin was dark. So offended
was Parvati that she performed penance to gain access to Lord Brahma, the creator in
Hindu pantheon. Lord Brahma granted her the boon she was seeking. Parvati was reborn
as Gauri, or the woman with golden colored skin.
It is not only the Hindu tradition that extols gold. In the Bible, there is a mention of a
river flowing out of the Garden of Eden.” And a river went out of Eden, parted and
became into four heads. The name of the first is Pison, that is which compasses the whole
land of Havilah, where there is gold.” The Islamis religion describes the fifth heaven to
be made of gold. The Buddha is often portrayed in gold and Buddhist ceremonial objects
are made of gold. Astrologically, Jupiter represents gold.
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Historical References
The value of gold has been appreciated in daily life too. The Rig Veda, India’s most
ancient text, (dated approximately to 1500 B.C.) says the giver of gold receives a life of
light and glory. And to receive or buy is to welcome Lakshmi. That is why during Diwali
time, gold is almost invariably bought. On this festival, it is Goddess Lakshmi who is
worshipped.
Arthashastra, a third century A.D text, lays down the various rules to be followed by
goldsmiths and the different kinds of alloys that can be made with it. By the fifth century,
ornaments were exquisitely fashioned and Kalidasa, a famous Sanskrit poet, describes
when and how each ornament should be worn. The evidences and designs of ancient
Indian jewellery are also found in sculptures.
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Chapter 3
Properties of Gold
Gold is one of the most precious metals in the world. It is present in the rivers, seas and
the earths crust and trace amounts are present in plants and animals. It is, however,
difficult and expensive to extract. In modern mining operations approximately 3 tonnes
of ore are needed to extract one ounce (31.1 gms) of gold. The many desirable qualities
found in gold, along with its scarcity, have made it the most popular metal for use in
jewellery today.
Gold in its Purest State
Has a melting point of 1945 degrees Fahrenheit (1063 degrees celcius). When
alloyed (chemically combined) with other base metals the melting temperature of
the resulting alloy is changed. 18K yellow gold has a melting point of 1675
degrees Fahrenheit and 14K yellow gold has a melting point of about 1550
degrees Fahrenheit.
Has a specific gravity of 19.33. it is relatively heavy compared to most metals,
such as silver (SG 10.7) or iron (SG 7.8). a notable exception is platinum (SG
21.4). It is more malleable than any other metal and can be hammered into foil so
thin that it is almost transparent.
Has a unique ductility property allowing it to be drawn into wire so fine it can
barely be seen.
Is deep yellow in colour. Its great reflectivity properties help keep its brightness
and colour from fading with time.
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Will not rust, tarnish or corrode. Gold jewellery recovered from ancient Egyptian
tombs is in the same state as when placed there over 4000 years ago.
Is softer than most other metals. On the Mohs scale of hardness (which is a
measure of a gemstone or mineral’s resistance to scratching), gold has a hardness
value of 2 to 2.5. Diamond has a value of 10. Pure gold may be easily be
scratched. Fortunately, gold becomes harder when alloyed with other base metals.
It is estimated that only 125,000 tons of gold have been mined the world over
since the beginning of time.
Medicinal Properties
Within the human body too the colour of gold is celebrated. The human body, according
to Ayurveda, is believed to have many charkas or nodal points of operation. The heart
chakra is said to be golden yellow and so the colour itself is regarded as inspiring divine
thoughts.
Gold’s immunity to rust made physicians feel it had properties to cure diseases. Chakra’s
medical treatise mentions the use of gold in medicine. The jawahar mohra of Unani
medicine uses gold as one of the components of special medicines as do the many other
Ayurvedic and Tibetan medicines. The thanga baspam is one such medicine that is
supposed to lengthen the life span and act as an aphrodisiac. Gold has been used to fill
the cavities in teeth since ancient times. In India, thanga rekha or a fine golden thread is
often served with betel leaf after a sumptuous dinner or heavy lunch.
Use of gold in medicine often led to the association of certain magical properties with the
metal. Gold earrings are said to improve eyesight while those suffering from mumps
believe that if they wear a gold chain their problem will vanish. In fact, the ailment itself
is called “ponnuku vingi” or swelling caused by lack of gold.
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Chapter 4
Economy
A. Importance in the Economy
Gold also performs a major role in contributing to the world economy, as it earns
around $400 billion throughout the globe. Now India has its upper hand in this
industry as more that 20% of the total money earned is so from India i.e. its
exports, and the sales within the country.
This is so because India is the biggest market in the world for consumer product
as well as products of this field and keep it in mind those even foreign companies
make the Indian market a target for its products. Moreover, another reason for its
higher earnings are that customers in India prefer quality gold i.e. either 22ct or
23ct, whereas in most of the foreign countries the ornaments are the contents of
18ct or 14ct gold. Thus we can see how important this industry is for us.
B. Value in an Economy
In a world where paper currencies come and go, where paper money can be
depreciated 25% to 30% overnight, any single nation or borrower cannot
manipulate the price of gold. On the contrary, gold is the foundation of today’s
world monetary system. No other substance on earth embodies the unique
characteristics of gold. Its yellow luster and beauty are unsurpassed. Since the
earliest days of man, it has been admired, molded, shaped, and worn as a symbol
of wealth and good taste. The romance and lure of gold is enhanced by its historic
use as a storehouse of wealth. Gold’s value is intrinsic. Its value is a measure of
the true wealth and the stability of national currencies the world over.
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Throughout history, every paper currency has become totally worthless over time,
yet gold remains. The precious metal gold cannot be created, destroyed, or
altered. It forever remains one of the most liquid investments with no geographic
boundaries. Gold is bought, sold, traded, and stored in most parts of the free world
with complete privacy.
C. Pricing of Gold
Like other precious metals, gold is measured by troy weight and by grams. When
it is alloyed with other metals the term carat or karat is used to indicate the
amount of gold present, with 24 carats being pure gold and lower ratings
proportionally less. The purity of a gold bar can also be expressed as a decimal
figure ranging from 0 to 1, known as the millesimal fineness, such as 0.995.
The price of gold is determined on the open market, but a procedure known as the
Gold Fixing in London, originating in 1919, provides a twice-daily benchmark
figure to the industry. Historically gold was used to back currency in an economic
system known as the gold standard a certain weight of gold was given the name of
a unit of currency. For a long period, the United States government set the value
of the US dollar so that one troy ounce was equal to $20.67 ($664.56/kg), but in
1934 the dollar was revalued to $35.00 per troy ounce ($1125.27/kg). By 1961 it
was becoming hard to maintain this price, and a pool of US and European banks
agreed to manipulate the market to prevent further currency devaluation against
increased gold demand.
On 17 March 1968, economic circumstances caused the collapse of the gold pool,
and a two-tiered pricing scheme was established whereby gold was still used to
settle international accounts at the old $35.00 per troy ounce ($1.13/g) but the
price of gold on the private market was allowed to fluctuate; this two-tiered
pricing system was abandoned in 1975 when the price of gold was left to find its
free-market level.
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D. Factors Influencing Gold Prices
Today, like all investments and commodities, the price of gold is ultimately
driven by supply and demand, including hoarding and dis-hoarding. Unlike most
other commodities, the hoarding and dis-hoarding plays a much bigger role in
affecting the price, since almost all the gold ever mined still exists and is
potentially able to come on to the market at the right price. Given the huge
quantity of above ground hoarded gold, compared to the annual production, the
price of gold is mainly affected by changes in sentiment, rather than changes in
annual production or gold jewelry demand. Central banks and the International
Monetary Fund play an important role in the gold price.
Sentiment
It used to be said that ‘Gold is the world's frightened bunny’. Whenever crisis
threatened, the demand for physical gold increased.
Bank failures
When dollars were fully convertible into gold, both were regarded as money.
However, most people preferred to carry around the paper dollars issued by their
bank rather than the somewhat heavier and less divisible gold coins. If people
feared their bank would fail, a bank run might have been the result.
Inflation
Paper currencies pose a risk of being inflated, possibly to the point of
hyperinflation. Historically, currencies have lost their value in this way over time.
In times of inflation, people seek to protect their savings by purchasing liquid,
tangible assets that are valued for some other purpose. Gold is in this respect a
good candidate, and producing more is far more difficult than issuing new fiat
currency, and does not rely on any particular government's health.
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War, invasion, looting
In times of national crisis, people fear that their assets may be seized, and the
currency may become worthless. They see gold as a solid asset which will always
buy bread or transportation. Thus in times of great uncertainty, particularly when
war is feared, the demand for gold rises.
Production
According to the World Gold Council, annual gold production over the last few
years has been close to 2,500 tonnes. However, the effects of official gold sales
(500 tonnes), scrap sales (850 tonnes), and producer hedging activities take the
annual gold supply to around 3,500 tonnes.
Demand
About 3,000 tonnes goes into jewellry or industrial/dental production, and around
500 tonnes goes to retail investors and exchange traded gold funds. For the last
few years, the official sector sales of around 500 tonnes have been taken up by
retail investors and gold funds.
Supply and Demand
Some investors consider that supply and demand factors are less relevant than
with other commodities since most of the gold ever mined is still above ground
and available for sale at a price. However, supply and demand do play a role.
According to the World Gold Council, gold demand rose 29% in the first half of
2005. The increase came mainly from the launch of a gold exchange-traded fund,
but also from jewelry. Gold demand was at an all time record. Demand from the
electronics industry is rising by 11% a year, jewelry by 19%, and industrial and
dental by 21%.
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E. Price Difference between Local and International market
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. During the 19 year period from 1977-78 to 1995-96, the
average spread between Mumbai and London market prices (Mumbai price less
than London price in rupee terms) of gold has been positive, except for a brief
period during 1980-91 when the international gold price zoomed for a brief period
following the oil crisis, persistent weakening of dollar resulting in flight of dollar
resources into gold, and accelerating world-wide inflationary trends. The average
spread was as high as 41.3% during 1986-91. In the post-liberalisation period,
with changes in exchange rate regime and some relaxations on import regime of
gold, the average spread between domestic and international prices has come
down from 53.1% in 1991 to 20.6% in 1993, 20.1% in 1994, 19.9% in 1995. The
current spread is as low as 3% and is calculated as shown in the following table:
A1 International prices of Gold at International market $350 per ounce
A2 CIP Premium to import in India $0.75 per ounce
A3 Exchange Rate Rs.47 per USD
A4 Cost of Gold landed in India (350+0.75)*47 Rs. 17096 per ounce
A5 At conversion 32.15674 Rs. 5498 per gms
B Add: Indian Cost
B1 Service charges being charged by banks 0.10% Rs. 5.50/10 gms
B2 Custom Duty Rs.100/10 gms
B3 Sales Tax 1% on (5498+5.50+100) Rs.56/10 gms
B4 Total of added cost at Indian soil Rs. 161.50/10 gms
C Market Price (wholesale) in India Rs.5660/10 gms
Exhibit 1: Current International prices vis-a-vis local prices
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Chapter 5
Gold Market
Structure of Gold Market
It consists of central banks, bullion banks (International banks with specialist skill in
bullion trading such as J P Morgan, Goldman Sachs, Deutsche Bank, Chase Manhattan,
Citigroup), mining companies and investors.
The central banks lend gold to bullion banks at an interest rate known as the lease rate.
Bullion banks, the financial intermediary, in turn sell the gold in the spot market to
different segments of the market, such as jewelers and fabricators, and the resultant cash
proceeds are used for investment. At the same time, bullion banks or their customers run
a price risk, as there is an obligation to return the physical gold back to the central banks
after the lease period. For this, they go long in the gold forward market.
The counter-party in this deal is generally a gold-mining company, investor or speculator
(hedge fund, for instance), which want to gain from contango. In fact, the gold forward
premium has a close link with the gold lease and the money market rates.
The gold forward rate is almost same as the difference between the dollar rate (Libor) and
the gold lease rate. And as long the difference between the two is positive, there is a
spread or contango; if the difference is negative, there is backwardation, that is, spot gold
is in demand. Gold being the second largest component of central bank reserves (32,000-
35,000 tonnes), having an intrinsic value link to the dollar and is often kept in a safe band
by well-orchestrated efforts of central banks.
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World Gold Industry
Gold is primarily a monetary asset and partly a commodity. South Africa is the world's
largest gold producer followed by US and Australia.
Gold is beginning to trend upwards, and has been in a bull market now for almost two
years. Gold at $410 is up 61% from its low of $255 in July '99 to Nov’03 now.
World Gold Markets
Physical - London, Zurich, Istanbul, Dubai, Singapore, Hong Kong & Mumbai
Futures - NYMEX in New York, TOCOM in Tokyo
London as the great clearing house
New York as the home of futures trading
Zurich as a physical turntable
Istanbul, Dubai, Singapore and Hong Kong as doorways to important
consuming regions.
Tokyo where TOCOM sets the mood of Japan
Mumbai under India's liberalized gold regime
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Gold producing countries
- South Africa - Ghana
- United States - Brazil
- Australia - Chile
- China - Philippines
- Canada - Mali
- Russia - Mexico
- Indonesia - Argentina
- Peru - Kyrgyzstan
- Uzbekistan - Zimbabwe
The largest producer of Gold is South Africa. It accounts for an estimated 16.5 million
ounces of Gold annually in the next 3 years; and produces almost 20 percent of the
world’s bullion. The second largest producer of gold is United States. It produces about
12.5% of the world’s Gold supply. Due to the expansion US Mining operations, and
because of the reduced profitability due to the low price of Gold, reduction in mine
production is expected by 9% by the US during the next three years. The third largest
producer of gold is Australia.
Nearly 45% of the world Gold supply was produced by the top three producing nations.
Latin America (Mexico, Peru, Chile and Brazil) and the Far East producers are expected
to increase production in the next three years.
Though these countries add up to a very small share in world’s total supply, their
production increase will counteract some of the production cuts made.
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I ndia in World Gold Industry
(Rounded figures) India (in tons) World (in tons) % Share
Total stock 13000 145000 9
Central Bank Holdings 400 28000 1.4
Annual Production 2 2600 0.08
Annual Recycling 100-300 1100-1200 13
Annual Demand 800 3700 22
Annual Imports 600
Annual Exports 60
Exhibit 2: India in the world Gold Industry
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.
This reduced the disparity between international and domestic prices of gold from
57 percent during 1986 to 1991 to 8.5 percent in 2001.
Domestic consumption is dictated by monsoon, harvest and marriage season.
Indian jewellery off take 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.
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Chapter 6
Production and Consumption
A) How Much is Being Produced?
The geographical breakdown of major global producers (in tones) is as
follows: -
Countries Production
South Africa 428.3
United States of America 353.0
Australia 295.7
China 175.0
Canada 153.8
Russia 144.0
Peru 133.0
Indonesia 124.6
Exhibit 3: Production of Gold
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B) How Much is Being Consumed?
Gold is not really 'consumed' in the sense that it doesn't get used up, but its demand runs
at about 3800 tonnes per year - notably faster than it is being mined (2,600 tonnes).
Gold demand is very much harder to evaluate than production, because while production
is concentrated in a relatively small number of mines demand is distributed throughout
the world. This makes it difficult for anyone to build a statistically accurate picture.
Some of the difficulties are as follows :-
Many buyers of gold are deliberately secretive.
In particular the recycling of scrap does not lend itself to measurement because
recycling can utilize scrap supply and meet a demand without going anywhere
near a statistician.
Unallocated gold is difficult to measure because it is often notional. So all figures
that report gold demand should be reviewed skeptically.
However, undeniably by far gold's major demand comes from jewellery manufacture.
The main other demand comes from retail investment - i.e. from gold's use as a private
reserve asset. The amount used in industry, e.g. in electronics and dental surgery
combines to a further 340 tonnes.
The geographical breakdown of demand illustrates its jewellery based nature. Because of
its importance in Indian marriage ceremonies India leads the table. The USA is second
because of the broad affordability of gold jewellery for a large section of the world's
richest society.
Then comes China, SE Asia, Europe, Saudi Arabia, the Gulf States, Korea, Egypt,
Turkey, Pakistan and lastly Japan.
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C) How is the Production Shortfall Made Up?
There is a supply side shortage of gold bullion. Average annual demand over 5 years is
about 3800 tones and mined supply is a bit less than 2600 tones.
With less than 2,600 tones supplied from the mines a further 15% [600 tones] of annual
demand is met from scrap jewellery and bullion and the remaining significant shortage of
almost 20% [about 800 tones] is being met by sales of central bank gold reserves. More
details of the reasoning behind central bank sales follow in the section on gold trading.
Much of the selling is done in relative secret but some of the central banks publish
details:-
Germany - sold 12 tons of gold in 2001, as commemorative gold coins.
Holland declared a policy of selling 300 tones over 5 years from 1999. The Dutch do not advertise their sales in the market as they happen. They have sold 100 tones in year 1. 27 tones in year 2. 9 tones in year 3, and 33 tones in year 4 (so far).
Portugal sold 15 tones in December 2002 and 30 tones in February 2003, apparently as a result of options taken out in 1997/8.
Switzerland plans to sell 1300 tones. They have sold annual amounts of 120, 220 and 283 tones, project a further 283 tones in 2003 and will cease selling after 2004.
The UK has sold 395 tones in a public auction programme, which finished in March 2002.
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D) Production of Gold in India
Gold holdings in India are estimated to be in the range of 10000-13000 tonnes and
are predominantly private.
India’s gold consumption is 25% of world’s total gold production.
India has a very limited gold production of around 9 tonnes in 2002.The domestic
production of the gold is very limited .
More than 60% of Indian consumption is met through imports.
E) Consumption of Gold in India
Rural India continues to absorb more than 70% of the gold consumed in India and it has
its own role to fuel the barter economy of the agriculture community. The yellow metal
used to play an important role in marriage and religious festivals in India. Gold also
occupies a significant position in the temple system where gold is used to prepare idol
and devotees offer gold in the temple. The existing social and cultural system continues
to cause net gold buyer market and the Government policies have to take note of the root
cause of gold demand, which lies in the social and cultural system of India. The annual
consumption of gold, which was estimated at 65 tonnes in 1982, has increased to more
than 700 tonnes in late 90s. 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.
India is one of the largest consumers of gold but hardly produces any of the gold it
consumes. Though millions of Indians live in poverty, India continues to be largest
consumer of gold (25% of world demand). It is not just a symbol of luxury but is bought
on religious occasion like marriages, Diwali (Hindu new year), Eid, Christmas etc. most
of the gold in India is imported which has supported smugglers for years together due to
high import duties. At one time India had the highest hoarding of gold and Mahmud of
Ghazni looted the temples and shipped much of the gold to Middle East.
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Chapter 7
Gold Demand and Supply
Above ground stocks
end 2005
Supply flows 5 year
average
(2001-2005)
Demand flows 5 year
average
(2001-2005)
Exhibit 4: Gold Demand and Supply
Global and Domestic Demand-Supply Dynamics
The demand for gold may be categorized under two heads- consumption demand and
investment demand. Consumption of gold differs according to type, namely industrial
applications and jewellery. The special feature of gold used in industrial and dental
applications is that some of it cannot be salvaged and thus is truly consumed. This is
unlike consumption in the form of jewellery, which remains as stock and can reappear at
future time in market in another form. Consumer demand accounts for almost 90% of
total gold demand for jewellery forms 89% of consumer demand.
In markets with poorly developed financial systems, inaccessible or insecure banks, of
where trust in the Government is low, gold is attractive as a store of value. If gold is held
primarily as an investment asset, it does not need to be held in physical form.