Dhanteras 2014

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This Dhanteras 2014Invest in GOLDnvest in GOLD

This Dhanteras 2014

8/10/2019 Dhanteras 2014

2/9SBICAP Securities Limited / 2

Invest in GOLD

This Dhanteras Invest in GOLD

GOLD, the alluring precious metal, has enticed communities around the world

for ages and centuries. But Indians share a special kind of relationship with the

yellow metal.

DhanTeras , a revered day for the Indian community is an auspiciousoccasion to pay tribute to the goddess of wealth, 'Lakshmi'. Over the years,

Indians have found a respite in various investment opportunities for wealth

creation. But 'Everything that glitters is not gold'. Indians have been proverbial

followers of the proverb 'old is gold' and have always valued their relationship

with Gold. India consumes approximately one fourth of the total gold

consumption every year.

Apart from jewellery, various kinds and forms of gold has attracted people

from various levels of the society. Cultural and ritual diversity as well as

nostalgic affinity have continued to dominate Indians with the desire for

owning Gold even during the period of economic downturn.

8/10/2019 Dhanteras 2014


Invest in GOLDUsage of Gold

Traditionally, Gold has been used as a medium of exchange and for making jewellery & ornaments. Overthe period, however, Gold has evolved from being a mere precious metal to having multiple usages

across various industries. Gold is malleable & ductile of all assets and has high resistance to corrosion.The invention in modern science & technology has further increased the industry usage of Gold.

According to World Gold Council (WGC), till date there are 177,200 Mt of gold in circulation. Of thisquantity, nearly half is used for Jewellery followed by investment, holding by central banks, Industrialapplication and rest others.

Gold in circulation and its application

Segment Qty (Mt) %

Jewellery 86,828 49

Investment 35,440 20

Technology and Industrial Use 21,264 12

Central Banks 30,124 17

Unaccounted 3,544 2

Total 177,200 100

Source: WGC, SSL Research

Demand Flow 5 year average (2008-2013)

Segment Qty %

Investment 1,410.50 34

Technology and Industrial Use 427.8 10

Jewellery 1,983.30 48

Central Banks 282.6 7

Total 4,104 100


Jewellery: Gold is highly used to make ornaments and jeweler. Infact, most of the gold that is newlymined or recycled is used in the making of Jewellery. In East Asia, India and the Middle East, gold haspowerful cultural meaning, accounting for approximately 70% of the world's gold jewellery in 2013.

As per WGC, on an average since last 5 years (2008-2012), 49% of gold demand goes for making jewelley.

Central Banks: Now a day's central banks are also account for major demand components. In last5 years central banks share have around 7%.

Investment demand: This has been fueling the overall demand for gold. The investment demand whichincludes Physical Bars, Coins and ETF's have gone up to 34% in last 5 years from 20% when comparedwith total gold under circulation. ETFs account for nearly 1% total gold under circulation. The total assetunder management (AUM) in gold ETF's has increased from USD ~600 million in 2003 to ~USD132 billionat present.

Other Usage : Dental, Medical, Glassmaking, Aerospace & Other industrial usage

8/10/2019 Dhanteras 2014


Invest in GOLDDemand, Supply, Production & Consumption

World Demand for gold has risen at ~4.0% CAGRbetween 2006 and 2013. In 2008 it witnessed astupendous growth of ~ 20% with the world economy being grappled in recession. In the years 2010 and 2011, demand surged again by 15% and 10% respectively with increasing volatilities in the global economy, whilein the year 2013 the demand dropped by 8%.

The world gold supply has grown at a CAGR of 3.3% from 2006 to 2013 and has not been able to match thedemand growth which has led to increase in price of gold.

World Gold Demand World Gold Supply

World gold production grew at a CAGR of 2.3% from2006 to 2013 which did not match the demand growthof 4.0% for the same time period. Production declined

from 2006 to 2008 but since 2009 the growth hasgathered some momentum.

India accounts for nearly a quarter of the world gold demand. It is also world's largest single consumer of gold. Indian households hold 25,000 tonnes of gold which represents 14% of the global stock. The year 2010 witnessed largest surge of 66% in gold consumption

followed by the year 2011 during which it rose by 21%.But in the year 2013 consumption saw an increase of 13%.

World Gold Production India Gold Consumption Trends


World Gold Demand (MT)

3082 31103725 3601

41594589 4416

2052

4066

0

1000

2000

3000

4000

5000

2 006 2007 2008 2009 2010 2 011 2012 2013 1H14

(10)

0

10

20

30

Demand Y-o-Y Growth (%)

World Gold Supply (MT)

3451 3471 35134034

4354 4515 44534340

0

1000

2000

3000

4000

5000

2006 2007 200 8 2009 2010 2011 2 012 2013

(20)

(10)

0

10

20

Supply Y-o-Y Growth (%)

World Gold Production (MT)

2370 23502280

24602560

2660 26902770

2000

2200

2400

2600

2800

3000

2006 2007 2008 20 09 2010 2011 201 2 2013

(6.0)

(4.0)

(2.0)-

2.0

4.06.0

8.0

10.0

Production Y-o-Y Gro wth (%)

Indian Gold Consumption (MT)

722 769 713

579

963

1167

864

975

200

550

900

1250

2006 2007 2008 2009 2010 2011 20 12 2013

(40)

(10)

20

50

80

Consump tion Y-o-Y Growth (%)

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Invest in GOLDPerformance of Gold as an Asset Class

Gold in rupee term has underperformed all the major indices in the world for 1 and 2 year time frame primarily because of dollar strengthening and rise in risk appetite towards equity. However, in terms of dollar the declineis much more severe (>7%). We believe the further slide in Gold prices remains unlikely due to rising cost of miningas the average mining cost is above USD 1000/oz. In rupee terms the premium pricing is primarily because of higher import duty and depreciation of rupee against dollars in last 2 years.

Dhanteras which is considered to be one of the most auspicious occasions for buying gold has also proved to beone of the best times to rake in decent returns from Gold. The above graph clearly shows that how buying Goldon every Dhanteras has benefited investors except for past two years when government initiated various policiesto curb Gold imports

Gold has outperformed all the major indices in the world by giving annualized average yearly returns of 15.7%for 5 year time frame and 18.5% for 3 year time frame.

We believe gold can be used as a diversification tool to cushion against volatile return from other asset classes.

An investor may allocate 10-15% of their financial investment in Gold.

Source: AceMF, SSL MF Research / Note: Simple Annualized Returns as on October 13, 2013

Source: AceMF, SSL MF Research Note: Simple Annualized Returns (on MCX Gold Spot) as on October 14, 2014Closing prices of Dhanteras dates considered for each year.

Performance of Gold vis-a-vis other Indices (%)

Y-o-Y (Dhanteras to Dhanteras) Returns on Gold (%)

22

11

33

24

36

18

0.60

-0.64

-5 0 5 10 15 20 25 30 35 40

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

CNX Commodities DAX Dow JonesComposite Index

Hang Seng MCX GOLD SPOT S&P BSE SENSEX

1 Year 2 Years 3 Years 5 Years

8/10/2019 Dhanteras 2014


Invest in GOLDFactors Affecting Prices of Gold

The Economics of Demand and SupplyTremendous demand for Jewellery consuming 2/3rd of annual gold production

Continuous demand from India and China

Short run supply constraints due to Gold miner's strikes, etc

Policies of Central BanksCentral Banks hold large amount of Gold reserves

Thus, have potential to impact prices with large demand & supplies

Hedging, Investing & SpeculationThe most important usage of Gold is an Hedge against Inflation

Many consider Gold as an investment option to meet their long term needsGifts in form of Gold are considered as tradition and wise options

Speculators choose futures and options to benefit from rise & fall in gold rates

State of EconomyIn an economy with either Slow growth or high inflation or both Gold is considered as the onlyof the few options to invest

It is also considered as a 'Safe Heaven' by many

The higher the risk aversion in equity markets, the higher the investment sentiment towards

Gold investment.

Gold ProductsFinancial Innovations has lead to new products for Investment in Gold

Gold futures, options, ETFs, Gold Funds or Investing in Gold mining Companies has seen asurge in recent years

Globally, demand for ETFs has increased. Typically, funds are required to maintain the valueof ETFs sold in the form of physical gold, driving up overall demand.

8/10/2019 Dhanteras 2014


Invest in GOLDModes of Investing in GOLD for Retailers

BarsGold bars come in various sizes: 50 grams, 100 grams, 1 kg, 1 ounce, 10 ounces, 100 ounces

and 400 ounces, etc.Bullion banks like Nova Scotia import the bars and sell them in the Indian market.

CoinsCoins are considered auspicious and an excellent form of investment

These coins are also available with images of Ganesha, Laxmi, Balaji, Saibaba, Allah, Om,Ayyappa, Cross and any other motifs.

JewelleryAs per the recent report by Indian Bureau of Mines, Jewellery accounted for major consumptionof gold of around 85% of the total consumption.According to World Gold Council, India's estmated demand for the year 2013-14 is 1,000 Mt.of which 50% is for Jewellery segment.

Gold ETFsAlso known as paper gold, Gold ETF is an open ended mutual fund which invests in gold with99.5% purity and trade on stock exchanges just like shares.

As per AMFI, the AUM of Gold ETFs have clocked 34% Y-o-Y to Rs. 14,700 Cr as on October,2013.

Can be purchased through SIP, no risk of storing.No sales tax, Wealth Tax, VAT or securities transaction tax is applicable.

Gold Savings FundsGold Savings Funds are fund of funds (FoF) that invest in gold ETFs.

No need to open a demat account and trading account & SIP is possible. However, doublecharges (of Gold Fund as well as ETF) are a drawback.

Gold DerivativesDerivatives such as Gold Futures, Forwards, and Options are available and traded around the

world as well as on OTC marketsUse of Margins help in leveraging the investment in Gold Futures.

Gold Mining CompaniesHere, investors buy stocks of Companies in the business of Gold mines.

Mutual Funds in India like, DSP BlackRock World Gold Fund and Pine Bridge (formally AIG)World Gold Fund invest in stocks of gold mining companies across the globe.

8/10/2019 Dhanteras 2014


Invest in GOLDOutlook and Recommendation

Although, world economies have shown signs of growth, they are still not completely out of woods. Thegrowth concern still persists with Euro-zone, US and other developed countries as the recent growth

revival was primarily driven by expansionary monetary policies. We also believe that global liquidityinflow will remain robust. Moreover, the rising risk aversion towards other asset classes is expected tosupport gold prices. We also expect the US Fed to continue its low interest rate till start of next yearbefore growth and employment picks up.

The Gold mining industry is in consolidation phase with a spike in the number of producers reducingoutput or even shutting down operations as Gold price has tumbled down to around USD 1200/oz.Several mines globally have already suspended output in the past 18 months, as mining costs hoveraround USD 1000/oz and it makes miners unprofitable to sell gold at such low prices. This would

ultimately support Gold prices in long run due to supply constraints.

Hence in medium to long term, we are positive on gold prices. We recommend following Gold ETF's forthis Dhanteras.

Our Recommendation

Gold ETF NSE Symbol BSE Code

1. SBI Gold ETF SBIGETS 590098

2. Reliance Share Gold ETF RELGOLD 533891

3. Goldman Sachs Gold BeEs GOLDBEES 590095

Risk Return (%)

Scheme Name Nav as on Corpus Absolute CAGR

13.10.2014 (Cr.)3 Mths 6 Mths 1 Yr 2Yrs 3Yrs 5Yrs

SBI Gold ETF 2,494.20 1,926.99 -6.44 -5.46 -5.87 -8.33 -0.94 9.63

R Shares Gold ETF 2,475.32 1,656.36 -5.14 -7.15 -4.64 -7.67 -0.45 10.08

GS Gold BeES 2,564.70 1,051.06 -6.46 -5.47 -5.7 -8.19 -0.79 9.78

Source: AceMF, SSL Research

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9/9SBICAP S i i Li i d / 9

Invest in GOLD

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Dhanteras 2014