Industry Outlook of World Gold Market

1. Gold price extends gains on wedding season demand Riding high on wedding season demand from

jewelers and a firming trend overseas, gold continued its upward streak for the fourth straight session, with prices rising by another Rs 100 to Rs 28,180 per ten gram at the bullion market in New Delhi.

Silver also rose by Rs 100 to Rs 39,200 per kg on increased offtake by industrial units and coin makers.

Market men said apart from persistent buying by jewelers and retailers to meet ongoing wedding season demand, a firming global trend mainly kept the precious metal prices higher.

Globally, gold rose 0.83 per cent to $1,290.90 an ounce and silver was up 0.79 per cent to, $17.92 an ounce in London in early trade.

In the national capital, gold of 99.9 and 99.5 per cent purity added another Rs 100 each to Rs 28,180 and Rs 27,980 per ten gram, respectively. The precious metal had gained Rs 760 in the previous three sessions.

Sovereign, followed suit and gained Rs 100 to Rs 24,000 per piece of eight gram. In line with overall trend, silver ready rose by Rs 100 to Rs 39,200 per kg and weekly-

based delivery by Rs 110 to Rs 39,180 per kg. Silver coins spurted by Rs 1,000 to Rs 64,000 for buying and Rs 65,000 for selling of 100 pieces. 

2. Gold price falls by 0.10 per cent in futures trade Gold prices eased to Rs 27,950 per 10 grams in futures market on Thursday, tracking a

weak global trend, as speculators offloaded their positions. Market analysts said the fall in gold futures was

mostly due to a weakening trend in the overseas market where gold traded below a five-month high as holdings in the SPDR Gold Trust contracted ahead of a European Central Bank meeting.

At the Multi Commodity Exchange (MCX), the precious metal for delivery in February fell by Rs 27 (or 0.10 per cent), to Rs 27,950 per 10 grams in a turnover of 188 lots.

Similarly, gold for delivery in far-month April fell by Rs 20 (or 0.07 per cent), to Rs 28,080 per 10 grams in a business turnover of 20 lots.

Meanwhile, gold price in Singapore, which normally sets the price trend on the domestic front, lost 0.01 per cent to US $1,292.80 an ounce.

3. Gold price recovers on jewelers buying Gold prices recovered by Rs 150 to trade at Rs 28,500 per ten gram at the bullion

market on Friday on emergence of buying by jewelers to meet wedding season demand amid a firming trend overseas.

Silver also rebounded by Rs 400 to Rs 40,100 per kg on increased offtake by industrial units and coin makers.

Market men said apart from buying by jewelers to meet ongoing wedding season demand, a firming global trend after the European Central Bank's announced a bigger-than-expected stimulus measures, boosting demand for the safe-haven, influenced gold prices in the capital.

Globally, gold rose by by 0.71 per cent to $1,302.10 an ounce and silver by 1.10 per cent to $18.31 an ounce in New York in Thursday's trade.

In the national capital, gold of 99.9 and 99.5 per cent purity were up by Rs 150 each to Rs 28,500 and Rs 28,300 per ten gram respectively. It had lost Rs 150 on Thursday.

Sovereign, however, held steady at Rs 24,000 per piece of eight gram in scattered deals. Silver ready rose by Rs 400 to Rs 40,100 per kg and weekly-based delivery by Rs 560 to

Rs 40,100 per kg. Silver coins spurted by Rs 1,000 to Rs 65,000 for buying and Rs 66,000 for selling of 100

pieces.

4. Gold price ends flat on lackluster demand, silver rises Gold prices ended almost flat at the domestic bullion market in Mumbai on Saturday due

to lack of demand from stockists and retailers amid weak international cues. Elsewhere, silver firmed up further on the back of sustained demand from industrial

users. Standard gold (99.5 purity) eased by Rs 5 to settle at Rs 28,045 per 10 grams from the

overnight level of Rs 28,050. Pure gold (99.9 purity) also softened by a similar margin to end at Rs 28,195 per 10

grams as against Rs 28,200 previously. Silver (.999 fineness), however rose by Rs 80 to finish at Rs 40,580 per kg compared to

Rs 40,500 on Friday. In worldwide trade, the yellow-metal

retreated from a five-month high on fresh selling pressure amid uncertainty ahead of the Greece election verdict and next week's Federal Open Market Committee's two-day meet.

Gold February delivery settled lower at $ 1,292.60 an ounce on the Comex division of the NYMEX late Friday, while silver March contract settled at $18.30 an ounce.

Industry Outlook of Indian Gold Market

The economics of gold is enmeshed in several socio-economic problems in India. For instance, the smuggling of gold, drug trafficking, foreign exchange leakage, black market in foreign currencies, under and over-invoicing in exports and imports trade, unaccounted incomes and wealth, black or parallel economy and tax evasion are issues in one way or other linked to the purchase, sale and holding of gold and gold jeweler in India. Since gold forms part of the reserves of the Reserve Bank of India, it has implications for money supply and price levels. The prohibition on the import of gold existed in India ever since 1947. The Gold Control Order 1963 and the Gold Control Act 1968 contained tight controls on the gold-related activities. However, the Gold Control Act failed in curbing the domestic demand for gold jeweler. The insatiable demand for the yellow metal has continued to grow. The Gold Control Act also failed to control the smuggling of gold. The Act placed hurdles in the export production of gold jeweler in India, when countries such as Italy were riding ahead in world gold jeweler exports. The Gold Control Act placed severe restrictions on goldsmiths, gold dealers and gold jeweler exporters. The quantitative restrictions did not permit large quantity production for satisfying overseas orders, which are usually large. The Act did not allow a certified goldsmith to receive more than 100 gms of standard gold for manufacturing jeweler. A Certified Gold Smith was not allowed to possess a stock of more than 300 gms of primary gold at any time. The quantity of primary gold in the possession of a licensed dealer was limited to between 400 gms and 2 kg., depending on the number of artisans employed. There existed a legal ban on transactions between one dealer and another. The Act also required gold dealers to operate from licensed premises only. This restriction was a hurdle to exports as foreign buyers could not visit widely scattered places of manufacture for inspection and buying. The Gold Control Act was abolished in 1990, the year in which the Government of India had to transfer 40 tonnes of gold to London and swap for foreign exchange to tide over the country’s balance of payment crisis. India had hibernated during the gold control era and missed the opportunities for gold jeweler exports while even smaller Asian countries like Thailand and Malaysia could record quantum jumps in gold jeweler exports. The prospects for gold jeweler exports from India have now brightened. After the abolition of the Gold Control Act, the Government introduced further reforms. Import of gold was allowed on payment of customs duty. Subsequently, the import of gold was brought under open general license (OGL) by designated agencies. The designated agencies for the purpose are Minerals and Metals Trading Corporation of India (MMTC), State Bank of India (SBI), State Trading Corporation (STC), Handicrafts and Handlooms Exports Corporation (HHEC), Bank of India (BOI), Indian Overseas Bank (IOB), Canara Bank, Allahabad Bank, Bank of Nova Scotia and Standard Chartered Bank. From the period of liberalization India is the world’s largest gold market in volume terms that has expanded considerably, but according to World Gold Council Report presented on 15 August 2013, China may overtake India as the world’s biggest gold consumer in 2013 as the dragon country has more favorable policy on the precious metal as compared to the economy in India. The data presented by this report showed that Gold consumption in China rose to 570 tonnes in the first half of the current calendar year, slightly

higher than 566.5 tonnes in India. Gold consumption stood at 864 tonnes in India, while it was 832 tonnes in China during 2012.

Company Profile

Gold

IntroductionGold 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 gold’s 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. Thus, gold is primarily a monetary asset. Less than one third of gold’s total accumulated holdings can be considered a commodity, the jewelry bought in Western markets for adornment, and gold used in industry.

The distinction between gold and commodities is important. Gold has maintained its value in after-inflation terms over the long run, while commodities have declined.

Some analysts like to think of gold as a “currency without a country’. It is an internationally recognized asset that is not dependent upon any government’s promise to pay. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds, which unlike gold, do have counter-party risk.

What makes Gold Special? Timeless and Very Timely Investment: For thousands of years, gold has

been prized for its rarity, its beauty, and above all, for its unique characteristics as a store of value. Nations may rise and fall, currencies come and go, but gold endures. In today’s uncertain climate, many investors turn to gold because it is an important and secure asset that can be tapped at any time, under virtually any circumstances. But there is another side to gold that is equally important, and that is its day-to-day performance as a stabilizing influence for investment portfolios. These advantages are currently attracting considerable attention from financial

professionals and sophisticated investors worldwide.

Gold is an effective diversifier: Diversification helps protect your portfolio against fluctuations in the value of any one-asset class. Gold is an ideal diversifier, because the economic forces that determine the price of gold are different from, and in many cases opposed to, the forces that influence most financial assets.

Gold is the ideal gift: In many cultures, gold serves as a family treasure or a wealth transfer vehicle that is passed on from generation to generation. Gold bullion coins make excellent gifts for birthdays, graduations, weddings, holidays and other occasions. They are appreciated as much for their intrinsic value as for their mystical appeal and beauty. And because gold is available in a wide range of sizes and denominations, you don’t need to be wealthy to give the gift of gold.

Gold is highly liquid: Gold can be readily bought or sold 24 hours a day, in large denominations and at narrow spreads. This cannot be said of most other investments, including stocks of the world’s largest corporations. Gold is also more liquid than many alternative assets such as venture capital, real estate, and timberland. Gold proved to be the most effective means of raising cash during the 1987 stock market crash, and again during the 1997/98 Asian debt crisis. So holding a portion of your portfolio in gold can be invaluable in moments when cash is essential, whether for margin calls or other needs.

Gold responds when you need it most: Recent independent studies have revealed that traditional diversifiers often fall during times of market stress or instability. On these occasions, most asset classes (including traditional diversifiers such as bonds and alternative assets) all move together in the same direction. There is no “cushioning” effect of a diversified portfolio — leaving investors disappointed. However, a small allocation of gold has been proven to significantly improve the consistency of portfolio performance, during both stable and unstable financial periods. Greater consistency of performance leads to a desirable outcome — an investor whose expectations are met.

What makes Gold different from other commodities? The flow demand of commodities is driven primarily by exogenous

variables that are subject to the business cycle, such as GDP or absorption. Consequently, one would expect that a sudden unanticipated increase in the demand for a given commodity that is not met by an immediate increase in supply should, all else being equal, drive the price of the commodity upwards. However, it is our contention that, in the case of gold, buffer stocks can be supplied with perfect elasticity. If this argument holds true, no such upward price pressure will be observed in the gold market in the presence of a positive demand shock.

The existence of a sophisticated liquid market in gold has, over the past 15 years, provided a mechanism for gold held by central banks and other major institutions to come back to the market. Although the demand for gold as an industrial input or as a final product (jeweler) differs across regions, it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium. This is not to say that exogenous shifts in flow demand will have no influence at all on the price of gold, but rather that the large supply of inventory is likely to dampen any resultant spikes in price. The extent of this dampening effect depends on the gestation lag within which liquid inventories can be converted in industrial inputs. In the gold industry such time lags are typically very short.

Gold has three crucial attributes that, combined, set it apart from other commodities: firstly, assayed gold is homogeneous; secondly, gold is indestructible and fungible; and thirdly, the inventory of aboveground stocks is astronomically large relative to changes in flow demand. One consequence of these attributes is a dramatic reduction in gestation lags, given low search costs and the well-developed leasing market. One would expect that the time required to convert bullion into producer inventory is short, relative to other commodities which may be less liquid and less homogenous than gold and may require longer time scales to extract and be converted into usable producer inventory, making them more vulnerable to cyclical price volatility. Of course, because of the variability of demand, the price responsiveness of each commodity will depend in part on precautionary inventory holdings.

There is low to negative correlation between returns on gold and those on stock markets, whereas it is well known that stock and bond market returns are highly correlated with GDP. This is because, generally speaking, GDP is a leading indicator of productivity: during a boom,

dividends can be expected to rise. On the other hand, the increased demand for credit, countercyclical monetary policy and higher expected inflation that characterize booms typically depress bond prices.

The fundamental differences between gold and other financial assets and commodities give rise to the following “hard line” hypothesis: the impact of cyclical demand using as proxies GDP, inflation, nominal and real interest rates, and the term structure of interest rates on returns on gold, is negligible, in contrast to the impact of cyclical demand on other commodities and financial assets.

Using the gold price and US macroeconomic and financial market quarterly data from January 1975 to December 2001, the following conclusions may be drawn:

1. There is no statistically significant correlation between returns on gold and changes in macroeconomic variables, such as GDP, inflation and interest rates; whereas returns on other financial assets, such as the Dow Jones Industrial Average, Standard & Poor’s 500 index and 10-year government bonds, are highly correlated with changes in macroeconomic variables.

2. Macroeconomic variables have a much stronger impact on other commodities (such as aluminum, oil and zinc) than they do on gold.

3. Returns on gold are less correlated with equity and bond indices than are returns on other commodities.

Assets that are not correlated with mainstream financial assets are valuable when it comes to managing portfolio risk. This research establishes a theoretical underpinning for the absence of a relationship that has been demonstrated empirically for a number of years; namely, that between returns on gold and those on other financial assets.

Gold Price

Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times. Many European countries implemented gold standards in the latter part of the 19th century until these were temporarily suspended in the financial crises involving World War I.[3] After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.[citation

needed].

Since 1919 the most common benchmark for the price of gold has been theLondon gold fixing, a twice-daily telephone meeting of representatives from fivebullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets forth the gold price versus various assets and key statistics on the basis of data taken with the frequency of five years:

Year GoldUSD/ozt[5] DJIAUSD[6]

World GDPUSD

(trillions)[7]

US DebtUSD (billions)[8]

Debt per capitaUSD[9]

Trade Weighted US dollar Index[10]

1970 37 839 3.3 370 1,874

1975 140 852 6.4 533 2,525 33.0

1980 590 964 11.8 908 4,013 35.7

1985 327 1,547 13.0 1,823 7,657 68.2

1990 391 2,634 22.2 3,233 12,892 73.2

1995 387 5,117 29.8 4,974 18,599 90.3

2000 273 10,787 31.9 5,662 20,001 118.6

2005 513 10,718 45.1 8,170 26,752 111.6

2010 1,410 11,578 63.2 14,025 43,792 99.9

1970 to 2010 net change, %

3,792 1,280 ... 3,691 2,237 ...

1975 (post US off gold standard) to 2010 net change, %

929 1,259 ... 2,531 1,634 ...