For thousands of years, gold has been valued as a global currency, a commodity, an investment and simply an object of beauty. As financial markets developed rapidly during the 1980s and 1990s, gold receded into the background and many investors lost touch with this asset of last resort. Recent years have seen a striking increase in investor interest in gold. While a sustained price rally, underpinned by the fact that demand consistently outstrips supply, is clearly a positive factor in this resurgence, there are many reasons why people and institutions around the world are once again investing in gold. This website provides you with the background to these reasons and describes the defining characteristics of the gold market from an investor's point of view.

Why gold?

Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors, although there are also a number of other reasons that underpin the widespread renewal of investor interest in gold.

Safe haven
In volatile and uncertain times, there is typically a 'flight to quality' as investors seek to protect their capital by moving it into assets considered to be safer stores of value. Gold is among a handful of financial assets that do not rely on an issuer's promise to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.

Portfolio diversification
Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more robust and less volatile than those that do not.

Inflation hedge
Market cycles may come and go, but - over the long term - gold keeps its purchasing power. Its value, in terms of the real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined due to the impact of rising prices for goods and services. As a result, gold is often bought to counter the effects of inflation and currency fluctuations.

Dollar hedge
Gold is often used as an effective hedge against fluctuations in the US dollar, the world's main trading currency. If the dollar appreciates, the dollar gold price falls, while a fall in the dollar relative to the other main currencies produces a rise in the gold price. While this may also be true of other assets, gold has consistently proved among the most effective in protecting against dollar weakness.

Risk management
On the whole, gold is significantly less volatile than most commodities and many equity indices. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets.

Demand and supply
As is true of all asset prices, gold's price moves in response to the changing balance between supply and demand. Mine production is relatively inelastic due to the long lead times that exist in gold mining, which explains why the rally in the gold price since 2001 has still not engendered an increase in production levels. Meanwhile, demand has shown sustained growth, due at least in part to rising income levels in gold's key markets. This has created the foundation for the most positive outlook the precious metal has known for a quarter of a century.

Gold and inflation
The value of gold, in terms of the real goods and services that it can buy, has remained largely stable for many years. In 1900, the gold price was $20.67/oz, which equates to about $503/oz in today's prices. In the five years to end-December 2008, the price of gold averaged around $606. So the real price of gold has endured a century characterised by sweeping change and repeated geopolitical shocks and more than retained its purchasing power. In contrast, the real value of most currencies has generally declined.

as is currently the case. make liquidity risk very low. through both inflationary and deflationary periods. Gold and risk Financial instruments usually carry three main types of risk. a wide range of buyers . Gold is unique in that it does not carry a credit risk.Investors in gold can point to a growing body of research supporting gold's reputation as a protector of wealth against the ravages of inflation.from the jewellery sector to financial institutions to manufacturers of industrial products . The gold market is deep and . but extensive research from a range of economists has demonstrated that. And unlike a currency. gold has consistently maintained its purchasing power. the value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation in that country.and the wide range of investment channels available. over the long term. jewellery. futures and options. as for a bond. Gold is no one's liability. certificates and structured products. can offer opportunities for impressive returns. and. exchange-traded funds. y Market risk: the risk that the price will fall due to a change in market conditions. Market cycles come and go. including coins and bars. y Credit risk: the risk that a debtor will not pay y Liquidity risk: the risk that the asset cannot be sold as a buyer cannot be found. or that a company will go out of business. 24-hour trading. experience has shown that gold can deviate from its long-run inflation-hedge price. when enjoying a sustained buoyant period. At the same time. There is no risk that a coupon or a redemption payment will not be made. as for an equity. In the short run.

Similarly. But many of the downside risks associated with the gold price are very different to the risks associated with other assets. This means that sudden excess demand for gold can usually be satisfied with relative ease. . much of it in near market form. are not shared by gold. which are supported by the availability of large above-ground stocks of gold. The more volatile an asset. which measures the dispersion of returns for a given security or market index. Gold's extensive appeal and functionality. including pressure on the health of the government and corporate sector during an economic downturn. One measure of market risk is volatility. gold is generally slightly less volatile than heavily traded blue-chip stock market indices such as the FTSE 100 or the S&P 500. usually the riskier it is. This is because of the depth and liquidity of the gold market. nearly all of the gold which has ever been mined still exists. as demonstrated by the fact that gold can be traded at narrower spreads and more rapidly than many competing diversifiers or even mainstream investments. as is clear from the experience of the 1980s when the gold price declined sharply. are underpinned by the supply and demand dynamics of the gold market. the geographical diversity of modern mine production further reduces the chances of supply shocks from any specific country or region having an undue impact on the price. unlike many other commodities such as. Gold is of course subject to market risk. a factor which enhances gold's attractiveness as a portfolio diversifier. The gold price is typically less volatile than other commodity prices. should a central bank announce its intention to engage in substantial sales of gold. oil or platinum. this would be unlikely to have an impact on equity returns but could reasonably be expected to affect the gold price in the short run. For example. for example.liquid. Because gold is virtually indestructible. As a consequence. including its characteristics as an investment vehicle. And. as happened prior to the Central Bank Gold Agreement in 1999. the specific risks to which bonds and equities are exposed.

Italy. East Asia. Turkey. 55% of demand is attributable to just five countries . . each market driven by a different set of socio-economic and cultural factors. Rapid demographic and other socio-economic changes in many of the key consuming nations are also likely to produce new patterns of demand.India. USA and China.Demand Demand for gold is widely spread around the world. the Indian sub-continent and the Middle East accounted for 70% of world demand in 2008.

Jewellery consumption in the developing markets was. that the economic crisis and the consequent recessionary pressures that developed over 2007 and 2008 had a significant negative impact on consumer spending and this. particularly in western markets. making jewellery one of the world's largest categories of consumer goods. expanding quite rapidly following a period of sustained decline. In the 12 months to December 2008. For more on the role of gold in India >> It should be noted. the USA is the largest market for gold jewellery. until fairly recently. accounting for 24% of demand in 2008. and tends to rise during periods of price stability or gradually rising prices. underpinned by expectations that the growth in demand for the precious metal will continue to outstrip that of supply. Generally. jewellery demand is driven by a combination of affordability and desirability by consumers. There are a wide range of reasons and motivations for people and institutions seeking to invest in gold. and declines in periods of price volatility. clearly. Since 2003 investment has represented the strongest source of growth in demand. Indian gold demand is supported by cultural and religious traditions which are not directly linked to global economic trends. which is an intrinsic part of its desirability.Jewellery demand Jewellery consistently accounts for over two-thirds of gold demand. this amounted to around US$61 billion. although recent economic distress may have stalled this growth. provides a solid rationale . still offer clear and considerable potential for future growth in demand. however. But several countries. including China. there is no doubt that identifiable investment demand in gold has increased considerably in recent years. in turn. In terms of retail value. Investment attracted net inflows of approximately US$32bn in 2008. And. Investment demand Because a significant portion of investment demand is transacted in the over-the-counter market. whereas India is the largest consumer in volume terms. A steadily rising price reinforces the inherent value of gold jewellery. However. a positive price outlook. resulted in the reduced volume of jewellery sales. it is not easily measurable. with an increase in the last five years in value terms to the end of 2008 of around 412%.

. The potential to use nanoparticles of gold in advanced electronics. www. rather than to cause any significant expansion in the global total. and its outstanding resistance to corrosion. For more on industrial and scientific applications of gold >> For the latest on the industrial markets and growing uses for gold visit www. The distinction between buying physical gold and gaining exposure to movements in the gold price is not always clear.for investment. medical and dental uses account for around 11% of gold demand (an annual average of over 440 tonnes from 2004 to 2008). averaging approximately 2. including its use as a catalyst in fuel cells. The growth in investment demand has been mirrored by corresponding developments in ways to invest and there are now a wide variety of investment products to suit both the private and institutional investor. where mining is forbidden. artisanal and often µunofficial¶ level). especially since it is possible to invest in bullion without actually taking physical delivery. one common thread can be identified: all are rooted in gold's abilities to insure against uncertainty and instability and protect against risk. glazing Supply Mine production Gold is produced from mines on every continent except Antarctica. Operations range from the tiny to the enormous and there are several hundred operating gold mines worldwide (excluding mining at the very small-scale.485 tonnes per year over the last five years. and other attributes. explain why over half of all industrial demand arises from its use in electrical components. the overall level of global mine production is relatively stable. and some investors may choose to combine two or more of these for flexibility. More on how to invest >> Industrial demand Gold investment can take many forms.utilisegold. various biomedical applications make use of its bio-compatibility. chemical processing and controlling pollution. Gold's high thermal and electrical conductivity. Gold's use in medical applications has a long history and today. Today. resistance to bacterial colonization and corrosion. New mines that are being developed are serving to replace current production. Recent research has uncovered a number of new practical uses for gold.utilisegold. and cancer treatments are all exciting areas of scientific research. Of the other key drivers of investment demand.

The value of gold means that it is economically viable to recover it from most of its uses. the sector as a whole has typically been a net seller since 1989. dispersed across 110 organisations). On average. rerefined and reused. For more on Central Bank gold holdings >> For quarterly Reserve Asset statistics >> Read about Gold Demand Trends in our detailed briefing note. contributing an average of 447 tonnes to annual supply flows between 2004 and 2008. at least.The comparatively long lead times in gold production. extracted. where it is in a form that is capable of being. that is. Since 1999. . The incentives promised by a sustained price rally. are not therefore easily or rapidly translated into increased production. governments hold around 10% of their official reserves as gold. mean mining output is relatively inelastic and unable to react quickly to a change in price outlook. then melted down. recycled gold (or scrap) ensures there is a potential source of easily traded supply when needed. if need be. Central banks Central banks and supranational organisations (such as the International Monetary Fund) currently hold just under one-fifth of global above-ground stocks of gold as reserve assets (amounting to around 29. although the proportion varies country-by-country. Significantly. Between 2004 and 2008. which also includes commentary on supply. Net central bank sales amounted to just 246 tonnes in 2008. Although a number of central banks have increased their gold reserves in the past decade. Recycled gold (scrap) Although gold mine production is relatively inelastic.600 tonnes. and this helps to stabilise the gold price. as experienced by gold over the last seven years. the bulk of these sales have been regulated by the Central Bank Gold Agreement/CBGAs (which have stabilised sales from 15 of the world's biggest holders of gold). with new mines often taking up to 10 years to come on stream. recycled gold contributed an average 28% to annual supply flows. gold sales from official sector sources have been diminishing in recent years.

the refiner typically takes a fee from the miner. The role of the bullion market at the heart of the supply-demand cycle . or gain exposure to gold price movements. The world's principal gold refineries are based near major mining centres. removing the ore by mining or breaking the ore body. the largest is the Rand Refinery in Germiston. the most appropriate way will depend on the requirements and outlook of the individual investor. Once refined. especially since it has always been possible to invest in bullion without actually taking physical delivery.instead of large bilateral contracts between miner and fabricator . In terms of capacity. the bullion bars (with a purity of 99. From gold coins to complex structured financial products. Coins and small bars Exchange-traded gold Gold accounts Gold certificates Gold orientated funds Structured products The distinction between the purchase of physical gold and gaining an exposure to movements in the gold price is not always clear.5% or higher) are sold to bullion dealers who. How to invest in gold There is an increasingly wide range of methods available to investors wanting to buy gold. in turn. and refining. transporting the broken material from the mining face to the plants for treatment. trade with jewellery or electronics manufacturers or investors.facilitates the free flow of metal and underpins the free market mechanism. or at major precious metals processing centres worldwide. This basic process applies to both underground and surface operations. . Rather than buying the gold and then selling it onto the market later. creating access to the ore body. US. South Africa. the largest is the Johnson Matthey refinery in Salt Lake City.Gold production The process of producing gold can be divided into six main phases: finding the ore body. processing. In terms of output.

which offer bargain deals. which then has to be independently sold to either a jewel shop or another buyer. This requires some financial planning to go into ones portfolio to finely balance opportunity. The main reason for this is one: the uncertainty of quality and two: the high additional cost incurred for the making. This is a more sophisticated way to get exposure to gold as an asset class. it has now fallen from its all time high and along with equities showed a sudden decline recently. predicting darker days still to come. which sell gold. correction in gold prices to gold losing its natural characteristics are all partially true and yet none explain the complete picture. which has led to erratic movement in various assets. y y y y y y y y y y y . they are not the smartest way to go in terms of investments. gold ETF¶s will invest in gold. This leaves purchasers with a relatively illiquid form of gold. unless the units are redeemed via the fund. defying their natural tendencies at times. the naturally optimistic are betting on the equity markets. The gold is also supposed to be authenticated and quality tested. since the gold is stored and insured by the asset management company (AMC). while the pessimists are running for wealth protection. Arvind Chari. While these jewellery no doubt hold a high emotional and intrinsic value in the world. y Why have you decided to buy gold? Do you want a real asset that you can have physically available at all times or do you simply want exposure to the gold price? y Will you want to have the gold delivered to you or would you prefer to have it stored in a vault? y Do you have information about all the costs that may be involved? These may include taxes. This is as the simple truth is that this entire economic meltdown. felt.If you are thinking about investing gold. currency debasement. The following list of questions is provided as a guide to help you decide on the channel or channels that would be most appropriate for you. Gold investments While Indians are by far the largest natural buyers of gold. They only provide investors with an alternative investment. premiums. We use gold as portfolio insurance. All in all. as well as prepare for the worst. has in the past acted as hedges against inflation. y Is the counterparty (the person or company from or through whom you will be making the purchase) reliable and trustworthy? y How does gold fit in with any other investments you may have? y y In an economic scenario thwart with uncertainty. Swati Kulkarni. cut out some of these problems. and. opined. falling equity markets and even helped keep abreast the falling purchasing power of nations. which tend to take away the hassle of storage and insurance both. which in terms of an investment is pretty worthless if not harmful to the value of gold. Quantum Gold ETF¶s fund manager. The speculations surrounding this range from the gold bubble bursting. trying to understand as much as we can about gold and the likely economic impact of this global meltdown is the best way one can prepare for what is to come. While safety is sought in many forms. The only downside is the psychological edge of owning psychical gold on your own is not there. it is the realist and opportune investor who can take advantage. ³A gold ETF is an easier way to invest in gold. gold ETF¶s don¶t take calls on gold prices. While 2008 was pretty much gold¶s year as a commodity and an asset class. this brings us to gold exchange traded funds (ETF¶s). prudence and safety. it is worth giving the same consideration to your purchase as you would to any other investment. Gold being the one asset with a high intrinsic value. The other options like buying gold coins or bars also pose a problem of quality. the insurance issue still remains. ³Typically. UTI Gold exchange traded fund (ETF) manager. They also provide investors the most efficient exposure to gold. storage and even insurance. one that comes to mind immediately is the most time-tested of all assets. In such a situation. providing investors a chance to invest easily into this asset by merely purchasing units. authenticity. and even now we advice investors to have 10-20% of their portfolio invested in gold. as well as the fact that banks do not buy back the gold they have sold. which increases the cost of the asset greatly. irrespective of the gold price movements. Gold and gold ETFs both had a good year in 2008. These units are like shares and change in value as the NAV moves up or down. While banks. is basically what Nassim Nicholas Taleb refers to as a ³black swan´ event. which can also hold its own no matter what: gold. While the history of the gold price movement is still being scrutinised. commissions. we tend to have a major preference towards gold jewellery when compared to some of its other forms.´ On the other hand. storage or insurance.

be it via offering huge stimulus packages as seen in the US or via increasing their fiscal deficit as seen in the case of India. However. these funds too took a hit in their NAVs. Technically.000¶s and gold at a $1. especially since gold prices are currently down. which will protect your investment value. Historically. Also. If this is to now move towards below one.y y y y y y y y y y y y y y y y The reason one may prefer gold ETFs over other forms of gold buying is as when compared. While currently.´ Most investors would be aware that gold is a good hedge against inflation and the best insurance against the markets. directed towards gold. Most portfolio managers across the nation have been of the opinion that one should at least allocate 10-20% of their portfolio towards gold. Oil on the other hand is usually closely related to gold in terms of movements. the ration reaches its peak once every 30-35 years.´ Gold in your portfolio As far as building a portfolio goes. Skeptics of the gold ETF boom have felt that the ETF¶s net asset values often move at way higher rates than the gold price movement. the gold ETF movement is higher or lower than the gold price movement. However. if one looks at the various mutual funds performance across the country over the past 12-14 months. it will not be bogged down. This is essential especially in such times. gold coins and bars are harder to store and verify for authenticity. jewellery is more expensive due to the making charges. gold will remain attractive. one will see that the top four funds are all gold exchange traded funds. Swati felt. This is believed as it is the only asset. the gold price is bound to rise. Gold will then continue to act as a hedge against inflation. having a negative correlation to equities. ³While the world economy is facing a major crisis. debt and having a positive correlation to oil. if one looks at the last one week of mutual fund performances. However. However. thereby creating inflation and destabalising the economy as well. from their all time high last year. having returns of 7-9% in the last 7 days. which maybe seen in the next year or so. the ratio steadily drops till it is below one. This will debase the currencies and in such times gold is the best protection one can have. one finds. 20% allocation of ones portfolio. is the best way to invest in gold. accompanied by the falling Dow. investors will once again have to turn to gold for solace. right now people need protection. Arvind feels ³Gold is proving to be the safest asset in such times. However. The Dow-gold ratio has a curious historical relevance. in another two to three years it will normalise. for it shows the ratio at its highest point once every 35 years. ³Sometimes due to trading of gold ETF units. While the gold high maybe over. the ratio is at 7:1. it still remains a powerful asset class and until the world economy stabilises and risk aversion settles down. banks don¶t buy back the gold they sell. Explaining the same. people may find it odd as to why are we discussing inflation when or falling equities when the markets are looking attractively priced right now. After this.´ Some of the ratios that gold is often compared to is the Dow-gold ratio.´ Another reason for investing in gold now is due to the lower prices currently offered in the market. they continue to grow at a steady rate in comparison to the other funds. falling equities and currencies. On elaborating as to why is gold so essential during the present circumstances. and adjust it accordingly as the economic scenario becomes clearer. especially via gold ETF¶s. in order to raise the money for the stimulus packages. now the ratio between them is the highest and this too is an anomaly of sorts. from a three to five year perspective. This is mainly due to the high risks that many nations are taking today. People will be looking to go towards gold to maintain their purchasing power and combat higher inflation. equity will be a better class to invest in terms of returns. then now is a good time to acquire it. especially since at the end of the day.´ Gold over the last few years had again come into focus as an asset class. However. Arvind goes on to explain. the governments will be left with little choice but to print more money. ³The Dow-gold ratio is today at a critical phase. When discussing if gold is an asset worth investing in. will start printing more money. Currently. So many countries these days are offering stimulus packages. the NAV is based on the gold price. Why gold? Swati believes ³Gold as such does well when there is high risk aversion in the market and till that scenario exists. then too gold ETFs seem the best. after which the ration will fall to below one levels. I feel this is only an intraday phenomena. almost with the Dow in the 7. gold may not be reacting to every asset class like it usually does. ³If one does not have gold in their portfolio. inflation is bound to kick back in and sooner or later. leaving gold ETFs as the preferred choice of investment. Arvind felt.000 level. In such circumstances. oil-gold ratio and dollar-gold ratio. If either of these scenarios play out. As far as the Dowgold ratio goes. This has happened from the . After giving average returns of 25% or more last year. gold ETFs and gold should move in tandem. which means these governments. when gold prices dipped after their all time high. Arvind felt. especially in India where it has been sought more in the form of jewellery.

Many dealers sell both. whose value depends on their rarity. It is important not to confuse bullion coins with commemorative or numismatic coins. Bullion coins range in size from 1/20 ounce to 1000 grams. ruler of Lydia in western Asia Minor from 560 to 546BC. Small gold bars . These coins are legal tender in their country of issue for their face value.y 1920¶s onwards and given that the ratio had peaked last year. 1/2 and 1 ounce.000 levels and gold will rise drastically from its current $1. retail investors too should revisit their portfolio and insure it with a decent gold allocation. 1/4. who are now turning towards refilling their gold treasuries. below right). In many countries . although the most common weights (in troy ounces of fine gold content) are 1/20. design and finish rather than on their fine gold content. For it could mean that the Dow will drop drastically from its current 7.including the whole of the European Union . For investment purposes. Bullion coins and small bars offer private investors an attractive way of investing in relatively small amounts of gold. In such a case. plus a premium or mark-up that varies between coins and dealers. Gold coins have been legal tender ever since. whose wealth came from the gold from the mines and sands of the River Pactolus. the fact that it is the best hedge we have against the times ahead is now a universal consensus. China has tripled its gold and so are other nations. Coins and small bars The first gold coins were struck by King Croesus. this phase becomes important. if the ratio is to be below one.000 levels. Bullion coins Investors can choose from a wide range of gold bullion coins issued by governments across the world (see panel. whatever be the case with purchased for investment purposes is exempt from Value Added Tax. rather than for their gold content. The premium tends to be higher for smaller denominations. the market value of bullion coins is determined by the value of their fine gold content.´ All in all. 1/10.

Futures and options Gold futures Gold futures contracts are firm commitments to make or take delivery of a specified quantity and purity of gold on a prescribed date at an agreed price. South Africa. Exchange-traded gold Gold-backed securities Gold is traded in the form of securities on stock exchanges in Australia. the securities are 100% backed by physical gold held mainly in allocated form. While this leverage can be the key to significant trading profits. Futures prices are determined by the market's perception of what the carrying costs . and are expected to track the gold price almost perfectly. there are 94 accredited bar manufacturers and brands in 26 countries. . Tradable commodity indices are based on fully collateralised baskets of long-only commodity futures. The futures price is usually higher than the spot price for gold. Japan. Singapore. The Commodity Futures Trading Commission provides extensive reports on derivatives trading in the United States. ranging from as little as one gram to 400 troy ounces (the size of the internationally traded London Good Delivery bar).5% fine gold. all of which include a small allocation to gold.or cash deposit paid to the broker . Gold futures are also traded in India and Dubai. Turkey. the United Kingdom and the United States. They normally contain a minimum of 99. are generally referred to as Exchange Traded Commodities or Exchange Traded Funds (ETFs). According to industry specialists Gold Bars Worldwide. The initial margin . By design. The Gold Bars Worldwide website provides a wealth of additional information regarding the international gold bar market.5% of total physical demand over the 5 years to 2008. these forms of securitised gold investment. it can also give rise to equally significant losses in the event of an adverse movement in the gold price. all regulated financial products. The largest are the New York Mercantile Exchange Comex Division (recently rebranded CME Globex. the Chicago Board of Trade (part of CME) and the Tokyo Commodity Exchange. Mexico. France. Futures contracts are traded on regulated commodity exchanges. That means investors can achieve notional ownership of a value of gold considerably greater than their initial cash outlay. producing a total of more than 400 types of standard gold bars between them. only a fraction of the price of the gold underlying the contract. Unlike derivative products. Small bars are defined as those weighing 1000g or less.ought to be at any one time.including the interest cost of borrowing gold plus insurance and storage charges .Gold bars can be bought in a variety of weights and sizes. Financial advisors and other investment professionals can provide further details about these products. Hong Kong. These securities have had a major impact on the gold market. after a merger between Chicago Mercantile Exchange and NYMEX). representing an annual average of 32% of identifiable investment and 6.

which they can usually do within two working days). Unallocated account Investors do not have specific bars allotted to them (unless they take delivery of their gold. Like shares. because the bank reserves the right to lease the gold out. there is no point in exercising the option and the holder's loss is limited to the premium initially paid for the option. this is the most secure form of investment in physical gold. the buyer pays a premium. where appropriate). Gold accounts Gold bullion banks offer two types of gold accounts . Nowadays commonly used by leading investment banks. The gold is stored in a vault owned and managed by a recognised bullion dealer or depository. gold warrants were mostly related to the shares of gold mining companies.Gold options These give the holder the right. they give the buyer the right to buy gold at a specific price on a specific day in the future. Like futures. both futures and options can be traded through brokers. which are numbered and identified by hallmark.their customers are institutional investors. The higher the strike price. warrants are generally leveraged to the price of the underlying asset (in this case. Warrants In the past. buying gold options can give the holder substantial leverage. Investors are exposed to the creditworthiness of the bank or dealer providing the service in the same way as they would be with any other kind of account. are allocated to each particular investor. Traditionally. The cost of such an option depends on the current spot price of gold. but gearing can also be on a one-for-one basis. Like futures contracts. private banks acting on behalf of their . lease or lend the bars except on the specific instructions of the account holder. the less expensive a call option and the more expensive a put option.allocated and unallocated: Allocated account Effectively like keeping gold in a safety deposit box. some banks have begun to introduce charges even on unallocated accounts. to buy ('call' option) or sell ('put' option) a specified quantity of gold at a predetermined price by an agreed date. The holder of gold in an allocated account has full ownership of the gold in the account. weight and fineness. bullion banks do not deal in quantities under 1000 ounces . who pays the custodian for storage and insurance. the level of the pre-agreed price (the 'strike price'). As a general rule. interest rates. Where the strike price is not achieved. one advantage of unallocated accounts has been the lack of any storage and insurance charges. gold). the anticipated volatility of the gold price and the period remaining until the agreed date. Specific bars (or coins. For this right. but not the obligation. Now that the gold lease rate is negative in real terms. and the bullion dealer or depository that owns the vault where the gold is stored may not trade.

Electronic currencies There are also electronic 'currencies' available . in Gold Pool Accounts . Should they choose to sell their gold they can also get cash. These U. Other opportunities for smaller investors include: Gold pool accounts There are alternatives for investors wishing to open gold accounts holding less than 1000 ounces. unsegmented interest in a Gold accounts pool of gold . they confirm an individual's ownership while the bank holds the metal on the client's behalf. gold certificates were issued by the U. . Issued by individual banks. Nowadays. particularly in countries like Germany and Switzerland. and these currencies allow gold to be used to send online payments worldwide. A fixed sum of money iswithdrawn automatically from an investor's bank account every month and is used to buy gold every trading day in that month. and sometimes even in the form of jewellery. Gold Accumulation Plans Gold Accumulation Plans (GAPs) are similar to conventional savings plans in that they are based on the principle of putting aside a fixed sum of money every month. and they have become collectibles.linked to gold bullion in allocated storage which offer a simple and cost-effective way of buying and selling gold. and purchases are not subject to the premium normally charged on small bars or coins. there is less risk of investing a large sum of money at the wrong time. They were initially replaced by silver certificates. Gold certificates Historically. and using it as money. The client thus saves on storage and personal security can invest as little as one ounce. The fixed monthly sums can be small. Any amount of gold can be purchased. For instance. At any time during the contract term (usually a minimum of a year). central banks and gold market participants wishing to buy or borrow large quantities of gold.where you have a defined.S. investors can get their gold in the form of bullion bars or coins. Treasury gold certificates have been out of circulation for many years.S. and later by Federal Reserve notes. Treasury from the civil war until 1933. What makes GAPs different from ordinary savings plans is that the fixed sum is invested in gold. or when the account is closed. gold certificates offer investors a method of holding gold without taking physical delivery. and gains liquidity in terms of being able to sell portions of the holdings (if need be) by simply telephoning the custodian.clients. Denominated in dollars. Because small amounts of gold are bought over a long period of time. these certificates were used as part of the gold standard and could be exchanged for an equal value of gold.

A fiat currency is defined and created by a government. 2. 5. government currencies were backed by gold. It is given meaning only by legal tender laws²national laws that say that the fiat currency has to be accepted as payment in that country. utensils. Silver was also widely used. which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws). from 1944 to 1971 a non-US currency unit (such as a yen or a pound) could only be exchanged for US dollars. exchange a unit of any of the world¶s main government currencies (such as a dollar. pounds. rupees. and they are only worth what someone else is prepared to trade for them. Asia and the Americas for most of the last few thousand years. Rare About 5 parts per billion of the earth¶s crust. For example. Currency notes were just certificates for various weights of gold. or a rupee) for a prescribed amount of gold. it¶s a currency. and divide it into tiny pieces. and much of the silver ever mined has been effectively lost because it is hard to recover. The fiat currencies now µfloat¶ against one another. It is THE currency that evolved in the marketplace over the last 5. and thus force people to use the fiat currency. then it would be about 1. but the amount of gold used in these ways is relatively tiny. that is. Malleable and divisible You can easily reshape it. Gold has some non-investment uses such as in electronics. 3.5 meters (5 feet) high. electronics) outweigh its investment use. a yen. The only significant use of gold today is for investment. 1. from 1934 to 1971 you could exchange 35 US dollars for one ounce of gold. 2. a pound. Silver is different²the industrial uses of silver (photography. at any time. up until 1971. Gold and silver are the only currencies not created and controlled by governments. Almost all the gold ever mined is still in use today. Gold evolved independently as money in the world¶s main civilizations. as a currency or a store of value. medicinal. Hard to find The amount of mined gold has increased only slowly. Gold is more than just another commodity. rarely more than 2% per year. This includes jewelry²the fundamental purpose of gold jewelry is to store something valuable in your personal safekeeping. Progressively from 1913 to 1971 governments withdrew the right to exchange government currency for gold. . yen. renminbis. because it is: 1. 4. with their relative values going up and down with economic trends or fashions. All of today¶s other currencies (dollars. Compact If all the gold ever mined were made into a solid block whose base was the size of a football field. Difficult and expensive to mine. You could.The Perth Mint also runs a certificate programme that is guaranteed by the government of Western Australia and is distributed in a number of countries. they have no connection to any commodity or anything tangible. Since then the world¶s government currencies have been µfiat¶ currencies (see point 2 below)² they are not defined as a weight of gold. For example. euros. All today¶s government currencies are µfiat¶ currencies. and only national governments could go to the US government to exchange those US dollars for gold. though to a lesser extent.000 years. etc) are µfiat¶ currencies. In 1971 President Nixon of the United States broke that nation¶s promise to always exchange 35 US dollars for an ounce of gold. Indestructible It does not tarnish or decay. Until 1971. Gold was the main currency in most of Europe. flatten it.

no one can conjure gold up out of thin air to spend for themselves and get others to do their bidding. the currency eventually became worth much less and was abandoned because the people in charge of making it eventually succumbed to the temptation of making far too much of it. gold is accepted as valuable without needing protection by laws. prices in terms of gold tend to stay roughly constant for centuries²changing mainly due to technological influences that make some goods relatively easier or harder to make. so the prices of the goods and services rises. 3. Unlike fiat currencies. A fiat currency is a currency brought into existence by government decree (that is. There have been hundreds of fiat currencies in the past. create too much of the currency and it becomes worth less. due to some urgent government priority. and the consequent rise in prices is measured to some degree by the CPI (consumer price index). All fiat currencies in the past have ended up worth very little. collapsing into hyperinflation or threatening to. on the other hand. ounce by hardwon ounce. on the other hand. treats everyone equally. and ultimately worthless. Gold has to be mined. As a government creates more of its fiat currency then there is an increasing amount of currency to pay for the same amount of goods and services. Fiat currency is created at the whim of politicians and bureaucrats. by fiat). . is independent of any government laws.The term µfiat currency¶ came about because the legal tender laws that give it value are a µfiat¶ (or authoritative pronouncement) of government. History¶s lesson on this point is clear: those in charge of a fiat currency always. The µvalue¶ of a currency (how many goods and services a unit of the currency can buy) depends in the long run on how much the country¶s government inflates its currency. Unlike fiat currency. The increase in the quantity of currency is called µinflation¶. In every single case. Gold. in various countries at various times. Because the supply of gold can only ever increase slowly. The value of gold. All of today¶s fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971). Governments always end up creating too much fiat currency out of thin air. eventually.

. The branded jewelery segment is hardly 5% of the total market. doing business in this segment is not a cake walk. a good way to earn the valuable foreign exchange was through gold business. Tanishq has more than 104 stores across 71 cities.000 crore Indian Jewelery market. Tanishq is a retail brand. the brand has grown to a Rs 1200 crore brand even overtaking Titan watches interms of the turnover. The Indian jewelery market is huge and India is the second largest consumer of gold trailing behind USA. Titan planned to venture into gold business way back in late 1980's. According to the company website. It is the chain of jewelery shops set up by Titan across the country. During that period of foreign exchange crisis. But by the time the company figured out the business.Tanishq is a very interesting brand. Although the jewelery market is large. The chain is operating through a franchise system. Since then . But the jewelery market is highly fragmented. Titan has also another brand of retail outlets which is known as Gold Plus which is targeting the urban/semiurban consumers and small towns. The market is complex and highly unorganized. the foreign exchange problem was over. The consumer behavior is also different compared to what we see in other products and categories. Tanishq is one of the first brands to create a national brand in the Rs 40. Tanishq was launched in 1995. Interesting because it is a brand that is trying to change the rules of an industry which is very fragmented. Gold Plus has presence in more than 20 towns and Titan is planning a major expansion of these stores.

most of them have a long tradition and their business and clientele has been on their traditional built store rather than over experimenting with generations. new stores. Since the pricing of gold jewelery is tricky and complex. Since gold is a high valuehigh involvement purchase. But the brand ran into difficulties since the consumers were too sticky about 22 carat ornaments. And for a brand like Tanishq. consumers also tended to rely But these have changed in recent times. Tanishq started off selling 18 carat gold jewelers. If we look at the genesis of local jewelers. The stores has been exploiting the consumers by complex pricing policies like " making charges". Most of the individual consumers are loyal to their local jeweler /goldsmith. consumers were risk averse in trying out a new retail format like Tanishq. the market is more organized. Gold retailing is heavily rooted in tradition. The consumers were also less responsive to the premium that Tanishq jewelery commanded. The brand at that time was positioned as a jewelery for daily wear . Tanishq was depending heavily on the pull factor. There are large chain of jewelers who have their presence across the state. Consumers tend to buy from these retail chains rather than make the gold jewelery from a gold smith. It is harder if this behavior is rooted in tradition. .Tanishq has been trying to tap on this need for a honest gold retailer. The light weight jewelery was still alien to the consumers. the trust that the Tata brand carries and also the reliability factor. value addition etc which an ordinary consumer seldom understand. In the state of Kerala where I live.Consumers tend to see gold as an investment and indulgence. It takes lot of time to change the consumer perception. People did not know about the Tanishq brand . it had to break this traditional consumer buying process and also make them switch their loyalty from the goldsmith to the retailer. The brand relied on the design ranges. One of the major hurdles that the brand faced was the brand recognition during its initial stages.

Over positioning is where the brand narrowly positions itself and consumer tend to have a narrow image of the brand. Tanishq has been trying to differentiate on the designs. Tanishq recently roped in the new Bollywood diva Asin to endorse a collection. Tanishq have the major issue is fighting the regional players. Consider the Kerala example.Along the way . According to the company website. the brand had to convince the consumer that Tanishq had jewelery which was affordable. Tanishq have a two prong branding strategy. Collection G etc. Some of these brands are Solo. The brand feels that consumers will chose Tanishq for its designs. Diva . the brand also had to fight the perception of being a premium brand.To tide over the issue of low margins. The brand is very active across the media. the brand Tanishq have zero visibility compared to the local . Tanishq came out with small priced collections which to an extend corrected the perception problem. Tanishq had a turnover of over Rs 1200 crores. It had built lot of product lines and has branded these lines. To tide over this issue. Tanishq has recently launched the diamond collection which is considered to be a high margin product line. In a classic case of over positioning. The company have the main brand Tanishq and lot of sub brands for its different collections. Aria. Regarding the promotional strategies.

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