old Investment in India : Until 1990, the Gold Control Act forbade the private holding of gold bars

in India. There was physical investment in smuggled ten tola bars, but it was limited and often amounted to keeping a few bars ready to be made into jewellery for a family wedding. Gold investment essentially was in 22 carat jewellery. Reserve Bank of India Since 1990, investment in small bars, both imported ten tolas and locally-made small bars, which have proliferated from local refineries, has increased substantially. GFMS estimate that investment has exceeded 100 tonnes (3.2 million oz) in some years, although it is hard to segregate true investment from stocks held by the 16,000 or more gold dealers spread across India. Certainly gold has been used to conceal wealth, especially during the mid-1990s, when the local rupee price increased steadily. It was also augmented in 1998 when over 40 tonnes (1.3 million oz) of gold from bonds originally issued by the Reserve Bank of India were restituted to the public. In the cities, however, gold is having to compete with the stock market, investment in internet industries, and a wide range of consumer goods. In the rural areas 22 carat jewellery remains the basic investment. The Gold Deposit Scheme The government announced a new initiative in its 1999/2000 budget to tap the hoard of private gold in India by permitting commercial banks to take gold deposits of bars, coins or jewellery against payment of interest. Interest levels can be set by each bank, and deposits must be for three to seven years. Interest and any capital gains on the gold will be exempt from tax. The banks can lend the gold to local fabricators or sell it in the Indian market or to local banks. However, the depositor has to declare the origin of the gold, so that metal bought illegally to hide wealth cannot be deposited. The State Bank of India was the first to accept deposits. To date, the amount of gold collected under this scheme (less than 10 tonnes or 0.32 million oz) has fallen well short of the 100 tonnes (3.2 million oz) that was mentioned when it was launched. See also: India Markets Introduction; Evolution of Modern Gold Market in India Indians have a huge fascination for gold. This is evident in the fact that India is the largest consumer as well as importer of gold in the world. Gold plays a very important role in the social, religious and cultural life of Indians. India Gold Market looks poised to achieve greater heights given the fascination for gold in the country. India consumes about 800 MT of gold which accounts to about 20% consumption of gold globally. More than 50% of this is used for making gold jewelry.

Size of India Gold Market
The domestic India gold market is estimated to be more than US$15 billion and is expected to rise significantly in the coming years. During April 2008 to February 2009, gems and jewelry worth US$ 17.79 billion was exported from the country. United Arab Emirates imported more than 30% of gems and jewelry from India, making it the largest importer from the country. Hong Kong was the second largest importer with 25% followed by United States with 20%. The gem and jewelry industry accounts for more than 10% of India's total commodities exports.

Gold certification in India
The government has taken steps to protect the public from buying adulterated gold; Hallmarking of gold jewelry is one such step. Hallmarking of gold jewelry indicates the accurate finding out and official recording of the proportionate content of precious metals present in gold. The marking is done either by laser marking machine or by punches. Hallmark is the official mark used in several countries across the world as an assurance of purity or fineness of gold jewelry. The Bureau of Indian Standard or BIS was named by the Government as the lone agency in the country for providing hallmarking of gold jewelry under the provisions of the BIS Act, 1986.

Indian Standard on Gold and Gold alloys

y y y y

IS 1417 Grades of gold and gold alloys, Jewelry/Artefacts-Fineness and Marking IS 1418 Assaying of Gold in Gold Bullion, Gold alloys and Gold Jewelry/ Artefacts Cupellation (Fire Assay Method) IS 2790 Guidelines for manufacture of 23, 22,21,18,14 and 9 carat gold alloys IS 3095 Gold Solders for use in manufacture of Jewelry

Features of India Gold Market

Though India is the leading consumer of gold in the world, the gold market in India is largely fragmented and unorganized. Due to the non availability of a benchmark price, the gold prices in India vary very much from region to region. The festive and the wedding season in the country witnesses a heavy demand for gold. Despite the global economic recession, the gold consumption in the country during these times has not abetted.

Factors affecting India Gold Market

The monsoons and the harvest of the country have a significant affect on the sale and purchase of gold in the country. Both these factors determine the amount of purchasing power that people will have, which in turn decides on the amount of gold consumption and other consumptions as well. Purchasing gold and other precious metals on occasions like Akshaya Tritiya is considered to be auspicious.

How The Gold Market Works
Exploring the intricacies of how the gold market works would take volumes. This primer covers the basic operation of the market and the primary indicators of activity ± essential information for making informed investments.

The gold market has two distinct segments. Almost all trading of physical gold takes place on the over-the-counter market (OTC), centered primarily in London, New York, and Zurich. OTC trades are direct unstructured transactions between principals ± mining companies, central banks, and industrial consumers. The standard size of OTC gold trades ranges from 5,000 to 10,000 ounces. Investors and speculators can also trade in OTC derivatives similar to those discussed below. Because physical assets are bought and sold, the current OTC gold market price is an important benchmark. The London fix - the most widely used indicator - is calculated twice daily (the AM fix and the PM fix).
And Into the Futures

What most people think of as the gold market is actually the gold futures market, the trade that takes place on exchanges such as the Commodity Exchange (COMEX) division of the New York Mercantile Exchange (NYMEX), the Chicago Board of Trade (CBOT), and the Tokyo Commodity Exchange (TOCOM). Investors in these exchanges speculate on the movement of the price of gold. The principal indicator is the spot price - the quote price for gold to be delivered and paid for on the settlement date two days into the future. The spot price is heavily influenced by the London fix.
Exit Gold, Enter Paper

Derivatives, instruments that settle further into the future than the spot settlement date, were introduced into the gold market to hedge against adverse movement in the spot price. There are two basic types of derivatives, although each has numerous complicated variations.

Futures are contracts to buy or sell a specified quantity of gold at a set price on a fixed future date. Delivery dates and unit quantities are standardized by the exchange. Futures trade is buying and selling futures contracts; physical gold is rarely delivered. Options are a variation on futures that give the holder the right ± but not an obligation - to buy (call option) or sell (put option) a specified quantity of gold at a set price on or before a specified date. Options are also standardized by the exchanges.
Out of the Exchange and Into the Stock Market

In 2003 the exchange-traded fund (ETF) introduced a form of gold trade into the stock market. These instruments are backed 100% by gold, although the holder never has possession of the physical asset. Similar instruments backed by futures are also available. Although ETFs may appear to simplify investing, they introduce another layer of risk while having none of the benefits of owning physical gold.
Untangling the Rat s Nest

Trading directly in the gold market is indeed complex. Fortunately, there exists a far superior option ± invest in physical gold through Certified Gold Exchange. Our PriceMatchPlus® guarantee assures you the best prices on both Certified Bullion for short-term investments and Certified Gold Coins for your long-term investment strategy.

Gold as an investment
From Wikipedia, the free encyclopedia

Reserves of SDR, forex and gold in 2006

A Good Delivery bar, the standard for trade in the major international gold markets.

Of all the precious metals, gold is the most popular as an investment.[1] Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. The history of the gold standard, the role of gold reserves in central banking, gold's low correlation with other commodity prices, and its pricing in relation to fiat currencies during the current global financial crisis, suggest that gold behaves more like a currency than a commodity.[2][3]

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1 Gold price 2 Factors influencing the gold price o 2.1 Central banks o 2.2 Hedge against financial stress o 2.3 Jewelery and industrial demand o 2.4 Short selling o 2.5 War, invasion and national emergency 3 Investment vehicles o 3.1 Bars o 3.2 Coins o 3.3 Exchange-traded products (ETPs) o 3.4 Certificates o 3.5 Accounts o 3.6 Derivatives, CFDs and spread betting o 3.7 Mining companies 4 Investment strategies o 4.1 Fundamental analysis o 4.2 Gold versus stocks o 4.3 Technical analysis o 4.4 Using leverage 5 Taxation 6 Scams and frauds 7 See also 8 References 9 External links

[edit] Gold price

Gold price history in 1960-2011

Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries. Many European countries implemented gold standards in the latter part of the 19th century until these were dismantled in the financial crises involving World War I. 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. Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-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:
Trade Weighted US dollar Index[8]


Gold [5] World GDP [4] DJIA USD USD/ozt USD tn[6]

US Debt USD bn[7]

1970 1975 1980 1985 1990

37 140 590 327 391

839 852 964 1,547 2,634

3.3 6.4 11.8 13.0 22.2

370 533 908 1,823 3,233 33.0 35.7 68.2 73.2

1995 2000 2005 2010

387 273 513 1,410

5,117 10,787 10,718 11,578

29.8 31.9 45.1 ...

4,974 5,662 8,170 14,025

90.3 118.6 111.6 99.9

1970 to 2010 net change, % 3,792 1,280 ... 3,691 ...

1975 (post US off gold standard) to 2010 net change, % 929 1,259 ... 2,531 ...

In March 2008, the gold price exceeded US$1,000,[9] achieving a nominal high of US$1,004.38. In real terms, actual value was still well below the US$599 peak in 1981 (equivalent to $1417 in U.S. 2008 dollar value). After the March 2008 spike, gold prices declined to a low of US$712.30 per ounce in November. Pricing soon resumed on upward momentum by temporarily breaking the US$1000 barrier again in late February 2009 but regressed moderately later in the quarter. Later in 2009, the March 2008 intra-day spot price record of US$1,033.90 was broken several times in October, as the price of gold entered parabolic stages of successively new highs when a spike reversal to $1226 initiated a retrace of the price to the mid-October levels. On June 6, 2011, gold reached a new record high of $1549.00 at the London Gold Fixing and the price reached US$1795.00 on August 10, 2011.[10]

[edit] Factors influencing the gold price
Today, like most commodities, the price of gold is driven by supply and demand as well as speculation. However unlike most other commodities, saving and disposal plays a larger role in affecting its price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and mass-produced jewelry, with little value over its fine weight ² and is thus potentially able to come back onto the gold market for the right price.[11][12] At the end of 2006, it was estimated that all the gold ever mined totalled 158,000 tonnes (156,000 long tons; 174,000 short tons).[13] This can be represented by a cube with an edge length of 20.2 metres (66 ft). Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production.[14] According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes.[15] About 2,000 tonnes goes into jewellery or

industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds.[15]

[edit] Central banks
Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves.[16] The ten year Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year.[17] European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period.[18] In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.[19] Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005.[20] In early 2006, China, which only holds 1.3% of its reserves in gold,[21] announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold which has led to a surge in prices.[22] It is generally accepted that interest rates are closely related to the price of gold. As interest rates rise, the general tendency is for the gold price, which earns no interest, to fall, and as rates dip, for gold price to rise. As a result, gold price can be closely correlated to central banks via the monetary policy decisions made by them related to interest rates. For example if market signals indicate the possibility of prolonged inflation, central banks may decide to enact policies such as a hike in interest rates that could affect the price of gold in order to quell the inflation. An opposite reaction to this general principle can be seen after the European Central bank raised its interest rate on April 7th, 2011 for the first time since 2008.[23] The price of gold responded with a muted response and then drove higher to hit new highs one day later.[24]. A similar situation happened in India: In August 2011 when the interest rate were at their highest in two years, the gold prices peaked as well.[25]

[edit] Hedge against financial stress
Gold, like all precious metals, may be used as a hedge against inflation, deflation or currency devaluation. As Joe Foster, portfolio manager of the New York-based Van Eck International Gold Fund, explained in September 2010:
The currencies of all the major countries, including ours, are under severe pressure because of massive government deficits. The more money that is pumped into these economies the printing of money basically then the less valuable the currencies become.[26]

If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities

increases. An example of this is the period of stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals.[27][28]

[edit] Jewelery and industrial demand
Jewelery consistently accounts for over two-thirds of annual gold demand. India is the largest consumer in volume terms, accounting for 27% of demand in 2009, followed by China and the USA.[29] Industrial, dentistry and medical uses account for around 12% of gold demand. Gold has high thermal and electrical conductivity properties, along with a high resistance to corrosion and bacterial colonization. Jewelery and industrial demand has fluctuated over the past few years due to the steady expansion in emerging markets of middle classes aspiring to Western lifestyles, offset by the financial crisis of 2007±2010.[30]

[edit] Short selling
The price of gold is also affected by various well-documented mechanisms of artificial price suppression, arising from fractional-reserve banking and naked short selling in gold, and particularly involving the London Bullion Market Association, the United States Federal Reserve System, and the banks HSBC and JPMorgan Chase.[31][32][33][34] Gold market observers have noted for many years that the price of gold tends to fall artificially at the start of New York trading.[35]

[edit] War, invasion and national emergency
When dollars were fully convertible into gold via the gold standard, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might result. This happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and issue Executive Order 6102 outlawing the ownership of gold by US citizens.[36] There was only one prosecution under the order, and in that case the order was ruled invalid by federal judge John M. Woolsey, on the technical grounds that the order was signed by the President, not the Secretary of the Treasury as required.[37] In times of war, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.[38][39]

[edit] Investment vehicles
[edit] Bars

1 troy ounce (31 g) gold bar with certificate

The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Canada, Argentina, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars are available in various sizes. For example in Europe, Good Delivery bars are approximately 400 troy ounces (12 kg).[40] 1 kilogram (32 ozt) are also popular, although many other weights exist, such as the 10oz, 1oz, 10 g, 100 g, 1 kg, 1 Tael, and 1 Tola. Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. While bullion coins can be easily weighed and measured against known values, most bars cannot, and gold buyers often have bars re-assayed. Larger bars also have a greater volume in which to create a partial forgery using a tungsten-filled cavity, which may not be revealed by an assay.[41] One way of avoiding such a scam is to buy and hold gold bars that are held within the LBMA ³chain of custody´ and store the gold in a LBMA recognized vault. The gold bullion held within the LBMA recognized vaults can be bought and sold easily. If it is removed from the vaults and stored outside of the chain of integrity, for example stored at home or in a private vault, the bar will have to be re-assayed before it can be returned to the LBMA chain. This process is described under the LBMA's "Good Delivery Rules".[42] The LBMA includes in this "traceable chain of custody" refiners as well as vaults. Both have to meet their strict guidelines. Bullion products from these trusted refiners are traded at face value by LBMA members without assay testing. By buying bullion from an LBMA member dealer and storing it in an LBMA recognized vault, customers avoid the need of re-assaying or the inconvenience in time and expense it would cost.[43] Efforts to combat gold bar counterfeiting include kinebars which employ a unique holographic technology and are manufactured by the Argor-Heraeus refinery in Switzerland.

[edit] Coins

The faces of a Krugerrand, the most common gold bullion coin.

Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand (as opposed to numismatic gold coins which are priced mainly by supply and demand based on rarity and condition). The Krugerrand is the most widely-held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation. Other common gold bullion coins include the Australian Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100 Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, Malaysian Kijang Emas, French Napoleon or Louis d'Or, Mexican Gold 50 Peso, British Sovereign, American Gold Eagle, and American Buffalo. Coins may be purchased from a variety of dealers both large and small. Fake gold coins are not uncommon, and are usually made of gold-plated lead.

[edit] Exchange-traded products (ETPs)
Gold exchange-traded products may include ETFs, ETNs, and CEFs which are traded like shares on the major stock exchanges. The first gold ETF, Gold Bullion Securities (ticker symbol "GOLD"), was launched in March 2003 on the Australian Stock Exchange, and originally represented exactly 0.1 troy ounces (3.1 g) of gold. As of November 2010, SPDR Gold Shares is the second-largest exchange-traded fund (ETF) in the world by market capitalization.[44] Gold ETPs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars. However exchange-traded gold instruments, even those which hold physical gold for the benefit of the investor, carry risks beyond those inherent in the precious metal itself. For example the most popular gold ETP (GLD) has been widely criticized, and even compared with mortgage-backed securities, due to features of its complex structure.[31][45][46][47][48] Typically a small commission is charged for trading in gold ETPs and a small annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. Exchange-traded funds, or ETFs, are investment companies that are legally classified as openend companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs.[49] The main differences are that ETFs do not sell directly to investors and

they issue their shares in what are called "Creation Units" (large blocks such as blocks of 50,000 shares). Also, the Creation Units may not be purchased with cash but a basket of securities that mirrors the ETF's portfolio. Usually, the Creation Units are split up and re-sold on a secondary market. ETF shares can be sold in basically two ways. The investors can sell the individual shares to other investors, or they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be and may not call themselves mutual funds.[49]

[edit] Certificates
Gold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs) by taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk). Banks may issue gold certificates for gold which is allocated (non-fungible) or unallocated (fungible or pooled). Unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuing bank's gold on deposit.[50] Allocated gold certificates should be correlated with specific numbered bars, although it is difficult to determine whether a bank is improperly allocating a single bar to more than one party.[51] The first paper bank notes were gold certificates. They were first issued in the 17th century when they were used by goldsmiths in England and the Netherlands for customers who kept deposits of gold bullion in their vault for safe-keeping. Two centuries later, the gold certificates began being issued in the United States when the US Treasury issued such certificates that could be exchanged for gold. The United States Government first authorized the use of the gold certificates in 1863. In the early 1930s the US Government restricted the private gold ownership in the United States and therefore, the gold certificates stopped circulating as money. Nowadays, gold certificates are still issued by gold pool programs in Australia and the United States, as well as by banks in Germany and Switzerland.

[edit] Accounts
Many types of gold "accounts" are available. Different accounts impose varying types of intermediation between the client and their gold. One of the most important differences between accounts is whether the gold is held on an allocated (non-fungible) or unallocated (fungible) basis. Another major difference is the strength of the account holder's claim on the gold, in the event that the account administrator faces gold-denominated liabilities (due to a short or naked short position in gold for example), asset forfeiture, or bankruptcy. Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve (non-allocated, fungible) basis. Swiss banks offer similar service

on an allocated (non-fungible) basis. Pool accounts, such as those offered by Kitco, facilitate highly liquid but unallocated claims on gold owned by the company. Digital gold currency systems operate like pool accounts and additionally allow the direct transfer of fungible gold between members of the service. BullionVault, for example, allows clients to create a bailment on allocated (non-fungible) gold, which becomes the legal property of the buyer.

[edit] Derivatives, CFDs and spread betting
Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. In the U.S., gold futures are primarily traded on the New York Commodities Exchange (COMEX) and Euronext.liffe. In India, gold futures are traded on the National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).[52] The product symbol for gold futures is GC, and it is traded in a standard contract size of 100 troy ounces. CME Globex, CME ClearPort (CME Group) and Open Outcry (New York) are the primary futures exchange venues through which it is traded. The minimum fluctuation allowed in price is $0.10 per troy ounce, and it is held to a minimum of 995 fineness quality specification.[53] As of 2009, holders of COMEX gold futures have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. The delays cannot be easily explained by slow warehouse movements, as the daily reports of these movements show little activity. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.[54] Firms such as Cantor Index, CMC Markets, IG Index and City Index, all from the UK, provide contract for difference (CFD) or spread bets on the price of gold.

[edit] Mining companies
These do not represent gold at all, but rather are shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise. However, there are many factors to take into account and it is not always the case that a share price will rise when the gold price increases. Mines are commercial enterprises and subject to problems such as flooding, subsidence and structural failure, as well as mismanagement, theft and corruption. Such factors can lower the share prices of mining companies. The price of gold bullion is volatile, but unhedged gold shares and funds are regarded as even higher risk and even more volatile. This additional volatility is due to the inherent leverage in the mining sector. For example, if you own a share in a gold mine where the costs of production are $300 per ounce and the price of gold is $600, the mine's profit margin will be $300. A 10% increase in the gold price to $660 per ounce will push that margin up to $360, which represents a 20% increase in the mine's profitability, and potentially a 20% increase in the share price.

Furthermore, at higher prices, more ounces of gold become economically viable to mines, enabling companies to add to their reserves. Conversely, share movements also amplify falls in the gold price. For example, a 10% fall in the gold price to $540 will decrease that margin to $240, which represents a 20% fall in the mine's profitability, and potentially a 20% decrease in the share price. To reduce this volatility, some gold mining companies hedge the gold price up to 18 months in advance. This provides the mining company and investors with less exposure to short term gold price fluctuations, but reduces returns when the gold price is rising.

[edit] Investment strategies
[edit] Fundamental analysis
Investors using fundamental analysis analyze the macroeconomic situation, which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity and energy prices. They would also analyze the yearly global gold supply versus demand. Over 2005 the World Gold Council estimated yearly global gold supply to be 3,859 tonnes and demand to be 3,754 tonnes, giving a surplus of 105 tonnes.[55] While gold production is unlikely to change in the near future, supply and demand due to private ownership is highly liquid and subject to rapid changes. This makes gold very different from almost every other commodity.[11][12] Identifiable investment demand for gold, which includes gold exchange-traded funds, bars and coins, was up 64 percent in 2008 over the year before.[56]

[edit] Gold versus stocks

Dow/Gold Ratio 1968-2008

In the last century, major economic crises (such as the Great Depression, World War II, the first and second oil crisis) lowered the Dow/gold ratio, an indicator of how bad a recession is and whether the outlook is deteriorating or improving, to a value well below 4. The ratio fell on

February 18, 2009 to below 8.[56] During these difficult times, many investors tried to preserve their assets by investing in precious metals, most notably gold and silver. The performance of gold bullion is often compared to stocks due to their fundamental differences. Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e., growth from anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold in part because of the stability of the American political system.[57] This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The gold price peak of 1980 also coincided with the Soviet Union's invasion of Afghanistan and the threat of the global expansion of communism. The ratio peaked on January 14, 2000 a value of 41.3 and has fallen sharply since. On November 30, 2005, Rick Munarriz of The Motley Fool posed the question of which represented a better investment: a share of Google or an ounce of gold. The specific comparison between these two very different investments seems to have captured the imagination of many in the investment community and is serving to crystallize the broader debate.[58][59] At the time of writing, a share of Google's stock was $405 and an ounce of gold was one day from breaking the $500 barrier, which it did December 1. On January 4, 2008 23:58 New York Times, it was reported that an ounce of gold outpaced the share price of Google by 30.77%, with gold closing at $859.19 per ounce and a share of Google closing at $657 on U.S. market exchanges. On January 24, 2008, the gold price broke the $900 mark per ounce for the first time. The price of gold topped $1,000 an ounce for the first time ever on March 13, 2008 amid recession fears in the United States.[60] Google closed 2008 at $307.65 while gold closed the year at $866. Leading into 2010, Google had doubled off that (100%), whereas gold had risen 40%. The analysis of log-linear oscillations in the gold price dynamics for 2003±2010 conducted recently by Askar Akayev's research group has allowed them to forecast a collapse in gold prices in May ± July 2011.[61] As of 18 July 2011, this collapse had not yet occurred, with gold at record prices of over $1600 per ounce.[62] In his book Basic Economics, Thomas Sowell[63] argued that, in the long-term, gold does not hold its value compared to stocks and bonds:
To take an extreme example, while a dollar invested in bonds in 1801 would be worth nearly a thousand dollars by 1998, a dollar invested in stocks that same year would be worth more than half a million dollars. All this is in real terms, taking inflation into account. Meanwhile, a dollar invested in gold in 1801 would by 1998 be worth just 78 cents.

[edit] Technical analysis

As with stocks, gold investors may base their investment decision partly on, or solely on, technical analysis. Typically, this involves analyzing chart patterns, moving averages, market trends and/or the economic cycle in order to speculate on the future price.

[edit] Using leverage
Bullish investors may choose to leverage their position by borrowing money against their existing assets and then purchasing gold on account with the loaned funds. Leverage is also an integral part of buying gold derivatives and unhedged gold mining company shares (see gold mining companies). Leverage or derivatives may increase investment gains but also increases the corresponding risk of capital loss if/when the trend reverses.

[edit] Taxation
Main article: Taxation of precious metals

Gold maintains a special position in the market with many tax regimes. For example, in the European Union the trading of recognised gold coins and bullion products are free of VAT. Silver, and other precious metals or commodities, do not have the same allowance. Other taxes such as capital gains tax may also apply for individuals depending on their tax residency. U.S. citizens may be taxed on their gold profits at 15, 23, 28 or 35 percent, depending on the investment vehicle used.[64] USA: Due to section 9006 of the U.S. Patient Protection and Affordable Care Act, starting on January 1, 2012, IRS tax form 1099 was going to be required for all purchases of goods and services that exceeded $600 per calendar year. Congress repealed the section of PPACA relating to 1099 reporting in April 2011.[65]

[edit] Scams and frauds
Gold attracts its fair share of fraudulent activity. Some of the most common to be aware of are:


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High-yield investment programs - HYIPs are usually just pyramid schemes dressed up with no real value underneath. Using gold in their prospectus makes them seem more solid and trustworthy. Advance fee fraud - Various emails circulate on the Internet for buyers or sellers of up to 10,000 metric tonnes of gold. This is more gold than the US Federal Reserve owns. Often naive middlemen are drafted in as hopeful brokers, and usually mention mythical terms like 'Swiss Procedure' or 'FCO' (Full Corporate Offer). The end-game of these scams is unknown, but they probably just attempt to extract a small 'validation' sum out of the innocent buyer/seller from their hope of getting the big deal.[66] Gold dust sellers - This scam persuades an investor there is real gold with a trial quantity, then eventually delivers brass filings or similar. Counterfeit gold coins.

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Shares in fraudulent mining companies with no gold reserves, or potential of finding gold.[citation

Cash for gold - With the rise in the value of gold due to the financial crisis of 2007-2010, there has been a surge in companies that will buy personal gold in exchange for cash, or sell investments in gold bullion and coins. Several of these have prolific marketing plans and high value spokesmen, such as prior vice presidents. Many of these companies are under investigation for a variety of securities fraud claims, as well as laundering money for terrorist organizations.[67][68][69][70] Also given that ownership is often not verified, many companies are considered to be receiving stolen property, and multiple laws are under consideration on methods to curtail this.[71][72]

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