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 weeklybased 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.

200 previously. silver firmed up further on the back of sustained demand from industrial users.100 per kg. Silver ready rose by Rs 400 to Rs 40. however.31 an ounce in New York in Thursday's trade.195 per 10 grams as against Rs 28.       4.300 per ten gram respectively.  Standard gold (99. 3. It had lost Rs 150 on Thursday. 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. boosting demand for the safe-haven.Meanwhile.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. In the national capital. gold rose by by 0.100 per kg on increased offtake by industrial units and coin makers.000 for selling of 100 pieces.10 an ounce and silver by 1. Silver coins spurted by Rs 1. which normally sets the price trend on the domestic front.045 per 10 grams from the overnight level of Rs 28.10 per cent to $18. . held steady at Rs 24.5 per cent purity were up by Rs 150 each to Rs 28. Sovereign.500 and Rs 28.01 per cent to US $1.  Pure gold (99.000 to Rs 65.9 purity) also softened by a similar margin to end at Rs 28. gold price in Singapore. Market men said apart from buying by jewelers to meet ongoing wedding season demand.000 for buying and Rs 66. Globally.100 per kg and weekly-based delivery by Rs 560 to Rs 40. lost 0. influenced gold prices in the capital.050.71 per cent to $1.9 and 99.302.5 purity) eased by Rs 5 to settle at Rs 28. Gold price ends flat on lackluster demand.000 per piece of eight gram in scattered deals.  Elsewhere. a firming global trend after the European Central Bank's announced a biggerthan-expected stimulus measures.80 an ounce.  Silver also rebounded by Rs 400 to Rs 40. gold of 99.292. Gold price recovers on jewelers buying  Gold prices recovered by Rs 150 to trade at Rs 28.

the smuggling of gold.999 fineness). 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. drug trafficking. The Gold Control Act also failed to control the smuggling of gold. depending on the number of artisans employed. black market in foreign currencies.292. However. The insatiable demand for the yellow metal has continued to grow.  In worldwide trade. under and over-invoicing in exports and imports trade. The quantitative restrictions did not permit large quantity production for satisfying overseas orders. 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. unaccounted incomes and wealth. For instance. black or parallel economy and tax evasion are issues in one way or other linked to the purchase.60 an ounce on the Comex division of the NYMEX late Friday. The Act did not allow a certified goldsmith to receive more than 100 gms of standard gold for manufacturing jeweler. The quantity of primary gold in the possession of a licensed dealer was limited to between 400 gms and 2 kg. sale and holding of gold and gold jeweler in India.30 an ounce. Since gold forms part of the reserves of the Reserve Bank of India. foreign exchange leakage. which are usually large. it has implications for money supply and price levels. This restriction was a . while silver March contract settled at $18. gold dealers and gold jeweler exporters. Industry Outlook of Indian Gold Market The economics of gold is enmeshed in several socio-economic problems in India. 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. A Certified Gold Smith was not allowed to possess a stock of more than 300 gms of primary gold at any time. The Act also required gold dealers to operate from licensed premises only. however rose by Rs 80 to finish at Rs 40. Silver (. There existed a legal ban on transactions between one dealer and another.500 on Friday. the Gold Control Act failed in curbing the domestic demand for gold jeweler. The Gold Control Act placed severe restrictions on goldsmiths.  Gold February delivery settled lower at $ 1.580 per kg compared to Rs 40..

Bank of India (BOI). The designated agencies for the purpose are Minerals and Metals Trading Corporation of India (MMTC). 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. The Gold Control Act was abolished in 1990. 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. After the abolition of the Gold Control Act. State Trading Corporation (STC). Indian Overseas Bank (IOB). but according to World Gold Council Report presented on 15 August 2013.hurdle to exports as foreign buyers could not visit widely scattered places of manufacture for inspection and buying. State Bank of India (SBI). the import of gold was brought under open general license (OGL) by designated agencies. Gold consumption stood at 864 tonnes in India.5 tonnes in India. Handicrafts and Handlooms Exports Corporation (HHEC). 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. Subsequently. Import of gold was allowed on payment of customs duty. Company Profile . slightly higher than 566. the Government introduced further reforms. Canara Bank. Allahabad Bank. while it was 832 tonnes in China during 2012. 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. 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. The prospects for gold jeweler exports from India have now brightened.

Gold Introduction .

Holdings in this category include the central bank reserves. because the economic forces that determine the price of gold are different from. and partly a commodity.Gold is a unique asset based on few basic characteristics. It is an internationally recognized asset that is not dependent upon any government’s promise to pay. for its unique characteristics as a store of value. What makes Gold Special?  Timeless and Very Timely Investment: For thousands of years. In today’s uncertain climate. it is primarily a monetary asset. First. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds. currencies come and go. Nations may rise and fall. and highcaratage jewelry bought primarily in developing countries as a vehicle for savings. and above all. gold has been prized for its rarity. and in many cases opposed to. its beauty. But there is another side to gold that is equally important. These advantages are currently attracting considerable attention from financial professionals and sophisticated investors worldwide. Thus. private investments. 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 gold endures. Some analysts like to think of gold as a “currency without a country’. As much as two thirds of gold’s total accumulated holdings relate to “store of value” considerations. the forces that . and that is its day-to-day performance as a stabilizing influence for investment portfolios.  Gold is an effective diversifier: Diversification helps protect your portfolio against fluctuations in the value of any one-asset class. the jewelry bought in Western markets for adornment. which unlike gold. gold is primarily a monetary asset. Less than one third of gold’s total accumulated holdings can be considered a commodity. and gold used in industry. The distinction between gold and commodities is important. do have counter-party risk. Gold is an ideal diversifier. Gold has maintained its value in after-inflation terms over the long run. while commodities have declined.

gold serves as a family treasure or a wealth transfer vehicle that is passed on from generation to generation. They are appreciated as much for their intrinsic value as for their mystical appeal and beauty. Greater consistency of performance leads to a desirable outcome — an investor whose expectations are met. So holding a portion of your portfolio in gold can be invaluable in moments when cash is essential. There is no “cushioning” effect of a diversified portfolio — leaving investors disappointed. you don’t need to be wealthy to give the gift of gold. However. weddings. including stocks of the world’s largest corporations.influence most financial assets. and timberland. such as GDP or absorption. Gold is also more liquid than many alternative assets such as venture capital. On these occasions. during both stable and unstable financial periods. holidays and other occasions. Gold proved to be the most effective means of raising cash during the 1987 stock market crash. And because gold is available in a wide range of sizes and denominations. Gold bullion coins make excellent gifts for birthdays.  Gold is highly liquid: Gold can be readily bought or sold 24 hours a day. real estate. 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. 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. in large denominations and at narrow spreads. Consequently. one would expect that a sudden unanticipated increase in . a small allocation of gold has been proven to significantly improve the consistency of portfolio performance.  Gold is the ideal gift: In many cultures. This cannot be said of most other investments. graduations. and again during the 1997/98 Asian debt crisis. most asset classes (including traditional diversifiers such as bonds and alternative assets) all move together in the same direction.

In the gold industry such time lags are typically very short. 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. making them more vulnerable to cyclical price volatility. the price responsiveness of each commodity will depend in part on precautionary inventory holdings. countercyclical monetary policy and higher expected inflation that characterize booms typically depress bond prices. provided a mechanism for gold held by central banks and other major institutions to come back to the market. all else being equal. The existence of a sophisticated liquid market in gold has. This is not to say that exogenous shifts in flow demand will have no influence at all on the price of gold. dividends can be expected to rise.    the demand for a given commodity that is not met by an immediate increase in supply should. because of the variability of demand. nominal and real interest rates. GDP is a leading indicator of productivity: during a boom. no such upward price pressure will be observed in the gold market in the presence of a positive demand shock. inflation. secondly. 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. gold is indestructible and fungible. However. is . 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. the inventory of aboveground stocks is astronomically large relative to changes in flow demand. the increased demand for credit. it is our contention that. set it apart from other commodities: firstly. and thirdly. Gold has three crucial attributes that. On the other hand. One would expect that the time required to convert bullion into producer inventory is short. One consequence of these attributes is a dramatic reduction in gestation lags. and the term structure of interest rates on returns on gold. The extent of this dampening effect depends on the gestation lag within which liquid inventories can be converted in industrial inputs. If this argument holds true. drive the price of the commodity upwards. but rather that the large supply of inventory is likely to dampen any resultant spikes in price. generally speaking. This is because. assayed gold is homogeneous. over the past 15 years. combined. Although the demand for gold as an industrial input or as a final product (jeweler) differs across regions. Of course. given low search costs and the well-developed leasing market. buffer stocks can be supplied with perfect elasticity. in the case of gold. it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium.

Returns on gold are less correlated with equity and bond indices than are returns on other commodities. the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy . that between returns on gold and those on other financial assets. Standard & Poor’s 500 index and 10-year government bonds. This research establishes a theoretical underpinning for the absence of a relationship that has been demonstrated empirically for a number of years. in contrast to the impact of cyclical demand on other commodities and financial assets. until recent times. such as GDP. 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. oil and zinc) than they do on gold. 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. such as the Dow Jones Industrial Average. inflation and interest rates. whereas returns on other financial assets.  Using the gold price and US macroeconomic and financial market quarterly data from January 1975 to December 2001. Macroeconomic variables have a much stronger impact on other commodities (such as aluminum. are highly correlated with changes in macroeconomic variables. 2.[3] After World War II. 3. There is no statistically significant correlation between returns on gold and changes in macroeconomic variables. namely.  Assets that are not correlated with mainstream financial assets are valuable when it comes to managing portfolio risk. the following conclusions may be drawn: 1.negligible.

974 18.8 4. The system existed until the 1971 Nixon Shock. Furthermore.634 22. gold is traded continuously throughout the world based on the intra-day spot price.0 1.ounce.874 197 5 140 852 6.3 370 1.0 198 0 590 964 11.525 33.4 533 2. a twice-daily telephone meeting of representatives from fivebullion-trading firms of the London bullion market. 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 US GDP DebtUSD USD (billions)[8] (trillions)[7] Debt per capita USD[9] Trade Weighted US dollar Index[10] 197 0 37 839 3.2 199 5 387 5.8 908 4.2 3.7 198 5 327 1.117 29.547 13. derived from over-the-counter gold-trading markets around the world (code "XAU").599 90.823 7.[citation needed] .2 199 0 391 2.013 35.657 68.3 .892 73. 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 2000.233 12. Since 1919 the most common benchmark for the price of gold has been theLondon gold fixing.

1 8..025 43..410 11.752 111.2 14.787 31. 3. . % 929 1. 1970 to 2010 net change. 2.170 26. % 3.792 1.531 1..259 .6 200 5 513 10.578 63.237 .691 1975 (post US off gold standard) to 2010 net change..634 ..662 20.280 ..9 5.792 99..718 45.9 2.200 0 273 10.6 201 0 1.001 118..