May’ 2020

Gold View
Objective of the note – To share our view on Gold asset class.

The fundamental view on Gold depends on the demand and supply for the asset. The demand for
Gold mainly comes from: 1) Central banks. 2) Consumption demand. The table below depicts the
demand trend over the last 5 years.

1. Central Banks
Change in
Gold Holding (in tonnes) Dec’ 15 Dec’ 16 Dec’ 17 Dec’ 18 Dec’ 19 May’ 20 last 4.5 yrs.
United States 8,133.5 8,133.5 8,133.5 8,133.5 8,133.5 8,133.5 0
Germany 3,381.0 3,377.9 3,373.6 3,369.7 3,366.5 3,364.2 -17
Italy 2,451.8 2,451.8 2,451.8 2,451.8 2,451.8 2,451.8 0
France 2,436 2,436 2,436.0 2,436.0 2,436.0 2,436.0 0
Russian Federation 1,414.5 1,615.2 1,838.8 2,113.0 2,271.2 2,299.2 885
China 1,762.3 1,842.6 1,842.6 1,852.5 1,948.3 1,948.3 186
Switzerland 1,040.0 1,040.0 1,040.0 1,040.0 1,040.0 1,040.0 0
Japan 765.2 765.2 765.2 765.2 765.2 765.2 0
India 557.7 557.8 558.1 600.4 635.0 641.8 84
Netherlands 612.5 612.5 612.5 612.5 612.5 612.5 0

As can be seen in above table, 7 out the top 10 countries (according to their Gold reserves in tonnes)
have not been adding Gold to their reserves in last 5 years given the volatile nature and are unlikely
to add more.
2. Consumption Demand
Consumer Demand (in
tonnes - jewellery, bar Change in
& coin) Dec’ 14 Dec’ 15 Dec’ 16 Dec’ 17 Dec’ 18 Dec’ 19 last 5 years
China 1,005.3 995.5 929.4 971.6 994.3 849.1 -156.2
India 833.5 857.2 666.1 771.2 760.4 690.4 -143.1
United States 164.7 190.6 210.1 158.9 154.4 150.7 -14.1
Germany 111.3 126.1 121.1 117.0 106.9 101.8 -9.5
Turkey 116.7 72.1 70.1 93.6 74.1 89.4 -27.3

As can be seen in above table, the top 5 countries with largest consumption demand have seen a fall
in demand for Gold in last 5 years.

With central banks unlikely to add more gold to their reserves and falling consumption demand, it
is unlikely that prices for Gold can go up.

Understanding the past performance of Gold:

Gold is currently trading at a 9% absolute discount to its all-time peak level witnessed in 2011 in
dollar terms, however, in rupee terms, it is at a 60% absolute increase. This translates into a CAGR
return of -1.1% in Dollar terms and 5.6% in Rupee terms.

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 May’ 2020

Gold View
Change in % Change in %
Sep' 11 Apr' 20 (Absolute) (CAGR)
Gold Price in $ per ounce 1897 1717 -9% -1.1%
Gold Price in Rs. per 10 gm. 28160 45000 60% 5.6%
Therefore, one can conclude that from an Indian context, the return is not made from Gold price
movement, but from currency depreciation.

Conclusion
 In the past, Gold has not given great returns in dollar terms as well rupee terms.
 Given that the outlook on gold demand is not promising, gold is unlikely to give great returns
in near future.
 Therefore, Gold does not find its place in our strategy to get to our objective of 14% - 15%
p.a. returns.

Disclaimer:
This report has been issued by AR Wealth Services Ltd, a subsidiary of Anand Rathi Financial Services Limited (ARFSL). The
information herein was obtained from various sources; we do not guarantee its accuracy or completeness. Neither the
information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or
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Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies
discussed or recommended in this report and should understand that statements regarding future prospects may not be
realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value
may rise or fall. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may
adversely affect the value, price or income of any security or related investment mentioned in this report.

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