Inflation

Besides being implemented as an instrument for diversification, commodities can be used as a hedge against inflation, accordning to several academic studies*. When many other asset classes descrease in price due to high inflation, commodities such as oil are likely to rise in price.

Why consider inflation? The ultimate objective of investors is to preserve the real purchasing power of your investments. For that reason, inflation must be considered. Ideally, portfolio assets exhibit a positive relationship to inflation. However, many traditional assets such as stocks and bonds are vulnerable to high inflation and represent a poor inflation hedge. Correlation between stocks and commodities Commodities are often negativly correlated to both stocks and bonds. So in other words, when inflations start to rise, commodities goes up in price while stocks and bonds go down in price. Therefore, it’s usually a good idea to diversify your portfolio with commodities.
Anything you want to add about inflation? Please contact us and we’ll get back to you within 24 hours. *Examples: “Robert J. Greer, “Conservative Commodities: A Key Inflation Hedge”, Journal of Portfolio Management (1978), pp. 26-29. Why do supply and demand determine commodity prices?
Beside speculation, demand from China, India, USA and Europe are of high importance to determine the commodity prices.When there is increased demand for a specific commodity, prices tend to go up. And when it’s obvious there is more supply then demand, the prices naturally go down. So, where can you find more information and statistics about the current supply of all commodities? We have done our best to find official websites below.

What impact supply of commodities?
There are many factors influencing commodity supply, such as:

• Weather • Acreas planted • Crop diseases • Natural disasters • Technology • Strikes • Political change What impact commodity demand?
There are many factors influencing commodity demand, such as: Prices: When prices go down, the price cure itself after a while. People tend to buy more petrol when oil prices go down. Economic growth: Fast growing economies, such as China and India, are two important countries to consider when discussing demand. Exchange rates: People tend to trade commodities in US Dollar. If a foreign currency go up in value, commodity prices will appear to be cheap.

Statistics about commodity supply and demand
It’s important to follow the latest figures about supply and demand. Which source you should use depends on which commodity you trade. Below are some resources for your reference: • For brent and cruide oil: OPEC is the official and most trusted source for updates regarding oil reserves. Another useful website is U.S. Energy Information Administration (EIA). • For wheat and other agricultural commodities: The World Agricultural Outlook Board give forecasts about the supply and demand situation among agricultural products. • For minerals in general: USGS Minerals has a wide collection of statistics for minerals.

Gold Investment Digest
Latest Issue: Gold Investment Digest Q4 and full year 2010
26 Jan, 2011
The gold price rose for the tenth consecutive year driven by recovery in key sectors of demand and continued global economic uncertainty. Not only was gold’s performance strong, but its volatility remained low, providing a foundation for a well diversified portfolio. View the video presentation by Juan Carlos Artigas. Download (PDF 2.2 MB)

The World Gold Council's Gold Investment Digest (GID) is the leading quarterly industry analysis on gold price performance on a historical basis and relative to other global financial assets. GID examines price and volatility trends for gold and other assets typically found in an investor portfolio. It also looks at the primary macro-economic drivers behind gold’s performance and preliminary trends on demand and supply. GID is organised into four sections: Price trends – Gold price and volatility performance in multiple currencies and its relation to other global financial assets including most liquid commodities. Investment trends – Trends in the most active gold investment markets including ETFs, futures and options, and over-the counter products. Economic trends – An analysis of the most important macro-economic factors that influenced gold’s performance during the period. Gold market trends – Gold demand and supply statistics as of the last available World Gold Council Gold Demand Trends publication, and discussion on preliminary reports on recent trends and their effect on gold’s performance. Additionally, we provide a concise key data summary - financial statistics on gold and various assets including price, volatility and correlation measures.

Why should I own gold?
There are many reasons to own gold and here we list a handful of them. 1. As a safe heaven asset in turbulent times. 2. To diversify your portfolio. 3. As a currency hedge 4. To store value over time 5. As a hedge against rising inflation

Gold as a safe heaven asset
With the light on the European economy, it’s not hard to understand that many persons and investors turn to gold. Gold has been referred to as a ‘crisis commodity’ and it’s no secret that it tend to outperform other asset groups during turbulent markets and periods with political unrest. When everything else falls, gold has historically risen. When governments print money and the local currency fall in value, gold keep on rising.

Gold to diversify your portfolio
Every investor, young or old, should seriously consider to invest in gold. It’s an asset that’s negatively correlated to the bond and stock market. Even though gold prices can be volatile in the short-term, it has proven to maintain its value time over time.

• Gold can be considered accurate. • Silver investors: Keeping either silver bars. perish or corrode. It’s simply hard to find new sources. In elementary name. • Gold is easy to transport. To store value Gold is used to for accumulation. coins or trade silver spot. Growing demand from Asian countries. it’s likely according to many economic experts. have made the price of gold to go up numerous times. Au. The growing national debt of many European countries have made gold even more interesting for investors around the world.Gold as a currency hedge Gold is primary bought in Dollars (USD). such as China and India. The Roma and the Incas called gold the “metal of the gods’. appreciated by most people. such as George Soros. and opportunites. comes from the Latin word aurum. 3 main markets for silver • Aesthetic usage: Serving ornamental market serves silversmiths & jewellers. • Industrial usage: Silver are part of everything from photographic film and paper to computer components. A collapse of the stock market would likely give quickly increasing demand for gold. when interest rates are volatile and when there is political unrest – gold usually react be going up in value. whose price is determined by inflation. They simply believe that silver are undervalued at it’s current value. • Gold can not be fabricated. for speculators is that silver is the shortage of silver. while most other commodities are used for consumption. • It is not easy to make gold or produce it artificially. so when dollar decline against other currencies. Its metallic yellow color has inspired pharaohs to compare it with the sun. Bill Gates and Warren Buffert have done serious investments in silver. growing trade deficit from several important nations and growing dept in USA are some of the reasons to worry for increasing inflation. gold has to rise. • This precious metal is retained complete stable over time. In the curreny economic climate. While other commodities might corrode and can have a limited life span – gold does not tarnish. Precious metal gold has always fascinated people. if you own gold it’s likely to protect your total portfolio value to some extent. Shortage of silver & trading opportunities One of the biggest dilemmas. Some big & smart investors. However. and are waiting for a correlation to be made. When US Dollar or US stocks decline. Gold has seven value-bearing properties: • Gold is a luxury / luxury product. Why is that? Well. spike in oil prices. • Gold can be traded in almost any currency. As a hedge against rising inflation Gold is a monetary precious metal. the current monetary policies in many countries. that inflation begin to rise quickly. Why should you trade commodities? Some of the main advantages of commodity trading are: .

When you are ready to start trading. but coffee is the second most traded commodity. Gold: Excellent hedge against inflation and dollar depreciation. The commodity market often follow seasonal trends. 8. MONEY SCHOOL Fundamental Factors Affecting the Commodity Market.com Research Team. . Cotton: The 10th most traded commodity is cotton. Or keep on reading below in order to find a commodity that suits your trading style. start to trade silver. read our review of commodity brokers. the country has 3 national level electronic exchange and 21 regional exchanges for trading commodity future derivatives. 6. • No insider trading: The market can’t be cornered • Risk diversity: Perfect assets for risk diversification and as a hedge against decining stock markets. Commodity options trading and cash settlement of commodity futures had been banned since1952 and until 2002 commodity derivatives market was virtually non-existent. • Good opportunity to earn money... 3. Corn: Into salad? Green food is healty. Gates. Now in September 2005. except some negligible activation an OTC basis. Sugar: You like it sweet? You are not alone. 7. Read more about brent oil. Silver: Do as Soros. crude oil. Natural Gas: Used to heat up houses and office. As many as 103 commodities have been allowed forderivative trading. 1. Coffee: Might come as a surprise. Crude Oil: Discover the most widely traded commodity.. In this article we will discuss the various aspects of Commodity Market. Suger is the seventh most traded commodity. Wheat: Another popular commodity is what. 9. • High liquidity: You can sell within seconds. 5. no doubt that natural gas is traded a lot.On-17/11/09 The Indian economy is witnessing a mini revolution in commodity derivatives and risk management. And corn is commonly traded as well.!!! Posted By . It has never been cheaper.IndianMoney. Read more about gold. You can read our guide how to trade commodites if you are new or want to learn more. easier or more profitable to get started withcommodity trading. at spot number 9. 10. 10 most popular exchange traded commodities Below we have listed the most traded commodities in terms of daily turnover (June. Brent Oil: Common European energy source. 2010).The most common commodities to trade • Accessibility: 24 hour market from Monday to Friday evening. 2.. 4. Buffet and some of the biggest investors.

warehousing. It is futures trading process. While wheat and corn. Based on an investor’s appetite to take risk and his expectation of return he can prepare his portfolio. Fundamental factors affecting the commodity Market Commodity trading is trading in commodity derivatives that include a range of commodities from Petals.Modern Commodity market The modern commodity markets have their roots in the trading of agricultural products. The uncertainty and risk involved are part and parcel of the commodity market. were generally traded using standard instruments in the 19th century in the United States. cattle and pigs. and financing. other basic foodstuffs such as soybeans were only added quite recently in most markets. and innovators of. which paved the way to expanded interstate and international trade. Clearing and Settlement Demand & supply Demand Curve Global and domestic economy Economic growth Inflation Geo-political concerns Extra-ordinary events Speculation Risk & Return High return is followed by high risk. For a commodity market to be established there must be very wide consensus on the variations in the product that make it acceptable for one purpose or another. Though futures’ trading of commodity market is same as the futures trading in equity market the only differences is that supply demandestimates in commodity market may not be as tough. Commodity trading is not like trading shares at spot prices. The economic impact of the growth of commodity markets is hard to misjudge. Precious metals. . Energy and Agricultural commodities. Through the 19th century "the exchanges became effectual spokesmen for. Risk & Return Trading. improvements in transportation.

The law of demand and supply is same for equity as well as commodity markets. Global and domestic economy Economic scenario significantly affects the prices of a commodity. Demand & supply Demand and supply are basic factors that affect the movement of any commodity prices. Depending upon the nature of the commodity. It gives a clear understanding of the demand situation over a period of time at various price levels. One are the delivery based investors and other the cash (nondelivery) based investors. domestic and global conditions and various other major factors influencing its characteristics. The graph is a line graph representing demand at particular prices over a period of time. global and domestic economic scenarios affect the commodity prices. Exchanges clear the trade in sense that both the negotiating parties are capable of respecting the contract and the settlement agency take care of the settlement of goods against cash. There are certain important fundamentals that apply to all commodities either directly or indirectly. Price is represented on y-axis and demand on the x-axis. However demand and supply of all commodities vary during different time periods depending upon seasons. There may be two types of investors in the commod ity market.g. Demand and supply of any commodity has a direct relationship with economic condition in the state.Trading. These fundamentals may be different for different commodities based on its characteristics. Steel prices highly depend on global economic . Demand Curve It is refined form of demand analysis. Clearing and Settlement Trading is when two or more parties negotiate to exchange goods with cash at a specific date and price. Demand curve in a laymen’s term is a graphical representation of demand over a period of time. For e.. Except for these basic fundamentals of trading there are various other fundamentals that drive the commodity markets.

generally present dollar rose.s position on the gold price were relatively simple judgments and grasp. central banks increase or decrease in gold reserves.S. This drives the commodity prices of all major commodities. are such events that affect the commodity prices in a dramatic way.#39. gold market linkage relationship and seasonal supply and demand factors. Economic growth Economic growth of the world as well as the domestic economy is an important fundamental that will affect the demand and supply positions in a country. gold up in the reverse interaction. As the international price of gold denominated in dollars. industry and the increase or decrease of gold jewelry and other factors To accurately grasp the individual investors of short-term trend of gold prices.factors as this is a globally and massively used commodity. the U. depression etc. ? ? First. commodity prices move in direction of inflation. Speculation Speculators bring information into system at times fake or over hyped in-order to trigger the price movement in a particular direction. Wars. gold and oil. However as far as a commodity like Kapas (cotton beans) is concerned global factors affect less when compared to domestic factors. gold and the interaction between the stock market. Speculators are though a part of technical analysis but it is important in the matter of fact that speculation may be of some fundamental factors. Extra-ordinary events There may be certain extra-ordinary factors that do not occur very frequent. the international situation of the Fund&amp. This will increase the demand on one hand but supply may not increase at the same rate as it takes time to set up new industries and increase production. including international political. the dollar gold price and the interaction between very close. dollar price of gold the interaction. interest rates of major countries in Europe and America and monetary policy. But in . If the country is growing at a fast rate the consumption level will also be at a higher rate. the difficulty is high. gold fell and the dollar down. For example if we take the case of Potato when one year back it was barred from trading on the exchanges. economic. commodities market. Geo-political concerns Political factors have a direct as well as indirect effect on commodity prices. foreign exchange. But individual investors can still refer to gold and dollars. Factors affecting the price of gold Many factors affect the price of gold. gold mining costs down. However they are an important part of the market’s price discovery mechanism. Inflation Commodities are considered as hedge against inflation because unlike equity. However at time political factors can have positive effects as well. With increase in inflation the prices of major commodities tend to increase and it is true the other way as well. natural calamities.

triggered one of the main gold is the market collapse was expected to raise interest rates again dollar. the dollar price of gold will get rid of. gold price changes. but the U.S. Qi Wu Fa influence degree in 2005 compared to. the trend of gold appeared in the independent investors in the future of gold and the dollar must take full account of this factor. therefore. dollar rebounded strongly. this is the commodity market price linkage of expression. Soros and other investment guru or even that the current commodity market prices have serious bubble. India. the international price of gold fell to 541 from 730 U. precious metals and other commodity investment products. this year the United States is still likely to be hurricanes. but with some major overseas stock markets (such as the New York stock market) have strong correlation. have involved large funds. resulting in gold Shenfutiaozheng.S. the fourth quarter of 2005. and there is not much correlation. ? 5. Investors in determining the gold price must pay close attention to the international commodity markets.S. but copper. dollars. on the non-ferrous metals and other commodities continued strong demand. gold prices and the interaction between international crude oil. hurricanes. Buffett. the gold and the dollar is still the reverse interaction between investors an important basis for judging the trend of gold. pushing the international price of gold to soar. precious metals and other international commodity prices since 2001 continued strong gains. spot gold consumption relative in the first half of . the fourth quarter of 2005. Brazil &amp. funds. Touzi Zhe this should be fully recognized. coupled with international hedge fund speculation. dollars U. Russia. U. gold and also the reverse operation of the stock market.S. stock market sharply higher. As China. ? Third. For example. aluminum and other nonferrous metals dropped the price of gold has been affected. the stock market price of gold and the interaction of international importance. leading to the U. especially non-ferrous metals price movements. ? Second. However.some special time. resulting in non-ferrous metals. Crude oil prices and gold market has been closely related reason is that gold has the function against inflation. in general. spot gold prices and the international gold market supply and demand is closely related to the gold spot market tend to have relatively strong seasonal supply and demand. the Mainland of China is relatively closed markets. resulting in international crude oil prices rose. fundamentals. Although compared with the nonferrous metals. ? Fourth. The basis of market supply and demand. in May this year. government Yi started ahead of time to prepare.BRIC&amp. especially the trend of gold is very strong or very weak period. particularly in high non-ferrous metal prices have triggered concerns about the global economic community. For example. However. while the level of international crude oil prices and inflation are closely related. and supply and demand side factors such as the normal case. gold prices and international crude oil prices has a positive interaction between run. a lot of money from precious metals. gold prices usually fall and vice versa. gold is significantly lower rate of increase.S. For example. economies continue to rise.quot. as U. as international hedge funds generally optimistic about the oil. and the mainland stock market.quot. dollar price of gold once the interaction of failure. the price of gold and an interactive relationship between international commodity markets. According to reports.S. the gold spot market price of gold and seasonal supply and demand factors. nonferrous metals and other commodity markets withdrawal. International gold market history shows that.

the global credit crisis led currency investors to find the right number of institutional investment products to hedge exchange rate risk of instability. The supply of an item is influenced by various factors that include price. When the price of an item rises. but also vigorously stirred international hedge fund results.season.clock. Factors such as weather conditions and wars affect production and consequently the supply of an item is affected . weather conditions and government policies. price is the most dominant factor. A change in any one of the above mentioned factors would affect the supply. in recent years. However.S. hedge funds have involved international gold markets and other commodity markets. Can be said that the sharp gold price rise in recent years. the consumption by the major countries in Europe and America the impact of physical demand for gold will gradually reach its peak. An improvement in technology permits more unit output in the same cost. From the third quarter. driven by factors such as holidays. The data show that the current global hedge fund in New York gold market hoarding money as much as 20 billion U. For example. so will gold continued to rise. Thus the change in supply is categorized in the following two types Extension & Contraction: This effect results only from a change in price of a commodity. precious metals commodity market. a change in the cost of fertilizers may result in reduced supply of wheat. dollars. investment background is an inevitable product of profound changes. ? 6. with crude oil. investors in determining the gold price trend O&amp. In this context. represented by numerous agencies to attract the eye of funds. usually in the second gold occurs around the bottom of the quarter. cost and techniques of production. An increase in the cost of inputs may cause a fall in the supply. we must pay close attention to the International FunFind Answers for: What Factors Affect The Supply Of A Commodity? 0 Supply refers to the quantity of a commodity offered for sale at different prices during a certain period of time. This phenomenon is called extension.#39. consumer demand for gold will gradually increase. With the end of American prosperity in the economic cycle. more quantity is offered for sale. Contraction in supply occurs when a fall in price reduces the quantity offered for sale. gold prices and the relationship between the level of international fund positions. to the end of Christmas. Rise and fall: Changes due to factors other than price are called the rise and fall of supply.

All of the factors are not equally applicable in all the cases. If cost is reduced. Do you purchase more potato when the rate goes high? Then why to supply more? (d) Transport system. (b) Demand. Following are the major contributing factors. orders and regulations.Great AnswerReport Mistique 4 years ago Ads by Google • Mcx Ncdex Trading Tips We Provide Excellent Trading Calls Get Free Trial Now www. does it frequently to regularize any scam. affecting the supply of a commodity: (a) Production. which can affect the supply of a commodity.) (f) Un-ethical business practices. Demand for a particular commodity necessitates arrangement for more production and supply to the market. the item becomes easily available in the every store of the market. etc. Supply of the commodity gets regulated accordingly. (c) Cost. If there is less production or no production then certainly the supply of that commodity gets disturbed. Dishonest businesspersons are also affecting greatly in controlling the supply chain of any commodity. Production is the major factor that controls the supply of a commodity. supply gets reduced. government imposes restrictions on some commodity in order to regulate the price or planned availability on the market. Sometimes. A good transport system helps increasing the supply.commoditytips. (e) Govt. demand becomes more and thereby necessitating more supply of the commodity. Great AnswerReport . (I don't know who has invoiced for more human being forcing the production to put at the war footing!). besides the unforeseen natural calamity and war. (Govt. With enough production.com 0 There exist several factors. If there is inferior infrastructure for transportation.

prices rise. (2). (1).Around 80% of all gold is used to manufacture jewelry. The small daily changes over a short period of time really have very little effect on the positive trend. This takes place because large volume investors trade their investments in currency for the greater stability of gold. even for experts. This makes gold attractive as a ‘hedge’ against inflation. The spot market price trend is continually upward. All these factors interact to affect the current spot market prices of gold. (4)-Exchange Rates. sellers should pay more attention to the long-term trend and not how the price changes over a single day.When the global political arena is in turmoil. Short-Term Changes Shouldn’t Affect Sellers Since changes in price are difficult to predict accurately. many investors seek the stability of gold compared to the fluctuating value of currencies. In fact. Sometimes. dollar and Euro weaken. This causes a meaningful increase in precious metals prices. As the exchange rate continues to go decline. This makes trying to predict when prices will peak rather difficult.Global Economics. this is a complicated scenario. but they really represent a small percentage change over a longer period of time. when interest rates rise. having gone from about $1.When the exchange rate of the U.When supply exceeds demand.300/ounce by year’s end. As you can see. the demand for gold rises and so does the price. world gold prices rise. people tend to keep their money on deposit. platinum and silver.Sachya 4 years ago d for dynamic changes of position. The state of the economy can lead to high inflation. When the economy is depressed as it is right now. The actual decline would only affect what a seller received in actual value for 1 Troy ounce of gold by a few dollars from the peak on this graph to the current level. because gold does not earn any interest. the reverse is true and gold prices frequently rise. This adds up to pressure on the price of gold and results in a price decline. precious metal prices usually drop. such as it is now with the problems in Iraq and Afghanistan. There are many factors that influence supply and demand globally and a detailed explanation of these is far too complicated to discuss here. When interest rates go down.192/Ounce in early August to its current level of $1. (3)-World Politics. they might even give it a higher price depending on their precious metal supplier and the integrity of said gold exchange. This increases the demand for gold.246/ounce. as it provides protection against the decline in purchasing power. (5)-Interest Rates. many financial experts still believe that the price of gold will reach or exceed $1.S. Looking at the price over a 30-day period tells a more accurate story. fewer people purchase expensive jewelry and this affects the demand. If you want to obtain the best possible prices on gold coins then you need to talk or transact your business directly with a dealer or a gold exchange company that has a good record of . There are several factors that affect the pricing of gold coins. Smaller gold exchanges would typically raise their prices on gold coins in order to make up for a decrease in sales whilst other larger exchanges would price theirs closer to the actual retail value. platinum and silver.Supply and Demand. When the reverse is true and the demand exceeds the available supply.As a rule. Changes within a 24-hour period may appear dramatic on a graph such as the Kitco.

Integrity – there are precious metal exchanges and all of these exchanges have different rules. There are many online companies which act as an electronic marketplace for precious metal trading. These are metals such as Silver. don’t forget to make the necessary research before you get into a transaction with you buy gold coins. . So. Media. These facilities are very useful for the buyers. When this happens. A person wishing to invest in precious metal trading needs to be aware of all the factors which affect the prices of these precious metals. All of us are familiar with the attraction of Gold as a precious metal. Thus.fair pricing. They offer a wide variety offacilities for their customers. These are the primary factors that affect the pricing. world events and economic factors affect the costs of these precious metals. Premium. These metals are available to the buyers in the form of powders and bars or differing quality of metal modification grades. especially as a long term or short term investment. the prices of gold coins as well as other precious metals change. The trading in these precious metals is carried out on a speculative stock exchange of bullion trade. Thus. Most companies offer discounts on bulk purchases. This is because all these companies have a minimum order limit. Doing so could help you get the best possible price for gold coins.There are some exchanges that actually hire spokespeople such as celebrities to help sell their products. On a daily basis. the condition of the coin and its total weight. There are also some that offer better prices than others and as such. there are a variety of methods in which a buyer can make a payment for his purchases. Precious metals have been around since the dawn of the economy. Other factors that may affect the price of gold coins also include the rarity. These changes depend on the daily marker spot price which is basically the buy and sell spread that is based upon the demand or the supply for a specific precious metal for that day. Platinum and Palladium. These metals attract a lot of interest worldwide for their value. A buyer or seller can conduct his trade in a variety of methods including online or over the telephone. this could vary from a rare coin certification premium or government issued bullion premium. You would also want to work with someone who is an expert at what he does and knows the precious metal’s market like the back of his hand. Investment in these precious metals can be done for a long period of time (anywhere between 5 years or more) or for a short period of time (anywhere between 3 days to 3 years). These metals have attracted human interest due to various factors such as their scarcity and thus their value. their pricing are most likely to be higher than other exchanges because they would have to cover the advertising/marketing costs. perhaps even before. Other metals have also made their mark on the human mind. Some companies offer storage facilities or facilities where they send you your purchases via mail. As usual. it would be wise to check the background of an exchange before you enter any form of transaction with them. So there really isn’t a permanent price on them. other factors include: Gold bid and ask price – this is basically the price in which an exchange that handles precious metals would be willing to buy or sell gold at any given period of time. its better to be safe than sorry. Remember. it makes sense to go through these facilities depending upon your investment plan. Supply and Demand – the price of raw gold which is typically set per ounce is based on the current supply and demand for it.depending on the gold.

competitive exchange trading fees. continuous trading hours. People can also buy gold bullion or silver bullion and then convert it into jewelry at a later date. you find a brief explination. low or descreasing interest rates has the reverse effect. When the buyer or seller agrees on a price. These companies also offer different facilities and information based on the contract of the buyer or seller. market transparency. Interest rates High interest rates decrease commodity prices High interest rates or increasing interest rates tend to reduce demand for carrying commodities. the company locks the price and proceeds with the trade. World economics reflects on the prices of gold bullion and silver bullion in the precious metal markets. These investments offer guaranteed returns for those who are looking at a long term perspective. the major commodity exchanges are American. a significant merchandise trade Commodites account for a quator of merchandise trade. After this. Commodity buyers and investors turn to those exchanges to get prices. international currency exchange values etc. In today’s rapidly advancing and growing world trading in precious metals has gained a new momentum. CME Group. In contrast. People are globally beginning to look at gold bullion and silver bullion as good investments. • High interest rates will also decrease companies’ desire to carry inventories (such as oil inventories held in tanks). a person who wishes to invest in gold and silver and such precious metals needs to have informatio Want to know how increased interest rates affect commodity prices? Read on and find out. exchange rate movements against the dollar affect the prices for importers and exporters of commodities. Not only will it lower the cost of carry. price charts for different metals.The process of buying or selling precious metals is relatively easy. it will also tend to raise commodity prices. Since many developing countries depend on the export of merely a few commodities. such as Chicago Board of Trade (CBOT). ICE and New York Mercantile Exchange (NYMEX). n and knowledge of world economics before setting out to trade in these metals. where average returns with increase. • Finally. Therefore. Here we list the three most important reasons why: • It will increase the incentive for extraction today rather than tomorrow. it will encourage investors to shift from commodities into bonds and t-bills. Most commodites are traded in US Dollar ($) Lets face it. all quoted in dollar.. The information offered includes instant trade execution. Therefore. the company which is trading for the buyer or seller sends a list of the current market prices. it is important to understand the effects of exchange rate deviations on commodity pricing. And they can make that jewelry in a style that they want. A buyer or seller has to request a quote. Prices of these precious metals always increase over a long period of time. Technological innovation can also send this data to your mobile phone. which again accounts for a quator in world GDP. w do fluctuating exchange rates impact commodity prices? Below. This saves them a large amount of cost involved in purchasing jewelry from a shop. . Commodites.

High interest rates decrease commodity prices High interest rates or increasing interest rates tend to reduce demand for carrying commodities. low or descreasing interest rates has the reverse effect. So if USD continue to fall during 2010 against other major currencies. Here we list the three most important reasons why: • It will increase the incentive for extraction today rather than tomorrow. there could be some pain if usd strenghtens and silver being famous for its volatility could see heavy selling pressure. Silver may be around Rs.What about commodity prices if USD depreciate? Let us take a general depreciation of the dollar. Industrial use account for about 1300-1500 tons. • High interest rates will also decrease companies’ desire to carry inventories (such as oil inventories held in tanks). delivery buying has its cost attached to it relating to octroi which is non-existent in futures market. Manager. it will also tend to raise commodity prices Silver seems to have a better prospects than Gold due to various reasons including supply scarcity. commodity prices will remain high or even further increase in the near future. industrial usage etc. In contrast. In rural areas. which in theory is the cost of production. Buying in futures market opens up the risk of speculations and roll-over transaction costs. an appreciating US Dollar and a higher supply would tend to mean-revert commodity prices to the long-term equlibrium level.jewelry. the vast majority of which is used in production of ornamental items. partly as an unavoidable expenditure for weddings and other family celebrations and partly as . Read more about the basics behind other macro-economic factors influcencing commodity prices. where average returns with increase. posted 23 days ago Sravan P. Not only will it lower the cost of carry. wait for a dip and enter. Advisory & Investment Research at Aditya Birla Money Mart see all my answers i would wait for any fall in prices before starting to invest for the long term. Indians are known to spend substantial part of their income on purchase of silver. Ofcourse. which increase the dollar denominated commodity prices. it will encourage investors to shift from commodities into bonds and t-bills.100000/. On the other hand.. • Finally. Indian Silver Market India is the largest importer of the silver in the world consuming more than 4000 tons of silver annually with the bulk of sale being made in rural areas. ant to know how increased interest rates affect commodity prices? Read on and find out.. silver is considered as hedge against inflation and thus provides an investment avenue.have patience posted 22 days agoolding f Browse Categories This analysis will b holding good for alimited time period that is based on present scenario and study conducted future movement on gold price may r may nt b similar. It is worth buying if there is any e-silver sort of market where the dmatted stocks can be held. The reason behind is that other countries demand a higher price in return for the exchange rate loss.pkg before 2015.. utensils and gift articles.

June and December as well as the monsoons between June and August. foils. Demand for ornamental silver is affected by the festive season and marriage season in February. Since the monsoon in India is very inconsistent and with poor irrigation facilities. so it becomes all the more important for them to save in the times of wealth and use them in the periods of distress. September. a preferred form of wealth for women. Recent Developments . April. Factors Affecting Demand & Supply In India The demand for Gold & Silver is rooted in societal preference for a variety of reasons . A good year for farmers is an insurance of strong Indian demand for gold and silver. it is said that silver becomes the harvest. This will provide freedom to procure inputs by jewellery exporters and add to the cost competitiveness of the Indian jewellery exports. a major component of the gifts given to a woman at the time of marriage. it starts picking up in March and is on the rise till July then there is very little activity till September and then again it starts picking up. þÿ Industrial demand in India is in the range of 1300-1500 tons per annum. Jain and Sikh community. where 65% of the demand comes for Jewellery. jari. November & December. With not many avenues for investment available to the village community. the bulk of which is in Pharmaceuticals. The import of Silver in India also fluctuates accordingly.religious. While the demand has increased substantially. Farmers reportedly bury the silver bars in their fields along with the crops. plating. It will be difficult to prioritize them but it may be reasonable to conclude that it is a combined effect. where women did not inherit landed property whereas Gold and Silver jewellery was. Monsoon & Agriculture Monsoon season in India is between June and August. and still is. the government has also liberalised the import of Gold and Silver. they consider investing in gold & silver as far better option for savings. and to treat any major part as exclusively a store of value or hedging instrument would be unrealistic. Indian demand plays a major role on the global silver demand. After a bad monsoon. Festivals & Marriage Seasons Gold and Silver plays an important role in marriage and religious festivals in India. the peak season for demand of silver is during the festivals and marriage season. Ornaments and gift articles. or if there is a crop failure. a bad monsoon proves to be a havoc for the poor farmers. Hence like gold. ritualistic. and as a hedge against inflation. June. In a significant move. electrical. Demand The Indian demand for silver is very different from the global pattern of silver demand. The demand is at its peak during November/December and then its starts fading down till February. and the marriage season. In the Hindu. Industrial demand forms a minor share. with its effect on the harvest.investment. annual consumption is dictated both by monsoon. soldering and brazing. which varies from community to community but generally lies in the months of February. April. Agriculture is the major factor that determines the amount of demand that could be generated in the year.

Global War Fear .) • • • • Sales by China and other Central Banks. .Removal of Quantitative Restrictions On Gold & Silver Imports Till recently import of gold & silver in India was canalized through nominated government agencies only. Major factors to look at for the silver prices will be:- Direction of US dollar (which is the key driver of silver prices. Terrorism and Political Instability Direction of Gold Prices Direction of other Commodity Prices To sum up. but now government has fully removed the Quantitative Restrictions and has allowed free import of Gold & Silver to all persons without any restrictions on import through MMTC or State Bank. This would help in bringing down the price near to international levels. the demand for silver in the near future is expected to be largely driven by the rising industrial (China)& Jewellery (India) demand.

an investment and simply an object of beauty. • Economic forces that determine the price of gold are different from. Global Supply Demand Scenario • • The total above ground stocks of gold is estimated to be around 1. However. and in many cases opposed to the forces that influence most financial assets. The total annual global demand for gold has averaged 3530 tonnes in the last three years (2005 . • Jewellery accounts for almost two-thirds of annual gold demand with investment and industry being the other main drivers.l l i o n > G o l d Gold Gold Gold Guinea Gold HNI Gold M Silver Silver HNI Silver M Platinum Major Characteristics Gold is the oldest precious metal known to man and for thousands of years it has been valued as a global currency. ensures there is a potential source of easily traded supply when needed. 18% as by Gold Fields Minerals Services (GFMS) as on end of 2008 official reserves. 51% is estimated to be present as jewellery. remains essentially constant while ownership shifts from one party to another. 12% used for industrial purposes and 2% is unaccounted for. a commodity. Its stability and high value makes it virtually indestructible and ensures that it is There is no true consumption of gold in the economic sense as the stock of gold Although gold mine production is relatively inelastic.2008). 17% held as investment. recycled gold (or scrap) almost always recovered and recycled.000 tonnes Out of this total stock. it is expected to .63. • • • • Gold is unique as it is both a commodity and a monetary asset. and this helps to stabilise gold price.

owing to the sharp rise in prices. Turkey. Tokyo (TOCOM).750 tonnes of gold every year. The other major producers are USA. • China with a production of 276 tonnes. Recycling of old gold scrap and official sector sales are the other major sources of supply.. • Five countries. Indians normally buy about 25 per cent of the world's gold. China. • South Africa has been a major gold producer since 1880s and it is estimated that about 50% of all gold ever produced has come from this nation. averaging approximately 2.455 tonnes per year over the last three years. USA.dip slightly in 2009. Australia. . While. New York and Zurich Gold derivative exchanges at New York – CME (COMEX). • The total global mine production is relatively stable.100 2450 1100 3550 ----% Share 9 2 0 23 20 ----- Indian Gold Market • India is the world's largest consumer of gold. Dubai. Russia and Peru. which have averaged 1084 tonnes and 378 tonnes in the last three years. India. the output in 2007 dropped to just 272 tonnes. World Gold Markets OTC markets at London (LBMA). purchasing around 700 . viz. overtook South Africa as the world's largest gold producer in 2007 for the first time since 1905 that South Africa has not been the largest. Mumbai (MCX) Istanbul. during the early 1980's it produced about 1000 tonnes. Saudi Arabia and UAE account for above 60% of gold demand. with each market driven by a different set of socioeconomic and cultural factors. Hong Kong and Singapore are doorways to important consuming regions India in World Gold Industry (Rounded Figures) India (In Tons) World (In Tons) % Share (Rounded Figures) Total Stocks Central Bank holding Annual Production Annual Recycling Annual Demand Annual Imports Annual Exports India (In Tons) 15000 558 3 250 700 600 60 World (In Tons) 160000 30.

amid rising global investor demand and Shifts in official gold reserves. • Domestically. compared to the rest of the world. .5 tonnes in the same period of the previous year. • • • Supply-demand is a major influencer. However.• However. whenever such reports surface. The rural demand is influenced by monsoon. India is also the largest importer of the yellow metal and has averaged a year. imports of around 600 tonnes a year. It is also valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits. the fluctuations in the INR-US Dollar impact domestic gold prices and have to be closely followed. consumer goods. the country imports most of its domestic requirement. coins in India. are insignificant. real estate other commodities like crude oil. the sharp price increase in 2008 and 2009 has impacted demand with total demand in 2008 dipping to 660 tonnes. interest rates being major influencing factors. currency movements. • Gold hoarding tendency is well engrained in the Indian society and unofficial stocks held by Indians is estimated to be well above 15. This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8. which is around 9% of the total global gold stocks. reports of sales/purchases by central banks act as The investment in gold is influenced by comparative returns from other markets almost stable supplies. However. as Indian jewellery offtake is sensitive to price increases and even more so to volatility.000 tonnes. harvest and marriage season. rising importance of emerging markets. • In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewellers and exporters. • The global prices are driven by a host of factors with macro-economic factors like strength of the economy. agricultural output and health of the rural economy. both qualitatively and quantitatively. assaying. making them into standard bars. In the cities gold is facing competition from the stock market and a wide range of Facilities for refining. Market Moving Factors • Indian gold prices are highly correlated with international prices. like stock markets. demand and consequently prices to some extent are influenced by seasonal factors like marriages. • • • Domestic consumption is dictated by monsoon. At present.5 percent in 2001. It is further expected to shrink in 2009 with demand in first three quarters of 2009 totaling only around 265 tonnes against 553. 13 banks are active in the import of gold. 2008 imports dipped to around 400 tonnes of gold and it is further expected to dip to around 200-220 tonnes in 2009 owing to high prices. major price influencing factors. at around 2-3 tonnes Thus. • • As India's domestic primary production of gold is very less. • India's gold demand is firmly embedded in cultural and religious traditions.

The markets investigated are gold.1035 0.0321507 32. although there is some evidence of volatility feedback between the precious metals. platinum and palladium.1507 85. monetary environment and financial market sentiment factors.755 Purity Gold purity is measured in terms of karats and fineness Karat: Pure gold is defined as 24 karat Fineness: Parts per thousan Thus. The key findings present limited evidence that the same macroeconomic factors jointly influence the volatility processes of the precious metal price series.Measurement Weight Conversion Table To Convert from Troy Ounce Grams Kilograms Kilograms To Grams Troy Ounce Troy Ounce Tolas Multiply by 31. silver. This finding lends weight to views that individual . 18 karat = (18/24)th of 1000 parts = 750 fineness View All Abstract: We investigate key macroeconomic factors that impact the price returns of precious metals markets over a 20 year period. whereas the macroeconomic factors accommodated business cycle.

commodities are too distinct to be considered a single asset class or represented by a single index. . a finding of considerable importance for portfolio managers and investors.

( Click here for June gold and scroll beneath the chart for a computerized technical analysis of the gold market.. (Refer to the tables which show demand in tonnes. 1999. The ratio is very high when compared to an historical average of closer to 15 or 20 times earnings (click here for a chart of past price earnings ratios). latest available) was near 601 thousand contracts now at the record 2 years ago at almost 600. industrial demand.2010.click here for a 10 year chart). Demand figures for the 4th quarter of 2009 (latest available) show one of the sharpest declines in demand in recent history .) Demand for jewelry which usually represents about 70% of demand for gold was down 30% in the latest reported quarter (fourth quarter of 2009). a resumption of the decline could potentially take the gold . now trading just above the range of most of the past 5 months and just above its recent high of $1170 which it hit two weeks ago. Some "investors" believe the economy is improving. a major change in reporting activity in the stock market. (Click here for a 2 year gold chart .) The slow economy has diminished the number of physical gold buyers which is reflected in the latest demand figures for physical gold. A falling stock market is potentially bearish for the gold.total demand was down significantly in all categories .) Based on the latest weekly report (as of June 29). electronic trading fund (ETF) investment) was down 36%. Activity in the gold market appears to be ordinary fluctuation. 2000. As of the end of November (latest available) the price earnings ratio on the S&P 500 was 85. The stock market has been overpriced in the extreme . a very negative indicator since stock prices ultimately depend on earnings. A significant factor is the outlook for the stock market since commodity prices have recently been influenced by the sharp moves in the stock market. The number of total open contracts now (as of yesterday. one of the highest since records were kept on the index in 1936. There is no indication of any sustained significant buying. mostly by day traders .. the number of long speculators in the gold market was 330 thousand contracts. up 14 thousand from the previous week. An important factor is that under present economic circumstances.changed (Friday). rather than dollars to get a more accurate picture. The stock average remains overpriced in relation to earnings in the extreme.now the price earnings ratio on the stock market averages is no longer published as it has been since 1936. there is less money with which to buy jewelry or to invest in commodities.000 contracts. gold included.jewelry demand was down 32% while total demand for all uses (including retail investment. (Click here for actual figures) (Click for actual figures for the years: 2002 . but the encouraging indicators are few and far between. a relatively huge decline in demand. This is reflected in the low level of demand in the latest reports. In spite of the recent rally. 2001. It has been mostly speculators that have driven up the price (reflected in the latest Commitment of Traders report).there is no indication of increased interest in the gold market.

Treasury obligations.S. Interest rates now (January. but subject to Federal income tax. widely thought to increase gold investment. suggesting that higher gold prices will decrease the demand. largely due to a 17% decrease in jewelry demand. the safest place to keep your money and get near the highest interest rates (usually but not always) is in U. 1. for those who may want to stay all or partly on the sidelines. government web site).Keeping your money safe: During these uncertain weeks ahead.013 last year). Some physical gold fundamentals: For the latest available supply and demand figures for physical gold. You can also call at the number they furnish . but maybe more significant is the latest reported quarter.S. (4th quarter of 2007) total demand was down 17% for the quarter (843 metric tonnes vs. the World Gold Council has published actual figures for the past several years. but so far it has not. You can open your own account (minimum $100). . This was a period during which the dollar was making new lows.they are usually very helpful. Interest on U. To go directly to their site. click TreasuryDirect (a U. Obligations are exempt from State or local income taxes. 2009) are near the lowest in history but are usually higher during less volatile times. free of any commissions or any other costs (excepting an annual minor maintenance fee).S. The lower demand may be due to the big increase in price. You will find out everything you need to know. A very fundamental issue is whether the gold can continue to rise when supply is up and demand is down and remains at relatively low levels compared to the demand during the 1990's (click for latest supply and demand figures). Demand figures for the full year of 2007 show total demand for the year was up 4%.

5 00 2. As an indication of the public's interest in gold now.839. For example.50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 . of ounces): No.5 00 164.50 0 325.S.00 0 315.055. following are the figures published by the U.250 1. Mint showing the amount of gold sold by theU.00 0 261.50 0 536.00 0 484.425 in the year 2007. global demand for gold jewelry was over 3. of Ounces 771.S. Nothing like that is happening now as so far the demand is mostly confined to the futures market.00 0 198. Demand for gold was helped by the bull market in stocks during the 1990's when there was more money to buy jewelry. Mint in the form of "American Eagle" coins bullion sales (in no. There were often long lines at gold dealers as many people rushed to buy Krugerrands and other gold investments.700 metric tonnes in 1996 compared to only 2. there was actually a demand for physical gold and a rise in price was justified.When the gold price did in fact break out and soared in 1979-1980.00 0 449.

Confidence in the future stability is a principal factor determining the value of the Dollar and with it. particularly since it is in a downtrend which began 4 years ago.50 0 2009 (thru 945. but this increase is made up for by a decrease in jewelry demand. beginning to rise as the Dollar declines. . particularly if gold can surpass previous resistance at the $420 . the U.S. Dollar continued to fall and it was not until 1980 when a new administration was evident that things turned around. gold coins in the past few months. a situation similar to the late 1970's.00 Sept. Dollar. Recent differences with countries with whom close economic cooperation is necessary has cast uncertainty on future trade activity and its affect on the value of the dollar. interest rates..S. The precious metals futures markets have reacted along with the U. but an acceleration is possible. This type of uncertainty is not too much unlike what occurred in the late 1970's. about the beginning of 2004. the gold price. the strength of the Dollar cannot be relied on.S. (Most of the remarks below are repeated:) To put the recent rise in context of what the gold has been doing. click here for the price going back to 1974. With uncertain relations with previously strong allies whose trade and cooperation is needed to maintain the stability of the Dollar.) 0 There has been an increase in demand for U. and stayed there for all of the past year as many funds and other speculators stayed in the market longer than they have during ordinary rallies. There doesn't seem any reason that anyone can worry about a shortage of gold now or in the foreseeable future.$430 area (these figures refer to when this was written. The number of contracts in the gold futures market grew to record numbers. four years ago). So far the reaction is minor compared to the runaway we saw in 1979-1980. not seen since gold began trading in the New York Comex in 1975.2008 860. In spite of that. had then soared as high as 15% for long term Treasury Obligations. although with one major difference. Click here for the gold price chart since 1971 in several different currencies. The future is unpredictable and uncertain.

However. However. long lasting companies are usually not based on speculation. ************ What influences the gold price?: A constant issue in the gold market is what influences the price. For an ongoing business not to hedge in a good profit. Solid. We can see large changes in the supply or demand in the . Most people logically believe the supply and demand figures in the physical gold market will determine the price. Therefore. The price at which the physical gold changes hands. if mining companies have cutback on their hedges. it is contradicted by the present position of industry hedgers. Sometimes he will be right and other times he will be wrong. most businessmen agree that if you can lock up a profit rather than speculate. However. the supply and demand at the NY exchange is probably the single most important factor (at least in the short term) in determining the outlook for the gold price. Of course there have always been some companies who don't hedge believing in the long run that prices will average out. If a mining company passes up the opportunity to lock up a good profit. he will then be speculating instead. would be considered irresponsible or just plain greedy by some. in almost all cases. The subject of hedging has been discussed for centuries and there are many different attitudes toward it. you should do so.Industry Hedging: There has been a lot of talk about some mining companies planning not to hedge as much as they have in the past. Practically all gold bullion and gold coin dealers will base the price of their transactions on this price. depends on the price at the New York exchange. the futures market in New York is the single largest place in the world where more gold contracts are traded than any other. A miner can lock in a good profit in the futures market when prices are right. Those miners who decide to speculate rather than hedge at a profit put their companies at risk if the price goes the wrong way. The futures market exists for the benefit of miners to take advantage of high prices when they occur in the futures market.

in the longer term.physical market. but significant and sustained changes in the physical gold market are few and far between. Of course. but if the price does not first change at the exchange it is not likely to change the price of the physical gold. ************ . supply and demand in the physical market will cause the futures market to change accordingly.