2. 2
Contents
1. Introduction to Gold Market.
2. Gold Demand & Supply Trends.
3. Why invest in Gold ?
4. How to take an exposure in Gold.
Gold
5. Is the price of Gold getting real ?
6. Gold at NCDEX
3. 3
Forward-looking statement (disclaimer)
The information and opinions contained in this presentation have been
obtained from sources believed to be reliable, but no representation or
warranty, express or implied, is made that such information is accurate
or complete and it should not be relied upon as such. This
presentation does not purport to make any recommendation or provide
investment advice to the effect that any gold related transaction is
appropriate for all investment objectives, financial situations or
particular needs. Prior to making any investment decisions investors
should seek advice from their advisors on whether any part of this
presentation is appropriate to their specific circumstances. This
presentation is not, and should not be construed as, an offer or
solicitation to buy or sell gold or any gold related products.
Expressions of opinion are those of the NCDEX only and are subject to
change without notice.
4. 4
Above the Ground Stocks of Gold
Global Stocks - 1,55,500 tons
Lost & (end 2005) = Rs 148,00,000 cr
Unallocated = $ 3,200,000 mn.
Industrial & 2%
Dental
12%
of which,
Private
Jewellery
Indian Public holds 10% or
Investment
52% 15,000 tons +
(Bars & Coins)
16% = Rs 14,00,000 cr
compared to,
Govt & Banks
18% Rs 800,000 cr in banks
Rs 90,000 cr in Mutual Funds
Gold Price: Rs 9,500
$ Price: Rs 46
5. 5
Annual demand for Gold exceeds primary supply
Mine Production and Total Demand for Gold
4500 500
Mine Production
Total Demand 450
4000 Gold price (annual average) US$/oz
400
3500
350
3000
300
2500
Tonnes
US$/oz.
250
2000
200
1500
150
1000
100
500 50
0 0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Data: GFMS Ltd.
Newly mined gold does not satisfy the demand for gold jewellery each year
6. 6
Steadily increasing Gold jewellery demand
$ m io.
25,000 Italy
20,000 UAE
15,000 Saudi
Arabia
Turkey
10,000
China
5,000
USA
-
1992 1994 1996 1998 2000 2002 2004
India
• The top 7 countries account for 60% of the total Jewellery
consumption.
• Jewellery consumption increased by 10% over last 5 yrs & 18% in the
last 3 yrs
7. 7
Investment demand for Gold fuelling the price increases
• Investment Demand up by 35% over last 5 yrs & 56% in the last 3 yrs
(in US$ terms)
8. 8
Why Invest in Gold ?
Gold vs inverse of trade-
weighted dollar
• Currency hedge 140
– Inverse relationship 120
between gold and dollar 100
80 Gold
• Effective portfolio diversifier
US$
60
93 94 95 96 97 98 99 00 01 02 03
• Currency hedge USA: gold and consumer price
indices (log scale; 1800=1)
100
Gold price
• Gold is a deflation & inflation Consumer prices
10
hedge
– Maintains purchasing 1
power over the long term
0.1
1800 1840 1880 1920 1960 2000
9. 9
Risk – Return Analysis on a portfolio with Gold
Tracking of performance of Equity portfolio with gold over a 7 yrs period:
Equity Gold Returns Risk
100% 104% 7.10%
100% 118% 3.60%
90% 10% 105% 6.50%
80% 20% 107% 5.90%
70% 30% 108% 5.30%
Source: Financial Express Research
11. 11
Introduction of Bullion market in India
• Size of Market
– Physical - India imports 600 tonnes gold per annum &
3500 tonnes of silver(approx).
– Private holding of gold approx. 14000 tons
– Futures (Derivatives) – the total average daily quantity
being traded in futures market in India is 15000 Kgs of gold
& 1000 tonnes of silver
• Major Centers for Physical Gold Trading
Mumbai, Ahmedabad, Delhi, Jaipur, Chennai,
Hyderabad, Bangalore & Kolkatta
13. 13
Gold Futures Contract
Contract Size 1 kg
Tick Size Rs 1 per 10 gram
Price Quote Rs per 10 gram
Contract Months All months
Active contracts 3
Last trading day 20th of the month
Deliverable Size 1 kg
Deliverable grades Not less than 995 fineness, bearing
a serial number and identifying
stamp of a LBMA refiner approved
by NCDEX
Trading Hours 10 am - 11:30 pm
Delivery Location Mumbai
Margin 5-7%
14. 14
Gold Futures Contract cont’d…
• Daily Settlement Prices
• Gold Bars from approved list of importers along with a
refiners certificate
• Minimum Deliverable Quality 995 fineness
• Proportional price adjustment against deliveries of
minimum deliverable quality
15. 15
Silver Futures Contract
Contract Size 30 kg
Tick Size Rs 1 per kg
Price Quote Rs per kg
Contract Months All months
Active contracts 3
Last trading day 20th of the month
Deliverable Size 30 kg
Deliverable grades Not less than 999 fineness, bearing a
serial number and identifying stamp
of a LBMA refiner approved
by NCDEX
Trading Hours 10 a.m. to 11:30 p.m.
Delivery Location Delhi
Margins 8-10 %
16. 16
Silver Futures Contract Contd…
• Daily Settlement Prices
• Silver Bars from approved list of importers along
with a refiners certificate
• Minimum Deliverable Quality 999 fineness
• No discounts or price adjustment against qualities
17. 17
Arbitrage opportunities in Bullion Contracts
• Calendar spread arbitrage.
• Arbitrage between NCDEX and MCX.
• Arbitrage between Bank costing and NCDEX.
18. 18
Arbitrage opportunities in Bullion Contracts
• Calendar spread arbitrage.
– 3 important parameters to be kept in mind while doing
Calendar Spread :
• Landed Cost of Gold/Silver.
• Parity Price of Gold/Silver.
• Trend in Bullion Prices- Whether the market is in
Contango /Backwardation.
19. 19
Arbitrage between NCDEX & MCX
• Arbitrage between NCDEX and MCX.
• NCDEX-Pure Gold fineness 999.9 & exclusive Sales
Tax.
• MCX –Gold- 995 .0 fineness & exclusive of Sales Tax
paid Ahmedabad.
• Purity Difference- 0.49 %.
• Net Difference -0.49 % premium on NCDEX Gold.
21. 21
How to get an exposure to Gold?
• Gold coins & Bars
– Jewellers
– Banks
• Gold Mutual Funds (ETF)
– Expected to be launched
• Gold Futures
– Futures Exchanges
22. 22
The price of Gold: getting real
800
Real price facts: Gold, London PM fix (monthly average)
700 Real gold price, constant 1968 prices
In real terms, current Real gold price, constant 1975 prices
600
price levels correspond to
those of the early 1990s 500
US$/oz.
400
$600 in 1980 300
corresponds to about 200
$1500 in nominal 2006
dollars
100
0
72
78
86
92
06
68
70
74
76
80
82
84
88
90
94
96
98
00
02
04
19
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The supply deficit is certainly not new, and it’s not enough on its own to explain the price rally. That’s why it’s important to look at the components of supply and demand, to get a sense of what drives each of them and what the likely prognosis is for each: how quickly is supply likely to respond to increases in demand? Is an increase in one form of demand likely to substitute for another form, rather than be additive? What is the relationship between price and each component of supply and demand?
Gold has been in the news a lot since it moved up to the levels not seen since 1980 which has left many people wondering whether gold is not overbought and exactly what fair value might be. The NCDEX is not in the business of forecasting the gold price – in fact we’re not allowed to. But I believe it’s a useful exercise to set the recent gains in real terms, which is what you can see here, and what most investors ought to care about. And in real terms, the gold price has only just recovered ground lost in the early 1990s. The brown and black lines shown on this chart trace the real gold price in constant 1968 prices and in constant 1975 prices. In real terms, the gold price has increased only modestly over the last six years – particularly when compared to the giddiness of other commodity markets that are less liquid. The background that led to the price spike in 1980 was quite extraordinary- : US inflation in double digits; crude oil around $40/barrel; equities approaching the end of a prolonged bull market; Soviet Union invading Afghanistan; By contrast, the rally that began in 2001 has been supported for the most part by continuing strength in demand against supply that simply has not managed to keep pace.