What is GOLD? Information on Gold Uses and demand Gold in jewelry Purity/Fineness CHINA VS. INDIA WHO IS BUYING GOLD JEWELLRY? gold as an investment Gold as Inflation Hedge GETTING EXPOSED TO GOLD Rothbard Model of Gold Risks of Gold Pricing Gold Fix ? PROCESS of Price Determination Gold Imports FACTORS AFFECTING GOLD PRICE Why India Has Stopped Importing Gold ?(P. Chidambaram)

2. gold
Presented by Prateek Gupta Of BFIA 2B
Samarth Roy
Shubham Dhangar
Sujay Kumar
Rahul Nirwan
To Nidhi Goel
At SSCBS
2

3. Is it a rock?
Is it a fossil?
Or, perhaps, a mineral?
What is GOLD?

4. Gold is a soft, yellow element that reacts to very few
chemicals. Those chemicals include chlorine and
fluorine. 2/3 of earth’s gold comes from South Africa.
Bendy gold is purer than hard gold. Gold is popular
because it is so beautiful and shiny.

5. What do we
know about
Gold?
Melting
point:
1064 0C
Boiling
point:
2860 0C
Doesn’t react
with water or
oxygen
Soft and
rare
Yellow
metal

6. Information on Gold
• Atomic name:Au
• Atomic Number:79
• Atomic Weight:196.966569
• Melting point:1337 K (2856 C or 5173 F)
• Phase at room temperature:Solid
• Element classification:Metal

7. More Information on Gold
• Density:19.282 grams per cubic centimeter
• Period Number:6
• Group Number:11
• Group Name:No group name

12. Uses and demand of
• The GLOBAL gold market can be divided into three distinct categories:
40%50%
10%0
INVESTMENT
JEWELRY
TECHNOLOGY

13. GOLD IN TECHNOLOGY
GOLD’s properties make it a highly versatile metal
It is optimal in telecommunications, computers, defence systems
medical equipment, and other mission critical technologies
Gold plating
protect the
Hubble telescope
And its electric
connections from
corrosion.
$1.5 bn

14. 41 kg of gold was used on U.S Columbia space shuttle
And gold also protects astronauts from radiation
All 14000 windows are
EnergyEfficiency Royal Bank Plaza Toronto
A thin plating of GOLD GLAZING in
windows provides excellent reflection of
heat radiation, keeping building cool in
summers and warm in winters
All 14000 windows are coated with
70kg of pure gold.
That’s worth
$3,600,000 !

15. NANOTECHNOLOGY
• GOLD’s unique optical properties allows it to be used on a nano
scale to detect PREGNANCY, PROGRESSION of HIV, and
SALMONELLA.
When on a nano
scale, gold changes colour
to deep crimson red or
light blue. This is because
tiny particles of gold
interact differently with
Gold id used around the
world in catalytic
convertors in cars, trucks,
And heavy duty vehicles
Pollution control

16. Gold in jewellery
Ancient gold jewellery dates back to 6000 years ago, and has been used
throughout history to symbolize power, wealth and love.
Purity of gold is measured in KARATS.
BIS CERTIFICATION SCHEME FOR HALLMARKING OF GOLD
JEWELLERY.
Design of Hallmark on Gold Jewellery

18. Purity/Fineness
958 Corresponding to 23 Carat
916 Corresponding to 22 Carat
875 Corresponding to 21 Carat
750 Corresponding to 18 Carat
585 Corresponding to 14 Carat
375 Corresponding to 09 Carat
A Hallmark, consists of five components i.e.
BIS Mark,
the Fineness number (corresponding to given caratage),
Assaying and Hallmarking Centre's Mark,
Jeweller's identification Mark and year of Marking denoted by a code letter and decided by BIS
(e.g. code letter `A' was approved by BIS for year 2000, `B' being used for the year 2001 and `C' for 2002
and 'J' for 2008). The marking is done either using punches or laser marking machine.
The BIS hallmark, a mark of conformity widely accepted by the consumer bestow the additional confidence
to the consumer on the purity of gold jewellery.

19. CHINA VS. INDIA
INDIA AND CHINA ARE TWO MOST POPULOUS
CONTRIES IN THE WORLD, TOGETHER
REPRESENTING OVER HALF OF THE WORLD’S
GLOBAL GOLD DEMAND
INDIANS AND CHINESE BUT MORE GOLD JEWELLRY
PER PERSON
AND INDIANS, DESPITE EARNINGS LESS THAN
CHINESE AND AMERICANS, IN PARTICULAR PRIZE
GOLD, SPENDING MORE OF THEIR ANNUAL
INCOME ON GOLD THAN THE AVERAGE AMERICAN.
50X
GRAMS OF NEW GOLD JEWELLRY
BOUGHT PER CAPITA
PERCENTAGE OF INCOME SPENT ON GOL
D JEWELLRY

21. WHO
IS BUYING
GOLD
JEWELLRY

22. As an INVESTMENT

23. SINCE 2000, GOLD HAS OUTPERFORMED THE
S&P 500 EACH YEAR 9 OF 12 TIMES

24. BUYING GOLD IN 2000 WOULD HAVE YIELDED
OVER A 600% RETURN AT TODAY’s PRICE
IS GOLD A COMMODITY OR CURRENCY?
How does it behave as an investment?
What are the fundamental of investing in gold?
What are the different ways investors can get
exposures to gold in their portfolio?

25. Gold: commodity or currency
Gold fits the traditional definition of a commodity, but it has also been
used as a currency for most of the history. As a result, gold exhibits
some characteristics of both a commodity and a currency
COM:MOD:I:TY [KUH-MOD-I-TEE]
“THINGS OF VALUE, OF THE UNIFORM QUALITY, THAT
WERE PRODUCED IN LARGE QUANTITIES BY MANY
DIFFERENT PRODUCERS; THE ITEMS FROM EACH
DIFFERENT PRODUCERS ARE CONSIDERED
EQUIVALENT

26. GOLDINVESTING
History has shown gold to have several properties as an investment:
GOLD HELPS DIVERSIFY PORTFOLIO
Because the gold price has low correlation with most asset classes, and is driven by different factors, gold
can help DIVERSIFY A PORTFOLIO.
PORTFOLIO PERFORMANCE OVER 40
YEARS(1971-2011)
AVERAGEANNUAL
RETURN(US$)
AVERAGE ANNUAL VOLATILITY (STANDAR
DEVIATION)

27. Gold as Inflation Hedge
An investment that is considered to provide protection against
decreased value of currency. An inflation hedge typically involves
investing in an asset that is expected to maintain or increase its value
over a specified period of time. Gold is widely considered an inflation
hedge.
However, certain investment might seem like a decent return, but when
inflation is factored in they can actually be sold at a loss.

28. Inflation hedge contd.
Gold supply has been quite stable over time. Gold supply
has been quite stable over time
Due to inflation, all currencies lose their value over time.
However, gold retains its value, or even increases it.
The value of gold has remained remarkably stable for
centuries

29. GETTING EXPOSED TO GOLD
THERE ARE DIFFERENT WAYS TO GET EXPOSURE TO GOLD IN A PORTFOLIO
– EACH HAVE DIFFERENT BEENFITS AND LEVEL OF RISK.
Exchange traded funds are investment funds that trade on stock exchanges, gold ETFs
typically trade gold futures, store gold bullions, or represent gold equities.
GOLD ETFs
+ -
ETFs ARE SIMPLE AND
VERSATILE WAYS TO
GET EXPOSPURE TO
GOLD IN A PORTFOLIO
ETFs HAVE
MANAGEMENT FEES
AND COMMISIONS FEES
FOR EACH BUY AND
SELL.SOME ETFs ALSO
HAVE LIQUIDITY ISSUES
OR COULD IN THE
FUTURE

30. PHYSICAL GOLD SUCH AS BARS AND COINS
+ -
GOLD BULLIONS
TANGIBLE, PRIVATE AND
GIVE DIRECT
EXPOSURE TO THE
GOLD
STORAGE CAN BE
COSTLY AND HAS RISK
SUCH AS THEFT AND
LIQUIDITY
GOLD MINING INVESTING IN COS. THAT ARE MINING OR EXPLORING FOR GOLD
+ -
Major gold minors are liquid, provide
leverage, and can add diversification
if they have exposure to other
commodities, gold minors are profit
seeking companies, and as with all
equities can also have growth
upside or pay a dividend
Junior gold minors offer tremendous
upside if they find a new discovery.
All companies are not created equal
and therefore management are
biggest risk, political risk, currency
risk and market cycle and also affect
company valuations

31. Rothbard Model of Gold Pricing

32. Demand
Supply- above ground
0
P Market Clearing Price
P
Q
32

33. Offer
Bid
Supply- above ground
Demand
0
P
Q

34. 0
Supply from mines Supply- above groundP
Q

35. 0
P Total Supply
Q

36. 0
P
Total Supply
Q
P1
D

37. Risks of Gold
Physical Risk
Exchange Risk
Volatility Risk
Political Risk
37

38. Physical Risk
Buying gold bars and coins exposes the
investor to the risk of loss and theft.
Costs are involved to limit this risk. Gold
has to be kept in a personal safe at home
or, better In the bank’s safety deposit box
But in bank SDBs, renting fees is incurred.
A bank vault is probably the safest place for
storing gold .
38

39. Physical Risk contd.
Investors should not believe that the bank will store
gold for generations. HSBC customers had to
face this situation
The bank asked ( at the end of 2009) its small retail
customers to remove their gold from the banks’
New York vault .
Insurance Policies may change.
39

40. Exchange Risk
Trading at all exchanges is subject to their
rules and regulations. The exchanges can
on purpose or accidentally foster market
outcomes by changing their trading rules.
The exchanges may temporarily restrict
buying gold, thus driving the prices down
COMEX restricted silver buying in 1980.
The exchanges may temporarily halt the
trading of a particular future contract.
40

41. Volatility
The price of gold, as of every traded asset, is
subject to the ups and downs of the market The
rate of this precious metal can fluctuate
fundamentally . The volatility of gold must be a
concern to all short- and long-term investors .
Factors that make the gold price unpredictable and
volatile:
1.The interplay of the international financial system
2.Inflation and interest rates
3.Alternative investments
4.The irrationality of investors
41

42. Political Risk
The political risk of gold investing means that the government
can change laws and regulations that may harm your
investment in gold.
These government interventions can happen in the country of
the investor or in another country.
Both would have an impact on the gold price.
The government may prohibit the possession of gold and
require gold holders to sell their gold assets to the
government at a fixed price. In 1934 Franklin D.
Roosevelt passed a law that made it illegal to possess
gold.
The only exception was gold for industrial and artistic
purposes
42

43. Political Risk contd.
The US congress passed this law to prevent
private gold to become a competing currency.
The possession of gold by private citizens with
only legalized 39 years later in 1973 by the
President Gerald Ford. Government could also
nationalize gold mines or heavily tax
companies that produce and trade in gold. In
2005 Chavez, the Venezuelan president
announced the confiscation of the property
held by Crystallex, a Toronto-based gold-
mining company
This resulted in a drop of its share price by 50 per
cent in a single day. 43

44. Gold Fix ?
• The price of gold is actually determined twice a day in London, on
the London Bullion Market by the 5 members of the London Gold
price Fixing Ltd. on the premises of N.M Rothschild & Sons.
• This price which is determined is known as the London gold fix
or the gold fix.
• The price is in pound sterling but is converted by various countries
into their own currency.
44

45. • It is determined twice a day, once at 10:30 am(GMT) and the other
at 3:00 pm(GMT).
• Instead of the premises of NM Rothschild & Sons, since May
2004, the price is determined by dedicated telephone conferencing
system
• The five participating banks are market makers and should be part
of the LBMA, these are :-
• Scotia-Mocatta , Barclays, Deutsche Bank, HSBC, Société
Générale

46. PROCESS of Price Determination
• The London Gold Fix involves gold dealers from London's five biggest bullion
banks establishing a common transaction price for a large pool of purchase and
sale orders.
• The participating bullion banks will be acting both on their own behalf and for
those customers of theirs who have issued limit orders for them to trade at the
London Gold Fix price. No-one knows what the Gold Fix will be before it is
declared.
• The Gold Fix establishes the price at which the gross amount of gold on buy
orders matches the gross amount of gold on sell orders - across all the
participating banks.
• The Gold Fix Chairman will start the fixing process by declaring a price - usually
very near the ongoing spot market gold price.

47. • Assuming this price the participant banks aggregate all the limit orders
they have received - both buys and sells - and declare to the Chairman the
net quantity of gold they would buy, or sell, at the proposed price.
• If the net effect across all the participant banks is in balance, then that
price will become the current London Gold Fix price. More commonly the
buyers and sellers are not immediately in balance. Then the Chairman will
adjust the proposed price, upwards if there are too many buyers, and
downwards if there are too many sellers.

48. • Normally it's a 10 or 15-minute process, but it can
take up to half an hour. The longest fixing actually
took place back on 19th October 1987 - Black
Monday.
• The London Gold Fix took two hours and 15
minutes to reach agreement that day." That was
the day when the US stock market dropped 23%
of its value.

49. Gold Imports
• At the individual level, then, the gold craze makes sense. But in
aggregate it is a disaster for India.
• India is one of the largest importer of gold, only being recently
surpassed by China.
• In 2011, India exported around 1000 tonnes of gold.
• Imports of the bullion led to a $54bn Balance of payment in
March 2013.

50. • India’s CAD reached an alarming 4.8% of GDP last year and
almost half of it was due to gold imports.
• Thus in order to curb these, Government imposed an import tax
of 10% last year in June which led to a considerable fall in the
imports.

51. 2010-11

52. FACTORS AFFECTING GOLD PRICE
 INFLATION :- Inflation is regarded as the number one top factor affecting the price of gold. We said
earlier that gold didn’t have a practical business or personal use, but the one use it does have is a
retainer of value and wealth. Therefore it makes sense that in an inflationary environment, where the
value of paper currency is falling in regards to what other goods and services can be bought with it, that
people should want another form of money (gold) that DOES retain its value.
 DEMAND FOR THE CONSUMER GOODS :- Markets like India have strong demand for using gold in
jewellery. Economic growth in India increases disposable income and therefore demand for gold. As gold
is a luxury good (income elasticity of demand > 1) then a rise in income in India could lead to a bigger %
demand for gold.
 INVESTMENT :- Gold is seen as desirable element in an investment portfolio. Gold will hold its value
even during inflation. At various times, investment trusts and individuals will have a greater demand for
saving their wealth in the form of gold. This can lead to higher demand for gold to store wealth. This
investment demand is the primary factor behind the increase in price of gold between 2006 and 2011.
52

53.  SPECULATION :- Investors can be caught up in the mood and expectations of the moment. Rising gold
prices can become self-fulfilling as investors pile into gold to take advantage of rising prices. The price of gold
can be highly volatile. Some argue we are in a gold bubble, when the economy returns to normal people may
feel gold is highly overvalued and we could see a fall in the price of gold like the early 1980s.
 SUPPLY :- Recent gold supply trends show that gold is becoming harder and more expensive to mine, which
will have a upward pressure on the price as population growth and demand surpasses any new gold supply.
 VALUE OF DOLLAR :- The foremost factor that governs the price of gold is the value of US Dollar. A stronger
US dollar will keep the price of gold controlled and low. A weak dollar will set the price of gold to a very high
price. US economy plays a major role in shaping the macroeconomics of the world. When the dollar is
strong, people invest, buy and trade in dollars. The high gold reserves strengthen the national economies and
act as a hedge against inflation.

54. Why India Has Stopped
Importing Gold ?

55. Why India has stopped importing gold ?
Most Indians consider gold as the safest investment haven, the best hedge against inflation that is easily and
instantly redeemable.
The whole situation will dramatically change if the people of India don't import gold for one year, if we can
have this (no buying gold) for six months or one year, it will dramatically change the CAD (current account
deficit) situation.
In July, gold imports slumped from 47.5 tonne,
In June, 31.5 tonne,
In May, 162 tonne
In April, 142.50 tonne
Once gold imports cease we will see its positive impact on every other index that measures the economy-the
stock market, exchange rates and interest rates. The imports of gold coming down because people stopped
buying gold.
Net gold imports, averaged $135 million a day in the first 13 business days of May, till the 20th. However, in
the subsequent 14 business days, it averaged only $36 million, so gold imports have sharply come down.
This has come as a welcome relief as gold imports had shot up to around $7.5 billion during April this year.
The government has recently hiked the import duty on gold in the year 2013.

56. THE