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GOLD FUNDAMENTAL ANALYSIS. International Workshop on Commodity Trading 6 th October 2004 -Bhargava N. Vaidya e-mail bnv@vsnl.com . What is Gold. COMMODITY OR CURRENCY ?. GOLD. Hedge against Inflation Gold as an Investment Gold as a safe haven. History. Gold Currency

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gold fundamental analysis

GOLD FUNDAMENTALANALYSIS

International Workshop on Commodity Trading

6th October 2004

-Bhargava N. Vaidya

e-mail bnv@vsnl.com

what is gold
What is Gold

COMMODITY

OR

CURRENCY ?

slide3
GOLD
  • Hedge against Inflation
  • Gold as an Investment
  • Gold as a safe haven
history
History
  • Gold Currency

(1890 - 1913)

  • Gold Standard

(1925 - 1931)

  • 1968 Split in European Gold Market
  • Bretton Wood

Fixed exchange rate collapsed in 1973

freedom
Freedom
  • 1974 Private Ownership of Gold Legalised

in USA

  • COMEX 31.12.1974 Gold future introduced
gold price
Gold Price
  • Turn of previous century around $ 20
  • 1934 - 1968 Fixed at $ 35
  • 1979 – 1982 Bull Market Years

on 21 /1/1980 $ 855

  • Average Price 2002 $ 310
  • Average Price 2003 $ 363
  • September 2004 $390 - $ 421
recent highlights
Recent Highlights
  • May’99 : BOE decides to halve its Gold reserves
  • September’99 : Washington Agreement
  • 1/1/2000 : VAT Abolished on Bullion throughout Europe.
  • May ‘ 2000 : SNB begins sale of Gold from its reserves.
  • 2003 : Central Bank Gold agreement
size of market
Size of Market
  • LBMA – Daily clearance volumes

488 tonnes

  • Comex - 152 tonnes (per day)
  • Other Exchanges

Indian market size 1000 tonnes (per annum)

london

LONDON

19 th Century: Great Britain first country to adopt

the full Gold standard.

1919 : Formation of the London Gold Fixing

Up to 1968: No Competition in London Gold

Market

After 1968 : London’s Monopoly ends after

temporary closure of Gold Market.

1987 : The LBMA Incorporated as on

14/12/87

2000 : Associate Members

slide10
USA

1792 : US assigned a formal monetary role Currency Backing

with AU and AG

1848 : Large Gold discovery in California

North America became the worlds

major supplier

1944 : Bretton Woods agreement -tied gold to the US $

1971 : President Nixon ended the convertibility of the US $

into gold

1974 : Lifting the ban of Gold Ownership

31.12.74: Gold futures opened for trading on COMEX (today

a subdivision of NYMEX)

1982 : COMEX started operating a market in Gold options

other markets
Other Markets
  • ZURICH
  • TOKYO
  • TURKEY
  • HONGKONG
  • SHANGHAI
gold hedging environment 1980 s 2000 s
High Interest rates

Low lease costs

small to medium cost mines

High % of resources as reserves

Continuity of cash flow required to underwrite capital

Low Interest rates

More Volatile lease costs

Larger more mature mines

Lower % of reserves to resources

Lower Gold Price

Gold Hedging Environment1980’s 2000’s
gold hedging products 1980 s 2000 s
Less Gold Loans

Longer dated products

Structured Option Products

Gold Hedging Products1980’s 2000’s
  • Gold Loans
  • Spot def, fixed and flat forwards
  • Short term products
official sector holding
Official Sector Holding
  • Over 31,822 tonnes
  • Large holders

USA 8,135 tonnes

Germany 3,440 tonnes

France 3,025 tonnes

official sector
OFFICIAL SECTOR
  • SALE
  • GOLD LOANS
  • GOLD AS SECURITY FOR BORROWING
  • CURRENCY MANAGEMENT
other factors
OTHER FACTORS
  • POLITICAL INSTABILITY
  • TERRORISM
  • CURRENCY INSTABILITY
  • SURPLUS MANAGEMENT
  • INFLATION
importance of gold india
Importance of Gold (India)
  • Largest item in portfolio

(Rs.13,02,000+ Crores)

  • Major forex asset

($ 280+ Billion)

  • Legend - Gold & Age
  • Liquidity
present indian scenario
PRESENT INDIAN SCENARIO
  • LARGEST MARKET FOR GOLD
  • ONE OF THE MOST IMPORTANT MARKET FOR SILVER
  • LARGE HOLDING OF BULLION IN PRIVATE SECTOR

LARGEST SOURCE OF BULLION

  • IMPORTS
  • RECYCLING - A DISTANT SECOND
indian position
Indian Position
  • WHAT POSITION WE HAVE IN WORLD MARKET
  • ANALOGY WITH SAUDI ARABIA IN OIL
history22
HISTORY
  • Net Gold Surplus – for years
  • 1962 - Gold Control Act.

Development

  • 1990 – Abolition of Gold Control Act
  • 1992 – NRI Imports
  • 1994 – SIL Import
  • 1997 – Authorised agencies / Banks
  • 2003 - Future/Forward trading in bullion
slide23

Gold Pipeline in India

  • Authorised Bank / Agency

|

  • Bullion Dealer (large) ______

| |

  • Bullion Dealer (small) |

| | |

  • Jeweller | Jeweller

| | |

  • Consumer Consumer Consumer
interest arbitrage
Interest Arbitrage
  • LC Imports
  • Banking Facilities
external benefits
External Benefits
  • Export of Coins / Crude Jewellery
  • Other Arbitrage
local taxes
Local Taxes
  • Sales tax

- Rajasthan

- Gujarat

- Delhi

  • Octroi
slide27

** My Dream**

Full Fledged Metal Bourse

Mumbai Bullion Fix

slide28

MY DREAM

FULL FLEDGED METAL BOURSE

MUMBAI BULLION FIX