Gold is a precious metal that has been valued by people since ancient times.

People
use gold for coins, jewellery, ornaments, and many industrial purposes. Until
recently, gold reserves formed the basis of world monetary systems. Gold plays an
important role in providing the best possible protection against the fluctuations of
both political and economic scenario, mainly in Asia, the Middle east countries and
also in India
In finance, an investment is a monetary asset purchased with the idea that the asset
will provide income in the future or appreciate and be sold at a higher price.
Investment ensures one’s dreams turn real and enjoy life to the fullest without
actually worrying about the future. It controls an individual’s spending pattern. It
decides how and what amount one should spend so that he has sufficient money
for future.
There are various avenues for investment for an individual, namely, Bank deposits,
Real estate, Securities, Mutual funds, Commodity exchange and Gold investment.
Though there are different areas for investment, Gold has been a traditional
favourite for Indian investors. Gold has always come out as a trusted pillar to fall
back on. During the recent upheavals in the global markets, including the US
downgrading and the Euro zone issues, investors started ploughing money into gold.
Consequently, the demand for the gold went up. In addition, as there were no other
comparably safe assets to invest in, the price of gold skyrocketed. The pricier the
gold gets, the more desirable it becomes, with many a woman yearning for the
precious metal. The higher gold price has added to gold jeweller’s desirability
despite these challenging economic times. According to World Gold Council, India
is the largest investors of gold in the world followed by China.
The perception about gold in India has come a long way from the days when its
main function was to merely adorn and act as a status symbol. The emotional
investment in the metal was so huge that parting with it seemed unthinkable.
People use gold for coins, jewellery, ornaments, and many industrial purposes. Now,
however, it is becoming clear that an increasing number of Indians are realizing that
gold deserves a place not just in the cupboard at home or the bank locker, but also
in their investment portfolio. Until recently, gold reserves formed the basis of world
monetary systems. Gold plays an important role in providing the best possible
protection against the fluctuations of both political and economic scenario, mainly in
India.
Investment is a planned method of safely putting ones savings into different outlets
to get a good return. The essential quality of an investment is that it involves waiting
for a reward. Gold as an asset plays a very important role in an investor’s portfolio
as it not only provides stability for returns but also gives an opportunity to maximize
the wealth of the investor .Investors generally buy gold as a way of diversifying risk.
Price of gold is determined by the market force of demand and supply. Gold is a
hedging tool against inflation.

Facts About Gold

Gold, like no other metal, has a fascinating history and a special place in the world.
Gold is a very soft metal when it is pure (24 Kt. is pure gold). Gold’s many unique
properties have secured it a central role in history and human development. Gold is
a remarkable, rare metal, with an unparalleled combination of chemical and physical
properties. It is the only yellow metal and bears its name from the Old English word
for yellow, ‘geolu’. It is also the only metal that forms no oxide film on its surface in
air at normal temperatures, meaning that it will never rust or tarnish.
From the ancient time, gold has been in use as decorative ornaments for kings and
also a currency and standard for global transactions. It has a wrinkle role in a wide
range of electronic devices and medical applications, recently. Even through gold
was mainly used to wear it as an ornament, thus acting as a status symbol in India,
the perception about gold has taken different dimensions, making a long journey
from those days. Increase of belief in gold among the Indians, not only deserves a
place in home cupboard or bank locket, but also in the Indians investment portfolio.
Reserve Bank of India makes changes in policy, according to the gold store in the
Indian treasury

History of Gold Investment

Gold is perhaps the most popular commodity of all history. Since it was used in early
civilizations as a form of status and to honour the gods to being used as currency,
gold has been a constant shadow of the evolution of human cultures from the
ancient to the modern world.
Gold has been highly valued for its unique and attractive properties since as far back
as 4000 BC. The oldest gold treasure in the world dates from 4,600 BC to 4,200 BC
and was discovered at a Bulgarian burial site in Varna.
There is no culture or era where gold cannot be seen to have a high value. From
ancient Egypt to the Aztecs, China’s many dynasties and the Grecian and Roman
treasure hoards gold is synonymous with power and wealth. Both a form of currency
as well as a standard of wealth, gold was the basis upon which the global economy
as we know it stands today. Without gold, a monetary standard would not have been
possible and the prosperity of trade that depended upon it.
Throughout history, gold has often been used as a tool for bartering or trading. It
was first used as a form of currency back in 500 BC, when Darius the Great, ruler of
the Persian Empire, minted the very first gold coin, known as the “daric,” in order to
help fund the expansion of his army into foreign territories. Up until the last century,
many countries around the world used gold and silver coins as a form of currency.
It wasn’t until the 1930s during the worldwide depression, that countries ceased to
use the gold standard.
The United States Congress passed the Mint and Coinage Act in 1792. This act put
in place a fixed price of gold with parity to the US Dollar. The act had a far- reaching
impact on the modern history of gold as a precious metal. As per the new legislation,
gold and silver coins were considered legal tender in the US. Gold, which is today
75 times the price of silver, was only 15 times dearer than silver at the time. The US
mint therefore bought and sold silver and gold at a ratio of 15:1. However, the
coming of the American Civil War changed that ratio. Since the US was unable to
meet its debts using gold and silver, paper currency was introducedfor the first time in the
US in1862. The paper currency was known as a fiat currency,
or one which is not convertible on demand at the existing fixed rate.
Eventually, in 1873, silver was removed altogether from the US mint’s fixed rate
system and a bill called the Coinage Act of 1873 was passed to officialise the
removal of silver dollars from the US monetary system.
The 1800s witnessed a spate of gold rushes, as speculative adventurers rushed off
to uninhabitable areas in search of the precious metal, in the hope of becoming
millionaires if they struck gold. The notable gold rushes across North America at the
time were North Carolina in 1799, San Francisco in 1848 and Klondike in Canada,
1896. Australia too witnessed a number of gold rushes in the latter half of the 19th
century from 1850. Infact, the gold rushes helped populate areas of the great
Australian outback, which had not been occupied by humans earlier. Today, these
places are burgeoning cities and they owe their existence to the coming of the
speculators in the 1800s.
Another important point in the modern history of gold is the Bretton Woods
agreement. The two world wars had devastated the international financial markets
and at the end of World War II, the global leaders came together to create a gold
exchange standard for the world, linking it to the US Dollar. At the end of the war,
the US emerged as the strongest nation, both militarily as well as economically. So,
the US Dollar was chosen under the Bretton Woods agreement and this made the
US extremely powerful on the international markets. The move is one of the most
important points for the price of gold and for the US economy, as it paved the way
for the US to become a global superpower.
As a commodity and a currency, the history of gold investment is a complex one and
is relatively modern. Whilst accumulating wealth (and investing) is not a new human
proclivity, the mechanisms for a standard benchmark of gold pricing relative to paper
currency only emerged in the last few centuries. Europe was the first continent to
implement gold standards at the end of the 19th century with the US following suit
after WWII. All nations have since adopted a fiat currency system though most hold
gold as central reserves or as commodity money.
After the second world war, the US dollar became the main currency to hold by other
governments as it was the only currency still backed by gold. This continued up until
1973 when America became the last country to cease using the gold standard. The
reason for this was that the country required additional funds to pay for the Vietnam
war.
Gold purchased as an investment really only took off after the 1970’s when The
United States once again made it legal to own and trade in physical gold. Up until
1975, the Gold Reserve Act Of 1934 had made the possession of gold illegal.
Gold is a popular investment among a diverse range of investors who wish to
diversify their portfolio outside of traditional stocks and shares and in doing so
reduce their risk. Over a long period of time gold has consistently held its value
against other asset classes and in the last 45 years has been shown to have
outperformed stocks and shares.
Today gold is typically purchased as a hedge against inflation and its price has often
been known to rise during times of economic crisis. The main reason for this is that
during times of economic uncertainty, people often turn to tangible assets in which
to store their wealth in case of a market crash. A great example of this occurred after
the 2009 financial crisis when the price of gold rose to its highest peak in history.
Due to ever increasing geopolitical tensions and a growing mistrust of the current
financial system, the popularity of gold investments has grown significantly in the
past two decades. As Britain moves towards an uncertain future outside of the
European Union, it is likely that investor demand for physical gold will continue to
increase.

Gold A Good Investment

Investing money in gold is worth because it is hedge against inflation. Over a period
of time, the return on gold investment is in line with rate of inflation. It is worth
investing in gold for a one more valid reason. That is gold is negatively correlated to
equity investments, the equity markets started performing poorly whereas the gold
has performed well.

Benefits:

Risk
The real risk with buying gold is in the opportunity cost of investing in the other
avenues that can actually give higher returns.

Liquidity
Gold scores the highest in terms of liquidity, compared to all other investments.
Tax treatment
Gold suffers capital gains tax as per the IT act. So the tax payable will not be
much. Gold does not have any other tax benefits.

Convenience
Gold scores very high here. But with the per gram price rising, the smallest single
investment is becoming higher

Three reasons investors hold gold

Scarcity
Gold is scarce, durable, versatile and tangible. As such, it maintains its value and
is considered a safe haven investment.

Protect global purchasing power

Gold is seen as a store of value during times of persistent deflation or extreme

inflation. To some, it is considered to be a highly-valued global currency, a reputation
earned in the gold standard period.

To diversify

The price of gold often behaves differently to stock and bond markets. It is possible
that when a portfolio is suffering because of shocks for shares or bonds, that the
gold price can rise, or vice versa.

Four reasons investors might sell gold

Rising interest rates

Rising interest rates damage demand for gold, particularly if central banks are trying
to control inflation. Gold is perceived as offering protection from inflation so central
bank success in controlling it might hold back the price.

Strong US dollar

Gold is valued predominantly in dollars. If the dollar is strong it costs more for
international investors to buy therefore demand might fall.

Pace of gold production

Oversupply can dilute the price of gold, just like any other commodity.

A growing need for income

During periods when interest rates are low investors will look for alternative higher
yielding investments such as shares. Gold provides no income and may fall out of
favour. This factor may have contributed to falls in the price in recent years.

2 Advantages of investment in Gold

1. Gold as an Investment
Gold is the oldest currency in the world and is coveted across continents and cultures
for a variety of reasons.

2. Maintains long term value

Market cycles have their ups and downs, but gold has maintained its long-term value.
Paper currencies may rise and fall but gold always endures. Gold has demonstrated its
capacity to store value for centuries

3. Safe refuge

During times of calamities like war or economic crisis, there may be a

negative effect on investments like currencies, bonds and equities, but may have an
opposite effect on the value of gold. Also gold is not a liability of any government or
corporation and hence it does not run a risk of becoming worthless due to unexpected
events.

4. Inflation Hedge
The value of gold, in terms of real goods and services that it can buy, has
remained remarkably stable whereas the purchasing power of many currencies has
generally declined.

5. Both tangible and liquid

Gold is an asset that is both tangible and liquid, unlike real estate, which is tangible
but not liquid, or company shares and bonds, which are liquid but not tangible.

6. Gold is an Effective Diversifier.

The strength of gold as a diversifier is due primarily to its negative correlation with
other asset types. The market and economic forces that determine the price of gold are
different from those that affect most financial assets, and are very often in direct
opposition to them…in other words, its price tends to move in the opposite direction
from U.S. stocks, Treasury bills and bonds. That not only makes it an effective
diversifier…it also helps to reduce portfolio risk.

7.Gold is Portable.

Gold is easily convertible to cash. Gold can be readily bought and sold 24 hours a
day, and trading spreads are narrow…in fact, bid/offer spreads are similar to the
spreads on stocks.

8.Gold is a very Private Investment.

Gold purchases are not subject to mandatory government reporting like stocks,
interest and real estate. And, you can incorporate gold American Eagles into your IRA
or SEP account.

9.An Economic Weapon

From the various stats of the central banks and IMF it is evident that almost one fifth
of the reserves are in the form of gold. Had the gold not been a symbol of security the
economists would have never preserved the wealth of the country in the form of the
gold. It is also used against the inflation. The buying power of the gold owner is
preserved or increases with the increase of inflation. Inflation can harm you in the
long run when you are buying goods at an increased price or when your currency is
devalued. So that you can‟t buy the same things in equal number of currency units.

10. Immune

Gold is immune from the geo political situations. Throughout the history of mankind
there have been a variety of changes in political landscapes of the different countries,
resulting in a collapse of their monetary system. But gold is not a property of only one
nation. Its value has the same effect on all the currencies.

11. Striking Gold

Historically, gold maintains its value. Its price started rising dramatically in 2001, but
gold analysts expect gold to continue to rise in the years ahead. Adjusted for inflation,
the price of gold doesn't always reflect its true value.

12. Fear

The stock markets hate fear and uncertainty. When investors, hedge funds and
institutional investors pull money out of stocks, low yielding money funds and poorperforming
mutual funds gold is an attractive alternative with excellent potential
rewards.

13. Demand
Gold is in demand in a down economy, and when demand goes up, gold prices rise.

.3 Disadvantages of invest in gold

1. No Financing or Leverage

When you invest in gold, you will need to have all of the cash on hand to make a
purchase. You cannot use leverage, or any type of financing, for this type of
investment or purchase. This can severely limit the amount of people that can get
involved in the market.

2. No Tax Advantage

Investing in gold is not going to provide you with any type of tax advantage. By
contrast, if you invest in stocks for a long period of time, you are only going to have
to pay a 15 percent long-term capital gains tax.

3. Subject to Confiscation

One of the big risks of investing in gold is that it is subject to confiscation. The
government could come in and confiscate all of the gold in a warehouse if they deem
it necessary. In that case, there is nothing that you can do about it and you will lose
your investment.

4. Storage is a problem.

If you have physical gold then you are going to need somewhere safe and secure to
store it. This can often prove to be a bit of a problem.
5. No dividend.

If you put money in the bank, or fixed deposit, you can earn interest from it. If you
invest in stock market, especially those strong companies that pay regular dividend,
you can earn the dividends. If you buy government bond or corporate bond, you will
earn dividend. But in gold investment, you will not earn a single cent in dividend. The
only time you gain is when you sell the gold holding more than you have paid for. It
may take months to gain profitability, if you happen to buy at a high price right before
a gold crash.

6. CME

CME is the company that sets the margin requirement for gold trading. Margin refers
to the percentage of borrowed money that you can use in investment. If the margin
requirement changes, many investors would have to put in more cash or else their
investment would be sold off. Imagine that you use $1000 in capital, and borrow
$9000 to buy gold, and the margin requirement changes after you have bought gold,
you would need to top up with an extra $1000. Many investors and speculators do not
have ready cash. They rely heavily on borrowed money. That is why a change in
borrowing means a crash in gold price. Sometimes, the crash in gold price could bring
the price down by a hundred dollars

7. Charges for maintaining paper gold or physical gold

Some people open a gold saving account, since they do not want to keep physical
gold. However, they have to pay the bank charges. It can take the form of monthly
charge or yearly charge or a percentage on sales. This will eat into their profits. If
they want to keep physical gold, they need to buy a safe or rent a safe from the bank.
The charges will eat into their profitability of gold investment as well.

8. Buyers

Difficulty of finding buyers is another disadvantage to physical gold investment.

When the price is high, you can make a lot of money when you sell your gold coins
and gold bars, but you would have difficulty in finding buyers for second hand gold
coins and gold bars. Most people still prefer to buy new and shiny gold coins. If you
sell to the pawnshops or the banks, you may not get a very good price. Having known
the disadvantages of gold investment, this does not mean gold and silver are not good
investment. It just means that you have an equal chance of making and losing money.
In times of uncertainty, gold and silver are in huge demand. If the economy worsens
or some crisis erupts in the world scene, you can be sure that the price of gold and silver will
reach a new high everyday.

1.6 Types of Investment in Gold

The ultimate dollar hedge investment will always be gold. Investing in gold through
ownership of the metal itself, mutual funds, or gold mining stock provides the most
direct counter to the dollar. As the dollar falls, gold will inevitably rise. In a moment,
we‟ll provide you with many ways for positioning your portfolio to profit from a bull
market in gold. For now, we emphasize the high probability of gold‟s future. The real
potential for profits in the coming years and decades is not going to be found in the
traditional American blue chip industry. That is a financial dinosaur that can no
longer compete in the world market. In the following paragraphs, you‟ll discover five
ways to invest in gold. Based on your level of market experience and familiarity with
products, one of these will be appropriate for you.
1. Direct ownership.

There is nothing like gold bullion, the ultimate expression of pure value. Historically,
many civilizations have recognized the permanence of gold‟s value. For example,
Egyptian civilizations buried vast amounts of gold with deceased pharaohs in the
belief that they would be able to use it in the afterlife. Great wars were fought, among
other reasons, to pillage stores of gold. Why the allure? The answer: Gold is the only
real money, and its value cannot be changed or controlled by government fiat-the
underlying reason for governments to go off the gold standard, unfortunately. Gold‟s
value will rise based on the pure forces of supply and demand, no matter what Mr.
Greenspan decrees regarding interest rates or greenbacks in circulation. The big
disadvantage to owning gold is that it tends to trade with a wide spread between bid
and ask prices. So don‟t expect to turn a fast profit. You‟ll buy at retail and sell at
wholesale, so you‟ll need a big price jump just to break even. However, you should
not view gold as a speculative asset, but a defensive asset for holding value. Since
your dollars are going to fall in value, gold is the best place to preserve value. The
best forms for gold ownership are through minted coins: one-ounce South African
Kruger ands, Canadian Maple Leafs, or American Eagles.

2. Gold exchange-traded funds.

The recent explosion in exchange traded funds (ETFs) presents an even more
interesting way to invest in gold. An ETF is a type of mutual fund that trades on a
stock exchange like an ordinary stock. The ETF‟s exact portfolio is fixed in advance
and does not change. Thus, the two gold ETFs that trade in the United States both
hold gold bullion as there one and only asset. You can locate these two ETFs under
the symbol “GLD” (for the street TRACKS Gold Trust) and “IAU” (for the shares
COMEX Gold Trust). Either ETF offers a practical way to hold gold in an investment
portfolio.
.
3. Gold mutual funds

For people who are hesitant to invest in physical gold, but still desire some exposure
to the precious metal, gold mutual funds provide a helpful alternative. These funds
hold portfolios of gold stocks-that is, the stocks of companies like Newmont Mining
that mine for gold. Newmont is an example of a senior gold stock. A senior is a large,
well-capitalized company that has been around several years and has a profitable
track record. They tend to own established mines that produce known quantities of
gold each year. For many investors, selection of such a company is a more moderate
or conservative play (versus picking up cheap shares in fairly young companies).

4. Junior gold stocks.

This level of stock is more speculative. Junior stocks are less likely to own productive
mines, and may be exploration plays-with higher potential profits but also with
greater risk of loss. Capitalization is likely to be smaller than capitalization of the
senior gold stocks. This range of investments is for investors whose risk tolerance is
broader, and who accept the possibility of gold-based losses in exchange for the
potential for triple-digit gains.

5. Gold options and futures.

For the more sophisticated and experienced investor, options allow you to speculate in
gold prices. But in the options market, you can speculate on price movements in
either direction. If you buy a call, you are hoping prices will rise. A call fixes the
purchase price so the higher that price goes, the greater the margin between your fixed
option price and current market price. When you buy a put, you expect the price to
fall. Buying options is risky, and more people lose than win. In fact, about threefourths of all
options bought expire worthless. The options market is complex and
requires experience and understanding. To generalize, options possess two key traitsone
bad and one good. The good trait is that they enable an investor to control a large
investment with a small, and limited, amount of money. The bad trait is that options
expire within a fixed period of time. Thus, for the buyer time is the enemy because as
the expiration date gets closer, an option‟s “time value” disappears. Anyone investing
in options needs to understand all of the risks before they spend money. The futures
market is far too complex for the vast majority of investors. Even experienced options
investors recognize the high-risk nature of the futures market. Considering the rangeof ways
to get into the gold market, futures trading are the most complex and, while
big fortunes could be made, they can also be lost in an instant.
Removing the U.S. monetary system from the gold standard was not merely a
decision of short-term effect. Nixon may have seen the move as a means for solving
current economic problems, but it had long-lasting impacts: trade deficits, growing
federal debt, and the ability to print money endlessly and build a new credit-based
economy. Internationally, the decision by the United States virtually forced all other
major currencies to also go off the gold standard.Any investor who views the
economic situation broadly both domestically and internationally-can see that trouble
lies ahead. We have delayed the inevitable because China is a partner in our monetary
woes.The Chinese are building their own debt on the dubious foundation of the U.S.
dollar, and other Asian economies have been forced to go along for the ride. When the
dollar falls, many other countries will suffer as well. The offset, logically, is found in
commodities. Investing in oil stocks makes sense, for example, because the price of
oil is rising and as it becomes more difficult to drill oil those companies that own
drilling and exploration operations will benefit. It makes sense to invest in other
commodities as well.
The tangible asset play is clearly where future value is going to lie. With China‟s
never-ending need for coal, iron ore, tungsten, copper, oil, and other metals, the future
of tangible markets is the bright spot in the gloomy financially based economics of
the world.Leading the charge is gold. It is ironic that monetary policy follows a
predictable pattern.

6. Physical gold (Jewelry)

This is the traditional way to invest in gold. Investors can buy gold and then store it in
a bank‟s locker. If you are one of those people who keep buying gold jeweler for a
marriage of a daughter or son, a better option would be to buy gold ETF units now at
the current price of gold, hold them in your demit account, and sell them in the future,
whenever you want, and use the money to buy jeweler then. In this way, you will be
protecting yourself from rising gold prices, while also sparing yourself anxiety about
the purity and safety of your gold. You can keep accumulating gold at a slow rate,perhaps
even one gram at a time.
It is evident that gold is an asset class that you can rarely go wrong with. Therefore,
think seriously about investing in gold. Buy gold jewelry because you like it, not as an
investment. You pay a premium for jewelry, in part because of the design and
craftsmanship. If you buy 14 karat gold, it's less pure than investment grade. When
you sell, you'll need to consider the purity of the gold and, more than likely, it will
have to be refined to bring it up to investment grade.
7.Bullion and coins
Unless you're the Clamfests of "Beverly Hillbillies" fame, you can't store barrels of
crude oil in your backyard. But when a commodity's price is pegged to the ounce
instead of the barrel, you can hoard it in your house, stash it in a safe-deposit box or
pay a company to store it for you.If owning gold appeals to you, prepare to do a lot of
reading and investigating before buying. Scammers are sure to congregate wherever
the scent of investment money lingers in the air.Gold dealers sell gold bullion bars in
various weights from 1 ounce to 100 ounces or larger. You can also buy gold coins,
such as the American Eagle, through dealers, brokerages and some banks. The share
price of street Tracks Gold Shares (GLD) roughly tracks the price of gold and
represents an investment in gold bullion. In effect you get to own gold without the
hassle of storing and insuring.
"With GLD, each share is priced at about one-tenth the price of gold bullion. If gold
goes to $600 an ounce then the price of a share should be about $60," says Martin
Weiss, editor of Money and Markets.The objective of shares COMEX Gold Trust
(IAU) is the same but, so far, is much less widely traded than GLD.
There are fees associated with exchange-traded funds but they're usually low. In
addition, expect to pay a commission to your broker for each trade.Stocks are an
investment in a publicly traded company. When it comes to gold stocks, you're
investing in a mining company. Gold mining stocks can be more volatile than the
exchange-traded funds.
You're buying a company in the gold business and indirectly you get a stake in theirgold
reserves and their gold business. It's an indirect method of betting on gold. The
street Tracks Gold Shares exchange-traded fund is far more direct," Weiss says.

8.Equity

It is a high-risk strategy. Not for investors who are risk averse. In this type of
investment in Gold an investor buys the shares of gold mining companies or gold
refining companies. When the price of Gold increases, the value of the share of Gold
mining companies also increases. Here the value of Gold mining companies also
related to the market conditions, liquidity, speculation etc.. Some times the price of
the company equity may become more not in relation to the price of Gold. Some time
value of the equity may not be representing actual price of the Gold.

9.Certificates

Gold certificates allow gold investors to avoid the risks and costs associated with the
transfer and storage of physical bullion (such as theft, large bid-offer spread, and
metallurgical assay costs) by taking on a different set of risks and costs associated
with the certificate itself (such as commissions, storage fees, and various types of
credit risk).
Banks may issue gold certificates for gold, which is allocated (fully reserved) or
unallocated (pooled). Unallocated gold certificates are a form of fractional reserve
banking and do not guarantee an equal exchange for metal in the event of a run on the
issuing bank's gold on deposit.[46] Allocated gold certificates should be correlated
with specific numbered bars, although it is difficult to determine whether a bank is
improperly allocating a single bar to more than one party.[47]
The United States Government first authorized the use of the gold certificates in 1863.
In the early 1930s the US Government restricted the private gold ownership in the
United States and therefore, the gold certificates stopped circulating as money (this
restriction was reversed on January 1, 1975). Nowadays, gold certificates are still
issued by gold pool programs in Australia and the United States, as well as by banks
in Germany and Switzerland.
10.Accounts

Many types of gold "accounts" are available. Different accounts impose varying typesof
intermediation between the client and their gold. One of the most important
differences between accounts is whether the gold is held on an allocated (fully
reserved) or unallocated (pooled) basis. Unallocated gold accounts are a form of
fractional reserve banking and do not guarantee an equal exchange for metal in the
event of a run on the issuer's gold on deposit. Another major difference is the strength
of the account holder's claim on the gold, in the event that the account administrator
faces gold-denominated liabilities (due to a short or naked shortposition in gold for
example), asset forfeiture, or bankruptcy.

Many banks offer gold accounts where gold can be instantly bought or sold just like
any foreign currency on a fractional reserve basis. Swiss banks offer similar service
on a fully allocated basis. Pool accounts, such as those offered by Kitco, facilitate
highly liquid but unallocated claims on gold owned by the company. Digital gold
currency systems operate like pool accounts and additionally allow the direct transfer
of fungible gold between members of the service. BullionVault, for example, allows
clients to create a bailment on allocated (non-fungible) gold, which becomes the legal
property of the buyer.

1.7 Risks in investment in Gold

Financial asset classes and instruments usually carry three main types of risk.

1.Credit risk:

The risk that a debtor will not pay

2.Liquidity risk:

The risk that the asset cannot be sold as a buyer cannot be found

3.Market risk:

The risk that the price will fall due to a change in market conditions.

1. Credit risk

Gold is unique in that it does not carry a credit risk. Gold is no one's liability. When
you invest in gold, there‟s no risk that a coupon or a redemption payment will not be
made, as for a bond. There‟s no chance that a company will go out of business, as with
an equity.
Unlike a currency, the economic policies of the issuing country cannot affect the value
of gold, nor can inflation in that country undermine it.

2. Liquidity risk

Gold benefits from demand among a wide range of buyers - from the jewellery sector
to financial institutions, to the technology sector and manufacturers of industrial
products and medicines. A wide range of investment channels is available, including
coins and bars, jewellery, futures and options, exchange-traded funds, certificates and
structured products.
Worldwide markets trade gold 24 hours a day. The gold market is deep and liquid, as
demonstrated by the fact that gold can trade at narrower spreads and more rapidly than
most diversifiers or even mainstream investments
.
3. Market risk

Gold, like all financial assets, is subject to market risk. However, it tends to have low
correlations to most assets usually held by institutional and individual investors,
which significantly enhances gold's attractiveness as a portfolio diversifier. Research
published in October 2010, demonstrated that gold can help to reduce the potential
loss suffered when infrequent or unlikely but consequential negative events, often
referred to as “tail risks”, occur. Specifically, even a small allocation to gold, ranging
between 2.5% and 9.0%, can decrease the Value at Risk (VaR) of a portfolio.
Volatility is a good indicator of market risk, measuring the dispersion of returns for a
given security or market index. The more volatile an asset, 2usually the riskier it is.
The gold price is typically less volatile than other commodity prices. This is because
of the depth and liquidity of the gold market, which is supported by the availability of
large aboveground stocks of gold. Gold is virtually indestructible, which means nearly
all the gold ever mined still exists today. Much of it is in near market form; meaning
sudden excess demand for gold can usually be satisfied with relative ease.
Adding to price stability, gold is mined all over the world. Unlike many other
commodities, this geographical diversity reduces the chance of supply shocks from
any specific country or region impacting heavily on gold‟s price. Consequently, gold
is generally less volatile than heavily traded blue-chip stock market indices such as
the FTSE 100 or the S&P 500.