VOLATILITY IN GOLD

PRICES
MEMBERS
• KARAN SHETH
• MITHIL SHAH
• JAY SHETH
• JIGAR GOSALIA
• ASHWINI SHETTY
• KINJAL SHAH
• RUCHIR SHAH
• NEESHA CHAUHAN
• DHAVAL SHIRODARIYA
CAPITAL MARKET

EQUITY COMMODITY
COMMODITY MARKET
• Meaning
• Important Ingredients
• Advantages
COMMODITIES TRADED IN
THIS MARKET
• Precious Metals: Gold, Silver, Platinum etc
• Other Metals: Nickel, Aluminum, Copper etc
• Agro-Based Commodities: Wheat, Corn,
Cotton, Oils, Oilseeds, etc.
• Soft Commodities: Coffee, Cocoa, Sugar etc
• Energy: Crude Oil, Natural Gas, Gasoline etc
 
WHY GOLD?
 Origin
Valueable
Bedrock
Easily liquid

Olive branch-symbol of peace

Where does all the gold go?
Which countries produce the world’s gold?
HISTORY OF GOLD

• Discovery of Gold

• India, the largest gold market prior to 1962

• Historically gold is used as a medium of

exchange
• Value for Indian people
COMMODITY EXCHANGES IN INDIA
 28 RECOGNIZED FUTURE EXCHANGES

 MAJOR EXCHANGES ARE:

 NCDEX

 MCX

 NMCE
 NATIONAL MULTI COMMODITY
EXCHANGE OF INDIA LIMITED (NMCE)
 FIRST DE- MUTUALISED ELECTRONIC MULTI COMMODITY
EXCHANGE IN INDIA

 STARTED IN 2001

 ISO 9001:2000 CERTIFICATION

 PROMOTED BY PNB,CWC.
 NATIONAL COMMODITY AND
DERIVATIVES EXCHANGE LIMITED
(NCDEX)
 ONLINE COMMODITY EXCHANGE

 STARTED IN APRIL 2003.

 PROMOTED BY ICICI BANK,LIC.

THE NCDEX COVERED BY DIFFERENT ACTS

 MULTI COMMODITY EXCHANGE OF
INDIA LIMITED (MCX)
 INDEPENDENT &DE- MUUALISED EXCHANGE WITH A
PERMENENT GOVT.RECOGNITION

 STARTED IN NOVEMBER 2003.

THIRD LARGEST BULLION EXCHANGE

 FOURTH LARGEST ENERGY EXCHANGE

COMMODITIES TRADED
Commodities NCDEX MCX NMCE
Gold, Silver, Brent Gold, Silver, Silver Coins Gold, Silver
Bullion
Electrolytic Copper Cathode, Aluminum, Copper, Nickel, Aluminum, Copper, Lead,
Aluminum Ingot, Nickel, Iron/Steel, Tin, Zinc, Lead Nickel, Zinc
Cathode, Zinc Metal Ingot,
Minerals Mild Steel Ingots

Cotton Seed, Oil Cake, Crude Castor Oil/Castor Seeds, Castor Seed, Copra, Soybean
Palm Oil, Groundnut (In Crude Palm Oil/ RBD Oil, Mustard Seed
Shell), Groundnut Expeller Pamolein, Groundnut Oil,
Mustard seed Oil, Soy
Oil, Cotton, Menthe Oil, RBD Seeds/Soy Meal/ Refined Soy
Oils And Oil Pamolein, RM Seed Oil Cake, Oil, Coconut Oil Cake, Copra,
Refined Soya Oil, Rape Seeds, Sunflower Oil, Sunflower Oil
Seeds Mustard Seeds, Cake, Tamarind Seed Oil,
Caster Seed, Yellow Soybean, Menthe Oil
Soy Meal

Urad, Yellow Peas, Chana, Tur, Chana, Masur, Tur, Urad, Chana
Yellow Peas
Pulses Masoor
Bretton Woods System, 1944-1971

The Bretton Woods system of

monetary management
established the rules for
commercial and financial relations
among the world's major industrial
states in the mid 20th century.

The Bretton Woods system was the

first example of a fully negotiated Delegates attend the
Bretton Woods conference
monetary order intended to govern in July of 1944 at the Mt.
monetary relations among Washington Hotel in
independent nation-states. Bretton Woods, New
Hampshire, United States
BWS Lead to establishment of:

• IMF -International Monetary Fund

• IBRD -International Bank For Reconstruction

And Development.{World Bank}
FEATURES

• USD – Status Of Universal Reserve Asset

• Value Of USD - 1 Oz Gold = USD($) 35

• Currency Valuation Against USD.

• Concept Of Pegging & Par Value Mechanism

• Dual Exchange Rate System Abolished And USD Was

Universally Accepted.
REASONS FOR FAILURE OF BWS

• Fixed Value Of Gold

• No Obligation To Surplus Countries To Revalue Their

Currencies

• Repeated Revaluation That Lead To Dilution Of The

System

• Triffin’s Paradox: Is the observation that when a national

currency also serves as an international reserve currency
(as the US dollar does today)
Gold structure
• Demand for Gold is widely spread around the world.
•East Asia, The Indian Sub-Continent and The Middle East
accounted 70% of world demand in 2008.
•55% of demand is attributable to just five countries –
India, Italy, Turkey, USA and China.
WHAT MAKES GOLD SPECIAL?
• Timeless and very timely investment

• Effective diversifier

• Ideal gift

• Highly liquid

• Gold responds when you need it most

• Currency without a country

Five major reasons why you might want to invest in gold

• It provides a bit of safety

• To diversify
• To protect against inflation
• To hedge against the dollar
• To manage risk
Reasons to own Gold
• A History of Holding Its Value
• Deflation
• Geopolitical Uncertainty
• Portfolio Diversification
What are the risks of investing in Gold?

• Theft or loss
• Fees
• Higher taxes
• Loss of value
FACTORS AFFECTING
PRICES OF GOLD
CENTRAL BANK
 Central banks are heavy buyers and sellers

 RBI buy gold when reserves are too low as an ongoing

government policy
 For eg. RBI bought 200 tones from IMF recently
 India holds 6% reserves

 China increased holdings

 Printing of currency
PEER PRESSURE BUYING

 TREND TO INVEST IN GOLD AFTER FINANCIAL

CRISIS OF 2008
 THE ADVENT OF GOLD ETF’s, AN EASY WAY OF
SPECULATING ON GOLD
DEMAND AND SUPPLY

 OVER PAST 3 YEARS SUPPLY HAS GROWN 59% WHILE

DEMAND HAS SURGED 62%
 THIS IMBALANCE HAS CREATED A FUNDAMENTAL
SUPPORT IN THE DEVELOPMENT OF THE GOLD
MARKET AND AN ENVIRONMENT OF RISING GOLD
PRICES
INFLATION
• To control inflation
• Stagflation in 1970 economic bubble
forming in precious metals
Year Inflation (%) Gold
(% Change)
2005 4.20 21.22
2006 4.20 21.33
2007 5.30 14.56
2008 6.40 28.48
2009 8.30 21.81
INTEREST RATES
• Low returns on other instruments
• Stability of returns
• Secured and maximum returns
• Speculated returns on gold is 178%
whereas that of diamonds is 1.9%(for 5 years)
(Ref: ET 26/11/10)
WARS
• Destruction of assets
• Worthlessness of the currency
• Demand for gold thus rises
• Eg-:current war between south korea & north
korea, SENSEX went down by 600 points
METHODS TO INVEST IN GOLD
 GOLD BARS

 GOLD COINS

 GOLD CERTIFICATES

 GOLD INVESTMENT ACCOUNTS

 GOLD MINING STOCKS

LONDON GOLD PRICE FIXING
 FIRST GOLD FIXING – 12TH SEPTEMBER, 1919.
TWICE A DAY AT 10.30 AM AND 3.00 PM.
CURRENT MEMBERS INVOLVED IN PRICE FIXING :
1. SCOTIA-MOCATTA
2. BARCLAYS CAPITAL
3. DEUTSCHE BANK
4. HSBC
5. SOCIETE GENERALE
FIXING PROCESS:-OPEN AUCTION
PROCESS
CHAIRMAN
NET-OFF OF
ANNOUNCES
OPENING PRICE ALL ORDERS

CHAIRMAN
SUGGESTION:
TRYING PRICE

ADJUSTMENT QUOTING OF
OF PRICE PRICE
WEIGHT CONVERSION TABLE

TO CONVERT
TO MULTIPLY BY
FROM

TROY OUNCE GRAMS 31.1035

GRAMS TROY OUNCE 0.0321507

KILOGRAMS TROY OUNCE 32.1507

KILOGRAMS TOLAS 85.755

CONVERT USD/OUNCE PRICE TO INR/10 G
PRICE

STEPS EXAMPLE

ADD THE PREMIUM

MULTIPLY THE FIGURE BY INR RATE 1242 USD PER OUNCE WILL BE
OF USD
(1243 X 46.2 X 10)/ 31.1
DIVIDE BY 31.1 = 18465 INR/ 10 G.

MULTIPLY BY 10
The Dollar-Rupee-Gold Relationship
The first scenario, we will assume that the price of Gold remains
constant, say $1000, and rupee appreciates (USD/INR rate falls). In this
case, the approximate indicative price of gold in INR for various
exchange rates, work out as per the following table. 

USD/INR Indicative price of Difference

Exchange Rate Gold in INR
50 16227 
49 15907 -320
48 15586 -321
47 15266 -320
46 14945 -321
45 14625 -320
Now, let’s consider another scenario wherein the price of gold is
again constant, say $1000, but rupee depreciates (USD/INR rate
goes up). In such a scenario, the approximate indicative price of
gold in INR works out as per the following table. 

USD/INR Indicative price Difference

Exchange Rate of Gold in INR
50 16227 --
51 16548 321
52 16868 320
53 17189 321
54 17510 321
55 17830 320
• Both the above scenarios indicate that if the
international gold price remains constant.
• The gold price in INR has an inverse relation
with rupee.
• If the rupee appreciates (USD/INR exchange
rate decreases), INR gold price falls
• If the rupee depreciates (USD/INR exchange
rate increases), INR gold price goes up. 
• Consider an imaginary scenario where
international price of gold appreciates by 50%,
say gold moves to $1500.
• Let’s presume that the Indian Rupee
appreciates by about 20%, say USD/INR rate
becomes 40.
• Gold price in INR will be approximately
rs.19500.
• You can see that despite international gold
price appreciating by 50%,
• Indian gold price appreciates by only 20%,
from 16300 to 19500.
• Gold should generally move up when USD
depreciates INR should generally appreciate
against USD.
• During the last couple of years, the market
dynamics have changed quite a lot especially
after the present economic meltdown 2007.
• The gold price has not maintained direct
relation with the price of crude oil and inverse
relation with USD, which should be the case
traditionally. 
Parity Calculator

USDINR 48
Commodity International Price Indian Parity
Enter value
Gold 1342.00 20,848.83

Silver 17.71 28,515.25

Platinum 1189 18349

Crude 68 3264

Natural Gas 4 192

Copper 5500 264

Zinc 1694 81

Aluminium 1750 84
EXCHANGE TRADE FUNDS

WHAT IS AN ETF?
Exchange Traded Funds (ETFs) are mutual fund
units which investors buy/sell from the stock
exchange, as against a normal mutual fund unit,
where the investor buys / sells through a
distributor or directly from broker.
BENEFITS OF ETF’S
Can be easily bought / sold like any other stock .
 Can be bought / sold anytime during market.
No separate form filling for buying / selling units.
 Ability to put limit orders.
 Minimum investment.
Flexibility.
ETFS V/S STOCKS & MUTUAL FUND
Functionality ETFs Stocks MF
Unit
Real time trading and pricing throughout Yes Yes No
market hours
Ability to put limit orders Yes Yes No
Can be purchase through NSE broker Yes Yes No
and/or online trading a/c
Can be traded real time on the NSE Yes Yes No
Is Arbitrage possible between Futures and Yes Yes No
Cash Market
Is Diversification possible with a single unit Yes No Yes
Returns at per with the market/index Yes No No
Intra day trading Yes Yes No
Paper Less investing Yes Yes No
Exit Load No No Yes
HOW TO INVEST IN ETF’S
• Trading in Gold ETF is very simple.
• It is similar to how you trade in equity shares.
• You can trade from your existing trading account with your broker or
register yourself with a broker having membership of the NSE, fill up
the KYC form, open a demat account, post margins and then
commence trading.

Log into your

Select an ETF Trading A/c or call Place an order
your NSE broker

ETFs are in dematerialized form and settled like any other

share in the T + 2 rolling settlement.
What makes ETF an attractive investment tool?
An Index fund with…

1. No subscription/redemption fees
2. Full transparency .

Listed and tradable on exchange…

3. Quoted in real time.
GOLD ETF
MEANING

• Gold ETFs are units representing physical gold, which may be in

paper or dematerialized form. These units are traded on the
exchange like a single stock of any company.

USES OF GOLD FTFS

• To keep Gold as part of your portfolio invest in Gold ETFS.

• Accumulate Gold for social obligations buy a Gold ETF and you
can sell them to purchase jewellery or other forms of gold when
you desires.
ADVANTAGS OF GOLD ETF

Price
Backed by physical Gold holding of 0.995
purity
No wealth Tax
No issues & fear
It can be Listed and Traded
What is E-Gold?
Today, I would like to discuss a product called “e-
gold”, launched by the National Spot Exchange Ltd
(NSEL), which has the ideal combination of the
characteristics of both the forms — physical and
electronic.
How does it work?
Since e-gold can purchase only in electronic form
you need to have a demate account.However your
regular demate account cannot do.You need to
open demate account with one of the Depository
Participant (DP) empanelled with NSEL.

Next you need to have a client account with any

member of NSEL.
BENEFITS OF E-GOLD
 Since NSEL operates on a pan-India basis
 There is difference between the net selling
price and purchase cost
 Ensures higher returns
 They do not have to worry about theft
 It takes care of purity concerns
 Dematerialized form & transparency &
investment purpose
IMPORTS OF GOLD

Table : India 's Imports of Gold (Quantity and Value)

Year Imports (Tonnes) Prices in (Rs. crore)
593.61 24156.38
2001
410.29 19839.88
2002
441.93 23657.52
2003
591.92 35105.06
2004
748.04 45811.19
2005
703.91 61432.90
2006
773.60 61412.50
2007
CURRENT SCENARIO
REASONS FOR INCREASING IN GOLD
PRICES
• Shortage of Supply 
• Increasing war and social unrest 
• China is adding to its gold reserves
• India, which has been the largest buyer of gold
• Paper currency devaluation  
WORLD OFFICIAL GOLD
HOLDINGS MARCH 2010
RANK COUNTRY TONNES % OF RESERVE
1 UNITED STATES 8,133.5 70.4%
2 GERMANY 3,406.8 66.1%

3 IMF 3,005.3 N.A.

4 ITALY 2,451.8 64.9%
5 FRANCE 2,435.4 65.7%
6 CHINA 1,054.1 1.6%
7 SWITZERLAND 1,040.1 27.1%
8 JAPAN 765.2 2.5%
9 RUSSIA 641.0 5.1%
10 NETHERLANDS 612.5 53.4%
11 INDIA 557.7 6.9%
TOP 11 GOLD CONSUMING
COUNTRIES
CONSUMPTION IN
RANK COUNTRY TONNES
1 INDIA 587.1
2 UNITED STATES 349.0
3 CHINA 241.2
4 TURKEY 194.9
5 SAUDI ARABIA 146.2
6 UNITED ARAB EMIRATES 96.0
7 INDONESIA 78.0
8 EGYPT 75.3
9 ITALY 71.0
10 PAKISTAN 65.1
11 RUSSIA 64.5
LAST 6 MONTHS GOLD
CURRENT AFFAIRS
• India, leading gold consumer in world.
• “Price taker” to a “Price maker”
• Gold touches record high as dollar slump spurs demand
• Yesterday, gold jumped 1.6% after North Korea fired artillery at a
South Korean island and the euro plunged on concern that
Europe's debt crisis may spread
• With the US dollar under renewed pressure, gold should
continue its upwards momentum -- we forecast US$1,325/oz for
the remainder of calendar 2010
• Return on gold
(ET: 26 november 2010)
• Golden dreams
( ET: 22 november 2010)
Contd
• Gold could continue to gain into the first half of
2011
• The Australian gold sector has been the star in
the last six months-
• UniCredit has upgraded their target price for
gold from $1,250 to $1,600 by the end of 2012. 
• A bumper  monsoon this year and growing
income of rural India is has meant that people
in those regions are buying more gold
 
India in World Gold Industry
(Rounded Figures) India (In Tons) World (In Tons) % Share

Total Stocks 13000 145000 9

Central Bank
400 28000 1.4
holding

Annual Production 2 2600 0.08

Annual Recycling 100-300 1100-1200 13

Annual Demand 800 3700 22

Annual Imports 600 --  -- 

Annual Exports 60  -- -- 

COMPARISION

TODAY’S RATE OF GOLD IS 1372.96 USD

INR 20160 (APPROX)
THANK YOU