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GOLD FUNDAMENTALANALYSIS
International Workshop on CommodityTrading6th October 2004
-Bhargava N. Vaidyae-mail bnv@vsnl.com
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Whatis Gold
COMMODITY
OR
CURRENCY ?
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GOLD Hedge against Inflation
Gold as an Investment
Gold as a safe haven
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History
Gold Currency
(1890 - 1913)
Gold Standard
(1925 - 1931)
1968 Split in European Gold Market
Bretton Wood
Fixed exchange rate collapsed in 1973
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Freedom
1974 Private Ownership ofGold Legalised
in USA
COMEX 31.12.1974 Gold future introduced
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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
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Recent
Highlights
May99 : BOE decides to halve itsGold reserves
September99 : Washington Agreement
1/1/2000 : VAT Abolished onBullion throughout Europe.
May 2000 : SNB begins sale ofGoldfrom its reserves.
2003 : Central BankGold agreement
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Size of Market
LBMA Daily clearance volumes
488 tonnes Comex - 152 tonnes (per day)
Other Exchanges
Indian market size 1000 tonnes (per annum)
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LONDON19 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
MarketAfter 1968 : Londons Monopoly ends after
temporary closure ofGold Market.
1987 : The LBMA Incorporated as on
14/12/872000 : Associate Members
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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 ofGold Ownership31.12.74: Gold futures opened for trading on COMEX (today
a subdivision of NYMEX)
1982 : COMEX started operating a market in Gold options
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Other Markets
ZURICH
TOKYO
TURKEY
HONGKONG
SHANGHAI
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SUPPLY2002 2003
MINE PRODUCTION 2590 2593
OFFICIAL SECTOR
SALE545 606
OLD GOLD SCRAP 836 943
NET - PRODUCER
HEDGING---
Source:----
GFMS
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DEMAND2002 2003
FABRICATION 3163 3049
BARHOARDING 250 183
NET - PRODUCER
HEDGING
437 310
IMPLIED
INVESTMENT122
SOURCE600
: GFMS
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GoldHedging Environment
1980s 2000s
High Interest rates
Low lease costs
small to medium costmines
High % of resources asreserves
Continuity of cash flow
required to underwritecapital
Low Interest rates
More Volatile leasecosts
Larger more maturemines
Lower % of reservesto resources
LowerGold Price
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GoldHedging Products
1980s 2000s
Gold Loans
Spot def, fixed and flatforwards
Short term products
Less Gold Loans
Longer datedproducts
Structured OptionProducts
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Official SectorH
olding
Over 31,822 tonnes
Large holders
USA 8,135 tonnes
Germany 3,440 tonnesFrance 3,025 tonnes
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OFFICIAL SECTOR
SALE
GOLD LOANS
GOLD AS SECURITY FOR
BORROWING
CURRENCY MANAG
EMENT
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OTH
ER
FACTOR
S
POLITICAL INSTABILITY
TERRORISM
CURRENCY INSTABILITY
SURPLUS MANAGEMENT
INFLATION
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Importance of Gold (India)
Largest item in portfolio
(Rs.13,02,000+ Crores)
Major forex asset
($ 280+ Billion)
Legend - Gold & Age
Liquidity
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PR
ESENT INDIAN SCENAR
IO
LARGEST MARKET FORGOLD
ONE OF THE MOST IMPORTANT MARKET FOR
SILVER LARGE HOLDING OF BULLION IN PRIVATE
SECTOR
LARGEST SOURCE OF BULLION
IMPORTS
RECYCLING - A DISTANT SECOND
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Indian Position WHAT POSITION WE HAVE IN WORLD
MARKET
ANALOGY WITH SAUDI ARABIA IN OIL
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H
ISTOR
Y Net Gold Surplus for years
1962 - Gold Control Act.
Development 1990 Abolition ofGold Control Act
1992 NRI Imports
1994 SIL Import 1997 Authorised agencies / Banks
2003 - Future/Forward trading in bullion
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Authorised Bank / Agency
|
Bullion Dealer (large) ______| |
Bullion Dealer (small) |
| | |
Jeweller | Jeweller
| | |
Consumer Consumer Consumer
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InterestArbitrage
LC Imports
Banking Facilities
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External Benefits
Export of Coins / Crude
Jewellery
Other Arbitrage
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Local Taxes Sales tax
- Rajasthan
- Gujarat- Delhi
Octroi
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