Gold is the oldest precious metal known to man and for
thousands of years it has been valued as a global currency, a commodity, an
investment and simply an object of beauty.
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Major Characteristics
- Gold is unique as it
is both a commodity and a monetary asset.
- Its stability and
high value makes it virtually indestructible and ensures that it is
almost always recovered and recycled.
- There is no true
consumption of gold in the economic sense as the stock of gold remains
essentially constant while ownership shifts from one party to another.
- Although gold mine
production is relatively inelastic, recycled gold (or scrap) ensures
there is a potential source of easily traded supply when needed, and
this helps to stabilise gold price.
- Economic forces that
determine the price of gold are different from, and in many cases
opposed to the forces that influence most financial assets.
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Global Supply Demand Scenario
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- The total above
ground stocks of gold is estimated to be around 1,63,000 tonnes by
Gold Fields Minerals Services (GFMS) as on end of 2008
- Out of this total
stock, 51% is estimated to be present as jewellery, 18% as official
reserves, 17% held as investment, 12% used for industrial purposes and
2% is unaccounted for.
- Jewellery accounts
for almost two-thirds of annual gold demand with investment and
industry being the other main drivers. The total annual global demand
for gold has averaged 3530 tonnes in the last three years (2005 -
2008). However, it is expected to dip slightly in 2009, owing to the
sharp rise in prices.
- Five countries,
viz., India, China, USA, Turkey, Saudi Arabia and UAE account for
above 60% of gold demand, with each market driven by a different set
of socio-economic and cultural factors.
- The total global
mine production is relatively stable, averaging approximately 2,455
tonnes per year over the last three years. Recycling of old gold scrap
and official sector sales are the other major sources of supply, which
have averaged 1084 tonnes and 378 tonnes in the last three years.
- South Africa has
been a major gold producer since 1880s and it is estimated that about
50% of all gold ever produced has come from this nation. While, during
the early 1980's it produced about 1000 tonnes, the output in 2007
dropped to just 272 tonnes.
- China with a
production of 276 tonnes, overtook South Africa as the world's largest
gold producer in 2007 for the first time since 1905 that South Africa
has not been the largest. The other major producers are USA,
Australia, Russia and Peru.
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World Gold Markets
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OTC markets at London (LBMA), New York and Zurich
Gold derivative exchanges at New York – CME (COMEX), Tokyo (TOCOM), Mumbai
(MCX)
Istanbul, Dubai, Hong Kong and Singapore are doorways to important
consuming regions
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India in World Gold Industry
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(Rounded Figures)
India (In Tons) World (In Tons) % Share
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(Rounded Figures)
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India (In
Tons)
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World (In
Tons)
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% Share
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Total Stocks
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15000
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160000
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9
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Central Bank holding
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558
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30,100
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2
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Annual Production
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3
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2450
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0
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Annual Recycling
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250
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1100
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23
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Annual Demand
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700
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3550
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20
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Annual Imports
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600
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Annual Exports
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60
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Indian Gold Market
- India is the world's
largest consumer of gold. Indians normally buy about 25 per cent of
the world's gold, purchasing around 700 - 750 tonnes of gold every
year.
- However, the sharp
price increase in 2008 and 2009 has impacted demand with total demand
in 2008 dipping to 660 tonnes. It is further expected to shrink in
2009 with demand in first three quarters of 2009 totaling only around
265 tonnes against 553.5 tonnes in the same period of the previous
year.
- As India's domestic
primary production of gold is very less, at around 2-3 tonnes a year,
the country imports most of its domestic requirement.
- Thus, India is also
the largest importer of the yellow metal and has averaged imports of
around 600 tonnes a year. However, 2008 imports dipped to around 400
tonnes of gold and it is further expected to dip to around 200-220
tonnes in 2009 owing to high prices.
- India's gold demand
is firmly embedded in cultural and religious traditions. It is also
valued in India as a savings and investment vehicle and is the second
preferred investment after bank deposits.
- Gold hoarding
tendency is well engrained in the Indian society and unofficial stocks
held by Indians is estimated to be well above 15,000 tonnes, which is
around 9% of the total global gold stocks.
- Domestic consumption
is dictated by monsoon, harvest and marriage season. Indian jewellery
offtake is sensitive to price increases and even more so to
volatility.
- In the cities gold
is facing competition from the stock market and a wide range of
consumer goods.
- Facilities for
refining, assaying, making them into standard bars, coins in India, as
compared to the rest of the world, are insignificant, both
qualitatively and quantitatively.
- In July 1997 the RBI
authorized the commercial banks to import gold for sale or loan to
jewellers and exporters. At present, 13 banks are active in the import
of gold. This reduced the disparity between international and domestic
prices of gold from 57 percent during 1986 to 1991 to 8.5 percent in
2001.
Market Moving Factors
- Indian gold prices
are highly correlated with international prices. However, the
fluctuations in the INR-US Dollar impact domestic gold prices and have
to be closely followed.
- The global prices
are driven by a host of factors with macro-economic factors like
strength of the economy, rising importance of emerging markets,
currency movements, interest rates being major influencing factors.
- Supply-demand is a
major influencer, amid rising global investor demand and almost stable
supplies.
- Shifts in official
gold reserves, reports of sales/purchases by central banks act as
major price influencing factors, whenever such reports surface.
- The investment in
gold is influenced by comparative returns from other markets like
stock markets, real estate other commodities like crude oil.
- Domestically, demand
and consequently prices to some extent are influenced by seasonal
factors like marriages. The rural demand is influenced by monsoon,
agricultural output and health of the rural economy.
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Measurement
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Weight Conversion Table
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To Convert from
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To
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Multiply
by
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Troy Ounce
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Grams
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31.1035
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Grams
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Troy Ounce
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0.0321507
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Kilograms
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Troy Ounce
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32.1507
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Kilograms
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Tolas
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85.755
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Purity
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Gold purity is measured in terms of karats and fineness
Karat: Pure gold is defined as 24 karat
Fineness: Parts per thousan
Thus, 18 karat = (18/24)th of 1000 parts = 750 fineness
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