A Study on Commodity Market Wrt Gold at Edelweiss Karimnagar

7/30/2019 A Study on Commodity Market Wrt Gold at Edelweiss Karimnagar

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INTRODUCTION TO THE STUDY

Indian markets have recently thrown open a new avenue for retail investors

and traders to participate commodity derivatives. For those who want to diversify

their portfolios beyond shares, commodities bonds and real estate are the best options.

The retail investors could have done very little to actually invest in

commodities such as gold and silver or oilseeds in the futures market. This was nearly

impossible in commodities except for gold and silver as there was practically no retail

avenue for pumping in commodities.

However, with the setting up of three multi-commodity exchanges in the

country, retail investors can now trade in commodity futures without having physical

stock.

Commodities actually offer immense potential to become a separate asset class

for market survey investors, arbitrageurs and speculators. Retail investors, who claim

to understand the equity markets, may find commodities an unfathomable market. But

commodities are easy to understand as far as fundamentals of demand and supply are

concerned. Retail investors should understand the risks and advantages of trading in

commodities futures before taking a leap. Historically, pricing in commodities futures

has been less volatile compared with equity and bonds, thus providing an efficient

portfolio diversification option.

Gold An Investment Paradise

Gold has been synonymous to wealth and prosperity through the ages. The

history of Gold dates back to as early as 4000 BC when the prehistoric men used it as

a tool. Since then Gold has filled the pages of history as the divine metal that has

attracted the attention of men powerful and otherwise. Gold was the source of power

for the kings. Wars were waged; lives were lost as kingdoms piled up and hoarded

tonnes of Gold. In the modern history, Gold became the international currency as the

Gold standard came into existence. Even after the dismantling of Gold standard, Gold

existed as the backbone of international trade and economics as the US accumulated


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tones of yellow metal. Till today, Gold has retained its basic use as a commodity

without losing its sheen as a currency.

Gold, because of its ability to protect the wealth of investors can be an ideal

addition to a portfolio. Also the short-term fluctuations in Gold offer good potential

for trading. Gold has been on its long-term upwards trajectory which began in early

2001. This long-term move has been punctuated by short-term pullbacks offering

opportunities for late entrants to join the bandwagon. With the US economy

outgrowing the league of developed nations during the last two years coupled with the

worsening of long-term structural weaknesses and the subsequent movements in the

USD have moved the focus away from Golds use as a commodity. However the

long-term fundamentals of the yellow metal have also undergone a significant change

with the mining output falling quite steadily during the last decade coupled with an

evergreen demand especially from Asia.

This report analyses the long-term and short-term fundamental factors expected to

move Gold prices. We believe that the short-term weakness expected in gold is a great

opportunity for the late-comers to join the great Gold. Strategically, gold is one of the

two most important commodities on the planet along with crude oil. Gold has been

historically recognized as the ultimate store of value and method of payment. The

following characteristics of Gold have enabled it play this role:

It is durable, homogenous and divisible

Golds rarity gives it intrinsic value and that value is high per unit of volume.

Its value is recognized across the globe and is traded in a continuous market.

Gold is the only financial medium of exchange that is not someone elses

liability.


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SCOPE OF THE STUDY

The study covers the analysis of the factors which affect the prices of gold and theinvestment decisions in gold. A comparative analysis of these factors has been done

on the various parameters like Standard Deviation, Regression; correlation to make

possible the tedious task of analysis of these factors. Further analyzing the factors will

suggest the investors that whether it will be profitable for the investors to invest in

gold or not.

1. The analysis is based on commodity trading specifically in gold futures

market.

2. The analysis is based on opening and closing price of gold in commodity

market.

3. The study is conducted based on four types of gold products i.e.

Gold

Gold hni

Gold guinea and

Gold mini only

NEED OF THE STUDY

The era of liberalization has revolutionized the commodity market. In such a scenario,

it is necessary to make an assessment of commodity market. as more and more

investors are seeking commodity market as of the important investment avenues, it is

necessary to make a detailed analysis. Such an analysis will help any person who is to

invest in commodity market.


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OBJECTIVES OF THE STUDY

1. To study the commodity trading and its clearing & settlement procedure.2. To study the commodity trading with reference to gold.

3. To analyze the gold trend in commodity market.

4. To study the current investment scenario.

5. To acquaint the investor with the factors that affects the investment

scenario in gold.

6. To analyze the different factors which affect the gold market and suggest

the investors about the right time to invest in gold.

METHODOLOGY OF THE STUDY

The history and the company profile are basically searched either from the internet or

by the literature review of the company. This means that it is basically based on the

secondary source. Also the topic related concepts are done on the basis of the

secondary sources.

The data for the analysis is taken either by the consulting the companys employees

or from the net. So it is partially primary and partially secondary.

The analysis part is done with the help of Microsoft EXCEL by computing the

required output. Finally, the conclusions and recommendations have been written on

the self finding basis.

SOURCES OF DATA

The data is collected from secondary sources mainly from financial websites.

Primary of data: The no primarily source of data used.

Secondary source of data: The secondary data is collected from Kellton and and

various internet sources.


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LIMITATIONS OF THE STUDY

1. The analysis is based on moving average tool.

2. A technical analysis is done using 3 day moving averages.

3. The present study takes in to consideration of 6 month data of gold prices.

4. This analysis will be holding good for a limited time period i.e. based on

present scenario and study conducted, future movement of price may or

may not be similar.


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INTRODUCTION TO THE INDIAN STOCK MARKET

Indian markets have recently thrown open a new avenue for retail investors and

traders to participate in: commodity derivatives. For those who want to diversify their

portfolios beyond shares, bonds and real estate, commodities are the best option. Till

some months ago, this wouldn't have made sense. For retail investors could have done

very little to actually invest in commodities such as gold and silver or oilseeds in the

futures market. This was nearly impossible in commodities except for gold and silver

as there was practically no retail avenue for punting in commodities. Whatever it may

be , with the setting up of three multi-commodity exchanges in the country, retail

investors can now trade in commodity futures without having any physical stocks

Commodities actually offer immense potential to become a separate asset class for

market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to

understand the equity markets may find commodities an unfathomable market. But

commodities are easy to understand as far as fundamentals of demand and supply are

concerned. Retail investors should understand the risks and advantages of trading in

commodities futures before taking a leap. Historically, pricing in commodities futures

has been less volatile compared with equity and bonds, thus providing an efficient

portfolio diversification option.

Like any other market, the one for commodity futures plays a valuable role in

information pooling and risk sharing. The market mediates between buyers and sellers

of commodities, and facilitates decisions related to storage and consumption of

commodities. In the process, they make the underlying market more liquid

The trading of commodities consists of direct physical trading and derivatives trading.

The commodities markets have seen an upturn in the volume of trading in recent

years. In the five year up to 2010, the value of global physical exports of commodities

increased by 17% while the notional value outstanding of commodity OTC(over the

counter) derivatives increased more than 500% and commodity derivative trading on

exchanges more than 200%.


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The notional value outstanding of banks OTC commodities derivatives contacts

increased 27% in 2010 to $9.0 trillion. OTC trading accounts for the majority of

trading in gold and silver. Overall, precious metal accounted for 8% of OTC

commodities derivatives trading in 2010, down from their 55% share a decade earlier

as trading in energy derivatives rose.

Global physical and derivatives trading of commodities on exchanges increased more

than a third in 2010 to reach 1,684 million contacts. Agricultural contracts trading

grew by 32% in 2010, energy 29% and industrial metals by 30%. Precious metals

trading grew by 3% with higher volume in New York being partially offset by

declining volume in Tokyo. Over 40% of quarter in China. Trading on exchanges in

China and India has gained in importance in recent years due to their emergence as

significant commodities consumers and producers.

Present scenario

Todays commodity market is a global market place not only for agricultural

products, but also currencies and financial instruments such as Treasury bonds and

securities futures. Its a diverse marketplace of farmers, exporter, importers,

manufacturers and speculators. Modern technology has transformed commodities into

a global marketplace where a Kansas farmer can match a bid from a buyer in Europe.

The 2008 global boom in commodity prices- for everything from coal to corn was

fueled by heated demand from the likes of China and India, plus unbridled speculation

in forward markets.

The bubble popped in the closing months of 2008 across the board. As a result,

farmers are expected to face a sharp drop in crop prices, after years of record revenue.

Other commodities, such as steel, are also expected to tumble due to lower demand.

This will be a rare positive for manufacturing industries, which will experience a drop

in some input costs, partly offsetting the decline in downstream demand.

The Indian broking industry is one of the oldest trading industries that have been

around even before the establishment of BSE in 1875.


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Inception- The roots of a stock market in India began in the 1860s during the

American Civil War that led to a sudden surge in the demand for cotton from

India resulting in setting up of a number of joint stock companies that issued

securities to raise finance.

Bubble burst- The early stock market saw a boom till 1865, and then in Jul

1865, what was then used to be called the share mania ended with burst of the

stock market bubble. In the aftermath of the crash, banks, on whose building

steps share brokers used to gather to seek stock tips and share news,

disallowed them to gather there, thus forcing them to find a place of their own,

which later turned into the Dalal Street. A group of about 300 brokers formed

the stock exchange in Jul 1875, which led to the formation of a trust in 1887

known as the Native Share and Stock Brokers Association

Beginning of a new phase- A new phase in the Indian stock markets began in

the 1970s, with the introduction of Foreign Exchange Regulation Act (FERA)

that led to divestment of foreign equity by the multinational companies, which

created a surge in retail investing.

Growth supporting factors-The early 1980s witnessed another surge in stock

markets when major companies such as Reliance accessed equity markets for

resource mobilization that evinced huge interest from retail investors. A new

set of economic and financial sector reforms that began in the early 1990s

gave further impetus to the growth of the stock markets in India.

Setting up of SEBI- the Securities and Exchange Board of India (SEBI),

which was set up in 1988 as an administrative arrangement, was givenstatutory powers with the enactment of the SEBI Act, 1992. The broad

objectives of the SEBI include-

o to protect the interests of the investors in securities

o to promote the development of securities markets and to regulate the

securities markets


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Incorporation of NSE- NSE was incorporated in Nov 1992 as a tax

paying company, the first of such stock exchanges in India, since stock

exchanges earlier were trusts, being run on no-profit basis. NSE was

recognized as a stock exchange under the Securities Contracts

(Regulations) Act 1956 in Apr 1993. It commenced operations in

wholesale debt segment in Jun 1994 and capital market segment (equities)

in Nov 1994. The setting up of the National Stock Exchange brought to

Indian capital markets several innovations and modern practices and

procedures such as nationwide trading network, electronic trading, greater

transparency in price discovery and process driven operations that hadsignificant bearing on further growth of the stock markets in India. To

speed the securities settlement process, The Depositories Act 1996 was

passed that allowed for dematerialization (and dematerialization)

of securities in depositories and the transfer of securities through

electronic book entry. The National Securities Depository Limited

(NSDL) set up by leading financial institutions, commenced operations in

Oct 1996.

Despite passing through a number of changes in the post liberalization period,

the industry has found its way towards sustainable growth. A stock Broker is a

regulated professional who buys and sells shares and other securities through

market makers or Agency Only Firms on behalf of investors. To work as a

broker a certificate of registration from SEBI is mandatory after satisfying all

the terms and conditions.

FINANCIAL MARKETS

The financial markets have been classified as

Cash market (spot market) largest traded, the spot market or cash market is a

commodities or securities market in which goods are sold for cash and

delivered immediately.


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Derivatives market after cash market, the derivatives markets are the

financial markets for derivatives. The market can be divided into two that for

exchange traded derivatives and that for over-the-counter derivatives.

Debt market - The bond market (also known as the debt, credit, or fixed

income market) is a financial market where participants buy and sell debt

securities.

Commodities market after commodities market, Commodity markets are

markets where raw or primary products are exchanged. These raw

commodities are traded on regulated commodities exchanges, in which they

are bought and sold in standardized contracts.

PARTICIPANTS IN FINANCIAL MARKET

There are two basic financial market participant categories, Investor vs. Speculator

and Institutional vs. Retail. Action in financial markets by central banks is usually

regarded as intervention rather than participation.

Supply side vs. demand side

A market participant may either be coming from the Supply Side, hence supplying

excess money (in the form of investments) in favor of the demand side; or coming

from the Demand Side, hence demanding excess money (in the form of borrowed

equity) in favor of the Supply Side. This equation originated from Keynesian

Advocates. The theory explains that a given market may have excess cash; hence the

supplier of funds may lend it; and those in need of cash may borrow the funds

supplied. Hence, the equation: aggregate savings equals aggregate investments.

The demand side consists of: those in need of cash flows (daily operational needs);

those in need of interim financing (bridge financing); those in need of long-term funds

for special projects (capital funds for venture financing).

The supply side consists of: those who have aggregate savings (retirement funds,

pension funds, insurance funds) that can be used in favor of demand side. The origin

of the savings (funds) can be local savings or foreign savings. So much pensions or
http://en.wikipedia.org/wiki/Commodities_exchangehttp://en.wikipedia.org/wiki/Commodities_exchange


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savings can be invested for school buildings; orphanages; (but not earning) or for road

network (toll ways) or port development (capable of earnings).

The earnings go to owner (Savers or Lenders) and the margin goes to the banks.

When the principal and interest are added up, it will reflect the amount paid for the

user (borrower) of the funds. Thus, an interest percentage for the cost of using the

funds.

Investor vs. Speculator

Investor

An investor is any party that makes an Investment.

However, the term has taken on a specific meaning in finance to describe the

particular types of people and companies that regularly

purchase equity ordebtsecurities for financial gain in exchange forfunding an

expanding company. Less frequently the term is applied to parties who purchase real

estate,currency,commodityderivatives,personal property, or otherassets.

Speculation

Speculation, in the narrow sense of financial speculation, involves the buying,

holding, selling, and short-selling of stocks, bonds, commodities, currencies,

collectibles, real estate, derivatives or any valuable financial instrument to profit from

fluctuations in its price as opposed to buying it for use or for income via methods such

as dividends or interest. Speculation or agiotage represents one of three market roles

in western financial markets, distinct from hedging, long term investing and arbitrage.

Speculators in an asset may have no intention to have long term exposure to that asset.

Institutional vs. Retail

Institutional investor

An institutional investor is an investor, such as a bank, insurance company, retirement

fund, hedge fund, or mutual fund, that is financially sophisticated and makes large

investments, often held in very large portfolios of investments. Because of their
http://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Fundinghttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Personal_propertyhttp://en.wikipedia.org/wiki/Personal_propertyhttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Fundinghttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Personal_propertyhttp://en.wikipedia.org/wiki/Assets


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sophistication, institutional investors may often participate in private placements of

securities, in which certain aspects of the securities laws may be inapplicable.

Retail investor

A retail investor is an individual investor possessing shares of a given security. Retail

investors can be further divided into two categories of share ownership.

1. A Beneficial Shareholder is a retail investor who holds shares of their

securities in the account of a bank or broker, also known as in Street Name.

The broker is in possession of the securities on behalf of the underlying

shareholder.

2. A Registered Shareholder is a retail investor who holds shares of their

securities directly through the issuer or its transfer agent. Many registered

shareholders have physical copies of their stock certificates.

Meaning of broker/dealer

A broker-dealer is a term used in United Statesfinancial services regulations. It is a

natural person, a company or other organization that trades securities for its ownaccount or on behalf of its customers.

Although many broker-dealers are "independent" firms solely involved in broker-

dealer services, many others are business units or subsidiaries ofcommercial

banks, investment banks orinvestment companies.

When executing trade orders on behalf of a customer, the institution is said to be

acting as a broker. When executing trades for its own account, the institution is saidto be acting as a dealer. Securities bought from clients or other firms in the capacity

of dealer may be sold to clients or other firms acting again in the capacity of dealer, or

they may become a part of the firm's holdings.

Need of a broker

A broker is a person or firm that facilitates trades between customers. It is advisable

to conduct transactions through an intermediary. For example one needs to transactthrough a trading member of a stock exchange if they intend to buy or sell any
http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Company_(law)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_company


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security on stock exchanges. One needs to maintain an account with a depository if

they intend to hold securities in demat form. You need to deposit money with a

banker to an issue if you are subscribing to public issues. One gets guidance if you

are transacting through an intermediary. A broker acts as a go between and, in doing

so, does not assume any risk for the trade. The broker does, however, charge a

commission. A broking firm acts as an intermediary between NSE and Client. Stock

Brokers come under the category of Market Players. The membership in the stock

exchange can be granted as individual membership and corporate membership.

The market intermediaries play an important role in the development of Securities

Market by providing different types of services. There are two major stock-exchanges

NSE (composition of 50 stocks) and BSE (Composition of 30 stocks).

NSE BROKER

CLIENT


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COMPANY PROFILE KELLTON FINANCIAL SERVICES

Kellton is a professionally managed organization and is fast emerging as one of the

most respected Stock Broking and Wealth Management Companies in India. The

Kellton Group is a member of the National Stock Exchange (NSE),Bombay Stock

Exchange (BSE) and the two leading Commodities Exchanges in the country MCX

and NCDEX. Kellton is also registered as a Depository Participant with CDSL.

At Kellton, we offer you Broking and Wealth Management Services of world class

standards with a personal touch. We thoroughly understand the value of relationships

with our customers as opposed to just transactions at a business level. We are

dedicated to provide services with a personal touch so that our customer gets

customized solutions and attention. It is our earnest endeavor to enhance the trading

experience of our customers through continuous improvement in our services.

MISSION & VISION

Our Mission is the foundation on which the organization is built. Our vision is our

aspiration to continually improve and grow; to become the best. Our values guide us

through our actions.

MISSION

To take financial services to the next level of personalization and customization with

emphasis on value of interactions at a more personal level than just transactions at a

business level.

VISION

To be a respected enterprise that provides best-of-breed financial solutions, with a

personal touch.

VALUES

Commitment, dedication, integrity, team work, passion and attitude are the core

values that guide us through our actions.


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MANAGEMENT TEAM

1. Niranjan Chintam

2. Rajendrana Niwadekar

3. Krishna Chintam

4. John Linton

5. Mihir Shah

6. Srinivas Potluri

SERVICES

EQUITY

Kellton offers you a strategic, meticulous and personalized approach to maximize

your returns and reach your investment goals by trading effectively in equities.

However, it can also be a very risky proposition due to high risk-return trade off

prevalent in the stock market. Hence, it is more appropriate to take the help of an

experienced and trustworthy expert who will guide you as to when, where and how to

invest.

At Kellton, we identify good opportunities to invest in and provide guidance in the

dynamic world of stock markets with suitable trading solutions and value added tools

to enhance your trading experience. Moreover our core theme of personalized services

implies that you can reach our professionals to get complete understanding of the

transactions at any phase of the process.

Kellton is a trading member in the NSE Derivatives segment which offers a gateway

to the exciting world of derivatives trading on Equities and Indices. The derivative

market is a highly lucrative market that gives investors, arbitrageurs and speculators

immense potential to earn returns. Over the years the Futures & Options segment has

emerged as a popular medium for trading in the financial markets.

COMMODITIES


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Commodities Derivatives market has emerged as a new avenue for investors to create

wealth. Commodity derivatives that were initially developed for risk management

purposes are now growing in popularity as an investment tool. Based on the

fundamentals for demand and supply, Commodities form a separate asset class

offering investors, arbitrageurs and speculators immense potential to earn returns.

At, Kellton we understand the shifts and swings of Commodities markets and will

provide you with information about the volatility of the investible assets and when

and how to diversify them during high volatility to stabilize your returns. We closely

monitor and assess the performance of all classes of investments and will provide you

with a customized solution into the proper use of commodities within the mix of other

asset classes to maximize your returns and minimize risks.

INVESTMENT BANKING

MERGERS & ACQUISITIONS

Kelltons extensive expertise extends to a wide range of M&A transactions

customized to cater to the specific requirements of each of our client. Our

relationships with many leading financial groups enables our clients to get access to

the emerging pool of private equity financings.

Assess, analyze and suggest financial & strategic alternatives.

Identify target and assess potential acquirers and offer valuation analysis.

Negotiating and closing transaction deals.

Advise on asset purchases and dispositions, restructurings and reorganizations

Advising on transaction structuring, timing, pricing and potential financing

Our concern goes beyond immediate value and emphasizes enduring

partnership based on symbiotic relationship.

Sell-side Advisory

As an advisor to selling stakeholders we analyze the options objectively and

dispassionately keeping in view the long term benefit to both parties. Our expertise,


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experience and our network make us uniquely positioned to find an ideal partner for

your company and assess the mutual benefits from this transaction.

We perform the due diligence so as to avoid any surprises during value disclosure.

Our active involvement in deal structuring and contract negotiations would help you

understand the implications of the transaction from total perspective and be fully

aware of all legalese involved.

Buy-side Advisory

Our extensive network comes handy in searching & selecting a wide-range of

suitable candidates. We help buyers identify the attributes of the target company

including various parameters. Upon confirmation of interest of the target company,

we examine various factors like financial data, brand image among stakeholders etc

and perform a due diligence process to showcase the potential value of the

transaction, value recommendation and comparative analysis.

CORPORATE FINANCE

We work with several companies in various stages of growth and help them to raise

private capital through Venture Capital firms, private equity companies and otherstrategic business partners.

We assess optimal capitalization and recognize the means to increase funds. After

enlisting a group of potential target investors we position the company effectively to

the investors. We take care of the necessary communication to investors and manage

due diligence process.

CAPITAL RESTRUCTURING

Capital restructuring may involve refinancing at every at every level of capital

structure which include securing asset-based loans & debt financing and achieving

strategic partnership by identifying suitable prospects.

Counseling on business agreements like Joint Ventures and sales of certain

business units.

Determining the right debt-equity ratio and gearing ratio for client


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Exploring refinancing alternatives of the clients

Counsel on rehabilitation and turnaround management.

Risk management

Devising suitable strategies for fund raising

DEBT SYNDICATION

We arrange finance from multiple banks/financial institutions to provide the

borrower a credit facility using common debt documents. We help companies to

leverage on debt as an instrument to raise capital through structured financial products

for various needs.

Workflow:

We understand client needs thoroughly.

We decide on the most effective debt funding strategy

We approaching the prospective lenders and discuss & negotiate.

We then narrow upon lenders based on certain parameters.

Finalize on the optimum deal structure.

WEALTH MANAGEMENT

Wealth Management helps you maximize your returns in asset management,

investment management and portfolio management. Developing strategies and

innovative models to build wealth from middle market business assets requires

expertise and experience. Even a seasoned investor knows that effective timing of

markets is not possible and therefore professional and expert advice is essential togenerate superior returns from the market. At Kellton we offer your client advisory


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services with the objectives of superior returns, risk minimization and portfolio

diversification.

DEPOSITORY SERVICES

We provide the dual benefits of trading and depository services at Kellton where you

can experience efficient, risk free depository services. Kellton is a registered

Depository participant with CDSL.

ADVANTAGES OF DEMAT ACCOUNT AT KELLTON

Automated pay-in facility without executing any physical instructions

Demat Statements on demand

Competitive transaction charges.

Online access to Demat Statements

Reduced paper work

Efficient pledge mechanism

Faster settlement process resulting in increased liquidity for your securities

No extra charges for Transactions and Holding Statements

Speedy disbursements of non-cash benefits (Bonus & Rights)


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HISTORY OF COMMODITY MARKETS

Commodities future trading was evolved from need of assured continuous supply of

seasonal agricultural crops. The concept of organized trading in commodities evolved

in Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to

store Rice in warehouses for future use. To raise cash warehouse holders sold receipts

against the stored rice. These were known as rice tickets. Eventually, these rice

tickets become accepted as a kind of commercial currency. Latter on rules came in to

being, to standardize the trading in rice tickets. In 19 th century Chicago in United

States had emerged as a major commercial hub. So that wheat producers from Mid-

west attracted here to sell their produce to dealers & distributors. Due to lack oforganized storage facilities, absence of uniform weighing & grading mechanisms

producers often confined to the mercy of dealers discretion. These situations lead to

need of establishing a common meeting place for farmers and dealers to transact in

spot grain to deliver wheat and receive cash in return.

Gradually sellers & buyers started making commitments to exchange the produce for

cash in future and thus contract for futures trading evolved. Whereby the producer

would agree to sell his produce to the buyer at a future delivery date at an agreed upon

price. In this way producer was aware of what price he would fetch for his produce

and dealer would know about his cost involved, in advance. This kind of agreement

proved beneficial to both of them. As if dealer is not interested in taking delivery of

the produce, he could sell his contract to someone who needs the same. Similarly

producer who not intended to deliver his produce to dealer could pass on the same

responsibility to someone else. The price of such contract would dependent on the

price movements in the wheat market. Latter on by making some modifications these

contracts transformed in to an instrument to protect involved parties against adverse

factors such as unexpected price movements and unfavorable climatic factors. This

promoted traders entry in futures market, which had no intentions to buy or sell wheat

but would purely speculate on price movements in market to earn profit.

Trading of wheat in futures became very profitable which encouraged the entry of

other commodities in futures market. This created a platform for establishment of a

body to regulate and supervise these contracts. Thats why Chicago Board of Trade


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(CBOT) was established in 1848. In 1870 and 1880s the New York Coffee, Cotton

and Produce Exchanges were born. Agricultural commodities were mostly traded but

as long as there are buyers and sellers, any commodity can be traded. In 1872, a group

of Manhattan dairy merchants got together to bring chaotic condition in New York

market to a system in terms of storage, pricing, and transfer of agricultural products.

In 1933, during the Great Depression, the Commodity Exchange, Inc. was established

in New York through the merger of four small exchanges the National Metal

Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and

the New York Hide Exchange.

The largest commodity exchange in USA is Chicago Board of Trade, The Chicago

Mercantile Exchange, the New York Mercantile Exchange, the New York

Commodity Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide

there are major futures trading exchanges in over twenty countries including Canada,

England, India, France, Singapore, Japan, Australia and New Zealand.

International Commodity Exchanges

Futures trading is a result of solution to a problem related to the maintenance of a

year round supply of commodities/ products that are seasonal as is the case of

agricultural produce. The United States, Japan, United Kingdom, Brazil, Australia,

Singapore are homes to leading commodity futures exchanges in the world.

The New York Mercantile Exchange (NYMEX)

The New York Mercantile Exchange is the worlds biggest exchange for trading in

physical commodity futures. The exchange is in existence since last 132 years and

performs trades trough two divisions, the NYMEX division, which deals in energy

and platinum and the COMEX division, which trades in all the other metals.

Commodities traded: - Light sweet crude oil, Natural Gas, Heating Oil, Gasoline,

RBOB Gasoline, Electricity Propane, Gold, Silver, Copper, Aluminum, Platinum,

Palladium, etc.


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London Metal Exchange

The London Metal Exchange (LME) is the worlds premier non-ferrous market, with

highly liquid contracts. The exchange was formed in 1877 as a direct consequence of

the industrial revolution witnessed in the 19 th century.

Commodities traded:- Aluminum, Copper, Nickel, Lead, Tin, Zinc, Aluminum

Alloy, North American Special Aluminum Alloy (NASAAC), Polypropylene, Linear

Low Density Polyethylene, etc.

The Chicago Board of Trade

The first commodity exchange established in the world was the Chicago Board ofTrade (CBOT) during 1848 by group of Chicago merchants who were keen to

establish a central market place for trade. Presently, the Chicago Board of Trade is

one of the leading exchanges in the world for trading futures and options. More than

50 contracts on futures and options are being offered by CBOT currently through

open outcry and/or electronically.

Commodities Traded: - Corn, Soybean, Oil, Soybean meal, Wheat, Oats, Ethanol,

Rough Rice, Gold, and Silver etc.

Tokyo Commodity Exchange (TOCOM)

The Tokyo Commodity Exchange (TOCOM) is the second largest commodity futures

exchange in the world. It trades in to metals and energy contracts. It has made rapid

advancement in commodity trading globally since its inception 20 years back.

TOCOMs recent tie up with the MCX to explore cooperation and business

opportunities is seen as one of the steps towards providing platform for futures price

discovery in Asia for Asian players in Crude Oil since the demand-supply situation in

U.S. that drives NYMEX is different from demand-supply situation in Asia

Commodities traded: - Gasoline, Kerosene, Crude Oil, Gold, Silver, Platinum,

Aluminum, Rubber, etc


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Chicago Mercantile Exchange

The Chicago Mercantile Exchange (CME) is the largest futures exchange in the US

and the largest futures clearing house in the world for futures and options trading.

Formed in 1898 primarily to trade in Agricultural commodities, the CME introduced

the worlds first financial futures more than 30 years ago.

Commodities Traded: - Butter milk, Diammonium phosphate, Feeder cattle, frozen

pork bellies, Lean Hogs, Live cattle, Non-fat Dry Milk, Urea, Urea Ammonium

Nitrate, etc.

Introduction to Indian commodity market

India, a commodity based economy where two-third of the one billion population

depends on agricultural commodities, surprisingly has an under developed commodity

market. The vast geographical extent of India and her huge population is aptly

complemented by the size of her market. The broadest classification of the Indian

Market can be made in terms of the commodity market and the bond market.

India Commodity Market can be subdivided into the following two categories:

o Wholesale Market

o Retail Market

The traditional wholesale market in India dealt with whole sellers who bought goods

from the farmers and manufacturers and then sold them to the retailers after making a

profit in the process. It was the retailers who finally sold the goods to the consumers.

With the passage of time the importance of whole sellers began to decline due tovarious reasons.

In recent years, the extent of the retail market (both organized and unorganized) has

evolved in leaps and bounds. In fact, the success stories of the commodity market of

India in recent years has mainly centered on the growth generated by the Retail

Sector. Almost every commodity under the sun both agricultural and industrial is now

being provided at well distributed retail outlets throughout the country.


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Moreover, the retail outlets belong to both the organized as well as the unorganized

sector. The unorganized retail outlets of the yesteryears consist of small shop owners

who are price takers where consumers face a highly competitive price structure. The

organized sectors on the other hand are owned by various business houses like

Pantaloons, Reliance, Tata and others. Such markets are usually selling a wide range

of articles both agricultural and manufactured, edible and inedible, perishable and

durable. Modern marketing strategies and other techniques of sales promotion enable

such markets to draw customers from every section of the society. However the

growth of such markets has still centered on the urban areas primarily due to

infrastructural limitations.

Considering the present growth rate, the total valuation of the Indian Retail Market

is estimated to cross Rs. 10,000 billion in the year 2010. Demand for commodities is

likely to become four times by 2012 than what it presently is.

History of Commodity Market in India

The history of organized commodity derivatives in India goes back to the nineteenth

century when Cotton Trade Association started futures trading in 1875, about a

decade after they started in Chicago. Over the time datives market developed in

several commodities in India. Following Cotton, derivatives trading started in oilseed

in Bombay (1900), raw jute and jute goods in Calcutta (1912), Wheat in Hapur (1913)

and Bullion in Bombay (1920).

However many feared that derivatives fuelled unnecessary speculation and were

detrimental to the healthy functioning of the market for the underlying commodities,

resulting in to banning of commodity options trading and cash settlement of

commodities futures after independence in 1952. The parliament passed the Forward

Contracts (Regulation) Act, 1952, which regulated contracts in Commodities all over

the India. The act prohibited options trading in Goods along with cash settlement of

forward trades, rendering a crushing blow to the commodity derivatives market.

Under the act only those associations/exchanges, which are granted reorganization

from the Government, are allowed to organize forward trading in regulated

commodities. The act envisages three tire regulations: (i) Exchange which organizes

forward trading in commodities can regulate trading on day-to-day basis. (ii) Forward


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Markets Commission provides regulatory oversight under the powers delegated to it

by the central Government. (iii) The Central Government- Department of Consumer

Affairs, Ministry of Consumer Affairs, Food and Public Distribution- is the ultimate

regulatory authority.

The commodities future market remained dismantled and remained dormant for about

four decades until the new millennium when the Government, in a complete change in

a policy, started actively encouraging commodity market. After Liberalization and

Globalization in 1990, the Government set up a committee (1993) to examine the role

of futures trading.

Commodity exchange in India plays an important role where the prices of any

commodity are not fixed, in an organized way. Earlier only the buyer of produce and

its seller in the market judged upon the prices. Others never had a say.

Today, commodity exchanges are purely speculative in nature. Before discovering the

price, they reach to the producers, end-users, and even the retail investors, at a

grassroots level. It brings a price transparency and risk management in the vital

market. Since 2002, the commodities future market in India has experienced an

unexpected boom in terms of modern exchanges, number of commodities allowed for

derivatives trading as well as the value of futures trading in commodities, which

crossed $ 1 trillion mark in 2006. Since 1952 till 2002 commodity datives market was

virtually non- existent, except some negligible activities on OTC basis.

In India there are 25 recognized future exchanges, of which there are three national

level multi-commodity exchanges. After a gap of almost three decades, Government

of India has allowed forward transactions in commodities through Online Commodity

Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar

to facilitate better risk coverage and delivery of commodities. The three exchanges

are: National Commodity & Derivatives Exchange Limited (NCDEX) Mumbai, Multi

Commodity Exchange of India Limited (MCX) Mumbai and National Multi-

Commodity Exchange of India Limited (NMCEIL) Ahmedabad.There are other

regional commodity exchanges situated in different parts of India.


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Legal framework for regulating commodity futures in India

The commodity futures traded in commodity exchanges are regulated by the

Government under the Forward Contracts Regulations Act, 1952 and the Rules

framed there under. The regulator for the commodities trading is the Forward Markets

Commission, situated at Mumbai, which comes under the Ministry of Consumer

Affairs Food and Public Distribution

Forward Markets Commission (FMC)

It is statutory institution set up in 1953 under Forward Contracts (Regulation) Act,

1952. Commission consists of minimum two and maximum four members appointed

by Central Govt. Out of these members there is one nominated chairman. All the

exchanges have been set up under overall control of Forward Market Commission

(FMC) of Government of India.

National Commodities & Derivatives Exchange Limited (NCDEX)

National Commodities & Derivatives Exchange Limited (NCDEX) promoted by

ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC),

National Bank of Agriculture and Rural Development (NABARD) and National Stock

Exchange of India Limited (NSC). Punjab National Bank (PNB), Credit Ratting

Information Service of India Limited (CRISIL), Indian Farmers Fertilizer Cooperative

Limited (IFFCO), Canara Bank and Goldman Sachs by subscribing to the equity

shares have joined the promoters as a share holder of exchange. NCDEX is the only

Commodity Exchange in the country promoted by national level institutions.

NCDEX is a public limited company incorporated on 23 April 2003. NCDEX is a

national level technology driven on line Commodity Exchange with an independent

Board of Directors and professionals not having any vested interest in Commodity

Markets.

It is committed to provide a world class commodity exchange platform for market

participants to trade in a wide spectrum of commodity derivatives driven by best

global practices, professionalism and transparency.


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NCDEX is located in Mumbai and offers facilities to its members in more than 550

centers through out India. NCDEX currently facilitates trading of 57 commodities.

Commodities Traded at NCDEX

Bullion -Gold KG, Silver, Brent

Minerals - Electrolytic Copper Cathode, Aluminum Ingot, Nickel Cathode,

Zinc Metal Ingot, Mild steel Ingots

Oil and Oil seeds - Cotton seed, Oil cake, Crude Palm Oil, Groundnut (in

shell), Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein, Refined

soya oil, Rape seeds, Mustard seeds, Caster seed, Yellow soybean.

Pulses -Urad, Yellow peas, Chana, Tur, Masoor,

Grain -Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice, Indian raw

Rice (ParmalPR-106), Barley, Yellow red maize

Spices -Jeera, Turmeric, Pepper

Plantation - Cashew, Coffee Arabica, Coffee Robusta

Fibers and other - Guar Gum, Guar seeds, Jute sacking bags, Indian 28 mm

cotton, Indian 31mm cotton, Lemon, Grain Bold, Medium Staple, Mulberry,

Green Cottons Potato, Raw Jute,Mulberry raw Silk, V-797 Kapas, Sugar,

Chilli LCA334

Energy -Crude Oil, Furnace oil.

Multi Commodity Exchange of India Limited (MCX)

Multi Commodity Exchange of India Limited (MCX) is an independent and de-

metalized exchange with permanent reorganization from Government of India, having

Head Quarter in Mumbai. Key share holders of MCX are Financial Technologies

(India) Limited, State Bank of India, Union Bank of India, Corporation Bank of India,

Bank of India and Canara Bank. MCX facilitates online trading, clearing and

settlement operations for commodity futures market across the country.


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MCX started of trade in Nov 2003 and has built strategic alliance with Bombay

Bullion Association, Bombay Metal Exchange, Solvent Extractors Association of

India, pulses Importers Association and Shetkari Sanghatana. MCX deals wit about

100 commodities.

Commodities Traded at MCX

Bullion - Gold, Silver, Silver Coins,

Minerals - Aluminum, Copper, Nickel, Iron/steel, Tin, Zinc, Lead

Oil and Oil seeds - Castor oil/castor seeds, Crude Palm oil/ RBD Pamolein,

Groundnut oil, Mustard/ Rapeseed oil, Soy seeds/Soy meal/Refined Soy Oil,

Coconut Oil Cake, Copra, Sunflower oil, Sunflower Oil cake, Tamarind seed

oil,

Pulses - Chana, Masur, Tur, Urad, Yellow peas

Grains - Rice/ Basmati Rice, Wheat, Maize, Bajara, Barley,

Spices - Pepper, Red Chili, Jeera, Cardamom, Cinnamon, Clove,

Ginger,

Plantation - Cashew Kernel, Rubber, Areca nut, Betel nuts, Coconut,

Coffee,

Fiber and others - Kapas, Kapas Khalli, Cotton (long staple, medium staple,

short staple), Cotton Cloth, Cotton Yarn, Gaur seed and Guargum, Gur and

Sugar, Khandsari, Mentha Oil, Potato, Art Silk Yarn, Chara or Berseem, Raw

Jute, Jute Goods, Jute Sacking,

Petrochemicals - High Density Polyethylene (HDPE), Polypropylene (PP),

Poly

Vinyl Chloride (PVC)


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Energy - Brent Crude Oil, Crude Oil, Furnace Oil, Middle East Sour Crude

Oil, Natural Gas

National Multi Commodity Exchange of India Limited (NMCEIL)

National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-

mutualised Electronic Multi Commodity Exchange in India. On 25th July 2001 it was

granted approval by Government to organize trading in edible oil complex. It is being

supported by Central warehousing Corporation Limited, Gujarat State Agricultural

Marketing Board and Neptune Overseas Limited. It got reorganization in Oct 2002.

NMCEIL Head Quarter is at Ahmedabad.

STRUCTURE OF COMMODITY MARKET


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INTRODUCTION TO THE GOLD

A very ductile and malleable, brilliant yellow precious metal that is resistant to air and

water corrosion. It is a precious metal that is very soft when pure (24 Kt). Gold is the

most malleable (hammerable) and ductile (able to be made into wire) metal. Gold is

alloyed (mixed with other metals, usually silver and copper) to make it less expressive

and harder. The purity of gold jewelry is measured in karats. Some countries

hallmark gold with a three-digit number that indicates the parts per thousand of gold.


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In this system. 750 means 750/1000gold (equal to 18K); 500 means 500/1000

gold (equal to 12K). Alloyed gold comes in many colors.

WORLD GOLD MARKETS

London as the great clearing house

New York as the home of futures trading

Zurich as a physical tumtable

Istanbul, Dubai, Singapore and Hong Kong as doorways to important

consuming regions.

Tokyo where TOCOM sets the mood of Japan

Mumbai under Indias liberalized gold regime.

24 HOURS ROUND THE CLOCK MARKET

Hong Kong Gold Market

Zurich Gold Market

London Gold Market

New York Market

INDIA GOLD MARKET

Gold is valued in India as a savings and investment vehicle and is the second

preferred investment after bank deposits

India is the worlds largest consumer of gold to jewellery as investment.


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In July 1997 the RBI authorized the commercial banks to import gold for sale

or loan to jewelers 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.

The gold hoarding tendency is well ingrained in Indian society.

Domestic consumption is dictated by monsoon/harvest and marriage season.

Indian jewelry off take is sensitive to price increase 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 in India, as

compared to the rest of the world, are insignificant, both qualitatively and

quantitatively.

Major gold production countries

South Africa, United States, Australia, China, Canada, Russia, Indonesia,

Peru, Uzbekistan, Papua New Guinea, China, Brazil, Chile, Philippines, Mali,

Mexico, Argentina, Zimbabwe& Colombia.

Market Moving Factors

Aboveground supply from sales by central bank, reclaimed scrap and official

gold loans

Producer/miner hedging interest


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World macro-economic factors US Dollar, interest rate

Comparative returns on stock markets

Domestic demand based on monsoon and agricultural output, Fine gold

content.

THE PURITY OF GOLD ARTICLES IS GENERALLY DESCRIBED IN

THREE WAYS.

Percent % (Parts of gold per

100)

Fineness (Parts of gold per

1000)Karats (parts of gold per 24)

100% 999 Fine 24 Karats

91.60% 916 Fine 22 Karats




FINE GOLD CONTENT

The minimum fineness is 995 parts per 1000 fine gold and gold said to be 100 fine is

marked down to 999.9 fine. The following fine gold contents of other bar weights are

accepted by the London Bullion Market Association (LBMA). These bars are

available at the spot Loco-London price plus a premium which varies dependent on

prevailing market conditions in different locations


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TECHNICAL VS. FUNDAMENTAL ANALYSIS

Technical analysis and fundamental analysis are the two main schools of thought in

the financial market. As weve mentioned, technical analysis looks at the price

movement of a security and uses this data to predict its Future price movements.

Fundamental analysis, on the other hand, looks at economic factor, know as

fundamentals. Lets get into the details of how this two approaches differ, the

criticism against technical analysis and how technical and fundamental analysis can

be used together to analyze securities.

FUNDAMENTAL ANALYSIS

At the most basic level, by looking at the balance sheet, cash flow statement and

income statement, a fundamental analyst tries to determine a companys value. In

financial terms, an analyst attempts to measure a companys intrinsic value. In this

approach, investment decisions are fairly easy to make if the price of a stock trades

below its intrinsic value, its a good investment. Although this is an oversimplification

(fundamental analysis goes beyond just the financial statements) for the purpose of

this tutorial, this simple tenet holds true.

TECHNICAL ANALYSIS

Technical traders, on the other hand, believe there is no reason to analyze a

companys fundamental because these are all accounted for in the stocks price.

Technicians believe that all the information they need about a stock can be found in

its chart. While a fundamental analyst starts with the financial statements.

TYPES OF MOVING AVERAGES

There are a number of different types of moving averages that vary in the way they

are calculate, but how each average is interpreted remains the same. The calculations

only differ in regards to the weighting that they place on the price data, shifting from

equal weighting of each price point to more weight being placed on recent data .The

three most common types of moving averages are


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SIMPLE MOVING AVERAGE (SMA)

This is the most common method used to calculate the moving average of price. It

simply takes the sum of all of the past closing prices over the time period and divides

the result by the number of price used in the calculation. For example, in a 10-day

moving average, the last 10 closing are added together and then divided by 10.

LINEAR WEIGHTED AVERAGE

This moving average indicator is the least common out of the three and is used to

address the problem of the equal weighting. Taking the sum of all the closing prices

over a certain time period and multiplying them by the position of the data point and

then dividing by the sum of the number of periods calculate the linear weighted

moving average. For example ,in a five day linear weighted average ,five multiplies

todays closing price ,yesterdays by four and so on until the first day in the period

range is reached .These numbers are hen added together and divided by the sum of the

multipliers.

EXPONENTIAL MOVING AVERAGE (EMA)

This moving average calculation uses a smoothing factor to place a higher weight on

recent data point and is regarded as much more efficient than the linear weighted

average. Having an understanding of the calculation is not generally required for most

trades because most charting packages do the calculation for you. The most important

thing to remember about the exponential moving average is that it is more responsive

to new information relative to the simple moving average. This responsiveness is one

of the key factors of why this is the moving average of choice among many technical

traders.

GOLD CONTRACTS

In India we have 4 types of gold contracts available in mcx.

Gold-1000 grams

Goldmini- 100 grams


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Goldhni-1000 grams

Goldguinea-8 grams

Gold -1000 grams

It is a 1000 grams lot available in mcx and big investor can invest in this gold

lots.

Gold hni-1000 grams

It is a1000 grams lot available in mcx so, here who has registered as a HNI in

mcx he will take the gold HNI contracts at a time .number of contracts like it

called as bulk deals.

Goldmini-100 grams

The medium investor can invest in goldmine and the lot size is 100 grams.

Goldguinea-8 grams

It is especially for small investors the lot size is 8 grams.

A Study on Commodity Market Wrt Gold at Edelweiss Karimnagar

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