Gold Pricing

7/31/2019 Gold Pricing

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GOLD PRICING


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GOLD

Gold was used ascurrency

Investors use it ashedge againsteconomic, politicalunrest

Gold used as reserve offorex

Bretton Woods system

for gold


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GOLD RESERVES

A gold reserve is the gold held by a central

bank or nation intended as a store of valueand as a guarantee to note holders (e.g.,

paper money), or to secure a currency


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GOLD RESERVES


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GOLD PRICE FIXING

History On 12th September 1919 gold price fixed as four

pounds 18 shillings and ninepence

Gold pricing done on the premises of N MRothschild & Sons

Due to wartime 1939 1959 gold market was closed

After World War II gold was denominated in USD


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Members Scotia-Mocatta successor to Mocatta &

Goldsmid and part of Bank of Nova Scotia

Barclays Capital Replaced N M Rothschild& Sons

Deutsche Bank Owner of Sharps Pixley,itself the merger of Sharps Wilkins with Pixley

& Abell HSBC Owner of Samuel Montagu & Co.

Socit Gnrale Replaced JohnsonMatthey and CSFB as fifth seat


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Process overview Fixed everyday twice

Chairman begins with a trying price

Five members banks relay price

Price fixed according to demand and supply


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Procedure followed disequilibrium fixing:

Traditional fixing : UNION JACK wasraised to pause proceedings

Modern method :

transactions carried with telephone

flag to pause proceedings chair ends with word there are no flags

available we are fixed


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WHY GOLD FIXING AT ALL ?

Set as benchmark by five members

for world

Price precise for that moment

Serves as guideline for traders


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WHY DO WE KEEP GOLD?

Total gold minedremains almost fixed

Gold price affected bysentiment than

production People see gold as

investment/ currency

in crisis No relation in gold

and other commodityprices


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FACTORS AFFECTING GOLD PRICES

The price of gold is driven by supply anddemand

Following some Factors affect gold price

Jewellery and industrial demandCentral banks

Hedge against financial stress

Short sellingWar, invasion and national emergency etc.


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1. JEWELERY & INDUSTRIAL DEMAND

Main factor influencing the gold price is demandfor jewelry

Jewelry Consumes two third of annual gold

production.(Festivals, Weddings etc) India is responsible for 27% to the demand

Industrial demand is at 12% of gold demand

high thermal conductivity and high resistance tocorrosion make its ideal for Industries

Emerging markets boost demand such.


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2.CENTRAL BANKS

Central banks and mining companies, have alarge amount of gold reserve

Massive Buying/Selling of gold by them

changes gold price.CB hold around 16% of produced gold.

Washington Agreement on Gold (WAG) from

1999 puts a cap on the sales of gold . Limits the sale to less than 500 tonnes

annually.


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CENTRAL BANKS .

Generally interest rates are closely related tothe price of gold.

CB correlates change in gold price via themonetary policy decisions made related tointerest rates.(i.e. prolong inflation)

On April 7, 2011 ECB raised the Interest rate

, responding in high increase gold price.


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3. SPECULATION AND INVESTING

(HEDGE FUND)

Gold used as a Hedge against

inflation/deflation or currency devaluation.

Currencies are under pressure due toinflation and massive govt. deficits

Returns on bonds, equities and real estate isnot adequately compensated ,results in

demand for gold.


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4.SHORT SELLING

The price of gold is also affected by variouswell-documented mechanisms of artificialprice suppression

Fractional reserve banking

Video
http://what%20is%20short-selling.flv/http://what%20is%20short-selling.flv/


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5. WAR, INVASION andNATIONAL EMERGENCY

During emergency (Great Depression) orwar situations, people feared bank wouldfailed

Their assets would be seized and it willbecome worthless.

It would be safe as compared to bank notes

and other assets.

This scenarios lead to jump in price of gold.


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CONCEPT OF ETF

What is an ETF?

An exchange traded fund is an investmentfund traded on stock exchanges ,much likestocks


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Holds assets such as bonds, commodities

Trades close to its net asset value over thecourse of the day

With ETF its one trade, one price


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STRUCTURE

ETF dont sell individual shares at NAV

Financial institutions purchase shares from

ETF

Only in large blocks called creation units

Exchanged with baskets of underlyingsecurities


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Under the SEC proposal, an ETF wouldbe defined as investment company that

Issues creation units

Identifies itself as an ETF in any sales literature

Issues shares that are approved on securityexchange

Disclose each business day on its publicallyavailableWebsite


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TYPES OF ETFS

Index ETFs

Commodity ETFs

Bond ETFs

Currency ETFs

Actively managed ETFs

THINGS TO CONSIDER BEFORE


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THINGS TO CONSIDER BEFORE

BUYING ETF

Investment strategy

Investment horizon

ETF assets

Costs, commissions & fees

Tax implication


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ADVANTAGES OF ETFS

Single transaction

Cost effectiveness

Taxes

Flexibility

Accountability

Simplicity


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STRONG REASONS TO BUY ETFS

Investing in the market

Reap ETF benefits

Save on commissions & fees


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What are Gold ETF's?

Gold ETF Listed on NSE

GOLDSAHRE

SBIGETS

RELIGAREGO

How to Trade Gold ETFs?


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Benefits of Gold ETFs

Transparent Pricing

Easy Accessibility

Purity

Smaller Denomination

Tax Benefits


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GOLD ETF IN INDIA


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GOLD ETF IN INDIA(2010-11)

Largest Fascination with gold.

Accounting 9.5% of the Worlds gold holding.

High Returns.

Popular to invest in as Prices skyrockets.


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PRESENCE OF GOLD ETF(2010-11)

NAMES NSE TICKER

Quantum QGOLDHALF UTI GOLDSHARE SBI SBIGETS Axis AXISGOLD HDFC HDFCMFGETF RELIANCE RELGOLD Religare RELIGAREGO

Benchmark GOLDBEES ICICI Prudential IPGETF Kotak KOTAKGOLD Birla Sunlife BSLGOLD ETF


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PERFORMANCE OF GOLD ETF IN INDIA


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BEST GOLD ETF IN INDIA 2011

Benchmark named GOLDBEES in NSE is one of the best ETF in

India.

Expense Ratio is very Low.

High Volume

Oldest of ALL.


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EXPENSE RATIO

Amt Incurred for Maintaining purpose.

Important Factor in Gold ETF.

It includes:

-Advisory Fee

-Register and transfer agent Fee

-Brokerage Cost

-Cost of fund transfer.

-Other Expenses.


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BENCHMARKS VOLUME


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VOLUME OF GOLD ETF IN INDIA(2010-11)


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GOLD PRICING AND INFLATION

Root cause: money supply and velocity of money

Gold is an asset affected by many factors in many market.

Change in money supply and price of gold


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MONEY SUPPLY AND ITS IMPACT IN THE

GOLD MARKET

US Financial Crisis

Stress fractures in securitized products

Governments and central banks implementedmeasures

Effect of financial crisis on the magnitude andtiming of inflation


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GOLD DEFIES THE MOULD

Performance of gold to particular trends ofinvestment flows, inflation or growth.

The structure of the global demand for goldis very diverse

Behavior of Gold Prices


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GOLD AND MONEY SUPPLY

Gold as an asset has low correlation tomost financial assets

Two reasons for surge in money supply

1. Economic growth (low inflation)

2.

Too much money into the economy(inflationary pressures)


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GOLD AND VELOCITY OF MONEY

Inflation can be regulated by the amount ofmoney supply pumped into the market

Velocity of money: Compare GDP to moneysupply

Gold is an indicator to such measure


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Gold maintains a special position

in market with many tax regimes

e.g. European Union the trading of recognizedgold coins

do not have the same allowance -silver & preciousmetals & commodities


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CONT..

U.S. citizens

taxed on gold profits

15 %, 23 %, 28 % or 35 % ,

Depending on investment


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ETF TAX

The holding period of the gold ETF units

More than 12 months

Classified as long term capital gain

The holding period of the gold ETF units

less than 12 months Classified as short term capital gain


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For stocks held for more than one year

Long-term capital gains rate is 15% in 2010,

It is scheduled to increase to 20% in 2011.


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The short-term capital gain rates -- 35% in2010.

The rate is scheduled to increase to 39.6% in2011.


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Gold coins & bulliontangible personalproperty

Axed as a collectible

Capital gains or losses = stocks and bonds.


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Investor purchases shares of stock

Gold mining corporation

Contract there is no state or local sales taxon the purchase.


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The purchase of gold coins

Bullion

State sales tax

Where sale takes place.


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When an investor decides to invest in gold

It is important for the investor to understand

Both the tax ramifications & the different formsof investing in gold.

Also, importance is where the investor lives

where the sale takes place


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Gold attracts its fair share of

fraudulent activity. Some of the most

common to be aware of are:


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CASH FOR GOLD

Rise in price of goldfinancial crisis

In 2007-2010

surge incompanies

buy personalgold in

exchange forcash,

sellinvestments in gold

bullion

sellinvestments

in gold coins


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VIDEO OF SSSSSS SCAM

Scam
http://gold_scam_pkg.flv/http://gold_scam_pkg.flv/


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FUTURE PROJECTIONS


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Analysts split on the future of gold prices.

The big rise in gold price from $800 / ouncein January 2009 to $1,227 / ounce in

November 2009 has been the center ofbullion discussions all these days.


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Central banks trying to amass gold reserves toreplace the value-decreasing US bonds anddollar that several countries have so far been

holding as foreign exchange reserves. Indias central bankthe Reserve Bank of India

(RBI)bought 200 tonnes of gold from theInternational Monetary Fund (IMF) in November,2009, adding to the frenzy in bullion market.


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Gold is relatively "recession-proof," asevidenced by its relative strength in 2008.Gold prices rose 1.7% last year, which is

quite spectacular considering equity valueswent down 39.3%, real estate values wentdown 21.8%, and commodity prices went

down 45.0% in the same period


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Will Gold Prices Hit $ 2000 by2012?

Two of the most bullish factors in the goldmarket expectations of U.S. Fed Reserve

may rely more on inflation-stokingquantitative easing measures, and news thatChina aims for the gold market to expand.
http://economictimes.indiatimes.com/search.cms?query=Gold%20priceshttp://economictimes.indiatimes.com/search.cms?query=Gold%20priceshttp://economictimes.indiatimes.com/search.cms?query=Gold%20prices


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The current US and the Euro zone crisis willkeep the gold prices bullish and it is likely toreach USD 2,000 an ounce in another 3-4

months


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http://www.phongpo.com/2010/08/05/gold-investing-will-gold-prices-hit-2000-by-2012/gold-stock-investment/


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http://www.phongpo.com/2010/08/05/gold-investing-will-gold-prices-hit-2000-by-2012/gold-stock-investment/

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