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Gold’s spectacular rise continues to draw attention.

Here are some facts on yellow metal that you may

have missed-

�1,67,652 tonnes is the total gold mined till now.

�$9.43 trillion is the value of gold mined till now.

�$0.5 trillion is the value of gold held by Federal

Reserve Bank.

�52% of all gold extracted is now in the form of

jewellery.

�18% of all gold is in the central bank reserves of

different countries.

HISTORY OF GOLD

�Gold coins were first minted in Greek city during

610 B.C.

�Legal tenders used for trading during 1750-1870

with a fixed rate for converting gold into silver.

�During 1870-1914, all the countries pegged their

silver coins to gold standards of U.K. or U.S.

�During the Post World War 2 period, U.S. fixed the

price of gold at $35 per ounce under the BRETTON

WOODS agreement.

�After the termination of the Bretton Woods

agreement on august 15th 1971, Dollar became U.S.

reserve currency. Known as the ‘Nixon Shock’

�Since then Gold & Dollar are inversely related.

GOLD - DOLLAR RELATIONSHIP

Economic Bubble

A financial or economic bubble occurs when the commodity/stock

trade at prices that exceed their intrinsic or true values. A stock

trading beyond its true value eventually crashes, resulting in the

decline of the stock price. Popularly known as the ‘Bursting of the

bubble’bubble’

Some examples of Bubbles are :

•Tulip Mania(1673)

•The roaring twenties stock market •The roaring twenties stock market

bubble(1922-1929)

•The Dot-com Bubble(1995-2000)

GOLD BUBBLE: IS THERE ONE?

Gold is in an economic bubble and today is

selling in excess of $1,800 per ounce -- far

beyond its intrinsic worth.

Gold is more than just a commodity and is

more complicated than the tulip, housing or

dot.com phenomena. Prices of gold will

continue to rise because its intrinsic value is

still more than its market price.

EXCHANGE TRADED FUNDS

• An exchange-traded fund (ETF) is an investment

fund traded on stock exchanges, much like stocks.

•An ETF holds assets such as stocks, commodities, •An ETF holds assets such as stocks, commodities,

or bonds. Most ETFs track an index, such as the S&P

500 or MSCI EAFE.

•ETFs may be attractive as investments because of

their low costs, tax efficiency, and stock-like

features.

•Gold ETFs invest in gold. Gold exchange-traded

funds were among the first commodity ETFs, which

have been offered in a number of countries.

•The idea of a Gold ETF was first officially

conceptualized by Benchmark Asset Management conceptualized by Benchmark Asset Management

Company Private Ltd in India when they filed a

proposal with the SEBI in May 2002.

•The first gold exchange-traded fund was Gold Bullion Securities launched on the ASX in 2003.

ADVANTAGES OF GOLD ETFs

•One of the biggest advantages of gold ETFs is

that investing in gold is much more accessible.

•There are no hassles of storing the gold or

risking its stolen. It’s relatively maintenance-

free.

SIGNIFICANCE OF ETF ON GOLD BUBBLE

•Though the real forces driving the bullion market

are demand and supply but the significant

contribution has been by the ETFs.

•While investment demand has marginally eclipsed

jewellery demand in past downturns, demand from

jewellery fabrication down by 5% worldwide

alongside of 118% rise in investment demand that

includes bullions and ETFs.

•SPDR Gold trust, has pointed out that participation

of an ETF has inflated the metals demand and

inflated its price.

•But another school of thought, Paul Justice, said

that if you open up access to any asset that was that if you open up access to any asset that was

formerly restricted , large rush of buyers impact the

underlying price to some degree.

•Investment in traditional small bars and coins is still

larger “ounce for ounce” than the ETF investment.

615.5

614.8

522.7

466.9

421.6

401.1

322.9

310.3

300

300

281.6

Netherlands

India

ECB

Republic of China (Taiwan)

Portugal

Venezuela

Saudi Arabia

United Kingdom

Islamic Republic of Iran

Lebanon

Spain

Gold Reserves of Major Holders

10,792.60

8,133.50

3,401.00

2,846.70

2,451.80

2,435.40

1,054.10

1,040.10

950.3

775.2

765.2

0.00 2,000.00 4,000.00 6,000.00 8,000.00 10,000.00 12,000.00

Eurozone

USA

Germany

IMF

Italy

France

China

Switzerland

Qatar

Russia

Japan Series1

WHY DO PEOPLE INVEST IN

GOLD?

•Majority of the people invest in gold cause others

are doing so.

•This is called as the ‘Herding Effect’•This is called as the ‘Herding Effect’

•Major players of the market enter into the market

when the prices are low and exit at a time when the

markets are at high thereby helping form a bubble.

• Seeing the major players making profits, the

small retail investors comes in.

• Soon after the prices began to fall and this is

when we say that the price correction took when we say that the price correction took

place in gold.

WHY ARE WE SAYING THAT A

BUBBLE IS BEING CREATED IN GOLD?

• Taking cues from history:

WHY A BUBBLE?

• The last time gold was used for investment,exceeded gold used for jewellery was 1980 — thecorrection in prices happened.

• Negative correlation between value of gold andthe value of US dollar.the value of US dollar.

• Leads to the appreciation of the value of gold asthe value of USD dips down in the times ofinflation.

• It happened in 1980’s , in 2000, in 2007 andthanks to the downgrade of credit ratings of US byS&P, it is happening now as well.

WHY A BUBBLE ?

• The unemployment rate:

WHY A BUBBLE?

• Whenever the recession occurs, the unemployment

rate goes up.

• At present, the unemployment rate in USA is 9.1%

• Govt. has to give monetary benefits to the

unemployed. unemployed.

• USA is a debt driven economy and people/countries

aren’t willing to pay them money cause of their

skepticism

WHY A BUBBLE?

• As other countries aren’t giving USA the money, what USA does is print the money.

• This leads to huge flow of USD in the market.

• As large amount of USD is flowing in the market, this leads to depreciation in the value of USD. this leads to depreciation in the value of USD.

• And as there is a negative correlation between the value of USD and the price of gold, the value of gold is bound to increase.

• And that is when we say that people herd for investing in gold, thereby creating a bubble.

WHY A BUBBLE?

• The business confidence factor:

WHY A BUBBLE?

• The after effects of 2007 and the recent S&P downgrade (from AAA to AA+) have added to the vows of the US government.

• Investor have lost confidence in USA as a safe investment bet,

• The FDIs and other forms of investments are not coming in.

• The investors have lost faith as USA as an investment option is not giving them the returns they expect.

• All these factors lead to drop in the value of USD thereby acting as a major factor for appreciating the value of gold.

WHY A BUBBLE?

WHY A BUBBLE?

• Interest benefits reaped by FII and other investors

were low.

• No major investor opted to go to USA and invest.

• This lead to depreciation in the value of USD.

• Cause of which, the value of gold appreciated;

owing to the inverse correlation between the USD

value and gold.

THANK YOU !