GOLD BUSINESS
Gold, the precious metal has always been a status symbol from the time immemorial. It has always been the symbol of the riches, affluence and pride for the human society. It is a beautiful, colourful, dense, malleable, ductile and indestructible matter besides being scarce in terms of its presence in the nature. The above properties of the gold makes it most wanted commodity in the world. It symbolizes the majesty of the God and over the centuries has attained the status of ‘The noblest metal of the earth’. The Egyptian culture flourished because of abundance of Gold in that country. The mining techniques of the gold were created by the Romans. ROLE OF GOLD IN THE MONETARY ECONOMY Gold had been playing an important role in the monetary economy as a measurement of wealth, an instrument for barter system and a scale for domestic currency of a country by way of Gold Standards, the monetary system adopted prior to the First World War. In a pure Gold Standard the currency of the country was valued in terms of the fixed weight of the Gold of a definite fineness. There was a complete freedom to buy or sell gold or to Import or Export it. Gold coins were in circulation and the Bank Notes could be exchanged for gold on demand. However in this system the Central Banks were required to possess sufficient stock of Gold and as an advantage the gold standard provided stability of exchange rates between the different countries. INTERNATIONAL LIQUIDITY – GOLD International liquidity refers to the Internationally accepted assets, which are used for settlement of debts between individuals, corporate bodies and trading nations. These assets should be liquid, easily transferable, and readily acceptable and must have a stable and predictable value. They serve as a medium of exchange, as a unit of account and a store of value. Gold was an universally accepted medium of exchange and a store of value, but with the increase of International trade volumes and a short fall in supplies, Gold's international liquidity character eroded slowly and the need to economise the gold holdings became apparent. GOLD STOCKs At present about 35000 tonnes of gold (nearly one third of the total gold ever mined) are owned by the Central Banks. Out of these holdings, U.S and European Central Banks alone hold about 50%. However central Banks of some of the countries, like, Canada, Argentina, Belgium and Australia, after realising use of holding gold as monetary reserve, have already sold a significant portion of their gold holdings. This is one of the reasons why the Gold prices have tumbled in 1996-97 in the International markets. THE WORLD GOLD MARKET Gold today is being sold in the international markets like any other commodity. There is a very sophisticated buying and selling mechanism for the gold. A long range of instruments have been developed so that the market participants can hedge against the unfavourable price movements or profit from strategies that reflect their view on the gold price movements. The major markets exist in London, New York, Zurich, Singapore, Sydney, Tokyo and Hong Kong. GOLD PRICING- LONDON AM/PM FIXING Mostly the trading of the gold takes place on ruling prices in the London Bullion Market and the rates are quoted on dealing information screens like Reuters etc. Fixing the price of the gold takes place twice a day in London, one at 10.30 A.M and other at 3.30 PM London time. The fixing provides the customer with a benchmark price, used as a pricing medium. Deals done on fixing enjoy the advantage of a published price. Customers can leave orders to either sell or buy a certain amount of gold at the fixing process. The fixing meetings are attended by the gold market representatives and are usually chaired by the representative of the N.M Rothchild & sons. GOLD SPOT MARKET The Spot market for the gold is most liquid of all gold markets and it is operated 24 hours a day. The prices are quoted two way, with a bid and offer price and the settlement takes place on the second working day from the day of the transaction. Seller transfers the gold from his unallocated account in the London clearing house. Price quotations are usually in USD per Troy Ounce (Oz) basis. GOLD BARS
The London good delivery gold bars are of a standard size of 400 Ounce large bars with a fineness of 995 parts per 1000 fine gold. They will bear a serial number with the stamps of an acceptable matter and assayer. The specifications are determined by London Bullion Market Association. Besides, the London Good Delivery bars, other types of bars namely, TT Bars (Ten Total bars weighing 116.640 gms) of purity 999 parts and Kg Bars (weighing 1000 gms) of purity of 995 gms are also traded in International Gold Markets. HEDGING PRODUCTS IN GOLD Hedging Products, similar to currencies, are also available in the gold markets. These are Options, Futures, Forward Rate Agreements, Gold Interest rate Swaps Caps, Floors and Collars etc. GOLD BUSINESS- THE INDIAN SCENARIO Indians have traditionally a grate affinity towards the Gold. The demand for Gold in India has, thus, been on an upward curve since the days of yore. In 1982 the demand was 65 tonnes, which has swelled to about 600-700 tonnes in the mid 98-99. The 80% of this demand of Gold is for jwellery making and the rest is for the investment purpose. In India roughly about 2 tonnes of Gold is being mined. Very high domestic demand and some restrictive policy measures have resulted in higher prices of gold in India in comparison to International prices. The objective behind the restrictive policy of the Govt. remained towards reducing the domestic demand, bringing down it's prices and eliminating smuggling of gold in the country. Non-Residents can bring in India 10 Kgs of gold every six months by paying a moderate duty of Rs 400 per 10 Grams. Vide Exim Policy 1997-2000, the govt., has allowed Banks to import Gold subject to following conditions like, minimum capital adequacy ratio of 9%, track record of RBI compliances, capability to handle business and advanced risk management system in the bank. At present 22 nominated banks and the agencies in India have been granted permission by RBI to enter into the Gold business. Jaipur, Ahmedabad, Chennai have emerged major Gold markets in India. India is the largest consumer of the gold with annual demand of about 600-700 tons against total world's demand of 3200 tons. 80% Gold in India is used for jewellery, 15% for the investment and 5% for the industrial purposes. Tarapore Committee on Capital Account Convertibility had recommended for opening of the Gold imports. With the liberalization of the economy the holding of gold in the shape of the bars and coins is now permitted.
doc_314865856.doc
Gold, the precious metal has always been a status symbol from the time immemorial. It has always been the symbol of the riches, affluence and pride for the human society. It is a beautiful, colourful, dense, malleable, ductile and indestructible matter besides being scarce in terms of its presence in the nature. The above properties of the gold makes it most wanted commodity in the world. It symbolizes the majesty of the God and over the centuries has attained the status of ‘The noblest metal of the earth’. The Egyptian culture flourished because of abundance of Gold in that country. The mining techniques of the gold were created by the Romans. ROLE OF GOLD IN THE MONETARY ECONOMY Gold had been playing an important role in the monetary economy as a measurement of wealth, an instrument for barter system and a scale for domestic currency of a country by way of Gold Standards, the monetary system adopted prior to the First World War. In a pure Gold Standard the currency of the country was valued in terms of the fixed weight of the Gold of a definite fineness. There was a complete freedom to buy or sell gold or to Import or Export it. Gold coins were in circulation and the Bank Notes could be exchanged for gold on demand. However in this system the Central Banks were required to possess sufficient stock of Gold and as an advantage the gold standard provided stability of exchange rates between the different countries. INTERNATIONAL LIQUIDITY – GOLD International liquidity refers to the Internationally accepted assets, which are used for settlement of debts between individuals, corporate bodies and trading nations. These assets should be liquid, easily transferable, and readily acceptable and must have a stable and predictable value. They serve as a medium of exchange, as a unit of account and a store of value. Gold was an universally accepted medium of exchange and a store of value, but with the increase of International trade volumes and a short fall in supplies, Gold's international liquidity character eroded slowly and the need to economise the gold holdings became apparent. GOLD STOCKs At present about 35000 tonnes of gold (nearly one third of the total gold ever mined) are owned by the Central Banks. Out of these holdings, U.S and European Central Banks alone hold about 50%. However central Banks of some of the countries, like, Canada, Argentina, Belgium and Australia, after realising use of holding gold as monetary reserve, have already sold a significant portion of their gold holdings. This is one of the reasons why the Gold prices have tumbled in 1996-97 in the International markets. THE WORLD GOLD MARKET Gold today is being sold in the international markets like any other commodity. There is a very sophisticated buying and selling mechanism for the gold. A long range of instruments have been developed so that the market participants can hedge against the unfavourable price movements or profit from strategies that reflect their view on the gold price movements. The major markets exist in London, New York, Zurich, Singapore, Sydney, Tokyo and Hong Kong. GOLD PRICING- LONDON AM/PM FIXING Mostly the trading of the gold takes place on ruling prices in the London Bullion Market and the rates are quoted on dealing information screens like Reuters etc. Fixing the price of the gold takes place twice a day in London, one at 10.30 A.M and other at 3.30 PM London time. The fixing provides the customer with a benchmark price, used as a pricing medium. Deals done on fixing enjoy the advantage of a published price. Customers can leave orders to either sell or buy a certain amount of gold at the fixing process. The fixing meetings are attended by the gold market representatives and are usually chaired by the representative of the N.M Rothchild & sons. GOLD SPOT MARKET The Spot market for the gold is most liquid of all gold markets and it is operated 24 hours a day. The prices are quoted two way, with a bid and offer price and the settlement takes place on the second working day from the day of the transaction. Seller transfers the gold from his unallocated account in the London clearing house. Price quotations are usually in USD per Troy Ounce (Oz) basis. GOLD BARS
The London good delivery gold bars are of a standard size of 400 Ounce large bars with a fineness of 995 parts per 1000 fine gold. They will bear a serial number with the stamps of an acceptable matter and assayer. The specifications are determined by London Bullion Market Association. Besides, the London Good Delivery bars, other types of bars namely, TT Bars (Ten Total bars weighing 116.640 gms) of purity 999 parts and Kg Bars (weighing 1000 gms) of purity of 995 gms are also traded in International Gold Markets. HEDGING PRODUCTS IN GOLD Hedging Products, similar to currencies, are also available in the gold markets. These are Options, Futures, Forward Rate Agreements, Gold Interest rate Swaps Caps, Floors and Collars etc. GOLD BUSINESS- THE INDIAN SCENARIO Indians have traditionally a grate affinity towards the Gold. The demand for Gold in India has, thus, been on an upward curve since the days of yore. In 1982 the demand was 65 tonnes, which has swelled to about 600-700 tonnes in the mid 98-99. The 80% of this demand of Gold is for jwellery making and the rest is for the investment purpose. In India roughly about 2 tonnes of Gold is being mined. Very high domestic demand and some restrictive policy measures have resulted in higher prices of gold in India in comparison to International prices. The objective behind the restrictive policy of the Govt. remained towards reducing the domestic demand, bringing down it's prices and eliminating smuggling of gold in the country. Non-Residents can bring in India 10 Kgs of gold every six months by paying a moderate duty of Rs 400 per 10 Grams. Vide Exim Policy 1997-2000, the govt., has allowed Banks to import Gold subject to following conditions like, minimum capital adequacy ratio of 9%, track record of RBI compliances, capability to handle business and advanced risk management system in the bank. At present 22 nominated banks and the agencies in India have been granted permission by RBI to enter into the Gold business. Jaipur, Ahmedabad, Chennai have emerged major Gold markets in India. India is the largest consumer of the gold with annual demand of about 600-700 tons against total world's demand of 3200 tons. 80% Gold in India is used for jewellery, 15% for the investment and 5% for the industrial purposes. Tarapore Committee on Capital Account Convertibility had recommended for opening of the Gold imports. With the liberalization of the economy the holding of gold in the shape of the bars and coins is now permitted.
doc_314865856.doc