qwertyuiopasdfghjklzxcvbnmqwertyui opasdfghjklzxcvbnmqwertyuiopasdfgh jklzxcvbnmqwertyuiopasdfghjklzxcvb THE GLITTERS AND DULLNESS OF nmqwertyuiopasdfghjklzxcvbnmqwer GOLD By, tyuiopasdfghjklzxcvbnmqwertyuiopas Sreeteja (317) Venkatesh (346) dfghjklzxcvbnmqwertyuiopasdfghjklzx Raja Sekhar (236) Sambit (242) cvbnmqwertyuiopasdfghjklzxcvbnmq wertyuiopasdfghjklzxcvbnmqwertyuio pasdfghjklzxcvbnmqwertyuiopasdfghj klzxcvbnmqwertyuiopasdfghjklzxcvbn mqwertyuiopasdfghjklzxcvbnmqwerty uiopasdfghjklzxcvbnmqwertyuiopasdf ghjklzxcvbnmqwertyuiopasdfghjklzxc vbnmqwertyuiopasdfghjklzxcvbnmrty uiopasdfghjklzxcvbnmqwertyuiopasdf ghjklzxcvbnmqwertyuiopasdfghjklzxc
[Pick the date]
History: Gold is a chemical element with the symbol Au and atomic number 79. It is a dense, soft, malleable, and ductile metal with an attractive, bright yellow color and luster that is maintained without tarnishing in air or water. Gold Standard: Gold has been widely used throughout the world as money, for efficient indirect exchange versus the Barter system, and to store wealth. For exchange purposes, mints produce standardized gold bullion coins, bars and other units of fixed weight and purity. The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price. England adopted a de facto gold standard in 1717 after the master of the mint, Sir Isaac Newton, overvalued the guinea in terms of silver, and formally adopted the gold standard in 1819. The United States, though formally on a bimetallic (gold and silver) standard, switched to gold de facto in 1834 and de jure in 1900 when Congress passed the Gold Standard Act. In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard. During that time, the majority of countries adhered (in varying degrees) to gold. It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital. The gold standard broke down during World War I, as major belligerents resorted to inflationary finance, and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This version broke down in 1931 following Britain’s departure from gold in the face of massive gold and capital outflows. In 1933, President Franklin D. Roosevelt nationalized gold owned by private citizens and abrogated contracts in which payment was specified in gold. Between 1946 and 1971, countries operated under the Bretton Woods system.
Bretton Woods system: The Bretton Woods system was a international monetary framework of fixed exchange rates after World War II. Drawn up by the US and Britain in 1944. Keynes was one of the architects. The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed Under this further modification of the gold standard, most countries settled their international balances in U.S. dollars, but the U.S. government promised to redeem other central banks’ holdings of dollars for gold at a fixed rate of thirtyfive dollars per ounce. Persistent U.S. balance-of-payments deficits steadily reduced U.S. gold reserves, however, reducing confidence in the ability of the United States to redeem its currency in gold. Finally, on August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem currency for gold. This was the final step in abandoning the gold standard. Widespread dissatisfaction with high inflation in the late 1970s and early 1980s brought renewed interest in the gold standard. Although that interest is not strong today, it seems to strengthen every time inflation moves much above 5 percent. This makes sense: whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the “classical gold standard,” inflation averaged only 0.1 percent per year.
INDIAN GOLD MARKET India’s obsession with gold goes a long way back in the history. In fact, gold has a rich tradition in Hindu mythology as well. In Ramayana, King Ravan’s island fortress capital, Lanka, was made up of gold. In the legend of Lord Krishna, the entire city of Dwarika was also made up of gold. Chanakya, the pioneer of the subjects such as economics and politics, has said, “Sarve gunaaha kaanchanamaa shrayante”, which means gold has all the qualities that can give you a better life and the more you have it, the richer and more accomplished you are. In Ayurveda, too, gold has been given a lot of significance. Gold ash powder is developed and produced as special remedy for a number of diseases and disorders. Gold has been a sign of wealth and a safe investment option for centuries. It protects one’s capital and economic status against financial meltdowns, political instability and all sorts of turbulent times. Besides, Gold’s timeless stability helps investors maintain their purchasing power to a large extent regardless of the current as well as the possible future market trends. In today’s day and age, when currencies world over are fluctuating and giving nightmares to the common men, governments and institutions alike, gold is a reliable investment option to counter inflation and currency fluctuations. The low volatility in its prices is also an important reason why gold is considered a sound investment option. Gold has been a sign of wealth and a safe investment option for centuries. It protects one’s capital and economic status against financial meltdowns, political instability and all sorts of turbulent times. Besides, Gold’s timeless stability helps investors maintain their purchasing power to a large extent regardless of the current as well as the possible future market trends. In today’s day and age, when currencies world over are fluctuating and giving nightmares to the common men, governments and institutions alike, gold is a reliable investment option to counter inflation and currency fluctuations. The low volatility in its prices is also an important reason why gold is considered a sound investment option.
At present, more than half of Indian’s current account deficit is because of the high import rate of gold. To counter the issue, the Government of India has increased the import duty on refined gold from 4% to 6%. Besides, the Government has been trying to control the situation by implementing various other policies as well. MARKET FEATURES Motivation Gold jewellery is owned as an “adornment” for cultural, status and decorative reasons. It is also owned as an “investment” for store of value, savings and money purposes. For most consumers, the motivations are intertwined. Many consumer markets Consumer attitudes to gold jewellery vary among the rural/urban, rich/poor and young/old, and by region and State. Although “everyone buys gold”, the market relies mainly on the top 60% (109 million households). Retailers observe that the primary target market is not the very rich
or the very poor, but the emerging middle class (upper middle, middle and lower middle). Urban and rural Both categories are important. Urban consumer demand may account for as much as 40% of total demand, but the rural/urban split is not a static proportion because rural demand is more sensitive to fluctuations in the rural economy. The markets are also different. For example, in rural areas there is more recycling of jewellery as buy-backs for cash because jewellery is more widely used for savings and as “money”. In major cities, there is now more exchange of old for “fashionable” new jewellery. Marriage-related purchases As much as 50% of annual sales appear to rely on new purchases associated with around 8 million weddings each year. Most weddings are held on 40 – 60 days declared auspicious each year according to Hindu lunar and solar calendars. In total, more than 70% of all purchases is broadly regarded as marriage-related because jewellery tends to be accumulated over many years. Gold given at the time of marriage range from less than 50 g to several kilogrammes. Gifts The jewellery market relies on gift-giving. Most jewellery is given to brides (and bridegrooms), women and young girls by their parents, husbands and relatives. The attitudes of givers and recipients are both important. The purchase of jewellery is also normally the outcome of a family decision. Fashion is stimulating a higher proportion of personal purchases in large urban showrooms. Although described as personal, many are the outcome of family decisions and would fall within the gift-giving category. Self-purchases Retailers observe that the self-purchase of jewellery for adornment purposes will be extremely important in the future, but that it is likely to take many years
before this new market rivals the marriage-related market on which most retailers currently depend. “Wearable” jewellery Economic and social changes during the 1990s have encouraged many women to acquire items that are suited to a variety of social and work-related occasions. This has led to increasing purchases of lighter weight and smaller items. Most retailers view “wearable” jewellery as an important new market segment. “Fashionable” jewellery For both wedding and “wearable” jewellery, many women are now insisting on jewellery with innovative designs. Machine- made chains and other items are becoming more important. They tend to be lighter, sleek, modern, precisely made and available in many stylish designs. South region The south is the most important region, accounting for around 40% of retail sales nationwide. Major cities They are extremely important retail centers. When there is a need to purchase large quantities of jewellery, many consumers travel to cities with large showrooms. For example, Greater Mumbai (Maharashtra) may account for 35% of retail sales in the State, Chennai (Tamil Nadu) for 30%. Large showrooms They are extremely important. The finding that 15,000 retailers may account for 30% of retail sales nationwide may be conservative.
BULLION MARKET Bullion market is a forum through which buyers and sellers trade pure gold and silver. The bullion market is open 24 hours a day and is primarily an over-thecounter market, with most trading based in London. The bullion market has a high turnover rate and most transactions are conducted electronically or by phone. Gold and silver derive their value from their industrial and commercial uses; they can also act as a hedge against inflation. The bullion market is just one of several ways to invest in gold and silver. Other options include exchange-traded funds, futures, options and mutual funds; these can be more appealing to investors, because they offer greater flexibility. Bullion offers less trading flexibility than other gold and silver investments, because it is a tangible object that comes in bars and coins of established sizes, which can be difficult to buy or sell in specific amounts. Bullion is also expensive to store and insure. BULLION COINS: Coins made from precious metals that are generally used for investment purposes. Bullion coins are usually made from gold and silver, and may also be available in platinum and palladium. Many countries have their own official bullion coins, such as the American eagle series of coins available from the Unites States Mint, and the Canadian Maple Leaf series offered by the Royal Canadian Mint. They are typically minted in weights that are fractions of one troy ounce to fit a variety of budgets. Bullion coins may command a premium in the market place as compared to the spot price of the underlying precious metal on global metal exchanges. This premium may be attributed to an underlying demand for bullion coins, as well as their relative liquidity, small size (which facilitates storage) and the costs involved in manufacturing and distributing them. ADVANTAGES
?
Their prices are conveniently available in global financial publications.
?
Gold coins are often minted in smaller sizes (one ounce or less), making them a more convenient way to invest in gold than the larger bars. Reputable dealers can be found with minimal searching and are located in many large cities.
?
DISADAVANTAGES: ? The main problems with gold bullion are that the storage and insurance costs, and the relatively large markup from the dealer both hinder profit potential. ? Also, investing in gold bullion is a direct investment in gold's value, and each dollar change in the price of gold will proportionally change the value of one's holdings. ? Other gold investments, such as mutual funds, may be made in smaller dollar amounts than bullion, and also may not have as much direct price exposure as bullion does. DIFFERENT TYPES OF INVESTMENTS IN GOLD: From ancient civilizations through the modern era, gold has been the world's currency of choice. Today, investors buy gold mainly as a hedge against political unrest and inflation. In addition, many top investment advisors recommend a portfolio allocation in commodities, including gold, in order to lower overall portfolio risk. We'll cover many of the opportunities for investing in gold, including bullion (i.e. gold bars), mutual funds, futures, mining companies and jewelry. With few exceptions, only bullion, futures and a handful of specialty funds provide a direct investment opportunity in gold. Other investments gain part of their value from other sources.
GOLD EFTs One alternative to a direct investment in gold bullion is to invest in one of the gold-based exchange-traded funds (ETFs). Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce. These funds may be purchased or sold in any brokerage or IRA account just like stocks. This method is therefore easier and more cost effective than owning bars or coins directly, especially for small investors, as the minimum investment is only the price of a single share of the ETF. The annual expense ratios of these funds are often less than 0.5%, much less than the fees and expenses on many other investments, including most mutual funds.
GOLD MUTUAL FUND Many mutual funds own gold bullion and gold companies as part of their normal portfolios, but investors should be aware that only a few mutual funds focus solely on gold investing; most own a number of other commodities. The major advantages of the gold-only oriented mutual funds are:
? ? ? ?
Low cost and low minimum investment required Diversification among different companies Ease of ownership in a brokerage account or an IRA Require no individual company research
Some funds invest in the indexes of mining companies; others are tied directly to gold prices, while still others are actively managed. Read their prospectuses for more information. Traditional mutual funds tend to be actively managed, while ETFs adhere to a passive index-tracking strategy, and therefore have lower expense ratios. For the average gold investor, however, mutual funds and ETFs are now generally the easiest and safest way to invest in gold. GOLD FUTURES Futures are contracts to buy or sell a given amount of an item, in this case gold, on a particular date in the future. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. As this amount can be large (for
example, 100 troy ounces x $1,000/ounce = $100,000), futures are more suitable for experienced investors. People often use futures because the commissions are very low, and the margin requirements are much lower than in traditional equity investment. Some contracts settle in dollars while others settle in gold, so investors must pay attention to the contract specifications to avoid having to take delivery of 100 ounces of gold on the settlement date.
GOLD OPTIONS Options on futures are an alternative to buying a futures contract outright. These give the owner of the option the right to buy the futures contract within a certain time frame at a preset price. One benefit of an option is it both leverages your original investment and limits losses to the price paid. A futures contract bought on margin can require more capital than originally invested if losses mount quickly. Unlike with a futures investment, which is based on the current value of gold, the downside to options is that the investor must pay a premium to the underlying value of the gold to own the option. Because of the volatile nature of futures and options, they may be unsuitable for many investors. Even so, futures remain the cheapest (commissions + interest expense) way to buy or sell gold when investing large sums. GOLD MINING COMPANIES: Companies that specialize in mining and refining will also profit from a rising gold price. Investing in these types of companies can be an effective way to profit from gold, and can also carry lower risk than other investment methods. The largest gold mining companies operate extensive global operations; therefore, business factors common to many other large companies influence their investment success. As a result, these companies can still show profit in times of flat or declining gold prices. One way they do this is by hedging against a fall in gold prices as a normal part of their business. Some do this and some don't. Even so, gold mining companies may provide a safer way to invest in gold than through direct ownership of bullion. However, the research and selection of individual companies requires due diligence on the investor's part. As this is a time consuming endeavor, it may not be feasible for many investors. GOLD JEWELRY:
Most of the global gold production is used to make jewelry. With global population and wealth growing annually, demand for gold used in jewelry production should increase over time as well. On the other hand, gold jewelry buyers are shown to be somewhat price sensitive, buying less if the price rises swiftly. Buying jewelry at retail prices involves a substantial markup – up to 400% over the underlying gold value. Better jewelry bargains may be found at estate sales and auctions. The advantage of buying jewelry this way is that there is no retail markup; the disadvantage is the time spent searching for valuable pieces. Nonetheless, jewelry ownership provides the most enjoyable way to own gold, even if it is not the most profitable from an investment standpoint. As an art form, gold jewelry is beautiful. As an investment, it is mediocre - unless you are the jeweler.
Larger investors, who wish to have direct exposure to the price of gold, may prefer to invest in gold directly through bullion. There is also a level of comfort found in owning a physical asset instead of simply a piece of paper. The downside is the slight premium to the value of gold paid on the initial purchase, as well as the storage costs. For investors who are a bit more aggressive, futures and options will certainly do the trick. But, buyers should beware: these investments are derivatives of gold's price and can see sharp moves up and down, especially when done on margin. On the other hand, futures are probably the most efficient way to invest in gold, except for the fact that contracts must be rolled over periodically as they expire. The idea that jewelry is an investment is quaint, but naive. There is too much of a spread between the price of most jewelry and its gold value for it to be considered a true investment. Instead, the average gold investor should consider gold oriented mutual funds and ETFs, as these securities generally provide the easiest and safest way to invest in gold.
ADVANTAGES OF INVESTING IN GOLD Capital appreciation Historically, gold has been the perfect hedge for inflation. This is based on data from the year 1800 AD. But in terms of absolute returns gold has fared rather poorly giving returns at only 0.8 per cent above inflation. Real estate and shares beat gold squarely on the capital appreciation front. Real estate and shares have given returns of about 11 per cent over inflation since 1979 (1979 as that was the year the Sensex was launches). In the short run, however, gold is a very strong bet compared to shares that are highly volatile. The idea for gold investment will be to use it at times when the markets are falling and when the inflation is very high. A 5 per cent of the overall investment portfolio can be considered for gold investments (bullion, WGC coins, Gold ETFs). Jewellery is not an investment as far as personal finance goes. It is only an expense for pleasure, symbolizing wealth. Risk Gold does not carry much risk at least in India, as we hardly see deflation in the real sense. Even when the official figures where showing negative inflation (deflation) during the last year, the actual prices of food items were increasing. This was reflected in the gold prices too. The real risk with buying gold is in the opportunity cost of investing in other avenues that can actually give higher returns. Liquidity Gold scores the highest in terms of liquidity, compared to all other investments. At any time of the day and any day gold can literally be converted to cash. Banks would give you a jewellery loan (remember though that many banks do not give loans on coins, including their own), and so would your friendly neighborhood pawn shop.
Convenience Gold scores very high here. But with the per gram price rising, the smallest single investment is becoming higher. With the emergence of golf ETFs the convenience to hold gold for the short term has increased. Instead of holding cash for the short term, one can today make investments in gold ETFs. DISADVANTAGES OF INVESTING IN GOLD Current income
Gold in any form does not give any current income. The only exception is the dividend option in the gold ETFs. If held in the physical form, there is only outflow of cash for the maintenance of lockers. Less resale value Most jewellers are ready to exchange the gold sold by them at market rate and very few are willing to pay in cash. Most of them deduct 5-10% of the value if you want hard cash. The deduction is higher if you try to sell gold that has been bought from some other jeweller. This is because he will question the gold’s purity, claiming it to be supect, and pay you less. No Tax Advantage Investing in gold is not going to provide you with any type of tax advantage in contrast to other tax saving instruments available in market. Actual returns are less than nominal returns If gold does go up in value, the gain is nominal rather than an actual increase in buying power. This is because when gold appreciates it typically coincides with devaluation for paper money. Moreover, those gold profits are taxable.
Conclusion Gold has proved itself time and again to be the perfect hedge for inflation. But to look at it as a hedge avenue, Indians are yet to consider this market actively as the purchases continue to be dominated by jewellery. Gold only beats inflation. It fares poorly when compared to real estate or shares when compared on the basis of real inflation adjusted returns.
doc_257295889.docx
[Pick the date]
History: Gold is a chemical element with the symbol Au and atomic number 79. It is a dense, soft, malleable, and ductile metal with an attractive, bright yellow color and luster that is maintained without tarnishing in air or water. Gold Standard: Gold has been widely used throughout the world as money, for efficient indirect exchange versus the Barter system, and to store wealth. For exchange purposes, mints produce standardized gold bullion coins, bars and other units of fixed weight and purity. The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price. England adopted a de facto gold standard in 1717 after the master of the mint, Sir Isaac Newton, overvalued the guinea in terms of silver, and formally adopted the gold standard in 1819. The United States, though formally on a bimetallic (gold and silver) standard, switched to gold de facto in 1834 and de jure in 1900 when Congress passed the Gold Standard Act. In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard. During that time, the majority of countries adhered (in varying degrees) to gold. It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital. The gold standard broke down during World War I, as major belligerents resorted to inflationary finance, and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This version broke down in 1931 following Britain’s departure from gold in the face of massive gold and capital outflows. In 1933, President Franklin D. Roosevelt nationalized gold owned by private citizens and abrogated contracts in which payment was specified in gold. Between 1946 and 1971, countries operated under the Bretton Woods system.
Bretton Woods system: The Bretton Woods system was a international monetary framework of fixed exchange rates after World War II. Drawn up by the US and Britain in 1944. Keynes was one of the architects. The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed Under this further modification of the gold standard, most countries settled their international balances in U.S. dollars, but the U.S. government promised to redeem other central banks’ holdings of dollars for gold at a fixed rate of thirtyfive dollars per ounce. Persistent U.S. balance-of-payments deficits steadily reduced U.S. gold reserves, however, reducing confidence in the ability of the United States to redeem its currency in gold. Finally, on August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem currency for gold. This was the final step in abandoning the gold standard. Widespread dissatisfaction with high inflation in the late 1970s and early 1980s brought renewed interest in the gold standard. Although that interest is not strong today, it seems to strengthen every time inflation moves much above 5 percent. This makes sense: whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the “classical gold standard,” inflation averaged only 0.1 percent per year.
INDIAN GOLD MARKET India’s obsession with gold goes a long way back in the history. In fact, gold has a rich tradition in Hindu mythology as well. In Ramayana, King Ravan’s island fortress capital, Lanka, was made up of gold. In the legend of Lord Krishna, the entire city of Dwarika was also made up of gold. Chanakya, the pioneer of the subjects such as economics and politics, has said, “Sarve gunaaha kaanchanamaa shrayante”, which means gold has all the qualities that can give you a better life and the more you have it, the richer and more accomplished you are. In Ayurveda, too, gold has been given a lot of significance. Gold ash powder is developed and produced as special remedy for a number of diseases and disorders. Gold has been a sign of wealth and a safe investment option for centuries. It protects one’s capital and economic status against financial meltdowns, political instability and all sorts of turbulent times. Besides, Gold’s timeless stability helps investors maintain their purchasing power to a large extent regardless of the current as well as the possible future market trends. In today’s day and age, when currencies world over are fluctuating and giving nightmares to the common men, governments and institutions alike, gold is a reliable investment option to counter inflation and currency fluctuations. The low volatility in its prices is also an important reason why gold is considered a sound investment option. Gold has been a sign of wealth and a safe investment option for centuries. It protects one’s capital and economic status against financial meltdowns, political instability and all sorts of turbulent times. Besides, Gold’s timeless stability helps investors maintain their purchasing power to a large extent regardless of the current as well as the possible future market trends. In today’s day and age, when currencies world over are fluctuating and giving nightmares to the common men, governments and institutions alike, gold is a reliable investment option to counter inflation and currency fluctuations. The low volatility in its prices is also an important reason why gold is considered a sound investment option.
At present, more than half of Indian’s current account deficit is because of the high import rate of gold. To counter the issue, the Government of India has increased the import duty on refined gold from 4% to 6%. Besides, the Government has been trying to control the situation by implementing various other policies as well. MARKET FEATURES Motivation Gold jewellery is owned as an “adornment” for cultural, status and decorative reasons. It is also owned as an “investment” for store of value, savings and money purposes. For most consumers, the motivations are intertwined. Many consumer markets Consumer attitudes to gold jewellery vary among the rural/urban, rich/poor and young/old, and by region and State. Although “everyone buys gold”, the market relies mainly on the top 60% (109 million households). Retailers observe that the primary target market is not the very rich
or the very poor, but the emerging middle class (upper middle, middle and lower middle). Urban and rural Both categories are important. Urban consumer demand may account for as much as 40% of total demand, but the rural/urban split is not a static proportion because rural demand is more sensitive to fluctuations in the rural economy. The markets are also different. For example, in rural areas there is more recycling of jewellery as buy-backs for cash because jewellery is more widely used for savings and as “money”. In major cities, there is now more exchange of old for “fashionable” new jewellery. Marriage-related purchases As much as 50% of annual sales appear to rely on new purchases associated with around 8 million weddings each year. Most weddings are held on 40 – 60 days declared auspicious each year according to Hindu lunar and solar calendars. In total, more than 70% of all purchases is broadly regarded as marriage-related because jewellery tends to be accumulated over many years. Gold given at the time of marriage range from less than 50 g to several kilogrammes. Gifts The jewellery market relies on gift-giving. Most jewellery is given to brides (and bridegrooms), women and young girls by their parents, husbands and relatives. The attitudes of givers and recipients are both important. The purchase of jewellery is also normally the outcome of a family decision. Fashion is stimulating a higher proportion of personal purchases in large urban showrooms. Although described as personal, many are the outcome of family decisions and would fall within the gift-giving category. Self-purchases Retailers observe that the self-purchase of jewellery for adornment purposes will be extremely important in the future, but that it is likely to take many years
before this new market rivals the marriage-related market on which most retailers currently depend. “Wearable” jewellery Economic and social changes during the 1990s have encouraged many women to acquire items that are suited to a variety of social and work-related occasions. This has led to increasing purchases of lighter weight and smaller items. Most retailers view “wearable” jewellery as an important new market segment. “Fashionable” jewellery For both wedding and “wearable” jewellery, many women are now insisting on jewellery with innovative designs. Machine- made chains and other items are becoming more important. They tend to be lighter, sleek, modern, precisely made and available in many stylish designs. South region The south is the most important region, accounting for around 40% of retail sales nationwide. Major cities They are extremely important retail centers. When there is a need to purchase large quantities of jewellery, many consumers travel to cities with large showrooms. For example, Greater Mumbai (Maharashtra) may account for 35% of retail sales in the State, Chennai (Tamil Nadu) for 30%. Large showrooms They are extremely important. The finding that 15,000 retailers may account for 30% of retail sales nationwide may be conservative.
BULLION MARKET Bullion market is a forum through which buyers and sellers trade pure gold and silver. The bullion market is open 24 hours a day and is primarily an over-thecounter market, with most trading based in London. The bullion market has a high turnover rate and most transactions are conducted electronically or by phone. Gold and silver derive their value from their industrial and commercial uses; they can also act as a hedge against inflation. The bullion market is just one of several ways to invest in gold and silver. Other options include exchange-traded funds, futures, options and mutual funds; these can be more appealing to investors, because they offer greater flexibility. Bullion offers less trading flexibility than other gold and silver investments, because it is a tangible object that comes in bars and coins of established sizes, which can be difficult to buy or sell in specific amounts. Bullion is also expensive to store and insure. BULLION COINS: Coins made from precious metals that are generally used for investment purposes. Bullion coins are usually made from gold and silver, and may also be available in platinum and palladium. Many countries have their own official bullion coins, such as the American eagle series of coins available from the Unites States Mint, and the Canadian Maple Leaf series offered by the Royal Canadian Mint. They are typically minted in weights that are fractions of one troy ounce to fit a variety of budgets. Bullion coins may command a premium in the market place as compared to the spot price of the underlying precious metal on global metal exchanges. This premium may be attributed to an underlying demand for bullion coins, as well as their relative liquidity, small size (which facilitates storage) and the costs involved in manufacturing and distributing them. ADVANTAGES
?
Their prices are conveniently available in global financial publications.
?
Gold coins are often minted in smaller sizes (one ounce or less), making them a more convenient way to invest in gold than the larger bars. Reputable dealers can be found with minimal searching and are located in many large cities.
?
DISADAVANTAGES: ? The main problems with gold bullion are that the storage and insurance costs, and the relatively large markup from the dealer both hinder profit potential. ? Also, investing in gold bullion is a direct investment in gold's value, and each dollar change in the price of gold will proportionally change the value of one's holdings. ? Other gold investments, such as mutual funds, may be made in smaller dollar amounts than bullion, and also may not have as much direct price exposure as bullion does. DIFFERENT TYPES OF INVESTMENTS IN GOLD: From ancient civilizations through the modern era, gold has been the world's currency of choice. Today, investors buy gold mainly as a hedge against political unrest and inflation. In addition, many top investment advisors recommend a portfolio allocation in commodities, including gold, in order to lower overall portfolio risk. We'll cover many of the opportunities for investing in gold, including bullion (i.e. gold bars), mutual funds, futures, mining companies and jewelry. With few exceptions, only bullion, futures and a handful of specialty funds provide a direct investment opportunity in gold. Other investments gain part of their value from other sources.
GOLD EFTs One alternative to a direct investment in gold bullion is to invest in one of the gold-based exchange-traded funds (ETFs). Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce. These funds may be purchased or sold in any brokerage or IRA account just like stocks. This method is therefore easier and more cost effective than owning bars or coins directly, especially for small investors, as the minimum investment is only the price of a single share of the ETF. The annual expense ratios of these funds are often less than 0.5%, much less than the fees and expenses on many other investments, including most mutual funds.
GOLD MUTUAL FUND Many mutual funds own gold bullion and gold companies as part of their normal portfolios, but investors should be aware that only a few mutual funds focus solely on gold investing; most own a number of other commodities. The major advantages of the gold-only oriented mutual funds are:
? ? ? ?
Low cost and low minimum investment required Diversification among different companies Ease of ownership in a brokerage account or an IRA Require no individual company research
Some funds invest in the indexes of mining companies; others are tied directly to gold prices, while still others are actively managed. Read their prospectuses for more information. Traditional mutual funds tend to be actively managed, while ETFs adhere to a passive index-tracking strategy, and therefore have lower expense ratios. For the average gold investor, however, mutual funds and ETFs are now generally the easiest and safest way to invest in gold. GOLD FUTURES Futures are contracts to buy or sell a given amount of an item, in this case gold, on a particular date in the future. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. As this amount can be large (for
example, 100 troy ounces x $1,000/ounce = $100,000), futures are more suitable for experienced investors. People often use futures because the commissions are very low, and the margin requirements are much lower than in traditional equity investment. Some contracts settle in dollars while others settle in gold, so investors must pay attention to the contract specifications to avoid having to take delivery of 100 ounces of gold on the settlement date.
GOLD OPTIONS Options on futures are an alternative to buying a futures contract outright. These give the owner of the option the right to buy the futures contract within a certain time frame at a preset price. One benefit of an option is it both leverages your original investment and limits losses to the price paid. A futures contract bought on margin can require more capital than originally invested if losses mount quickly. Unlike with a futures investment, which is based on the current value of gold, the downside to options is that the investor must pay a premium to the underlying value of the gold to own the option. Because of the volatile nature of futures and options, they may be unsuitable for many investors. Even so, futures remain the cheapest (commissions + interest expense) way to buy or sell gold when investing large sums. GOLD MINING COMPANIES: Companies that specialize in mining and refining will also profit from a rising gold price. Investing in these types of companies can be an effective way to profit from gold, and can also carry lower risk than other investment methods. The largest gold mining companies operate extensive global operations; therefore, business factors common to many other large companies influence their investment success. As a result, these companies can still show profit in times of flat or declining gold prices. One way they do this is by hedging against a fall in gold prices as a normal part of their business. Some do this and some don't. Even so, gold mining companies may provide a safer way to invest in gold than through direct ownership of bullion. However, the research and selection of individual companies requires due diligence on the investor's part. As this is a time consuming endeavor, it may not be feasible for many investors. GOLD JEWELRY:
Most of the global gold production is used to make jewelry. With global population and wealth growing annually, demand for gold used in jewelry production should increase over time as well. On the other hand, gold jewelry buyers are shown to be somewhat price sensitive, buying less if the price rises swiftly. Buying jewelry at retail prices involves a substantial markup – up to 400% over the underlying gold value. Better jewelry bargains may be found at estate sales and auctions. The advantage of buying jewelry this way is that there is no retail markup; the disadvantage is the time spent searching for valuable pieces. Nonetheless, jewelry ownership provides the most enjoyable way to own gold, even if it is not the most profitable from an investment standpoint. As an art form, gold jewelry is beautiful. As an investment, it is mediocre - unless you are the jeweler.
Larger investors, who wish to have direct exposure to the price of gold, may prefer to invest in gold directly through bullion. There is also a level of comfort found in owning a physical asset instead of simply a piece of paper. The downside is the slight premium to the value of gold paid on the initial purchase, as well as the storage costs. For investors who are a bit more aggressive, futures and options will certainly do the trick. But, buyers should beware: these investments are derivatives of gold's price and can see sharp moves up and down, especially when done on margin. On the other hand, futures are probably the most efficient way to invest in gold, except for the fact that contracts must be rolled over periodically as they expire. The idea that jewelry is an investment is quaint, but naive. There is too much of a spread between the price of most jewelry and its gold value for it to be considered a true investment. Instead, the average gold investor should consider gold oriented mutual funds and ETFs, as these securities generally provide the easiest and safest way to invest in gold.
ADVANTAGES OF INVESTING IN GOLD Capital appreciation Historically, gold has been the perfect hedge for inflation. This is based on data from the year 1800 AD. But in terms of absolute returns gold has fared rather poorly giving returns at only 0.8 per cent above inflation. Real estate and shares beat gold squarely on the capital appreciation front. Real estate and shares have given returns of about 11 per cent over inflation since 1979 (1979 as that was the year the Sensex was launches). In the short run, however, gold is a very strong bet compared to shares that are highly volatile. The idea for gold investment will be to use it at times when the markets are falling and when the inflation is very high. A 5 per cent of the overall investment portfolio can be considered for gold investments (bullion, WGC coins, Gold ETFs). Jewellery is not an investment as far as personal finance goes. It is only an expense for pleasure, symbolizing wealth. Risk Gold does not carry much risk at least in India, as we hardly see deflation in the real sense. Even when the official figures where showing negative inflation (deflation) during the last year, the actual prices of food items were increasing. This was reflected in the gold prices too. The real risk with buying gold is in the opportunity cost of investing in other avenues that can actually give higher returns. Liquidity Gold scores the highest in terms of liquidity, compared to all other investments. At any time of the day and any day gold can literally be converted to cash. Banks would give you a jewellery loan (remember though that many banks do not give loans on coins, including their own), and so would your friendly neighborhood pawn shop.
Convenience Gold scores very high here. But with the per gram price rising, the smallest single investment is becoming higher. With the emergence of golf ETFs the convenience to hold gold for the short term has increased. Instead of holding cash for the short term, one can today make investments in gold ETFs. DISADVANTAGES OF INVESTING IN GOLD Current income
Gold in any form does not give any current income. The only exception is the dividend option in the gold ETFs. If held in the physical form, there is only outflow of cash for the maintenance of lockers. Less resale value Most jewellers are ready to exchange the gold sold by them at market rate and very few are willing to pay in cash. Most of them deduct 5-10% of the value if you want hard cash. The deduction is higher if you try to sell gold that has been bought from some other jeweller. This is because he will question the gold’s purity, claiming it to be supect, and pay you less. No Tax Advantage Investing in gold is not going to provide you with any type of tax advantage in contrast to other tax saving instruments available in market. Actual returns are less than nominal returns If gold does go up in value, the gain is nominal rather than an actual increase in buying power. This is because when gold appreciates it typically coincides with devaluation for paper money. Moreover, those gold profits are taxable.
Conclusion Gold has proved itself time and again to be the perfect hedge for inflation. But to look at it as a hedge avenue, Indians are yet to consider this market actively as the purchases continue to be dominated by jewellery. Gold only beats inflation. It fares poorly when compared to real estate or shares when compared on the basis of real inflation adjusted returns.
doc_257295889.docx