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Investing in Gold-A study
Puneet Arora-75141Shantanu Vashishth-75150Teacher-Ms. Vibhuti VashishthBFIA 2B
“GOLD AND SILVER ARE MONEY , REST IS ALL CREDIT.”
Contents• Investment Channels
• Factors affecting Gold prices in India
• Evaluating performance of Gold
Investment Channels
Gold coins & bars
Accounts
Exchange Traded Products
Certificates
Derivatives,CFDs and spread bettings
Mining Companies
Contents
Gold bars & coins most traditional way of investing in gold is by buying
bullion gold bars
these can easily be bought or sold at the major banks or from bullion dealers
gold bars carry lower premium over spot price than gold coins.
larger bars carry an increased risk of forgery.
The Krugerrand is the most widely-held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation.
AccountsGold bullion banks offer two types of gold accounts - allocated and unallocated:
1. Allocated account
2. Unallocated account
Other opportunities for smaller investors include:
3. Gold pool accounts
4. Electronic currencies
Exchange Traded Productsinclude ETFs, ETNs, and CEFs which are traded like shares on the major stock exchanges.
Gold ETPs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars.
Typically a small commission is charged for trading in gold ETPs and a small annual storage fee is charged.
The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time.
CertificatesGold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs)
It entails taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk).
Mining Company
Factors affecting gold prices in India
International prices.
Interest rates.
Dollar-Rupee Dynamics
Central Banks Reserves
Demand for the metal
Gold Production
The changes in the CME restrictions.
Central Bank Reserves
Back
Back
Demand for the metal
Back
Data source: Gems and Jewellery Export Promotion Council
Gold Production
Back
Evaluating performance of Gold
3-year weekly return correlation on key commodities and gold
1-year annualised daily return volatility on key commodities and gold
22-day rolling annualised daily return volatility on gold and S&P GS
Performance of gold v/s other metals
Performance of gold v/s other commodities
Gold and S&P(% year charts)
Gold & Trade-weighted US dollar
Gold v/s Sensex
0.47
0.53
0.45
0.15
-0.01
0.21
0.35
0.45
0.47
0.66
0.48
0.73
-0.2 0.0 0.2 0.4 0.6 0.8 1.0
R/J CRB Commodity Index
DJ UBS Commodity Index
S&P GS Commodity Index
DJ UBS Softs Index
DJ UBS Livestock Index
DJ UBS Grains Index
DJ UBS Energy Index
Brent crude oil (US$/bbl)
DJ UBS Industrial Index
Platinum (US$/oz)
Palladium (US$/oz)
Silver (US$/oz)
Correlation
Notes: Data ending 28 September 2012Source: Bloomberg, LBMA, LME, World Gold Council
Chart: 3-year weekly return correlation on key commodities and gold
0
5
10
15
20
25
30
35
40D
J U
BS
Liv
esto
ck In
dex
Gol
d (U
S$/
oz)
R/J
CR
B C
omm
odity
Inde
x
DJ
UB
S C
omm
odity
Inde
x
S&
P G
S C
omm
odity
Inde
x
Pla
tinum
(US
$/oz
)
DJ
UB
S S
ofts
Inde
x
Cop
per L
ME
(US
$/t)
Alu
min
um L
ME
(US
$/t)
Zinc
LM
E (U
S$/
t)
Nic
kel L
ME
(US
$/t)
Bre
nt c
rude
oil
(US
$/bb
l)
Pal
ladi
um (U
S$/
oz)
Lead
LM
E (U
S$/
t)
DJ
UB
S E
nerg
y In
dex
Silv
er (U
S$/
oz)
DJ
UB
S G
rain
s In
dex
Tin
LME
(US
$/t)
%
Notes: Data ending 28 September 2012Source: Bloomberg, LBMA, LME, World Gold Council
Chart: 1-year annualised daily return volatility on key commodities and gold (US$)
0
10
20
30
40
50
60
70
80
10/2002 04/2004 10/2005 04/2007 10/2008 04/2010 10/2011
%
Gold (US$/oz) S&P GS Commodity Index
Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council
Chart: 22-day rolling anualized daily return volatility on gold and S&P GS
Gold
(US$/oz)Silver
(US$/oz)Palladium (US$/oz)
Platinum (US$/oz)
Aluminum LME (US$/t)
Copper LME (US$/t)
Lead LME (US$/t)
Nickel LME (US$/t)
Tin LME (US$/t)
Zinc LME (US$/t)
1-month 7.0% 13.0% 3.1% 10.1% 12.1% 8.6% 17.2% 13.8% 11.5% 13.9%
3-month 14.0% 29.2% 13.0% 19.6% 14.3% 11.4% 30.0% 13.1% 14.9% 16.0%
6-month 7.1% 9.0% -1.0% 2.1% -0.6% -1.1% 15.6% 6.4% -3.1% 5.1%
1-year 10.1% 14.8% 2.9% 9.2% -4.2% 18.5% 14.7% 0.3% 5.1% 11.6%
3-year 78.4% 110.6% 115.9% 28.0% 13.1% 34.7% 1.1% 6.8% 43.4% 9.1%
5-year 139.0% 153.8% 83.6% 20.0% -14.1% 1.3% -33.4% -40.3% 42.0% -31.7%
3y CAGR 21.3% 28.2% 29.2% 8.6% 4.2% 10.5% 0.4% 2.2% 12.8% 3.0%
5y CAGR 19.0% 20.5% 12.9% 3.7% -3.0% 0.3% -7.8% -9.8% 7.3% -7.4%
Performance of Gold V/s Other metals
Column1 Gold (US$/oz)
Brent crude oil (US$/bbl)
DJ UBS Energy Index
DJ UBS Grains Index
DJ UBS Livestock
IndexDJ UBS Softs
Index
S&P GS Commodity
Index
DJ UBS Commodity
Index
R/J CRB Commodity
Index
1-month 7.0% -0.1% 4.0% -4.9% -2.1% -0.3% -1.4% 1.7% -0.1%
3-month 14.0% 23.9% 18.9% 13.5% -5.3% -0.3% 11.9% 9.5% 8.9%
6-month 7.1% -8.3% 1.6% 25.5% -3.9% -13.8% -3.9% 3.3% -0.9%
1-year 10.1% 6.4% -4.8% 38.4% -11.4% -22.9% 13.8% 5.9% 4.4%
3-year 78.4% 67.4% -25.9% 75.7% 4.4% 22.7% 23.1% 19.9% 22.7%
5-year 139.0% 42.6% -61.4% 19.9% -45.9% 18.2% -23.3% -13.5% -3.2%
3y CAGR 21.3% 18.7% -9.5% 20.7% 1.4% 7.1% 7.2% 6.2% 7.0%
5y CAGR 19.0% 7.4% -17.3% 3.7% -11.6% 3.4% -5.2% -2.8% -0.6%
Performance of Gold & other commodities
0
100
200
300
400
500
600
700
10/2002 10/2004 10/2006 10/2008 10/2010
Index level
Gold (US$/oz) S&P 500Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council
Chart 5: Gold and S&P 500 in US$ (2 Sep 2002=100)
0
100
200
300
400
500
600
700
10/2002 10/2004 10/2006 10/2008 10/2010
Index level
Gold (US$/oz) Trade-weighted US$
Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council
Chart 6: Gold (US$/oz) and the trade-weighted US dollar
0
10
20
30
40
50
60
70
80
90
100
10/2002 04/2004 10/2005 04/2007 10/2008 04/2010 10/2011
%
Gold (US$/oz) S&P 500
Chart 4: 22-day rolling anualized daily return volatility on gold and S&P 500 (US$)
Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council
Gold v/s Sensex