Gold Price moves inversely to bond yields 
: An Indian story
: An Indian storyThe graph on the right side shows the US experience during 2002-2008; It gives some ideas about the elationship of Gold price movement with taht of ather asset classes.
The graph on the left hand side shows the Componded annual growth rate of different asset classes during 1980-2006 in the Indian markets.
The graph on rightside shows the movement of Foreign Exhange rate Rs/USD with the price of gold in USD/ounceduring Jul 1999 to Jul 2007 
over half yearly intervals.
over half yearly intervals.The blue and red trend line shows the movement of inflation as reflected in WPI changes and the price of gold(USD terms per ounce) in India From Jul 1999 to Jul 2007 over half yearly periods. Gold provides insulation against inflation and moves inverse relation to the stock market movements; also to Foreign Exchange movements as well
Gold has a glittering past being an acceptable medium of exchange in trade from time immemorial. By early 19th Century, the Gold Specie standard became common among nations for trade settlement. Fine quality gold was the medium for settlement. Later from 1922-1936 we have the system of paper currency settlements that are backed by gold known as gold bullion standard(Brussels). Content of gold remained the same fine quality and quantity. It again went change when in 1946 Brettons Wood Conference when every member country wanted convertibilty of their currency into multiple currencies than gold. So the gold content in the currency got fixed and the without approval of IMF, no one member shall change the parity became the norm.
From the Gold Control Act 1962 that prohibited trade in gold in any form, Govt. of india launched the Gold Bond Scheme through Sate Bank of India for bringing into its reserves physical gold lying with individulas. The scheme was a damp squid and did n't succeed much as people feared harrassment by IT/bank officials. In 1990 Sovereign gold was pledged to come out of BOP crisis. In 1991, keeping pace with liberalization, gold import was allowed. India hold gold as part of its reserves too.
Over the years, gold remained everybody's attraction. As an investment, you have two distinctive products in this class.
1. Gold as ETFs
They are gold units traded on the exchange. One unit of ETF traded will have gold content equal to one-tenth of an ounze of gold(1oz=28.35gm). The monetary value of the ETF unit will depend upon the currency in which you are dealing. It is available on London Stock Exchange, australian Stock Exchange as Gold Bullion Securities and on New York Stock Exchange as Street Tracks Gold share(2004). In India, we have gold ETFs traded on NSE eg: Gold BeES from Benchmark (2007). The price is determined as the AM fixing Price by London Bullion Market Association and translated into Indian Rupees @ foreign exchange applicable as per FEDAI under the FEMA rules.2. Physical Gold either as Coins/Bullion Bars
You can own gold coins/bars in India from banks/Jewllers/Commodity Exchnage s like NCDC/MCX through their brokers.
To understand Gold Funds, it is necessary to undestand what properties gold posses and how gold as an asset class perform. See the strength of relationship among dofferent asset classes from US economy and what returns Indian asset classes earned. Gold is inflation resistant as can be seen from the data from the US market and Indian market. This property makes it a defensive asset in one's portfolio.
From time immemorial, Gold has been a medium of exchange; After the Gold standards give way to SDRs of IMF, the world has changed quite a lot.
The Forces of Exchange rates, Interest Rates and Purchasing Power (manifested in inflation rates ) affect gold prices;
Commodity trading opportunities in Gold in India are available at NCDEX, MCX and NMCE through their approved brokers network. Geojit Financial Services Ltd, JRG Securities Ltd, RiddiSiddi Bullions Ltd are some of the brokers who deal in kilo gold, mini gold contracts. NCDEX has come up with even 8gm contract.
Banks have been permitted to import and sell gold coins/bullion bars
But after all how much gold should you hold in your portfolio?
The answer is 15% to 20% as
European Central Bank (1999) based on internal studies DECIDED TO HOLD 15%.
Germmill & Hillman created a model based on 20 years data suggests 20%
Individulas sholud do a comprehensive planning of their gold purchases as one will have personal effects and investment effects. The investment part is best in coins and bars than in jewellery.
Supply of gold is either from imports/Recycled/production from Kolar mines. One of the leading consumers of gold globally, India uses about 800-900 tonnes of gold. Gold buying inborn to Indians: Celeberations like Diwali (Oct 28, 2008 ), in North or Vishu (April 14) in South cannot go without gold. "Dhantheras"(November 07, 2007), "Akshay tridiya"(May 07, 2008) are considered auspicious to have gold for prosperity. Please note that the exact date may vary according to the year.
According to Hindu mythology, Lord Krishna gifted Draupati "Akshaya patra" , the vessel of unlimited bounty which would give her anything that she ask for when Pandavas were away in the forest. And when you buy gold on the Akshayatrithiya day, prosperity come home .The day is dedicated to Goddess Lakshmi in a very special way.
Badrinath temple opens after 6 months closure on this day. Brindavan does not have Krishna adorned on this day like Lord Narasimha at Simhachalan in Andhra Pradesh. But in Uddupi, Lord Krishna is adored in sandalwood on that day. There is no lack of festivals in this land of diversity, one can find reasons for celeberation all the time.
Poet Dharumi wanted to win the bag of 1000 gold mohras from the King performing Thirivilayadaal... GOLD is in the culture as traits in your genes.
A land of varied cultures, it has festivals all months in the calendar year in one or other part. There are about 450,000 goldsmiths engaged in this segment that is largely unorganised. There are over 15000 players in the gold processing industry of which 80% constitute about $4.15million. Corporatisation is on with branded players entering the field including the over-the-counter coin selling banks.
The essential part of girl's wardrobe(men also). Cultural practices , Religious Practice of permission to women only to wear gold and silk(in certain sects like muslim) is also another reason for craze for gold.Ornaments are part of any community and when it is in gold, one is elite class. Valentines Day is becoming another day for gold purchases.
Corporates uses old Coins as gifts for sales promotion, reward for loyalty( ONGC, Power Grid Corpn, NTPC) issue of commemorative gold coins(LIC golden jubilee year, ), etc..Imagine 85000 employees per PSU undertaking rewarded with 8gm coin;May be an opportunity in 100 years or 75 years or 50 years...
From simple medallions in Sports/Education gold has moved to varied purposes.
A cash benefit given to the employee is valued 100% and taxed;but a gift in kind is taxed at50% purchase value makes it attractive for both employer and employee.
In 1982, the annual Indian gold consumption stood at 65 tonnes has crossed 500 tonnes per year by 2007. 80% of consumption is for jewellery fabrication (more than 22 carat purity level), 15% investment purposes and hardly 5% for industrial uses.
The fashion jewellery of 1 gm market is expanding at rocket speed.
Gold has a glittering past being an acceptable medium of exchange in trade from time immemorial. By early 19th Century, the Gold Specie standard became common among nations for trade settlement. Fine quality gold was the medium for settlement. Later from 1922-1936 we have the system of paper currency settlements that are backed by gold known as gold bullion standard(Brussels). Content of gold remained the same fine quality and quantity. It again went change when in 1946 Brettons Wood Conference when every member country wanted convertibilty of their currency into multiple currencies than gold. So the gold content in the currency got fixed and the without approval of IMF, no one member shall change the parity became the norm.
From the Gold Control Act 1962 that prohibited trade in gold in any form, Govt. of india launched the Gold Bond Scheme through Sate Bank of India for bringing into its reserves physical gold lying with individulas. The scheme was a damp squid and did n't succeed much as people feared harrassment by IT/bank officials. In 1990 Sovereign gold was pledged to come out of BOP crisis. In 1991, keeping pace with liberalization, gold import was allowed. India hold gold as part of its reserves too.
Over the years, gold remained everybody's attraction. As an investment, you have two distinctive products in this class.
1. Gold as ETFs
They are gold units traded on the exchange. One unit of ETF traded will have gold content equal to one-tenth of an ounze of gold(1oz=28.35gm). The monetary value of the ETF unit will depend upon the currency in which you are dealing. It is available on London Stock Exchange, australian Stock Exchange as Gold Bullion Securities and on New York Stock Exchange as Street Tracks Gold share(2004). In India, we have gold ETFs traded on NSE eg: Gold BeES from Benchmark (2007). The price is determined as the AM fixing Price by London Bullion Market Association and translated into Indian Rupees @ foreign exchange applicable as per FEDAI under the FEMA rules.2. Physical Gold either as Coins/Bullion Bars
You can own gold coins/bars in India from banks/Jewllers/Commodity Exchnage s like NCDC/MCX through their brokers.
To understand Gold Funds, it is necessary to undestand what properties gold posses and how gold as an asset class perform. See the strength of relationship among dofferent asset classes from US economy and what returns Indian asset classes earned. Gold is inflation resistant as can be seen from the data from the US market and Indian market. This property makes it a defensive asset in one's portfolio.
From time immemorial, Gold has been a medium of exchange; After the Gold standards give way to SDRs of IMF, the world has changed quite a lot.
The Forces of Exchange rates, Interest Rates and Purchasing Power (manifested in inflation rates ) affect gold prices;
Commodity trading opportunities in Gold in India are available at NCDEX, MCX and NMCE through their approved brokers network. Geojit Financial Services Ltd, JRG Securities Ltd, RiddiSiddi Bullions Ltd are some of the brokers who deal in kilo gold, mini gold contracts. NCDEX has come up with even 8gm contract.
Banks have been permitted to import and sell gold coins/bullion bars
But after all how much gold should you hold in your portfolio?
The answer is 15% to 20% as
European Central Bank (1999) based on internal studies DECIDED TO HOLD 15%.
Germmill & Hillman created a model based on 20 years data suggests 20%
Individulas sholud do a comprehensive planning of their gold purchases as one will have personal effects and investment effects. The investment part is best in coins and bars than in jewellery.
Supply of gold is either from imports/Recycled/production from Kolar mines. One of the leading consumers of gold globally, India uses about 800-900 tonnes of gold. Gold buying inborn to Indians: Celeberations like Diwali (Oct 28, 2008 ), in North or Vishu (April 14) in South cannot go without gold. "Dhantheras"(November 07, 2007), "Akshay tridiya"(May 07, 2008) are considered auspicious to have gold for prosperity. Please note that the exact date may vary according to the year.
According to Hindu mythology, Lord Krishna gifted Draupati "Akshaya patra" , the vessel of unlimited bounty which would give her anything that she ask for when Pandavas were away in the forest. And when you buy gold on the Akshayatrithiya day, prosperity come home .The day is dedicated to Goddess Lakshmi in a very special way.
Badrinath temple opens after 6 months closure on this day. Brindavan does not have Krishna adorned on this day like Lord Narasimha at Simhachalan in Andhra Pradesh. But in Uddupi, Lord Krishna is adored in sandalwood on that day. There is no lack of festivals in this land of diversity, one can find reasons for celeberation all the time.
Poet Dharumi wanted to win the bag of 1000 gold mohras from the King performing Thirivilayadaal... GOLD is in the culture as traits in your genes.
A land of varied cultures, it has festivals all months in the calendar year in one or other part. There are about 450,000 goldsmiths engaged in this segment that is largely unorganised. There are over 15000 players in the gold processing industry of which 80% constitute about $4.15million. Corporatisation is on with branded players entering the field including the over-the-counter coin selling banks.
The essential part of girl's wardrobe(men also). Cultural practices , Religious Practice of permission to women only to wear gold and silk(in certain sects like muslim) is also another reason for craze for gold.Ornaments are part of any community and when it is in gold, one is elite class. Valentines Day is becoming another day for gold purchases.
Corporates uses old Coins as gifts for sales promotion, reward for loyalty( ONGC, Power Grid Corpn, NTPC) issue of commemorative gold coins(LIC golden jubilee year, ), etc..Imagine 85000 employees per PSU undertaking rewarded with 8gm coin;May be an opportunity in 100 years or 75 years or 50 years...
From simple medallions in Sports/Education gold has moved to varied purposes.
A cash benefit given to the employee is valued 100% and taxed;but a gift in kind is taxed at50% purchase value makes it attractive for both employer and employee.
In 1982, the annual Indian gold consumption stood at 65 tonnes has crossed 500 tonnes per year by 2007. 80% of consumption is for jewellery fabrication (more than 22 carat purity level), 15% investment purposes and hardly 5% for industrial uses.
The fashion jewellery of 1 gm market is expanding at rocket speed.
References
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