Gold is the oldest precious metalknown to man and for thousands of years it has been valued as a globalcurrency, a commodity, an investment and simply an object of beauty.
Gold is unique as it is both acommodity and a monetary asset.
Its stability and high valuemakes it virtually indestructible and ensures that it is almost alwaysrecovered and recycled.
There is no true consumption ofgold in the economic sense as the stock of gold remains essentially constantwhile ownership shifts from one party to another.
Although gold mine production isrelatively inelastic, recycled gold (or scrap) ensures there is a potentialsource of easily traded supply when needed, and this helps to stabilise goldprice.
Economic forces that determinethe price of gold are different from, and in many cases opposed to the forcesthat influence most financial assets.
Global Supply Demand Scenario
The total above ground stocks ofgold is estimated to be around 1,63,000 tonnes by Gold Fields Minerals Services(GFMS) as on end of 2008
Out of this total stock, 51% isestimated to be present as jewellery, 18% as official reserves, 17% held asinvestment, 12% used for industrial purposes and 2% is unaccounted for.
Jewellery accounts for almosttwo-thirds of annual gold demand with investment and industry being the othermain drivers. The total annual global demand for gold has averaged 3530 tonnesin the last three years (2005 - 2008). However, it is expected to dip slightlyin 2009, owing to the sharp rise in prices.
Five countries, viz., India,China, USA, Turkey, Saudi Arabia and UAE account for above 60% of gold demand,with each market driven by a different set of socio-economic and culturalfactors.
The total global mine productionis relatively stable, averaging approximately 2,455 tonnes per year over thelast three years. Recycling of old gold scrap and official sector sales are theother major sources of supply, which have averaged 1084 tonnes and 378 tonnesin the last three years.
South Africa has been a majorgold producer since 1880s and it is estimated that about 50% of all gold everproduced has come from this nation. While, during the early 1980 s it producedabout 1000 tonnes, the output in 2007 dropped to just 272 tonnes.
China with a production of 276tonnes, overtook South Africa as the world s largest gold producer in 2007 forthe first time since 1905 that South Africa has not been the largest. The othermajor producers are USA, Australia, Russia and Peru.
World Gold Markets
OTC markets at London (LBMA), NewYork and Zurich
Gold derivative exchanges at NewYork – CME (COMEX), Tokyo (TOCOM), Mumbai (MCX)
Istanbul, Dubai, Hong Kong andSingapore are doorways to important consuming regions
India in World Gold Industry
(Rounded Figures) India (In Tons)World (In Tons) % Share
(Rounded Figures) India (In Tons) World (In Tons) % Share
Total Stocks 15000 160000 9
Central Bank holding 558 30,100 2
Annual Production 3 2450 0
Annual Recycling 250 1100 23
Annual Demand 700 3550 20
Annual Imports 600 --- ---
Annual Exports 60 --- ---
Indian Gold Market
India is the world s largestconsumer of gold. Indians normally buy about 25 per cent of the world s gold,purchasing around 700 - 750 tonnes of gold every year.
However, the sharp price increasein 2008 and 2009 has impacted demand with total demand in 2008 dipping to 660tonnes. It is further expected to shrink in 2009 with demand in first threequarters of 2009 totaling only around 265 tonnes against 553.5 tonnes in thesame period of the previous year.
As India s domestic primaryproduction of gold is very less, at around 2-3 tonnes a year, the countryimports most of its domestic requirement.
Thus, India is also the largestimporter of the yellow metal and has averaged imports of around 600 tonnes ayear. However, 2008 imports dipped to around 400 tonnes of gold and it isfurther expected to dip to around 200-220 tonnes in 2009 owing to high prices.
India s gold demand is firmlyembedded in cultural and religious traditions. It is also valued in India as asavings and investment vehicle and is the second preferred investment afterbank deposits.
Gold hoarding tendency is wellengrained in the Indian society and unofficial stocks held by Indians isestimated to be well above 15,000 tonnes, which is around 9% of the totalglobal gold stocks.
Domestic consumption is dictatedby monsoon, harvest and marriage season. Indian jewellery offtake is sensitiveto price increases and even more so to volatility.
In the cities gold is facingcompetition from the stock market and a wide range of consumer goods.
Facilities for refining,assaying, making them into standard bars, coins in India, as compared to therest of the world, are insignificant, both qualitatively and quantitatively.
In July 1997 the RBI authorizedthe commercial banks to import gold for sale or loan to jewellers andexporters. At present, 13 banks are active in the import of gold. This reducedthe disparity between international and domestic prices of gold from 57 percentduring 1986 to 1991 to 8.5 percent in 2001.
Market Moving Factors
Indian gold prices are highlycorrelated with international prices. However, the fluctuations in the INR-USDollar impact domestic gold prices and have to be closely followed.
The global prices are driven by ahost of factors with macro-economic factors like strength of the economy,rising importance of emerging markets, currency movements, interest rates beingmajor influencing factors.
Supply-demand is a majorinfluencer, amid rising global investor demand and almost stable supplies.
Shifts in official gold reserves,reports of sales/purchases by central banks act as major price influencingfactors, whenever such reports surface.
The investment in gold isinfluenced by comparative returns from other markets like stock markets, realestate other commodities like crude oil.
Domestically, demand andconsequently prices to some extent are influenced by seasonal factors likemarriages. The rural demand is influenced by monsoon, agricultural output andhealth of the rural economy.
Weight Conversion Table
To Convert from To Multiply by
Troy Ounce Grams 31.1035
Grams Troy Ounce 0.0321507
Kilograms Troy Ounce 32.1507
Kilograms Tolas 85.755
Gold purity is measured in termsof karats and fineness
Karat: Pure gold is defined as 24karat
Fineness: Parts per thousan
Thus, 18 karat = (18/24)th of1000 parts = 750 fineness
Source :- www.mcxindia.com
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