GOLD PRICING

GOLD

Gold was used as currency Investors use it as hedge against economic, political unrest Gold used as reserve of forex Bretton Woods system for gold

GOLD RESERVES
A gold reserve is the gold held by a central bank or nation intended as a store of value and as a guarantee to note holders (e.g., paper money), or to secure a currency

GOLD RESERVES

GOLD PRICE FIXING

History On 12th September 1919 gold price fixed as four pounds 18 shillings and ninepence

Gold pricing done on the premises of N M Rothschild & Sons Due to wartime 1939 1959 gold market was closed

After World War II gold was denominated in USD

LONDON GOLD POOL

Members

Scotia-Mocatta successor to Mocatta & Goldsmid and part of Bank of Nova Scotia Barclays Capital Replaced N M Rothschild & Sons Deutsche Bank Owner of Sharps Pixley, itself the merger of Sharps Wilkins with Pixley & Abell HSBC Owner of Samuel Montagu & Co. Socit Gnrale Replaced Johnson Matthey and CSFB as fifth seat

Process overview

Fixed everyday twice

Chairman begins with a trying price Five members banks relay price Price fixed according to demand and supply

Procedure followed disequilibrium fixing: Traditional fixing : UNION JACK was raised to pause proceedings Modern method : transactions carried with telephone flag to pause proceedings chair ends with word there are no flags available we are fixed

WHY GOLD FIXING AT ALL ?

Set as benchmark by five members for world Price precise for that moment Serves as guideline for traders

WHY DO WE KEEP GOLD?

Total gold mined remains almost fixed Gold price affected by sentiment than production People see gold as investment/ currency in crisis No relation in gold and other commodity prices

FACTORS AFFECTING GOLD PRICES

The price of gold is driven by supply and demand Following some Factors affect gold price Jewellery and industrial demand Central banks Hedge against financial stress Short selling War, invasion and national emergency etc.

1. JEWELERY & INDUSTRIAL DEMAND

Main factor influencing the gold price is demand for jewelry Jewelry Consumes two third of annual gold production.(Festivals, Weddings etc) India is responsible for 27% to the demand Industrial demand is at 12% of gold demand high thermal conductivity and high resistance to corrosion make its ideal for Industries Emerging markets boost demand such.

2.CENTRAL BANKS
Central banks and mining companies, have a large amount of gold reserve Massive Buying/Selling of gold by them changes gold price. CB hold around 16% of produced gold. Washington Agreement on Gold (WAG) from 1999 puts a cap on the sales of gold . Limits the sale to less than 500 tonnes annually.

CENTRAL BANKS .
Generally interest rates are closely related to the price of gold. CB correlates change in gold price via the monetary policy decisions made related to interest rates.(i.e. prolong inflation) On April 7, 2011 ECB raised the Interest rate , responding in high increase gold price.

3. SPECULATION AND INVESTING (HEDGE FUND)

Gold used as a Hedge against inflation/deflation or currency devaluation. Currencies are under pressure due to inflation and massive govt. deficits Returns on bonds, equities and real estate is not adequately compensated ,results in demand for gold.

4.SHORT SELLING
The price of gold is also affected by various well-documented mechanisms of artificial price suppression Fractional reserve banking Video

5. WAR, INVASION and NATIONAL EMERGENCY

During emergency (Great Depression) or war situations, people feared bank would failed Their assets would be seized and it will become worthless. It would be safe as compared to bank notes and other assets. This scenarios lead to jump in price of gold.

CONCEPT OF ETF
What is an ETF? An exchange traded fund is an investment fund traded on stock exchanges ,much like stocks

Holds assets such as bonds, commodities Trades close to its net asset value over the course of the day With ETF its one trade, one price

HOW ARE THE ETFS MADE

ETF Provider Decide the sector, commodity or market File with the SEC Construct the new fund such as stocks Consider the type of ETF Symbol & target launch date

STRUCTURE

ETF dont sell individual shares at NAV Financial institutions purchase shares from ETF Only in large blocks called creation units Exchanged with baskets of underlying securities

Under the SEC proposal, an ETF would be defined as investment company that Issues creation units Identifies itself as an ETF in any sales literature Issues shares that are approved on security exchange Disclose each business day on its publically available Website

TYPES OF ETFS

Index ETFs Commodity ETFs

Bond ETFs
Currency ETFs Actively managed ETFs

THINGS TO CONSIDER BEFORE BUYING ETF

Investment strategy Investment horizon

ETF assets
Costs, commissions & fees Tax implication

ADVANTAGES OF ETFS

Single transaction Cost effectiveness

Taxes
Flexibility Accountability Simplicity

STRONG REASONS TO BUY ETFS

Investing in the market Reap ETF benefits Save on commissions & fees

GOLD ETF

What are Gold ETF's?

Gold ETF Listed on NSE GOLDSAHRE SBIGETS RELIGAREGO How to Trade Gold ETFs?

GOLD ETF

Benefits of Gold ETFs Transparent Pricing Easy Accessibility Purity Smaller Denomination Tax Benefits

GOLD ETF IN INDIA

GOLD ETF IN INDIA(2010-11)

Largest Fascination with gold. Accounting 9.5% of the Worlds gold holding. High Returns. Popular to invest in as Prices skyrockets.

PRESENCE OF GOLD ETF(2010-11)

NAMES

NSE TICKER
QGOLDHALF GOLDSHARE SBIGETS AXISGOLD HDFCMFGETF RELGOLD RELIGAREGO GOLDBEES IPGETF KOTAKGOLD BSLGOLD ETF

Quantum UTI SBI Axis HDFC RELIANCE Religare Benchmark ICICI Prudential Kotak Birla Sunlife

PERFORMANCE OF GOLD ETF IN INDIA

BEST GOLD ETF IN INDIA 2011

Benchmark named GOLDBEES in NSE is one of the best ETF in India. Expense Ratio is very Low.

High Volume
Oldest of ALL.

EXPENSE RATIO

Amt Incurred for Maintaining purpose. Important Factor in Gold ETF.

It includes: -Advisory Fee -Register and transfer agent Fee -Brokerage Cost -Cost of fund transfer. -Other Expenses.

BENCHMARKS VOLUME

VOLUME OF GOLD ETF IN INDIA(2010-11)

GOLD PRICING AND INFLATION

Root cause: money supply and velocity of money Gold is an asset affected by many factors in many market. Change in money supply and price of gold

MONEY SUPPLY AND ITS IMPACT IN THE GOLD MARKET

US Financial Crisis Stress fractures in securitized products Governments and central banks implemented measures Effect of financial crisis on the magnitude and timing of inflation

GOLD DEFIES THE MOULD

Performance of gold to particular trends of investment flows, inflation or growth. The structure of the global demand for gold is very diverse

Behavior of Gold Prices

GOLD AND MONEY SUPPLY

Gold as an asset has low correlation to most financial assets Two reasons for surge in money supply Economic growth (low inflation) Too much money into the economy (inflationary pressures)

1. 2.

GOLD AND VELOCITY OF MONEY

Inflation can be regulated by the amount of money supply pumped into the market Velocity of money: Compare GDP to money supply

Gold is an indicator to such measure

TAXATION

Gold in

maintains a special position

market with many tax regimes

e.g. European Union the trading of recognized gold coins

do

not have the same allowance -silver & precious metals & commodities

CONT..

U.S. citizens taxed on gold profits

15 %, 23 %, 28 % or 35 % ,

Depending on investment

ETF TAX
The holding period of the gold ETF units More than 12 months Classified as long term capital gain

The holding period of the gold ETF units less than 12 months Classified as short term capital gain

FEDERAL AND STATE INCOME TAXES

For stocks held for more than one year Long-term capital gains rate is 15% in 2010,

It is scheduled to increase to 20% in 2011.

FEDERAL AND STATE INCOME TAXES

The short-term capital gain rates -- 35% in 2010.

The rate is scheduled to increase to 39.6% in 2011.

GOLD COINS & BULLION

Gold coins & bullion tangible personal property

Axed as a collectible

Capital gains or losses = stocks and bonds.

STATE SALES TAXES

Investor purchases shares of stock Gold mining corporation Contract there is no state or local sales tax on the purchase.

STATE SALES TAXES

The purchase of gold coins Bullion State sales tax

Where sale takes place.

CONCLUSION

When an investor decides to invest in gold It is important for the investor to understand

Both the tax ramifications & the different forms of investing in gold. Also, importance is where the investor lives where the sale takes place

SCAMS AND FRAUDS

Gold

attracts its fair share of fraudulent activity. Some of the most common to be aware of are:

CASH FOR GOLD

Rise in price of gold financial crisis In 2007-2010 buy personal

gold in exchange for cash,

surge in companies

sell investment s in gold bullion

sell investments in gold coins

VIDEO OF SSSSSS SCAM

Scam

FUTURE PROJECTIONS

Analysts split on the future of gold prices. The big rise in gold price from $800 / ounce in January 2009 to $1,227 / ounce in November 2009 has been the center of bullion discussions all these days.

Central banks trying to amass gold reserves to replace the value-decreasing US bonds and dollar that several countries have so far been holding as foreign exchange reserves. Indias central bankthe Reserve Bank of India (RBI)bought 200 tonnes of gold from the International Monetary Fund (IMF) in November, 2009, adding to the frenzy in bullion market.

Gold is relatively "recession-proof," as evidenced by its relative strength in 2008. Gold prices rose 1.7% last year, which is quite spectacular considering equity values went down 39.3%, real estate values went down 21.8%, and commodity prices went down 45.0% in the same period

Will Gold Prices Hit $ 2000 by 2012?

Two of the most bullish factors in the gold market expectations of U.S. Fed Reserve may rely more on inflation-stoking quantitative easing measures, and news that China aims for the gold market to expand.

The current US and the Euro zone crisis will keep the gold prices bullish and it is likely to reach USD 2,000 an ounce in another 3-4 months

10 YEAR GOLD PRICE HISTORY IN US DOLLARS PER OUNCE.