Index

Part
a.
b.
c.
d.

Topic
Industry Profile
Company Profile
Theoretical aspects of concept
Research Methodology
- Objective of study and Benefits of
-

e.
f.
g.
h.
i.
j.
k.

the study.
Research design, Sample Design,

Data collection tools, etc.

- Limitations of study
- Detail Study
Analysis of data
Findings
Conclusions
Recommendations
Annexure
Glossary of terms
Bibliography

Industry Profile

Page No.
7
10
23
28
28
29
31
32
93
103
105
107
108
114
115

It is financial advisory Industry specializing in risk management, hedge funds

and derivatives, commodity, managing the portfolio.
It provides institutional investors, Retail investors, funds of funds, hedge fund
managers, mutual funds, traditional money managers, banks/investment
banks, and law firms with consulting services including:
Policy, procedures and guideline creation or review
Market, credit, operational and legal risk diagnosis
Legal Outsourcing
Legal Risk Management
New product development
Structuring and analysis of transactions
Portfolio construction
Reviews of practices vs. best practices
Litigation support/financial forensics
Corporate/Risk Governance
Compliance Reviews
Regulatory Advice
Risk Partnership
Portfolio diagnostics
Risk benchmarking
NAV/Mark to market verification
Portfolio construction
Risk budgeting
Risk Branding
Transitioning from asset to risk allocation
Creating your integrated, risk-adjusted efficient frontier

Portfolio optimization
Establishing hedge funds and funds of funds
Designing and Implementing Compliance Programs
Providing Regulatory Updates
Customized Fund of Funds
Research and advisory

Risk Management Experience

In depth understanding of complex instruments and strategies.
Strong quantitative skills.
Experienced in new business development.
Experienced

with

establishing

standards for transparency and

disclosure.
Designed risk management infrastructure for large, institutional asset
management group, including performance and risk reports.
Experienced with valuation issues across broad array of illiquid
instruments.
Experienced with identifying and resolving problematic situations,
including but not limited to, valuation issues, risk issues, trader issues,
and operational issues.
Extensive

Market,

Credit

and

Operational

Risk

Management

experience, including hedge funds, traditional asset management,

trading desks and prime broker operations.
Extensive hedge fund and fund of funds due diligence experience.
Extensive experience teaching funds of funds and institutional
investors how to de effective due diligence.
Skilled at interviewing and selecting traders and trading managers.

Experienced at firing traders.

Extensive network of contacts in the trading world provides unique
access to the real story on reputations - we create our own references.
Ran repo, stock loan, prime broker, swaps businesses and options
businesses.
Experience with liquidity management.
Legal Experience
Litigation and expert testimony for a variety of complex securities and
derivatives cases.
Advisor to many U.S. and foreign banks, broker dealers, investment
advisors and funds.
Experienced in setting up funds.
Extensive SEC, bank regulatory and CFTC experience.
Experienced in new product development.
Experienced in all aspects of compliance.

Company Profile

Motilal Oswal Securities Ltd.( MOSt) History & Milestones

The story of MOSt goes back many years, when Mr. Motilal Oswal and Mr.
Raamdeo Agrawal met each other as students in a Mumbai suburban hostel
in the early eighties. Both the young chartered accountants hailing from a
rural & an unpretentious background had a common dream viz 'to build a
professional organization with strong value systems, to provide reliable &
honest investment advice to investors'. Thus was born their first enterprise
called "Prudential Portfolio Services" in 1987.

Places 9.29% with two leading private equity investors - New

Vernon Private Equity Limited and Bessemer Venture Partners
Acquires a leading south Indian brokerage firm - Peninsula Capital
Markets
Enters Private Equity and plans entry into Investment Banking
2006

businesses
Value PMS gives 390% returns to its investors between Feb 2003
and March 2006
First advice-based online trading proposition in the Indian markets
Another milestone in distribution - 1019 outlets, 375 cities, serving
1.61 lakh clients
Has a 1400 member team working to achieve the company's vision

2005 Asiamoney Brokers Poll 2005 rates Motilal Oswal Securities - Best
Local Brokerage, Most Independent Research House, Best in Sales

10

and Service
Launches two new Portfolio Management Schemes - Value
Hedging for derivatives and Discover Value for the Rs5 lakh to Rs50
lakh category
Acquires local brokerage Gayatri Capitals from Andhra Pradesh and
Varghese from Bangalore
Deepest distribution in the stock broking segment with 700 outlets
in 320 cities and 1.2 lakh clients
Presence expanded to 270 outlets in 150 cities and 20 states
Value PMS delivers a whopping 160% post tax returns for the
2004 period ended April 2004
Bulls Eye PMS - A momentum based PMS launched
Start of the Solid Research Solid Advice campaign
MOSt Portfolio Management Services launched with Mr. Raamdeo
Agrawal as the Portfolio Manager. Uniquely structured performance
related fees.
Inquire team is successful in capturing the uptrend in Banking, Auto
and Infrastructure sectors.
2003 15,000 Depository clients acquired.
9 own branches setup at 7 cities to provide Equity Advisory
Services. More in the pipeline.
150 outlets in 110 cities across 18 states & one Union Territory in
India manned by 1000 people servicing over 15,000 Retail and
Institutional Investors.
2002 Mr. Navin Agarwal, Head of Equity Research & Institutional sales, is
inducted in the Board of Directors
MOSt consolidates its retail operations & upgrades its IT / Back
Office infrastructure to cater to its growing network of branches,

11

Franchisees and Channel Partners.

Retail network completes coverage of 100 cities in India.
Direct servicing of HNI clients is initiated.
10,000 Depository clients acquired.
Legendary marketing guru Shunu Sens services taken to revitalise
2001

retail marketing strategy and branding efforts.

Starts offering Derivatives products and advisory services on both
BSE as well as NSE
Both Mr. Motilal Oswal and Mr. Raamdeo Agrawal receive Rashtriya
Samman Patra from Central Board of Direct Taxes for being amongst
the top 50 tax payers in India from FY94-FY98

2000 Acquires its 100th Franchisee / Channel Partner and emerges as a

leading player in the Indian Broking Sector
Becomes a Depository Participant of Central Depository Services
Limited (CDSIL)
1999 Mr. Raamdeo Agrawal starts attending legendary billionaire investor
Warren Buffetts Annual General Meetings of Berkshire Hathway Inc.
He still continues to attend it every year.
The Wealth Creation Study started in 1996 culminates into Wealth
Creation Seminar and Awards function in 1998.
First Stock Broking house to brand its services as a research and
advise based broker.
www.MotilalOswal.com launched. First broking house in India to go
on the web.
Becomes a Depository Participant of National Securities Depository
Limited (NSDL).
Inducts Mr. Ivan Mathias, former country head of Watson Wyatt
Worldwide, on its Board to Directors to shape HR initiatives.

12

1998

Mr. Motilal Oswal joins the Governing Board of The Stock

Exchange, Mumbai.
Wealth Creation Study started. First of its kind study initiated to

1996 identify biggest and fastest wealth creating companies in Indian Stock
markets.
1995 Motilal Oswal gets incorporated as Motilal Oswal Securities Ltd.
MOSt acquires NSE Membership and plans for major expansion of
its retail network.
Inquire (Indian Equity Research) is formally created at a 2500 sq. ft
1994

office in South Mumbai with bigger and better quality infrastructure

than the corporate office. Since then nearly 20% of revenue is
allocated to research. First Domestic Stock broking house to have
such a strong Research focus
Motilal Oswal enters Institutional Broking business.
After just three years in the business, Motilal Oswal is formed

1990 through acquisition of membership on The Bombay Stock Exchange

(BSE). Three more memberships taken in later years.
Mr. Motilal Oswal and Mr. Raamdeo Agrawal lay the foundation of a
1987

great partnership by starting a sub-broking firm. The venture stands

out from the rest due to their approach of Research-based broking
even when sub-brokers.

Motilal Oswal Securities is a leading research and advisory based stock

broking house of India, with a dominant position in both institutional and retail
broking. Asiamoney Brokers Poll 2005 has ranked us the best Indian
brokerage firm. There are various other categories where we have been rated

13

number one most independent research, sales and service etc by the
Brokers Poll.
In March 2006, AQ Research, a firm that analyses the accuracy of a brokers
research call, declared Motilal Oswal Securities the best research house for
Indian stocks.
Motilal Oswal Securities has witnessed rapid organic growth due to favorable
market conditions as well as efforts put in by the company itself. FY05 and
FY06 saw the company grow inorganically through acquisition of three
significant regional broking firms from Andhra Pradesh, Karnataka and Kerala.
Over a period of time many more regional broking firms may be acquired to
gain solid footing in various regions of India.
The company was founded in 1987 as a small sub-broking unit, with just two
people running the show. Focus on customer-first-attitude, ethical and
transparent business practices, respect for professionalism, research-based
value investing and implementation of cutting-edge technology have enabled
us to blossom into an almost two thousand-member team.
Our institutional business unit has relationships with several leading foreign
institutional investors (FIIs) in the US, UK, Hong Kong and Singapore. In a
recent media report we were rated as one of the top-10 brokers in terms of
business transacted for FIIs.
The retail business unit provides equity investment solutions to more than
150,000 investors through 900 outlets spanning 340 cities and 24 states. We
provide

advice-based

broking

(equities

and

derivatives),

portfolio

management services (PMS), e-Broking, depository services, commodities

trading, IPO and mutual fund investment advisory services. Its Value PMS
Scheme gave a 402.74% return since inception ( Feb 2003) , ( Sensex is

14

270.69% & Nifty is 245.11%). The perfomance of Value Hedging since

inception ( Oct 2005) is 32.76%.
Such an outstanding performance can be only attributed to our single-minded
focus on research-based value investing. Motilal Oswal Securities invests
almost 5-10% of its revenue on equity research and hires and trains the best
resources to become advisors to its valued clients.
Our unique Wealth Creation Study, authored by Mr Raamdeo Agrawal,
Managing Director, is now in its eleventh year. Investors keenly await this
annual study for the wealth of information it has on how companies created
wealth during the preceding five years.
The organization finds its strength in its team of young, talented and confident
individuals. Qualified professionals carry out different functions under the able
leadership of its promoters, Mr.Motilal Oswal and Mr. Raamdeo Agrawal.
Stringent employee selection process, focus on continuous training and
adoption of best management practices drive the quest to achieving our
Vision.

MOSt Vision

15

MOSt Guiding Principles & Core Values

Customer interest is paramount
Ethical and transparent business practices
Respect for professionals,associates and business partners
Research based value investing
Cutting edge technology to ensure world-class customer service

People behind the organization

16

Mr. Motilal Oswal

Chairman and Managing Director
Mr. Motilal Oswal is the promoter of Motilal Oswal Securities Ltd. He is an
member of Institute of Chartered Accountants of India and started the
business along with the co-promoter Mr. Raamdeo Agarwal in 1987.
Business Administration is his forte, Honesty, transparency and client goodwill
form the core of his business practice.
Service is required in everything, in research, in execution and in settlement.
It is going to be the key to survival. If you give good service and value to your
clients, it will translate into good business.
This has been a strong belief of Mr. Motilal Oswal and he has not only
practiced it himself but also made efforts to inculcate similar values in the
employees of the organization. He had been elected as a Director of BSE
and joined its governing board in 1998. He is currently a member of various
committees of CDSIL and SEBI.
Mr. Raamdeo Agrawal
Joint Managing Director
Mr. Raamdeo Agrawal is the co-promoter of Motilal Oswal Securities Ltd. A
member of the Institute of Chartered Accountants of India & an equity
research stalwart, he is the man behind the strong research capability at
MOSt.
He is respected by all in the research and broking industry for his valuable
insights on issues related to equity research. His firm belief in ValueInvesting, as practiced by the legendary Warren Buffett and Charlie Munger,
forms the core of MOSt investment philosophy.

17

Management Team
MOSt management team is regularly engaged in finding ways to improve
operational efficiencies and customer satisfaction. You will find CAs, CFAs,
ICWAs, CSs, MBAs and IT professionals managing crucial functions, to bring
you best products and services - from research & advice to trade execution &
settlement. At MOSt we practice meritocracy and each of the team members
is provided extensive training.
Training & Manpower Development
MOSt conducts various training and development programs regularly to
enhance the capabilities of its team. As much as 5% of the salary bill is spent
on such programs, which is amongst the highest for a broking organization in
India. MOSt is truly a learning organization with lead being taken by the
Directors, who regularly participate in top management learning programs like
Strategic Management Program at Indian School of Business, Hyderabad,
Strategy Summits with Management Gurus like Tom Peters and Dr. Lester
Thurow, Dean, Sloan School of Management, (MIT) and Brand Management
Seminar by Al Ries etc.

Motilal Oswal Commodities Broker Pvt. Ltd

MOSt is one of the leading equity research & broking houses of India
(Best Local Brokerage House-India By Asia Money Poll-2005).
MOSt provides end-to-end equity solutions to institutional & individual
investors.
MOSt provides products & services such as e-broking, derivatives,
depository service, portfolio management & equity research.

18

Recently, Motilal Oswal Group has floated Motilal Commodities Brokers

(P) ltd to provide commodity trading facilities & related products and
services.
Global Investment Assets
Equities
Commodities
Real Estate
Bonds
Value Added Services
Daily view Commodity wise compared to International markets.
Fundamental and technical report are uploaded Daily on our site.
Advisory given on basis of daily reports.
Technology Support as in Equity.
Similar Front end and BO as of equity.
Stable Systems for Payin/Payout.
Client Security Strong Compliance.

19

Settlements Deliveries Workflow

Exchange
Clearinghouse
Download of members net
positions on expiry

Member
Delivery
Information

Counter party
Information

Submission of
Delivery
information
and matching
of
Information

Matched
Information

Matching of
Information
Direct delivery
Between
buyers and
sellers

Delivery thru
Depository

Focused in New Avenue and is committed to serious Business

Experience in Settling pressure of 1.5 lakh trades per day in Equity

Recognised Brand Name for equity Advisory.

Tested Risk Management Systems.

Motilal Oswal Commodities Broker Pvt. Ltd.(MOCB) a fully owned
subsidiary of Motilal Oswal Securities Ltd. (MOSL), Clearing Member
and Trading Member with NCDEX .
Initiated the trading operation in 2004
Presence in all the four zones.
Commodity exchanges have collectively clocked a turnover of Rs
92,226 crore in April, lower than Rs 98,000 crore in March. According

20

to data provided by the Forward Markets Commission (FMC), only two

exchanges have posted nearly 90% of the total April turnover.
Daily Volume on National Level Online Commodity Exchange
reached 12500 Cr. Approx.

NCDEX

MCX

NMCE

Benefits of Commodities in Balanced Portfolio

Low correlation with other Asset Class
Positive correlation with Inflation
Cash Return
Unexpected Events
Business Cycle
By Nature a global product
Management Integrity
Widely respected in the Indian Stock Broking fraternity for its high
standards of corporate governance and adherence to ethical business
practices
SANMAN PATRA awarded by the Government of India to both the
promoters for being amongst the top 50 income tax payers in the
country for the period 1994-96
Research
Popularly known as Inquire, companys research is highly respected
by FIIs, MFs, FIs and Retail clients
Rated by Asiamoney Brokers Poll
research brokers

21

as among the best domestic

Sectors covered in depth include

Automobiles,Banking,Cement,Engineering,IT,

:Media,Metals

,Oil

&

Gas,Pharmaceuticals & Utilities

Product Range
Equity Broking
Portfolio Management Services
Depository Services
Derivatives
Commodities
Internet Broking

Indian Market
Bullion (only GOLD)
Large consumer (Rs 400 bn) -traditional form of investment
Large stocks of unaccounted metal (approx.13000t)
Skill in hand made jewelry
Market Participants
Hedgers, Speculators, Investors, Arbitragers, (same as
Equity markets)
Producers Farmers
Consumers refiners, food processing companies, jewelers,
textile mills, exporters & importers
Institutional proprietary trades currently disallowed
FUTURES TRADING IN COMMODITIES
India has a long history of presence of commodity trading.
Worldwide commodities markets are bigger than equity markets in size
as well as penetration.

22

Commodities markets are useful for producers, manufacturers &

traders to hedge their risk of price movement.
Like equity market, Speculation provides the much needed liquidity &
depth.
Futures market help in Price Discovery of commodities under
transparent organized & institutional market set up.
HOW TO TAKE PART IN COMMODITY MARKET!
Hedging for manufacturers & users.
Arbitrage between different months & with spot market & International
markets.
Speculation based on technical & fundamental view.
Some Thoughts
Plan your investment and play your plan
Research before you invest and not after

Theoretical aspects of concept

What is commodity?
Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of
movable property other than actionable claims, money and securities". Futures'
trading is organized in such goods or commodities as are permitted by the Central
Government. At present, all goods and products of agricultural (including plantation),
mineral and fossil origin are allowed for futures trading under the auspices of the
commodity exchanges recognized under the FCRA. The national commodity
exchanges have been recognized by the Central Government for organizing trading
in all permissible commodities which include precious (gold & silver) and nonferrous

23

metals; cereals and pulses; ginned and unginned cotton; oilseeds, oils and oilcakes;
raw jute and jute goods; sugar and guar; potatoes and onions; coffee and tea;
rubber and spices, energy etc.
Trend Analysis is the examination and evaluation of the relevant information to
select the best course of action from among various alternatives.

Purpose:
Main purpose of this analysis is to aware with the historical scenario of the
domestic and International Bullion Commodity Market. And Using this
Information can be able to Predict the Future price, Demand, Supply of the
Bullion Commodity in the World.
It also consist History of Gold and Silver, Fundamental of Gold and Silver,
Historical Prices of Gold and Silver in Domestic as well as in International
Market which can help to predict the future trend of the market.
Features of Indian Gold Economy, Properties, Uses and Characteristics of
Gold and Silver also help to aware with the bullion commodity.
Gold and Silver Production all Over the World
World Gold and Silver Demand and Supply
Mine Production by Countries
Gold and Silver Jewellery Demand in the World
Official Gold Reserve in the World
World Gold Holding
Gold Mining Production Process
Top 20 Silver Producing Country

24

All Above Information helping to know the historical trend of the Bullion
commodity Market all over the world. And It helps to Investor to predict the
future trend of the Bullion Commodity Market.
Trend analysis is based on the idea that what has happened in the past gives
traders an idea of what will happen in the future.
There are three main types of trends: short-, intermediate- and long-term.
Trend analysis tries to predict a trend like a bull market run and ride that trend
until data suggests a trend reversal (e.g. bull to bear market). Trend analysis
is helpful because moving with trends, and not against them, will lead to profit
for an investor.
Outsourcing Trend Analysis to India
Get the competitive advantage with Trend Analysis. Get significant insights
into customers and markets to guide your company's marketing, investment,
and administration objectives.
"With the past, we can see trajectories into the future - both catastrophic and
creative projections. John Ralston Saul.

Importance of Concept
Data analysis including Trend Analysis is essential for a firm's competitive
intelligence program. The ability to accurately gauge customer response to
changes in business and other environmental parameters is a powerful
competitive advantage.
Trend Analysis is essential to running an organization's value chains and in
acquiring and consolidating corporate success. It allows business users to

25

make analytical decisions about those business processes that maximize

revenue from core customers.
With the information explosion, an incredible amount of information is
available to organizations. However, raw data by itself does not provide much
information. It is the conversion of this raw data into significant facts,
relationships, trends and patterns, that could otherwise go unobserved.
This makes Trend Analysis an essential part of running an organization's
value chains and in acquiring and consolidating corporate success. It allows
business users to make analytical decisions about what direction the business
should target its resources on and to focus on those business processes that
maximize revenue from core customers.
Trend Analysis Proper - Allows you to plot aggregated response data over
time. This is especially valuable, if you are conducting a long running survey
and would like to measure differences in perception and responses over time.
Thus Trend Analysis provides an insight into the following:
Changes and trends in customer needs and behavior, and shifts
in the customers' perception of value.
Trend in price change and cost drivers for the industry and/or
specific segments
Change and evolution of the industry in terms of new entrants,
and competition, threat of substitutes and relationship with
buyers and suppliers
Upcoming business models and changing best practices of the
industry and related emerging sectors
In depth analysis of long term industry, domestic and global
economic cycles and trends.

26

What are the benefits of Trend Analysis?

1. Detailed Trend Analysis - to predict the threat of new entrants and
allows management to develop competitive strategies thus enabling
industry position as well as pursuit of leadership.
2. It provides security of strategic investments and protection of assets.
3. Enables crucial decisions on mergers and acquisitions as well as the
ability to develop alliances and partner relationships.
4. Trend Analysis data can be further used for various cost/benefit
analyses. And can be extremely valuable as an early warning indicator
of probable issues with product line and service level changes.
5. Trend Analysis enables a business to view strategies from a long-term
perspective with respect to effective asset and investment deployment
and can safeguard against costly errors in relationship management
and strategic positioning.

The advantages of Trend Analysis

The ability to accurately gauge customer response to changes in business
and other environmental parameters is a powerful competitive advantage.
Furthermore O2I's trend analysis includes the process of studying data to gain
insights into long-term trends such as failure patterns that can be applied to
incident and problem management as well as capacity management.
Internal and external users can apply Trend Analysis to determine
weaknesses and strengths. This will enable internal users to enhance
administration efficiency of the company when necessary and external users
to form valuation models of the company based on how well the company is
managed.

27

What if you could make your investment decision at the very first
idication that a trend is beginning, before most everyone else? Here are
10 ideas to consider when investing.
Risk Diversify
Information moves the markets
You can count on human behaviour Look everywhere
Timing is everything. When does the news begin to have an impact on
sector prices?
All sectors are not created equal.
Trend Pointers monitors the most intriguing sectors and those that are
just emerging
If you only could know one thing
You need a trend partner. You cannot rely just on the financial expertsthey are often wrong .
I adapted my professional marketing and behavioural research
expertise to a more personal need- effective investing advice
The Evidence

Research Methodology
Research Objectives
In general sense research means search and analyse the knowledge,
as a scientific and systematic search for pertinent information on the
related topic.

28

The research objective addresses the purpose of the investigation. It

will give us the exact information about what is being planned.
Research objective as under.

The following points reflect the core of the objectives and the essence,
which also directly focuses on the coverage of the project work
undertaken.
The first and the most important object are to be comparing the
theoretical work with practical scenario.
To study various aspect of trend Analysis and its implementation on
investors decision, for his investment decision as well as knowledge
purpose of the Market.
To know about the Bullion commodity Sector i.e. factor affecting the
sector and how to provide valuation to the Bullion commodity of the
sector for the investment to earn max profit.
Develop a creative and innovative attitude and if possible come out
with some new suggestions and recommendation for the organisation.

Data Collection
In research methodology, data collection is mainly two types; Primary
data collection and Secondary data collection. Various fruitful
discussions have been made with the brokers to collect the financial
information of the company as well as for understanding of the sector.
Data collection as under:

29

Primary Data Collection:

Primary data collection is those, which are collected fresh, and for the
first time happen to the original in character.
Here, I had Collected data from the one of the area survey using the
questionnaire with employees of the Motilal Oswal Securities Ltd.,
brokers, and the individual investors in the Market.
Topic: A survey Report on Factors Influencing The Investment Pattern
Samples are randomly taken from the Market.
Sample Size : 50 sample.
Secondary Data Collection:
Secondary data means are those which have already been collected
by someone else and which have already been passed through the
statistical process.
Here, I had collected all the data related to Bullion commodity from the
different web sites. Which are as under.
www.gold.org
www.kitco.com

For gold

www.dmcc.ae
www.iab.gov.tr

www.google.com

www.usagold.com

http://www.gold.org/links/ind

www.thebulliondesk.com

ex.php

www.goldprice.com

www.gfms.co.uk

www.mcx.com
www.ncdex.com
www.thebulliondesk.com
www.moneycontrol.com

www.lbma.org.uk

www.advfn.com

www.nymex.com

www.bambooweb.com

www.tocom.com.jp

30

www.personalfn.com

www.nymex.com
www.tocom.com.jp
www.gfms.co.uk

For silver

www.kitco.com
www.google.com

www.mcx.com

www.silverinstitute.uk

www.ncdex.com

www.lbma.org.uk

www.silverprice.com

Benefits of the Study

During the training in Motilal Oswal Securities Ltd., which is a broking
firm, and the topic is the Trend Analysis on Bullion Commodity Market
As this is totally new area of study. Benefit of the study as under:
With the help of trend analysis of Bullion commodity and world market,
the present situation of the bullion commodity market and future
prospects can be known.
The project helps for get practical exposure to the Market.
The project helps in getting knowledge of Bullion Commodity market,
i.e. the factors that affects the performance of the Market, Trend in the
market, how international market affects the domestic market in bullion
commodity.
By survey discussion of the different investors, brokers & experts of the
market, to know about investment pattern they use while investing and
factors keep in mind while investing.

Limitation of the Study

Coin has two sides, same as every matter has advantages and
disadvantages, though put all the full efforts for the completion of the
project, there are some limitations are as under:

31

The first and the most important limitation is that, do not have practical
experience and knowledge and about the topic. This report help just as
theoretically get the knowledge.
Here, statistical data collected are used for this time only because
there is always market is volatile so there may be different scenario in
the market after some years.
And the other limitation is that the figures for projected analysis are
based on the assumption because no one can able to predict the real
situation of the market.
In spite of full efforts made the findings of the analysis that whether to
buy or sell or hold the commodity may not be 100% accurate.
In this project, while determining the efficiency of the market only trend
analysis is taken, where as other approach like technical analysis,
economical analysis also exist which affects the price of the
commodity.
Benefits of Exchange Traded Commodities
Low margin requirement and stable market
Hedge against future markets volatility.
Fair Price Discovery based on Demand/Supply ratio.
Transparency, Screen Based Trading ( Process, Prices and Volume)
Creates Opportunity for Arbitrage between Two Exchanges, Contracts.
Provides quality Specifications or quality Norms.
Large Expanding Volumes

MCX (Multi commodity exchange)

32

Gold Exchange captures more than 85 percent market share in gold futures
Multi Commodity Exchange of India Ltd (MCX), the golden exchange has
emerged as the No. 1 commodity exchange in India by capturing more than
85 percent of the total gold futures trading volumes.
The daily volume in gold futures contracts exceeds 400 Kilograms and
records open interest of more than 300 gilograms.
Commenting on the expanding bullion market, Mr. Jignesh Shah, managing
director, MCX said, "We believe that the Indian gold market is on the verge of
a huge transformation with the introduction of futures trading. Indian gold
fabricators and exporters are participating in a large way to hedge their
market risk on MCX. With increased participation and trading volumes, MCX
is emerging as the Golden Exchange of the country"
He added that, "conservatively estimates have found that the Indian gold
futures market is expected to multiply at 10 times the rate of the spot market
in the next three years and this will create a market of 8,000 tons of Gold,
valued at Rs. 4,80, 000 crores.
Optimistically calculating with a multiple of fifty, a standard multiple factor in
markets of TOCOM and COMEX, the Indian gold futures market is expected
to grow to a staggering size of 40,000 tons of gold, valued at Rs. 24,00,000
crores. The collective market size of all commodities put together is expected
to be of the order of US$ 600 billion.
Further, this market is expected to reach over 5000 cities in all 550 districts of
India, riding smoothly on state of the art technology & industry friendly
facilities provided by MCX."

33

MCX began live trading from November 10, 2003. On the first day of trading,
the maximum trading interest was witnessed in gold and that too in the first
contract month. In the New Year, volumes surged to a new high of 214 Kgs
(single side) as observed on January 5, 2004. Same bullish trends were
noticed in the open interest and daily turnover figures.
At MCX the 'Trading Volume to Open Interest Ratio' is well in comparison to
what is being witnessed in the globally established and matured commodity
exchanges. It's distinguishingly noticed that there is not a single trading day
on which the Open Interest has been reduced to ZERO, which is a positive
signal of an emergence of extremely healthy market.
Key Shareholders:
NSE(National Stock Exchange)
Financial Technologies (India) Ltd.
State Bank of India Union Bank of India
State Bank of Indore Bank of India
State Bank of Hyderabad Canara Bank
Bank of Baroda Corporation Bank
Bank of Saurashtra SBI Life Insurance Co.

India in world gold market

Particular
Total stocks
Central bank holding
Annual production
Annual recycling
Annual demand
Annual Imports
Annual Exports
MCX Bullion Plus :

India (in tons)

13000
400
2
100 300
800
600
60

World (in tons)

145000
28000
2600
1100 1200
3700

34

% Share
9
1.4
0.08
13
22

MCX is amongst the top 3 Bullion Exchanges in the world

Average daily turnover in bullion is Rs. 1000 Crores
Average spread between Buy & Sell is Re. 1
With the Government of India allowing futures trading in Gold and
Silver since October 2003,
For centuries Gold and Silver are well ingrained in the Indian
MCX has commenced futures trading in Gold & Silver on its online
nationwide platform in November 2003 through its member network
spread across the country and it is presently the most successful and
liquid futures contract in India.
Indian Gold Market
Gold is valued in India as a savings and investment vehicle and is the
second preferred investment after bank deposits. India is the world.s
largest consumer of gold in jewellery as investment.
In July 1997 the RBI authorized the commercial banks to import gold
for sale or loan to jewellers and exporters. At present, 13 banks are
active in the import of gold.
Domestic consumption is dictated by monsoon, harvest and marriage
season. Indian jewellery offtake is sensitive to price increases and
even more so to volatility.
In the cities gold is facing competition from the stock market and a wide
range of consumer goods. Facilities for refining, assaying, making them
into standard bars in India, as compared to the rest of the world, are
insignificant, both qualitatively and quantitatively.

Characteristics of World Gold Market

35

Gold market is highly liquid and gold held by central banks, other major
institutions and retail jewellry keep coming back to the market.
Due to large stocks of Gold as against its demand, it is argued
that the core driver of the real price of gold is stock equilibrium
rather than flow equilibrium.
Economic forces that determine the price of gold are different from,
and

in

many

cases

opposed to the forces that influence most

financial assets.
South Africa is the world's largest gold producer with 394 tons in 2001,
followed by US and Australia. India is the world.s largest gold
consumer with an annual demand of 800 tons.
Important World Gold Markets
London as the great clearing house
New York, the home of futures trading
Zurich as a physical turntable
Istanbul, Dubai, Singapore and Hong Kong as doorways
to high consuming regions
Tokyo where TOCOM sets the mood of Japan

Silver
36

Indian Scenario
Silver imports into India for domestic consumption fell sharply in 2002,
down by 25% to a touch under 3,400 tons as against a record year in 2001
when around over 4,540 tons was imported.
Indian industrial demand is estimated to have fallen by around 13% in 2002,
down from a record 1,579 tons the previous year to 1,375 tons. In spite of this
fall, India is still one of the largest users of silver in the world, ranking
alongside those Industrial giants, Japan and the United States.
GFMS data shows that Indian jewelry and silverware fabrication fell by
close to 30% in 2002. Probably there are two main reasons for this, namely
the price and the agricultural/ rural economy.
World Silver Markets
Silver is predominantly traded on the London Bullion Market and Comex
in New York. The former, as the global hub of OTC (Over-The-Counter)
trading

in

silver, is the metal.s main physical

market. Comex, in

contrast, is a futures and options exchange. It is here that most fund activity
is focused. Silver is invariably quoted in US dollars per troy ounce.
Factors Influencing Uncertain Supply & Demand of Silver
World mine production is more a function of the prices of other metals.
Often a faster growth in demand against supply leads to drop in stocks
with government and investors.
Silver demand stands on three pillers . jewellery & silverware,
industrial and photography, which are in turn factors of monsoon &
agricultural output, overall industrial growth and performance of the
tourism & services industry

37

at large, respectively. In India the real industrial demand occupies a

small share in the total industrial demand of silver in sharp contrast to
most developed economy like Japan and US.
In India like Gold the Silver demand is also determined to a large
extent by its price level and volatility.

Hedging
Futures contract have been used as financial offsets to cash market risk for
more than a century. Hedging allows a market participant to lock in prices and
margins in advance and reduces the potential for unanticipated loss or
competitive disadvantage.
A hedge involves establishing a position in the futures market that is equal
and opposite to a position in the physical market. For instance a Gold jeweller
who holds 1 Kg of Gold will hedge by selling (going short) on 1 Kg Gold
contract. The principle behind establishing equal and opposite positions in the
cash and futures markets is that a loss in one market should be offset by a
gain in the other market.

38

Hedging
Hedging

GOLD
Physical Stock 1 Oz
@ 750$

1 Oz Sold in Futures
@ 800$

Price Down to 680$/Oz

Settlement at 680$/Oz

Loss of 70$/OZ

Profit of 120$/Oz

Profit of 50$/Oz

NCDEX(national commodity and derivatives exchange)

39

40

Worlds Major Commodity Exchanges

Exchange Contract
NYMEX

size
100

Start

date
oz 31

99.5%

Dec

purity

74

Price

Nature

Outright

quotation
US$/

of trading
Continuous

margin (April 06)

Clearing member;

oz

open

member & hedge

outcry

plus customer; $1,750

electronic
trading
TOCOM

MCX

kilo, 23

Initial

Yen/

ACCESS
Continuous

Non-member
via speculative
$2,363
90,000

99.99%

Mar

gramme

computerised

purity
100g

82
10

Rp/10g

Continuous

4% (5% for the

computerised

100g contract)

1kilo,

3 Nov

41

NCDEX

CBOT

TurkDEX

kg
100g,

2003
1 15

Rp/10g

Continuous

Membership

computerised

as a cash free

kilo,

Dec

99.99%

2003

purity
100 oz

6 Oct US$/

Continuous

Per

(Full-

2004

computerised

contract:

fee:

security deposit

oz

100

oz

sized),

$2,430

33.2 oz

$1,850

(Mini-

(maintenance).

sized),

Per

not

contract:

less

(initial);

33.2

than

$743(initial);

99.5%

$550

purity
100g

oz

Turkish

Continuous

(maintenance)
Initial margin: 250

Feb

Lira/

computerised

Turkish Lira per

2005

gramme

'auction'

contract;
Maintenance
margin:

187,5

Turkish Lira per

DGCX

1Kilo

June

US$/

Continuous

contract
US$
480

99.5%

2005

oz

computerised

contract

purity

Gold
42

per

Where does the word Gold come from?

The word gold appears to be derived from the Indo-European root 'yellow',
reflecting one of the most obvious properties of gold. This is reflected in the
similarities of the word gold in various languages: Gold (English), Gold
(German), Guld (Danish), Gulden (Dutch), Goud (Afrikaans), Gull (Norwegian)
and Kulta (Finnish).
Gold is a unique asset based on few basic characteristics. First, it is primarily
a monetary asset,and partly a commodity. As much as two thirds of golds
total accumulated holdings relate to store of value considerations. Holdings
in this category include the central bank reserves, private investments, and
high-caratage jewelry bought primarily in developing countries as a vehicle for
savings.
A heavy, soft, ductile, malleable element. Most of this metal is kept in reserves
but some is used in jewelery. Gold is commonly alloyed with Cu and Ag. Used
in plating, dishes, and electronic parts. Gold is a precious metal, since gold
has been prized for as an ornament, as a concentrated form of wealth, and for
monetary use. The foremost use of gold is for monetary purposes, most of it
being kept as bullion in reserve for notes issued. The next most important use
is for Jewelery using either white, yellow, or green gold. Because of its
softness the gold has to be mixed with copper, silver, nickel, or palladium. Its
purity or fineness is designed in carats. 1 Carat means 1 part gold in24.Gold
is used in dentistry, glass making and in the chemical industry.
Gold has served as the most important monetary standard throughout history.
It is measured in troy ounces and the price of gold is typically stated in terms
of the cost of one ounce.

43

Historically, the United States has fixed the price of gold. The price of an
ounce of gold was fixed at $20.67 for many decades until 1934 at which point
the price was raised to $35.00. In 1968 a two-tiered pricing structure was
established, and by 1975 the price of gold was allowed to fluctuate. In
January of 1980 the price of gold reached its peak, and by the year 2000 the
price dropped to $272.
How much gold is there in the world?
At the end of 2001, it is estimated that all the gold ever mined amounts to
about 145,000 tonnes.
Who owns most gold?
If we take national gold reserves, then most gold is owned by the USA
followed by Germany and the IMF. If we include jewellery ownership, then
India is the largest repository of gold in terms of total gold within the national
boundaries. In terms of personal ownership, it is not known who owns the
most, but is possibly a member of a ruling royal family in the East.
If all the gold was laid around the world, how far would it stretch?
If we make all the gold ever produced into a thin wire of 5 microns (millionths
of a metre) diameter the finest one can draw a gold wire, then all the gold
would stretch around the circumference of the world an astounding 72 million
times approximately!
How much new gold is produced per year?
In 2001, mine production amounted to 2,604 tonnes or 67% of total gold
demand in that year.
How much does it cost to run a gold mine?

44

Gold mining is very capital intensive, particularly in the deep mines of South
Africa where mining is carried out at depths of 3000 meters and proposals to
mine even deeper at 4,500 meters are being pursued. Typical mining costs
are US $238/troy ounce gold average but these can vary widely depending on
mining type and ore quality. Richer ores mined at the surface (open cast
mining) is considerably cheaper to mine than underground mining at depth.
Such mining requires expensive sinking of shafts deep into the ground.

History of Gold
4000 BC Gold is first known to be used in parts of Central and Eastern
Europe. The Egyptians master the arts of beating gold into leaf and alloying
gold with other metals to achieve variations in hardness and color. They also
develop the ability to cast gold, using the lost-wax technique still used in
today's jewelry industry. The Sumer civilization of southern Iraq uses gold to
creat a wide range of jewelry, often using sophisticated and varied styles still
worn today.
1352 The young Egyptian King Tutankhamun is interred in a pyramid
tomb laden with gold, his remains laid in an extravagant gold
anthropoid sarcophagus.
1350 The Babylonians begin to use fire assay to test the purity of gold.
1091 Squares of gold are legalized in China as a form of money. 560
The first coins made purely from gold are minted in Lydia, a kingdom of
Asia Minor. 58 Julius Caesar seizes enough gold in Gaul (France) to
repay Rome's debts. The Byzantine Empire resumes gold mining in
central Europe and France, an area undeveloped since the fall of the
Roman Empire. Artisans of the period produce intricate gold artifacts
and icons. 1100 Venice secures its position as the world's leading gold
bullion market due to its location astride the trade routes to the east.

45

Venice introduces the gold Ducat, which soon becomes the most
popular coin in the world, and remains so for more than five centuries.
Great Britain issues its first major gold coin, the Florin, which is
followed by the Noble, the Angel, the Crown, and the Guinea.
1511 King Ferdinand of Spain sends explorers to the Western
Hemisphere with the command to "get gold." Isaac Newton, Master of
the London Mint, sets price of gold that lasts for 200 years.
1787 First US gold coin is struck by Ephraim Brasher, a goldsmith.
1792 The Coinage Act places the young United Sates on a bimetallic
silver/gold standard, defining the U S Dollar as eq i alent to 24 75
grains of fine gold and 371 25 grains of fine silver the U.S. Dollar as
equivalent to 24.75 grains of fine gold, and 371.25 grains of fine silver.
1803 North Carolina site of first US gold rush. The state supplies all the
domestic gold coined for currency by the US Mint in Philadelphia until
1828.
1848 The California gold rush begins when James Marshall finds
specks of gold in the water at John Sutter's sawmill near the junction of
the American and Sacramento Rivers.
1850 Edward Hammong Hargraves, returning from California, predicts
he will find gold in Australia within one week. He discovers gold in New
South Wales within one week of landing.
1859 The Comstock Lode of gold and silver is discovered in Nevada.
As a result, Nevada is made a state five years later.
1886 George Harrison, while digging stones to build a house, discovers
gold in South Africa.
1887 Glasgow doctors, Robert and William Forrest, and chemist John
S. MacArthur patent the process for extracting gold from ore using
cyanide.

46

1896 Two prospectors discover gold while fishing in the Klondike River
in northern Canada, richer finds were rumored farther south in Alaska's
Yukon, spawning the Alaska Gold Rush in 1898 -- the last gold rush of
the century.
1900 US adopts the gold standard for its currency.
1903 The Engelhard Corporation introduces an organic medium to print
gold on surfaces. First used for decoration, the medium becomes the
foundation for microcircuit printing technology.
1922 King Tutankhamun's tomb (1352 BC) opened to reveal a 2,448 lb.
gold coffin and hundreds of gold and gold-leafed objects (including the
mask pictured at the beginning of this section).
1927 A Medical study in France proves gold to be valuable in treatment
of Rheumatoid arthritis.
1933 President Franklin D. Roosevelt bans the export of gold, halts the
convertibility of dollar bills into gold, orders US citizens to hand in all
the gold they possess and establishes a daily price for gold.
1934 Roosevelt fixes price of gold at $35 per ounce.
1935 Western Electric Alloy #1 (69% gold, 25% silver and 6% platinum)
finds

universal

use

in

all

switching

contacts

for

AT&T

telecommunications equipment.
1944 The Bretton Woods agreement sets an international gold
exchange standard and creates two new international organizations,
the International Monetary Fund (IMF) and the World Band. The new
standard sets par values for currencies in terms of gold and obligates
member countries to convert foreign offical holdings of their currencies
into gold at these par values.
1947 The first transistor, the building block for electronics, is
assembled at AT&T Bell Laboratories. The device uses gold contacts
pressed into a germanium surface.

47

1960 The laser is invented using gold-coated mirrors to maximize

infrared reflection.
1961 Modern-day mining begins in Nevada's Carlin Trend, ultimately
making Nevada the nation's largest gold-mining state.
1968 Intel introduces a microchip with 1 024 transistors connected by
gold circuits
1969 Gold coated visors protect the astronauts' eyes from searing
sunlight on the moon (Apollo 11 moon landing).
1970 The charged coupled device is invented, using gold to collect
electrons generated by light, eventually used in hundreds of military
and civilian devices, including video cameras.
1971 The colloidal gold marker system is introduced by Amersham
Corporation of Illinois. Tiny spheres of gold are used in health research
laboratories worldwide to mark or tag specific proteins to reveal their
function in the human body for the treatment of disease.
1973 The U.S. Dollar is removed from gold standard, and gold prices
are allowed to float free. By June, the market for gold in London
reaches more than $120 per ounce.
1974 On December 31, US government ends its ban on individual
ownership of gold.
1976 The Gold Institute is established in Washington, D.C., to promote
the common interests of the gold industry by providing statistical data
and other relevant information to its members, the media, government,
and the public.
1980 Gold reaches intra-day historic high price of $870 on January 21
in New York.
1986 Gold-coated compact discs are introduced.
1987 Airbags are introduced for cars, using gold contacts for reliability.

48

1996 The Mars Global Surveyor is launched with an on-board goldcoated parabolic telescopemirror that will generate a detailed map of
the entire Martian surface over a two-year period.
1997 Congress passes Taxpayers Relief Act, allowing US Individual
Retirement Account holders to buy gold bullion coins and bars for their
accounts as long as they are of a fineness equal to, or exceeding, 99.5
percent gold.
1999 The Euro, a pan-European currency, is introduced, backed by a
new European Central Bank holding 15 percent of its reserves in gold.
2000 Astronomers at the Keck Observatory in Hawaii use the giant
gold-coated mirrors of the observatory's twin telescopes to produce the
most detailed images of Neptune and Uranus ever captured.
Market Introduction
As a gold market, New York has only really come into its own since 31
December 1974 when Americans were once again permitted to buy and sell
gold freely for the first time since 1933. In the intervening years the gold
business had been strictly licensed through a handful of banks, such as
Republic National Bank of New York and Rhode Island Hospital Trust National
Bank which supplied gold to authorised jewellery and industrial fabricators.
But once those restrictions were lifted, the New York market developed in its
own unique way through futures (and later options) trading. The concept of
futures had developed in Chicago in the 1830s essentially for agricultural
projects. The application to gold came only in the 1970s, initially at the
Winnipeg Commodity Exchange in Canada, but then on COMEX (Commodity
Exchange Inc.) in New York and at the Chicago Board of Trade and the
Chicago Mercantile Exchange from 1975. They brought a completely new
dimension to gold trading, but ultimately it was COMEX which set the pace, so
that today it is COMEX (now a division of NYMEX) that is the heart of

49

America's gold market. As one writer put it, "The world of gold stays awake for
COMEX".
In parallel with COMEX as the great terminal market, however, an increasing
amount of gold trading is done outside the exchange by market-makers in
spot, forward and over-the-counter options. This is often known as 'the
upstairs market'. But its volumes are not recorded. So COMEX remains
supreme in terms of a formal market with its transactions closely recorded and
observed by analysts.

Features of Indias Gold Economy

India has been known to possess large stocks of gold and studies show that
they are mostly accumulations from centuries of trading rather than result of
production of her mines. What is of contemporary interest, however, relate to

50

the demand, supply and price-movements and their link with policy. Some
broad generalizations on these aspects would be appropriate to review the
policy and identify the issues.
First, on the demand side, while there are no authentic estimates, the
available indications are that about 80 per cent is for jewellery fabrication
(mainly of over 22 carat purity) for domestic demand, 15 per cent is for
investor-demand (which is relatively elastic to gold-prices, real estate prices,
financial markets, tax-policies, etc.) and barely 5 per cent is for industrial
uses.
The demand for gold jewellery is rooted in the societal preference for a variety
of reasons viz. Religious, ritualistic a preferred form of wealth for women and
as a hedge against inflation. It will be difficult to prioritize them but it may be
reasonable to conclude that it is a combined effect, and to treat any major part
as exclusively a store of value or hedging instrument would be unrealistic. Nor
would it be realistic to assume that it is only the affluent who create demand
for gold. There is reason to believe that a part of investment demand for gold
assets is out of black money. The annual consumption of gold which was
estimated at 65 tons in 1982 has increased to 505 tons in 1995. Although it is
likely that with prosperity and enlightenment, there may be deceleration in
demand, particularly in urban areas, it would be made good by growing
demand on account of prosperity in rural areas. In the near future, therefore,
the annual demand will continue to be high at around 400 to 500 tons.
Second, as the domestic production of gold is very limited, around 2 tons per
year, and supply from fabricated old gold scraps estimated at around 62 tons
per year being not adequate, the rising demand has to be sourced from
outside the country. In the face of a virtual ban on official import of gold for
domestic consumption till 1990, the rising demand was met by illegal imports.
During the period 1968 - 1995, smuggled gold into India varied in the wide

51

range of 10 217 tons per year with the sole exception of 1980 when 9 metric
tons were reported to have been smuggled out of the country to take
advantage of the soaring gold prices in the international market. However, the
situation changed drastically during the nineties since the proportion of
smuggled gold in our total supplies has gone down substantially. While
currently there are some efforts to promote gold mining domestically,
especially involving private sector, there are no indications that domestic
supply would increase in any perceptible manner.
Third, the strong domestic demand for gold and the restrictive policy stance
are reflected in the higher price of gold in the domestic market compared to
that in the international market at the available exchange rate. During the 19year period from 1977-78 to 1995-96, the average spread between Mumbai
and London market prices (Mumbai price less London price in rupee terms) of
gold has been positive except for a brief period during 1980-81 when the
international gold price zoomed briefly, following the oil crisis, the persistent
weakening of the US dollar resulting in flight of dollar resources into gold and
accelerating world-wide inflationary trends. The average spread was as high
as 41.3 per cent during 1977-79 which rose to 46.6 per cent during 1981-85
and further to 56.6 per cent during 1986-91. In the post-liberalisation period,
with changes in the exchange rate regime and some relaxations on the import
regime of gold, the average spread between domestic and international prices
has come down from 53.1 per cent in 1991 to 20.6 per cent in 1993, 20.1 per
cent in 1994, 19.9 per cent in 1995 and further to 17.5 per cent in 1996 (up to
October). In the absence of open import, the domestic gold prices relative to
international prices appear to have been governed by two factors: (i) the
spread between the official and market exchange rate of the rupee and (ii) the
customs duty, transportation cost, storage cost, risk premia, etc.

52

Fourth, the value of gold imports through official channels increased from $
1.25 billion in 1992 to $ 3.4 billion in 1995 while that of smuggled gold was in
the range of $ 1.2 to $ 1.7 billion. Viewed from any angle, gold import has
emerged, in terms of importance in our foreign trade.
Fifth, as the policy-debates would show, the management of demand and
supply of gold has important policy implications for fiscal policy and exchange
rate management, and in the recent times, use of gold as a financial
instrument, especially mobilisation of domestic gold has attracted attention.
What makes Gold Special?
Timeless and Very Timely Investment:
Gold is an effective diversifier:
Gold is the ideal gift:
Gold is highly liquid:
Gold responds when you need it most:
Gold Production Company (000) Ounces
American Reclamation
Apollo Gold
Barrick Gold Corp.
Canyon Resources Corp.
Coeur Rochester, Inc
Cripple Creek & Victor Gold Mining
Glamis Gold Inc.
Golden Phoenix Minerals, Inc.
Hecla Mining
Kennecott
Kinross Gold Corp.
MK Resources Co./Quest
Newmont Mining
Placer Dome Inc.
Plum Mining Co., LLC
Queenstake Resources USA, Inc.
Robinson Nevada Mining Co.
Round Mountain Gold Corp.
Western Goldfields, Inc.

5
107
1,949
30
69
329
154
4
0.2
465
435
4
2,376
1,263
3
243
12
763
27

53

Wharf Resources, Inc.

Other
Total

76
40.8
8,355,000

Properties of Gold
Resistance to Corrosion: Gold is the most non-reactive of all metals. It is
benign in all natural and industrial environments. Gold never reacts with
oxygen (one of the most active elements), which means it will not rust or
tarnish. The gold death-mask in the tomb of Tutankhamun looked as brilliant
when it was unearthed in 1922 as when it was entombed in 1352 BC.
Electrical Conductivity: Gold is among the most electrically conductive of all
metals. Since electricity is essentially the flow of charged particles in a
current, metals that are conductive allow this current to flow unimpeded. Gold
is able to convey even a tiny electrical current in temperatures varying from
-55 to +200 centigrade. This makes gold a vital component for electrical
connectors in computers and telecommunications equipment.
Ductility and Malleability: Gold is the most ductile of all metals, allowing it to
be drawn out into tiny wires or threads without breaking. As a result, a single
ounce of gold can be drawn into a wire five miles long. Gold's malleability is
also unparalleled. It can be shaped or extended into extraordinarily thin
sheets. For example, one ounce of gold can be hammered into a 100
squarefoot sheet.
Infrared (Heat) Reflectivity: Gold is the most reflective and least absorptive
material of infrared (or heat) energy. High purity gold reflects up to 99% of
infrared rays. This makes gold ideal for heat and radiation reflection, as in lifesaving face shields for astronauts and firefighters.
Thermal Conductivity: Gold is also an excellent conductor of thermal energy
or heat. Since many electronic processes create heat, gold is necessary to
transfer heat away from delicate instruments. For example, a 35% gold alloy
is used in the main engine nozzle of the Space Shuttle, where temperatures

54

can reach 3300 centigrade. Gold alloy is the most tenacious and longperforming material available for protection at these temperatures.
Gold and the money supply
In January 1959 US M3 money supply was $288.8 billion, and the Official
Gold Holdings of the United States was then 17'335.1 Tonnes, or about 557
million ounces (there are 32,150.7 Troy Ounces in a Tonne). That means that
in 1959, there were $518 in circulation for every ounce of gold reserves held
by the USA. Although the theoretical price should then have been $518 per
ounce, the actual price, as fixed under the gold standard was only $35 an
ounce.
By August 2005, the US M3 money supply had risen to $9'873.9 billion, whilst
at the same time the Official Gold Holdings of the United States had fallen to
just 8'133.5 Tonnes, or about 261 million Troy Ounces. This means that today,
in 2005, there are $37'831 in circulation for every ounce of gold held by the
United States.
Gold in investment portfolios
As a tangible investment gold is sometimes held as part of a portfolio because
over the long term gold has an extensive history of maintaining its value. It
has in the last century gained ground in relation to fiat currencies owing to
inflation. Gold becomes particularly desirable in times of extremely weak
confidence and during hyperinflation because gold maintains its value even as
fiat money becomes worthless. People who enjoy investing in gold are known
as gold bugs.
Futures contracts based on gold currently trade on various exchanges around
the world. In the US this occurs primarily on COMEX (Commodity Exchange)

55

which is a subsidiary of the New York Mercantile Exchange. Recently, goldbased ETFs like GLD have emerged as a more convenient investment
vehicle.

WORLD GOLD DEMAND

COUNTRY
India
USA
China
SE asia
Saudi
Turkey

1996(tons)
506.98
331.56
374.48
329.69
184.75
153.03

1997(tons)
736.84
362.04
406.83
204.04
199.06
201.86

1998(tons)
814.91
428.29
314.45
51.63
208.39
172.00

56

1999(tons)
838.86
459.71
343.38
265.62
199.37
139.03

2000(tons)
855.34
387.55
329.38
267.18
221.14
207.15

WORLD GOLD PRODUCTION

1840-

1851-

1876-

1901-

1926-

1951-

1976-

1850
557

1875
4790

1900
5670

1925
14852

1950
21779

1975
30649

2000
45235

57

List of London Bullion Market Association Approved Gold Suppliers

Belgium

Japan

Spain

Brazil

Kazakhstan

Sweden

Canada

Korea

Switzerland

China

Kyrgyz

United Kingdom

Colombia

Mexico

USA

Germany

Netherlands

Uzbekistan

Hong Kong

Philippines

Zimbabwe

Indonesia

Russia

Italy

South Africa

Why invest in gold?

portfolio diversification
preservation of wealth
risk factors
HOW TO BUY GOLD?
Coins and small bars
Exchange traded gold
Gold accounts
Gold certificates
Gold oriented funds
Structured products

58

Indian Government Policy for Bullion

1947 - Complete ban on Import of Bullion
1956 - Mysore Government controlled production of Gold
1962 - Govt. floated 15 years 6.5% Gold Bond by which around 16.30
MT Gold was collected
1962 - Ban on Forwarding Trading
1963 - Declaration of Gold holding made compulsory for individual.
Restriction on manufacturing of jewellery above 14 Ct.
1964 - Restriction on private trade, Gold handling canalised by Govt
only
1965 - Floating of 15 years 7% Gold Bonds (6.1 MT Gold Collected)
1965 - Floating of 15 years 6.5% National Defence Gold Bond (13.7
MT Gold Collected)
1966 - Restriction on manufacturing of jewellery above 14 Ct removed
1966 - Ceiling on holding of Gold by individual
1966 - Control imposed on refinery & dealer
1968 - Formulation of Gold Control Act, 1968
1975 - Introduction of Voluntary disclosure of Income and Wealth
(amendment) Ordinance
1975 - for declaration of income and wealth in the form of Gold
1978 - Govt. auctioned Gold through RBI to control inflation and
banned further auction
1991 - Amendment brought into Gold Control Act permitting holding of
Gold not only in the form of jewellery but also in the form of bars
1991 - Import of Gold against SIL permitted

59

1991 - NRI to bring 5-Kgs Gold against payment of Custom duty @

Rs.220/= per 10 Gram
1992 - Recommendation by RBI to Govt for Formation of Gold
Management corporation
1992 - Proposal of formation of Gold Bank rejected
1992 - Formation of Gold Standing committee to keep track of
movement of Gold and other precious metals
1993 - 41 MT of Gold mobilised under gold Bond Scheme
1997 - Gold Import put under OGL through nominated agencies
1997 - Gold import by NRI increased to 10 Kgs.
1998 Custom duty increased to Rs.250/- per 10 Gram of Gold
against Rs.220/=
1999 - Gold Bond Scheme announced by RBI (15/9/99)
2003 Custom duty reduced to Rs.100/- per 10
BULLION REPORT BY NCDEX
The Bullion Report March 2006
Precious metals shot to fresh multi year peaks in March, with silver marking a
23 year high at $11.76 /troy oz and gold putting on its best performance since
1981 to touch $ 584 / troy oz. The month saw gold stage a dramatic recovery
after slumping to a low of $ 535 on March 10, to rise by nearly 9% to close the
month at $ 582 per troy ounce. This steep rise was facilitated to a significant
extent by a weaker dollar against the euro especially during the last week of
March (see Figure 1). The domestic market was in line with the firm trend in
overseas markets as gold prices scaled an all time high of Rs 8542 / 10
grams by the end of the month.

Factors Driving up Gold Price

Depreciation of the Dollar against the Euro

60

The US dollar had its first quarterly decline in a year against the euro on
speculation that interest rate increases by the European Central Bank will
begin to outpace moves by the Federal Reserve. The fresh fall of the dollar by
more than 2 percent this month on a point to point basis boosted gold buying.
A weaker dollar makes dollar denominated bullion cheaper for other currency
holders and thus lifts gold buying.
Expectation of Silver ETF(Exchange Traded Fund) Golds recent gains are
largely the result of speculators encouraged by silvers rally. Demand for gold
is expected to rise as ETFs make it easier for investors to own bullion. Silver
has risen on anticipation of the approval of the first fund of the precious metal.
Curb on Central Bank Sales Gold is likely to receive support from the
European Central Banks recent announcement that it had sold 57 tonnes of
gold as part of the 2004 central banks gold sales agreement and that it does
not plan any further gold sales in the next six months.
Likely Silver Spot Trading on Shanghais Gold Exchange Also driving the
bullish sentiment were reports that Chinas Shanghai Gold Exchange hopes to
launch the countrys first ever spot silver trading on the bourse in July this
year.

sentiment and spurring inflation

Investment Funds driving up price Interest in commodities by investment
funds have also helped fuel the rally in gold prices. Funds have been the
biggest buyer this year, going beyond the level of purchases by jewelers, who
accounted for 73% of demand last year. Investment in StreetTracks Gold
Funds has increased to $6.5 billion since the funds began trading on the New
York Stock Exchange in November 2004.

61

Factors affecting Gold

A constant issue in the gold market is what influences the price. Most people
logically believe the supply and demand figures in the physical gold market
will determine the price.
However, the futures market in New York is the single largest place in the
world where more gold contracts are traded than any other. The price at
which the physical gold changes hands, in almost all cases, depends on the
price at the New York exchange. Practically all gold bullion and gold coin
dealers will base the price of their transactions on this price.
Therefore, the supply and demand at the NY exchange is probably the single
most important factor (at least in the short term) in determining the outlook for
the gold price. We can see large changes in the supply or demand in the
physical market, but if the price does not first change at the exchange it is not
likely to change the price of the physical gold.
Of course, in the longer term, supply and demand in the physical market will
cause the futures market to change accordingly, but significant and sustained
changes in the physical gold market are few and far between.
Weak US Dollar
Projections about a declining dollar due to an ever-increasing twin deficit
supported by many investment veterans are met by much denial from
politicians as well as from investors. As long as foreigners are willing to pour

62

in the amount of $2 billion dollars every working day, the dollar won't crash.
But if foreign confidence were to wane, the US dollar will be heading south.
No matter how you look at the US twin deficits and America's future fiscal
liabilities, this problem is huge and some painful adjustments not only seem to
be necessary but unavoidable as well. It should be obvious that one of these
major painful adjustments will be a massive devaluation of the US dollar. It
seems that the idea of a dollar devaluation is gaining support from the Fed
when the President of the Dallas Fed, Robert McTeer recently said: "over
time, there is only one direction for the dollar to go - lower." Former ECB
president Wim Duisenberg, quoted by Spanish Newspaper El Pais, recently
said: "A dollar devaluation seems inevitable due to the tremendous US
Current Account deficit." Furthermore he recently said on Dutch television that
we can only hope and pray for a smooth economic transition in the US. Why
is this so important? Simple, the US dollar is the key driver for Gold; as the
dollar goes, so will gold; but in the opposite direction. Gold is the anti-dollar
with a high inverse correlation to the dollar! In the end, gold is still a monetary
asset and trades like a currency.
Growth in Demand for Jewelry
In spite of the convergence of Diamond and Palladium, the demand for gold
jewelry has seen a regular growth year on year. Countries which are primarily
responsible for this growth are India, China, Italy, Turkey and the USA. The
demand for consumption of gold in jewelry was 6% higher at 735 tonnes and
also comprised a new first-quarter record. The US, which accounts for 10 %
of world gold demand, is also one of the markets where public taste in gold
jewelry is enjoying a renaissance. The renewed interest in gold also extends
to Japan, a market which showed a 19% increase in demand. The Indian
market the worlds largest for gold demand was 23 % higher following the
marriage and festival period which, in turn, has led to restocking by retailers.

63

The earthquake in India, however, is unlikely to hit demand significantly as it

occurred in an area which comprises only 5% of the total Indian consumption.
There were sharp falls in demand in Turkey and Taiwan - down 38% and 31%
respectively. This was due to economic difficulties and continued weakness in
investment demand.
Increase

in

demand

for

exchange

traded

paper

backed

products

For the first time in history, gold can be purchased like any listed stock at
select stock exchanges of the world like London Stock Exchange, Australian
Stock Exchange (Gold Bullion Securities) and New York Stock Exchange
(StreetTracks Gold). The World Gold Council initiated Electronic Traded
Funds have displayed very good performance and growth in volumes since
launch.

Which Way the Gold Price Change?

Our Opinion
It may come as a surprise that we do not often venture a strong opinion
as to the future direction of the gold price. We do not pretend to be
experts at prediction of market prices, indeed we believe that there are
very few people who could claim consistent success at predicting
future gold price movements. We also prefer to point out obvious and
potential fundamental factors, and allow our customers to form their
own judgements. As at February 2000, we believe we can envisage
one important factor which may have a significant effect on the gold
price over the next few years.
First, The Past! In any attempt to foresee the future, it is necessary to
look at history, to see what insights we may be able to glean from the

64

past. We do not intend to give here a full analysis of past gold prices,
but we will attempt to give a brief summary. From 1100 AD to 1931 AD,
when Britain abandoned the gold standard, the price of gold remained
steady at about 3.89, apart from a few brief "blips" in either direction.
In 1935 the US Treasury fixed the price of gold at $35 per ounce,
although the aim was to stabilise the dollar. Britain devalued the pound
from $4.03 to 2.80 in 1949, or in terms of gold, from 8.68 to 12.50
per ounce. In December 1971 (we have seen a date quoted as August
15th), the dollar was devalued to $38 per ounce from $35, and again in
February 1973 to an "official" price of $42.22, and even this was
abandoned by November 1973. From then the dollar "floated" although
"sank" may be a more accurate description, until gold reached $850,
just under 400, per ounce in 1974. As with most huge price
upheavals, this increase was overdone, and gold has since fluctuated
down to about $270, back to $350, and is currently around the $300
per ounce level. Until the past few months, our view of gold trends is
that the price would stay in the recent range for the next few years and
more.
Central Bank Sales
During the last decade, many central banks have been reducing the
proportion of gold held as part of their currency reserves. We believe
that this is probably a reasonable, sound move in keeping with modern
theories of currency and foreign exchange management, after all most
currencies are now token currencies, their value being related more to
the general perception of their worth, dictated by trade imbalances and
supply and demand. Whether it proves to be a completely sound
principle will probably not be fully known for another fifty years or so.
We are aware that the World Gold Council has consistently argued

65

against Central bank sell-offs, but as it is financed by the gold

producers, this is only to be expected. The effect of the Central bank
sales has been to significantly increase the supply to the market, and it
has understandably has the effect of reducing gold prices. Within the
next few years, we believe that Central bank sales will slow down,
perhaps stop, and it is entirely possible that they may eventually return
as net gold buyers, particularly on any weakness in the gold price.
Obviously the reduction or cessation of a flow of Central banks gold
onto the market will exert an upward pressure on prices.
Producer Hedging
Although prices recently rose on announcements that several gold
producers were to stop or reduce their hedging activities, whereby they
borrow gold, sell it, invest the proceeds, and repay the gold from future
production, we believe that this probably reflects their longer term
views of market fundamentals, rather than being in itself a prime
influence on market prices. If the gold miners believe that it will in the
near future be advantageous for them to stop short-selling, then
presumably their analysts believe that firmer prices are likely.
An Upward Trend
As the world demand for gold has absorbed quite large quantities of
Central banks gold stocks over the past decade, with only a fairly small
downward effect on prices, we believe that gold prices are more likely
to increase over the next few years than to decrease. Certainly the
upside potential must now be considerably stronger than the downside
potential.

THE USES OF GOLD

66

Gold's

superior

electrical

conductivity,

its

malleability, and its resistance to corrosion have

made it vital to the manufacture of components
used in a wide range of electronic products and
equipment, including computers, telephones,
cellular

phones,

and

home

appliances.

Gold has extraordinarily high reflective powers that are relied upon in the
shielding that protects spacecrafts and satellites from solar radiation and in
industrial and medical lasers that use gold-coated reflectors to focus light
energy. And because gold is biologically inactive, it has become a vital tool for
medical research and is even used in the direct treatment of arthritis and other
intractable diseases.
ELECTRONICS AND TELECOMMUNICATIONS
COMPUTERS/SEMICONDUCTORS
Millions of computers are manufactured worldwide
each year and gold plays an active role in their
many components. The most important use of gold
is as a fine wire that connects circuits to the
semiconductors.

POWERCHAIRS
Computerized wheelchairs, called power chairs, allow disabled patients
further control over their movements and a renewed sense of independence.
At the heart of the computerized controls is a tiny, but powerful, Motorola
microprocessor connected to the wheelchair's controls by gold wire and goldcoated connector pads.

67

SPACECRAFT
To protect the onboard computers in the Galileo
space probe from short circuiting as a result of
heavy

bombardment,

NASA developed

Heavy Ion Counter (HIC). The HIC contains

silicon wafers with gold electrodes that detect
the heavy ions as they penetrate the wafers.
Use of the HIC allows NASA engineers to monitor the functioning of onboard
computers and make adjustments when necessary.
TELEPHONES
Behind the protective cover of every telephone mouthpiece is a miniature
transmitter that contains gold in one of its central components, the diaphragm.
A gold-plated dome in the diaphragm works with the other mouthpiece
components to transcribe voice vibrations into an electrical current. Gold is
used in this application because of its permanence, particularly in public
phones that are exposed to outdoor weather conditions.
TELEPHONE WALL JACKS
Because gold conveys a superior signal, it is used to coat billions of contacts
for phone jacks and connecting cords throughout our nationwide telephone
system. The phone wall jacks are goldcoated to assure the customer of the
convenience of moving the phone from one wall jack to another while
maintaining clear static-free conversation.
TVs AND VCRs

68

The micro circuitry in televisions is composed of

fine lines of gold circuits connected by hair-thin
gold wires to the micro-electronic circuit chips that
process broadcast signals into a TV picture.
Cables connecting television sets to videocassette
recorders are coated to assure clear relay of
television signal.

MEDICINE AND HEALTH

Gold is valuable to modern medicine because it is non-toxic and biologically
benign; one of the most efficient conductors of electricity, and its density
enables it to be seen under electron microscopes. And although gold is
virtually indestructible, it is a soft metal, easy to work with, shape, flatten or
draw out into microscopic strands.
DENTISTRY
Most gold used in dentistry is in the form of alloys, which are mixtures
of gold and other metals, such as platinum, palladium, silver, copper
and zinc. Gold is non-toxic and biologically inert, which makes gold
ideal for use in dental procedures. It is easy for the dentist to
manipulate, but strong, stiff, durable and tough -- it never wears or
tarnishes. It is a very resistant to chemical attack and does not corrode.
EYE SURGERY
Accidents, disease or surgery may cause a condition called
Lagophthalmos, which is the inability to close the eyelids
fully. In order to keep the eyelids moist, doctors previously

69

resorted to sewing the eyelid half shut, but a new gold eyelid implant is now
the current form of treatment. These gold "eyelid load implants" are surgically
inserted into the upper lid and allows the eye to blink normally. The muscle
that opens the eyelid works to hold the eyelid open; then, when the muscle
relaxes, gravity exerted on the gold causes the eyelid to drop. Gold is the best
choice for this device as it does not corrode and will not react with tears.
LASERS
One of the most promising new areas of medical treatment is in the use
of ion lasers, the interior surfaces of which are coated with gold to
control the focus of the beam. In one development, gold vapor lasers
create a high intensity red light with the required wavelength to seek
out and selectively destroy cancerous cells without harming healthy
neighbouring cells. A new lightweight laser, designed by the military
and using gold plated contacts, enables medics to seal battlefield
wounds in the field, thereby reducing blood loss and improving survival
chances for the seriously wounded. In hospitals, this new design will
allow lasers to be brought to critically injured emergency patients
without

moving

them,

saving

minutes

and

lives.

Surgeons use gold instruments to clear clogged coronary arteries.

Injection of microscopic gold pellets helps retard prostate cancer in
men. Some forms of cancer are treated with colloidal gold. Lasers with
gold-coated parts literally give new life to patients with once-inoperable
heart conditions and tumors.
Thermometer:
Gold is a key component of modern thermometers that can read
human body temperature in two seconds, just by holding the
thermometer against the outer ear. The readings are accurate because
the eardrum shares the same blood vessel system as the

70

hypothalamus, the organ that controls the core body temperature. The
thermometers contain a gold coated tube -- known as a "waveguide" -that directs heat from the ear to the temperature sensing element in the
device. Waveguides have been essential components of electronic
systems such as radar and microwave telecommunications. Since gold
is the most heat-reflective metal, none of the heat radiated from the ear
will be lost warming up the tube of the thermometer.
Research: Laboratory coupling of tiny gold particles with DNA has
produced new microscopic structures that are opening a range of
research, treatment and diagnostic possibilities in fields such as
biochemistry, genetics and medicine. Soon doctors will be able to test
patients for infections, cancer, AIDS, and other diseases and get
immediate results by using genetic probes affixed with clusters of gold
molecules that adhere to targeted DNA material. Scientists at the
Massachusetts Institute of Technology (MIT) developed a microchip,
the size of a human thumbnail, with more than 1000 separate tiny
compartments that can hold medications in solid, liquid, or gel form,
and dispenses them from under the patient's skin. The silicon chip is
covered with thin gold foil. Medicine is released when a tiny electrical
charge is applied between the gold cover and a gold electrode,
opening the desired compartment.
Astronomy: The world's largest telescope, located at the Keck
Observatory, uses gold in its internal workings. Located atop the
13,796-foot-high Mauna Kea volcano in Hawaii, the observatory is
composed of twin telescopes, Keck I and Keck II, and each is equipped
with a 2l-inch secondary mirror that is coated with 99.9-percent pure
gold.

71

Copy Machines: Copy machines use very high temperatures to affix

the copy image onto the paper. These machines use gold-coated
mirrors to reflect the heat efficiently, and produce copies for millions of
businesses every day.
Photo CDs: Eastman Kodak Company has developed a Photo CD
System that uses gold as the reflective surface. Photofinishers can
transfer, in a digitized format, 35mm negatives or slides to compact
discs holding up to 100 images on a disc. Once on disc, images can be
viewed on television or computer screens. An interesting example of
how this system can be used is demonstrated in a project for the
National Park Service in which all items left at the Vietnam Veterans
Memorial are photographed, catalogued, and compiled onto goldcoated photo CDs.
Satellites: Military and commercial communications satellites circling
the Earth use gold in many important ways. Circuitry and chemically
clean

gold

wires

provide

permanently

static-free

signals

in

rebroadcasting signals back to Earth. Electronic circuitry boxes are

gold coated to protect the electronic devices from cosmic ray
degradation and solar bursts. Gold-coated Mylar sheets are wrapped
around the main body of satellites to reflect away the intense solar heat
that would otherwise degrade the satellites' performance. Gold is
essential in satellites because of its reflectivity, conductivity, and
resistance to corrosion.
Security Systems: Security systems require long-term unattended
reliability. The infrared reflective properties of gold are used in infrared
viewing equipment for home and office security systems. These
nighttime security cameras can view areas at night without the need for
visible light.

72

Industry and Aviation

Airbags: Gold is used in automobile airbag deployment systems,
where a sensor device is placed inside the car near the front bumper.
This sensor contains gold-plated electrical contacts that, when
activated, send the signal for the airbag to deploy. Because of its
dependable electrical conductivity and its resistance to corrosion and
tarnish, gold is the only metal that meets the quality requirements for
this life-saving feature.
Aircraft Engines: Gold plays a vital role in the engines of military and
civilian aircraft. Gold is a major constituent of a brazing alloy used in
the manufacture of two assemblies -- stators and tubes. These two
assemblies are integral to maintaining airflow and air compression
necessary for combustion engine operation. Gold also plays a key role
in aircraft electronics and guidance systems.
Aircraft Windows: Many domestic and military aircraft use goldcoated acrylic windows in the cockpit. In cold weather, these windows,
carrying an electric current, help eliminate frost that might diminish the
vision of the pilots. These thin coatings of gold also help avert fogging
as the plane ascends through moisture-laden clouds. During warmer
weather, gold's reflectivity helps maintain cool cockpit temperatures on
hot runways. In flight at high, cold altitudes, gold's thermal conductivity
helps retain the heat of the cabin, keeping the crew warm.
Engine Systems: Gold-plated connectors in the sensors for ignition
and exhaust monitoring ensure long-term efficiency of automobile
engine operation. Gold is integral in maintaining car efficiency. Gold
plated connectors and contacts that operate in a car's engine require
materials that can withstand the high-temperature and corrosive
environment.

73

Fire Bunker Gear: When a disaster occurs, such as an airplane crash

or hazardous chemical fire, firefighters must wear protective "bunker
gear" so they can get close enough to the fire to control it. In close
proximity to intense heat, firefighters need to protect their eyes while
maintaining the ability to see the fire scene clearly. Bunker gear head
coverings have protective face heat shields that are coated with a thin
layer of gold. Gold has been used for several years in this safetyrelated application because of its heat and infrared reflectivity.
Food- Freshness Sensors: Gold-coated sensors provide the food
industry with a system for measuring carbon dioxide gas, which is
necessary to prevent spoilage of fruits and vegetables. Gold sensors
are also important in maintaining carbon dioxide levels required to
extend the shelf life of packaged and stored foods. The sensors
containing gold are unaffected by high humidity, an environment that is
needed for growing mushrooms, for example. Gold is inert, so it will not
react with other elements
Protection of Air Force One: Air Force One, the airplane used by the
President of the United States, is equipped with gold-plated reflectors.
These reflectors confuse an incoming missile's heat-seeking signal,
making it difficult for missile's guidance systems to focus on their
target.

Biomedical Applications
Gold has excellent biocompatibility and resistance to bacterial colonisation.
The metal can be used medically in the pure or derivatised form, resulting in
various applications. Gold and its alloys are used in dental applications,
implants, electrodes for physiotherapy, wires for pacemakers, and drug

74

delivery microchips. Other potential applications involving gold compounds

include anti-arthritic, anti-microbial, anti-tumour, anti-malarial and HIV agents.

Gold Catalysis
Traditionally, gold metal was thought to be too inert and noble to provide
active surfaces for catalysing chemical reactions. However, it has been
recently shown that if the gold metal is highly dispersed as clusters of 2 - 10
nanometers in size (1nm = 10-9 m), containing 250 31 000 gold atoms, and
the dispersed gold is supported on metal oxides like TiO2, very potent
catalysts are formed for several chemical reactions. Notably, carbon
monoxide is very easily oxidised to carbon dioxide, even at temperatures as
low as -70oC, making gold catalysts the most active known catalysts for the
removal of this highly toxic pollutant from air.

Nanotechnology
The properties of matter on the nanoscale (1-100 x 10-9m) differ considerably
from those of the bulk material. As particles get smaller, the number of surface
atoms relative to the total number of atoms in the particle increases. This
results in matter displaying exceptional properties when dimensions are on
the nanoscale. The investigation and exploitation of these unique properties
belongs to the realm of nanotechnology.

Gold Jewellery
From the first discoveries of gold in ancient times, its beauty and the ease
with which it could be worked inspired craftsmen to create it into ornaments,
not just for adornment, but as symbols of wealth and power. The skills of the

75

goldsmith from ancient Egypt to Benvenuto Cellini or Carl Faberge still amaze
us. As Pihder wrote nearly 2,500 years ago, "Gold is the child of Zeus, neither
moth nor rust devoureth it". Today, gold jewellery is more a mass- market
product, although in many countries still treasured as a basic form of saving.
Jewellery fabrication is the crucial cornerstone of the gold market, annually
consuming all gold that is newly mined. Pure gold is used in those parts of the
world where jewellery is purchased as much for in- vestment as it is for
adornment, but it tends to be vulnerable to scratching. Elsewhere, it is usually
mixed, or alloyed, with other metals. Not only do they harden it, but influence
the colour; white shades are achieved by alloying gold with silver, nickel or
palladium; red alloys contain mainly copper. A harder alloy is made by adding
nickel or a tiny percentage of titanium.
Since 1991 over 2,000 tonnes of gold has been used annually. The continuing
success of the mining industry is

Gold Price Volatility in different Market

Gold/Silver
U.S.
Official
London Market Price
New
York Price
Ratio
Price
(British pounds [1718Market Price (ounces
of
Year (dollars
per
1949] or U.S. dollars
(dollars per silver
fine
ounce)
[1950-]
fine ounce) per ounce of
(end of year)
per fine ounce)
gold)
1970 35.000000

36.41

20.54

35.98

1971 35.000000

41.25

26.66

40.97

1972 38.000000

58.60

34.75

59.14

1973 42.222222

97.81

38.21

100.01

1974 42.222222

159.74

33.90

161.58

1975 42.222222

161.49

36.51

160.47

76

1976 42.222222

125.32

28.76

124.03

1977 42.222222

148.31

32.05

148.79

1978 42.222222

193.55

35.80

197.14

1979 42.222222

307.50

27.69

320.08

1980 42.222222

612.56

29.66

603.50

1981 42.222222

459.64

43.65

449.67

1982 42.222222

375.91

47.24

378.43

1983 42.222222

424.00

37.03

417.46

1984 42.222222

360.66

44.26

357.90

1985 42.222222

317.66

51.68

320.22

1986 42.222222

368.24

67.25

367.93

1987 42.222222

447.95

63.84

449.98

1988 42.222222

438.31

66.95

432.57

1989 42.222222

382.58

69.49

379.71

1990 42.222222

384.93

79.78

382.44

1991 42.222222

363.29

89.83

359.41

1992 42.222222

344.97

87.47

343.26

1993 42.222222

360.91

83.85

363.88

1994 42.222222

385.42

72.79

384.85

1995 42.222222

385.50

74.78

383.56

1996 42.222222

389.09

74.89

386.60

1997 42.222222

332.39

67.91

329.58

1998 42.222222

295.24

53.24

294.56

1999 42.222222

no data

no data

279.86

2000 42.222222

no data

no data

277.05

2001 42.222222

no data

no data

225.06

GOLD VALUE
Central Banks

Jewellery

77

Derivatives

Mine production

Industrial

Recycled gold

Investment

How Gold is Produced

This chart illustrates the general steps in open-pit gold mining. The specifics of the process
vary from mine to mine.
Geologists use the latest technology such as Video on People Working
satellite surveys and geochemistry to locate in the Gold Industry
an ore deposit.
Computers are used to design the mine
which

requires

measurement

of

precise

and

the

ore

"People

accurate Together"
deposit. This

Working

Video

12-minute

-video

Construction begins following the lengthy showcases real people at

process

of

receiving

permits. U.S. gold mines and how

they work
meet
Cost:

together

our

to

needs.
$10.00

Contact: Joyce Selig to

78

order

Preview of Video

(30 seconds, Real Media

Player, 852KB)
As holes are drilled for blasting,
samples of ore are examined to
determine grade and metallurgical
characteristics. The broken rock is
marked

by

type

for

efficient

processing.
Based on its metallurgical makeup, a dispatcher directs truck
operators to deliver the ore to the correct processing location.

Low

Grade

roughly
small
placed

Ore

broken
chunks
on

isHigh Grade Ore is delivered to a grinding mill where the ore is

intopulverized to a powder. Depending on its metallurgical characteristics
andthe ore may be treated in one of three recovery circuits.

carefully

lined pads where a

dilute cyanide solution
is distributed over the Refractory ore containing Oxide ore is sent Sulfide refractory ore
surface of the heap. carbon is roasted to over directly
to
the without carbon is
The
solution 1,000 degrees Fahrenheit, leaching
circuit oxidized
in
an
percolates through the burning off the sulfide and where
cyanide autoclave to liberate
heap and the cyanide carbon. The product of this dissolves the gold. the gold from sulfide

79

dissolves

the

This

gold.

solution

containing

dissolved

process is an oxide ore,

which is routed to the
leaching circuit.

gold is then collected.

minerals, then it is
sent to the leaching
circuit.

Treated, high-grade ore is leached with cyanide.

The gold is absorbed (collected) out of solution onto activated
carbon. The remaining cyanide solution is recycled.
The gold loaded carbon is moved
into a vessel where the gold is
chemically

stripped

from

the

carbon which is then recycled.

Gold is precipitated from the

solution

electrolytically

or

by

chemical substitution.

The pure gold is then melted into dore' bars containing up to 90

percent gold. Dore' bars are then sent to an external refinery to

80

be refined to bars of 999.9 parts per thousand pure gold.

Gold Profile
Gold is primarily a monetary asset and partly a commodity.
More than two thirds of gold's total accumulated holdings relate to
'value for investment' with central bank reserves, private players and
high-carat jewelry.
Less than one third of gold's total accumulated holdings is as a
'commodity' for jewelry in Western markets and usage in industry.
Gold market is highly liquid and gold held by central banks, other major
institutions and retail jewelry keep coming back to the market.
Due to large stocks of Gold as against its demand, it is argued that the
core driver of the real price of gold is stock equilibrium rather than flow
equilibrium.
Economic forces that determine the price of gold are different from, and
it opposed to the forces that influence most financial assets.
South Africa is the world's largest gold producer with 394 tons in 2001,
followed by US and Australia. India is the world's largest gold consumer
with an annual demand of 800 tons.

Silver
For what is often called as .Industrial Commodity., silver is unique properties
include its strength, malleability and ductility, its electrical and thermal
conductivity, its sensitivity to and high reflectance of light and, despite it being
classed as a precious metal, its reactivity which is the basis for its use in
catalysts and photography.

81

Today, silver is sought as a valuable and practical industrial commodity, and

as an appealing investment. The largest industrial users of silver are the
photographic, jewellery and electronic industries.
Historical Prices of Silver US$ /oz - (1975-2003)

Silver Fundamentals
Some two thirds of the worlds demand for silver is provided by mine
production, with the balance being supplied primarily by net government
sales, reduction in silver stocks and old silver scrap.
Over the past decade, the supply of newly-refined silver has been less than
that required to satisfy demand, with this deficit being largely met through
reducing silver stocks which were mostly built up during the 1980s, when
silver supplies exceeded demand.

82

In 2003 the demand in excess of silver supply from mines and scrap sources
was some 85 million ounces, up from the 67 million ounce silver deficit in
2002 and commentators estimate the accumulated silver supply deficit since
1992 is now more than 1.35 billion ounces.
Minco is pleased to become a producer of this versatile and beautiful metal
and to contribute to its many essential applications which are indispensable to
our way of life.

Uses of Silver

The uses of silver stem its unique properties comprising anti-bacterial

qualities,

corrosion

resistance,

malleability,

ductility,

reflectivity

and

conductivity have resulted in ever increasing possibilities for a myriad of other

industrial applications, to add to its traditional uses in jewellery.
Photography
Almost one quarter of the world's annual silver supply is consumed in
photography, but probably two thirds of this silver is recycled from used film,
fluids and paper.
Digital photography is leading to a reduction in demand in developed
countries, but this has been offset by strong demand for photographic
products from developing countries where recycling tends to be less
developed and there is very limited digital technology.

83

All of the silver in colour film processing is kept in the developing

solution which can result in 100 percent recycling, although some users
are not succeed in this.
X-rays account for 30 to 40 percent of the silver used in photography
annually, and the number of x-rays taken each year is rapidly growing.
Jewellery, Silverware, Mirrors and Coinage
Sterling silver contains 92.5 percent silver and 7.5% copper. 14 Carat gold
consists of 53% gold, 25% silver and 22% copper. Silver is commonly alloyed
with gold or copper to manufacture jewellery and silverware.
Silver has been used as a human adornment since the beginning of
time as it can be buffed to a higher polish than any other metal. The
same quality is critical to its use in mirrors silverware and reflective
coatings on glass, cellophane and metals. As a precious metal, silver is
also used in coins, sometimes alloyed with other metals, in many
countries.

The

US

Strategic

Defence

Stockpile

contained

approximately 2 billion ounces of silver after World War 2 , the last of

which was delivered to the US Mint in 2001.
Industrial Uses
The Highest Thermal conductivity of all metals
The Highest Electrical conductivity of all metals
The Highest Reflectivity of all metals
A Unique range of chemical and anti bacterial properties which are
finding new applications in consumer, business, medical products.

84

The best known industrial applications are in electronic applications

Silver has enormous applications in electronics, arising from it having
the highest conductivity of all metals. In fact silver is defined as having
electrical conductivity of 100 against which other metals such as
copper (97) and gold (76) are measured.
Silver does not spark unlike any other metals and is therefore used to
make electrical contacts where there are risks from fire or explosion.
Silver has the unique ability to join many metals at temperatures far
below their melting points, and is replacing tin/lead solder in many
applications, having the added benefit of eliminate the use of
environmentally unfriendly lead. An EU law comes into effect on 1 JUly
2006 banning the use of lead based solders with tin/silver/copper
solder being the primary replacement. Some 37.5m ounces of silver
was used for solder and brazining worldwide in 2004, and the EU law
change is likely to significantly increase this.
Silver is utilised in batteries where dependability is mandatory and
weight is critical, such as those for portable surgical tools, hearing aids,
pacemakers and space travel.
Silver tape is a critical component of superconductive cabling. This
cabling can carry far more electrical current than conventional wire with
far less resistance (and thus generating less heart) and in much
smaller spaces.
Silvers attributes are being used to develop new flat screen display
technology. These slim flat screens are fast replacing the cumbersome
cathode ray tube television screens. A Flat panel displays consist of
two parallel flat sheets of glass

85

Less well known industrial applications include

Silver has a pure sweet acoustic resonance, better than any other metal, and
is used to manufacture high quality silver bells and musical instruments.
Silver can be used in certain medical treatments as in ionic form, silver
kills bacteria by breaking down their cell walls, yet it is inert in the
human body. No silver-resistant bacterial strains are known to exist.
Silver rich creams are used to treat burns whilst its relatively inert
property results in it being commonly used to pin fractured bones, and
sew large wounds.
Silver has silver medicinal uses in eye drops, nasal spray and burn
ointments.
Silver is the best heat conductor of all metals, a characteristic resulting
in silvers use in solar panels and automobile rear window heaters.
Silver is increasingly replacing the use of chlorine, which is now
thought to have long-term toxic effects, in water filtration systems for
hospitals, apartments, pools, schools and municipalities.
Silver

compounds

are

starting

to

replace

conventional

wood

preservatives (for decking, outdoor furniture, railroad ties, telephone

poles, etc.) which use arsenic compounds, which are toxic to the
environment.
Similarly paints containing silver compounds may gradually replace
those currently used for marine anti-fouling coatings for boats, docks,
piers, etc.

86

Top 20 Silver Producing Companies in 2004

2004
(millions of ounces)
Company
1.
2.
3.

BHP Billiton
Industrias
Peoles
KGHM

Country
Australia
Mexico

4.
5.
6.
7.
8.

Poland
Polska Miedz
Grupo Mexico Mexico
Kazakhmys Kazakhstan
Barrick Gold Canada
Polymetal
Russia
Rio Tinto
UK
Coeur

9.

d'Alene

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Top

USA

Mines
Cia. de Minas

Peru
Buenaventura
Xstrata
Australia
Noranda Inc. Canada
Volcan Cia.
Peru
Minera
Pan American
Canada
Silver
Zinifex*
Australia
Codelco**
Chile
Newmont
USA
Mining
Cia. Minera
Peru
Ares
Boliden AB Sweden
Comsur**
Bolivia
20 Silver Producing Countries in

87

(millions of ounces)
1.
Mexico
2.
Peru
3.
Australia
4.
China
5.
Poland
6.
Chile
7.
Canada
8.
United States
9.
Russia
10.
Kazakhstan
11.
Bolivia
12.
Sweden
13.
Indonesia
14.
Morocco
15.
Argentina
16.
Turkey
17.
South Africa
18.
Iran
19.
Japan
20.
India

99.2
98.4
71.9
63.8
43.8
42.8
40.6
40.2
37.9
20.6
13.1
9.4
8.6
6.3
5.0
3.7
3.2
2.6
2.4
2.1

2004 World Mine Production of Silver by Source

World's Leading Primary Silver Mines in 2004

(millions of ounces)
Rank Mine/Country
1.
2.
3.
4.

5.

Cannington,
Australia
Fresnillo

Operating Company Prod.

BHP Billiton
Industrias

45.91
Peoles

(Proao), Mexico SA de CV
Dukat, Russia

Polymetal OAO*

Uchucchacua,

Compaia de Minas

Peru

Buenaventura SA

Greens

Creek,

U.S.

6.

Arcata, Peru

7.

Rochester, U.S.

31.60
12.06
9.83

Kennecott
Minerals/Hecla

9.71

Mining Co
Minas de Arcata SA 7.94
Coeur d'Alene Mines
Corp

5.67

Socit
8.

Imiter, Morocco

Mtallurgique

4.95

d'Imiter
9.

Huaron, Peru

Pan American Silver

Corp

88

4.08

10.

Lunnoye, Russia Polymetal OAO

11.

Galena, U.S.

12.

Tayahua, Mexico Grupo Carso

13.

Tizapa, Mexico

14.
15.

Cerro

Coeur d'Alene Mines

Corp
Industrias

Quiruvilca, Peru

3.52
3.38

Peoles

SA de CV

Bayo, Coeur d'Alene Mines

Chile

3.70

Corp

3.04
2.94

Pan American Silver

2.53
Corp
*Acquired outstanding 20% share from Pan
American Silver in November 2004

USES OF SILVER
Demand for silver is built on three main pillars; industrial and decorative
uses,photography and jewelry & silverware. Together, these three categories
represent more than 95 percent of annual silver consumption. In 2003, 351
million ounces of silver were used for industrial applications, while over 196
million ounces of silver were committed to the photographic sector, and 266
million ounces were consumed in the jewelry and silverware markets.
Batteries
Many batteries, both rechargeable and disposable, are manufactured with
silver alloys as the cathode. Although expensive, silver cells have superior
power-to-weight characteristics than their competitors. The most common of
these batteries is the small button shaped silver oxide cell (approximately
35% silver by weight).

89

Bearings
Steel bearings electroplated with high purity silver have greater fatigue
strength and load carrying capacity than any other type and are hence used in
various hi-tech and heavy-duty applications.
It was a layer of silver on main shaft bearings of the 9,000 horsepower
reciprocating engines of the World War II Superfortress that resolved the
unacceptable failure rate of its giant engines. Silver, with its superior fatigue
resistance, lubricity, corrosion resistance, and thermal conductivity came to
the rescue.
Today's commercial and military jet engines deliver 35,000 to 100,000 pound
thrusts under high-temperature conditions. Despite the far higher power and a
far more rigorous internal environment, silver coated bearings continue to
provide the superior performance and critical margin of safety for today's jet
engines.
But silver also plays another critical role.
Safety in jet engines is a paramount consideration. Failure of any one of the
jet engine bearings would be catastrophic. Rolling contact bearings are
lubricated and cooled with synthetic engine oil. In the event of an oil
interruption, such as a pump failure, the silver plated bearings provide
adequate lubricity to allow a safe engine shut-down before more serious
damage can occur. To prepare for such a possibility, the U.S. Federal Aviation
Authority (FAA) and airplane manufacturers require fail-safe engine testing for
the bearings. The test requires stopping the lubricating oil system for 15
seconds with the engine running at full power and then turning on the
lubricating system, then turning off lubrication again for 15 seconds, and

90

repeat for four successive cycles. The dry lubricity of silver always allows jet
engines to pass the tests.
The use of silver in high-performance bearings provides the wide margin of
safety demanded by Pratt & Whitney, General Electric, Rolls Royce, and all
other producers of jet engines that power modern aircraft.
Brazing and Soldering
Silver facilitates the joining of materials (called brazing when done at
temperatures above 600oCelsius and soldering when below) and produces
naturally smooth, leak-tight and corrosion-resistant joints. Silver brazing alloys
are used widely in applications ranging from air-conditioning and refrigeration
equipment to power distribution equipment in the electrical engineering sector.
It is also used in the automobile and aerospace industries.
In 2003, 37.5 million ounces of silver were used for brazing and soldering.
Catalysts
One of the great discoveries of chemistry was that the efficiency of chemical
reactions can be significantly increased in the presence of other elements or
compounds that do not enter into the reaction. A hundred years ago it was
discovered that silver was one of those elements. Ever since, silver has been
essential to the production of chemicals for the US $300 billion plastics
industry.
Electrical
Silver is the best electrical conductor of all metals and is hence used in many
electrical applications, particularly in conductors, switches, contacts and
fuses. Contacts, a junction between two conductors that can be separated

91

and through which a current can flow, account for the largest proportion of
electrical demand.
When Samuel F. B. Morse tapped out, "What hath God wrought," on May 24,
1844, the contact points on his telegraph were silver. The high amperage
required to push the signal over iron wires from Baltimore to Washington,
D.C., demanded a high capacity, non-corroding make/break contact; only
silver could do the job.
Ordinary household wall switches, which normally carry high electric current
for electrical appliances from irons to refrigerators, use silver. Silver is the
metal of choice for switch contacts because it does not corrode, which would
result in overheating, which could lead to fire. The U.S. electric switch market
is on the order of $2.7 billion per year.
Electronics
In electronics, silver is also widely used. Uses include silk-screened circuit
paths, membrane switches, electrically heated automobile windows, and
conductive adhesives.
Every time a home owner turns on a microwave oven, dishwasher, clothes
washer, or television set, the action activates a switch with silver contacts that
completes the required electrical circuit.
The majority of the keyboards of desk-top and lap-top computers use silver
membrane switches. These are found behind the buttons of control panels for
cable television, telephones, microwave ovens, learning toys like touch and
tell or speak and spell, and the keyboards of typewriters and computers. The

92

low-current capacity of the membrane switch matches the low electrical

current used for digital electronics.
Electroplating
The ease of electrodeposition of silver accounts for silvers widespread use in
coating. The plating thickness of some items, such as fuse caps, is less than
one micron although the silver then tarnishes more easily. Coatings of two to
seven microns are normal for heavy duty electrical equipment. Silver plating is
used in a wide variety of applications from Christmas Tree ornaments to
cutlery and hollowware.
Jewellery and Silverware
Silver possesses working qualities similar to gold but enjoys greater
reflectivity and can achieve the most brilliant polish of any metal. To make it
durable for jewelry, however, pure silver (999 fineness) is often alloyed with
small quantities of copper. In many countries, Sterling Silver (92.5% silver,
7.5% copper) is the standard for silverware and has been since the 14th
century.
Medical Applications
While silver's importance as a bactericide has been documented only since
the late 1800s, its use in purification has been known throughout the ages.
Early records indicate that the Phoenicians, for example, used silver vessels
to keep water, wine and vinegar pure during their long voyages. In America,
pioneers moving west put silver and copper coins in their water barrels to
keep it clean.
Mirrors and Other Coatings
Silvers unique optical reflectivity, and its property of being virtually 100%
reflective after polishing, allows it to be used both in mirrors and in coatings
for glass, cellophane or metals. Everyone is accustomed to silvered mirrors.
What is new is invisible silver, a transparent coating of silver on double pane

93

thermal windows. This coating not only rejects the hot summer sun, but also
reflects inward internal house heat.
Photography
When Joseph Nicephore Niepce created the first photographic image
obtained through a camera-like device in 1813, it was silver nitrate that made
it possible.
The photographic process is based on the presence of silver halide crystals
suspended on an unexposed film, which, when exposed to light, are set in
such a way that they are selectively reducible to metallic silver by agents
called developers. Approximately 5,000 color photographs can be taken using
one ounce of silver.
Solar Energy
Silver paste is used in 90 percent of all crystalline silicon photovoltaic cells,
which are the most common solar cell, according to the Photovoltaic
Technology Division of the U.S. Department of Energy. And all silicon cells
used in space to power satellites use silver in the form of evaporated metal to
make the electrical contact.
Water Purification
Silver is employed as a bactericide and algaecide in an ever increasing
number of water purification systems in hospitals, remote communities and,
more recently, domestic households.
Silver ions have been used to purify drinking water and swimming pool water
for generations. New research into silver compounds is providing physicians
with powerful, clinically effective treatments against which bacteria cannot
develop resistance.

World Silver Demand

94

Analysis of Data
NEW INDUSTRIL APPLICATION FOR GOLD
There is a great deal of innovative research into gold science and technology
currently being undertaken in universities and industrial research laboratories
around the world. Gold catalysis is a major new emerging science, and the
first international conference was held on this subject 2 years ago under the
title "Catalytic Gold" in Cape Town. There are also exciting developments in
gold

chemistry,

nanotechnology

and

materials,

which

offer

unique

opportunities for new products and processes using gold.

Notable characteristics of Gold
Gold is a metallic element with a characteristic yellow color, but can also be
black or ruby when finely divided, while colloidal solutions are intensely
colored and often purple. Gold is one of only three metals which have an
actual easily-identifiable color; the other two are copper, which is red, and
caesium, which has a pale golden color.

95

Gold is a good conductor of heat and electricity, and is not affected by air and
most reagents. Heat, moisture, oxygen, and most corrosive agents have very
little chemical effect on gold, making it well-suited for use in coins and
jewellery.
Applications for Gold
Pure gold is too soft for ordinary use and is hardened by alloying with silver,
copper, and other metals. Gold and its many alloys are most often used in
jewellery, coinage and as a standard for monetary exchange in many
countries. Because of golds' high electrical conductivity and resistance to
corrosion and other desirable combinations of physical and chemical
properties, gold also emerged in the late 20th century as an essential
industrial metal.
Gold can be made into thread and used in embroidery.
Gold performs critical functions in computers, communications
equipment, spacecraft, jet aircraft engines, and a host of other
products.
The resistance to oxidation of gold has led to its widespread use as
thin layers electroplated on the surface of electrical connectors to
ensure a good connection.
Gold is used in restorative dentistry especially in tooth restorations
such as gold crowns and gold bridges.
Colloidal gold (a gold nanoparticle) is an intensely colored solution that
is currently studied in many labs for medical, biological and other
applications. Chlorauric acid is used in photography for toning the silver
image.
Gold is used as a coating enabling biological material to be viewed
under a scanning electron microscope.

96

Many competitions and honors, such as the Olympics and the Nobel
Prize, award a gold medal to the winner (with silver to the second-place
finisher, and bronze to the third.) Gold is seen as the peak of
achievement or honour.
Since gold is a good reflector of both infrared and visible light, gold is
used for the protective coatings on many artificial satellites.
Gold flake is used on and in some gourmet sweets and drinks. Having
no reactivity, gold adds no taste but is taken as a delicacy.
White gold (an alloy of gold with platinum, palladium, nickel, and/or
zinc) serves as a substitute for platinum.
Green gold (a gold/silver alloy) is used in specialized jewelry while gold
alloys with copper (reddish color) are more widely used for that
purpose (rose gold).

Month
JANUARY
FABRUARY
MARCH
APRIL
MAY

titan Co.'s share

price in 2006
754.29
768.1421053
838.3340909
789.8694444
715.7027778

97

Gold
Price in
2006
595
610
675
630
560

World Silver Supply (in millions of ounces)

199 199 199 199 200 200 200 200 200
1995 6

Supply
Mine Production
Net Government
Sales
Old Silver Scrap
Producer
Hedging
Implied

Net

Disinvestment

483. 491. 520. 544. 548. 587. 611. 607. 611. 634.
0

25.3 18.9 --

40.6 93.1 75.2 71.7 54.9 88.2 61.7

162. 158. 169. 193. 181. 180. 182. 187. 183. 181.
9

7.5

--

68.1 6.5

89.9

142.
8

--

--

18.9 --

--

2.0

85.5 44.0 61.1 88.5 --

98

14.1 --

--

Total Supply

768. 811. 843. 829. 883. 931. 884. 863. 883. 879.
6

99

JEWELLERY DEMAND
INDIA 590 TONES YEARLY
USA

350 TONES YEARLY

CHINA 240 TONES YEARLY

100

MINE PRODUCTION BY COUNTRIES

101

102

Supply and demand of Gold

Above ground stocks Supply flows 5 year Demand flows 5 year
end 2005

average

average

(2001-2005)

(2001-2005)

103

104

Gold Import and Demand in India

105

Findings
Gold prices will rise
Price seen to cross psychological $600 mark Analysts believe that
golds rise above its previous 25 year high set in early February opens
the door for a run at the psychological $600/oz mark. And further it will
rises in future.
Gold Price rises due to war
When any time war happen between two nation at that time the prices
of gold always rises which shown in the chart.
Jewellery demand expected to rise
Following the period of the high demand of the gold, the jewellery
demand is forecast to Increase. Jewellery accounts for about 75
percent of the demand for gold.
Scrap Gold supply forecast to rise
It is projected that the amount of gold scrap being recycled will rise 19
per cent to 998 tonnes this year. Weaker physical demand coupled with
higher scrap supply is expected to swing the market from a deficit of

106

310 tonnes last year to a surplus of 422 tonnes in 2006. so , it suggest

the growth in the supply of scrap bullion commodity.

Gold Market Moving Factors

Above ground supply from sales by central banks, reclaimed scrap and
official gold loans Producer / miner hedging interest World macroeconomic factors . US Dollar, Interest rate etc. Comparative returns on
commodity markets Domestic demand based on seasonal.
Government Support
Delhi Proposes to reduce VAT on bullion Delhi Government had
proposed to reduce the VAT rates on bullion trade from 1.0 percent to
to 0.1 percent in its Budget for 2006-07 as the VAT rates were lower in
the neighbouring states of Rajasthan and Uttar Pradesh as compared
to Delhi, which resulted in shifting of bullion trade from Delhi to other
states.
Prices will rise
Since last five year price of bullion commodity continuously rises in
both domestic as well as in international market. So there it will further
also rises in the future,

107

Conclusions
From the above discussion, Trend Analysis is one of the important tools
for the utilising, investing in the Bullion commodity market. Through the
Trend analysis we predict the price of the commodity and invest to or
not to be invest in that particular commodity.
Indian Economy is very Booming at present, Gold cross the 8500 in
MCX market its implies that the Indian economy is growing way, and at
the same time International market prices also rising in the bullion
commodity more growing upwards.
Indian Economy is growing up 10 percentages and it is Asias third
largest economy by 2006-2007 and also foreign direct investment
increases. That impact highly on the bullion commodity market and
price is affected by the FII.
SEZ also one of the important point for the development of the Indian
economy, at present government also provide different facilities is this
policy so that country exports is increases and also provide the
employment to the nation.
Indian bullion commodity market is expanded in last few years through
the help of the government and the private sector and both.

108

Indian Government is becomes very liberal toward the jewellery sector

in last few years to promote the business. VAT rates on bullion
commodity is reduces from 1% to 0.1%. so there is lots of scope in
the bullion commodity market for the investor to get high return on
investment.
International bullion commodity market also affects the Indian currency
value as well as bullion commodity market.
The Bullion Commodity is used to control the inflation in the country. So
it hedge against the inflation.
We can conclude that due to high demand and trend suggest that
bullion commodity market will sure rising.
There are lots of scope in the bullion commodity market to investor
because it is very new market and Main thing is that this market is not
more volatile like stock market. So Investor is feeling more safe to
invest in the bullion commodity.
Price change of Dollar is impact on the prices of gold and silver. If
dollar become strong against rupee then bullion commodity price will
decline and vice-versa.
The New York Mercantile Exchange is in talks to start trading gold
futures in China, possibly with Shanghai Gold Exchange, Dow Jones
Newswires reported.
Nymex

has

been

``seeking

opportunities

to

cooperate

with

Shanghai Gold Exchange to launch gold futures, perhaps as a

joint

product,''

said

John

Hanemann,

vice

chairman

of

the

governors committee of the Comex division, according to a Dow

Jones report on the Wall Street Journal's Web site.

109

The

contracts

would

be

the

first

gold

futures

to

trade

in

China and the first between a Chinese bourse and an overseas

exchange, the report said. The Shanghai exchange now allows only
spot trading of gold bullion, gold bars and platinum, it said.

Recommendations
Bullion market is a very liquidity market and investor can get more
return on there investment. So it is recommended that investor has to
invest more money in bullion commodity.
Due to the demand rise of the bullion commodity there are very good
scope in the bullion commodity market.
There are major two Exchange in India that trades the bullion
commodity future. So, Investor gets all kind of opinion and information
regarding commodity from this two exchanges.
India is the largest user of the gold jewellery in the world so Investor
has lots of scope in the bullion commodity market.
If investors has to invest in this security because it is safe and high
return on the investment.
NCDEX: In NCDEX Delivery is carried strictly through DEMAT and has only
one delivery option i.e. the sellers option, where in if the seller gives the
intention for delivery than only delivery is done.

110

MCX: No delivery in MCX is done through the DEMAT all physical

delivery only. MCX provide the traders with three different delivery options for
different commodities:
Compulsory delivery If there remains an open position during tender &
delivery period.
Sellers option If the seller gives intention to give the delivery.
Both options If both buyer & seller give the intention for delivery.

Annexure
Conversion ratios
To convert from

To

Multiply by

Troy ounces

Grammes

31.1035

Million ounces

Tonnes

31.1035

Grammes

Troy ounces

0.0321507

Kilogrammes

Troy ounces

32.1507

Tonnes

Troy ounces

32,150.7

Kilogrammes

Tolas

85.755

Kilogrammes

Taels

26.7172

Kilogrammes

Bahts

68.41

Troy ounces

Grains

480

Troy ounces

Avoirdupois ounces

1.09714

Troy ounces

Pennyweights

20

Avoirdupois ounces

Troy ounces

0.911458

Short ton

Metric tonne

0.9072

Traditional units of gold weight

1 troy ounce = 31.1034807 grams
1 troy ounce = 480 grains

111

1 troy ounce = 20 pennyweights

3.75 troy ounces = 10 tolas (Indian sub-continent)
6.02 troy ounces = 5 taels (Chinese)
32.15 troy ounces = 1 kilogram
32,150 troy ounces = 1 metric ton (1,000 kilos)
Conversion : 1 gram = 0.0321507466 troy ounces
Conversion : 1 kilogram = 35.2739619 ounces = 1000 grams
Conversion : 1 troy ounce = 31.1034768 grams

Categories of gold bars

400 oz (12.5 kg) bar

Fine Gold Cards

Minted Brick Bars

Kilobars

Bone Bar

Model Bars

Tezabi Bars

Gold Fillet Bars

The worlds largest and

Tael Bars

Pendant Bars

smallest - bars

Baht Bars

Double Pendant Bars

Historical Rothschild Bars

Tola Bars

Bank Bars

Oldest Stamp

Chi Bars

Commemorative Bars

Oldest Assay Mark

Decorative Bars

Heart Bars

Bullion Coins

Hologram Bars

Kinebars

Gold Nuggets

Rainbow Bars

Bullion Watch Bars

Gold-Bearing Ore

Yin-Yang Bars

Fine Art Bars

Dore Bars

Koban Bars

Bas-Relief Bar

Garimpo Dore

112

Twin-Coin Bar

Full-ColourBars

Gold Leaf Bars

Cartoon Bars

Weight details in major country

Country

Favoured Weight

Fineness

Comment

product
Japan

Kilo

32.1507 oz 9999

Range of products down

to one gramme

India

Ten tola

3.746 oz

Incurs a higher tax than

999

India,

9999 Saudi
Hong Kong Tael

metric bars, so may be

losing popularity

1.20337 oz 990 Hong Kong, Generally traded as 5 or

9999 Taiwan

10 tael bar but one tael

bars exist

Thailand

Baht

0.47 oz

990

113

114

Gold Future Contract in NCDEX

Lot Size
Tick Size
Quotation/Base

1 kg (Current Value INR 750000)

Rs1 per 10 gm
Rs per 10 gm

Delivery Centre
Delivery Size
Quality

Mumbai
1 kg (Variation +/- 5%)
Not less than 0.995 fineness bearing a serial

Specification

number and identifying stamp of a refiner approved

by NCDEX. List of approved refiners will be

Position Limits

available with the exchange

Member-wise: Max (Rs 200 crore, 15% of Gross
Open Interest)
Client-wise: Max (Rs 100 crore, 10% of Gross
Open Interest)

Silver Future Contract in NCDEX

115

Lot Size
Tick Size
Quotation/Base

30 kg (Current Value INR 320000)

Rs 1 per kg
Rs per kg

Value
Delivery Centre
Delivery Size
Quality

Delhi
30 kg (Variation +/- 6%)
Not less than 0.999 fineness bearing a serial

Specification

number and identifying stamp of a refiner approved

by NCDEX. List of approved refiners will be

Position Limits

available with the exchange

Member-wise: Max (Rs 50 crore, 15% of Gross
Open Interest)
Client-wise: Max (Rs 25 crore, 10% of Gross Open
Interest)

Commodities V/S Equities

Parameters of
Difference
Date of Expiry
Market Timings
Collaterals
Settlement
Sales Tax
Margins
Market Depth
Product Type
Demat Account
Physical Participation
Working Days
Quality

Equity (NSE F&O)

Commodity
(NCDEX)
Last Thursday of 20th of every
every month
month
9.55 am 3.30 pm 10.00 am 11.30 pm
Allowed
Always cash
settled
Not required
Very High(10% to
100 %)
High
Product is made
global
Mandatory
Only terminal base
trading
Monday to Friday
Not applicable

116

Allowed
Delivery is possible
Applicable only, in
case of deliveries
Very Low (3% to
12%)
Substantial
Global in Nature
Optional.
Terminal & Spot
base trading.
Monday to Saturday
Defined commodity
specific

Top 15 Issuers of Silver Coins and Medals in 2004

(in million ounces)
United States

15.5

Germany

10.3

Portugal

2.4

China

2.3

Spain

2.2

Canada

1.3

Australia

1.2

Mexico

0.9

Poland

0.6

Austria

0.5

France

0.5

UK & Ireland

0.5

Russia

0.4

Switzerland

0.3

Thailand

0.1

All Other Countries

2.1

TOTAL

41.1

Glossary of terms
Assaying: The method of accurate determination of the gold content of
the sample expressed in parts per thousand (%).
Carat: One-twenty fourth part by mass of the metallic element gold.

117

Fineness: The ratio between the mass of gold content and the total
mass expressed in parts per thousand (%).
Find Gold: It is gold having fineness 999 parts per thousand (5) and
above without any negative tolerance.
Gold: The metallic element gold, free from any other element.
Standard Gold: Gold having fineness 995 parts per thousand (%) and
above without any negative tolerance.
Grades: Gold and gold alloys shall be classified in accordance with the
following grades depending upon their fineness.
Bull Market: Period during which share/commodity prices maintain an
upward trend, and there is buying pressure in the market. The market
has a bullish trend when share /commodity prices shown an upward
trend over a length of time.
Bear Market: Period during which commodity prices maintain a
downtrend, and there is selling pressure in the market.
Derivatives: A derivative is a product whose value is derived from the
value of one or more underlying variables or assets in a contractual
manner. The underlying asset can be equity, forex, commodity or any
other asset.
Futures: A future contract is an agreement between two parties to buy
or sell the underlying asset at a future date at today "s future price.
Options: There are two type of options - calls and puts.
Calls give the buyer to right but not obligation to buy a given quantity of
the underlying asset, at a given price on or before a given future date.
Puts give the buyer the right, but not obligation to sell a given quantity
of the underlying asset at a given price on or before a given date.

Bibliography

118

Web Resources For gold

www.moneycontrol.com
www.advfn.com

http://www.gold.org/links/ind

www.bambooweb.com

ex.php

www.personalfn.com

www.google.com

www.incrediblechart.com

www.gfms.co.uk
www.lbma.org.uk
www.nymex.com

Web Resources For silver

www.tocom.com.jp

www.google.com

www.gold.org

www.silverinstitute.uk

www.kitco.com

www.lbma.org.uk

www.dmcc.ae

www.nymex.com

www.iab.gov.tr

www.tocom.com.jp

www.usagold.com

www.gfms.co.uk

www.thebulliondesk.com

www.incrediblechart.com

www.goldprice.com

www.kitco.com

www.mcx.com

www.mcx.com

www.ncdex.com

www.ncdex.com

www.thebulliondesk.com

www.silverprice.com

Books
MCX Bullion plus
Commodities Market Module Work Book
Commodity Analysis

119