Project Report on: E-gold

Submitted to: Mrs. Kunjana Malik Submitted by: Manisha Digari

Acknowledgement

I would like to convey my heartfelt thanks to Mrs. Kunjana Malik my mentor of this project who always gave valuable suggestions and guidance for completion of my project. She helped me to understand and remember important details of the project that I would have otherwise lost. My project has been a success only because of her guidance.

Manisha Digari BBA-F&A A08

About e-gold
E-gold is a digital gold currency operated by Gold & Silver Reserve Inc. Digital gold currency (or DGC) is a form of electronic money based on ounces of gold. It is a kind of representative money, like a US paper gold certificate at the time (from 1873 to 1933) that these were exchangeable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage.Digital gold currencies are issued by a number of companies, each of which provides a system that enables users to pay each other in units that hold the same value as gold bullion. These competing providers issue independent currency. Features of E-Gold Trustworthy- Pursuant to the e-gold Account User Agreement, the physical bullion that comprises the value backing e-gold must be insulated from physical, legal and political risks. Title is held by the e-gold Bullion Reserve Special Purpose Trust that exists for the express purpose of holding bullion for the exclusive benefit of all e-gold account holders collectively. Transparent- E-gold Ltd. offers an unprecedented level of transparency: total e-gold in circulation vs. total bullion reserves are provided in real-time via the e-gold Examiner accessible from the e-gold website. Since the purchase and sale of Gold ETF and e-Gold is done through screen based prices, the prices are same across the country, thus making it more transparent and uniform as against the prices of gold jewelry which varies from jeweler to jeweler. Even in case of standard products like gold coins, the premium charged by various banks over the prevailing gold prices differs from bank to bank World Wild Money- e-gold is accounted by weight of metal, not US$ or any other national currency unit. Weight units have a precise, invariable internationally recognized definition. Additionally, precious metals, gold in particular, enjoy a long history of monetary use around the world. Thus, e-gold is ideally suited for internet transactions. No barriers to entry -It costs nothing to open an e-gold account. There is no credit check. There is no minimum balance requirement. There is no concept of a "merchant account" in that all egold accounts may spend e-gold or receive e-gold payments. Lower Cost-The purchase of gold in physical form is relatively costlier as compared to electronic form of gold particularly for smaller quantities. If we purchase jewellery from the jeweler, we pay making charges. Though that jeweler undertakes to buy back the gold jewelry from, us invariably deducts the making charges. Thus, effectively reducing appreciation in the gold in case the prices have gone up.

In case we purchase the gold bars from bank, even for small quantities, this mode of gold purchase is costlier, as we pay a premium ranging between 10%-15% over the market price of the gold. Moreover the banks do not offer to repurchase the gold coins, thus we may not get the fair price of the gold coins, if sold outside. However the difference between buys and sell quote of Gold ETF and E-gold is very small and it eliminates the middlemens margin and ensures a good return to the investor. Convenient to buy and sellThe electronic form of gold, be it Gold ETF or e-Gold can be purchased from the comfort of our home by making a phone call or through online platform. However for buying physical gold we have to visit either bank or jeweler. Likewise it is very easy and convenient to sell the electronic gold in case we need money or want to liquidate your holding. Easy assets allocation and rebalancingWith e-Gold & ETF, purchasing paper gold has become easy and convenient, people have started allocating some portion of their investment in gold. Investment expert advice an allocation of 10% -20% for bullion. As you need to rebalance your portfolio periodically

Index
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Conclusion Scope Bibliography

Introduction

Research methodology

Conclusion

Benefits of e-gold investment:

1. Easier to invest. 2. Give returns that closely correspond with the domestic price of real gold. 3. Each unit which we buy is roughly equal to the price of 1 gm of gold. 4. It is easy to buy as we can even buy just one gram at a time. Over time we can build up our gold portfolio to the level we want juts as we would with our banker or jeweler, only this is easier. 5. No worries of theft and saves on locker charges 6. Gold maintains its long-term value and keeps its purchasing power. The value of gold, in terms of what it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined. That is why gold is considered an effective preserver of wealth and hence benefit on long term capital gain

7. Theres no need to pay sales tax, security transaction tax, VAT or wealth tax. 8. Cheapest form of pure physical gold with no premium and making charges.

Disadvantages of e-gold
1-The main disadvantage of e-gold is the inevitable up-front load. For new customers the load may start at 3% and diminish to 1.6% - (the 1.6% rate is for trades over $100,000). Even on those large quantities of gold that amounts to $6.40 on a $400 ounce, which makes the product look expensive next to futures. In theory this would be paid back over several years of cheap storage, but it is unlikely the cheap storage is sustainable if serious investors start using this service in any volume. There is a degree of intermediation in the holding. Our gold is the legal property of trustees who have a fiduciary duty. This appears to be a reliable mechanism in normal circumstances but is still not quite the same as outright ownership. 2-The system was designed for payments, and in order to make it acceptable for suppliers outward transfers may not be repudiated. The system's direct competitors - visa, master card etc - are very big and can offer suppliers guarantees about payment which do not necessarily mean that customers forfeit all rights after a payment has been correctly initiated.

3-The e-gold providers perhaps do not feel big enough to wear the risk of customer repudiation, so the gold holder ends up wearing the risk of an unauthorized payment being made out of his account. The worrying element of that is the relative ease with which serious hackers can break internet access (using such devices as keyboard grabbing software). 4-The providers are not especially liquid. If we want to buy a serious quantity (1kg in one case) they may deny. This means we must wait until the following day's gold 'fix. We might well miss our intended dealing price. 5- Credit risk. This is the risk of default during the period from trade to future settlement date leaving someone entitled to a profit but unable to collect it. Almost all futures traders are unconcerned by this risk, but it is material and gold buyers as a breed are aware of it. The issues are discussed in detail in the gold FAQs.

6--There may be some obscure charges. For example, our right to exit at the 'spot' price is not altogether clear because the spot is itself unclear. There is no central spot price for gold. Similarly there may be charges for sending money in and out. 7-There is a custody charge, (but it includes insurance, and is so low that it has been included in the advantages section) this is a useful internet way of owning real gold. Although the upfront costs are significant they may pay themselves back - particularly if we are going to hold gold for a considerable period. Through the custody charging policy alone it makes for a costeffective long term reserve against calamity. Some of the providers allow freezing an account. This is a useful extra facility which allows us to be a bit more relaxed about the internet access issue. 8-Non-reversible transactions unlike credit cards, there is no way of having transactions reversed, even in case of a legitimate error or an unauthorized spend. E-golds Terms of Use stipulate that all spends are final and e-gold cannot be held responsible for any spend. In this respect, an e-gold spend is more akin to a cash transaction (except for the fact that there is a fee levied) while PayPal transfers, for example, could be considered more similar to credit card transactions. 9-Security As with any online payment system, e-gold is vulnerable to various threats, notably phishing (for example, forged emails asking for login details) and spyware (such as keystroke logging). In the early years of e-gold, this problem was widely reported to be rampant. The problem could have been due to the novelty of the system, combined with the irreversibility of payments, combined with the hardness of gold as money, combined with precious metal in its holding. While proponents generally consider this assuring enough, some critics remain skeptical. 10- Automatic instability. With all futures (not just gold) a rapidly falling market will force selling, which further depresses the price, while a rapidly rising price forces buying which further raises the price. Either scenario has the potential to produce a runaway spiral. This is

manageable for long periods of time, but it is an inherent danger of the futures set-up. The same phenomenon of structural instability was paralleled in 1929 by brokers loans.

11-Limited use Beginning January 2006, eBay has restricted buyers and sellers from using any online payment system except for PayPal. EBay specifically named e-gold as one of the online payment systems that will result in them cancelling a seller's account if used. E-gold runs a nonreversible transaction policy, meaning that there is no protection for purchasers if vendors fail to supply goods. 12-Regulatory challenges and shortcomings e-gold Ltd. was registered in Nevis, West Indies in 1999, but was removed from the register in 2003. It is not a registered entity in Nevis as of at least March 31, 2006. In September 2004 several Australian e-gold currency exchanges ceased operation due to stricter application of Financial Services Licensing regulations. Digital gold currency exchangers that were closed down by the Australian Securities and Investments Commission (ASIC) include:

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goldex.net sydneygoldsales.com ozzigold.com

Whilst exchange providers can still operate in Australia many have found it impractical to do so due to proxy issues. Australian residents can exchange e-gold via exchangers in the U.S., Europe or other countries. There appears to be no issues about NZ citizens buying e-gold in NZ, and a number of AU citizens have opened NZ bank accounts, specifically to purchase e-gold from NZ based exchangers. (Although e-gold doesn't denominate e-gold in NZD.) 13-Bullion storage As of November 2005, it is unclear if e-gold has an independent auditor of the physical bars, so there is no way of knowing if e-gold Ltd. really has the reserves to back the currency in the e-gold system. E-gold does maintain an "Examiner", a web page with updated statistics on outstanding liabilities and the total amount of each.

Precautions to be taken while investing in e-gold1. Investment in anything is not secure. There can be huge increase and decrease in gold with no warnings. Therefore we should keep an eye open on market speculations and should analyze it carefully. So whether we buy (go Long on E-Gold) or sell (go short on E-Gold), the price movement will affect your trading profits

2-Then, there is the long trading hours risk. For example, we purchase something at high price in the morning and it comes down substantially due to international price changes by the time the exchange closes.

3. We need to accept the risk of international price changes which might happen overnight, when the exchange is closed. Transactions cost will again be another thing to look it and it will vary from broker to broker. Then all the brokers, we generally trade with may not have NSEL membership for allowing trading in E-Gold. We may have to incur extra charges for trading for NSEL listed product. 4-We should consider placing a stop loss order to protect part of an investment. Its an automatic to sell shares when prices fall below a certain level. 5-If someone is not sure about what to do and what not to do than a professional licensed investment advisor should be consulted.

MARKET STANDING OF E-GOLD

All over the world the commodity market is dominated by precious metals like Gold and Silver. In India in 2010 a great investment option called as E-Gold has been introduced by National Spot Exchange. The biggest benefit of E-Gold is that it allows investors to invest in gold with much lower denominations than physical gold. Physical gold is generally available in: But E-Gold is available in denominations as low as 1 gram and in multiples of 1 gram. But the advantage does not ends here, these golds are available as investment options in demat form. This is for sure that E-Gold is soon going to be a big hit with Indian Retail Investors. E-Gold can be invested and traded in the market like that of shares. The development of this financial instrument called E-Gold is so versatile that both retail investors and common man (who is not an investor) will buy E-Gold with ease.

Future Prospective

At present the gold investment option was limited to physical gold, ETF Gold or future contracts. But now with advent of E-Gold, retail investors could not have been happier. Except for banks, gold market was not as organized as that of shares and mutual funds. But now E-Gold will change the whole of gold investments. Gold in demat format was not known till last year.

The cost associated with physical gold in terms of its storage cost will be drastically reduced in case of E-Gold. Only a nominal fee like that of dematerialized shares will be paid by investors. These days pro investors has their own investing fundamentals and lot of them stay away from gold investment. But E-Gold may drive them towards gold investment. With demand of gold as an investment option rising, the price will rise further.