Glitering gold

Gold – Glittering

14/05/2010

Glittering More Than Ever

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han Ever



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Contents

Introduction General Characteristics General Uses Market Moving factors

Why Gold

International Overview

Euro Prices fueling Gold rise as a key Currency Gold as a perfect currency hedge Exchange Traded Funds

Gold Pendant gets costly in India

Glittering Future


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Introduction

Gold has been seen as an Investment, A currency, A commodity and as A Beautiful

Object. It was financial boom and modernization of 80’s and 90’s that made gold go back

in the scene as most investors looked for “Equity” and “bonds” as an investment. But last

decade has seen an enormous growth in gold be it as an “Investment” or “Commodity” or

moreover used as a perfect hedge for currency. One factor that makes it a firmer

investment avenue is that its demand always exceeds its supply. There are many reasons

why people and institutions are once again investing in gold.

General Characteristics of Gold

The Gold delivered under the contract must be gold bars, weighing 100 grams each, and

assaying not less than 999 fineness, bearing a serial number and identifying origin of the

refiner/brander. Up to a 999.9 fineness, bearing a serial number and identifying stamp of

a refiner, is approved by the Exchange.

General Uses

A good thermal and electrical conductor, gold is generally alloyed to increase its strength,

and is used as an international monetary standard especially by IMF and Central banks of

countries, widely used in jewelry in eastern countries, for decoration, and as a lasted

coating on a wide variety of electrical and mechanical components.


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Market Moving Factors

Indian gold prices broadly follow international price trends.

Ground supply of gold directly co-relates with prices of gold. Gold supply is

also determined by central bank sales, reclaimed scrap and official gold loans.

Demand for gold is closely tied to the production of jewelry and demand for

gold during the festive seasons.

World macro-economic factors such as US Dollar, interest rate and crude oil

prices influence the prices of gold.

Return on investment in gold compare to return on stock markets drive the

sentiment of market.

Why Gold

The yellow metal’s traditional role is one of a “safe haven,” a place where participants

turn during times of acute stress in markets. Gold’s popularity has grown, as most

investors feel any sustained recovery from the recent worldwide economic downturn will

be a long-drawn process.

The uptrend in gold still looks strong. The two key drivers of investment interest in gold

are general concerns about the stability of the global financial system (stimulating safe


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haven buying) and the risk of currency debasement/inflation (gold as currency hedge).

While the first of these concerns may have been eased by the massive EU/IMF rescue

plan, the second has arguably been heightened by it.

In many European countries, off-balance sheet debt is also high, though the quantity is

not known. So, the crisis may be deeper than it looks.

International Overview

Withstanding many international issues for the past few months like, Volatile Financial

Markets due to Greece Debt Worries, growing concerns about the euro in the wake of

credit downgrades of Greece, Portugal and Spain is one reason. EU and IMF trying to

strengthen the Euro with Bail-out packages, this glittering metal stood much firmer and

positive than any other commodity or investment avenue. We’ve been following it since a

few quarters and now it is shining much brighter than ever.

Gold often rallies at times when investors are nervous about the financial markets. Gold

rose dramatically when Bear Stearns and Lehman Brothers imploded in 2008, for

example. Presently, it has been trading in upper range ever since it touched a high of

$1227 in December 09. The recent rally in gold has broken this high and brought it into

the upper trading range. Now the question is that these particular candles will help gold

shine further or it is one of those seasonal corrections. But one thing is sure that if Greek

in near future defaults and international worries make market sweat more, then gold will

definitely spike.

Below chart explains and decipher

past 19 months gold has given a return of

In the international market the gold

March at US$ 1,115.50/oz, on the London PM fix, compared with US$1,087.50/oz in

December 2009. The average gold price also rose slightly, to US$1,109.12/oz, from

US$1,099.63/oz the previous quarter. Throughout

traded in a range between US$1,058.00/oz and US$1,153.00/oz, as some factors

supported the price but others kept it from rising further.

161% Retracement level

and deciphers the net change in gold prices in recent past

old has given a return of 83.35% till date.

Weekly Chart

Source - Capital

arket the gold price edged up modestly in Q1 2010, ending in



US$1,099.63/oz the previous quarter. Throughout the 2010 first quarter, gold mostly


supported the price but others kept it from rising further.

161% Retracement level


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recent past. In the

CapitalHEIGHT

price edged up modestly in Q1 2010, ending in



the 2010 first quarter, gold mostly



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Euro Crisis Fueling Gold`s Rise as Key Currency

If Greece is in trouble, Investors won’t buy Euros anymore. Investors have been going

out of Euros and into gold. Gold was used as a reserve currency but was replaced by the

U.S. dollar after the Second World War with the establishment of the “Bretton Woods”

system. The dollar’s status, however, is fading fast. The European central bank said the

share of dollars among reserve currencies worldwide dropped from 70.9 percent in 1999

to 64.1 percent in 2008. Amid the global financial crisis, the share dropped to 61.5

percent last year. The share of the euro, on the other hand, has continuously increased

from 17.9 percent in 1999 after its launch to 28.1 percent last year. The euro has become

the world’s No. 2 reserve currency a decade after its inception. Confidence in the euro is

also dropping, however, in light of Greece’s fiscal crisis and the ripple effect throughout

the euro zone to Portugal, Spain and Italy since the end of last year. Skeptics warn that if

the crisis spreads throughout the rest of Europe, as the crisis is contagion in nature, the

euro system will collapse.

In the wake of the Greek crisis, important conditions for the euro to become a key

currency have been undermined. The euro, which had been the leading candidate to

replace the dollar as the global standard, is not expected to leapfrog the greenback.

Instead, China is predicted to take this opportunity to globalize its currency.

Gold as a Perfect Currency Hedge

In an RBS survey of foreign reserves managers at 43 central banks worldwide, more than

50 % said the “Yuan” will comprise five percent of global foreign reserves in 2026 at the

earliest. The greenback’s power is growing weaker, its nearest competitor euro is in


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trouble, and the Yuan is not ready to take over. So gold -- the ultimate safe asset -- is

expected to grow stronger in influence.

In particular, major foreign currency holders such as China and India are finding

alternatives to the dollar but experts say there is no good alternative other than gold.

Gold prices saw a sudden spurt internationally in recent days as the crisis in some

European nations deepened. Investors became risk-averse and reduced their investments

in most asset classes, hedging portfolios by buying gold.

Prices went up nearly $130 in just a month and are currently at all-time highs. During the

weekend, when a trillion-dollar bailout package was announced by European nations,

gold shed some gains as most other asset classes, including equities, went up sharply.

However, when markets found the rise in equities was due to unprecedented short

covering, the risk appetite faded.

Exchange traded funds Update

Investors bought 5.6 net tonnes of gold via exchange traded funds (ETFs) in Q1 2010,

bringing the total amount of gold in the ETFs to a new record of 1,768 tonnes, worth

US$63.4 billion at the quarter-end gold price. ZKB Gold ETF and Julius Baer Physical

Gold ETF, both listed on the Swiss Exchange (SWX), recorded the strongest inflows

during the first quarter, adding 10.2 and 8.1 tonnes respectively, as interest in the Swiss

based securities continued. These funds remain small, however, compared to SPDR®

Gold Shares, or GLD as it is known, listed on the NYSE Arca and cross-listed in Mexico,

Singapore, Tokyo and Hong Kong with 1,130 tonnes (worth US$40.5 billion) in assets.


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GBS Bullion Securities (listed on the London Stock Exchange) shed 7.8 tonnes in Q1, the

largest net outflow of the ETFs.

Gold Pendant Gets Costly in India?

Indian market, despite the traditional price-sensitivity of demand, there is an important

bullish factor contributing to a tight global/supply demand balance and rising world gold

prices this year. Importantly for the world gold market, India dances to its own tune, with

demand often reflecting domestic economic circumstances.

India is one of the country we mentioned using gold as alternative to the Greenback. Gold

prices have seen an upward trend since 2007. Price of gold in March 2007 was only

Rs.10,800. Since then it has seen an annual increase of 28-35 percent.

Presently, Gold is trading in upper range near its all time high of Nov 09 at Rs. 18364 and

has topped at Rs. 18350 per 10 grams recently. Not to mention, It has topped around one

of the gold buying festivals of Akshay Tritiya. After that, a $ 500 billion Indian Marriage

Industry starts of and that can be one of the factor to fuel demand for Gold till Diwali

2010.

Though most Jewelry shop owners feel that demand is still not in its full swing and there

has not been much positive buying in the market. As the price of gold rises it gets hard

for “Indian middle class families” to buy gold or they might buy less quantity in same

amount.


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Capital HEIGHT view - Glittering future

In the overall context, across the globe it is believed that future for gold looks good. We

presume it is gold in precious metals that has the potential to go up to $1,300 in the near-

term but post that, correction is due.

In the long run, Gold will continue to give 15-20% return for at least next four to five

years. Our reason is that gold has found its place in most investors’ portfolio. Also, the

volatility in market in the near term due to PIIGS will keep gold as an attractive asset

class. The worries of inflation in economies and changing currency dynamics due to

bailout package will help gold rally up in the near future.

Technically too, the trend is very bullish and we expect steady gains initially only to the

$1,250/55 area. Beyond that, the next set of meaningful targets is around $1,350/74


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