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GOLD FUNDAMENTALANALYSIS
International Workshop on Commodity Trading
6th October 2004
-Bhargava N. Vaidyae-mail [email protected]
History
• Gold Currency
(1890 - 1913)
• Gold Standard
(1925 - 1931)
• 1968 Split in European Gold Market
• Bretton Wood
Fixed exchange rate collapsed in 1973
Gold Price
• Turn of previous century around $ 20
• 1934 - 1968 Fixed at $ 35
• 1979 – 1982 Bull Market Years
on 21 /1/1980 $ 855
• Average Price 2002 $ 310
• Average Price 2003 $ 363
• September 2004 $390 - $ 421
Recent Highlights
• May’99 : BOE decides to halve its Gold reserves
• September’99 : Washington Agreement • 1/1/2000 : VAT Abolished on
Bullion throughout Europe.• May ‘ 2000 : SNB begins sale of Gold
from its reserves.• 2003 : Central Bank Gold agreement
Size of Market
• LBMA – Daily clearance volumes
488 tonnes
• Comex - 152 tonnes (per day)
• Other Exchanges
Indian market size 1000 tonnes (per annum)
LONDON19 th Century: Great Britain first country to adopt
the full Gold standard.
1919 : Formation of the London Gold Fixing Up to 1968: No Competition in London Gold
Market After 1968 : London’s Monopoly ends after
temporary closure of Gold Market. 1987 : The LBMA Incorporated as on 14/12/87
2000 : Associate Members
USA1792 : US assigned a formal monetary role Currency Backing with AU and AG1848 : Large Gold discovery in California North America became the worlds major supplier
1944 : Bretton Woods agreement -tied gold to the US $1971 : President Nixon ended the convertibility of the US $ into gold1974 : Lifting the ban of Gold Ownership31.12.74: Gold futures opened for trading on COMEX (today a subdivision of NYMEX)1982 : COMEX started operating a market in Gold options
SUPPLY2002 2003
MINE PRODUCTION 2590 2593
OFFICIAL SECTOR SALE
545 606
OLD GOLD SCRAP 836 943
NET - PRODUCER HEDGING
---Source:
----GFMS
DEMAND2002 2003
FABRICATION 3163 3049
BAR HOARDING 250 183
NET - PRODUCER HEDGING
437 310
IMPLIED INVESTMENT
122SOURCE
600: GFMS
Gold Hedging Environment1980’s 2000’s
• High Interest rates• Low lease costs• small to medium cost
mines• High % of resources as
reserves• Continuity of cash flow
required to underwrite capital
• Low Interest rates• More Volatile lease
costs• Larger more mature
mines• Lower % of reserves
to resources• Lower Gold Price
Gold Hedging Products1980’s 2000’s
• Gold Loans
• Spot def, fixed and flat forwards
• Short term products
• Less Gold Loans
• Longer dated products
• Structured Option Products
Official Sector Holding
• Over 31,822 tonnes
• Large holders
USA 8,135 tonnes
Germany 3,440 tonnes
France 3,025 tonnes
OTHER FACTORS
• POLITICAL INSTABILITY
• TERRORISM
• CURRENCY INSTABILITY
• SURPLUS MANAGEMENT
• INFLATION
Importance of Gold (India)
• Largest item in portfolio
(Rs.13,02,000+ Crores)
• Major forex asset
($ 280+ Billion)
• Legend - Gold & Age
• Liquidity
PRESENT INDIAN SCENARIO
• LARGEST MARKET FOR GOLD• ONE OF THE MOST IMPORTANT MARKET FOR
SILVER• LARGE HOLDING OF BULLION IN PRIVATE
SECTOR
LARGEST SOURCE OF BULLION• IMPORTS• RECYCLING - A DISTANT SECOND
HISTORY• Net Gold Surplus – for years• 1962 - Gold Control Act.Development• 1990 – Abolition of Gold Control Act• 1992 – NRI Imports• 1994 – SIL Import• 1997 – Authorised agencies / Banks• 2003 - Future/Forward trading in bullion
• Authorised Bank / Agency |• Bullion Dealer (large) ______ | | • Bullion Dealer (small) | | | |• Jeweller | Jeweller | | |• Consumer Consumer Consumer