Investing in gold a study

Investing in Gold-A study

Puneet Arora-75141Shantanu Vashishth-75150Teacher-Ms. Vibhuti VashishthBFIA 2B

“GOLD AND SILVER ARE MONEY , REST IS ALL CREDIT.”

Contents• Investment Channels

• Factors affecting Gold prices in India

• Evaluating performance of Gold

Investment Channels

Gold coins & bars

Accounts

Exchange Traded Products

Certificates

Derivatives,CFDs and spread bettings

Mining Companies

Contents

Gold bars & coins most traditional way of investing in gold is by buying

bullion gold bars

these can easily be bought or sold at the major banks or from bullion dealers

gold bars carry lower premium over spot price than gold coins.

larger bars carry an increased risk of forgery.

The Krugerrand is the most widely-held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation.

AccountsGold bullion banks offer two types of gold accounts - allocated and unallocated:

1. Allocated account

2. Unallocated account

Other opportunities for smaller investors include:

3. Gold pool accounts

4. Electronic currencies

Exchange Traded Productsinclude ETFs, ETNs, and CEFs which are traded like shares on the major stock exchanges.

Gold ETPs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars.

Typically a small commission is charged for trading in gold ETPs and a small annual storage fee is charged.

The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time.

CertificatesGold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs)

It entails taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk).

Mining Company

Factors affecting gold prices in India

International prices.

Interest rates.

Dollar-Rupee Dynamics

Central Banks Reserves

Demand for the metal

Gold Production

The changes in the CME restrictions.

Central Bank Reserves

Back

Back

Demand for the metal

Back

Data source: Gems and Jewellery Export Promotion Council

Gold Production

Back

Evaluating performance of Gold

3-year weekly return correlation on key commodities and gold

1-year annualised daily return volatility on key commodities and gold

22-day rolling annualised daily return volatility on gold and S&P GS

Performance of gold v/s other metals

Performance of gold v/s other commodities

Gold and S&P(% year charts)

Gold & Trade-weighted US dollar

Gold v/s Sensex

0.47

0.53

0.45

0.15

-0.01

0.21

0.35

0.45

0.47

0.66

0.48

0.73

-0.2 0.0 0.2 0.4 0.6 0.8 1.0

R/J CRB Commodity Index

DJ UBS Commodity Index

S&P GS Commodity Index

DJ UBS Softs Index

DJ UBS Livestock Index

DJ UBS Grains Index

DJ UBS Energy Index

Brent crude oil (US$/bbl)

DJ UBS Industrial Index

Platinum (US$/oz)

Palladium (US$/oz)

Silver (US$/oz)

Correlation

Notes: Data ending 28 September 2012Source: Bloomberg, LBMA, LME, World Gold Council

Chart: 3-year weekly return correlation on key commodities and gold

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LME

(US

$/t)

%

Notes: Data ending 28 September 2012Source: Bloomberg, LBMA, LME, World Gold Council

Chart: 1-year annualised daily return volatility on key commodities and gold (US$)

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10/2002 04/2004 10/2005 04/2007 10/2008 04/2010 10/2011

%

Gold (US$/oz) S&P GS Commodity Index

Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council

Chart: 22-day rolling anualized daily return volatility on gold and S&P GS

 Gold

(US$/oz)Silver

(US$/oz)Palladium (US$/oz)

Platinum (US$/oz)

Aluminum LME (US$/t)

Copper LME (US$/t)

Lead LME (US$/t)

Nickel LME (US$/t)

Tin LME (US$/t)

Zinc LME (US$/t)

1-month 7.0% 13.0% 3.1% 10.1% 12.1% 8.6% 17.2% 13.8% 11.5% 13.9%

3-month 14.0% 29.2% 13.0% 19.6% 14.3% 11.4% 30.0% 13.1% 14.9% 16.0%

6-month 7.1% 9.0% -1.0% 2.1% -0.6% -1.1% 15.6% 6.4% -3.1% 5.1%

1-year 10.1% 14.8% 2.9% 9.2% -4.2% 18.5% 14.7% 0.3% 5.1% 11.6%

3-year 78.4% 110.6% 115.9% 28.0% 13.1% 34.7% 1.1% 6.8% 43.4% 9.1%

5-year 139.0% 153.8% 83.6% 20.0% -14.1% 1.3% -33.4% -40.3% 42.0% -31.7%

3y CAGR 21.3% 28.2% 29.2% 8.6% 4.2% 10.5% 0.4% 2.2% 12.8% 3.0%

5y CAGR 19.0% 20.5% 12.9% 3.7% -3.0% 0.3% -7.8% -9.8% 7.3% -7.4%

Performance of Gold V/s Other metals

Column1 Gold (US$/oz)

Brent crude oil (US$/bbl)

DJ UBS Energy Index

DJ UBS Grains Index

DJ UBS Livestock

IndexDJ UBS Softs

Index

S&P GS Commodity

Index

DJ UBS Commodity

Index

R/J CRB Commodity

Index

1-month 7.0% -0.1% 4.0% -4.9% -2.1% -0.3% -1.4% 1.7% -0.1%

3-month 14.0% 23.9% 18.9% 13.5% -5.3% -0.3% 11.9% 9.5% 8.9%

6-month 7.1% -8.3% 1.6% 25.5% -3.9% -13.8% -3.9% 3.3% -0.9%

1-year 10.1% 6.4% -4.8% 38.4% -11.4% -22.9% 13.8% 5.9% 4.4%

3-year 78.4% 67.4% -25.9% 75.7% 4.4% 22.7% 23.1% 19.9% 22.7%

5-year 139.0% 42.6% -61.4% 19.9% -45.9% 18.2% -23.3% -13.5% -3.2%

3y CAGR 21.3% 18.7% -9.5% 20.7% 1.4% 7.1% 7.2% 6.2% 7.0%

5y CAGR 19.0% 7.4% -17.3% 3.7% -11.6% 3.4% -5.2% -2.8% -0.6%

Performance of Gold & other commodities

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10/2002 10/2004 10/2006 10/2008 10/2010

Index level

Gold (US$/oz) S&P 500Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council

Chart 5: Gold and S&P 500 in US$ (2 Sep 2002=100)

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10/2002 10/2004 10/2006 10/2008 10/2010

Index level

Gold (US$/oz) Trade-weighted US$

Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council

Chart 6: Gold (US$/oz) and the trade-weighted US dollar

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10/2002 04/2004 10/2005 04/2007 10/2008 04/2010 10/2011

%

Gold (US$/oz) S&P 500

Chart 4: 22-day rolling anualized daily return volatility on gold and S&P 500 (US$)

Notes: Data ending 30 September 2012Source: Bloomberg, World Gold Council

Gold v/s Sensex