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GETFs
GETFs
Gold is the oldest precious metal known to man and for thousands of years it has been valued as a global
currency, a commodity, an investment and simply an object of beauty.
Major Characteristics
• Economic forces that determine the price of gold are different from, and in many cases opposed
to the forces that influence most financial assets.
• China with a production of 276 tonnes, overtook South Africa as the world's largest gold
producer in 2007 for the first time since 1905 that South Africa has not been the largest. The other
major producers are USA, Australia, Russia and Peru.
• India is the world's largest consumer of gold. Indians normally buy about 25 per cent of the
world's gold, purchasing around 700 - 750 tonnes of gold every year.
• However, the sharp price increase in 2008 and 2009 has impacted demand with total demand in
2008 dipping to 660 tonnes. It is further expected to shrink in 2009 with demand in first three quarters
of 2009 totaling only around 265 tonnes against 553.5 tonnes in the same period of the previous year.
• As India's domestic primary production of gold is very less, at around 2-3 tonnes a year, the
country imports most of its domestic requirement.
• Thus, India is also the largest importer of the yellow metal and has averaged imports of around
600 tonnes a year. However, 2008 imports dipped to around 400 tonnes of gold and it is further
expected to dip to around 200-220 tonnes in 2009 owing to high prices.
• India's gold demand is firmly embedded in cultural and religious traditions. It is also valued in
India as a savings and investment vehicle and is the second preferred investment after bank deposits.
• Gold hoarding tendency is well engrained in the Indian society and unofficial stocks held by
Indians is estimated to be well above 15,000 tonnes, which is around 9% of the total global gold
stocks.
• 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, coins in India, as compared to
the rest of the world, are insignificant, both qualitatively and quantitatively.
• 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. This reduced the disparity
between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8.5 percent
in 2001.
• Indian gold prices are highly correlated with international prices. However, the fluctuations in the
INR-US Dollar impact domestic gold prices and have to be closely followed.
• The global prices are driven by a host of factors with macro-economic factors like strength of the
economy, rising importance of emerging markets, currency movements, interest rates being major
influencing factors.
• Supply-demand is a major influencer, amid rising global investor demand and almost stable
supplies.
• Shifts in official gold reserves, reports of sales/purchases by central banks act as major price
influencing factors, whenever such reports surface.
• The investment in gold is influenced by comparative returns from other markets like stock
markets, real estate other commodities like crude oil.
• Domestically, demand and consequently prices to some extent are influenced by seasonal factors
like marriages. The rural demand is influenced by monsoon, agricultural output and health of the rural
economy.
Measurement
Weight Conversion Table
Purity
Gold purity is measured in terms of karats and fineness
Karat: Pure gold is defined as 24 karat
Fineness: Parts per thousan
Thus, 18 karat = (18/24)th of 1000 parts = 750 fineness