GOLD AS AN

INVESTMENT

By,
7th
Group.

CONTENTS
Introduction.
Factors Influencing Gold Prices.
Gold Buying Options.
Physical gold.

ETFs.
NSEL.
GFOFs.

Price movement in gold for last 20 years.

Introduction
Gold has been used throughout history as money and has been a relative

standard for currency equivalents specific to economic regions or

countries.
If you invest in real estate you get, Rent, If you put your money in Fixed

Deposits you get Interest, If you buy stocks, you get Dividend.
If you invest in Gold, it produces no Cash flow and there is no analytical

way to value an asset that doesnt produce cash flow.

Gold is not an investment, but a speculative asset, influenced mainly by the

dollar and US interest rates.

Factors influencing gold

prices
Central banks & Interest rates : Central banks and IMF plays an important role in the gold price. It is

generally accepted that interest rates are closely related to the price of gold.
As interest rates rise, the general tendency is for the gold price, which earns
no interest, to fall, and as rates dip, for gold price to rise. As a result, gold
price can be closely correlated to central banks via the monetary policy
decisions made by them related to interest rates.

Value of the Rupee :

In India, the price of gold is measured in rupees. If the rupee is weaker

against dollar, the price of gold will go up by that much. The gold price had
crashed from a high of $850 per ounce in 1981 to $250 per ounce in 2001.
Rupee value In 1981 $1=
8 today it is around
45.

Value of the US Dollar :Gold is priced in US dollars. Other thing being equal,
gold prices will go up if the dollar price becomes weak.
In the late 1970s the aftermath of the Vietnam war,
Iranian revolution, rising prices etc.. gold had shot up
from $100 to $850 .

Instability of the world : The price of gold relies a lot on the instability of the
world such as natural disasters, financial crisis, and
political situations. Investors usually invest in gold when
they lost confidence in stocks and bonds.

Inflation :The increase or decrease in gold prices is influenced by

inflation. Higher the rate of inflation, the price of gold
increases directly proportionately to it. But the opposite
sometimes does not necessarily decreases the gold prices.

War, invasion and national emergency: In times of national crisis, people fear that their assets may be

seized and that the currency may become worthless.

They see gold as a solid asset which will always buy food or
transportation. Thus in times of great uncertainty, particularly
when war is feared, the demand for gold rises.

Jewellery and Industrial demand : Gold jewellery in India is an integral part of many

traditional ceremonies like weddings, festivals,

celebrations etc...
Gold has high thermal and electrical conductivity
properties, along with a high resistance to corrosion and
bacterial colonization. Jewellery and industrial demand
has fluctuated over the past few years due to the steady
expansion in emerging markets of middle classes aspiring
to Western lifestyles.

Hedge against financial stress:Gold, like all precious metals, may be used as a hedge
against inflation, deflation or currency devaluation. If the
return on bonds, equities and real estate is not adequately
compensating for risk and inflation then the demand for
gold and other alternative investments such as commodities
increases.

Demand & Supply:When there is a increase in supply of gold in the market, it

results in decrease in the prices of gold and vice versa.

Factors influences gold

prices In India
Rising population in India triggers even higher
demand for gold driving gold price in India today
even higher.
Rising or lowering import costs inadvertently affect
gold price in India today. India is unable to sustain
adequate domestic gold production due to gold mine
resource shortages.
Due to low bank deposit interest rates, gold investment
in India is a preferred method over any other investment
mechanism.
Any favorable or unfavorable Government gold policy
directly affects current gold prices in India.

Thank you