Gold HNI - Commodities Info
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.
- Gold is unique as it is both a commodity and a monetary asset.
- Its stability and high value makes it virtually indestructible and ensures that it is almost always recovered and recycled.
- There is no true consumption of gold in the economic sense as the stock of gold remains essentially constant while ownership shifts from one party to another.
- Although gold mine production is relatively inelastic, recycled gold (or scrap) ensures there is a potential source of easily traded supply when needed, and this helps to stabilise gold price.
- Economic forces that determine the price of gold are different from, and in many cases opposed to the forces that influence most financial assets.
Global Supply Demand Scenario
- The total above ground stocks of gold is estimated to be around 1,63,000 tonnes by Gold Fields Minerals Services (GFMS) as on end of 2008
- Out of this total stock, 51% is estimated to be present as jewellery, 18% as official reserves, 17% held as investment, 12% used for industrial purposes and 2% is unaccounted for.
- Jewellery accounts for almost two-thirds of annual gold demand with investment and industry being the other main drivers. The total annual global demand for gold has averaged 3530 tonnes in the last three years (2005 - 2008). However, it is expected to dip slightly in 2009, owing to the sharp rise in prices.
- Five countries, viz., India, China, USA, Turkey, Saudi Arabia and UAE account for above 60% of gold demand, with each market driven by a different set of socio-economic and cultural factors.
- The total global mine production is relatively stable, averaging approximately 2,455 tonnes per year over the last three years. Recycling of old gold scrap and official sector sales are the other major sources of supply, which have averaged 1084 tonnes and 378 tonnes in the last three years.
- South Africa has been a major gold producer since 1880s and it is estimated that about 50% of all gold ever produced has come from this nation. While, during the early 1980's it produced about 1000 tonnes, the output in 2007 dropped to just 272 tonnes.
- 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.
World Gold Markets
- OTC markets at London (LBMA), New York and Zurich
- Gold derivative exchanges at New York – CME (COMEX), Tokyo (TOCOM), Mumbai (MCX)
- Istanbul, Dubai, Hong Kong and Singapore are doorways to important consuming regions
India in World Gold Industry
|Rounded figures||India (in Tons)||World (in Tons)||% Share|
|Central Bank holding||558||30,100||2|
Indian Gold Market
- 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.
Market Moving Factors
- 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.
Measurements - Weight Conversion Table
|To Convert From||To||Multiply By|
|Grams ||Troy Ounce||0.0321507|
- Gold purity is measured in terms of karats and fineness
- Karat: Pure gold is defined as 24 karat
- Fineness: Parts per thousand
- Thus, 18 karat = (18/24)th of 1000 parts = 750 fineness
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