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Spot Market Review
Market Summary figures and a worrying drop in economic confidence, and
by an unexpected slowdown in inflation. Moreover there
are question marks whether ECB would continue to hike
B
ullion markets were dominated by two most
important events during last month. Euro zone the interest rates in the fourth quarter of this year.
debt crisis with regards to Greece dominated in the
first part and the second part the focus was on raising of US Precious metals may stay at current elevated levels on
debt ceiling before August 2nd deadline to avoid potential the back of US economic slow down, which may delay
default and on threat to downgrading of US AAA rating in Fed hiking the interest rates for an extended period of
and on renewed prospects of quantitative easing in the US. time and on moderating manufacturing activity across
the globe and more importantly on uncertainties over
US Fed Chairman Bernanke in its last month testimony to debt concerns in the euro zone and US. Hence any
US congress said that the Fed stands by to provide additional correction in gold is temporary and unlikely to drag for
monetary stimulus (i.e QE3) if economic conditions warrant a longer duration.
it. This in turn boosted the market sentiment and helped
gold to breach the May 2011 record highs. Economic Indicators
The US economy continued to face one problem or other.
European leaders have agreed a new €109bn bail-out of Some improvement was seen in labour market and mixed
Greece on July 21st, 2011 under which private bondholders trend witnessed in housing markets. But on the other hand
will be called on to participate for the first time, contributing manufacturing activity deteriorates and US GDP growth
a target of a further €37bn. slowed down substantially.
In addition to the €109bn in new loans from international Initial unemployment insurance claims dropped to 398,000
lenders, the agreement includes a commitment from in the week ending July 23, 2011, which were 24,000
Europe’s leaders to support Greece until it is able to return below the previous week’s upwardly revised 422,000 level.
to the financial markets. The four-week moving average, which normally provides a
better indication of the underlying trend in labour markets,
The House of Representatives on August 1st finally dipped to 413,750 from 422,250 the previous week and it
approved a deal to raise the U.S. borrowing limit, after has fallen for four consecutive weeks and now stands at the
weeks of uncertainty in the financial markets, thus averting lowest since late April 2011.
a catastrophic debt default by the world’s largest economy.
A day before the deadline to lift the debt ceiling, the The housing markets in US witnessed a mixed trend with
passage by the Republican-controlled House of the $2.1 the sale of new home sales in US fell 1 percent in the month
trillion deficit-cutting plan hammered out over the weekend of June to an annualized rate of 312000 units, the lowest
cleared the way for the Senate to approve it. in three months. At the same time US pending home sales
unexpectedly rose in June by 2.4%, followed by an 8.2%
The overall scenario in the euro zone is complicated by gain in the month of May, as buyers tried to take advantage
an ugly run of data including weaker-than-expected growth of lower prices and borrowing costs.
www.bombaybullion.com August 2011
August.indd 10 8/9/2011 4:34:16 PM
The United States real gross domestic product increased at Silver net combined open interest increased by 11.45%.
an annual rate of 1.3 percent in the second quarter of 2011, Commercial long declined by close to 12%. But non-
according to the advance estimate released by the Bureau commercial long positions increased by 29.13 resulted in
of Economic Analysis. First-quarter growth was revised recent upward bias in silver. Speculative short positions
down sharply to a 0.4 percent from the previous estimate trimmed by more than 27%.
of 1.9 percent.
Note:1) Commercial trader is a classification used by
Manufacturing activity in the U.S. almost stalled in July, the Commodity Futures Trading Commission (CFTC) to
threatening to undermine the two-year recovery of one of describe traders that use the futures market primarily to
its main drivers. The Institute for Supply Management’s hedge their business activities.
factory index slumped to 50.9, the lowest since July 2009,
from 55.3 a month earlier. Figures less than 50 will signal Note:2) Non-commercial refers to a trader on a futures
contraction. exchange who conducts transactions on commodities for
speculative reasons.
U.K., Russian and Australian manufacturing shrank, while
the pace of factory growth slowed in Europe and China, Indian Spot Market
according to latest reports. India’s manufacturing growth fell
to a 20-month low of 53.6 in July, due to more expensive inputs, Gold
according to HSBC’s Purchase Manager’s Index (PMI). Gold spot Mumbai prices after having reached the low of
Rs 21700 on July 1st bounced back sharply and touched
Commitment of Traders (COT) report (Futures and
the new historic high of Rs 23357 on August 2nd, 2011.
Options combined)
Prices continued to trade within the multi year broader
COMEX Gold July 26 June 28 % Change
ascending channel signalling room for further upward
Combined Open Interest 791632 703831 12.48
bias and Rs 24000 is not far away. In case sustains above
Combined Commercial Long 240699 241949 -0.52
Combined Commercial Short 557631 481806 15.74
Rs 24000 for more than a week or so then one can’t rule
Combined Non-Commercial Long 300143 232841 28.91 out Rs 24500-Rs 25000 levels in the medium term. At
Combined Non-Commercial Short 30654 38284 -19.93 the Same time on the lower side strong support is seen
at around Rs 22500 and most probably to hold that
Overall open interest in Gold climbed by 12.48% when support level. Overall bullish momentum in gold is all
compared with last month. Interestingly commercials set to continue and any intermediate correction should be
increased their short position significantly by more than considered as good levels to accumulate.
15.50%. Speculative long positions increased by close to
29% have resulted in recent sharp bullish momentum in
gold prices. Based on the latest cot report gold overall up
trend is intact.
COMEX Silver July 26 June 28 % Change
Combined Open Interest 178162 159867 11.45
Combined Commercial Long 41998 47650 -11.86
Combined Commercial Short 94586 83417 13.39
Combined Non-Commercial Long 37049 28692 29.13
Combined Non-Commercial Short 5182 7129 -27.32
August 2011 www.bombaybullion.com
August.indd 11 8/9/2011 4:34:17 PM
Silver
Silver spot Mumbai prices after two months of consolidation
settled substantially well above the triangle formation in
the last few weeks signalling resumption of the bullish
momentum. In the last one month silver prices traded in
the range of Rs 51967 and Rs 59107. One can anticipate
silver prices to retest the April highs of Rs 64000 initially
and above to extend till Rs 67000 levels. At the same time
on the lower side strong support is seen at around Rs 57000
and then at Rs 55000 and unlikely to drop lower. drop till Rs 22880-Rs 22650 levels. Technical indicator Price
ROC-12 reading is weall above the mid-point and moreover
Silver spot is most likely to trade in the broader range of Rs consolidating above the W-formation signalling room for further
55000 and Rs 67000 levels in the coming one to two months strength in gold prices.
time period.
COMEX and MCX Silver
COMEX Silver December’11 contract after two months of
consolidation once settled well above $40/oz indicating further
appreciation in silver prices. After having reached the low of
close to $33.40/oz silver prices bounced back strongly and are
currently trading well above $41/oz as on August 3rd, 2011. On
the higher side one can foresee silver to trade as high as $46-$48
levels and only if it settles well above the historic highs of $50
and above to signal continuation of the bullish trend. On the
lower side strong support is seen at $38 and then at $35 levels.
Overall expect silver to trade in the broader range of $35 and
$48 levels in the coming one to two months time period.
COMEX and MCX Gold
COMEX Gold futures October’11 contract made a new historic
high of $1675.3/oz as on August 3rd, 2011. In the last one month
or so gold prices have gained by nearly 14%. Technically prices
continued to hold the multi-year trend line signalling overall
bullish momentum in gold to continue in the coming months.
On the higher side one can expect prices to face stiff resistance
in the range of $1720 and $1750 levels. Only if the price sustains
above $1750 on a weekly basis then one can’t rule out $1800 and
above in the coming few months time period. At the same time MCX Silver Dec’11 contract prices continued to hold support
on the lower side $1550 to act as strong support and only below around Rs 52000 levels on a weekly basis and in particular in the
one can expect some sort of correction till $1480-$1460 levels. last two weeks settled well above Rs 60000 signalling room for
further appreciation in silver prices. In the weekly chart prices
In MCX Gold Octover’11 contract in the last few weeks are trading within the ascending channel hinting the possibility of
continued to trade well above the symmetric triangle formation further bullish sign and to touch as high as Rs 65300 initially and
signalling room for further upward bias in the coming one to two then to move higher towards Rs 68000 levels. As far as Rs 53700
months time period. In the last one month or so prices traded in is not violated, then expect the current bullish move to stay and
the range of Rs 21885 and Rs 24245 and in the process breached to trade in the broader range of Rs 53700 and Rs 68000 levels.
the April month historic high Rs 23511 levels. Expect the current
bullish trend to continue and to hit the break out target of Rs Disclaimer: The given outlook is based on the research done at
24700 levels in the coming few weeks time period. At the same Foretell Business Solutions Private Limited, Bangalore. Foretell will
not be responsible for any kind of losses incurred by any party either
time strong support is seen at around Rs 23080 and below to directly or indirectly based on this report.
www.bombaybullion.com August 2011
August.indd 12 8/9/2011 4:34:19 PM
Six Month Gold With that said, Elliott Waves tend to go upwards in a 5
wave pattern and correct in a 3 wave pattern during bull
cycles. There are many variations on the theme, but that is
Forecast
________________ the simplest of explanations. Gold in my opinion is now
completing the final 5th wave of a 5 wave bull pattern that
began in October of 2008 at $683. After a suspected and
Chris Vermeulen & David Banister
www.MarketTrendForecast.com projected $1000 plus rally topping out at $1733 on the low
end to $1805 on the high end, it should form an intermediate
peak in Gold and begin a multi-month correction that will
G
old has been on a torrid rally since the October be largely sideways with a few startling drops along the
2008 lows of $683 per ounce and is likely to top way. The one caveat being that 5th and final terminal
out around $1733 to $1805 per ounce according to waves in a 5 wave sequence can be notoriously difficult
our forecasts and crowd behavioral based patterns we use. to forecast ahead of time. They can extend and go much
Back in August of 2009 we had forecasted a coming five year higher than typical, so our forecasted levels near term are
massive rally in Gold and Gold stocks from the $900 per $1643 and $1689 which would be very typical pivot points
ounce level, and since that forecast Gold has rallied about followed by pullbacks, and then onward to the higher 1733
78% in just under two years of time! Our methodology to 1805 levels.
centers around my personal interpretation of what are called
Elliott Wave patterns or waves. This is a behavioral based Below is our long term chart for Gold and where we stand in
theory developed by R.N. Elliott in the 1920’s and 1930’s the wave patterns. Over the next 6 months it’s likely that Gold
way before we had charting software or anything close. will be no higher than $1805 and probably lower. Gold is in
The problem is interpreting the patterns is very difficult a 13 year Fibonacci rally cycle and still has about three years
and much like a combination of both art and science. left to run, but soon should pause in the upward trajectory:
August 2011 www.bombaybullion.com
August.indd 13 8/9/2011 4:34:19 PM
RSBL - Name with Vision
I
t is not often that a company, in a very short span of RSBL has consistently been ranked amongst the top 10
time, rubs shoulders with some of the existing giants in unlisted public companies in India by Business Standard
the industry. Having said that, RiddiSiddhi Bullions 1000. It is also one of the largest delivery participants
Limited (RSBL) is certainly one such company. Established across major Indian commodity exchanges and is awarded
in the year 1994, it has been amongst the market leaders in STAR TRADING House status under the EXIM policy
providing wholesale and retail level bullion delivery in the of Ministry of Commerce, Government of India. RSBL
spot, forwards and futures markets in India. Today, RSBL is one of the only ten nominated agencies for import of
is India’s largest bullion trading company with an annual bullion in India and also one of the few Indian companies
turnover of over Rs 22,900 crore (US$ 5bn) and a credit to associate with the London Bullion Market Association
rating of SME 1 from CRISIL Ltd, which is the highest (LBMA) and Bombay Bullion Association (BBA). RSBL
rating on the SME rating scale. The company’s promoters holds reputation amongst LBMA’s good delivery members,
have a combined experience of over 100 man-years in the international suppliers and banks.
industry.
www.bombaybullion.com August 2011
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located in Mumbai. Over 90% of its bullion sales take place
through RSBL Spot.
An extension to the dominant RSBL Spot, has been an
online distribution and pricing system for coins in India,
‘RSBL Coins’. It’s a one of its kind system providing
delivery of gold and silver coins through an online network.
Pricing is most competitive and quotes are always given
two-way. Parallel to that, RSBL also continues to run its
classic model of retail coin distribution and it is a leader in
that. These coins are available in different shapes and sizes
to meet individual requirements and can also be customized
to meet gifting/corporate requirements. RSBL Coins have
been randomly certified by RBI and hallmarked by BIS.
The packaging comes with a tamper proof seal and meets
international packaging doctrine. We also offer buyback
facility of our coins at the ongoing market rates.
RSBL’s Optionally Convertible Debentures (OCDs) is
another innovative product, which takes advantage of the
price differences between gold spot/forward and futures
prices of the commodity. The product has been a huge
success and besides capital protection, has consistently
provided the investors with a return of over 15% per annum
since its launch in 2007.
RSBL recently launched ‘Bullion++’, a revolutionary
product that would generate an additional lending income for
the investors of gold and silver. As people buy apartments
and give them on rent, they can buy gold or silver and lend
RSBL is an ‘Authorised Participant’ (AP) with all the them. Thus, it provides the investors with an opportunity
Gold Exchange Traded Funds (ETFs) in India and ensures for dual income: from the likely price appreciation and
liquidity in each of them. It is also the largest creator and from the lending income. Moreover, the investors need not
redeemer of such Gold ETF units in the country. worry about purity, storage charges, theft and insurance
hassles. Investors can also choose non-lease model where
Our expertise, brand equity and vast presence, have helped
us successfully launch numerous products. Our flagship the bullion is just stored.
product ‘RSBL Spot’ is India’s first fully electronic over-
Promoters of RSBL have lent their expertise to the physical
the-counter (OTC) delivery based bullion-trading system
bullion market. One of the most important feats achieved
and arguably the most successful in the world. It has over
1500 online clients and numerous delivery centres across was that of the INR denominated Bullions. Since it is purely
India including Ahmedabad, Surat, Rajkot, Indore, Pune, based on spot international prices, it drowned the markets
Kolkata, Hyderabad, Bangalore, Chennai, Coimbatore, with a greater liquidity. One of the promoters, Mr. Prithviraj
Vizag, Vijayawada, Coimbatore etc. with the head office Kothari was recently elected as the President of Bombay
August 2011 www.bombaybullion.com
August.indd 15 8/9/2011 4:34:23 PM
Bullion Association (BBA). He is also on the Advisory RSBL had also been bestowed with ‘Best Bullion
Board of National Commodity & Derivative Exchange Dealer’ award for the year 2009 by Bombay Bullion
Ltd. (NCDEX) and Multi-Commodity Exchange of India Association.
Ltd. (MCX). RSBL has played a key role in the success of
MCX by suggesting the implementation of gold and silver RSBL Sales Turnover
alternate trading month contracts.
RSBL is a prestigious member of the Export Promotion
Council for EOUs and SEZs with units based in Surat’s
Special Economic Zone (SEZ).
RSBL has received ‘ISO 9001:2008 Certification’ from
Moody International for Quality Management System.
RSBL has received ‘Golden Arm Award’ from MCX for
highest volumes of gold delivery given and taken on MCX
since inception.
www.bombaybullion.com August 2011
August.indd 16 8/9/2011 4:34:23 PM
BBA
President
Speaks
C
an you summarise the reforms in Indian
bullion markets during the last 15 years?
Indian bullion markets have seen significant
changes, in phases, since 1992-93, beginning with placement
of gold import under Special Import Lisence (SIL) and then
permitting ‘nominated agencies’ such as MMTC, STC, import. Internationally, bullion is considered as a currency
HHEC, PEC and select banks to import gold for export and hence not taxed. Duty is imposed only on jewellery.
purposes in 1997. Later, Star Trading Houses and Premier Secondly, permit export of bullion through banks without
Trading Houses meeting certain qualifying criteria were the mandatory 3% value-addition criterion (for bullion
also given nominated agency status. Regulated commodity only). This would ensure two-way movement of gold
marketplaces were created to permit futures trading in gold bullion through proper channel and help Indian markets
and silver in 2002. Permission to launch Gold ETF under integrate with the global markets. So, to make India a global
the supervision of SEBI was given in 2007. Lastly, in the reference market, there should be no duty so that bullion
last budget, the anomaly in the customs duty structure traders can import and export freely, or there must be some
in dore and gold bullion bars was set right, paving way specialized system through which they can offset the duty.
for resurgence in bullion refining. In all, the government
has executed a very well thought out plan of ‘calibrated Opportunities for gold/silver minted products in India.
reform’. Growth rate, growth drivers, players in the market;
value proposition; challenges
Going forward, what needs to be done so as to make
Indian Bullion industry a global reference market? At present, all minted products in India is coming from
First and foremost thing to do is to waive duty on bullion imported gold. May be, one or two tons of gold is coming
August 2011 www.bombaybullion.com
August.indd 17 8/9/2011 4:34:24 PM
from domestic mines, but basically most of it is imported. We Silver is an extremely volatile commodity. To carry silver
import gold and then convert it to small bars / coins and then from one place to another is problematic and then storage is
sell it to the market. In the past, 85 – 90 % of the purchase used another issue. Hence, for retail investors, silver ETF is the
to be plain gold jewellery, while bullion bars and studded best product as it provides systematic investment of small
jewellery formed the rest 10 %. The trend is changing now. amount without having to encounter storage problem.
Jewellery sale has come down to 70 percent, while the
purchase of bullion bars/coins has gone up to 25 percent. RSBL also has minted product. What is the difference
People are changing their purchase practice also because of between your product and products offered by banks or
the high making charges involved in jewellery (wastage/ other nominated agencies?
making charges amount to 8 to 10 % of cost of purchase). Unlike jewellery, bullion is priced only on the basis of
purity of 0.999 or 0.995. As long as purity is assured, it
What is your opinion on bonded warehouse in India? does not matter as to who is selling it. Whatever RSBL sells
For the amount of gold that we consume and the or banks sell are all imported gold. Branding is applicable
unpredictability in the demand, there is need for opening only in jewellery. Secondly, banks sell minted products
LBMA approved bonded warehouse. It will help us save on consignment basis, as they are not permitted to take
50 cents to each ounce of gold purchased and when the direct exposure. Besides, they have a higher cost structure
country is importing 950 plus tons of gold in a year, the and hence higher mark-up. Lastly, banks are not allowed
saving will be huge. This will also facilitate Indian traders to hedge. That is, why banks do not buy back. In RSBL
to export bullion to neighbouring countries like Singapore, platform, people can buy or sell minted gold at any point of
Bangladesh, China etc. There is a huge opportunity for time. This is RSBL’s uniqueness.
opening Indian market to international as India is the
biggest consumer of bullion products. So if the logistics are Who should regulate silver ETF, SEBI or FMC?
available in India, it is a huge opportunity for the country It does not matter who regulates silver ETF. Thing is, the
to export. industry and the investors require silver ETF and so it
should come under either of the regulators. If silver ETF
Your view on Gold ETF market in India is considered as a commodity, then it should come under
Gold ETF is one of the best segments to invest. If one has FMC; if it is considered as paper product, then it should
money and demat account, one can invest in Gold ETF. come under SEBI.
This is hassle free, easy to buy and sell and cheaper than
physical gold. It is a paper gold and hence there is no need As President of BBA, what you want to do?
to store it physically. In India, however, the rural people Our goal is to make Mumbai ‘the global hub for bullion’.
are not participating in this segment because they have Towards this, I request the government to give industry
no demat account. Globally, ETF market is growing 100 status to bullion. We should be permitted to import and
percent year-on-year. We have to be patient and encourage export of bullion freely through banks, with transparency
people to invest in gold ETF. and full tax compliance.
What are the reforms you would like to see in Silver
markets?
To develop silver market, first of all, introduce silver ETF.
www.bombaybullion.com August 2011
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August.indd 20 8/9/2011 4:34:25 PM
A Banker’s
Perspective on
the Indian Bullion
Industry
Scotia Bank
________________
Johnson Lewis
Market Scenario:
I
ndia imports around 700-800 tonnes of gold each
year and it is estimated that India owns over 18,000
tonnes of above ground stocks, worth approximately
USD 900 billion. The majority of this gold is imported
via nominated agencies and Banks like Scotiabank.
Most of this gold reaches the end consumer in the form
of jewellery via jewellers big and small. The jewellers
have been an important part of India’s financial and
socio-economical landscape, providing an investment
avenue in the form of gold/gold jewellery that can be
readily liquidated anywhere and anytime.
The supply of gold bullion in India is dependent on
nominated banks and agencies. The Banks cater to
bullion dealers, jewellery manufacturers and retailers.
The largest amount of physical gold is procured by
the bullion dealers and resold in the market. This
gold reaches the end consumer via the value chain.
The industry at the bottom of the pyramid is largely
disorganized and fragmented. GJF, (All India Gems &
With the rise in disposable income in households, Jewellery Trade Federation) estimates the number of
and growing consumer preference for gold both as
licensed gold dealers at 250,000 and 450,000 certified
an investment and adornment, jewellers will need
gold smiths spread across India.
to expand their retail outlets ...
August 2011 www.bombaybullion.com
August.indd 21 8/9/2011 4:34:25 PM
The low disclosures on the balance sheets mean that the
Nominated Agencies
customer is not bankable as per current credit norms from
Bullion Dealers
the banks’ perspective. This adversely affects the ability of
Jewellery Manufacturers the company to expand their business.
Retail Jewellers
Gold price appreciation: Many clients feel that they have not
• The jewellers segment includes large national brands been able to gain from the gold price appreciation. If they
like, Tanishq, TBZ, and very strong regional players had bought the same gold using cash credit, their liability
like GRT, Prince, Joy Alukas etc. This segment of to the bank would have remained the same and they could
jewellers has been well serviced by the banking system have benefited from the gold price appreciation.
hence these customers enjoy pricing power due to
fierce competition amongst banks. Logistics: On the vaulting agent’s front, there are problems
with respect to setting-up vaults in Tier 2 cities as the Vaulting
• The financial crisis of 2008 has lead to banks Agents do not have a significant presence and other ancillary
becoming stricter in terms of compulsory external business to support their operations. The Tier 2 cities account
rating, increasing capital etc. This tightening has lead for a major portion of the business given the increasing
to re-rating of jewellery business and to new standards affluence and preference for branded and quality products.
being set by professionally managed companies. The The vaulting and logistic providers will need to review
traditional family-owned businesses are now catching their strategy to see how they can capitalize on this segment
up and improving their balance sheets. which is expected to drive growth over the next decade.
• With the rise in disposable income in households, Policy Action:
and growing consumer preference for gold both as an Over the past decade the Indian bullion industry has
investment and adornment, jewellers will need to expand significantly matured. The market currently has several
their retail outlets and increase their inventory holdings participants from Bullion Banks, Government Agencies,
to be able to capitalize on the market. This change will Premier Trading Houses, Precious Metal Exchanges,
entail increasing working capital financing from banks Gold ETF’s, However, the market needs policy action
either as cash credit or as gold loans which are more from the regulators for further growth of bullion industry
cost effective. There is increased awareness about in India. This regulatory support must be complemented
various banking products and utilizing banking channel by the jewellers taking proactive steps to re-examine their
for financing working capital and project financing. business models and make changes to make the business
more robust and transparent.
Challenges:
The bullion banking industry is faced with a unique Appropriate steps to standardize conduct and professionalism
situation. Some of which are listed below: between market practitioners themselves and their clients
will go a long way in augmenting the industry’s ability
Financial strength on paper: Balance sheets of these clients to strengthen its status as a major provider of service and
are a challenge as they are never a true reflection of their revenues to the government.
flourishing business, net worth or liquidity positions.
www.bombaybullion.com August 2011
August.indd 22 8/9/2011 4:34:26 PM
August.indd 23
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All on one transparent, regulated
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With competitive clearing fees and capital efficient margins, there
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DGCX offers a range of products from the precious metal, base metal,
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For more information, please visit www.dgcx.ae, email: info@dgcx.ae or Reference herein to “DGCX” shall mean the Dubai Gold & Commodities Exchange DMCC. This publication is for information only and does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage
in any other transaction. Neither DGCX nor its affiliates, associates, representatives, directors or employees, shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this publication. DGCX shall
telephone: +971 (0)4 361 1616 not be responsible for any errors or omissions contained in this publication. All information, descriptions, examples and calculations contained in this publication are for guidance purposes only and should not be treated as definitive. No part of
this publication may be redistributed or reproduced without written permission from DGCX. Those wishing either to trade futures and options contracts on DGCX, or to offer and sell them to others should establish their regulatory position before
doing so. DGCX is regulated by the Emirates Securities and Commodities Authority (ESCA). ESCA is a member of the International Organisation of Securities Commissions (IOSCO).
8/9/2011 4:34:26 PM
Dubai Good
Delivery Bars
Eric Hasham, CEO, DGCX
www.dgcx.ae/Clearing.aspx ) producing Good
Delivery bars. The bars produced by these
refineries which confirms to DGCX contract
specifications can be used for physical delivery
against the DGCX Gold Contract.
4) What is the total production of ‘good
delivery bars’ annually? What is the estimated
market size at present?
Specifically for DGD, we have 20 refineries,
each of whom produce at least 10 tonnes of
gold annually, therefore it is safe to assume that
minimum production of at least 10 tonnes of
DGD gold bars on an annual basis from each of
these approved refineries. (It is not possible to
determine the total production or the estimated
market size at this stage)
5) Why ‘good delivery bars’ are only confined
1) Could you share with our readers the types of gold to professional ‘bullion’ market?
bars circulating in the world gold market currently? DGD bars (i.e. refineries that produce DGD Gold) are
For Dubai Good Delivery (DGD), the bars range from regulated by the DMCC rules and regulations. The DGD rules
minimum 100 grams moving up to 1 kg bars (kilobars), 3 kg provide strict guidelines for the production of good gold and
(COMEX 100oz bars) and 12.5 kg bars (large bars). Large silver. Refineries that are accredited to DGD are subject to
bars are widely circulated in the world gold market and are stringent checks on annual and ad-hoc basis with regards to
regarded as the standard denomination for physical delivery environmentally friendly methods of production and consistent
on most international derivative exchanges. There are many quality of gold/silver bars.
other denominations in circulation, which can vary basis local
or regional preferences, eg – 10 Tola bar, 5 Tael bar The DGD rules and DMCCA monitoring of refineries establish
trust and confidence amongst professional bullion market
2) What is "Good delivery bars" in gold? What are the participants to utilize DGD bars for their day-to-day trading
primary criteria for meeting the ‘good delivery’? activities for gold traders, bullion banks, derivative exchange
Good delivery bars in relation to DGCX contracts are Gold participants, etc.
bars which confirm to DGCX contract specifications (1 kg bar
of .995 purity as per Dubai Good Delivery Standards) and are 6) What role do professional ‘vaults’ play in retaining the
of the brand and refinery approved by the exchange (Details integrity of ‘good delivery bars’?
of approved brand/refinery is available at http://www.dgcx.ae/ Professional vaults ensure proper safe keeping, recording/
Clearing.aspx ). accounting and storage of Gold without any damage to its
quality and ensures proper tracking of gold. DGCX has four
3) How many gold refineries are approved under the approved vaults (http://www.dgcx.ae/Clearing.aspx ) for
‘good delivery’ system? Gold which facilitate physical delivery of the DGCX Gold
As of date, there are 20 DGCX registered refineries ( http:// Contract.
www.bombaybullion.com August 2011
August.indd 24 8/9/2011 4:34:27 PM
Money Pouring into Safe Havens in Q2’2011
When all Hell goes
wrong…..There
is Haven to rely
upon!!!!!!
________________
Mr. Ram Pitre (Head- Research)
Source: Bloomberg
Ms. Pinky Shah (Analyst)
ITI Investor Services Ltd There has been lots of uncertainty across the globe. Tensions
are building as Greece’s sovereign crisis, US debt situation
and legislative inaction in US is keeping the market on toes.
G
old is unique commodity due to its properties Hence, money keeps flowing into the safe havens like Swiss
such as physical demand, reserve currency, safe Franc, Japanese Yen and king of crisis situation- Gold.
haven, inflation hedge, technical application and
so on. This makes it most sought after commodities. Hence, Risk appetite of investors has been falling. Investors have
there are various factors that drive the gold prices. Gold withdrawn from the riskier assets and currencies of Emerging
had a eleven consecutive day of gains, something it has not Markets.
achieved since mid-October 2006, when it rose for nine
days in a row. Gold prices have hit a high of $1623.95/ Correlation of Currency and Gold
oz and are on record high. We all know that gold is the Gold is widely regarded as a currency in its own right
fall back position when the world markets are struggling. and thus, during times of US dollar weakness, gold often
increases in value as many investors choose to own gold
Investors love gold in times of turbulence and in time of
rather than US dollars. Australia’s role as a major producer
financial crisis gold is the king of investments.
of gold and other commodities means the Australian dollar
is seen globally as a ‘commodity currency’”. Currently the
Gold prices are highly correlated to movement in currency
correlation of Australian Dollar and Gold is at 87%
market. Over the past few months there has been a growing
amount of interest in the currency markets, especially the
pound, the euro and the dollar. There are two major factors
driving the value of the euro; interest rate differentials and
the European debt crisis. At this stage, only the debt crisis
is having an impact on Forex trading. The Euro has been
dragged through fresh skepticism by the Greek crisis, and
the dollar continues to be questioned as the reserve currency
of choice. Market has become highly sensitive to market
rumors, happening. Lots of events occurred. However,
focus still continues to be the euro zone and its crisis, its
bail out and the US debt situation also leaves the dollar in a Source: Bloomberg
growing state of uncertainty.
August 2011 www.bombaybullion.com
August.indd 25 8/9/2011 4:34:28 PM
With the currency volatility European leaders have agreed
and the debt-contagion risk a new €109 billion bailout
in Europe, investors are package for Greece under
gravitating toward something which private bondholders
tangible like gold. Dollar has will be called on to participate
been weakening on back of
for the first time, contributing
US fiscal deficit and prospects
a target of further €37 billion.
of QE-3. Euro fundamentals
Ireland has won from euro
don’t appear to be too strong
zone leaders a reduction of
either. Fears of sovereign crisis
spreading to Italy, Portugal and around two percentage points
Ireland remain high. However, rising of rates by ECB from in the loans it gets from the
1.25% to 1.5% is giving support to euro. Also, ECB and EU European Financial Stability Fund, and greater flexibility in
remain united in efforts to avoid default of any euro zone how it uses the bailout money, Irish Prime Minister Kenny
nations. This is taking Euro higher and in turn supporting said. This has given temporary relief to the crisis. However,
gold. markets are somewhat disappointed with the lack of details
on reform of the EFSF.
Euro zone Crisis
Continuous on and off of euro zone crisis has been US Debt Issue and Prospects of QE-3
supporting gold since the year end 2010. As the credibility The debt situation also leaves the dollar in a growing state
of sovereign-debt situations continues to worsen, the of uncertainty. If Congress is forced to make serious cuts
credibility of the underlying fiat currencies will continue to in the Obama administration’s proposed budget, it should
come into question which will keep supporting Gold. With strengthen the U.S. currency — but further legislative
Italy, Spain, Ireland and Portugal worries intensifying and inaction and the very real specter of a U.S. debt default could
Greece bailout still a huge question investors are fleeing to just as easily provoke a run on the dollar. President Barack
gold. Added to the mix, Moody’s rating agency unexpectedly Obama failed to win agreement from the U.S. Congress to
slashed Irish government bonds to junk status which sent reduce the government deficit. Lawmakers are working on
borrowing costs to the highest levels since Ireland joined budget cuts as they attempt to prevent an American default
the Euro zone. The International Monetary Fund and before an Aug. 2 deadline. Congress is in talks aimed at
European Union rescued Ireland last year with an enormous raising the $14.3 trillion U.S. debt ceiling before Aug. 2,
emergency loan. Since then, fellow debt-laden euro zone the date when the government is projected to exhaust its
nation Portugal has also been forced to seek an EU-IMF borrowing authority. The dollar fell as a bipartisan Senate
bailout, while Greece’s rescue has been deemed insufficient. plan to cut the U.S. deficit and increase the debt limit faced
resistance from House Republicans.
The United States may lose its top-notch credit rating in the
next few weeks if politicians fail to increase the country’s
legal borrowing limit and the government misses debt
payments, Moody’s rating agency has warned. Standard &
Poor’s placed the US rating on negative outlook on April
18th which meant a downgrade is likely in 12-18 months.
Cont’d on page no 28
www.bombaybullion.com August 2011
August.indd 26 8/9/2011 4:34:28 PM
August.indd 27 8/9/2011 4:34:28 PM
Cont’d from page no 26 Inflation and Gold
Inflation pressures among advanced as well as developing
This week S&P said there’s at least a 50 percent chance it will
nations remain high. Higher inflationary pressure lends
cut the AAA rating within 90 days on risks a stalemate will
support to gold prices. Inflation in China accelerated to a
endure beyond any near-term deal to raise the U.S.’s debt
three-year high in June as the consumer price index (CPI)
limit. . A lower credit rating would cause havoc in financial
increased 6.4 percent, according to the National Bureau
markets around the world and increase borrowing costs for
of Statistics. The CPI had risen 5.5 percent year-on-year
the US government and businesses, further harming public
in May. Inflationary pressures over the Euro zone remain
finances and weighing on the economic recovery.
mostly unchanged as the year-on-year figure held at 2.7%
in June while the monthly result was flat. The core CPI
US Labour Market figure over the year however edged up to 1.6% from a
Lack of recovery in US labor market is further lending previous 1.5%.
support to gold. Non Farm payrolls does not show sign
of recovery and US Unemployment rate has risen to 9.2%
from 8.8% in early 2011. The US economy added just
about 18,000 new jobs in June even as the unemployment
increased marginally, a government report showed. The
rise in payrolls was significantly lower than the 105,000
forecast by economists. Meanwhile, the unemployment
rate rose to 9.2% last month from 9.1% in the preceding
month, the Department of Labor said. The data for April
and May were revised down by 44,000. Overall, the gain Source: Bloomberg and ITI Research
for May was revised downward to 25,000 from the initial
report of 54,000. Currency and Gold Outlook:
More than rupee strengthening it has been the Dollar
weakness which is holding INR appreciation. As long
as US government doesn’t come up with the concrete
solution for its debt problems dollar will be hammered.
But it looks unlikely that US will let it default. It will
find solution on its debt problem and that would give
some support to dollar. Euro region leaders have found
some solution to their crisis but still whole mechanism
has to be worked out. Hence, it will be the swiftness in
action of the decision makers that would determine which
currency will hold strong in the long run. For shorter
duration, moving with the markets would be advisable.
Aussie Dollar continues to be strong as Gold keeps hitting
new records. Producer prices rose 0.8% q/q and 3.4% y/y,
but signaling continued pipeline pressures for the Australian
economy, despite the firmer AUD, and would imply that the
Reserve Bank of Australia’s attention should be on hiking rather
Source: ITI Research and Bloomberg than cutting rates. This also should support Aussie Dollar.
www.bombaybullion.com August 2011
August.indd 28 8/9/2011 4:34:29 PM
Trend Support Resistance
Strong Stronger Strongest Strong Stronger Strongest
Bearish – On a Break &
USD/INR 44.15 43.20 42.97 44.71 45.68 47.21
Close below 44.15
Bullish as long as price
AUD/USD 1.0112 0.9548 0.8637 1.1023 1.1587 1.1935
trade above 0.9830
Bullish as long as prices
EUR/USD 1.4145 1.3698 1.3145 1.4592 1.5172 1.5503
remain above 1.3698
Gold Bullish 1573 1541 1491 1623.95 1693.83 1731.08
EUR/USD (SPOT) – Monthly Chart
AUD/USD (SPOT) – Monthly Chart
August 2011 www.bombaybullion.com
August.indd 29 8/9/2011 4:34:30 PM
August.indd 30 8/9/2011 4:34:31 PM
August.indd 31 8/9/2011 4:34:31 PM
“
Gold is the ultimate form of payment in
the world” – so said Alan Greenspan a few
years ago. In fact, gold has been acceptable
as currency, sought after as a security and
invested in for returns ever since history
was first recorded. During exceptional times, like today,
investors are ploughing in huge amounts of money into
gold in all its forms – bars, coins, ETFs, structured
products, even in gold mining companies. As long as the
health of the global financial ecosystem remains suspect,
this trend is likely to continue. In fact, several western
countries have wait times of up to a month after ordering
because of the huge demand for gold coins, especially
One
American Eagles and South African Krugerrands.
of the key reasons for this unprecedented gold
rush is the lack of investment alternatives.
Global interest rates are touching zero and
there is a lack of confidence in other markets
such as equities and real estate. Add the fear of
inflation and the debasement of the US Dollar due to
quantitative easing and you have a situation tailor made
for investment into gold. Retail participation is clear from Potential for Gold
the fact that at the end 2010 ETFs and similar products
held a substantial 2,177 tonnes of bullion. In India too, Based Structured
gold ETFs are growing at 100% yoy but the base is small
yet we have several listed on our exchanges. Products
Of the several ways to invest in gold, one of the popular Jayant Manglik, President,
ones in western countries is via structured products which Religare Commodities Ltd
typically have a pre-set formula for calculating risk as
well as returns and are therefore popular with a large gold is a standard feature of such structured products and
set of the investing public abroad. The investment is clients find this characteristic of the product particularly
structured i.e. the investor knows the upside as well as the appealing. So investors looking for downside protection
potential downside at the time of investment. Even the along with gains from the upside are attracted towards this
time period of investment is clearly spelled out. Consider product. This addresses concerns of the risk-averse investor
this against a simple position in the futures market where set. While indices are the most common underlying for
neither the time horizon, gains, losses nor the investment this product, the rush towards gold investment has made
(MTM) is known beforehand. Normally, full or partial many companies use gold as the underlying in response
capital protection on investments linked to returns on to customer demand. Though these can be customized for
www.bombaybullion.com August 2011
August.indd 32 8/9/2011 4:34:31 PM
large clients, the popularity in the retail space has led to Inevitably, as the situation evolves, new regulatory issues
standard off-the-shelf products. In practice, structured will be thrown up. Besides, clients will have to be aware
products would have variable exposure to debt and gold of the fees they are paying to the seller even though it may
(or equity) but it would be pre-fixed at the time of sale. The be embedded in the structure itself. Eventually a structured
underlying could also be derivatives, and frequently is. With product also includes a call on the market and if only the
gold being the hottest asset class today, some structured capital is protected at the end of the product tenure, then
products have already been launched and many more are there is a clear opportunity loss in terms of deploying the
on the anvil. In India, mostly equity-linked and gold-based money elsewhere to get fixed returns e.g. in banks. Also,
structured products are sold to HNIs. The major issuers of the inability to cash out in between effectively means that
structured notes in India include Barclays Capital, Citibank, your money is locked in and exit options can be expensive.
JP Morgan, JM Financial, Edelweiss Capital and Kotak India has seen some interest in gold-based structured
Securities. And while there is no official data about products and though reliable data is not available, it is a
the size of this industry, it has been variously market which will grow exponentially at first and then
estimated to be currently between Rs 4000 and maintain steady growth. But investors are quickly latching
Rs 6000 Cr – and growing fast.Of course, the sustained on because it provides a combination of exposure to gold
upward movement in gold has helped in no small measure. fluctuation, yield and principal protection and has received
The product itself can be very simple – about 80% of the good reviews from existing users.
money is put in bonds so as to reach 100% in, say, three
years and the rest is invested in a A few years ago, ETFs and stocks of
derivative position (like options) Investors are quickly latching mining companies were identified
so that you can participate in gold on because it provides a by smart investors as vehicles to
movement. The tenure is generally combination of exposure to participate in the gold boom. Today
18 months to a few years and the structured products are in favour
gold fluctuation, yield and
ratio of the investment in bonds and because they are widely seen to
options can vary depending on your principal protection and has compare favourably with other
risk appetite. received good reviews from investment vehicles in gold. As
existing users. more investors participate in this
Investor demand will decide market, it is evident that we are
which products turn out to be most looking at continued growth at least
successful – those with zero or low risk with limited returns for the next several years and are likely to exceed double-
or those with lower capital protection but higher potential digit percentage of total retail investment demand in gold
returns. The complexity of the payoff and the structure within a short period. In times of volatility, structures which
will vary with the product design and different products provide capital protection address a widely felt market
will appeal to different client segments depending on their need. And the lure of a product which can potentially give
risk profile. Structured products not only let you benefit high returns with minimal risk is undeniable. Investors will
from rising rates and prices; they even let you optimize actively look to participate in this new investment option
returns when the markets are moving sideways. And you and likely to go with companies which are more transparent
can even make money in falling markets. Various products on the investment pattern and have the credibility and
can be used for this, depending on market expectations. balance sheet to provide capital protection as promised.
August 2011 www.bombaybullion.com
August.indd 33 8/9/2011 4:34:32 PM
August.indd 34 8/9/2011 4:34:32 PM
In olden times, when banks were yet to reach semi-urban
Bullion Market In and rural areas, gold alone provided liquidity. Even today,
South India when banks are everywhere, people find it easier to access
cash through gold than banks. What has added to the love
of gold in recent times is the galloping inflation. With
the rise in incomes of the middle and upper middle class
N
othing fascinates a South Indian woman more
families, consumption of gold in the country and South
than gold. No function- religious, family or
India in particular has shown a steady growth in the past
social would be complete without the dazzle of
decade. The investment option which attracted mainly
gold. Marriages would demand generous gifting of gold
the rich rural populace in the past has invaded the urban
to the bride, befitting the status of the family in the society.
population with surplus incomes, thanks to lower interest
rates on bank deposits and uncontrolled inflation.
Gold Market Of South India:
The South Indian market for gold is said to account for about
45% of the country’s total consumption of about 900 tons
annually. Besides the State capitals Chennai, Bangaluru,
Hyderabad and Trivandrum, the tier II cities in the southern
states have also been emerging growth centres. Notable
among them are Coimbatore and Madurai in Tamil Nadu;
Trichur, Ernakulam and Kozhikode in Kerala; Hubli,
Mangalore and Belgaum in Karnataka and Vijayawada and
Visakhapatnam in Andhra Pradesh. With improvement in
infrastructure like communication and banking, bullion
traders have increased in number. Another pointer is the
growing number of non-hereditary entrants in the jewellery
trade. According to informal estimates, these centres have
been seeing an annual growth rate of about 10% steadily.
Falling rates of interest on bank deposits, rising inflation
and unprecedented annual increase in gold price from 2001
S. Guruswamy,
have pedaled the growth in the volumes of investments in
Director (Marketing)
gold, pulling down the demand for jewellery. Jewellery
Surana Corporation Limited, Chennai
accounted for more than 90% of the demand a decade ago.
With the rise in incomes of the middle and Today, this has dropped to less than 70% in many places.
upper middle class families, consumption Investment in bars and medallions has risen to 30% of the
of gold in the country and South India in
total demand. State-wise breakup of annual consumption is:
particular has shown a steady growth in the
past decade.
August 2011 www.bombaybullion.com
August.indd 35 8/9/2011 4:34:33 PM
Tamil Nadu - 180 tons But online shopping of jewellery is yet to take off.
Kerala - 60 tons
The tier-II cities Madurai and Coimbatore have seen
Karnataka - 70 tons
remarkable growth in retail space, coupled with a large
Andhra Pradesh - 95 tons
presence of bullion dealers, in the recent past. Many large
Here is an overview of the southern states individually:
showrooms have sprung up in the recent past. Coimbatore
is the most preferred place for many big retailers in Kerala
Tamil Nadu:
for expansion. Presence of a very large and rich clientele
The state of Tamil Nadu accounts for about 20% of the
in Coimbatore apart, the forbidding 4% vat on jewellery
country’s gold demand or about 180 tons. The largest
in Kerala is said to be the key reason for more and more
centre for gold and jewellery is the state capital, Chennai.
Kerala based retailers opening shop in Coimbatore.
In fact, Chennai is the largest centre in South India. The
city consumes about 120 tons per annum. Other major Karnataka:
centres are Coimbatore and Madurai, accounting for about The southern state of Karnataka accounts for about 70 tons
30 tons each annually. Jewellery continues to hold its of gold consumption per year. The state capital, Bengaluru,
sway, but, the unprecedented spurt in gold prices in the last is the biggest centre for bullion trading as well as jewellery.
few years is undoubtedly While Bengaluru alone
tempting investment in would account for about
gold bars and medallions. 50 tons, the other tier-II
cities like Hubli, Belgaum,
The style, size and shape Karwar and Mangalore
of jewellery showrooms together would consume
in the city have changed about 20 tons.
dramatically. The cramped
dingy showrooms of the past Bengaluru has always been
are disappearing giving way cool to gold and jewellery.
to swanky multi-level outlets But, especially, when bank
with soothing ambience. interest rates started falling
Many large format retail in the past, people who had
outlets have sprung up Falling rates of interest on bank deposits, a dislike for stock market
with stunning interiors. rising inflation and unprecedented annual
turned to gold. The surplus
Jewellery catalogues have increase in gold price from 2001 have
incomes of the ever increasing
gone electronic. The pedalled the growth in the volumes of
middle class, though too
retailers pay more attention investments in gold, pulling down the demand small for investment in real
now than ever to quality
for jewellery.
estate, are good enough for
and finish. The customers gold. It is estimated that forty
are aware of the means to ensure quality. Thus, most of the percent of the consumption goes into investment in gold
showrooms display the sign “BIS Approved Showroom”. bars and medallions. But, of late, with the entry of branded
With the country slowly moving towards mandatory jewellery offering ‘chic designs’ for daily and office wear,
assaying and hallmarking, the retailers are equipping the middle and upper middle class women in the cities
themselves to meet the expected standards of quality. Most have started spending on them.
of the big retail showrooms also offer online shopping.
www.bombaybullion.com August 2011
August.indd 36 8/9/2011 4:34:33 PM
The tier-II cities like Hubli, Belgaum, Karwar and up the traditional designs, the daily wear is in appealing
Mangalore draw their bullion supplies from Bengaluru contemporary price friendly designs.
and feed jewellery
not only to the local Kerala is the first
showrooms but also state in the country
those in Bengaluru to tap the gold loan
and neighboring market in a big
states. way. The Kerala
based Non-Banking
Kerala: Finance Companies
Kerala’s tradition are quite popular
is steeped in great across the country.
love for gold. The They offer the
recent findings of highest amount of
enormous volumes loan per gram of
of gold articles in the gold and also keep
cellars of Sree Padmanabhaswamy Temple in Trivandrum the interest rate
should be proof enough. It is estimated that the State of competitive. Not only that, they also offer interest rates
Kerala consumes 60 tons of gold annually. Major chunk far above those offered by banks on the deposits they take
goes into ornaments. About 20% of the consumption from the public. No wonder, their volumes are leaping.
is in gold bars and medallions. Like anywhere else, in The Reserve Bank of India has recently come very hard
Kerala too, people today look to gold for investment to beaton lending on gold. But the NBFCs need not worry if they
inflation. Another major factor is said to be saving for the are able to attract enough cash deposits from the public to
future of the children as well as family. Here, gold seems handle their gold loans. The hidden but a very welcome
to have edged out options like bank deposits and equity complement of the gold loans is that an idle asset is brought
market. A sizeable volume of gold flows into the State into the economy. Another thirst is the annual month-long
through the NRIs in the gulf. It is well known that some shopping festival in Kochi, Trivandrum and all other major
cities. This is a replica of the annual Dubai Shopping
of the leading jewellery retail chains in the gulf, especially
Dubai, have been set up by NRIs from Kerala. All of them Festival.
have their jewellery showrooms in
Kerala as well, in Kochi, Trivandrum, Most of the showrooms display the Andhra Pradesh:
Kozhikode and Trichur. sign “BIS Approved Showroom”. Andhra Pradesh accounts for about 95
With the country slowly moving tons of gold consumption annually.
The main source for gold is imports
towards mandatory assaying and While the state capital Hyderabad is
through nominated agencies the biggest bullion trading centre, there
hallmarking, the retailers are
and personal carriage by NRIs. are other major centres at Vijayawada
Trivandrum and Kochi are the airports equipping themselves to meet the and Visakhapatnam. These three
of entry. Gold flows from these two expected standards of quality. centres together feed the rest of the
airports to other major bullion centres smaller centres in the state. Investment
like Kottayam, Kozhikode and Trichur. The largest in gold as an asset class has all along been prevalent in the
jewellery making hub in Kerala is Trichur, which accounts
for about 20 tons of gold per annum. While marriages pick Cont’d on page no 40
August 2011 www.bombaybullion.com
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August.indd 38 8/9/2011 4:34:34 PM
August.indd 39 8/9/2011 4:34:34 PM
Cont’d from page no 37
Karnataka would consume 200 tons per annum. Silver use
in Kerala is said to be negligible. The tier-II cities in the
south which have emerged major trading centres are Salem
in Tamil Nadu, Vijayawada and Visakhapatnam in Andhra
Pradesh and Bellary in Karnataka. Industrial application
and utensil manufacture are the two major segments of
consumption. But, recently, in the last one year, investment
in silver has grown phenomenally, riding on the back of
unprecedented price rise. But this trend vanished as fast as
its appearance, with the roller coaster tendency of the silver
price. Some investors reaped unexpected returns and many
i ll h i l l id b
state, especially among the agricultural gentry. Side-by- others went broke unable to square their positions.
side, there exists a passion for jewellery to meet demands of
dowry in marriages. While the urbanites choose jewellery of Overview of The South Indian Market:
daily wear in exquisite designs and go for a little investment Corporate Entry: There are quite a few jewellers and
with their surplus incomes, the rural sector with rich farmers bullion dealers in the corporate sector. The transformation
buys huge amounts of traditional jewellery and also spends from proprietorship and partnership to corporate entity
large amounts on gold investment. With increase in demand, began in the last decade. The key reasons for the change
number of jewellery retailers and bullion traders has increased are resource crunch for expansion and the reluctance of
manifold. A special characteristic of Andhra Pradesh in gold the banks to adequately fund such expansions. Most of
consumption is its preference for 100 gm bars, while the rest these corporate entities are listed companies with annual
of the country opts for kilo bars. business volumes in excess of Rs.5000 crores. With
corporate governance, these companies have brought
Like other cities, the twin cities of Hyderabad and transparency and quality into their operations, building up
Secunderabad have seen, in the recent past, remarkable customer confidence. Quite a few large jewellery firms are
expansion of retail space. Leading brands have opened shop. in the process of entering the corporate sector. With more
Hyderabad is famous for jewellery studded with coloured and more embracing the corporate entity structure, one
stones and pearls. Clusters of jewellery manufacturing plants can hope, before long, jewellery and bullion trade would
are operating in other smaller cities/towns viz., Vijayawada, emerge as a strong industry with its own voice.
Visakhapatnam, Rajahmundry,
It is the fond hope of everyone that
Kakinada, Nellore, Poddutur and Branding and QualityStandards:
Kurnool. These centres draw introduction of GST in the country Branding of jewellery is catching
their requirement of gold from would remove all tax/duty barriers up with the consumers. The last
Hyderabad, Visakhapatnam and decade has seen the launch of many
Vijayawada. and offer a borderless trading region
brands in the South. With branding
across the whole country. comes not only an identity to the
SILVER: retailer but also quality assurance
South India accounts for about to the consumer. Competition between jewellery brands
1300 tons of annual consumption. The country’s annual is not as fierce as other consumer goods. This is because
consumption is 3500 tons. While about 200 to 300 tons of the enormously limitless range of designs and the after
would come from the recycled market, a very small sales service. The scope of growth for all the brands is very
proportion also comes from the copper refineries as by- bright.
product. The rest is imported. The biggest Silver trading
centre in the south is Chennai, with a share of 800 tons Electronic Trading and Automation: With the
a year. While Andhra Pradesh comes next with 300 tons, advancement of technology in the last decade, almost all
www.bombaybullion.com August 2011
August.indd 40 8/9/2011 4:34:35 PM
traders and jewellery retailers in the South (as in the
country) use cutting edge softwares for maintaining
their accounts, networking of their branches and other
allied activities. Some of the bullion traders offer over-
the-counter (OTC) electronic platform for trading. Most
of the jewellery retailers have installed online shopping
facilities for the customers. A number of bullion dealers
and jewellers extensively use the Multi Commodity
Exchange (MCX) for price hedge. While some welcome
MCX as a boon for hedging their price risk, some others
blame the speculative trading on the MCX for the price
fluctuation in the physical market. This is however
debatable.
Tax and Infrastructure Barriers: The bullion trade
continues to be regional even after introduction of VAT
in the country. The tax rates are not uniform across the
country. Kerala has a VAT of 4% on gold jewellery,
Karnataka 2% while most other States follow 1%. There
are state specific levies like octroi and other duties. The
bullion traders and jewellers would need to have separate
VAT registrations in every state. Even then, they would
not be able to enjoy input tax credit for VAT paid in other
states. Thus, effectively, they have to operate within the
borders of their own states. This acts as a formidable
barrier to operations at national level. It is the fond hope
of everyone that introduction of GST in the country
would remove all tax/duty barriers and offer a borderless
trading region across the whole country.
Promotional Efforts: The concept of jewellery
exhibitions has come to stay in all major cities of the south.
They are so popular that more and more international
participants eagerly wait for such shows. They are also
appropriately named “International Jewellery Shows”.
Some cities have them twice a year. Some of these are
B2C and some B2B. Whatever the nature, the general
public and the jewellery traders give them a great
thumbsup. While the consumers are happy to buy from a
very wide range of designs, national and international, at
competitive prices, the wholesalers and retailers endorse
that they are able to clock very high volumes and also
widen their respective clientele at the same time. As
these shows bring on display the latest machinery and
tools for jewellery making from international firms, the
local participants get an easy opportunity for upgrading
their technology without travelling abroad.
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imported around 900 tons last year and that transforms
around 225 to 275 tons in north India.
Imports in north India is basically for consumption in north
India only. In north India there are two types of demands -
jewellery and investment.
What is the nature of investment?
North Indians buy gold bars as investment. They buy 1
kg bar for that purpose. Jewelry does not come as mode
of investment. There is also demand for silver bars for
investment, but investors are more inclined to gold bars.
Silver bars are too bulky to carry, so investors prefer gold
1kg bars for investment.
June and July months are traditionally lean season in
South India. Is that it true also with north India?
Yes, that is also true in north India. June and July is the
sowing season and agriculture community in north India
Bullion Market In does not have much cash to deploy on investment, they put
all their money in agriculture.
North India
In north India what are the important bullion centres?
Established in the year 1997, Khemka Group of In north India Delhi is the biggest market. It covers around
Companies has been amongst the market leaders 55% of the total bullion sales. Around 25% will be Jaipur
in providing wholesale and retail level bullion and in the remaining 25% are many small centers like Agra,
delivery in the spot, forward and future markets Kanpur, Lucknow etc.
in India. Khemka Group of Companies is the
biggest importer of bullion in North India and Apart from direct bullion investment, investors are
one of the top bullion importers in the country. even interested to invest in products like gold ETFs,
gold funds?
Mayank Khemka is the Managing Director of ETF is not so popular in north India because it is not so
Khemka Group of Companies. transparent. The increase in price of gold ETF is not fully
transferred to gold value. Moreover they like physical feel
of gold, hence ETFs are not very popular in north India.
W
hat is total import figure of gold in north
India? Do Investors buy gold directly from bank or bullion
I don’t have the exact figure. But it is importers?
approximately 25-30% of total import in India. India They prefer to buy gold from bullion importers as they buy
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in small quantities and its random purchases and they also stock market is doing well, economy is growing, real estate
need an option to sell the gold which only the importers and other sectors are performing, so people have money to
can buy. spend on luxury items like jewellery.
During Akshya Tritiya there was media report that Do you think this growth will remain or there will be
banks sold lot of gold during that time in south India. Is some slowdown in coming future?
that true in north India? Growth is expected to remain firm, but all depends upon
See what happens with banks they are just bullion points. prices. If the prices do not shoot up too much, we expect
In north India MMTC is well popular in the same category growth to remain intact.
of bullion points. They sell quite amount of gold through
these points. RBI is hiking the interest rate aggressively. Do you
think it would have negative impact on bullion industry
In north India what investors prefer - coins or bars? as well?
It depends upon investors’ profile. If the investment amount There are some concerns, but I don’t think rate hike would
is small, then they go for gold coins as coins are available have any strong impact on bullion market. Yes, what can
in small denominations. But if the investment amount is create difference is the attractive deposit rate. All banks
high like 20 to 50 lakhs, then they go for bullion bars. So are offering attractive rate of interest in fixed deposits.
we have both sections of investors – small as well as large But investors nowadays basically invest through portfolio
investors. allocations. They divide their portfolio in segments like
fixed deposits, real estate, stock, bullion and so on. I think
How is the competition in bullion trading in north 15 to 20 percent of portfolio allocation will go to bullion
India? investment.
There are lot of bullion traders in north India and so
competition is very high. Also in north India, there is What bullion industry expects from government in
tradition of dealing in cash. What is practice in south India policy reforms?
traders prefer transaction more on cheque. But traditionally Government in its budget to promote gold and silver
customers here prefer cash dealings. So it is very difficult refining in India had allowed import of gold dore bars at
market to operate. concessional rate of duty. But the policy is still not clear
as to whether refiners can directly import dore bars or it
In jewelry sector what kind of growth you are seeing at has to be done through nominated agencies. We have made
this point of time in north India? many representations to the government and urgent action
The growth was pretty strong last year and it is expected is needed from the government to clear the uncertainty
to remain firm this year too compared with 2008 and 2009. regarding this.
Last year bullion imports touched more than 900 tons
from 700 tons previous year. So this is pretty 25 to 30% Policy reform in silver is also awaited allowing silver
growth and jewellery segment contributed good portion forwards and silver loans to jewellers like it happens in
into this growth. In 2008 and 2009, there was recession and gold. Similary silver ETF’s should also be allowed.
investors did not have surplus money to invest. But now
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Global Scrap
Supply
and its
Importance:
An Overview
jewellery that is at least 10K that is broken, damaged, or out
of fashion and no longer worn. Typically includes chains,
earrings, bracelets, anklets, charms, rings, watches, money
clips, lockets... any item made out of gold.”
Jeffrey Rhodes
Global Head of Precious Metals & And
CEO INTL Commodities DMCC “Scrap Gold is the term used for the process of recycling
broken jewellery, coins and other items that are no longer
wanted”
“
What exactly is scrap gold?” as it can mean different
Scrap Supply – East Versus West
things to different people in different parts of the
2010 v 2010 v
world and this brief article will follow the same Tonnes 2000 2005 2009 2010
2000 2000
format. I spoke to my good friends at GFMS, considered EAST
by many to be the world’s leading gold research house, and East Asia 143.0 207.8 447.7 443.2 210% -1%
they regard all gold supply, that doesn’t come directly from Middle East 202.5 325.3 487.6 369.3 82% -24%
Indian Sub-Continent 102.1 129.9 176.9 137.7 35% -22%
gold mines, to be scrap. Other definitions gleaned from the
Total 447.6 663.0 1,112.2 950.2 112% -15%
websites of scrap gold merchants state that:
WEST
Europe 62.2 99.8 269.2 338.6 444% 26%
“Scrap gold includes any piece of metal that is entirely or North America 58.1 65.4 133.2 154.1 165% 16%
partly gold. Some common items sold as scrap gold include Latin America 20.0 31.2 101.5 123.2 516% 21%
broken gold jewellery, gold coins, gold dental bridges, gold Africa 12.3 17.7 41.1 43.9 257% 7%
wire and gold shot” CIS 17.2 23.5 35.3 32.8 91% -7%
Oceania 2.2 1.9 2.2 2.7 23% 23%
Or Total 172.0 239.5 582.5 695.3 304% 19%
“The term "scrap gold" usually refers to karat gold Source: GFMS Gold Survey 2011
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The Eastern markets as a geographic bloc accounted for 950 Scrap Supply – The Middle East & India
tons of secondary gold supply last year representing a gain Tonnes 2000 2005 2009 2010 2010 v 2000 2010 v 2009
Turkey 56.0 67.7 217.2 122.0 118% -44%
of 112% over the year 2000 with East Asia geographically India 79.0 94.0 115.5 81.0 3% -30%
the most important region for scrap flows, followed the Egypt 34.0 72.7 65.0 48.0 41% -26%
Middle East, which includes Turkey, with the Indian sub- Saudi Arabia
60.8 92.5 57.3 43.1 -29% -25%
& Yemen
Continent also quite significant.
Pakistan 20.0 30.9 53.9 49.8 149% -8%
Iraq & Syria 3.5 14.4 35.6 36.4 940% 2%
The West has shown significant growth of 304% in total Iran 11.0 16.1 32.2 32.7 197% 2%
United Arab
since 2000 with 695 tons in 2010 with Europe, led by the 10.6 28.2 27.1 26.8 153% -1%
Emirates
UK, recording growth of 44% to reach 339 tons, with Source: GFMS Gold Survey 2011
North America coming in with 154 tons (a gain of 165%),
Looking at the Middle East and Indian sub-Continent, it is
while Latin America rose by over 516% to 123 tons.
clear that Turkey is today the most important source of scrap
gold supply in the emerging markets of The East with 122 tons
Now lets take a more detailed look at each of the geographic
in 2010, up by 118% from the levels posted in 2000, although
regions.
this was sharply lower than the 217 tons reached in 2009.
Scrap Supply – Europe & The Americas Scrap Supply – East Asia
Tonnes 2000 2005 2009 2010 2010 v 2000 2010 v 2009 Tonnes 2000 2005 2009 2010 2010 v 2000 2010 v 2009
United States 53.6 60.4 124.0 143.0 167% 15% China 24.0 41.7 102.8 138.2 476% 34%
Italy 24.6 46.7 78.0 98.0 298% 26% Indonesia 36.0 67.0 79.9 64.9 80% -19%
UK & Ireland 3.7 4.5 59.4 69.8 1786% 18% Thailand 13.5 12.4 66.0 44.7 231% -32%
Mexico 3.8 7.2 50.3 58.0 1426% 15% Vietnam 6.0 7.8 51.5 64.8 980% 26%
Germany 4.9 7.6 32.4 44.1 800% 36% Japan 13.5 24.5 35.3 44.1 227% 25%
Spain 2.5 3.7 20.1 31.9 1176% 59% Taiwan 10.8 13.0 30.1 27.5 155% -9%
France 5.9 12.1 24.9 29.7 403% 19% Malaysia 4.7 11.0 19.3 22.2 372% 15%
Source: GFMS Gold Survey 2011 Korea 11.8 17.5 21.3 18.0 53% -15%
Source: GFMS Gold Survey 2011
The United States became the largest scrap gold market
in the world in 2010 with secondary supply of 143 tons, Turning to East Asia, it is surely not a great surprise to see
which was 167% more than at the turn of the century with China as the leading source of secondary gold supply with
Italy the second most important market in the West and the 138 tons followed by Indonesia, Thailand and Vietnam,
biggest in Europe with 98 tons. with the latter rising by 980% since the year 2000.
Scrap Supply – Top 10 Ranked By Volume
However the UK and Ireland with almost 70 tons is coming Tonnes 2000 2005 2009 2010 2010 v 2000 2010 v 2009
up fast on the rails with scrap flows exploding in the last United States 53.6 60.4 124.0 143.0 167% 15%
China 24.0 41.7 102.8 138.2 476% 34%
five years, a point that I will consider in a bit more detail
Turkey 56.0 67.7 217.2 122.0 118% -44%
later in this paper, while Germany, France and Spain have Italy 24.6 46.7 78.0 98.0 298% 26%
also posted large gains since 2005. India 79.0 94.0 115.5 81.0 3% -30%
UK & Ireland 3.7 4.5 59.4 69.8 1786% 18%
Indonesia 36.0 67.0 79.9 64.9 80% -19%
Mexico has been the key driver of the growth in scrap flows Vietnam 6.0 7.8 51.5 64.8 980% 26%
Mexico 3.8 7.2 50.3 58.0 1426% 15%
in Latin America between 2000 and 2010, ranking only Pakistan 20.0 30.9 53.9 49.8 149% -8%
second behind the UK in percentage growth terms. Source: GFMS Gold Survey 2011
Cont’d on page no 52
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Cont’d from page no 50 economy in general, and the US in particular. Shrinking
disposable incomes and concerns over job security in the
As you can see the United States rose to number one spot with developed markets in the US and Europe not only inhibits
143 tons in 2010, closely followed by China with 138 tons new jewellery demand but also is a key factor in selling old
while Turkey fell from the top spot in 2009 to 3rd last year. or unwanted gold for much needed cash. This combined
with gold prices reaching all time records highs, not just in
Now if we take a look at global gold scrap flows in terms of dollars but also in a range of local currencies, has also been
percentage changes, over since the new millennium began an important factor in the rapid growth of scrap gold flows
you can see that by far the fastest growing market in the over the last few years.
world is the UK & Ireland which has risen by a staggering
1786% from 2000 to 2010 with most of that increase However looking ahead it is actually price expectations that
occurring over the last five years. Mexico is one of the other hold the key for potential scrap gold sellers, certainly at a
big stories with its market, changing from a regional gold wholesale level. For example looking at India, despite a 20%
jewellery fabrication centre to a major hub for scrap gold increase in the Rupee price of gold in 2010 scrap sales in the
flows in Latin America. It has recorded the second biggest world’s largest physical gold offtake market actually fell by
growth in percentage terms over the last eleven years rising 30% last year as local traders anticipated, and still anticipate
by 1426% to over 58 tons in 2010. Flows from Spain have much higher dollar and rupee gold prices. This is a key
grown by 704%. Vietnam by 980% and Iraq & Syria have point and one that I will return to in my closing comments.
grown by 940%. These are truly staggering results and
perhaps should serve as a warning to the gold bulls that Finally, the global physical gold market is one of the last
secondary supplies can be mobilized from sources around bastions of real physical arbitrage left in a world dominated
the world “if the price is right” and economic conditions by paper financial markets. This arbitrage can be driven by
remain challenging. a wide combination of factors that could include regional
rules and regulations; import and export tariffs and quotas;
Key Drivers of Scrap Flows volatile local exchange rates and interest rates; regional
2010 v 2010 v
2000 2005 2009 2010
2000 2009 rates of inflation and capital flows that might lead to
Average Gold
$279.11 $444.45 $972.35 $1,224.52 339% 26%
Governments acting to stop protect their economies. In
Price USD/oz
recent years we have seen this type of arbitrage occurring
Average Gold
€ 9,734 € 11,521 € 22,512 € 29,739 206% 32% in places such as Turkey and Vietnam, with the former
Price Euro/kg
Average Gold being particularly fickle and where the market can change
¥967 ¥1,577 ¥2,920 ¥3,444 256% 18%
Price Yen/g
Average Gold from being a source of scrap supply to good offtake back to
¥74.29 ¥117.09 ¥213.87 ¥266.15 258% 24%
Price Yuan/g a supply market within a short period of time.
Average Gold
Rs4,518 Rs6,454 Rs15,233 Rs18,304 305% 20%
Price Rs/10g
Scrap Supply versus Primary Production
Source: GFMS Gold Survey 2011
And now to perhaps the most important section this article,
what are the key drivers of secondary gold scrap supplies
in today’s global markets?
Obviously, and as with all financial and commodity
markets, the key focus for everyone has been, and will
be, for the foreseeable the future outlook for the global
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Since the start of the new millennium, the nominal gold price With primary gold production shown to be completely
in USD terms has risen from an average of $279 in 2000 inelastic, hedging non-existent and the Official Sector no
to $1,224 in 2010, a gain of 339%. Gold has also posted longer a source of metal, scrap gold supply is now clearly the
impressive gains in local currency terms in the major gold only credible counter to the seemingly never ending waves
producing countries with averages prices rising by 258% in of investment buying. And even scrap flows have waned
China, 362% in South Africa and 177% in Australia. last year despite further impressive gains in the gold price
over 2009 as bullish sentiment has intensified amid growing
Despite this impressive growth in the value of gold across the economic uncertainty and a lack of confidence in the major
world primary gold production has increased by just 3% from currencies.
2,620 tons in 2000 to 2,689 tons last year. This highlights the
complete inelasticity of the gold mining sector to the record Despite all the fundamental and technical analysis in the
advance in the gold price in all currencies and even if the world when it comes down to it the only real reason to buy
current historic price does prompt a new wave of exploration gold, which is a very low yielding asset, was because you
the “time to market’ for new primary gold supply will be believed that the price would be higher later in the day, or
measured in years not months. With hedging no longer an tomorrow, or next week, or next month, or next year! Clearly
acceptable practice the influence of gold mine supply on the this is the prevailing sentiment behind the current stampede
gold price has become nominal at best. into gold as a safe haven and speculative fund buying in
futures markets, and it is this psychology that could inhibit
Now compare the way scrap gold flows have risen over the potential scrap gold sellers.
same time period with secondary supplies rising from 620 tons
in 2000 to 1645 tons in 2010, representing a gain of 165%. However remember that potentially there is a lot of scrap
This elasticity of supply from the scrap gold sector and the gold that could enter the market. According to GFMS there
ability of scrap gold merchants to adapt to changing markets is 165,000 tons of above ground stocks in the world, with
conditions is crucial and a key factor in today’s market. 55% or 90,000 tons held in the form of gold jewellery. Even
if just 10% of this relatively price elastic source of supply
Conclusions were mobilized it would be over four times greater than total
Despite the unprecedented growth in the value of the current ETF holdings and more than the total amount of gold
yellow metal in all currencies since 2000 the gold producer held by the US.
community has been completely unable to react and take
advantage this extra-ordinary rally with primary gold As I have said the same motivation behind the record level
production barely showing any increase, amazing really and of investment fund buying of gold applies equally to the
perhaps this explains why share values of the major gold scrap market causing traders to move to the sidelines, i.e.
mining companies have not kept pace with the rising gold they everyone ‘expects’ the gold price to move higher, or in
price. Surely this inability to increase gold production to the case of the “Armageddon Brigade” that gold as an asset
meet the surge in investment flows into the yellow metal has class will lose less than paper financial assets. However once
been one of the key factors behind gold’s meteoric rise over sentiment changes, as it surely will one day because “trees
the last five years. don’t grow to heaven”, we could see a perfect storm of selling
as investment fund managers and scrap gold merchants hit
Also the” H” (hedging) word is firmly persona non grata in their sell buttons at the same time. You really do not want to
polite producer circles even if profit margins over production be in the way of the resulting Tsunami of gold sales when it
costs are now at a level not even the most optimistic treasurer hits the market.
could have hoped for back at the start of the millennium.
Could this happen? Yes in my view. When could this happen?
On top of this Central Banks, for so long sellers into any Impossible to tell and we may have to wait for longer than
major rallies (or in the case of Gordon Brown dumping the anyone expects but the first signal will be when the FED acts
UK’s gold into weakness), now seem to have stepped aside to reverse its easy money policy and raise real interest rates.
despite the IMF sales program and in 2010 the Official Sector
became a net buyer for the first time since the 1970’s.
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It’s Gold that
Shines!
Chirag Mehta
Fund Manager – Quantum Gold Fund ETF
and Quantum Gold Savings Fund
hoard of jewellery, coins and souvenirs – all
handed down from one generation to the other
with their respective stories and sagas.
So, yes, Indians are partial to gold. We love
the yellow metal and will buy it even though
prices continue to rise. To us, gold is more than
an alloy and owning it is beyond just adding to
our treasure chests - it is the realization of our
aspirations and an assurance that the future of
our loved ones will be secure.
And hence, it is not surprising that India
recorded the highest purchases of gold in history
W
hether it’s a wedding, a festival or any last year. Yes, the Indian gold market is evolving, but it
auspicious beginning, no celebration is ever still needs to be organized. Today, each gold outlet offers
complete without the purchase of Gold. customers a price suited to their profit margins – No Price
This yellow metal has always been viewed as a symbol of Standardization! Lower the denomination, more expensive
success, affluence and authority. Especially in India, gold it gets – Not suited for smaller customer pockets! The
plays an important role in cultural and religious events. Bureau of Indian Standards surveys still raise concerns on
For instance, during festivals such as Diwali, gold coins purity – Is your Gold Pure? Increasing cases of Gold theft;
imprinted with the image of Goddess Laxmi are gifted even from bank lockers – Safes are Unsafe!
to loved ones as a token of luck. Gold, as a symbol of
status, is even mentioned in the epics – the Ramayana Almost as an answer to these problems, Gold Exchange
and the Mahabharata. Throughout history, it was gold that Traded Funds (ETFs) were launched in India in 2007. Gold
represented the splendour and status of the kings and their ETFs offer a convenient platform to tap into the safe haven
empires. asset. But of course, investors still wonder: Are ETFs safe?
Do these funds invest in real gold? Are they cost effective?
Owing to its prominence in our culture, gold is considered Here’s the logic behind gold ETFs and why your investment
a must-have by Indians. Every family has its own little in ETFs is really as good as gold.
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Gold ETF- As Good as Gold as low as half gram; Gold Fund of Funds further increased
Gold ETFs are probably one of the best financial affordability by lowering the investment threshold to Rs.
innovations. A Gold ETF is a simple product that passes on 500 at a time.
the efficiency of a wholesale market to a retail investor.
Gold Fund of Funds also brought with them the added
By investing in Gold ETFs, retail investors are able to benefit of Systematic Investment Plans (SIP) which is an
buy small amounts of gold at prices which almost match investment option that allows you to set aside money in
those at which hundreds of tonnes of gold are transacted regular installments, instead of investing one big lump sum
between a producer/refiner and a bullion bank or any other amount. SIPs are ideal for those with modest salaries, long
big institutional investor. There’s high transparency and term goals, and in want of financial discipline. Say you
standardization in the pricing system. The gold is stored decide to accumulate gold for your daughter’s marriage. You
in secure vaults and is completely insured (a fact that I can would need to ensure that your allocation to gold follows a
assure you of with regards to the Quantum Gold ETF). disciplined calendar. However, you might sometimes face
challenges on this path. For instance, someone may intrude
Investors can buy and sell their your systematic purchase with
Gold ETF units on the National Investors can buy and sell their their ingenious opinion on prices,
Stock Exchange without worrying resulting in you missing your
about the physical delivery of gold.
Gold ETF units on the National round of allocation. Chances are
Hence, concerns about purity and Stock Exchange without that you could end up buying at
safe keeping of the gold are taken higher rates or even miss out on
care of right away.
worrying about the physical your gold accumulation plan.
delivery of gold. Hence, This is the very challenge that
Gold ETFs give you a convenient, Gold Fund of Funds helps you
hassle-free, tax efficient and above
concerns about purity and safe address through their SIP facility.
all, secure means to own gold. keeping of the gold are taken You can instruct your fund house
to regularly allocate a fixed
However, even though the medium
care of right away. amount (say Rs 500) to gold at a
was brilliant, Gold ETFs mandated particular date (say 15th of every
the ownership of a demat account to invest in them. month) for a particular period (say 5 years). Using the SIP
Unfortunately, that caused a large set of investors to be left facility, you can invest little by little regularly, which will
out. All those without a demat account were not able to go a long way in creating a sizeable corpus of gold over
make most of this efficient form of buying gold. time. The SIP facility offers you the best of both worlds –
allows you to compound your investments and also helps
But, the investor is king! And so, for the benefit of those you average out your buying costs.
without a demat account, an extension of Gold ETFs was
brought in to play – the Gold Fund of Funds. Gold Fund of Funds are tax efficient as well when compared
to investments in conventional physical gold. The long
The Extension to ETFs term capital gains creep in just after one year as opposed to
Gold Fund of Funds predominantly invests in Gold ETFs three years for physical gold. Also, they do not attract any
and endeavors to track gold prices (just like Gold ETFs). wealth tax as physical gold investments do for every year
Through Gold ETFs investors could invest in denominations that you own gold.
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Tax Gold Fund of Funds Physical Gold
Long Term Capital Gains Tax After 1 year After 3 years
Wealth Tax Not Applicable Applicable for every year of holding
There ain’t such thing as a free lunch, all this convenience trading on the stock exchanges and is well versed with the
comes at an extra marginal cost. Take for instance the brokerage dynamics would probably prefer to invest in Gold
Quantum Gold Savings Fund. Here you would be paying ETFs directly. Speaking about brokerages, it helps to know
0.25 % p.a. as expenses, over and above the prevailing that a retail investor is usually charged a high brokerage,
charge of 1% p.a. for Gold ETF. Thus, all in all you would while an institutional investor like a Fund of Fund would
have to pay an expense ratio of 1.25% p.a. But before you likely pay a lower brokerage.
start considering this cost in isolation, do take a look at the
heavy premiums that you would have to pay if you buy The Way forward:
physical gold. The difference between the two is quite an The awareness of ETFs is slowly gaining ground and the
eye opener. If you compound the premiums you pay for acceptance of this mode of owning gold is increasing by
physical gold over the years, you will end up with a huge the day. Still, we don’t see much participation from the
figure. The 1% p.a. expense ratio charged for Gold ETFs bullion industry towards the development of the same.
goes towards safe keeping, insurance, audit of the gold Going forward, the market would likely force the industry
and a part of it also to the fund house as management fees. to accept and complement this efficient form of owning
Not a bad deal, right? Some would wonder why invest in gold.
a Gold Fund of Funds and pay an extra cost of 0.25% p.a.
over and above the expense of the elementary gold ETF; There have been some initiatives like offering gold loans
wouldn’t it be better to just own the gold ETF directly? against Gold ETFs, buying jewelry in exchange of gold
This would depend largely on what you, as an investor, are ETFs, etc. But, it’s just a handful of players keen to make the
looking for while investing in gold. For e.g. : an investor first move. Slowly but surely, there would be a unanimous
without a demat account or one looking for automated acceptance of Gold ETFs within the bullion industry as free
systematic investment plans would be better suited for the markets always strive for efficiency.
Fund of Funds. While an investor who is comfortable with
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Global Uncertainty and the
Trajectory of Precious Metals
Tanushree Mazumdar
Senior Economist and Vice President- Knowledge
Management, NCDEX
G
old, silver and other precious put the Greek debt problem is nothing but
metals are traditionally a case of a country having lived beyond
considered as ‘safe haven’ its means and having to bridge this gap
assets which serve as flight-to-safety for between income and expenditure through
investors when there is global turbulence borrowings which it has to then repay.
and uncertainty. The advantage of these This borrowing or debt became a burden
assets is that because of their tangible for Greece as it stood at almost 160 per
nature they serve as a ready store of cent of its GDP!
value and investors are able to readily
identify with them. Of them all, gold is a Why does indebtedness become a
commodity that is most easily understood problem? For markets and financial
as it has stood the test of time as a medium institutions the threat of a sovereign credit
of exchange and a store of value. As an rating downgrade by credit rating agencies
investment asset gold enjoys a distinct is enough to send them into a nervous
advantage as it has a weak correlation with frenzy. A downgrade makes it difficult for
stocks and bonds adding to the breadth of business in a country to raise money from
This borrowing or an investment portfolio. overseas markets and puts a stress on its
banking sector and those of banks in other
debt became a In the last few months the role of gold as countries as they have exposure to this
burden for Greece a ‘safe haven’ asset has come to the fore government debt which could simply end
thanks to the global uncertainty caused up being on their books as non-performing
as it stood at by debt problems in the euro zone and assets thus eating into their capital.
almost 160 per the US. The main problem plaguing the
euro zone for more than a year now has At the time of writing this, debt concerns
cent of its GDP! been that of the Greek debt. Very simply in both the US and the euro zone have
August 2011 www.bombaybullion.com
August.indd 59 8/9/2011 4:34:56 PM
been allayed to an extent as at the 11th stubborn ‘safe haven’ investment and are
hour lawmakers in the US agreed to cut often subject to unexplained volatility.
its deficit by $2.1 trillion and raising the Silver, for example, recently has seen a
debt ceiling to enable US to pay its bills rally and touching new records. Markets
till November 2010. The resolution came believe that silver follows gold or more
after weeks of political theatre which saw importantly its ratio to gold in price.
the Republicans and Democrats engaged Currently the gold to silver ratio is about
in a bitter struggle to arrive at a consensus 40. The norm in the past several years is
to raise US’s debt level (effectively its for the gold-silver ratio to hover between
ability to borrow) as well as cutting 55 and 60 i.e. the price of an ounce of gold
deficit (curtailing expenditure). There was was 55 to 60 greater than the price of an
respite on the euro zone front as well with ounce of silver. The very long-term gold-
the new package in place for Greece. The silver ratio is said to be around 16.
new package will mean that Greece will
get additional support of € 160 billion (i.e. What would be the outlook for precious
over and above the support of € 110 billion metals in the unfolding global scenario? To
that it had received in 2010). How does a great extent this would depend on how
all the above affect gold? Through two the market finally thinks the resolution
channels: currency and investment. The of the debt ceiling through spending cuts
latest announcement of the Greek rescue (without any plan to raise taxes) will
As the package saw the euro appreciate against affect the growth in the US. The Federal
uncertainties the dollar by close to 2 per cent on a single Reserve’s response too will determine the
regarding the day! As most commodities including gold market sentiment. If a threat to growth
euro zone have are denominated in dollar, a stronger euro seems imminent, markets moving to a
(and a weaker dollar) makes commodities ‘risk on’ mode cannot be ruled out which
not completely
cheaper. An additional factor is at work could lead increased investment in gold.
dissipated and in the case of gold: that of a safe-haven If the Fed responds by increasing money
the markets have asset. As the uncertainties regarding the supply (QE 3) to prop up growth then the
yet to digest the euro zone have not completely dissipated quantum of dollar flow would decide the
full import of the and the markets have yet to digest the exchange rate vis-à-vis other currencies,
debt deal in the full import of the debt deal in the US, especially the euro. And, of course, finally
perceived riskiness would increase the all will depend on how much the markets
US, perceived
appetite for gold investment. This has believe in government’s and central bank’s
riskiness would been proven with gold crossing the $ 1620 ability to deliver their countries from the
increase the per ounce mark at the time of writing. throes of debt and put them on the path
appetite for gold What about silver and other precious of sustainable recovery! In markets,
investment. metals? Unlike gold, these metals are not perception is everything!
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G
old touched new high last month on global large, customers perceiving this as a rampant speculation.
economic concern. Both US and European Normally, gold imports in Delhi region (Caters Northern
Union economies are struggling, investors are states) will be around 1 tons /per day, but imports in July
seeking respite in gold. Here comes the real problem. declined to 100 kg/day and even below at times. He expects
As no investment is safe at this point of time and so the gold price to rise above $1700/oz and a long stay at this
investors are buying gold, in Indian market, the extreme range may push the prices to $1800/oz.
high prices have created less demand in the physical Courtesy: Radha Mohan Purshotam Das Jewels Pvt. Ltd
market. Usually, month of June and July is lean season.
Still, sales hampered all over the country more than as Salem Market
usual. Only in Hyderabad, demand was said to be usual. In Salem, Mr.N.Vijay, Proprietor, Vijay bullion, informed
that, Market sentiment is weak and sales in Salem region
Bullion traders with whom we talked this time are mostly are below normal. In last month, Bullion sales in Salem
bullish on gold for rest of the year. They are not seeing region were around 450 kg. He explained that, both dollar
much of downside from the current level. But by the time and gold values are heading towards north against market
we are writing this report, silver had fallen 2 dollar in single dynamics. If the trend continues, gold prices may touch
day and all commodities including gold had fallen viciously newer highs in near short term. He expects gold prices to
in single day. So tough days may be ahead! find resistance at R1 $1692/oz, R2 $1824 and any correction
at this range may seek support at $1610/oz, $ 1578.
Kanpur Market Courtesy: Vijay Bullion
Mr.Ambrish Agarwal, Director, Radha Mohan Purshotam
Das Jewels Pvt Ltd. explains that, current scenario is quite Mumbai Market
unexpected, July sales fell down by more than 80%. At Mr.V.K.Agarwal, Director, Shirpur Gold Refinery Ltd,
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August.indd 64 8/9/2011 4:35:02 PM
shortly quoted that, he expects gold sale to be on downside Ltd, informed that, weak sentiment was observed in the
till august end. Buying spree among retail customers seems month of July. Being a sowing month, July sales will be
to be affected by the rise in price. He expects gold price to comparatively lower than August to December sales.
be range bound at $1600-1700/0z. Increased prices have further pulled down the sales. For
Courtesy: Shirpur Gold Refinery Ltd, July, overall gold sales in Ahmedabad region stood around
4 tons and imports were at 8-10 tons. He feels that gold
Kanyakumari Market price is likely to be around 22,580-25,000/10 gm.
Mr. T.R. Vino kumar, Partner, Ramayya Jewellers, told Courtesy: Parker Bullion Pvt Ltd
that jewellery demand declined on mounting prices. He
added that customer sentiment is not so favorable and it New Delhi Market
eventually reflected on the jewellery sales .On gold he Mr. Saurabh Sharma, Director, Delhi Spot Bullion Trading
opines that prices may slide down to Rs.20,000/10 gm to Co.Pvt Ltd. informed that, mounting prices has decreased
test the support levels. In this bull trend, Kanyakumari did the interest in bullion investment among the customers.
business of 100 kg of gold in the month of July. July Gold Sales stood at 500-600kg.He opines gold prices
Courtesy: Ramayya Jewellers in India will find resistance at 24,800. On any correction
prices would find support around 22,800.
Hyderabad Market Courtesy: Delhi Spot Bullion Trading Co.Pvt Ltd
Mr. Deepak Agarwal, Director, Manokamana Gold,
positively said that, in spite of huge momentum in gold All depend on how agricultural production would turn
prices, normal sales were witnessed in the Hyderabad around this year. On the other hand, real estate becomes
market. In July, total gold sales in Hyderabad region stood expensive as banks have raised the interest rate on
around 700-800 kg and silver sales were around 10,000- borrowing. At the same time, Indian banks are offering
15,000 kg. He expects Gold prices to hover around $1690- attractive rate of interest on deposits. Now it is to be seen
$1575 /oz. what Indian investors would decide – invest in FD now
Courtesy: Monokamana Gold and wait for correction in gold to buy or the ‘gold rush’
will continue? Festive season will kick off shortly. So
Ahmedabad Market altogether, very interesting time is waiting for us. Keep our
Mr.Haresh J.Acharya, Director, Parker Bullion Pvt fingers crossed!
August 2011 www.bombaybullion.com
August.indd 65 8/9/2011 4:35:03 PM
RSBL SPOT
An Overview
Gold continued to glitter at all time high
RSBL Gold Spot made a joyful ending after
keeping the prices in dark red in the previous
two months, mainly due to various uncertain
economic conditions across the world.
Initially it plunged to the low of Rs 21473
per 10 gram. This correction was brief and
it bounced back after taking notch at 38.2%
from the high of Rs 22752 levels. Recent
movement has eclipsed the previous two-
month movement to suggest that the traders’
appetite is very much on the higher side. A
fresh rally has cleared the upside hurdle at Rs
22752 levels without much effort. Eventually
this could elaborate to the ascending channel resistance of Rs 24710 levels. There may not be any hurdle from the
fundamental front to hold back the prices. The current movement is also matching up with the global news on economic
conditions. This could sustain the price on a royal ride.
RSBL Silver prices too joined the party after
deep correction from the peak of Rs 74700 per
1 kg. Bears lost against the bulls at Rs 50521 RSBL Silver
Monthly Chart
levels after silver price stumbled to crack the
rising trendline support at Rs 50520 barricade.
Within no time, prices made through the
previous month high of Rs 57578 levels. Lavish
takeoff has given 38.2% return to the loyalist
of white metal in the previous month. Current
movement may not end here, after looking at
the recent movement. On upside silver price
could flare up to Rs 62230 levels and 65492
successively to matchup with royal gold rally.
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Bullion - Data & Statistics
Gold Spot Market, International Silver Spot Market, International
(Per Troy Ounce) (Per Troy Ounce)
Spot gold 01st July 29th July %change Spot Silver 01st July 29th July % Change
Australia(AUD) 1380.63 1438.33 4.09% Australia(AUD) 31.39 36.24 14.36%
Britain(GBP) 925.06 989.88 6.77% Britain(GBP) 21.03 24.26 14.28%
Canada(CAD) 1554.31 1425.00 -8.69% Canada(CAD) 32.41 38.09 16.17%
Europe(Euro) 1023.71 1129.33 9.82% Europe(Euro) 23.28 27.68 17.33%
Japan(Yen) 120183.00 124858.00 3.82% Japan(Yen) 2732.61 3060.25 11.32%
Switzerland(CHF) 1258.18 1277.16 1.50% Switzerland(CHF) 28.61 31.30 9.00%
USA(USD) 1487.17 1626.29 8.94% USA(USD) 33.81 39.86 16.45%
Monthly Exchange Data (Gold) (From From July 01-29)
Exchange Commodity Open High Low Close % Ch.
MCX 1 Gold Oct’11 22177.00 23649.00 21885.00 23543.00 5.96
NCDEX1 Gold Aug’11 21949.00 23447.00 21844.00 23332.00 5.41
ICEX1 Gold Aug’11 21910.00 23356.00 21613.00 23185.00 5.69
COMEX2 Gold Oct’11 1503.00 1636.30 1479.60 1629.90 8.05
TOCOM3 Gold Oct’11 3905.00 4078.00 3854.00 4018.00 2.88
1- Rs/10 gms, 2- $/oz, 3- Jpy/gm
Monthly Exchange Data (Silver) (From July 01-29)
Exchange Commodity Open High Low Close % Ch.
MCX1 Silver Sep’11 52394.00 60819.00 58144.00 59111.00 12.22
NCDEX1 Silver Sep’11 52133.00 60795.00 50800.00 58898.00 10.82
ICEX1 Silver Sep’11 52050.00 60830.00 50806.00 59118.00 12.24
COMEX2 Silver Sep’11 34.74 41.47 33.47 40.11 14.10
TOCOM3 Silver Aug’ 11 89.40 102.50 88.30 98.60 9.13
1- Rs/kg, 2- $/oz, 3- Jpy 0.1/gm
Currency
Gold Spot Market, India Rs/10gm 01st July 29th July
Spot Gold 01st July 29th July % chg Euro/USD 1.45 1.43
Delhi 22060.00 23400.00 5.90 USD/JPY 80.83 76.76
Mumbai 21700.00 23162.50 6.52 USD/INR 44.58 44.19
Bangalore 21982.00 23517.00 6.75 USD/AUD 0.92 0.91
Chennai 21872.50 23335.00 6.47 USD/GBP 1.60 1.64
Kolkata 21980.00 23525.00 6.79
Silver Spot Market, India Rs/kg
Hyderabad 21630.93 23215.00 7.07
Ahmedabad 21615.00 23142.00 6.83 Spot Gold 01st July 29th July % chg
Mumbai 51967.50 58660.00 12.11
GOLD Forward Offer Rate (GOFO) Silver Forward Offer Rate (SIFO)
01st July 29th July 01st July 29th July
1m 0.2200 0.2660 1m 0.1400 0.2700
2m 0.2340 0.2820 2m 0.1500 0.2400
3m 0.2460 0.3000 3m 0.1400 0.2040
6m 0.3140 0.3400 6m 0.0900 0.1120
1y 0.4100 0.4160 1y -0.0200 -0.0220
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Bullion - Data & Statistics
GOLD LEASE RATE SILVER LEASE RATE
01st July 20th July 01st July 20th July
1m -0.03495 -0.05442 1m 0.04505 0.05558
2m -0.01725 -0.03908 2m 0.06675 0.07258
3m -0.00025 -0.02533 3m 0.10575 0.11467
6m 0.08325 0.09967 6m 0.30725 0.34800
1y 0.32400 0.32458 1y 0.75400 0.76625
LONDON FIXING (Per Troy Ounce)
GOLD AM GOLD PM SILVER PM
DATE USD GBP EUR USD GBP EUR DATE USD/cent GBP/Pence EUR/cent
07/01/2011 1492.75 932.10 1027.71 1483.00 926.07 1025.87 07/01/2011 3385 2112.98 2336.90
07/04/2011 1495.25 927.69 1029.36 1495.00 930.82 1029.97 07/04/2011 3410 2118.01 2349.29
07/05/2011 1498.75 930.79 1035.76 1510.00 937.02 1042.82 07/05/2011 3476 2157.67 2401.38
07/06/2011 1515.80 946.31 1056.23 1527.25 954.11 1066.37 07/06/2011 3538 2209.87 2467.22
07/07/2011 1526.25 954.80 1066.86 1527.50 955.76 1066.62 07/07/2011 3586 2244.76 2510.32
07/08/2011 1526.00 956.86 1069.08 1541.50 960.08 1076.17 07/08/2011 3628 2273.18 2541.51
07/11/2011 1543.50 966.32 1092.12 1555.50 976.71 1106.88 07/11/2011 3636 2279.62 2576.90
07/12/2011 1544.50 973.96 1106.38 1550.50 977.00 1107.34 07/12/2011 3491 2208.79 2507.90
07/13/2011 1571.50 984.71 1114.62 1579.00 988.36 1121.05 07/13/2011 3675 2304.80 2614.73
07/14/2011 1592.50 987.54 1119.04 1590.50 984.83 1117.32 07/14/2011 3940 2445.69 2778.56
07/15/2011 1578.50 979.64 1115.00 1587.00 985.35 1124.42 07/15/2011 3817 2367.87 2697.53
07/18/2011 1598.25 992.83 1136.33 1599.00 994.28 1136.70 07/18/2011 4033 2507.30 2870.46
07/19/2011 1602.00 994.11 1129.04 1601.00 992.99 1129.45 07/19/2011 4032 2501.24 2842.44
07/20/2011 1584.25 982.12 1116.77 1586.00 982.96 1117.85 07/20/2011 3859 2390.95 2713.78
07/21/2011 1600.50 992.44 1131.10 1601.00 985.11 1117.24 07/21/2011 3978 2460.87 2806.35
07/22/2011 1588.00 974.83 1103.01 1602.00 984.33 1118.09 07/22/2011 3967 2431.50 2753.90
07/25/2011 1618.50 995.02 1126.62 1613.50 991.28 1124.86 07/25/2011 4078 2503.38 2838.84
07/26/2011 1610.00 982.61 1112.26 1612.75 984.59 1114.93 07/26/2011 4034 2459.76 2785.91
07/27/2011 1621.00 987.69 1118.32 1625.00 991.76 1124.88 07/27/2011 4081 2490.69 2819.34
07/28/2011 1617.50 988.63 1125.53 1613.50 988.97 1129.27 07/28/2011 4019 2461.87 2810.49
07/29/2011 1613.75 991.67 1129.76 1628.50 992.08 1133.11 07/29/2011 3963 2435.02 2783.01
Disclaimer: Every care has been taken to present correct information. However, Bullion Bulletin & BBA are not
responsible for any divergence.
August 2011 www.bombaybullion.com
August.indd 69 8/9/2011 4:35:07 PM
Gold & Silver Historical Price In USD/Troyounce
Gold Silver
Year Rate Year Rate
1968 38.69
1969 41.09
1970 35.94 1970 1.635
1971 40.8 1971 1.394
1972 58.16 1972 1.976
1973 97.32 1973 3.137
1974 159.26 1974 4.391
1975 161.02 1975 4.085
1976 124.84 1976 4.347
1977 147.71 1977 4.706
1978 193.22 1978 5.93
1979 306.68 1979 21.793
1980 612.56 1980 16.393
1981 460.03 1981 8.432
1982 375.67 1982 10.586
1983 424.35 1983 9.121
1984 360.48 1984 6.694
1985 317.26 1985 5.888
1986 367.66 1986 5.364
1987 446.46 1987 6.79
1988 436.94 1988 6.108
1989 381.44 1989 5.543
1990 383.51 1990 4.068
1991 362.11 1991 3.909
1992 343.82 1992 3.71
1993 359.77 1993 4.968
1994 384 1994 4.769
1995 384.17 1995 5.148
1996 387.77 1996 4.73
1997 330.98 1997 5.945
1998 294.24 1998 5.549
1999 278.88 1999 5.218
2000 272.65 2000 4.575
2001 276.5 2001 4.52
2002 342.75 2002 4.665
2003 417.25 2003 5.965
2004 435.6 2004 6.77
2005 513 2005 8.83
2006 632 2006 12.84
2007 834.90 2007 14.92
2008 883.60 2008 11.29
2009 1095.20 2009 16.85
2010 1421.20 2010 30.93
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Bullion - Data & Statistics
MUMBAI SPOT PRICES
July' 2011 Opening Closing Opening Closing Opening Closing
Date 999. Gold 999. Gold 999. Silver 999. Silver 995. Gold 995. Gold
01.07.11 21875 21735 52225 51710 21770 21630
02.07.11 21690 51585 21585
04.07.11 21730 21720 51660 51645 21625 21615
05.07.11 21745 21825 51585 52415 21640 21720
06.07.11 22025 22005 53905 53310 21935 21890
07.07.11 22255 22180 54370 53915 22150 22080
08.07.11 22195 22155 54405 54220 22090 22050
09.07.11 22380 54590 22275
11.07.11 22415 22460 54570 54555 22310 22350
12.07.11 22630 22560 53785 53035 22530 22455
13.07.11 22820 22855 54635 54885 22715 22750
14.07.11
15.07.11 23000 23010 56690 56775 22895 22890
16.07.11
18.07.11 23225 23285 58590 59135 23120 23180
19.07.11 23370 23290 59670 59030 23265 23185
20.07.11 23080 23075 58000 57445 22975 22965
21.07.11 23260 23245 59270 58855 23155 23140
22.07.11 23010 23105 57960 58430 22905 22995
23.07.11 23230 58995 23125
25.07.11 23430 23445 59620 59670 23325 23340
26.07.11 23355 23265 59445 59455 23250 23160
27.07.11 23295 23315 59615 59520 23185 23205
28.07.11 23270 23260 59175 59105 23165 23150
29.07.11 23250 23295 58605 58715 23140 23185
30.07.11 23415 59035 23300
June’2011 Opening Closing Opening Closing Opening Closing
HIGHEST 23430 23445 59670 59670 23325 23340
LOWEST 21730 21690 51585 51585 21625 21585
AVERAGE 22745 22728 56320 56203 22641 22621
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