“Gold gives to the ugliest thing a certain charming air, For that without it were else a miserable affair” Yellow Fever By: Anand Sharma Jharna Talreja W hy G ol as an d I ve stm e n t? n Ø Long-term store of value Ø Asset of last resort Ø Highly liquid Ø Asset diversifier Jargons used in gold investing • BID/ASK: “Bid” or “buy” is the price a dealer is prepared to pay for gold bullion. “Ask” or “sell” is the price offered by the seller. Refined gold that is at least 99.5% pure, usually in the form of bars, wafers or ingots. • BULLION: • BULLION COIN: A legal tender coin whose market price depends on its gold content, rather than its rarity or face value. • FACE VALUE: The nominal value given to legal tender coin or currency (for example a 1-oz. gold American Eagle coin has a face value of $50). • FUTURES CONTRACT: A firm commitment to make or accept delivery of a specified quantity and quality of a commodity on a specific date in the future. • GOLD STANDARD: A monetary system based on convertibility into gold; paper money backed and interchangeable with gold. • LEGAL TENDER: The coin or currency which the national monetary authority declares to be universally acceptable as a medium of exchange; acceptable for instance in the discharge of debts. • LIQUIDITY: The quality possessed by a financial instrument of being readily convertible into cash without significant loss of value. • NUMISMATIC: Coins those are valued for their rarity, condition and beauty beyond the intrinsic value of their gold content. Generally, premiums for numismatic coins are • OPTION: The right, (not the obligation), to buy or sell a commodity or a financial security on a specified date in the future. • PREMIUM: The amount by which the market value of a gold coin exceeds the actual spot value of its gold content. Part of the premium is recovered by the seller at resale. • • SPOT PRICE: Sometimes referred to as the cash price. The current price in the physical market for immediate delivery of gold. • SPREAD: The difference between Bid (the price a buyer is prepared to pay for gold) and Ask (the price a seller offers) prices. • B e n e fi o f I ve sti g i G o l ts n n n d Ø Long term asset of value Ø Ø Value not affected by the economic policies of the issuing country or undermined by inflation Ø Ø 24-hour trading, a wide range of buyers Ø Ø Wide range available of investment channels • Extremely Liquid • As a Hedge against Inflation • • Pro vi e s d i rsi ca ti n to th e p o rtfo l o a n d re d u ce s d ve fi o i p o rtfo l o ’ s ri i sk Risks of Investing in Gold Ø Market Risk Ø Ø Gold isn't indestructable - It can be lost Ø Ø Does not earn investment interest Top Ten Gold-Producing Countries 1. South Africa 2. United states 3. Australia 4. Canada 5. China 6. Indonesia 7. Russia 8. Peru 9. Uzbekistan 10. Ghana Average Annual Supply Average Annual Demand Fixing gold prices • London Gold Fixing or Gold Fix – a procedure to fix gold price on the London market • • Done by the five members of the London Gold Pool – representatives from five bulliontrading firms • • Provides a recognized rate - used as a benchmark for pricing the majority of gold products and derivatives throughout the world's markets • • Conducted twice a day by telephone, at 10:30 GMT and 15:00 GMT. Main gold markets around the world • New York • London • Zurich • Hong Kong • Sydney Ø Gold bars and coins Ø Ø Gold certificates Ø Ø Gold jewellery – 16000 tonnes of gold with Indian households Ø Ø Gold Investment Accounts – Allocated and unallocated Ø Ø Exchange Traded Funds Ø Ø Blue chip gold Mining Stocks Ø Ø Gold Future options and contracts Should gold be a part of the portfolio ? What percentage of the portfolio should it constitute? Costs Involved Physical Gold • No entry and exit barriers • Capital gains tax as per the IT act Gold ETFs • Like non-equity mutual funds for the purpose of taxation • Short term capital gains (STCG) tax if held for less than one year and long term capital gains (LTCG) tax if the period of holding is more than a year • No Entry/Exit load (except NFOs where it is 2-3 %) • Minimum amount Rs 5000-10000 Why should an investor invest in Gold ETF? • No worry on adulteration and storage • • Held in Electronic Form • • Ability to buy single share • • Extremely Liquid - the chance to sell when the price is going down and buy back even cheaper (selling short), and the chance to buy without having the money right then to pay the broker (buying on margin) • Potentially cheaper • • Quick and convenient dealing through demat account • • No security issue for investors • • Transparent pricing • • Taxation of Mutual Fund • • Ideal for retail investor as minimum lot size to trade is one unit on secondary market • • NAV of a unit will track price of approximately ½ or 1 gram of gold Gold ETFs available in India • Benchmark Mutual Fund - Gold Benchmark Exchange Traded Scheme (NSE Symbol: GOLDBEES) • • Kotak Mutual Fund - Gold Exchange Traded Fund (NSE Symbol: KOTAKGOLD) • • UTI Mutual Fund - UTI Gold Exchange Traded Fund (NSE Symbol: GOLDSHARE) • • Reliance Mutual Fund - Gold Exchange Traded Fund (NSE Symbol: RELGOLD) • • Quantum Gold Fund - Exchange Traded Fund (ETF) (NSE Symbol: QGOLDHALF) Thank You