Description
Gold is a brilliant yellow precious metal that is resistant to air and water corrosion. It is a very soft and pure metal (24
Kt.). Gold is the most malleable and ductile metal found on earth. That’s why it is expensive and it is alloyed with other
metals, usually copper and silver to make it less expensive and harder. A karat is the unit that measures the purity of
gold jewelry or else it is hallmarked with a three-digit number that indicates the parts per thousand of gold. Some
countries hallmark gold with a three-digit number that indicates the parts per thousand of gold. The alloyed gold comes
in many colors and may not be bright yellow all the time.
Overview
Gold is traded as a commodity but primarily it is a monetary asset. It counts up to more than 65% of gold's total
accumulated holdings when it comes to 'value for investment’ by central bank reserves, private players and high-carat
jewelry. The remaining accumulated gold deposits are as a 'commodity' for jewelry in Western markets and usage in
industry. It is a highly liquid market. It is argued that the real price of gold is should be driven by stock equilibrium
rather than flow equilibrium due to large stocks of Gold as against its demand.
World’s largest gold producing country is South Africa with 394 tons in 2001. On the other hand, world's largest gold
consuming country is India with an annual demand of 843.2 tonnes comprising of 26.2% of total world
demands.World’s gold demand is constantly increasing and it is nearing record levels at 4000 tonnes per year while the
mine production is constant at 2250 tonnes per annum (Source: World Gold Council)
The gold prices are moving upwards due to the reduction in production level as compared to the demand and also due to
the weakening economy of the US.It has been found out the total world gold production would decline about 30% over
the next 7 years as the new discoveries in the major gold producing countries have become difficult, expensive and time
consuming according to the studies done by The World Bank and Beacon Group.
History
Since ancient times, gold has always been an important asset and a value store. Gold was used as an exchange medium
even before the Roman Empire existed. The gold was also used for currency by Chinese and Hindu cultures. This
shows that the gold was used not only by the western cultures but the eastern cultures also.
Great Britain started the suit by adopting a gold-backed paper currency and the rest of the industrialized world followed
this. The United States also started using gold in its currency and by the end of 1933, the United States Dollar was
equal to 1/20th of an ounce of gold. Gold backed up the United States Dollar under an agreement known as the Bretton
Woods agreement. Under this agreement, a specific value of gold tied the Dollar and also the other global currencies.
This specific value was $35/oz of gold from 1934 to 1968. That made it illegal for the citizens of the US to own gold so
that the level of gold and subsequently the value of dollar could be protected. When the Gold Standard was evocated, it
became a popular investment medium, and it led to risen gold prices to $800/oz from $35/oz. Since then, no matter
whatever happened, be it famines, floods or even world wars, gold’s importance as an investment medium hasn’t
changed at all. Since 17th century, London has been the center of gold trading. It was because the gold was brought to
London for refining and distribution purposes. Meanwhile, it began a method for disseminating the price of Gold
known as the "Fix" in 1919 as the center of distribution. The price, at which the most buy and sell orders, of the
members or Fixing Seat Holder's, match, or balance, is known as the Fix. A large volume of physical Gold can be
bought or sold at a single, clearly posted price, the fix. The fix is a benchmark price for many transactions worldwide,
whether for mines, fabricators or central banks, because it is undisputed prices at which all six of the largest Gold
trading houses are willing do business.
History of gold in India
Prior to 1962, India was the world's largest gold market and the main trading center was Bombay. In 1962, the
government enacted the Gold Control Act, which prohibited the citizens of India from holding pure gold bars and coins
due to loss of reserves during the indo-china war. It was declared that the old holdings in pure gold had to be
compulsorily converted into jewelry. Pure gold bars and coins were to be dealt only by licensed dealers.A large
unofficial market sprung up which dealt in cash only as a consequence of this legislation that adversely affected the
official gold market. This also made way for smuggling and black marketing, which comprised of many jewelers and
bullion traders.In 1990, India was on a verge of default of external liabilities as it had a major foreign exchange
problem. It had to give up the concept of controlling and licensing as it led to nothing more than corruption and
shortages. As a result, the Indian government pledged 40 tonnes from their gold reserves with the Bank of England.
India had to adopt the concept of liberalization. The government abolished the 1962 Gold Control Act in 1992 and
liberalized the import of gold in India for a duty payment of Rs. 250 per 10 grams. The government made up for the
