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Investing in Bullion - Bullion Gold Market Research Team | Posted On Saturday, November 07,2009, 01:44 PM

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Investing in Bullion - Bullion Gold Market



Investing in Bullion - Bullion Gold Market

A metal is usually deemed to be precious if it is rare. The discovery of new sources of ore or improvements made in mining or refining processes may cause the value of a precious metal to diminish. The status of a "precious" metal can be determined by high demand or market value. Precious metals in the form of bulk are known as bullion, and are traded on commodity markets. Bullion metals may be cast into ingots, or minted into coins. An ingot is a metal that is cast into a shape suitable for further processing. Non-metallic and semiconductor materials prepared in bulk form may also be referred to as ingots. The defining feature of bullion is that it is valued by its mass and purity rather than by a face value as money.

When there was blood in various corners of the world from Wall Street to Dalal Street, Only one thing that glittered in the eyes of the investors, was gold. At the time of global depression and economic slowdown every investor was looking for a safe investment and gold was the only option left with them. Gold is the only investible asset that has remained upbeat as compare to other asset classes. With very low correlation between other assets like equity and debt thereby a good asset need to be included in the overall portfolio. If we compare the last three years return from now, gold has given a return of 90% where as SENSEX has grown by just 32%, and if we compare the returns from January 2008 to September 2009 ,INDEX has given a negative return of 7% where as gold grew up by 63%. In the last five years, Gold investment worldwide has grown tremendously but if we compared it with the total stock of financial assets, gold bullion investment is still just a tiny proportion though highest rate of gold consumption about 18% of the annual global demand. As per World Gold Council estimates, Indian households own about 15,000 tonnes of gold, accounting for about 10% of the worldwide stock. At current market values, gold accounts for 10-15% of the Indian household balance sheet. In rural areas of India and China where banking system is still not formal, gold often acts as a savings account. But as India and China modernise, people started putting their money into bank accounts rather than plain gold jewellery

The Central Bank of India purchased 200 metric tons of Gold from the IMF at a discounted price of $6.7 Billion (USD). This shows India has lack of confidence in the U.S. Dollar and concerns of pending inflation. Gold has touched a record high of 16500 per ten grams and it is expected it will further go up. GDS (gold deposit schemes) a new concept, introduced by RBI through which they want to mobilize the privately held stocks of gold in the country. The basic idea behind that was to provide depositors opportunities to gain interest on their idle gold holdings and also provides safe security for their holdings, which gives new opportunities to investors to invest in gold. Some banks started selling gold coins in their selected branches anticipating the growth opportunities. The demand increases in the festival and marriage season.

Every country wants to participate in this race. In last one year China has doubled its gold holdings to 1,054 tons. Yet that only equals 1.6 per cent of its overall foreign exchange reserves and the US government holds about 286.9 million ounces of gold. Europe was unable to export gold to India, as investors started investing in gold over there and India will face shortage in supply but demand of gold in India will increase. Apart from that huge advantages are there while investing in gold like Diversification, Liquidity, Safety and Security. Investors needs to understand the importance of their investment before investing and needs to identify all the alternatives available to them. So it easy for an investor to include gold in their portfolio, they just need to understand what percentage of their capital need to be invested in gold.

Advantages of Bullion Trading

  • Margin Requirements is low -Put down only 2-25% of the trade value of your bullion contract.

  • Market Prices are not volatile as compared to Index -Trade your bullion contract at market prices with no widening of market spread.

  • Essentially it is of Fixed Contract Size-Bullion contract are of a standard size and minimum quality metal.

  • Immediate Execution is possible- Deal immediately at quoted price by the dealer; no waiting for execution.

  • Short Selling through contracts -Using contracts to sell short; thus benefiting from a decrease in the market price.

  • Hedge Portfolio -Use futures to protect your physical portfolio from downward markets swings.

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