raw final project-1

8/2/2019 Raw Final Project-1

1/56

BULLION MARKET IN INDIA

EXECUTIVE SUMMARY

Bullion Market in India is a place where

precious metals such as gold, silver, platinumcan be bought and sold. Price depends onsupply and demand. These two factors drivethe underlying price which is then adjustedupwards or downwards depending on the formof the precious metal. Modern bullion marketsallow small, individual investors all the way uplarge institutions to easily buy and sell preciousmetals

Indian Bullion Markets exist for two types ofcustomers. The first type of customer is theproducer of goods that require precious metalsas inputs. These customers are jewelry andelectronics manufacturers as well as many

other companies in industries ranging frommedicine to chemicals to glass. Thesecompanies are the main drivers of demand andthe reason precious metals have any value.These companies participate in the bullionmarket so they can ensure a steady supply ofprecious metals to theirmanufacturing facilities.

1


2/56


INDEX

Sr. No. Topic Page No.

1 Introduction toCommoditiesMarket

03

2 Evolution of commoditiesmarket in India

06

3 Different TypesOf Commodities

Traded

10

4 Gold 12

5 Silver 36

6 Platinum 44

7 Conclusion 52

8 Bibliography 53

2


3/56


Chapter 1

INTRODUCTION TO COMMODITY

A commodity may be defined as an article, aproduct or material that is bought and sold. It canbe classified as every kind of movable property,except Actionable Claims, Money & Securities.

Commodities actually offer immense potential to

become a separate asset class for market-savvyinvestors, arbitrageurs and speculators. Retailinvestors, who claim to understand the equitymarkets, may find commodities an unfathomablemarket. But commodities are easy to understand asfar as fundamentals of demand and supply areconcerned. Retail investors should understand therisks and advantages of trading in commodities

futures before taking a leap. Historically, pricing incommodities futures has been less volatilecompared with equity and bonds, thus providing anefficient portfolio diversification option.

In fact, the size of the commodities markets in Indiais also quite significant. Of the country's GDP of Rs13, 20,730 crore (Rs 13,207.3 billion), commodities

related (and dependent) industries constitute about58 per cent.

Currently, the various commodities across thecountry clock an annual turnover of Rs 1, 40,000crore (Rs 1,400 billion). With the introduction of

3


4/56


futures trading, the size of the commodities marketgrows many folds here on.

4


5/56


COMMODITY MARKET:

Commodities market is a physical or virtual

marketplace for buying, selling and trading raw orprimary products. Commodity market is animportant constituent of the financial markets ofany country. It is the market where a wide range ofproducts, viz., precious metals, base metals, crudeoil, energy and soft commodities like palm oil,coffee etc. are traded. It is important to develop avibrant, active and liquid commodity market. This

would help investors hedge their commodity risk,take speculative positions in commodities andexploit arbitrage opportunities in the market.

5


6/56


COMMODITY EXCHANGE :

Commodity exchange is an entity, usually an

incorporated non-profit association, thatdetermines and enforces rules and procedures forthe trading of commodities and relatedinvestments, such as commodityfutures. Commodities exchange also refers to thephysical center where trading takes place.

6


7/56


Chapter 2

ITS EVOLUTION IN INDIA

Bombay Cotton Trade Association Ltd., set up in1875, was the first organized futures market.Bombay Cotton Exchange Ltd. was established in1893 following the widespread discontent amongstleading cotton mill owners and merchants overfunctioning of Bombay Cotton Trade Association.

The Futures trading in oilseeds started in 1900 with

the establishment of the Gujarati Vyapari Mandali,which carried on futures trading in groundnut,castor seed and cotton. Futures' trading in wheatwas existent at several places in Punjab and UttarPradesh. But the most notable futures exchange forwheat was chamber of commerce at Hapur set upin 1913. Futures trading in bullion began in Mumbaiin 1920. Calcutta Hessian Exchange Ltd. was

established in 1919 for futures trading in raw juteand jute goods. But organized futures trading inraw jute began only in 1927 with the establishmentof East Indian Jute Association Ltd. These twoassociations amalgamated in 1945 to form the EastIndia Jute & Hessian Ltd. to conduct organizedtrading in both Raw Jute and Jute goods. ForwardContracts (Regulation) Act was enacted in 1952

and the Forwards Markets Commission (FMC) wasestablished in 1953 under the Ministry of ConsumerAffairs and Public Distribution. In due course,several other exchanges were created in thecountry to trade in diverse commodities.

7


8/56


COMMODITIES MARKET IN INDIA:

Indian Commodity Market consists of both the retailand the wholesale market in the country. Thecommodity market in India facilitates multicommodity exchange within and outside thecountry based on requirements. Commodity tradingis one facility that investors can explore forinvesting their money. The India Commoditymarket has undergone lots of changes due to thechanging global economic scenario; thus throwingup many opportunities in the process. Demand forcommodities both in the domestic and globalmarket is estimated to grow by four times than thedemand currently is by the next five years.

8


9/56


SIZE OF THE MARKET:

The trading of commodities consists of direct

physical trading and derivatives trading. Exchangetraded commodities have seen an upturn in thevolume of trading since the start of the decade.

This was largely a result of the growing attractionof commodities as an asset class and a proliferationof investment options which has made it easier toaccess this market.

The global volume of commodities contracts tradedon exchanges increased by a fifth in 2010, and ahalf since 2008, to around 2.5 billion millioncontracts. During the three years up to the end of2010, global physical exports of commodities fell by2%, while the outstanding value of OTCcommodities derivatives declined by two-thirds asinvestors reduced risk following a five-fold increase

in value outstanding in the previous three years.Trading on exchanges in China and India hasgained in importance in recent years due to theiremergence as significant commodities consumersand producers. China accounted for more than 60%of exchange-traded commodities in 2009, up on its40% share in the previous year.

Commodity assets under management more thandoubled between 2008 and 2010 to nearly $380bn.Inflows into the sector totalled over $60bn in 2010,the second highest year on record, down from therecord $72bn allocated to commodities funds in theprevious year. The bulk of funds went into precious

9


10/56


metals and energy products. The growth in pricesof many commodities in 2010 contributed to theincrease in the value of commodities funds undermanagement.

10


11/56


Chapter 3

DIFFERENT TYPES OF COMMODITIES

TRADED

World-over one will find that a market exits foralmost all the commodities known to us. Thesecommodities can be broadly classified into thefollowing:

Precious Metals: Gold, Silver, Platinum etc

Other Metals: Nickel, Aluminum, Copper etc

Agro-Based Commodities: Wheat, Corn, Cotton,Oils, Oilseeds.

Soft Commodities: Coffee, Cocoa, Sugar etc

Live-Stock: Live Cattle, Pork Bellies etc

Energy: Crude Oil, Natural Gas, Gasoline etc

11


12/56


COMMODITIES TRADED IN EXCHANGE:

Bullions: Gold, Gold Guinea, Gold M, Gold Petal,Platinum, Silver, Silver M, Silver Micro.

Plantations: Rubber, Pulses, Chana.

Metals: Aluminium, Aluminium Mini, Copper, IronOre, Lead, Lead Mini, Mild Steel Ingot Billets, Nickel,

Tin, Zinc, Zinc Mini.

Energy: ATF, Brent Crude Oil, Crude Oil, ElectricityMonthly & Weekly, Gasoline, Heating Oil, Imported

Thermal Coal, Natural Gas.

Weather: Carbon (CER), Carbon(CFI).

Oil & Oil Seeds: Crude Palm Oil, Kapasia Khalli,

Refined Soya Oil, Soya Bean.

Cereals: Barley, Wheat, Maize-Feed / IndustrialGrade.

Fiber: Kapas.

Others: Almond, Gaur Seed, Melted Menthol

Flakes, Mentha Oil, Potato (Agra), Potato(Tarkeshwar), Sugar M.

Spices: Cardamom, Coriander, Turmeric.

12


13/56


Chapter 4

GOLD

13


14/56


GOLD

INTRODUCTION:

Gold is the oldest precious metal known to man andfor thousands of years it has been valued as aglobal currency, a commodity, an investment andsimply an object of beauty.

HISTORY:

The first gold exchange-traded product was CentralFund of Canada, a closed-end fund founded in1961. It later amended its articles of incorporationin 1983 to provide investors with an exchange-tradable product for ownership of gold and silverbullion. It has been listed on the Toronto Stock

Exchange since 1966 and the AMEX since 1986.

The idea of a gold exchange-traded fund was firstconceptualized by Benchmark Asset ManagementCompany Private Ltd in India when they filed aproposal with the SEBI in May 2002. However it didnot receive regulatory approval at first and wasonly launched later in March 2007. The first gold

ETF actually launched was Gold Bullion Securities,which listed 28 March 2003 on the Australian StockExchange. Graham Tuckwell, the founder and majorshareholder of ETF Securities, was behind thelaunch of this fund.

14


15/56


MAJOR CHARACTERISTICS:

a.)Gold (Chemical Symbol-Au) is primarily a

monetary asset and partly a commodity.

b.)Gold is the world's oldest international currency.

c.)Gold is an important element of global monetaryreserves.

d.)With regards to investment value, more thantwo-thirds of gold's total accumulated holdings is

with central banks' reserves, private players, andheld in the form of high-karat jewellery.

e.)Less than one-third of gold's total accumulatedholdings are used as commodity for jewellery inthe western markets and industry.

GLOBAL SCENARIO:

a.)London is the worlds biggest clearing house.

b.)Mumbai is under India's liberalised gold regime.

c.)New York is the home of gold futures trading.

d.)Zurich is a physical turntable.

e.)Istanbul, Dubai, Singapore, and Hong Kong aredoorways to important consuming regions.

15


16/56


f.)Tokyo, where TOCOM sets the mood of Japan.

16


17/56


INDIAN SCENARIO:

The domestic India gold market is estimated to be

more than US$15 billion and is expected to risesignificantly in the coming years. During April 2008to February 2009, gems and jewelry worth US$17.79 billion was exported from the country. UnitedArab Emirates imported more than 30% of gemsand jewelry from India, making it the largestimporter from the country. Hong Kong was thesecond largest importer with 25% followed by

United States with 20%. The gem and jewelryindustry accounts for more than 10% of India's totalcommodities exports.

a.)India is the largest market for gold jewellery inthe world. 2010 was a record year for Indian

jewellery demand; at 745.7 tonnes, annual demandwas 13% above the previous peak in 1998. In local

currency terms, Indian jewellery demand more thandoubled in 2010.

b.)A 20% rise in the rupee price of gold combinedwith a 69% rise in the volume of demand, pushedup the value of gold demand by 101% to 1,342billion. This compares with 2009 demand of 669billon.

c.)The rising price of gold, particularly in the latterhalf of 2010, created a 'virtuous circle' of higherprice expectations among Indian consumers, whichfuelled purchases, thereby further driving up localprices.

17


18/56


FACTORS INFLUENCING THE MARKET:

Above ground supply of gold from central bank's

sale, reclaimed scrap, and official gold loans.

Hedging interest of producers/miners.

World macroeconomic factors such as the US Dollarand interest rate, and economic events.

Commodity-specific events such as theconstruction of new production facilities or

processes, unexpected mine or plant closures, orindustry restructuring, all affect metal prices.

In India, gold demand is also determined to a largeextent by its price level and volatility.

The monsoons and the harvest of the country havea significant affect on the sale and purchase of gold

in the country. Both these factors determine theamount of purchasing power that people will have,which in turn decides on the amount of goldconsumption and other consumptions as well.Purchasing gold and other precious metals onoccasions like Akshaya Tritiya is considered to beauspicious.

18


19/56


MEASUREMENT:

WEIGHT CONVERSION TABLE:

To convertfrom

To Multiplyby

Troy ounces Grams 31.1035Million ounces Tonnes 31.1035Grams Troy ounces 0.0321507Kilograms Troy ounces 32.1507

Tonnes Troy ounces 32,150.70Kilograms Tolas 85.755

Kilograms Taels 26.7172Kilograms Bahts 68.41

Troy ounces Grains 480.00Troy ounces Avoirdupois

ounces1.09714

Troy ounces Penny Weights 20.00Avoirdupoisounces

Troy ounces 0.911458

Short tonne Metric tonne 0.9072

19


20/56


GOLD VERSUS STOCKS:

20


21/56


In the last century, major economic crises (such asthe Great Depression, World War II, the first andsecond oil crisis) lowered the Dow/gold ratio, an

indicator of how bad a recession is and whether theoutlook is deteriorating or improving, to a valuewell below 4. The ratio fell on February 18, 2009 tobelow 8.[53] During these difficult times, manyinvestors tried to preserve their assets by investingin precious metals, most notably gold and silver.

The performance of gold bullion is often comparedto stocks due to their fundamental differences.Gold is regarded by some as a store of value(without growth) whereas stocks are regarded as areturn on value (i.e., growth from anticipated realprice increase plus dividends). Stocks and bondsperform best in a stable political climate with

strong property rights and little turmoil. Theattached graph shows the value of Dow JonesIndustrial Average divided by the price of an ounceof gold. Since 1800, stocks have consistentlygained value in comparison to gold in part becauseof the stability of the American political system.[54]

This appreciation has been cyclical with longperiods of stock outperformance followed by long

periods of gold outperformance. The DowIndustrials bottomed out a ratio of 1:1 with goldduring 1980 (the end of the 1970s bear market)and proceeded to post gains throughout the 1980sand 1990s. The gold price peak of 1980 alsocoincided with the Soviet Union's invasion of

21


22/56


Afghanistan and the threat of the global expansionof communism. The ratio peaked on January 14,2000 a value of 41.3 and has fallen sharply since.

On November 30, 2005, Rick Munarriz of TheMotley Fool posed the question of whichrepresented a better investment: a share of Googleor an ounce of gold. The specific comparisonbetween these two very different investmentsseems to have captured the imagination of many in

the investment community and is serving tocrystallize the broader debate. At the time ofwriting, a share of Google's stock was $405 and anounce of gold was one day from breaking the $500barrier, which it did December 1. On January 4,2008 23:58 New York Times, it was reported thatan ounce of gold outpaced the share price ofGoogle by 30.77%, with gold closing at $859.19 per

ounce and a share of Google closing at $657 onU.S. market exchanges. On January 24, 2008, thegold price broke the $900 mark per ounce for thefirst time. The price of gold topped $1,000 an ouncefor the first time ever on March 13, 2008 amidrecession fears in the United States. Google closed2008 at $307.65 while gold closed the year at$866. Leading into 2010, Google had doubled off

that (100%), whereas gold had risen 40%.

The analysis of log-linear oscillations in the goldprice dynamics for 20032010 conducted recently

22


23/56


by Askar Akayev's research group has allowedthem to forecast a collapse in gold prices in May

July 2011. As of 18 July 2011, this collapse had notyet occurred, with gold at record prices of over

$1600 per ounce.

In his book Basic Economics, Thomas Sowell arguedthat, in the long-term, gold does not hold its valuecompared to stocks and bonds:

To take an extreme example, while a dollarinvested in bonds in 1801 would be worth nearly athousand dollars by 1998, a dollar invested instocks that same year would be worth more thanhalf a million dollars. All this is in real terms, takinginflation into account. Meanwhile, a dollar investedin gold in 1801 would by 1998 be worth just 78cents.

23


24/56


WAYS TO INVEST IN GOLD:

BARS-

The most traditional way of investing in gold is bybuying bullion gold bars. In some countries, likeCanada, Argentina, Austria, Liechtenstein andSwitzerland, these can easily be bought or sold atthe major banks. Alternatively, there are bulliondealers that provide the same service. Bars areavailable in various sizes. For example in Europe,

Good Delivery bars are approximately 400 troyounces (12 kg). 1 kilogram (32 ozt) are alsopopular, although many other weights exist, suchas the 10oz, 1oz, 10 g, 100 g, 1 kg, 1 Tael, and 1

Tola.

Bars generally carry lower price premiums thangold bullion coins. However larger bars carry anincreased risk of forgery due to their less stringentparameters for appearance. While bullion coins canbe easily weighed and measured against knownvalues, most bars cannot, and gold buyers often

24


25/56


have bars re-assayed. Larger bars also have agreater volume in which to create a partial forgeryusing a tungsten-filled cavity, which may not berevealed by an assay.

Efforts to combat gold bar counterfeiting includekinebars which employ a unique holographictechnology and are manufactured by the Argor-Heraeus refinery in Switzerland.

25


26/56


COINS-

Gold coins are a common way of owning gold.Bullion coins are priced according to their fineweight, plus a small premium based on supply and

demand (as opposed to numismatic gold coinswhich are priced mainly by supply and demandbased on rarity and condition).

The Krugerrand is the most widely-held gold bullioncoin, with 46,000,000 troy ounces (1,400 tonnes) in

circulation. Other common gold bullion coinsinclude the Australian Gold Nugget (Kangaroo),Austrian Philharmoniker (Philharmonic), Austrian100 Corona, Canadian Gold Maple Leaf, ChineseGold Panda, Malaysian Kijang Emas, French CoqdOr (Golden Rooster), Mexican Gold 50 Peso,British Sovereign, American Gold Eagle, andAmerican Buffalo.

Coins may be purchased from a variety of dealersboth large and small. Fake gold coins are notuncommon, and are usually made of gold-platedlead.

26


27/56


EXCHANGE TRADED PRODUCTS(ETFs)-

Gold exchange-traded products may include ETFs,

ETNs, and CEFs which are traded like shares on themajor stock exchanges. The first gold ETF, GoldBullion Securities (ticker symbol "GOLD"), waslaunched in March 2003 on the Australian StockExchange, and originally represented exactly 0.1troy ounces (3.1 g) of gold. As of November 2010,SPDR Gold Shares is the second-largest exchange-traded fund (ETF) in the world by market

capitalization.

Gold ETPs represent an easy way to gain exposureto the gold price, without the inconvenience ofstoring physical bars. However exchange-tradedgold instruments, even those which hold physicalgold for the benefit of the investor, carry risks

beyond those inherent in the precious metal itself.For example the most popular gold ETP (GLD) hasbeen widely criticized, and even compared withmortgage-backed securities, due to features of itscomplex structure.

Typically a small commission is charged for tradingin gold ETPs and a small annual storage fee ischarged. The annual expenses of the fund such asstorage, insurance, and management fees arecharged by selling a small amount of goldrepresented by each certificate, so the amount of

27


28/56


gold in each certificate will gradually decline overtime.

Exchange-traded funds, or ETFs, are investmentcompanies that are legally classified as open-endcompanies or Unit Investment Trusts (UITs), butthat differ from traditional open-end companies andUITs. The main differences are that ETFs do not selldirectly to investors and they issue their shares inwhat are called "Creation Units" (large blocks such

as blocks of 50,000 shares). Also, the CreationUnits may not be purchased with cash but a basketof securities that mirrors the ETF's portfolio.Usually, the Creation Units are split up and re-soldon a secondary market.

ETF shares can be sold in basically two ways. The

investors can sell the individual shares to otherinvestors, or they can sell the Creation Units backto the ETF. In addition, ETFs generally redeemCreation Units by giving investors the securitiesthat comprise the portfolio instead of cash.Because of the limited redeemability of ETF shares,ETFs are not considered to be and may not callthemselves mutual funds.

28


29/56


CERTIFICATES:

Gold certificates allow gold investors to avoid the

risks and costs associated with the transfer andstorage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs) bytaking on a different set of risks and costsassociated with the certificate itself (such ascommissions, storage fees, and various types ofcredit risk).

Banks may issue gold certificates for gold which isallocated (non-fungible) or unallocated (fungible orpooled). Unallocated gold certificates are a form offractional reserve banking and do not guarantee anequal exchange for metal in the event of a run onthe issuing bank's gold on deposit. Allocated goldcertificates should be correlated with specific

numbered bars, although it is difficult to determinewhether a bank is improperly allocating a single barto more than one party.

The first paper bank notes were gold certificates.They were first issued in the 17th century when

they were used by goldsmiths in England and TheNetherlands for customers who kept deposits ofgold bullion in their vault for safe-keeping. Twocenturies later, the gold certificates began beingissued in the United States when the US Treasuryissued such certificates that could be exchanged

29


30/56


for gold. The United States Government firstauthorized the use of the gold certificates in 1863.In the early 1930s the US Government restrictedthe private gold ownership in the United States and

therefore, the gold certificates stopped circulatingas money. Nowadays, gold certificates are stillissued by gold pool programs in Australia and theUnited States, as well as by banks in Germany andSwitzerland.

30


31/56


ACCOUNTS:

Many types of gold "accounts" are available.

Different accounts impose varying types ofintermediation between the client and their gold.One of the most important differences betweenaccounts is whether the gold is held on an allocated(non-fungible) or unallocated (fungible) basis.Another major difference is the strength of theaccount holder's claim on the gold, in the eventthat the account administrator faces gold-

denominated liabilities (due to a short or nakedshort position in gold for example), asset forfeiture,or bankruptcy.

Many banks offer gold accounts where gold can beinstantly bought or sold just like any foreigncurrency on a fractional reserve (non-allocated,

fungible) basis. Swiss banks offer similar service onan allocated (non-fungible) basis. Pool accounts,such as those offered by Kitco, facilitate highlyliquid but unallocated claims on gold owned by thecompany. Digital gold currency systems operatelike pool accounts and additionally allow the directtransfer of fungible gold between members of theservice. BullionVault, for example, allows clients tocreate a bailment on allocated (non-fungible) gold,which becomes the legal property of the buyer.

31


32/56


DERIVATIVES, CFDs AND SPREAD BETTING:

Derivatives, such as gold forwards, futures and

options, currently trade on various exchangesaround the world and over-the-counter (OTC)directly in the private market. In the U.S., goldfutures are primarily traded on the New YorkCommodities Exchange (COMEX) and Euronext.liffe.In India, gold futures are traded on the NationalCommodity and Derivatives Exchange (NCDEX) andMulti Commodity Exchange (MCX).

The product symbol for gold futures is GC, and it istraded in a standard contract size of 100 troyounces. CME Globex, CME ClearPort (CME Group)and Open Outcry (New York) are the primaryfutures exchange venues through which it istraded. The minimum fluctuation allowed in price is

$0.10 per troy ounce, and it is held to a minimumof 995 fineness quality specification.

As of 2009, holders of COMEX gold futures haveexperienced problems taking delivery of theirmetal. Along with chronic delivery delays, some

investors have received delivery of bars notmatching their contract in serial number andweight. The delays cannot be easily explained byslow warehouse movements, as the daily reports ofthese movements show little activity. Because ofthese problems, there are concerns that COMEX

32


33/56


may not have the gold inventory to back itsexisting warehouse receipts.

Firms such as Cantor Index, CMC Markets, IG Index

and City Index, all from the UK, provide contract fordifference (CFD) or spread bets on the price of gold.

33


34/56


DEMAND AND SUPPLY SCENARIO:

Gold demand in 2010 reached a 10-year high of

3,812.2 tonnes, worth US$150billon, as a result of;

a.)strong growth in jewellery demand;

b.)the revival of the Indian market;

c.)strong momentum in Chinese gold demand and

d.)a paradigm shift in the official sector, where

central banks became net purchasers of gold forthe first time in 21 years.

e.)China was the world's largest gold producer with340.88 tonnes in 2010, followed by the UnitedStates and South Africa.

f.)In 2010, India was the world's largest goldconsumer with an annual demand of 963 tonnes.

g.)The total supply of gold coming onto the marketin 2010 reached 4,108 tonnes, a rise of 2% from2009 levels.

34


35/56


JWELLERY AND INDUSTRIAL DEMAND:

Jewelry consistently accounts for over two-thirds ofannual gold demand. India is the largest consumerin volume terms, accounting for 27% of demand in

2009, followed by China and the USA.

Industrial, dentistry and medical uses account foraround 12% of gold demand. Gold has high thermaland electrical conductivity properties, along with ahigh resistance to corrosion and bacterial

colonization. Jewelry and industrial demand hasfluctuated over the past few years due to thesteady expansion in emerging markets of middleclasses aspiring to Western lifestyles, offset by thefinancial crisis of 20072010.

35


36/56


PURITY:

Gold purity is measured in terms of karat and

fineness:

Karat: pure gold is defined as 24 karat

Fineness: parts per thousand

Thus, 18 karat = 18/24 of 1,000 parts = 750fineness

36


37/56


Chapter 5

SILVER

37


38/56


SILVER

INTRODUCTION:

Silver, a metallic chemical element. Like gold andplatinum, silver is a precious metal because of itsbeauty and scarcity. Silver is harder than gold butnot as hard as copper. Of all the metals, pure silveris the best conductor of heat and electricity. It isductile (can be drawn into wire), malleable (can be

hammered or rolled into a thin sheet), and anexcellent reflector of light.

Silver is one of the most corrosion-resistant metals.It resists attacks by alkalies and all acids exceptnitric acid and hot concentrated sulfuric acid. Silveris not easily oxidized by air, and is insoluble in

water. Because of its softness, silver must bealloyed with other metals for uses that subject it towear.

Silver for centuries has been used in the arts andfor coinage. Silver smithing, the art of producing

decorative silver objects, was highly developed inEgypt by the 16th century B.C. Jewelry, tableware,vases, religious articles, and many other items aremade of pure silver or alloys containing a highpercentage of silver. The most important use of

38


39/56


silver compounds is for the light-sensitive materialsused in photographic films and papers.

The use of silver for coinage has virtuallydisappeared because of its high price. In the UnitedStates, silver was eliminated from dimes andquarters in 1965 and from half dollars in 1971.Silver certificates, last issued in 1963, were paperbills redeemable in silver until 1968. In 1986, asilver dollar weighing one troy ounce (31.1 g) was

issued for collectors and investors. The coin's metalvalue is much higher than its face value, so it doesnot circulate.

Silver tarnishes on contact with sulfur or mostsulfides. Unprotected silver will tarnish in airbecause of hydrogen sulfide gas, which comes

mainly from the combustion of coal or oil infurnaces. To help prevent tarnish, silver objectsmay be stored in specially treated paper or felt, orin airtight containers. Display pieces are oftencoated with clear lacquer or silicone. Tarnish maybe removed either by a fine abrasive polish or byvarious chemical processes.

Pure silver is called fine silver. The proportion ofsilver in jewelry, coins, and bullion is usuallyexpressed in terms of fineness (the number of parts

39


40/56


of silver in 1,000 parts of alloy). Example: an alloythat is 95 per cent silver is said to be 950 fine.

40


41/56



Silver (Chemical Symbol-Ag) is a brilliant grey-white

metal that is soft and malleable.

Silver has unique properties such as its strength,malleability, ductility, electrical and thermalconductivity, sensitivity, high reflectance of light,and reactivity.

The main source of silver is in lead ore, although itcan also be found associated with copper, zinc andgold and produced as a by-product of base metalmining activities.

Secondary silver sources include coin melt, scraprecovery, and dis-hoarding from countries whereexport is restricted. Secondary sources are pricesensitive.

Silver is unique amongst metals due to the fact thatit can be classified as both a precious metal and anindustrial metal.

Today, silver is sought as a valuable and practicalindustrial commodity and as an investment.

Silver is an important element of global monetaryreserves.

It is an effective portfolio diversifier.

41


42/56


DEMAND AND SUPPLY SCENARIO:

Silverware achieved an increase of 4.6%, owing to

stock-related gains in India.

Demand for coins and medals surged yet higherfrom 2008, rising by 20.7% to reach a new recordhigh of 78.7 Moz (2,447 t) in 2009 on the back ofstrong investment demand.

In 2009, implied net investment soared to 136.9Moz (4,258 t), buoyed by safe haven concerns,which led to strong inflows into both ETFs andphysical investment.

Scrap supply continued to decrease in 2009 byalmost 6% to 165.7 Moz, despite a strong recoveryin prices over the year.

Most notable increases were seen in Bolivia and

Argentina (both +6.8 Moz) with by largest singledecline coming from Australia (-9.4 Moz).

Net government sales fell by just over one half to13.7 Moz (426t) in 2009, primarily driven by loweststock sales from Russia, coupled with the continuedabsence of any disposal from China and India.

42


43/56


GLOBAL SCENARIO:

Silver is predominantly traded on the London

Bullion Market Association (LBMA) and COMEX inNew York.

LBMA, as the global hub of over-the-counter (OTC)trading in silver, is its main physical market. Comexis a futures and options exchange, where most fundactivity is focused.

Silver is invariably quoted in the US dollars per troyounce.

GLOBAL SCENARIO:

India's silver demand averages 2500 tonnes peryear, whereas the country's production was around

206.95 tonnes in 2010.Nearly 60% of India's silver demand comes fromfarmers and rural India, who store their savings insilver bangles and coins.

43


44/56


FACTORS INFLUENCING THE MARKET:

Economic events such as national industrial growth,

global financial crisis, recession, and inflation affectmetal prices.

Commodity-specific events such as theconstruction of new production facilities orprocesses, unexpected mine or plant closures, orindustry restructuring, all affect metal prices.

Governments set trade policy (implementation orsuspension of taxes, penalties, and quotas) thataffect supply by regulating (restricting orencouraging) material flow.

Geopolitical events involving governments oreconomic paradigms and armed conflict can causemajor changes.

A faster growth in demand against supply oftenleads to a drop in stocks with the government andinvestors.

Silver demand is underpinned by the demand fromjewellery and silverware, industrial applications,and overall industrial growth.

In India, the real industrial demand occupies asmall share in the total industrial demand of silver.

This is in sharp contrast to most developedeconomies.

In India, silver demand is also determined to a largeextent by its price level and volatility.

44


45/56


MEASUREMENT:


To convertfrom

To Multiply by

1 Moz Metric tons 31.1031 Ton Troy ounces 32,5111 Ton Grams 1,000,000

45


46/56


Chapter 6

PLATINUM

46


47/56


PLATINUM

INTRODUCTION:

Platinum is the rarest of all precious metals. It hasseveral unique chemical and physical propertiesthat make it essential in a wide range of industrialand environmental applications. Platinum is alsoconsidered as one of the finest of all jewellerymetals.


Platinum as a pure metal is silvery-white inappearance, lustrous, ductile, and malleable. It is

widely used in several industrial applications as itpossesses high resistance to chemical attack,excellent high-temperature characteristics, andstable electrical properties.

Platinum is corrosion resistant and is more preciousthan gold. Platinum's wear- and tarnish-resistancecharacteristics are well suited for making fine

jewelry.Platinum is traded as a commodity with pricesdetermined by market forces. It is also a widelysought after investment avenue in recent years.

47


48/56


However, it is not widely treated as a monetarybase like gold

48


49/56


GLOBAL DEMAND AND SUPPLY SCENARIO:

The supply of platinum is met by mine production,

auto catalyst refining and jewellery refining withtheir respective contribution estimated to be 6.15million ounces, 1 million ounce and 0.9 millionounce in 2008.

The annual production of platinum has averagedaround 6.2 million ounces (193 tonnes) in theprevious three years from 2006 with more than

90% of the production coming from South Africa(76%) and Russia. The other producers are UnitedStates of America, Canada and Zimbabwe.

The production of platinum is highly dependent onSouth Africa's production with 2009 output fromSouth Africa, Russia, USA and Zimbabwe estimatedto be 4.7 million ouces, 0.74, 0.25 and 0.33 millionounces respectively.

The platinum mining industry is very capitalintensive and it is reported that approximately 10tonnes of raw ore has to be mined to produce justone pure ounce of platinum.

Unlike other precious metals like gold and silver,there are no large above-ground platinum

stockpiles to protect against significant supplydisruptions. Some estimates predict that existingabove ground reserves would last only for a year, ifplatinum mining was suddenly stopped.

49


50/56


The demand for platinum mainly comes from autocatalyst, jewellery, other industrial application andinvestment. The other industries uses platinum areelectronics, glass and petroleum industry.

The total global demand for this rare metal isreported to be around 7.79 million ounces in 2008,with consumption by auto catalyst (used inautomobiles), jewellery, investment and otherindustrial applications estimated to be around 3.8,1.6, 0.45 and 1.9 million ounces respectively.

North America, Europe, China and Japan are themost important economies accounting for majorityof the global platinum consumption.

WORLD GOLD MARKETS:

The London Platinum and Palladium Market (LPPM),

which provides the industry benchmark priceLondon fix

Derivative exchanges at New York CME (COMEX),TOCOM (Japan), MCX (Mumbai)

INDIAN PLATINUM MARKET:

India's appetite for platinum has been steadilyincreasing in recent years on account of thecountry's economic progress leading to risingindustrial demand and increasing preference forplatinum jewellery in urban areas.

50


51/56


India's consumption of platinum in 2008-09 isestimated to be around 932 kgs, which is expectedto rise to around 1200 kgs in 2009-10.

The approximate consumption by various sectors inIndia is estimated to be automobile (55%),petrochemicals (25%), jewellery (15%) andelectronics & dental (5%).

51


52/56


MARKET MOVING FACTORS:

Indian platinum prices are highly correlated with

international prices. However, the fluctuations inthe INR-US Dollar impact domestic platinum pricesand have to be closely followed.

The global prices are driven by a host of factorswith macro-economic factors like strength of theglobal economy, currency movements, interestrates, rising importance of emerging markets being

major influencing factors.Economic situation in major consuming countrieslike USA, Europe, Japan and China influenceconsumption on account to its high demand fromindustrial sectors, especially automobiles.

Platinum production is highly skewed with just fourmines and two countries producing almost 90% of

the total annual production. Prices are influencedprofoundly by production disruptions, policies takenin producing countries. The influence of this factoris enhanced by the absence of any significantglobal stocks of platinum in the world, unlike that ofgold and silver. Additionally, platinum mining is avery capital intensive industry, which discouragesentry of new players.

Any change in global stocks, of which a majorportion is present in Russia do influence prices.

The price movement in other precious metals,especially gold is a major influencing factor.

52


53/56


53


54/56


MEASUREMENT:


To convertfrom

To Multiply by

Troy Ounce Grams 31.1035Troy Ounce Kilograms 0.0311035Million TroyOunce

Tonnes 31.1035

Kilograms Troy Ounce 32.1507Tonnes Troy Ounce 32150.7

54


55/56


Chapter 7Conclusion

The Indian Bullion Market has thus developedgradually over a period of year. Major trading inthis market is concentrated majorly on Gold andSilver Platinum is traded in the market but at alower volume. This is because of its very high costthat it offers.

Though the bullion market offers the opportunity toearn high returns to the investors, the investorsalso have the tendency to inccure heavy losses dueto lack of knowledge.

Thus an investor must invest his savings butkeeping into mind the degree of market risk he isfacing.

55


56/56


Chapter 8Bibliography

Websites Visited

http://en.wikipedia.org

http://www.google.co.in

http://www.paggu.com

http://www.investopedia.com

raw final project-1

Documents