Physical Gold Retailing (Coins/ Medallions & Bars)

4th India International Gold Convention

24th August 2007

By
Keyur Shah
Associate Director
World Gold Council, India

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 About Us
9 The World Gold Council (WGC), a commercially-driven but not-for-profit
marketing organization, is funded by the world’s leading gold mining
companies. A global advocate for gold, the WGC aims to promote the demand
for gold in all its forms through marketing activities in major international
markets. For further information visit www.gold.org

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 Agenda
9 Background
9 Global Scenario
9 Indian Scenario

9 Demand Dynamics
9 Booming Economy
9 Gold Investment Practices in India
9 The Great Indian Consumer

9 Market Potential

9 Current Indian Retail Landscape & Recent Changes

9 Transformation and Growth Opportunities

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 Background – Global Scenario
9 “Gold for Investment” or “Retail Investment” 2 0 0 6 Over all Invest ment D emand
globally consists of Physical (bars/ medallions/
coins) and Paper Products (ETFs etc). Bars &
ETFs Medallions
39%
42%
9In H1 2007 the Physical Investment Segment
increased by 41%.

9 The Physical Segment growth was driven

primarily by India, Vietnam and Turkey Of f i ci al Coi ns
19%

2006 Physical Investment Demand by Country

Others
2660 2614 2707 14%
2482
2280 USA
8% Coins India
Medallions 48%
Coins and Bars
1237 Bars
Turkey
643 15%
473 593
343 332 277 Vietnam
15%

2002 2003 2004 2005 2006 H1 2007

Jew ellery Demand (Tonnes) Investment Demand (Tonnes) Source: WGC Report

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 Background – Indian Scenario
9 “Gold for Investment” or “Retail Investment” in India consists of Medallions
(no Coins) and Bars only. Currently, this segment constitutes 25% of all the
gold that is imported into India

9 This category is growing at a very fast rate (CAGR 30-40%) in India since
the past 3 years

9 In 2006 Indians bought 186 tonnes of gold medallions and bars for
investment purposes, an increase by 34% in tonnage terms probably at the
cost of gold jewellery, which reported a negative growth in tonnage. As per
the latest GFMS report released last week, Q2 was a record quarter for India
with Retail Investment segment growing by 98%.
2006 India Investment Demand
588
518 Medallions
475 505 Jewellery
459 30%
387 demand Also includes
(to nnes) 100 gm, 50 gm,
20 gm retail bars
Investment
b 186 demand
135 141
88 90 100 Bars
(to nnes)
70%

2002 2003 2004 2005 2006 H12007

Source: WGC Report

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 Reasons for High Consumption Demand
9 Surge in April-June ’07:
9 Strong Akshaya Thritiya demand
9 Softening of prices in Indian Rupees (strengthening of the Rupee)
9 Credit Crunch (more expensive house loans)
9 Consumer belief that gold prices will rise in the long run

9 Booming Economy (9% growth):

9 Gold Investment Practices in India

9 Understanding the “Great Indian Consumer”

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 Booming Economy

9 Indians are earning more,

spending more and investing more:
9 Per Capita Income growing at
7% pa; McKinsey Global Institute
predicts that the average
Indian's income will triple by
2025
9 Willingness to borrow to fulfil
current aspirations (share of
consumer loans is now 10% of
GDP, 22% CAGR in retail
borrowings)

9 Upswing in the proportion of

consuming population: 40 mio
“middle class” households expected
to rise to 65 million in 2010 which
would account for almost 60% of the
population, one of the highest in the 1
world

Source: KPMG India Report

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 Gold Investment Practices in India
9 Indians are skewed towards PHYSICAL GOLD. Current private holdings are more than 15,000
tonnes held in form or jewellery and medallions/ bars in bank lockers:
9 Gold is culturally engrained into our lives – Gold for every occasion
9 Gold provides an effective anonymous means of storing wealth

9 Traditionally, Indians bought gold in the form of jewellery that served dual purpose – adornment
as well as investment but over the past 3-4 years a new trend is emerging wherein in the bar/
medallions segment is growing as a distinctly separate category

9 Fluctuations in Gold Prices make Indians move towards bars/ medallions. Huge medallions/
bars purchases made when the prices dip or stabilize e.g. in 2006, especially 15 days before Diwali

9 The recently launched Gold Investment Funds have not shown much growth. It would take some
time before Indian investors get used to the availability and recognizing the advantages of non-
physical gold products.

9 Comparison with International practices:

9 Vietnam: Gold has outperformed other local asset classes (property & stock market);
Property purchases are made in Gold; Desire to generate anonymous ways to store wealth
9 Turkey: Official Coins mainly for gifting purposes for cultural occasions – wedding,
circumcision occasions, deposit for house purchase

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 The Great Indian Consumer
9 Age Old Wisdom in regards to Systematic Investment in Gold over a period of time
(consumers face least amount of resistance from family members to buy Gold as
compared to any other asset class or objects of desire)

9 Phenomenal awareness of Gold prices… probably the most transparent of any

Gold Markets in the world

9 Less quality conscious (especially Rural areas)… trade-off between price vs.
quality

9 Investment in Gold for Life Milestones: wedding, future of Children, future

property purchase

9 Gifting on Festive Occasions (Medallions with imprints of Gods/ Goddesses) and

Weddings

9 Growing awareness amongst Urban Consumers for Gold as a portfolio diversifier

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 The Great Indian Consumer – Investment Profile
9 Majority of Indians (70%) still live in rural & semi-urban areas and hence their
preference for investments remains traditional asset classes
9 Fixed Deposits with Banks
9 Insurance & Provident Funds (Retirement Plans)
9 Gold & silver
9 Others - Postal savings, property, bonds

9 A recent study published in a leading Financial daily (June 25th ’07), demonstrates that
the confidence of an average Indian investor is still skewed towards Government owned
financial institutions. The preference list is as follows:
9 Nationalized Banks = 96%
9 Life Insurance Corporation of India = 83%
9 Regional Rural Banks = 55%
9 Other Insurance Companies = 29%
9 Private Sector Banks = 21%

9Limitations of newly emerging investment options like stocks/

mutual funds and commodity exchanges:
9 Requirement of a Permanent Account Number (PAN)
for Income Tax purposes by the regulatory authorities
9 Most Indians living in rural areas do not have a PAN
number. Currently only 2% of India pays income tax
Source – SEBI, NCER 2005 report

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 Investment (Physical Gold) Retail Market
- Future Potential in India

Ongoing
Price Fluctuations
Booming Economy Increased Consumer
Confidence

Young Population – TREMENDOUS Cultural Belief in

More Marriages GROWTH Physical Gold
POTENTIAL

Per Capita Consumption half of that in US

and well below the Middle Eastern Countries;
Hence there remains plenty of scope for further growth!

Internationally, increasingly sophisticated gold products that are being offered

could impinge on coin and bar demand in the future.

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 Current Retail Landscape

Investment (Physical Gold) Retail Market In India

Organized Sector Unorganized Retail

Approx. 20% of Market Share Approx. 80% of Market Share

Banking Non-Banking • Jewellers

• Private Banks • Private Players/ Corporates • Bar Traders
• PSU Banks • Micro-Finance Agencies
PRODUCT FEATURES

- Imported - Indian and Imported - Primarily Indian

- Very Good Finish - Good Finish - Ranges from Poor to Average
- Packaged - Packaged - Not Packaged
- Certified - Certified - Not Certified
- 10-12% Premium - Yet to be determined - 2-5% Premium
- Mainly urban - Urban/ Rural - Urban/ Rural
- No Buy-Back - Buy-Back - Buy-Back

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 Some Recent Observations
9 The organized sector is growing rapidly since the past 3 years, mainly
because of the growing awareness amongst the booming middle class
consumer segment about the advantages of better quality or certified gold for
investment purposes. But since India is a very price volatility sensitive
market, this segment growth is limited in terms of the overall tonnage off-
take

9 Some domestic players (jewellers) are improving their product quality

and could pose threat to the imported medallions market segment

9 Large national (non-conventional) players have entered or are entering

the market and could change the dynamics of future growth. Consumer reach
being extended beyond jewellers showrooms and bank branches

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 Retail Transformation
9 We believe that the Investment (Physical Gold) Market Segment is poised
for a significant change in the next few years

9 While the “Market Forces” will bring about these changes similar to the
Indian Mobile Industry, the winners will be those who can offer the following
combination

“GOOD QUALITY* in a COST EFFECTIVE and CONVENIENT MANNER!”

Rationale:
9 Currently no market player is offering the aforementioned “combination” in
an effective manner
9 Faster growth will primarily come from the Mass Market that is yet to be
tapped by organized players
9 To enter the Mass Market, the product needs to be better than the current one
but at a similar or justifiable premium (making charges)
9 Ease of access will be the key to retail expansion

* Domestically Manufactured or Imported

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 Growth Opportunities
9 Organized Sector:
9 PSU Banks could start retailing packaged/ certified gold to a wider audience
(rural/ semi-rural areas)
9 Existing players could include larger denominations in their portfolio
9 Offer EMI schemes to consumers for physical Gold purchases; Consumers are
now open to borrowing in order to fulfill their aspirations
9 More National Non-Banking Players could foray into the market with a branded
product

9 Unorganized Sector
9 Improve product quality/ packaging (certification)

9 Unconventional Channels: Promote gold sales via:

9 Micro-finance segments
9 Indian Postal Services
9 Money Exchanges to cater to the Non-Resident Indian requirements
9 Medallions Contracts on Commodity Exchanges

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 Points to Ponder!
9 While we are the largest Gold consuming country in the World today and
the future growth potential looks very positive, we still lack the following:

9 A World Class (LBMA Accredited) Refinery

9 A World Class Medallions/ Bars Manufacturing Unit

9 World Class Mining Capabilities to tap the existing Gold Reserves

9 A Sovereign/ Coin backed by the Government

Thank You!

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