BULLIO

N
MARKET
TEAM III

MEMBERS
RAJAT NIRWAN

VISHAL BAGWE

9325

9311

VINAY MISHRA

RIYA AHER

9307

9309

KARAN NAGDA

VANDIT JAIN

9323

930

INTRODUCTION
Bullion refers to precious metals in bulk form
which are regularly traded on commodity
markets.

Bullion traditionally stands for gold bars, silver

bars, other precious metals bars or ingots

Bullion is valued by its purity and mass rather

than its face value which is applicable in the
case of money

Indian Bullion Market Association

To promote a
professional
organizational
dedication towards the
development and
growth of the bullion
industry in India

London Bullion Market

World's largest market for gold

and silver trading market.
Operated by the London Bullion
Market Association (LBMA)

Close links with the Bank of

England

Responsible for the supervision

of the market and for publishing
its code of conduct

Trading System
Time related Conditions DAY orderGTC - A Good Till Cancelled (GTC):- An order that remains
in the system until the expiry of the respective contract in
which it is entered or until when the same is cancelled by
the member in the trading system of bullion market

IOC - An Immediate or Cancel (IOC):- Order allows a

member to execute the orders as soon as the same is
placed in the market, failing which the order will get
cancelled immediately

GOLD

Due to large stocks of Gold

as against its demand,
it is argued that the core
driver of the real price of
gold is
Stock equilibrium
rather than
Flow equilibrium.

 Purity

Gold purity is measured in

terms of karats and fineness

Karat:

Pure gold is defined as 24

karat
Fineness:

Parts per thousand

Thus, 18 karat = (18/24) th of 1000

parts = 750 fineness

Trade Timings

Special Session:

Monday to Saturday: 9:45 a.m. to 9:59 a.m.

Special Session (order cancellation session) is held to cancel the pending

orders prior to opening of market Normal Session:

Monday through Friday: 10:00 a.m. to 11:30 p.m.

(up to 11:55 p.m. on account of day light savings typically between

every November and March of the following year)

Saturdays: 10:00 a.m. to 2:00 p.m.

Agri-commodities are available for futures trading up to 5:00 p.m.

whereas non Agri-commodities (bullions, metals, energy products) are
available up to 11:30 pm / 11.55pm.

OVERVIEW:
On the other hand, world's largest gold
consuming country is India with an annual
demand of 843.2 tones comprising of 26.2% of
total world demands.

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.

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

In

1990, India was on a verge of default of external

liabilities as it had a major foreign exchange

GOLD AND ITS BULL RUN:

Gold has had a great

run from 2001 to the
current year 2008 where
the prices have gone
from around 250$/ounce
to break its previous
high of 850$/ounce and
peak at 1030$/ounce
before correcting to the
900 levels.

Gold is used:

As a hedge against inflation.

As a hedge against a declining dollar.

As a safe haven in times of geopolitical and

financial market instability.

As a commodity, based on golds supply and

demand fundamentals.

As a store of value.

As a portfolio diversifier; gold can act as portfolio

MINE PRODUCTION

The production of gold has reached a stable

level, averaging approximately 2550 tons per
year over the last five years.

New mines that are being developed are

serving to replace current production, rather
than to cause any significant expansion in the

INDIA

Indian love of gold and silver is

deep-rooted and embedded in
historical, cultural and religious
traditions.

In India, as elsewhere, it has proven

important to provide attractive and
well-marketed products to satisfy
the
more
demanding
and
sophisticated consumer. So we
could say if the Indian economy
keeps on growing there will always
be a growing demand for Gold and
this could be a factor in increasing
prices.

WORLD GOLD DEMAND

Four major sources of demand for gold

1)

Jewelry Fabrication Application.

2)

Industrial.

3)

Governments and Central Banks.

4)

Private Investors.

 The India Bullion market is under the strict

supervision of the Government as bullion is
one of the major indicators of the wealth of
the country for the world also.(as per UN)
India is the largest investor in gold jewelry
as a large number of people believe that
investing in gold is beneficial.
The domestic consumption of gold depends
on factors like the wedding season, festive
season, the performance of the harvest and
the monsoon of the country.

COUNTRY

BULLIONS [IN TONS]

1. UNITED STATES

8133.5

2. FRANCE

2445.1

3. GERMANY

3408.5

4. ITALY

2451.8

5. NETHERLAND

612.5

6. SWITZERLAND

1041.5

7. ECB

501.4

8. INDIA

558.7

9. RUSSIA

568.4

10. JAPAN

765.2

11. CHINA

1054.0

DOLLAR INDEX

The US Dollar Index (USDX) is an index or

measure of the value of the United States
dollar relative to a basket of foreign
currencies.

It is a weighted geometric mean of the

dollar's value compared to the euro (EUR),
Japanese yen (JPY), Pound sterling (GBP),
Canadian dollar (CAD), Swedish kroner (SEK)
and Swiss franc (CHF).

PORTFOLIO DIVERSIFIER:

Gold is an important part of a diversified investment

portfolio because its price increases in response to
events that erode the value of traditional paper
investments like stocks and bonds. There has been
no clear pattern in the behavior of the gold price
during an economic downturn.

INTERPRETATION:
The

gold which was trading on a weaker note since Mid

March this year,

After

making a life time high it was not able to sustain

in Rs13, 000 levels and with a spam of week it came
back to the levels of Rs12, 200.

Markets

are expected to find a support at $850. This

suggests that the price of the Gold in the international
levels is not expected to fall below $850/Ounce which
is considered to be a very strong support.

However from 19th July to 29th July it was hovering over and
about $900, which had show some good sign for the price of
gold to increase, and also it made a historical record on 15th
July by touching $ 986.

Prepare market for an assault on $1000 and then $1032.8

levels.

Support level of $ 907 was break on 30-July-08 and reached

$898.5 for a single day and it again jumped to $918 the very
next day.

Support Levels $907, $ 845. Resistance levels $960, $ 1032.8

FACTORS THAT MAY CAUSE THE PRICES

OF GOLD TO INCREASE
An

under supply of newly-mined gold.

Global

inflation is the main factor that can cause the price of the
gold to increase.

It's

a natural hedge against the US dollar

Dollar

Price Gold is typically quoted in Dollars, and if the dollar

begins to falls then the value of Gold tends to increase and viceversa.

Market

Fear Whenever the stock markets or political situations look

bad then people tend to fly towards Gold. Stock market crashes,
terrorist attacks, or wars will all tend to push the value of Gold up.

MAJOR TRADING CENTERS OF GOLD

In

India the gold is traded thought the well know exchange

mainly MCX and NCDEX, The trading in Gold is available in
1kg, 100Grams and Gold Guinea which consists of 8Grams.

The

increase in 1rupee of gold is termed a 1 tick which

stands for Rs100, Rs10 and Rs8 respectively.

SILVER

SILENT CHARACTERISTICS:
Silver

is a very ductile and malleable (slightly harder than gold)

monovalent

coinage metal with a brilliant white metallic luster

that can take a high degree of polish.

It

has the highest electrical conductivity of all metals, even

higher than copper, but its greater cost and tarnish ability have
prevented it from being widely used in place of copper for
electrical purposes.

Another

notable exception is in high-end audio cables,

although the actual benefits of its use in this application are
questionable.

Among

metals, pure silver has the

highest thermal conductivity, the
whitest color, and the highest
optical reflectivity

Silver

also has the lowest contact

resistance of any metal.

Silver

halides are photosensitive

and are remarkable for their ability
to record a latent image that can
later be developed chemically.

Silver

is stable in pure air and

water, but tarnishes when it is
exposed to air or water containing
ozone or hydrogen sulfide.

SILVER PRODUCING COUNTRIES

Mexico (99 million
ounces)

Peru (98.4 million

ounces)

Canada

(40.6 million ounces)

United

States (40.2 million

ounces)

Russia

(38.9 million ounces)

Australia (71.9 million

ounces)

Kazakhstan

China (63.8 million

ounces)

Sweden

Poland (43.8 million

ounces)

Bolivia

(20.6 million ounces)

(13.1 million ounces)

(9.4 million ounces)

Indonesia (8.6 million ounces)

Morocco (6.3 million ounces)

Argentina (5 million ounces)

Turkey (3.7 million ounces)

Iran (2.6 million ounces)

Japan (2.4 million ounces)

India (2.1 million ounces)

South Africa (3.2 million

ounces)
{The above-mentioned figures are the silver production figures of
the countries in 2004}

PRODUCTION OF SILVER IN INDIA

India

hardly produces any

silver and is basically a silver
importing country. It holds
the 20th place in the list of
silver producing countries
and the total production of
silver in India in 2004 was
around 2.1 million ounces.

INDIAN SILVER MARKET

primarily

a silver importing country,

The

production of silver in India stands out at the figure of

around 2.1 million ounces placing it at the 20th position in the
list of major silver producing countries.

The

import of silver in India hovers over 110 million ounces that

shows the huge size of Indian domestic demand.
India stands third after United States and Japan among the
leading consumers of silver in the world. The countries from
which India imports silver and maintain the flow of silver in the
market are: -

China
United

Kingdom

European

Union

Australia
Dubai

Over 50% share of import of silver

held by Chinese silver. The major
center of silver in India was Mumbai
has been shifted to Ahmadabad and
to high sales tax and octroi charges.

in India is
importing
but now it
Jaipur due

SILVER SUPPLY ANALYSIS

The sources of silver supply constitute of mine production,

central bank reserves and the scrap supply.

Any decrease in the supply sources would lead to a demand

supply mismatch thereby increasing the prices.

Mine production remains by far the largest contributor to the

world silver supply. Hence in the year 2007, total mine supply
increased by 4% to 670 million an ounce, with particularly
solid gains from Chile, China and Mexico. Peru was the
worlds biggest silver mining country in 2007, followed in the
rankings by Mexico, China, Chile and Australia.

Top 5 Silver Producing Countries in 2007

(in million ounces)
RANK

COUNTRIES

1.

Peru

MILLION
OUNCES
112.3

2.

Mexico

99.2

3.

China

82.4

4.

Chile

62

5.

Australia

60.4

MINE PRODUCTION BY SOURCE

METAL
According to the
2006
recent
World
silver
survey
2008, Silver mine
production
is
expected
to
record a sixth
consecutive
increase
and
even accelerate
this
year
as
several
new
major mines likely
to
increase

Higher prices of these metals would encourage higher

production of the metal thereby increasing the silver supply
as a byproduct. Hence the prices of these metals play a
significant role in the mining of silver as a byproduct.

As the increasing prices of these metals act as an incentive

for raise in mine production, thereby the supply of silver is
also influenced. Supply from above ground stocks
comprising of the net government sales and the scrap sales
together constitute a 30% of the total silver supply. The
scrap is recovered from various sources like the jewelry,
photography, coins and industrial applications.

SILVER DEMAND ANALYSIS:

Demand for silver is dominated by three main categories:

jewelry and silverware; Industrial; and photographic
fabrication. (Below fig)

PRICE DETERMINING FACTORS:

Apart

from the industrial activities and supply-demand factors,

the price of silver is majorly influenced by factors like the
weakening dollar and inflation hedge demand, prices of gold
etc.

Investment Demand:

Apart

from the demand and supply factors the prices of silver

are influenced by the increasing investment into commodities.
The launch of silver Exchange traded funds (ETF) has been seen
as powerful medium for investments thereby resulting in rally in
prices of silver.

The

iShares launched by Barclays are the most traded silver

Producer Hedging:

To guarantee themselves
of an assured future price
the producers hedge their
production
into
forward
contracts

CFTC Report:

The data published by

U.S.
Commodity
Futures
Trading Commission (CFTC)
helps to grasp the market
intensity in silver derivative
trading.

INTERPRETATION:
Factors

which might cause the prices to

rise:
Silver

has the highest electrical

conductivity of all metals, even higher
than copper.

The

sources of silver supply constitute

of mine production, central bank
reserves and the scrap supply. Any
decrease in the supply sources would
lead to a demand supply mismatch
thereby increasing the prices.

 The regression analysis suggests that the industrial

production indices have some influence on the silver
performance. The increasing growth rates of these
nations will work well for the prices enhancing the
usage of the metal for industrial purposes.
The increasing demand for the industrial demand will
still be a positive factor driving the prices to higher
levels. Apart from this the increasing demand for
jeweler, for photography and coins & medals may also
contribute for the silver prices to soar.
The increasing inflation which is the result of the
increase in the crude oil prices and they impact on the
stock market world wide may be form for an investor o
move towards metals as an alternative investment, or


The increasing use of silver in the Radio
Frequency Identification and also for the medical
purpose are likely considered as an factor the
prices to increase from the current levels.
The supply of silver from the scrap is on continues
decline from the past few months despite the fact
that the price of the silver are on rise.
As we have founded that the correlation of the
silver on gold is 0.970 (by taking the daily price
form 2000 to 6/6/2008) which shows that as long as
the gold prices remain strong the silver is not likely
to fade in the near term.

LONG TERM SCENARIO: SILVER-MCX:

Currently market is into a

correction state and prices
may extend its losses towards
18500-20000 range. If market
sustains above 18000 may
see prices to reverse and
recommend taking fresh long
positions for long term for a
possible target of 25000 and
then 30000

In India, silver is traded at the following

places
Delhi
Indore
Rajasthan
Madhya Pradesh
Mathura (Uttar Pradesh)
Rajkot (Gujarat)

Thank you !!!!