Fundamentals of Gold

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

World Gold Markets

London - the great clearing house New York - the home of futures trading Middle East & Asia - doorways to important consuming regions Markets active across Sydney to Tokyo to Singapore to London right across to New York Consumption after India liberalized gold imports

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Fundamental Analysis

Supply and demand Increase in U.S. government debt Uncertainty about the dollar Investor interest in physical gold ownership Increase in investment demand Hedge Funds / ETFs

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

How Gold is Traded ?

Over the Counter Between principals, not through exchanges Contract terms are flexible Main centers: London, New York, and Zurich Mining companies and central banks tend to transact their business through London and New York Twice daily during London trading hours there is a fix which offers reference prices for that days trading.

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Gold & Silver Fixings

Gold Fixing : Started in 1919 Twice a Day i.e ; 10.30 a.m & 3 p.m London Time Members : Bank of Nova ScotiaScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA, NA and Socit Gnrale. Silver Fixing : Started in 1897 Once a day ie; 12 noon Members :The Bank of Nova Scotia, Deutsche Bank, HSBC

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

London Fixing : An auction market

Plain fixing orders can be placed. Conditional fixing orders can be placed Fixing charges

Spot Deferred Contracts How does it work

Bullion Bank
Central Bank Barrick

Barrick enters into the spot deferred contract with the Bullion Bank.
FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

How does it work

Bullion Bank
Central Bank Barrick

Bullion Bank borrows gold from the Central Bank

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

How does it work

Bullion Bank
Central Bank Barrick

Spot Market Sells the gold in the spot market

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

How does it work

Bullion Bank Barrick Central Bank

1% lease rate Interest earned 4%

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

How does it work

Bullion Bank Barrick Central Bank

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

How does it work

Bullion Bank Barrick Central Bank

Bullion Bank pays Barrick and returns the gold to the Central Bank
FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Driving Mr.Gold !

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Factors affecting price outlook

Currency Debasement Central Banks Stock Up Physical buying of gold coins Concern over sovereign debt increase and credit crisis Growing inflation expectation in U.S.

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Key Events in last 10 Years

2001 September 11 attack 2003 - US leads the invasion of Iraq 2005 London Bombing 2007 U.S. Sub-prime effect & rising energy prices 2008 - U.S. Credit Crisis 2009 IMF sells 200 tons of gold to the Reserve Bank of India for $6.7 billion. 2011 Euro Zone Crisis (Fear of countries default)

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Forex Market

Over the Counter Markets (OTC) 2 Way Quote Market 2 Types of Quotes
Direct Quote: 1 Unit of USD against equivalent of other currency of variable e.g INR Indirect Quote : 1 unit of other currency against USD e.g 1 GBP

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Need of FX market

Exporter and importers needs to Buy/Sell foreign currencies Normally Banks cater these needs Forex Brokers are facilitators Deals are done over the phone, Reuters / Bloomberg Dealing system or online platforms

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Forex Products

Ready transactions i.e Cash / Tom / Spot Forward Contracts

Spot Forwards Forwards to Forwards Cross Currencies Forwards

Swaps
Currency Swaps Interest Rates Swaps Currency & interest rates swaps

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Marketable Lots

Marketable lots are lots in which interbank normally trades Normal marketable lot is of USD 3 Mio In India for Spot transactions the lot is of USD 3 Mio and in Forwards lot is of USD 10 Mio Price might be different for Non Marketable lots.

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

FX Risk Management

FX transactions give rise to various kinds of risk like:

Country Risk Counterparty Risk Credit Risk Funds Settlement Risk Currency Movement Risk Interest Rates Movement Risk

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Factors influencing FX rates

Fundamentals of the countrys economy Respective countrys relationship with other countries e.g. U.S with Iran, U.S with North Korea Euro Crisis, Bond default , sub-prime crisis Interest rates differentials between two countries Periodic economic data

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY

Questions?

FOREX TRADING INDIA GROUP, GLOBAL MARKETS, TREASURY