Gold

10 June 2014 04:49 PM

Gold doesn’t need any introduction as it is a highly valuable and well sought after metal since ancient times. Gold was used as money and it was reported that the first coins containing gold were used in Asia Minor as early as around 600 BC. India has been the largest consumer of gold.

Gold is relatively stable metal under standard conditions. It occurs in the earth’s crust in elemental form as rocks, nuggets and in other forms of deposits. It is also available in the form of alloys and other complex forms. It is believed to have formed at the time of earth’s formation or later by meteorites that contained element.

Importance Uses:

Ornaments: Gold is the most sought after metal for a number of uses, most widely for ornamental

Asset: Investment purpose particularly as a hedge against inflation.

Currency: It is also used as a medium of exchange or convertible currency.

Medicinal: Gold is used in medicine and pharmaceutical industries. It is also used for industrial applications with its unique properties.

Source:

Gold is found in ores and as an alloy of silver. Electrum is elemental gold with about 20% of silver. It also occurs in the form a rare alloy with copper and mercury. It also occurs in compound form such as calaverite, sylvanite and krennerite.

Production:

Gold production process involves extraction and refining. Gold extraction is economical if ore contains at least 0.5 mg gold per kg of ore. Refining of gold takes place after initial production by either electrolysis or by chlorination in the melt. Electrolysis gives a higher purity of gold but is complex and hence used in small-scale productions.

Purity: gold purity is measured and expressed in terms of carats (k). Gold in purest form is designated as 24k while the ornamental gold is of 22k, 18k and 11k. Pure gold is mixed with copper and/or silver to attain the required amount of purity for making the jewellery.

World Scenario

World gold production has stood at about 2.8 thousand tons during 2010-2012. On the other hand, recycled gold stood at about 1.6 thousand tons in the corresponding period. China has become the largest gold producing country in the world accounting for about 14% of world gold production followed by Australia with 9%, U.S. and Russia with 8% each.

World consumption demand for gold has been in the range of 4.4 to 4.6 thousand tons. India is the largest consuming country contributing for about 28% of world gold consumption followed by China with about 26% and U.S. with 6% of share.

Table 1: Trends in world gold production and consumption (tons)

	Mine production	Recycled gold	Supply	Demand
2010	2,741	1,711	4,346	4,163
2011	2,839	1,649	4,499	4,587
2012	2,864	1,591	4,415	4,383

Source: World Gold Council

Gold is largely utilised in the jewellery and fabrication to an extent of 53% followed by bar & coins at about 29% and central bank net purchases account for about 12% of total gold consumption in the world. Other uses of gold include ETFs and other investment purposes. Marginal quantities of gold are used for medicinal purposes and in pharmaceutical industry.

Domestic Scenario

India is the largest consumer of gold in the world accounting for about 25 to 30% of total gold consumption in the world. But domestic gold production is almost negligible except for the recycled gold. As a result, India’s gold consumption requirement is met through imports to an extent of about 85 to 95% during 2010 to 2012.

Domestic demand for gold has increased significantly and consistently until 2011 and reached about 986 tons owing to the bullish trends prevailed in the market. Thereafter, demand moderated but only marginally on account of various measures taken by the Reserve Bank of India and the government of India to discourage gold imports into the country in order to contain current account deficit.

Table 2: Domestic demand and supply of gold (tons)

	2011	Share (%)	2012	Share (%)
Jewellery demand	618	63	552	64
Coins & bars demand	368	37	312	36
Total Demand	986	100	864	100
Net imports	969	93	860	87
Recycled gold	59	6	117	12
Other sources	12	1	10	1
Total supply	1039	100	987	100

Source: World Gold Council

India’s import of gold declined from about a record high of 969 tons accounting for about 93% of total domestic supply in 2011 to 860 tons amounting to 87% of domestic supply in 2012. Apparently, in order to compensate the fall in imports, recycling of domestic gold has increased by about 100% to 117 tons in 2012 from about 59 tons in 2011.Thus, demand for gold is expected to sustain in India despite the high prices and import restrictions.

Domestic demand primarily comes from jewellery and coins & bars segments accounting for about 64% and 36% respectively. The change in overall demand didn’t seem to cause any change in demand pattern from the individual segments as evident from their stable share in total demand. Domestic demand is wide spread across the country as investing in gold, particularly jewellery, by households is a tradition.

Major Markets

Domestic Spot markets: Mumbai, Delhi, Kolkata, Chennai and Hyderabad

Futures markets:

International: COMEX, TOCOM

Domestic: MCX, NCDEX, NMCE

External Trade

In India, gold is imported in the form of bars and is exported as finished jewellery. Nevertheless, India is the largest importer of gold as the domestic demand is growing persistently.

Major export destinations: Belgium, UAE, Korea, Singapore and US.

Major import sources: Switzerland, UAE, South Africa, Australia, US, China and Germany.

Factors Influencing Prices:

· Supply situation from mine production as well as recycling.

· Global macro-economic developments.

· Socio-political events in major producing and consuming countries.

· External trade policies, tariffs and restrictions by the country.

· Domestic inflation and other economic developments.