Gold Commodity futures in doc...
Post on 18-May-2017
Portfolio is a group of financial assets such as shares, stock, bonds, debt investment, mutual fund, cash equivalents, etc ., A portfolio is planned to stabilize the risk of non-performance of various peoples investment. Management is the organization and co-ordination of the activities of an enterprise in accordance with well-defined policies and achievement of its pre-defined objectives.INVESTMENT
The retail investors could have done very little to actually invest in commodities such as gold and silver or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for pumping in commodities.However, with the setting up of six multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having physical stock.
Commodities actually offer immense potential to become a separate asset class for market survey investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market.
But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification optionGOLD
Gold is a unique asset based on few basic characteristics. First, it is primarily a monetary asset, and partly a commodity. As much as two thirds of golds total accumulated holdings relate to store of value considerations.
Holdings in this category include the central Commodity Exchange reserves, private investments, and high-cartage jewelry bought primarily in developing countries as a vehicle for savings. Thus, gold is primarily a monetary asset. Less than one third of golds total accumulated holdings can be considered a commodity, the jewelry bought in Western markets for adornment, and gold used in industry.
Some analysts like to think of gold as a currency without a country. It is an internationally recognized asset that is not dependent upon any governments promise to pay. This is an important feature when comparing gold to conventional diversifiers like T-bills or bonds, which unlike gold, do have counter-party risk
Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and U.S. stocks, by currency-related crises, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities. The price of gold reacts to supply and demand changes and can be influenced by consumer spending and overall levels of affluence.
Gold is different from other precious metals such as platinum, palladium and silver because the demand for these precious metals arises principally from their industrial applications. Gold is produced primarily for accumulation; other commodities are produced primarily for consumption. Golds value does not arise from its usefulness in industrial or consumable applications. It arises from its use and worldwide acceptance as a store of value. Gold is money.
Gold An Investment Paradise
Gold has been synonymous to wealth and prosperity through the ages. The history of Gold dates back to as early as 4000 BC when the prehistoric men used it as a tool. Since then Gold has filled the pages of history as the divine metal that has attracted the attention of men powerful and otherwise. Gold was the source of power for the kings. Wars were waged; lives were lost as kingdoms piled up and hoarded tonnes of Gold. In the modern history, Gold became the international currency as the Gold standard came into existence. Even after the dismantling of Gold standard, Gold existed as the backbone of international trade and economics as the US accumulated tones of yellow metal. Till today, Gold has retained its basic use as a commodity without losing its sheen as a currency.
Gold, because of its ability to protect the wealth of investors can be an ideal addition to a portfolio. Also the short-term fluctuations in Gold offer good potential for trading. Gold has been on its long-term upwards trajectory which began in early 2001. This long-term move has been punctuated by short-term pullbacks offering opportunities for late entrants to join the bandwagon. With the US economy outgrowing the league of developed nations during the last two years coupled with the worsening of long-term structural weaknesses and the subsequent movements in the USD have moved the focus away from Golds use as a commodity. However the long-term fundamentals of the yellow metal have also undergone a significant change with the mining output falling quite steadily during the last decade coupled with an evergreen demand especially from Asia.
This report analyses the long-term and short-term fundamental factors expected to move Gold prices. We believe that the short-term weakness expected in gold is a great opportunity for the late-comers to join the great Gold. Strategically, gold is one of the two most important commodities on the planet along with crude oil. Gold has been historically recognized as the ultimate store of value and method of payment. The following characteristics of Gold have enabled it play this role:
It is durable, homogenous and divisible
Golds rarity gives it intrinsic value and that value is high per unit of volume.
Its value is recognized across the globe and is traded in a continuous market.
Gold is the only financial medium of exchange that is not someone elses liability.
In updating our price outlook, we have considered the following factors:
Investment demand will continue to be the prime driver for the rally in Gold prices,
As economic factors will make gold more attractive compared to other financial assets.
Furthermore strong buying support from the Central Banks of Russia, China and
Middle East countries will help support the rally in Gold prices.
Mine production will not be able to meet current demand due to lack of new
The long term average in the Crude/Gold ratio has been around 16 times, but is
Currently only around 10 times.
In the remaining part of this report we will consider the major factors that are likely to drive Gold prices higher in the near future.
Basic Descriptive terms:Investment:The money you earn is partly spent and the rest saved for meeting future Expenses. Instead of keeping the savings idle, you may like to use savings in Order to get return on it in the future. This is called Investment.
Reasons for investment:
One needs to invest to:
Earn return on your idle resources
Generate a specified sum of money for a specific goal in life
Make a provision for an uncertain future
It is also to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future, as it does now or did in the past. This is why it is important to consider inflation as a factor in any long-term investment strategy. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.
Right time for investment:
The sooner one starts investing the better. By investing early we allow our Investments more time to grow, whereby the concept of compounding increases your income, by accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules for all investors are:
Invest for long term and not short term
Various options available for investment:-One may invest in:
Physical assets like real estate, gold/jewellery, commodities etc. Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds, debentures etc. WHAT MAKES GOLD SPECIAL?Timeless and Very Timely Investment:
For thousands of years, gold has been prized for its rarity, its beauty, and above all, for its unique characteristics as a store of value. Nations may rise and fall, currencies come and go, but gold endures. In todays uncertain climate, many investors turn to gold because it is an important and secure asset that can be tapped at any time, under virtually any circumstances. But there is another side to gold that is equally important, and that is its day-to-day performance as a stabilizing influence for investment portfolios.
Gold is an effective diversifier:
Diversification helps protect your portfolio against fluctuations in the value of any one-asset class. Gold is an ideal diversifier, because the economic forces that determine the price of gold are different from, and in many cases opposed to, the forces that influence most financial assets
Gold is the ideal gift:
In many cultures, gold serves as a family treasure or a wealth transfer vehicle that is passed on from generation to generation. Gold bullion coins make excellent gifts for birthdays, graduations, weddings, holidays and other occasions.
They are appreciated as much for their intrinsic value as for their mystical appeal and beauty. And because gold is available in a wide range of sizes and denominations, you dont need to be wealthy to give the gift of gold
Gold is highly liquid:
Gold can be readily bought or sold 24 hours a day, in large denominations and at narrow spreads. This cannot be said of most other investments, including stocks of the worlds largest corporations. Gold is also more liquid than many alternative assets such as venture capital, real estate, and timberland. Gold proved to be the most effective means of raising cash during the 1987 stock market crash, and again during the 1997/98 Asian debt crisis. So holding a portion of your portfolio in gold can be invaluable in moments when cash is essential, whether for margin calls or other needs.
Gold responds when you need it most:
Recent independent studies have revealed that traditional diversifiers often fall during times of market stress or instability. On these occasions, most asset classes (including traditional diversifiers such as bonds and alternative assets) all move together in the same direction. There is no cushioning effect of a diversified portfolio leaving investors disappointed. However, a small allocation of gold has been proven to significantly improve the consistency of portfolio performance, during both stable and unstable financial periods. Greater consistency of performance leads to a desirable outcome an investor whose expectations are met.THE REASON WHY INVESTORS OWN GOLDThere are six primary reasons why investors own gold: They may never be more relevant than they are today.
1. As a hedge against inflation.2. As a hedge against a declining dollar.3. As a safe haven in times of geopolitical and financial market instability.4. As a commodity, based on golds supply and demand fundamentals.5. As a store of value.6. As a portfolio diversifier.1. HEDGE AGAINST INFLATION
Gold is renowned as a hedge against inflation. The most consistent factor determining the price of gold has been inflation - as inflation goes up, the price of gold goes up along with it. Since the end of World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979, and 1980. During those five years, the average real return on stocks, as measured by the Dow, was -12.33%; the average real return on gold was 130.4%.
Today, a number of factors are conspiring to create the perfect inflationary storm: extremely simulative monetary policy, a major tax cut, a long term decline in the dollar, a spike in oil prices, a huge trade deficit, and Americas status as the worlds biggest debtor nation. Almost across the board, commodity prices are up despite the short-term absence of a weakening dollar which is often viewed as the principal reason for stronger commodity prices.2. GOLD - HEDGE AGAINST A DECLINING DOLLAR
Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world's reserve currency - the primary medium for international transactions, the principal store of value for savings, the currency in which the worth of commodities and equities are calculated, and the currency primarily held as reserves by the world's central Commodity Exchanges. However, now that it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper.
3. GOLD AS A SAFE HAVEN
Despite the fact that the United States is the worlds only remaining superpower, there are many problems festering around the world, any one of which could explode with little warning. Gold has often been called the "crisis commodity" because it tends to outperform other investments during periods of world tensions.
The very same factors that cause other investments to suffer cause the price of gold to rise. A bad economy can sink poorly run Commodity Exchanges. Bad Commodity Exchanges can sink an entire economy. And, perhaps most importantly to the rest of the world, the integration of the global economy has made it possible for Commodity Exchanging and economic failures to destabilize the world economy.
4. GOLD - SUPPLY AND DEMAND
First, demand is outpacing supply across the board. Gold production is declining; copper production is declining; the production of lead and other metals is declining. It is very difficult to open new mines when the whole process takes about seven years on average, making it hard to address the supply issue quickly. Gold output in South Africa, the world's largest gold producer, fell to its lowest level since 1931 this past year as the rand's gains prompted Harmony Gold Mining Co. and rivals to close mines despite 16 year highs in the gold price.
5. GOLD STORE OF VALUE
Economist Stephen Harmston of Bannock Consulting had this to say in a 1998 report for the World Gold Council,
although the gold price may fluctuate, over the very long run gold has consistently reverted to its historic purchasing power parity against other commodities and intermediate products.
Historically, gold has proved to be an effective preserver of wealth. It has also proved to be a safe haven in times of economic and social instability. It sometimes takes a period of falling stock prices and market t...