Gold is the oldest precious metal known to man. Therefore, it is a timely subject for several reasons. It is the opinion of the more objective market experts that the traditional investment vehicles of stocks and bonds are in the areas of their all-time highs and may be due for a severe correction.

To fully appreciate why 8,000 years of experience say " gold is forever", we should review why the world reveres what England's most famous economist, John Maynard Keynes, cynically called the "barbarous relic."

Why gold is "good as gold" is an intriguing question. However, we think that the more pragmatic ancient Egyptians were perhaps more accurate in observing that gold's value was a function of its pleasing physical characteristics and its scarcity.

• Gold is primarily a monetary asset and partly a commodity.
• More than two thirds of gold's total accumulated holdings account as 'value for investment' with central bank reserves, private players and high-carat Jewellery.
• Less than one third of gold's total accumulated holdings is as a 'commodity' for Jewellery in Western markets and usage in industry.
• The Gold market is highly liquid and gold held by central banks, other major institutions and retail Jewellery keep coming back to the market.
• 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.
• Economic forces that determine the price of gold are different from, and in many cases opposed to the forces that influence most financial assets.
• South Africa is the world's largest gold producer with 394 tons in 2001, followed by US and Australia.
• India is the world's largest gold consumer with an annual demand of 800 tons.

• London as the great clearing house
• New York as the home of futures trading
• Zurich as a physical turntable
• Istanbul, Dubai, Singapore and Hong Kong as doorways to important consuming regions
• Tokyo where TOCOM sets the mood of Japan
• Mumbai under India's liberalized gold regime

• Gold is valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits.
• India is the world's largest consumer of gold in jewellery as investment.
• In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewellers and exporters. At present, 13 banks are active in the import of gold.
• This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001.
• The gold hoarding tendency is well ingrained in Indian society.
• Domestic consumption is dictated by monsoon, harvest and marriage season. Indian jewellery offtake is sensitive to price increases and even more so to volatility.
• In the cities gold is facing competition from the stock market and a wide range of consumer goods.
• Facilities for refining, assaying, making them into standard bars in India, as compared to the rest of the world, are insignificant, both qualitatively and quantitatively.

Market Moving Factors

• Above ground supply from sales by central banks, reclaimed scrap and official gold loans
• Producer / miner hedging interest
• World macro-economic factors - US Dollar, Interest rate
• Comparative returns on stock markets
• Domestic demand based on monsoon and agricultural output

Frequency Dist. of Gold London Fixing Volatility from 1995 till date