GOLD & DOLLAR

1. GOLD & DOLLAR “GOLD IS MONEY AND NOTHING ELSE” • JP MORGAN

2. GOLD AS AN INVESTMENT • Most popular investment • Brought as a hedge • Subjected to speculation • Behaves like a currency

3. GOLD AND DOLLAR RELATIONSHIP • One has to remember that gold almost never changes in value. It is the dollar that revalues in relationship to gold. • US$ gold price and the Dollar Index generally trend in opposite directions. This reciprocal relationship between gold and the dollar evident during longer period. • As a result, when the dollar weakens on the foreign exchange market over an extended period then the US$ gold price will generally rise during the same period; and when the dollar strengthens over many months the US$ gold price will usually fall.

4. GOLD STANDARD • Gold Standard was the first universally implemented exchange system • The gold standard was mainly used from 1875 to 1914 and also during the interwar years • The government can only print as much money as its country has in gold

5. ADVANTAGES OF GOLD STANDARD • Gives real value to currency instead of the imaginary value of currency today • The government can only print as much money as they have gold in their vaults • The gold standard places all nations on equal footing • The size and health of a country's economy is dependent upon its supply of gold.

6. Current Gold Status • 165000 tonnes of gold mined as of 2009 • Value of $8.8 trillion • On Aug 23, 2011, gold hit a new all-time high of $1886.50 • Most of the gold ever mined is still there in some form or the other

7. Fall of Gold Standard WW 1 and The Great Depression High Expenditure Money Supply Increased Devaluation of $ Hyperinflation Stock Market Crash Increased Trading Of Currency/ Goods Rise in Gold Price People Trade Currency For Gold Rise Of Interest Rates Bank Fails, Unemployment Rises

8. The Bretton Woods System • World currencies tied to the dollar (Fixed exchange Rates) • Gold at $35 per ounce • Value of the dollar increased • It led to inflation and a large balance of payment deficit in the U.S • The U.S. started to deflate the dollar in terms of its value in gold. • In 1971, gold was repriced to $38 per ounce, then again to $42 per ounce in 1973. • People sold money for gold. • In 1973, the U.S. government decoupled the value of the dollar from gold altogether. • The price of gold quickly shot up to $120 per ounce in the free market. • By 1973, the United States and other nations agreed to allow exchange rates to float.

9. Price of Gold • Price of gold is driven by supply and demand as well as speculation • Mined Gold exists in accessible form, such as bullion and mass-produced jewellery • Central banks and the International Monetary Fund play an important role in the gold price • At the end of 2004, central banks and official organizations held 19 percent of all above-ground gold as official gold reserves • Reserves as insurance against their clients' money • During any global crisis, demand for gold increases, raising gold prices.

10. Why Invest in Gold?

11. Invest Vehicles • Traditional way is buying bullion gold bars. banks and dealers sell bullions in various size and shapes • Exchange-traded products (ETPs), ETFs, ETNs, and CEFs are traded like shares on the major stock exchanges. • Gold certificates allow investors to avoid risks associated with transfer and storage of physical bullion

12. Break-up of Gold Holdings

14. What is reserve currency

15. Salient Features of FOREX Market • Worldwide decentralized financial market for trading currencies • 36.7% of foreign exchange are traded in UK; USA accounted for 18% and Japan accounted for 6.2% • Most liquid financial market in the world • Forex market is open 24 hours a day 5 days a week • Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors • About 70% to 90% of the foreign exchange transactions are speculative • More than 60% of the world’s reserve currency is held in U.S. Dollars • Daily turnover was around $4 trillion in April 2010 • four major currency pairs that are mostly traded; the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

16. Foreign Exchange Reserves in India FDI/FII

17. Is Dollar the only Powerful currency? • The euro (EUR): • far the newest currency traded among the major pairs traded on Forex markets • used by 16 European Union member countries • the strongest economies using the new common currency, such as: France, Italy and mainly Germany • The pound sterling (GBP) • a powerful and globally dynamic economy • The London commodity market plays a fundamental role in the GBP trends, being a reference for oil and gold trading • The Japanese yen (JPY) • strongest and by far the most traded currency in the Asian market. • economic situation of its main commercial partner, the USA, tends to have a direct influence on the JPY market • JPY is a low-yield currency, being the GBP/JPY the most volatile pair traded on Forex • The Swiss franc (CHF) • Though Switzerland is a small country, its strong international trade and money influx made CHF one of the main currencies traded on Forex • CHF is often preferred by low yield investors • In times of financial instability, many traders choose the CHF as a safe investment and its trends can be often compared to those of the gold • The Canadian Dollar (CAD) • Most of the Canadian production is exported to the USA • As of 2007, the Canadian dollar is the 7th most traded currency in the world and 6th in value terms • The Canadian dollar is considered to be a benchmark currency

18. Large Gold Reserves of the World Rank Country Gold (Tonnes) % of Forex reserves 1 USA 8,133.5 74.7% 2 Germany 3,401.0 71.7% 3 IMF 2,846.7 - 4 Italy 2,451.8 71.4% 5 France 2,435.4 66.1% 6 China 1,054.1 1.7% 7 Switzerland 1,040.1 16.4% 8 Qatar 950.3 7.1% 9 Russia 775.2 6.7% 10 Japan 765.2 3.0% 11 Netherlands 615.5 59.4% 12 India 614.8 8.1%

19. Dollar Debt Paradox

20. US tried to exert more global influence via debt, US Treasury debt • Increase demand for dollars • Soon, its trade partners held so many dollars that they feared to create a dollar crisis • US tried to lock rest of the world into dependence on a US money system • Oil shocks - dollars to import oil became national security policy for most countries • Countries tried to earn an interest rate by buying safe, secure US Treasury bonds

21. The biggest dollar surplus country today is China • US is being flooded with cheap Chinese goods • Top5 countries with which US has trade deficit: China, Japan, Canada, Mexico and Germany • Developing Countries have to sometimes devalue their currencies to pay dollar debt • The total US debt—public and private—has more than doubled since 1995 – 34trillion • Only 11% of the total U.S workforce is in manufacturing. In 1970, it was 30%

22. SUMMARY There are 3.8 billion ounces (1 ounce is 28.35 gms) of gold in the world and the supply is increasing by 1.75% each year (the rate is decreasing due to mine closures), whereas there are 5,300 billion US dollars in the world and the supply is increasing by 9% each year. The end result is obvious.