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12 Program Schedule Day 1: 24th Aug 12 Venue: HICC 12 noon 5:00 pm Hotel check-in, delegate registration Delegate Kit Courtesy: State Bank of India 1:00 pm 3:00 pm Lunch Courtesy: DGCX Master Class At Hall GR 1 & 2 3:00 pm 5:00 pm Price Volatility and Hedging Solutions in Gold Hedging bullion price exposures using options contracts Overview on mining costs Mr. Bimal Das, ScotiaBank Mr. Anindya Boral, CME Group Mr. Rohit Savant, CPM Group 5:00 pm 6:00 pm Networking Tea/coffee break Courtesy: Bullion Bulletin 6:00 pm 7:30 pm Inaugural Function Special address: Why are gold/silver markets so volatile? Would it continue? How to deal with it? Roundtable Discussion Innovative and financially inclusive reforms for the Indian bullion industry Dr. Anup Pujari, IAS, DGFT Mr. Jignesh Shah, MCX Mr. Prithviraj Kothari, BBA Mr. Rashesh Shah, Edelweiss Group Mr. Boorugu Mahabaleshwar Rao, AP Bullion Association Mr. Jitendra Jain, BBA Mr. S K Jindal, Jindal Dyechem Industries Mr. G Srivatsava, Foretell Business Solutions Mr. Philip Klapwijk, Thomson Reuters GFMS Mr. Prithviraj Kothari, BBA Mr. Jignesh Shah, MCX Mr. Rajan Venkatesh, ScotiaBank Mr. Rajesh Khosla, MMTC-PAMP Mr. Pradeep Nagori, Edelweiss Bullion Mr. S K Jindal, Jindal Dyechem Industries 7:30 pm 8:00 pm Award Ceremony Courtesy: BBA 8:00 pm 9:00 pm Fashion Show followed by DJ Courtesy: AP Bullion Association, CAPS Gold & SVBC Gold 8:00 pm 10:30 pm Gala Cocktails and Dinner Courtesy: FT, BFX, Bourse Africa, GBOT, MCX- SX, National Spot Exchange, SMX Day-2: 25th Aug 12 Venue: HICC 9:00 am -9:10 am Audience price poll-1 Courtesy: Quant Commodities Session-1: Aligning expectations and growing together Mr. Nishant Shah, Economic Law Practice 9:10 am 10:10 am 10:10 am 10:40am Presentation-1: Taxation on gold, silver and platinum- India vs. Rest of the world Deliberation-1: Working with the Government for growth and development of the Indian bullion industry Deliberation-2: Nurturing long-term sustainable cross-border partnerships Mr. Haresh Kewalramani, BBA * Mr. Mayank Khemka, Khemka Group of Cos Mr. Chanda Sreenivas Rao, AP Bullion Assoc Mr. Harshavardhan Choksi, Shri Choksi Mahajan Ahmedabad Mr. Venkatesh Babu, The Jewellers Assoc B lore Mr. Prashant Mehta, Rajesh Exports Mr. Sunil Kashyap, Scotiabank Mr. Peter L Smith, J P Morgan Mr. Philip Clewes Garner, HSBC 10:40 am 10:45 am Launch of CPM Handbook Mr. Rohit Savant, CPM Group 12

13 Program Schedule 10:45 am 11:20am Networking Tea /coffee break Courtesy: SVBC Gold 10:45 am 11:20am One-to-one business meetings Courtesy: Edelweiss Bullion 11:20 am 12:30pm Session-2: Paper Vs. Physical: What does the Indian consumer want? Presentation-2: Minted products market - Where are we? What is the potential? How do we develop the market? Presentation-3: Trends in Indian Jewellery markets Presentation-4: Structured product in bullion - Recent trends Deliberation -3: Indian bullion refining - What does the future hold for us? International experience 12:30 pm 1:00 pm Session-3: Pushing reform agenda into marketplace Deliberation-4: Innovations at the global exchange marketplace Mr. Amresh Acharya, World Gold Council Mr. Rajesh Khosla, MMTC PAMP* Mr. V K Agarawal, Shirpur Refinery Mr. Michael Mesaric, Valcambi Mr. Anshum Bhambri, Quant Capital Mr. Sameer Patil, MCX * Mr. Anindya Boral, CME Mr. Samir Shah, DGCX Mr. William Barkshire, HKMEx 1:00 pm 2:15 pm Networking Lunch Courtesy: ScotiaMocatta 2:15 pm 2:45 pm Session-4: Professionalizing family business: Roadmap to capture new opportunities Presentation-5: Presentation by a successful entrepreneur who has transformed his family business into a professional one Presentation-6: Steps towards professionalizing family business 2:45 pm 3:15 pm Session-5: Platinum: The untapped opportunity in the Indian market Deliberations-5: Platinum: Opportunities in waiting? Mr. Shrikant Zaveri, TBZ Prof. Parimal Merchant, SP Jain Institute Mr. Matthew Turner, Mitsubishi Corp * Mr. Terry Harris, Johnson Matthey Asia 3:15 pm 4:00 pm Networking Tea /coffee Break Courtesy: SVBC Gold 3:15 pm 4:00 pm One-to-one business meetings Courtesy: Edelweiss Bullion 4:00 pm 4:15 pm Presentation-7: Role of Public Sector Undertakings (PSUs) in Indian Bullion Industry Mr. N K Mathur, STC 4:15 pm 4:45 pm Session-6: Price outlook Deliberation-6: Price outlook on gold, silver & platinum Mr. Jeffrey Rhodes, INTL Commodities * Mr. Philip Klapwijk, Thomson Reuters GFMS Mr. Rohit Savant, CPM Group Mr. Matthew Turner, Mitsubishi Corp Mr. Jeremy East, Standard Chartered Bank Courtesy: Quant Commodities Audience price poll-2 4:45 pm 5:00 pm Summary of the conference Mr. S K Jindal, Jindal Dyechem Industries 8:00 pm 10:00 pm Entertainment Courtesy: RSBL 8:00 pm 11:00pm Cocktails and Gala Dinner Courtesy: Shreeji Trading *Moderator 13

14 Inaugural Ceremony of 9th IIGC Friday, 24th August 2012, 6.00 pm onwards Mr Prithviraj Kothari, President, BBA addressing the gathering. Seated from Left: Mr G Srivatsava, President, Foretell Business Solutions, Mr S K Jindal, Director, Jindal Dyechem Industries, Mr Jignesh Shah, Vice- Chairman, MCX, Dr Anup Pujari, IAS, DGFT, Mr Rashesh Shah, Chairman, Edelweiss Group, Mr Boorugu Mahabaleshwar Rao, President, AP Bullion Association & Mr Jitendra Jain, Vice-President, BBA. The 9th Edition of India International Gold Convention concluded successfully on with over-whelming response from over 480 delegates from over 170 companies. The conference also saw a strong contingent of over 70 international delegates from across 18 countries. The magnificent Hyderabad International Convention Centre (HICC) was the venue where bullion industry from across the world gathered on this occasion. The participation at this must-attend annual conference saw from across the sections of the industry - bullion dealers, importers, jewellers, bullion banks, Indian banks, Indian & foreign refiners, suppliers, secure logistics & other service providers. 14

15 Friday, 24th August 2012, Inaugural Ceremony Dr Anup Pujari, IAS, DGFT lighting the inaugural lamp Dr Anup Pujari, IAS, DGFT addressing the audience Mr Prithviraj Kothari, President, BBA, lighting the inaugural lamp Mr Jignesh Shah, Vice-Chairman, MCX lighting the inaugural lamp Mr Rashesh Shah, Chairman, Edelweiss Group lighting the inaugural lamp Captivating audience during the inaugural ceremony 15

16 Welcome Address by Mr. G Srivatsava Respected Dignitaries on the dais, Chief Guest of the day Dr Anup Pujari, IAS, Director General of Foreign Trade (DGFT), Department of Commerce, Government of India, Distinguished guests of honour, Shri Jignesh Shah, Vice-Chairman, MCX, Shri Rashesh Shah, Chairman, Edelweiss Group, Shri Prithviraj Kothari, President, BBA, Shri S K Jindal, Chairman, Jindal Group of Industries, Shri Boorugu Mahabaleshwar Rao, President, AP Bullion Association, Shri Jitendra Jain, Vice-President, BBA, expert speakers and panellists, members of the bullion industry from around the world, officials and representatives of government and regulatory bodies, members of the press and media, ladies and gentlemen, I welcome you all to the 9th edition of India International Gold Convention 2012 at this splendid city of Hyderabad in this most magnificent venue HICC Novotel. Hope you had a pleasant journey and are looking forward to this moment. Just a year ago at Kovalam, the mood at the 8th IIGC was one of extreme optimism. Within a span of 12 months, the mood has changed to that of caution and fear. What an eventful year it has been for the bullion industry? Suppliers, customers, government and society are important stakeholders of every industry. Events in India during the last 12 months, has taught me a valuable lesson. For sustained growth and development of any industry, the interests of all stakeholders have to be balanced. This delicate balance was temporarily disturbed when surging import of gold bullion during last year became a cause of concern for government. What appears to be a very logical thing today, was not even noticed 12 months ago- a typical black swan effect. Realising this, we articulated the theme for the 9th IIGC and have decided upon the core theme as, Engaging with stakeholders of the bullion industry, with special emphasis on government as a stakeholder. Thanks to the enormous efforts and time put in by the Technical Advisory Committee, this theme was elaborated into various agenda items of the conference. Hope you find the theme relevant and insightful for your business. Every year, we take your feedback and incorporate certain innovative elements. We have introduced two new initiatives for the first time one, the Master Class session on day-1 and the second, one-to-one business meetings on day-2. Hope you would appreciate these and make full use of these opportunities. I am happy to share with you that we have over 480 delegates gathered out here today representing over 170 companies from across the globe. We have over 70 overseas delegates amongst us. To enrich the conference, we have over 28 experts from India and abroad addressing the gathering over the next two days. We have provided ample time for networking and meetings. A separate set up has been provided for display booths and stalls. I urge you to visit them and get enriched and empowered. I take this occasion to welcome once again each one of the distinguished guests on the dais, who have accepted our invitation and have come here to share their perspective and thoughts on developing a vibrant bullion and jewellery industry in India. I welcome all our sponsors, partners, invitees from press and media and delegates. Have a wonderful evening and enriching two-day conference. Good luck and best wishes. 16

17 Welcome Address by Mr. Prithviraj Kothari Honourable Chief Guest of the day, Dr. Anup P u j a r i, I A S, Director General of Foreign Trade (DGFT), M i n i s t r y o f Commerce and Industry, Government of India, New Delhi, Distinguished g u e s t s o f h o n o u r- S h r i Jignesh Shah, Vice- Chairman, MCX, Shri Rashesh Shah, Chairman, Edelweiss Group, Shri S K Jindal, Chairman, Jindal Group, Shri Boorugu Mahabaleshwar Rao of AP Bullion Association, my colleague from BBA Shri Jitendra Jain, G Srivatsava from Foretell, friends from bullion and jewellery industry from all over the world, press and media, ladies and gentlemen, I welcome you all to the 9th India International Gold Convention This is the 9th year of the gold conference. Over the years, the conference has grown in terms of participation and has become a key meeting place for all of us. I thank you all for sparing your time and being with us today. Hope you had a pleasant journey and are looking forward to the next two days. Friends, as you all know, 2012 has been one of the most challenging years for the business in recent times. Everyone in this room would agree that the business volumes have dropped steeply. Despite a fall in price of gold, in USD terms in the international markets, the Indian gold prices remain close to all time high. This is due to steep depreciation in the value of Indian rupee. Slower industrial growth, poor expectation of agricultural production due to less rains and slowing export revenues from services sector mean lower GDP growth projections and less disposable income in the hands of people. Gold purchase, I expect, would be lower this year. On the other hand, the bullion industry understands the macro-issues facing India, including the issue of high current account deficit. We fully support the government move to raise import tariff on gold bullion from Rs. 300/10 gm till January 15th to 4% ad valorem on March 16. We however, plead with the government to check the entry of gold bullion through parallel channels. We also hear rumours of possible imposition of quota system or some such mechanism to regulate gold imports into the country. The industry strongly feels that such extreme moves would cause serious market disturbance. There are simpler alternatives which can be tried out to reduce our dependence on imported bullion. Some of these include permissionto launch innovative financial products such as gold deposit schemes or certificates to bring out gold from households and gold bonds to satisfy the needs of investors of gold in paper form. Besides, reforms such as permission to export gold bullion through banking channels with revised guidelines, permitting banks to offer services 17

18 based on domestic derivatives markets/contracts, permitting banks to buy-back gold bullion and so on would reduce import burden. The round-table discussion scheduled after the inaugural function would detail these proposals. Sir, the bullion and jewellery industry has benefited immensely by the reform initiatives of the government. The industry has also duly passed on all these benefits to the end-consumers. The industry caters to the needs of millions of savers across the country, for whom gold symbolises safety, security and something auspicious. It is our promise to deliver quality products consistently to all these consumers. The employment generation in the bullion and jewellery industry has gone up by four folds during the last 10 years as a result of growth in business volume, creation of new marketplaces for derivatives, launch of various exchange traded paper-products such as gold ETFs and growth in organised retailing in jewellery. The industry helps preserve and maintain the traditional craftsmanship while adapting modern practises. We estimate that the industry has generated tax revenue of over Rs crores in customs duty and another Rs crores in sales tax in Even at lower volumes, we expect this revenue to go up by a factor of two this year. Thus, the bullion and jewellery industry is an important segment of our society that creates employment and enables savings. Any policy action therefore needs to be based on both the short term as well as long term evaluation. Once again, I welcome you all to this conference. Hope and wish you have a wonderful time during the next two days. Good luck and best wishes. It is possible to get 10% of the total odd tonnes of gold lying with the households through a gold deposit scheme, if we take care of three essential things- credibility, liquidity and downside risk prevention. Banks in partnership with jewellers can deliver this. Mr Jignesh Shah, Vice-Chairman, MCX India has imported over tonnes of gold at an average price of US$ 600/ounce over the last 15 years. If export of gold bullion is permitted through banking channels without the value-addition criteria, then a sizeable chunk of the above gold would be exported bringing in foreign exchange. This will reduce CAD. Mr.Prithviraj Kothari, BBA 18

19 Address by Mr. Rashesh Shah Distinguished Chief Guest Dr. A n u p P u j a r i, d i g n i t a r i e s o n t h e d a i s, f r i e n d s, i t i s i n d e e d a g r e a t h o n o u r to be here on the 9th India I n t e r n a t i o n a l Gold Convention. Coincidentally, government opened up the bullion sector in 1996, the same year that Edelweiss was born. So, in a way, both are products of economic reforms of the government. High degree of uncertainty economic, political and social- across the world makes a strong case for investment in gold. India is at an important inflection point with its own challenges of high fiscal deficit, high current account deficit, high inflation and high interest rates. We expect that in a couple of years we would see decline in these indicators and the growth momentum would resume. Gold is an important and growing part of the household savings of India estimated at US$500 billion annually. Much against the popular theory in equity market that households enter equity markets at the peak, the households have systematically invested in gold and real estate markets and have gained handsomely. These investments in gold were not lead by emotions but were grounded in reality. Stopping gold import may not serve the purpose. What may serve the purpose is to increase the financialisation of bullion industry. We had seen already this happen with the launch of product structures such as Gold ETFs. There are talks of relaunching gold bond schemes. I would go a step further and say, we need rapid financialisation of commodity markets. This would improve transparency, bring innovation, increase efficiency and channelize household savings into these sectors while at the same time create productive structure for the economy so that those savings can be diverted for productive use. Our ability to find the cross-road / overlap between the household saving requirements and government need to channelize those savings for productive purposes would throw up a lot of opportunities and challenges. Bullion markets are ready for another round of innovation. I eagerly look forward to the interactive sessions ahead to understand the opportunities and challenges in the Indian bullion industry. Thank you. 19

20 Address by Mr. Jignesh Shah Respected Dr. Anup Pujari, dignitaries on the dais, colleagues from bullion industry, friends from media, ladies and gentlemen, it is a pleasure to be here at the 9th India International Gold Convention. The theme chosen for the conference, Engaging with the government is the step in the right direction and I compliment the organisers for that. Let me cite two or three examples of engagements with the government. Today, the government has increased the import duty level on gold bullion to restrict imports. The industry feels that the government may not be able to achieve its goals, if parallel imports are not curtailed. The industry therefore should actively work with government to achieve the goal. With all the restrictions, the volume of Gold traded on MCX is more than the combined volumes traded in equity futures in India across all exchanges. With such market vibrancy suitably backed by strong physical market, India must become the price setter of gold in the world market. This is not possible if we don t approach the government with quality research and pursue the case. Gold saving scheme and gold bond are viable schemes to not only reduce import dependence but also address the issue of current account deficit. The idea of a gold saving scheme or gold bond scheme has been around for over five years now. To my knowledge, no serious proposal backed by research has gone from the bullion industry to the government on this issue. If we fail to engage with the government now, we can do little once the decisions are taken. It will then be the fault of the industry. Let me now share with you the proof of engaging with the government. You are proud members of MCX. We are slowly beginning to influence NyMEX. MCX gave a proposal backed by research to the Department of External Affairs (DEA) requesting permission for FII / FDI investments in exchanges. Coincidentally, I am happy to share with you all that it was during Dr. Anup Pujari s time at the DEA this proposal was cleared. I am also happy to share with you that MCX not only had FDI / FII investments but also became the first Indian exchange to get listed on the stock exchange. I am sharing this to demonstrate the benefits of engaging with the government with quality research. I compliment Foretell and all directors of BBA for making this conference a must-attend for the industry. No gold exchange today anywhere in the world can afford not to be present here. This conference is a true Oscar for Gold! 20

21 Keynote Address by Dr. Anup Pujari, IAS, DGFT Dignitaries on the dais, Mr. Jitendra Jain, Vice President, BBA, Mr. Boorugu Mahabaleshwar Rao, President, AP Bullion Association, Mr. Prithviraj Kothari, President, BBA, Mr. Rashesh Shah, Chairman, Edelweiss Group, Mr. Jignesh Shah, Vice-Chairman, MCX, Mr. S K Jindal, Chairman, Jindal Group and Mr. G Srivatsava, Foretell, Mr. Philip Clewes Garner, HSBC, my esteemed colleague, Joint Director General Mr. Reddy, Mr. Rajesh Khosla, friends, ladies and gentlemen, it is pleasure to be here on the occasion of the 9th India International Gold Convention. The Directorate General of Foreign Trade has taken certain measures during the last two years. We are committed to widening the reach of all traders, all exporters and domestic entrepreneurs to receive gold. We have increased the number of people who can import gold. For the first time, we have permitted certain entities who are neither nominated agencies nor coming in the traditional sectors to import gold directly as they are actual users. We will continue to do so. You go ahead and dream, we will help you in making your dream a reality. Government responds to the industry needs. I am thankful to Mr. Jignesh Shah for recounting one experience where the Department of Economic Affairs was able to raise to the challenges put out by the industry and something was achieved. Certain ideas thrown up by Mr. Prithviraj Kothari and others during my interactions with them are something that we can work on. Since I told you government responds, let me make a suggestion. Anytime next week or any day of your choice during the month of September, BBA or the organisers of the conference are are welcome to see me with a specific credible proposal as to what you wish to be done to realise the huge potential of the bullion market by getting the domestic gold released to the market. What type of experiences people have depends not only on the ecosystems they live in but also on what expectations they have. It is also observed that in any endeavour the experience that you gain towards the end, dominates your thinking or the post-event auditing of what happened. Whenever you are doing, make sure the end is good. Small innovations go a long way in bringing about changes that are significant. I gather that this is the 9th year of this conference and it is going from strength to strength. I wish it all the very best. Please ensure that the way you communicate here, the same communication is also passed on to the society at large, so that we all can benefit from what is going on here. Best wishes and thank you for the invitation. 21

22 Felicitation of Technical Advisory Committee Technical Advisory Committee Members Mr. G Srivatsava, Convenor, Foretell Business Solutions, Mr. Prithviraj Kothari, President, BBA, Mr. Haresh Kewalramani, Director, BBA, Mr. Rajan Venkatesh, MD, ScotiaMocatta, Mr. S K Jindal, Director, Jindal Dyechem Industries, Mr. Bhargava Vaidya, BN Vaidya & Associates, Mr. Mayank Khemka, MD, Khemka Group of Companies & Mr. Chanda Venkatesh, MD, Caps Gold Pvt Ltd 22

23 Round Table Discussion on Financially inclusive reforms for growth and development of the Indian Bullion Industry Panellists: Mr. S K Jindal, Director (Moderator), Jindal Dyechem Industries, Mr. Prithviraj Kothari, President, BBA, Mr. Jignesh Shah, Vice Chairman, MCX, Mr. Rajesh Khosla, MD, MMTC-PAMP, Mr. Rajan Venkatesh, MD-India, Scotiabank and Mr. Pradeep Nagori, VP, Edelweiss Bullion Is it possible to reduce our dependence on gold imports? The first discussion of the conference started with an acknowledgement of the current concerns of the Indian government on ballooning current account deficit and the role of gold import in it. The industry pledged its support to the government and urged for reforms to (1) reduce net gold imports and consequently the dollar outflow; and (2) ensure continuity in the domestic market by ensuring supply of quality material competitively. are permitted through banking channel without value addition criteria (or value addition criteria being replaced with net foreign exchange positive criterion), then there would be exports at the current high price levels of US$ 1600/oz. Two-way trade in gold bullion would also make India a true price setter of gold bullion. Lastly, as entire trade would be conducted through banking channel, there is no scope for money-laundering or other illegal means of trading. Permit export of gold bullion through banking channels Mr. Prithviraj Kothari stressed on the need for permitting export of gold bullion through banking channels to bring down the current account deficit. At present, bullion traders can only import gold. If they want to re-export the same, a minimum of 1.8% value addition is mandatory. Since gold bullion is a standard product similar to a currency, it is not possible to sell it at a premium over the international prices. Hence value-addition norm should not be applied to export of gold bullion. Since 1997 reforms, as per RBI data, a total tons of gold has come into the country at an average price of US$ 600/oz. Mr. Kothari suggested that if re-exports Sharing his thoughts on the same issue, Mr. Jignesh Shah said, The system should generate transparent and fool-proof audit trail and be in electronic format that can be monitored and reviewed by the government round-the-clock. If the proper presentation is made combining these factors by the bullion associations, 23

24 commodity exchanges, then, there is possibility that industry could see the good days. Attractive Gold Deposit Scheme could pull out 500 tonnes of gold from households Indian households have hoarded over tonnes of gold. Attractive schemes with wider participation from banks and jewellers could pull out at least 500 tonnes of gold into the system, thereby reducing the burden on imports. Deliberating on this point, Mr. Rajan Venkatesh said, Both government and the central bank authority should create products conducive to the industry. In India, people have long affinity with physical gold. So, there is need to create enough confidence in the minds of people that they can go to bank, pay money and get the quality assurance of gold that they are buying. So, there is a need for step-by-step reform. He said that in China the gold savings account has been a success. In India, banks have now enough expertise and tools to initiate such schemes. Banks presence would ensure liquidity and credibility criteria. Pay out interest periodically would address the downside erosion risk. For the success of this scheme, banks must partner with jewellers. Refiners demand creation of Indian bullion banks Mr. Rajesh Khosla, said Having resolved dore issue, there is a need to evolve a well-defined scrap import policy. Presently, it is unviable to import scrap. Given that dore from large mines are already tied-up and scrap availability is high due to high prices, conducive scrap import policy is needed. Secondly, refiners should be allowed to export their products, as there are periods when there is no demand in India. Thirdly, refiners are looking forward to commodity exchanges nod to approve their products. As per the current norm, a refiner should be LBMA approved or exchange approved to deliver products at the commodity exchanges. It would be very unfortunate for an Indian refiner to wait for long days to get the approval of LBMA so that it could deliver its products to Indian commodity exchanges. Any refinery having LBMA approved On the same issue, Mr. Jignesh Shah, said, Around 10% of the household gold can be brought to market in a span of three years if right product is structured. Product should have three essential elements credibility, liquidity and downside risk prevention. technology/guidelines complied in the country should be given permission to deliver goods to Indian commodity exchanges. Lastly, there is an 24

25 urgent need for creation of Indian bullion banks to address the needs of refining industry Reducing costs and enabling fungibility would spur gold ETFs in India Mr. Pradeep Nagori, said, The 14 Indian gold ETFs together hold only 30 tons of gold today, of this, about 15 tons have come in the last 12 months. Relative to the size of the industry or imports, AUM under gold ETFs is very low. High expense ratio is one of the impediments. Permitting leasing of gold held under custody can reduce expense ratio from the current levels of over 1% to %. Of course, a strict framework should be formulated to address liquidity and operational risks. Similarly, enabling gold ETFs to be encashed against the gold jewellery purchases would integrate investment and consumption cycles. R&D budget for developing mines Mr. Prithviraj Kothari requested the government to allocate a small R&D budget from the duty collections towards developing gold mining sector in India. In India, there are large deposits of gold in the states of Jharkhand and Chattisgarh. India can source sizeable gold domestically, which would minimize the pressure on gold imports. Gold-credible, dependable and needs careful handling Summing up the discussion, Mr. S K Jindal said, Gold is a credible asset and needs to be handled cautiously. In 1990s, when the country was in financial problem, it was gold which rescued the country. Same way, any individual in this country can come out from any financial crisis if he or she has some gold in hand. Thus, gold is dependable asset and has been a saving vehicle for million. We must respect that and keep providing value to the savers as well as value-adders such as jewellery manufacturers. There is also a need to keep sharing our perspective with the government and seek their advice on growing this important asset class. Mr. Jignesh Shah urged the gold ETFs to look at the need for hedging their exposures to prevent sudden loss in net asset value on account of unanticipated fall in gold prices. In the last 25 years of markets, on less than 1% of time, platinum traded at a discount to gold. Mr. Matthew Turner, Mitsubishi Corporation 25

26 6th BBA Awards Ceremomy Life time Achievement Award in the field of Bullion Mr Manharji Domadia Best Commodity Exchange for the Year 2012 Multi Commodity Exchange of India Ltd Life time Achievement Award in the field of Bullion Mr Puranmalji Bansal Best Bullion Dealing Bank for the Year 2012 Bank of Nova Scotia Posthumous Award Mr Gordhandas Ranchoddas Bhagat Best Emerging Bullion Dealing Bank for the Year 2012 Axis Bank 26

27 6th BBA Awards Ceremomy Best Bullion Dealer for the Year 2012 Vimalson Jewellers The Outstanding Contribution towards Social & Religious activities for the decade - Mr Prithviraj Kothari Best International Supplier in the field of Bullion for the Year HSBC Bank PLC Best Branded Traditional Jewellery for the year 2012 Tribhovandas Bhimji Zaveri, Zaveri Bazar The Dynamic personality for the year 2012 Mr Mohit Kamboj Best Branded Modern Jewellery for the year 2012 Gitanjali Gems Ltd 27

28 6th BBA Awards Ceremomy Most valued partner of IIGC Edelweiss Bullion 28

29 Panel Discussion-1: Working with the Government for growth and development of the Indian bullion industry Panellists: Mr. Haresh Kewalramani, Director, BBA (Moderator), Mr. Venkatesh Babu, President, Bangalore Jewellery Association, Mr. Mayank Khemka, MD, Khemka Group of Companies, Mr. Prashant Mehta, MD, Rajesh Exports, Mr. Chanda Sreenivas Rao, Secretary, AP Bullion Association, Mr. Harsavardhan Chowksi, Shri Chowksi Mahajan, Ahmedabad The first panel of the morning discussed some important issues related to physical market. The main agenda was working with government for growth and development of the Indian bullion industry. KYC norm followed by associations: Mr. Harshavardhan Choksi said, Ahmedabad Jewellery Association was formed in 1948 with written constitution. To become a member, one has to have minimum 5 years of experience in the trade along with certain credentials. fees. Every member has to participate in periodic meetings and contribute for the development. Mr. Venkatesh Babu, said, Bangalore Jewellery Association follows a very strict KYC while admitting new membership. VAT registration is mandatory pre-requisite. The association conducts a spot visit to applicant s business premise. There are 15 board members in the association. If any of the board members has any objection to the applicant, the application shall be rejected without stating any reason. Mr. Chanda Sreenivas Rao said, AP Bullion Association is a new association. Any bullion dealer can be a member of the association by paying certain Association s role in establishing quality standards- a success story Mr. Venkatesh Babu said, In Bangalore, the poor quality silver was being sold in the past. The association had formed a silver committee that worked closely with refiners, assayers, traders and bullion dealers over the last one and half years to develop the quality standard and made.999 finesse silver mandatory. The association has been providing.999 purity assurances seal on silver bars and members who want to deal in silver have to adhere to the norms. Besides, time- 29

30 to-time the association also takes random samples from the market (every two to three months) and the samples are sent to Mumbai or Bangalore Refinery, for ascertainment of quality. criteria set by LBMA. Therefore, it would take a while for these refiners to become eligible for accreditation. Does it therefore call for developing an Indian good delivery standard? Or should we qualify a product if the refiners have adhered to product / quality norms specified by LBMA? Should commodity exchanges launch a new contract for Indian Good Delivery or LBMA equivalent product? Fix import duty on weight basis in Indian rupees Mr. Mayank Khemka said, Frequent changes in tariff value of gold and silver have made operations as well as product pricing very challenging. Keeping the rate of duty intact, we request the government to announce the duty payable in Indian rupees on weight basis. The duty payable can be changed periodically (once a month, on a fixed date), in line with the change in gold prices. This would take care of interest of government as well as the industry. Such a system would also be compliance friendly. Mr. Prashant Mehta proposed another alternative. Given the fact that all nominated agencies are corporations of high repute and follow transparent systems, government should consider the invoice value for levy of duty rather than declaring a tariff value. This would simplify the entire process he said. Each of these options have positive as well as negative aspects. Many of these are only interim solutions. The industry needs to aspire and get LBMA accreditation at some point in time, if it wants the products to be globally acceptable. The industry also needs credible institutions and infrastructure support such as worldclass assaying and testing laboratories. Lastly, the industry needs to communicate to the stakeholders and engage them during this transition. TCS on bullion Tax collected at source (TCS) on cash purchase of jewellery is applicable for purchases over Rs However, for bullion, TCS is applicable for cash purchases over Rs The industry unanimously appealed to the government to align the TCS for bullion with those of jewellery stating that gold content in both cases is over 90% and hence there should not be any distinction. Can bullion industry deliver good delivery bars to the exchanges? Indian refineries are either new, or small in size, or do not meet the capital criteria or tonnage handled 30

31 Federation of association is a must Unanimously, panellists affirmed that one national association should be formed to continuously engage with the government. The discussion finally ended in a cautious note as Mr. Prithviraj Kothari told the audience that there was news that government was pondering to increase duty to 7.5% from current 4%. It was basically a news channel report. 31

32 Deliberation-2: Nurturing long-term sustainable cross-border partnerships Panellists: Mr. Sunil Kashyap, MD, APAC, Scotiabank (Moderator), Mr. Philip Clewes Garner, Director, HSBC Bank PLC, Mr. Peter L Smith, Executive Director, JP Morgan The very critical idea of establishing long-term trade relationship between two markets was discussed in this deliberation by experts from three leading bullion banks of the world- HSBC, represented by Mr. Philip Clewes Garner from London; JP Morgan, represented by Mr. Peter L Smith from London and Scotiabank, represented by Mr. Sunil Kashyap from Hong Kong. to know little while ago that perhaps government will increase the import tax once again. From outside we can t do anything. Situation may turn such that we may have to wait till normalcy returns to market. Gold s value in rupee terms has increased by eight to nine times since 2000 and it is mainly depreciation of rupee and of course gold s own value in dollar terms. Much discussion took place certainly on exportation of gold from India this morning. This kind of measure is certainly a necessity to contain, to run the market. Market should be highly tradable. In , Turkey exported 400 tons of gold, for example. So, it is about making Indian market tradable all the time. The initiative has to be taken at some point of time. Export of bullion is a good idea Mr. Philip Clewes Garner said, Perhaps government of India is trying to disturb a section of the business by imposing too many rigid regulations. India is the most important market in the world and London is directly related with this market for last 15 years. The situation is heading towards uncertainty where it would be very difficult for us to participate. We came Indian Good Delivery may not work Mr. Peter L Smith said, The appetite of Indian 32

33 to suggest that banks have been making unfair margins in the bargain. consumer for gold and silver will continue to remain strong. When local currency being devalued, gold is certainly an attractive asset. Regarding creation of Indian good delivery standards, frankly, look at the reality, RBI would only buy London Good Delivery large bars. Then, why to look for another standard? If you have refiners in the country which could follow London Good Delivery Standards, just replicate it. Standard is already set and being followed by the rest of the world. Market has already priced the London good delivery bars coming to India against non good delivery bars which are available at a lesser price. So it is very simple, market driven reality. So, Indian bullion associations need to come together and decide the right way to move forward towards that standard. Open the export route and make rupee freely convertible Mr. Garner said, Given the small size of gold holding at the individual level, Gold Deposit Scheme may not succeed in India. A better option would be to make rupee freely convertible. Traders should be allowed to fix the price of gold in Rupee terms. It would not bring any detrimental effect to banking industry in the country. No government in this world has created any product which is accepted or successful thoroughly. ETF can be useful option, but that entails someone to buy every ounce of gold that a unit of ETF generates at the end of the day. So concern remains the same the detrimental effect on Balance of Payments. So, best way to solve this problem at present is to open the export route and to make rupee freely convertible. Bullion banks in India are efficient and have contributed to the growth Mr. Smith added, Banks such as ScotiaMocatta has been supporting the Indian bullion market to a great way for several decades. The bank is sourcing the material on consignment basis at their own risk of liquidity and supplying gold in different parts of the country. So, banks have been the major player towards the growth of this market and it is unfair RBI should lead financialisation of gold Mr. Smith supporting Mr. Garner s view said, Indian government should device a two-tier system, where population will be allowed to allocate certain portion of their personal asset into physical gold and if they 33

34 want to buy gold beyond that level, then they should be allowed to invest in gold funds. RBI must take the responsibility of creating such financial products, like RBI ETFs, which can be used as borrowing tool later. RBI has to balance the market through this physical market as well as financial products in gold. Otherwise, it is very difficult to resolve the current crisis. bring global funds into financial system. Mr. Garner fully supported this view and further added that not only insurance funds but also pension funds should be permitted. Slowly around the world, pension funds are diversifying their asset from equities, bonds to precious metals or more precisely in commodities. Pension funds and insurance funds should be permitted to diversify into gold Mr. Smith said, I am not sure if the regulations in India permit insurance sector to invest in gold. If it is not, then there is certainly serious concern for portfolio diversification especially when equity and bonds are extremely volatile in recent years around the globe. If regulator permits insurance funds to invest in gold, then certainly there is a great possibility to 34

35 Deliberation-3: Indian Bullion Refining What does the future hold for India? What can we learn from International experience? Panellists: Mr. Rajesh Khosla, MD, MMTC - PAMP (Moderator), Mr. V K Agarawal, Director, Shirpur Gold Refinery Ltd, Mr. Michael Mesaric, CEO, Valcambi SA Dore issues resolved. Resolve issues with scrap Till recently, importing dore (a mixture of gold, silver and other metals with a minimum gold content of over 80%) into India met with regulatory hurdles such as ambiguity in definition, customs duty applicable and the drawback procedures. These have been satisfactorily resolved by the government. When asked about the mode of operation at Valcambi SA, Mr. Michael Mesaric said Valcambi usually operates in two sections dore, the primary input and scrap. The usage depends upon market conditions. Sometimes scraps are easily available in the market and sometimes not. But basic problem nowadays with scrap is its origin. It is very difficult to locate the source of the scrap. Europe is very much concerned with conflict gold. With this in place, Valcambi is now happy to work more with primary products, that is, dore. Mr. Khosla started the session with a discussion on sourcing scrap (usually refers to gold or silver jewellery but may include any article with substantial gold or silver content in it) from overseas as refiners around the world refine both dore and scrap. Mr. Khosla said that at this point it is very difficult for an Indian refiner to source dore abundantly as miners overseas might have long - term contracts with existing refiners. So, Indian refiners may have to depend on scrap and time has come to look aggressively at sourcing scrap from international market. Sourcing scrap is currently unviable for Indian refiners because of high duty structure. Therefore, issues pertaining to importing scrap need to be resolved. Swiss model of winning miner s trust On the uniqueness of Switzerland-based refineries, Mr. Mesaric said, Top ten miners in the world do not want their material to be processed in refineries 35

36 which are lesser known or do not have established accreditation. They also want government of the country to certify refiners products. At Valcambi, we pay our staff, but government supervises our operations. So there is dual reporting system which satisfies the miners. So, this structure may not support new industry like India readily. certified by that particular lab equally guarantees same quality. Indian banks need to engage with refiners Refining is highly capital intensive and by global standards, bullion banks have very defined agreements from purchasing to safe keeping etc with the refiners. So, refiners do not have to literally sell their products. At present, Indian refiners do not have such facilities. Mr. Mesaric said, Without financing by banks, it is not possible to keep large stocks by a large refiner. Financing is needed even to source dore from different destinations. Mr. Khosla requested all 24 nominated banks in India who import gold to engage with refiners and address their needs across the supply chain ---- from sourcing raw material to finished products. On third party accreditation Mr. Khosla suggested that India should approach Swiss government to emulate Swiss Federal Assaying Certification so that some degree of government intervention takes place. Mr. Mesaric endorsed this concept stating it would be great...it will give security to the people. Swiss Federal Assaying Certification System recruits, trains and after successful training, certifies candidates. The certified people are different from ordinary assayers having basic understanding of assaying. These certified assayers guarantee the purity of products. If this system is implemented in India, then refiners can deliver quality products. It would deliver good comfort to bankers, financial institutions and even commodity exchanges. Is technical compliance with LBMA good delivery good enough? Most Indian refineries would take a while before qualifying to apply for the LBMA accreditation as they are yet to meet the capacity, capital or tenure of continuous operations criteria specified by LBMA. However, many would qualify the technical parameters specified under the LBMA Good Delivery. So, is there a case for qualified acceptance of the bars from such refineries that at the exchange platform? Mr. V K Agarawal mentioned that NABL India is a credible third party assaying laboratory who has been recognised even internationally. So, products 36

37 Mr. Mesaric cautioned that India should not make the same mistakes which other countries have made. India should not look forward to making its own Good Delivery Standard, rather, they would be called as, say, LBMA Standard exercised by Indian refiners. The argument might be technically correct, but credibility would be an issue that refiners should take care of said Mr. Mesaric. Challenges in moving metal over long distances Mr. Khosla raised the next issue of security while transporting the precious materials. Most of the refiners are far away from nearest International Airport. So, it takes time and raises security concern. Mr. Agarawal said that they are having their own airstrip and also they are using private well-known security agencies. Mr. Mesaric said that though Valcambi as well as some other refineries are located 250 km away from Zurich Airport, it is not a major concern other than making the process a few cents costlier. Insurance- costly and unaffordable in India Mr. Khosla finally mentioned that it is difficult to obtain cost effective insurance for a refiner in India. Mr. Mesaric said that this problem is prevalent in Europe as well, though it is less rigid. He mentioned that Valcambi had to struggle hard for first $300 million, but had no problem to get next $800 million insurance cover. 37

38 Delberation-4: Innovative Products in Market Place Panellists: Mr. Sameer Patil, VP-PKMT, MCX (Moderator), Mr. Anindya Boral, Director - Metals, CME Group, Mr. Samir Shah, CBO, DGCX, Mr. William Berkshire, MD, HKMEx Commodity exchanges are important part of bullion market infrastructure. This panel discussed innovative products that would help industry minimize or eliminate pricing and counter-party risks, besides ensuring liquidity. MCX- innovations for hedgers as well as investors Mr. Sameer Patil briefed about precious metals based futures contracts available on MCX starting with gold (Gold Standard (1 kg 995 bar), Gold mini (100 gm 995 bar), Gold guinea (8gm coin) & gold petal (1 gm), silver (silver standard (30 kg 9999), Silver mini (5 kg 9999) and Silver Micro (1 kg) and platinum. Mr. Patil said In normal times, usually 5-6 kg to 12 kg delivery took place in gold guinea contracts. But, during festival times like Akshaya Tritya, Diwali etc., delivery goes up nearly three times the usual quantity. So, it shows even retail customers are taking active parts in exchange initiated products in this country. It is good to see that exchange initiated contracts are not only used merely as hedge instrument, but as a means of investment vehicle by the retail segment. CME- one global solution in a single box Mr. Anindya Boral said, Much has changed in exchange trading during the last 20 years. The idea of Globex was first thought of in 1980s as the issue was to operate market after closing of trading sessions. It was basically guided by currency trade. London was the epicentre for currency trade and much was happening there when Chicago traders were asleep. First, technology was the issue as trades have to be performed electronically. Finally, it started in The first overnight trade sessions generated 2000 trades. In initial years, currency contracts were the main drivers of volumes. But from late 1990s the volume started picking up. First was the launch of E-mini S&P500 futures contracts. There was large demand witnessed in this contract. More asset class included with enhancement of 38

39 technology. At present, CME can process 9 billion quotes in any given month. The next important milestone was when CME expanded its base from US to international destinations, starting with London, Singapore, Kuala Lumpur, Europe, and most recently Mexico. So, CME is now one global solution in a single box. We have partnered with exchanges such as BM&FBOVESPA (Brazil), Dubai Mercantile Exchange, Bursa Malaysia Exchange. These exchanges are using our Globex platform. We have also redesigned our platform which enables sub-milli second order matching. DGCX- engage stakeholders in innovations MR Samir Shah said, DGCX is a young exchange domiciled in Dubai. But it is one of the fastest growing exchanges in the Middle East. Regarding product innovation, we like to spend lot of time with our stakeholder, our constituents to make the product more attractive. We have a very active forum called DGAG (Dubai Gold Advisory Group) where members meet regularly to look after the requirements of stake holders. We also work closely with Goldsouk, the jewellery and physical gold community in Dubai. We opened recently an academy where members teach the gold community how to use exchange initiated contracts as powerful means of hedging. On contract designing issue, we have changed the design a bit last year. Now, traders can take the physical delivery easily and at the same time, contracts can be used as useful investment products where contracts can be settled financially. The response is good and in fact we have seen more than 50% of volume coming from retail investors and physical players. Today s financial market has really become global. So we have added extra hours to trading and now we are seeing global trader s participation as well. Lastly, for product innovation, it is awareness that requires maximum focus. We recently tied up with a Dubai based website called where we are constantly exploring the usefulness of gold contracts for retail investments. HKMEX- the vital link that connects mainland China to the rest of the world Mr. William Barkshire said, I am representing China, world s largest consumer of gold. Hong Kong Mercantile Exchange has gold and silver contracts denominated in US dollar and can be settled physically in Hong Kong. We have unique membership base which is almost unmatched by global exchanges where six large brokers from mainland China do participate. Our banker includes ICBC, the largest bank in the world in respect of market capitalization and also responsible for importing 30 to 40 percent of gold into China. In essence we are trying to bring Chinese liquidity into international market. Secondly, we are trying to build an exchange to build 39

40 a relationship with mainland Asia and rest of the world. Our trading hours start from 8:00 hours Hong Kong time extend till 23:00 hours which cover all the liquidity points in global market. Our contract size of gold is 32 ounces which satisfies Asian standard, thus by far different from COMEX contract of 100oz. Our products are priced in US dollar, but features are more close to MCX products than COMEX. We have now contracts traded in a day and we are in the process of initiating new products so that we can increase liquidity to the levels at COMEX during market hours in Asia. Lastly, we are going to launch first Renminbi contracts in gold and silver which will have the offshore facilities to settle in US dollar. This will open up new trading opportunities to international communities as well as will enable Mainland to meet global players. 40

41 Price Outlook Mr. Jeffrey Rhodes, Global Head of Precious Metals & CEO, INTL Commodities (Moderator), Mr. Matthew Turner, Precious Metals Strategist, Mitsubishi Corporation, Mr. Jeremy East, Global Head of Metals, Standard Chartered Bank, Mr. Rohit Sawant, Sr Commodity Analyst, CPM Group, Mr. Philip Klapwijk, Global Head of Metals Analytics, Thomson Reuters GFMS Price outlook always remains most interesting session in every Gold Convention. This year too it was fantastic as panellists discussed multiple topics related to precious metals to forecast the price for the rest of the year and of course for The session started with a poll on where the audience expected the prices of gold, silver, platinum and Indian rupee would be as on Dec 31, Mr. Jeffrey Rhodes, the moderator of the panel, struck a fine tune between the panellists and the audience during this session. At the very beginning, Mr. Rhodes summarised the LBMA analysts forecast for 2012 and also the forecasts of the panellists (including him) at the beginning of the year. It was good to see many of the panellists were almost right in certain commodity till date. Mr. Rhodes applauded the efforts of the panellists in forecasting prices accurately. So it set a perfect platform to start the discussion. Where is gold headed and why? Mr. Jeremy East:- Well, for last few weeks prices were doing nothing and remained in a range. So I think platform is set to move forward. Lot depends upon quantitative easing from Fed. Of course it may come or may not come, but I am expecting somewhere around September Fed will decide its monetary policy on this issue. In South Africa, miners especially in platinum are facing labour problems. Higher cost of production and unrest with Union will make miners job really challenging in South Africa. In Europe, it would be important to notice how Germans will allow Greece government to delay their budgetary reforms. In the next few months, Greece will again face monetary problem and this will spill to Spain and other European nations. On demand side, ETFs are very strong in the market. Money is coming at the current high level. I am also expecting after European holidays that investors will return with vengeance. So, combining these, probably we would see gold prices to move towards $1750/oz by the end of this year. Subsequently, other precious metals will follow gold. Mr. Rohit Sawant:- We anticipate relatively strong investment demand for gold. We will see basically sideways bias for the rest of the year with possibility to rise sometimes in coming years. But we expect investors might not chase gold as they had done in 41

42 the last few years. Investors were worried of collapse of economy and collapse of currency market. But none of it actually happened. What we can expect over the next few years is slower economic growth. So, investors might not chase the market hereon. On the other side, Central Bank in US could certainly take another monetary easing policy (QE3) to support its economy. Its impact on precious metals think gold prices would continue to move towards $1800/0z by the end of this year and for silver may be around $36/0z. Dollar will start weakening once again. Silver has lost to gold in recent time because of weakening industrial demand. On PGMs, I think platinum will come around $1400/oz towards the end of the year unless ECB does some fantastic money printing, create some jobs. We may see then some short term rally. would certainly remain positive, but do not expect any astronomical rise from the event. In short, we are expecting average gold prices would remain around $1645/oz by the end of this year, slightly higher than what we had projected at the beginning of the year. On PGMs, we have positive views on long term prospects. Basically, on supply concern we are bullish on that. On platinum, fabrication demand is a concern because of weakening demand from Europe. Investment demand has also softened in recent time on both palladium and platinum. But from longer term perspective, we do believe prices would move higher. Mr. Philip Klapwijk:- Gold has broken decisively 200 day moving average of $1640/oz and thus all set to move $1700/oz in the short term. This rally might be generated on assumption that Fed will do something in September on monetary policy. This has also confirmed that big downside risk is mitigated and now the money which was waiting in the sideline for confirmation of big move on a higher side probably would come now. We would see bearishness in dollar. By the end of this year, we may probably find gold between $ /oz. On silver, I agree with Mr. Matthew completely on weakening of industrial demand because of economic slowdown. Another factor that might be playing against silver is the 2011 experience when investors chased silver and in the bargain lost substantial amount of money. So, by year end, silver might remain around $36/oz. Mr. Matthew Turner:- I was pretty bullish at the beginning of the year and I am so. Central banks will continue to print money and inflation is expected to rise. If central banks stop printing money and inflation starts decreasing, then the scenario may be different. This year s dollar strength is little surprising. I 42

43 On PGMs, poor European demand will continue to pressurise prices. I don t think European car market where platinum is consumed most will revive this year. Poor Chinese offtake especially from retail segment is also a concern. Platinum demand has not increased in China despite the lower price. Combining these, we may see surplus in platinum by the end of this year and consequently it would lose to gold. some point of time and by this time next year, we may see platinum trading at a slight premium over gold. Mr. Klapwijk said, I believe platinum will be at a discount to gold roughly about $200 by the same time next year unless some dramatic events take place on the supply side. The panellists quickly discussed geo-political factors that may influence the gold prices in coming days. Focal points were the US election and the Middle- East crisis. Unanimously, panellists felt that Mr. Barack Obama will be re-elected. On the other side, Mr. Rhodes confirmed that situation in Syria is not well. Iran and Israel are not far away. So, situation can aggravate anytime considering the current political relationship with the US. Gold and platinum spread Mr. Rhodes raised this interesting issue with the panellists. Mr. Rohit Sawant was first to respond. He said, currently, platinum is at a discount to gold because of slower global economic growth. The platinum market is primarily driven by industrial demand. At the same time, investment demand is also less. But, ongoing labour unrest and high electricity cost in South Africa, combined, would push the cash cost. I am also expecting slightly better global economy which would bring fabrication demand back. So, next year we would see platinum at a premium to gold. Dollar/Euro Parity Panellists were undecided basically at the exact value of the currency pair next year. It was broadly viewed the parity might be around US$ to a Euro in Sovereign debt crisis actually pushed euro against dollar this year, but in the bargain people forgot about US economic problem. So, US economic issues will again come to the stage at some point of time they argued. If South African platinum mines problems spill over to gold, what would happen to price of gold? (South Africa produces 190 tons of gold in a year) Mr. Jeremy East said, Historically, last 30 years, we have observed whenever platinum prices came at par with gold, investors tend to buy platinum. It is really a surprise that didn t happen this time. But, I think going forward, investors would return to platinum at Mr. Klapwijk and Mr. Rhodes were of the opinion that 10 to 20% fall in production of gold in South Africa will not have bigger impact on supply considering the prices where gold is currently in. But, in case of platinum, it is really an issue. 43

44 Audience Response Poll - IIGC

45 Role of Public Sector Undertakings in Indian Bullion Industry Mr N K Mathur, Chairman State Trading Corporation of India Dignitaries sitting in the hall, it s my pleasure to be here at the 9th India International Gold Convention, As you know gold prices are closely linked with overall global economic climate.nglobal economic crisis has affected the growth prospects in India and China, who together consume 45% of world gold supplies. US dollar volatility has also affected the bullion trade. As you know, government of India has increased import duty on gold to 4% on account of high current account deficit (CAD). Consequently, gold import has dropped by 40% in the first half of this year as per the available statistics. Ongoing sovereign crisis in European region further forced investors of the region to increase their investment by 15% in gold on account of preserving wealth by retail investors. Importance of gold is further evident as central banks that are long term investors continue to increase gold in their portfolio. Gold and silver have given consistent return during the last decade than many asset classes. In fact, gold has given 10% annual return last decade while silver has given more than double since In India when import of gold was liberated it was initially channelized through public sectors and later it was given to banks, large export houses and at last star export houses in private sector. Today 45 entities are allowed to import. PSUs like STC and MMTC have large network and infrastructure around the globe with capability to undertake large orders for customers. PSUs ensure transparency in operation and regulatory compliance. In regard to retail products like coins, customers have huge confidence on those products marketed by PSUs. During 2008, despite massive economic turmoil, PSUs were insulated and it is this reason that global suppliers did not hesitate to supply bullion. In short, PSUs are notable and trustworthy entities to foreign suppliers and also to Indian consumers. PSUs have developed a sound relationship with suppliers and buyers with the evolving bullion trade over the time and thus provide financial security. It s a win-win situation to everybody. Presently PSUs have structured so many mechanisms like consumer sales, loan sales, etc which can be utilized depending upon market dynamics. As you all know STC is the nominated agency for importing gold and silver. STC is also involved in many commodities, but in value terms, gold and silver occupies 70% of the company s business. Economic turmoil in Europe and other developed nations will remain, but bullion trade is robust and will continue to remain so. My best wishes to Convention. THANK YOU 45

46 TBZ success story on professionalizing family business Mr. Shrikant Zaveri, Chairman & MD, TBZ Good Afternoon to all of you! I thank the board member and organizing committee of International Gold Convention 2012 for inviting me and giving an opportunity to share my views on the subject. I am going to share with you an interesting story of how Tribhovandas Bhimji Zaveri successfully professionalized its business and now aiming for ambitious growth plan in India. TBZ was founded in 1864, at Zaveri Bazar, Mumbai by my great grandfather late Shri Bhimji Zaveri. At that time it was just 8 x 8 size tin shed from where the business started. That time there were many challenges. However the focus of Late Shri Bhimji Zaveri was on customer requirements and providing service that would satisfy them. imagine at that time, as how will it happen. There were many questions as to Who would manage it for us? Whom can we trust with so much of inventory? Will there be the same commitment from professionals toward the business that we have? Will we lose the control on the business? What if it doesn t work?. So on and so forth. As the time went by, the popularity started growing and so is the business. With the growth of the business, the owner-manager were exploring and implementing better and better business management techniques in order to run the business profitably and without any shrinkage. It was my father who realized the importance of running and managing the business through professional management. It was very tough to However my father was very clear with the benefits of professionalization. He wanted to go ahead with it due to following reasons: 1. To introduce planned and system driven approach in the business 2. To avoid conflict between Family and Business values and goals 3. To introduce strategic managerial style 4. Most importantly save quality time for the better use by withdrawing from day-to-day operations 46

47 This would mean de-emotionlising from the business. However, with the full conviction we appointed well qualified and experienced, nonfamily member professional as a General Manager to run the business. How we managed the transition? After in-depth discussion with newly recruited General Manager, we made him realize our family s vision, ambition and values. We aligned our objectives. We empowered him to take day-to-day operations related decisions. Recruiting, training and developing the talent / human assets. We stayed away from the temptation of forcing our views. However, as and when required, we used to discuss and give our inputs. We institutionalized the key operating tasks such as procurement of inventory, designing and manufacturing, marketing, accounts and finance, HR & Admin, logistics etc. with the help of General Manager. As the business started enjoying further growth, we initiated developing middle level management. The professional GM selected carefully the middle management team which had a cultural fitment and desire to deliver the best. As the team was shaping up, new ideas of business management started floating around. Professional team started meeting on regular basis to discuss the business strategy, evaluate business health, identify growth opportunity, risk mitigation, improving efficiency, managing cashflow, etc. We as a family used to give our inputs and direction as and when required. The smooth transition had already happened. With the empowerment the General Manager and his growing team were highly motivated and delivering more than what was expected. Over the period, an organsiation structure got developed and people at varied hierarchy were working with high potential and sincerity. They were stretching to best of their limits to run our Family Business. And we as a family utilised our best time in giving policy decisions, direction and exploring growth opportunity at senior level. Today Tribhovandas Bhimji Zaveri is a listed company on BSE/NSE. The same GM, Mr. Ravindra Nagarkar, has become the Chief Executive Officer. Middle Management has sharpened their skills and geared up to achieve fast paced ambitious growth in the ever challenging business environment. Business is running smoothly, without involvement of any of my family members in day-to-day operations. Yes as an owner we have to constantly monitor and control the wider aspects but without interfering the professional decisions. However, net take out for all of you here is the transition from family run to professionally managed business has definitely paid off to TBZ. And we attribute our success to the same. Thank you. Whenever you are doing anything, make sure that the end is good. Dr Anup Pujari, IAS, DGFT 47

48 Summary of the conference S K Jindal The 9th India International Gold Convention was truly remarkable for its content, context, innovation and participation. Dr Anup P u j a r i, I A S, D i r e c t o r General of Foreign Trade, not only inspired us through his insights on how to communicate and engage with the government but also extended an open invitation to resolve some of the present challenges. There cannot be a better opportunity than now to engage with the government! Roundtable discussion succinctly brought out several doable proposals to reduce import dependency and Current Account Deficit such as permission to export gold bullion through banks, permission to allow banks to offer more services including but not limited to launching of gold deposit scheme and gold bond scheme along with other stakeholders, permission to buy-back of bullion for onward sale, supporting financial needs of domestic refiners and participation in domestic commodity exchanges. Gold is a credible asset, owned and trusted by millions of Indian savers. Policy on such a vital subject should avoid short-term benefits and focus on tangible long-term advantages only. The award ceremony recognised contribution of several industry stalwarts in a fitting manner. The entertainment thereafter provided perfect back-drop for networking. Day-2 of the conference started with a presentation on indirect tax. It is important that representation be made to the empowered committee on GST requesting them to maintain VAT at current level of 1% in the post-gst era. The pledge by association to work together as well as share information on defaulters and disputes is a step in the right direction. The deliberation by international bankers gave fresh ideas for dealing with gold demand in the country besides stressing on the need for making rupee convertible and permission to export gold bullion. Session on Innovation in physical and paper markets, bounced several ideas and working models at the audience. The deliberation on refineries stressed the importance of refining in connecting the bullion end to the mining world and reiterated the need for strong bullion bank. The exchange panel highlighted the developments in the exchange marketplace in products and services. Session on professionalising family-business engaged the audience through an outstanding presentation followed by experience sharing. Platinum is at a discount to gold. During the last 25 years, platinum traded at discount to gold on only 1% of time. The panel discussed the current market situation in platinum and the ways to promoting platinum jewellery in India. The price outlook session deliberated key events in the next 5 to 6 months and their likely impact on bullion market. The panel felt that US$ 1510 per ounce level would hold for gold and the market could see a small upside going forward for the rest of the year. The ghazal performance and gala dinner provided the perfect backdrop for winding-up after an extraordinarily eventful day. Master Class and One-to-one Business Meetings were two new elements added for the first time in the conference. The Master Class session on Day-1 had three presentations on two topics- need for hedging using forwards / futures and options and trends in mining costs. One-to-one business meeting saw over 75 serious interactions hosted by 11 companies. The booth display section with over 20 exhibitors had a variety of services on display attracting delegates all through the day. 48

49 xqééëumüé 2012 H I N D I SECTION 49

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59 xéñkééu Måü ÍsÉrÉå iéïxéuï "qéêìléoûuï DÍxÉÇaÉ méêíséxéï" (YrÉÑ.D. 3) péï ÌlÉÍ ÉiÉ sééréåaéï CxÉMüÉ kééiéñaéåç MüÐ MüÐqÉiÉÉåÇ méu ÌlÉÍ ÉiÉ ÂmÉ xéå xémüéuéiqémü méëpééué WûÉåaÉÉ séåìmülé MüÉåD AmÉëirÉÉÍzÉiÉ béoûléé WûÉå LåxÉÉ xéçpéué méëiéïié léwûï WûÉåiÉÉ xéç ÉåmÉ qéå, WûqÉ réå qééléiéå Wæû ÌMü xééåléå MüÐ MüÐqÉiÉ CxÉ xéésé Måü AÇiÉ iémü AÉæxÉiÉlÉ 1645 $/Oz. iémü UWû xémüiéï Wæû eééå ÌMü WûqÉÉUå ÌmÉNûsÉå xéésé Måü méôuééïléñqéélé xéå jééåäqûé EmÉU Wæû ÉÏ qéæjréô OûlÉïU:- xéésé MüÐ zéñâuééié qéå qéæ iéåeéï MüÐ AmÉå ÉÉ MüU UWûÉ jéé AÉæU AoÉ péï xéåçoíûsé oéæçmü qéñsìé MüÉ NûÉmÉlÉÉ eééuï UZÉåÇaÉå ÎeÉxÉxÉå qéñsìé xtüïìié qéå iéåeéï MüÉrÉqÉ UWåûaÉÏ AaÉU xéåçoíûsé oéæçmü NûÉmÉlÉÉ oéçs MüU SåÇaÉå iééå qéñsìé xtüïìié qéå léuqéï AÉrÉåaÉÏ, iéoé méëuîxjéìié SÕxÉUÏ oéléåaéï CxÉ xéésé QûÊsÉU qéå qéeéoéôiéï jééåäqûï AcÉÇÍpÉiÉ MüUlÉå uééséï Wæû qéåuå AlÉÑqÉÉlÉ Måü AlÉÑxÉÉU xéésé Måü AÇiÉ iémü xééåléé AÉæxÉiÉlÉ 1800 $/Oz. iéjéé cééðsï 36 $/ Oz. Måü AÉxÉ-mÉÉxÉ UWûlÉå MüÐ EqqÉÏS Wæû QûÊsÉU Måü ÌTüU xéå MüqÉeÉÉåU WûÉålÉå MüÐ EqqÉÏS Wæû cééðsï qéå WûÉsÉ qéå AÉæ±ÉåÌaÉMü qééçaé qéå MüqÉÏ Måü céséiéå xééåléå MüÐ AmÉå ÉÉ MüqÉ iéåeéï oéléï mséåìoûléqé aéëñmé BTü qéåoûsxé (méïeéïlqé) qéå qéåuï kééuhéé Wæû ÌMü mséåìoûléqé xéésé Måü AÇiÉ iémü réìs DxÉÏoÉÏ MüÉåD oéäqûï qéé ÉÉ qéå qéñsìé MüÐ NûmÉÉD MüUMåü léréå UÉåeÉaÉÉU Måü AuÉxÉU lé sééréå iééå réwû 1400 $/Oz. iémü AÉ xémüiéï Wæû xéésé 2011 qéå ÌlÉuÉåzÉMüÉåÇ ²ÉUÉ cééðsï Måü MÑüNû eréésé méïnåû méäqû eééléå Måü MüÉUhÉ ElWåû ZÉÉxÉÉ bééoûé xéwûléé méäqûé jéé CxÉ xéésé Måü ÍsÉrÉå cééðsï 36ÿ/AÉåeÉ Måü AÉxÉ-mÉÉxÉ UWûlÉå MüÐ xéçpééuéléé Wæû méïeéïlqé Måü xéçspéï qéå, MüqÉeÉÉåU réôuéåìmérélé qééçaé Måü céséiéå ClÉMüÐ MüÐqÉiÉÉåÇ qéå SoÉÉuÉ oéléé UWåûaÉÉ qéñféå léwûï séaéiéé ÌMü réôuéåmé qéå mséåìoûléqé MüÉ eréésé ZÉmÉiÉ MüUlÉå uééséï 'MüÉU' oééeééu CxÉ xéésé Måü SÉæUÉlÉ xéçpésé eééréåaéï ZÉÑSUÉ Éå É qéå ÌuÉzÉåwÉiÉÈ, céïlé MüÐ MüqÉeÉÉåU qééçaé péï LMü MüÉUhÉ Wæû méælésé Måü xésxrééåç léå AÉÎZÉU qéå AÉaÉå AÉlÉå uééséå xéqéré qéå xééåléå MüÐ MüÐqÉiÉÉåÇ MüÉå méëpééìuéié MüUlÉå uééséå méëqéñzé péô-uéeéléïìiémü MüÉUhÉÉåÇ méu ÌuÉcÉÉU méëmüoû ÌMürÉå ClÉqÉå réôlxé Måü AÉaÉÉqÉÏ céñlééué iéjéé qékré-méôuéïï SåzÉÉåÇ Måü xéçmüoû qéwûiuéméôhéï Wæû ÉÏ oéuémü AÉåoÉÉqÉÉ MüÉ méñléè ÌlÉuÉÉïcÉlÉ xépéï xésxrééåç MüÐ AÉqÉ UÉrÉ jéï SÕxÉUÏ AÉåU ÉÏ UÉåQèxÉ léå oéiééréé ÌMü xéïëuréé qéå WûÉsÉÉiÉ ApÉÏ péï ÍcÉÇiÉÉeÉlÉMü Wæû DUÉlÉ iéjéé CxÉUÉCsÉ qéå péï WûÉsÉiÉ MüpÉÏ péï oéssé xémüiéå Wæû CxÉÍsÉrÉå AqÉåËUMüÉ Måü xééjé ClÉ SåzÉÉåÇ xéå qééæeéôsé UÉeÉlÉæÌiÉMü xéçoéçké qéå WûÉsÉÉiÉ ÌoÉaÉÄQû xémüiéå Wæû xééåléå ué mséåìoûléqé Måü oéïcé xméëåqû ÉÏ ÌTüÍsÉmÉ YsÉämÉÌuÉcÉ:- xééåléå MüÐ MüÐqÉiÉÉåÇ léå ÌlÉhÉÉïrÉMü 200 ÌSlÉÉåÇ Måü qéôìuéçaé LuÉUåeÉ MüÉ xiéu $ 1640/Oz MüÉå mééu MüU ÍsÉrÉÉ Wæû AiÉÈ AoÉ réwû xéïíqéié xéqéré qéå $ 1700/Oz réé AÍkÉMü MüÐ AÉåU oéäråûaéé réwû AÉaÉå MüÐ UæsÉÏ CxÉ EqqÉÏS qéå MüU xémüiéï Wæû ÌMü ÍxÉiÉÇoÉU qééwû Måü SÉæUÉlÉ réôlxé TåüQûUsÉ MÑüNû léïìiéaéié méëuuéiéïlé MüUåaÉÉ ÌaÉUÉuÉOû MüÉ SÉæU jéqéléå MüÐ ÌlÉÍ ÉÇiÉiÉÉ xéå eééå oéäqåû TÇüQû SUÌMülÉÉU MüU ÌSrÉå aéréå jéå, AoÉ iéåeéï MüÐ AÉWûOû xéå oééeééu qéå méëuéåzé MüUåÇaÉå QûÊsÉU qéå AoÉ MüqÉeÉÉåUÏ MüÐ EqqÉÏS Wæû WûqÉÉUå AlÉÑxÉÉU CxÉ xéésé Måü AÇiÉ qéå xééåléå MüÐ MüÐqÉiÉ AÉæxÉiÉlÉ $ /Oz Måü AÉxÉ-mÉÉxÉ UWûlÉå MüÐ xéçpééuéléé Wæû cééðsï Måü ÌuÉwÉrÉ qéå, AÉÍjÉïMü qéçsï Måü céséiéå MüqÉeÉÉåU AÉæ±ÉåÌaÉMü qééçaé Måü, ÉÏ OûlÉïU xéå méôuï iéuwû xéå xéwûqéié WÕÇû CxÉMåü AsÉÉuÉÉ ÉÏ UÉåQèxÉ léå CxÉ ÌSsÉcÉxmÉ ÌuÉwÉrÉ MüÉå cécééï Måü ÍsÉrÉå méælésé Måü xésxrééåç Måü qékré UZÉÉ CxÉ ÌuÉwÉrÉ méu xéoéxéå méwûséå AmÉlÉÉ mé É UZÉiÉå WÒûrÉå ÉÏ UÉåÌWûiÉ xééuéçié léå MüWûÉ ÌMü CxÉ xéqéré kéïqéå AÉÍjÉïMü ÌuÉMüÉxÉ Måü céséiéå mséåìoûléqé MüÐ MüÐqÉiÉ xééåléå Måü qéñmüéoéséå MüÉTüÐ MüqÉ Wæû mséåìoûléqé qéñzréiéè AÉæ±ÉåÌaÉMü Éå ÉÉåÇ MüÐ qééçaé xéå WûÏ méëpééìuéié WûÉåiÉÏ Wæû xééjé WûÏ CxÉqÉå ÌlÉuÉåzÉ MüÐ qééçaé péï jééåäqûï WûÏ Wæû séåìmülé, SÍ ÉhÉ ATëüÏMüÉ qéå césé UWåû qéeésõuéåç Måü xéçmüoû iéjéé FÇcÉå ÌoÉeÉsÉÏ Måü ZÉcÉÉåïÇ MüÉå ÍqÉsÉÉMüU lémüs sééaéié qéå ué Î WûÉåaÉÏ ClÉ xéoémåü céséiéå, AaÉsÉå xéésé mséåìoûléqé xééåléå MüÐ MüÐqÉiÉ Måü qéñmüéoéséå méëïíqéréqé méu ÌoÉMåüaÉÏ ÉÏ eéåuåqéï CxOû léå MüWûÉ ÌMü réwû ÌmÉNûsÉå 30 xéésééåç MüÉ CÌiÉWûÉxÉ Wæû ÌMü eéoé péï mséåìoûléqé MüÐ MüÐqÉiÉå xééåléå xéå léïçcéï WÒûrÉÏ Wæû, ÌlÉuÉåzÉMüÉåÇ léå eéqémüu ZÉUÏSÏ MüÐ Wæû séåìmülé CxÉ xéqéré 59

60 LåxÉÉ léwûï WûÉålÉÉ AÉ ÉrÉïeÉlÉMü ÌuÉwÉrÉ Wæû ÌTüU péï qéñféå LåxÉÉ séaéiéé Wæû ÌMü AÉlÉå uééséå xéqéré qéå ÌlÉuÉåzÉMü ÌTüU xéå mséåìoûléqé MüÐ AÉåU ÂZÉ MüUåÇaÉå uéwû xéqéré AaÉsÉå xéésé qéå CxÉÏ SÉæUÉlÉ MüÉ WûÉå xémüiéé Wæû eéoé mséåìoûléqé xééåléé xéå péï qéwçûaéé WûÉå eééréåaéé GhÉ xéçmüoû léå CxÉ xéésé réôuéå MüÉå QûÊsÉU Måü ÌuÉmÉËUiÉ oéärûéréé, séåìmülé CxÉMåü céséiéå réôlxé Måü xéçmüoû MüÉå AlÉSåZÉÉ ÌMürÉÉ aéréé Wæû CxÉÍsÉrÉå AÉaÉå AÉlÉå uééséå xéqéré qéå AqÉåËUMüÉ MüÐ AjÉïurÉuÉxjÉÉ MüÉ qéñ É ÌTüU xéå aéqééïréåaéé ÉÏ YsÉämÉÌuÉcÉ léå AmÉlÉÉ mé É UZÉiÉå WÒûrÉå MüWûÉ ÌMü "qéåuå AlÉÑxÉÉU AaÉsÉå xéésé mséåìoûléqé xééåléå Måü qéñmüéoéséå séaépéaé $ 200 xéxiéé WûÉåaÉÉ réìs CxÉMüÐ AÉmÉÔÌiÉï qéå MüÉåD lééoûmüðré béoûléé léé béoåû " réìs SÍ ÉhÉ ATëüÏMüÉ qéå ApÉÏ césé UWåû mséåìoûléqé MüÐ ZÉÉlÉÉåÇ MüÉ xéçmüoû xééåléå MüÐ ZÉÉlÉÉåÇ iémü aéréï iééå CxÉMüÉ xééåléå MüÐ MüÐqÉiÉÉåÇ méu YrÉÉ méëpééué méäqåûaéé? (SÍ ÉhÉ ATëüÏMüÉ qéå xéésééléé 190 OûlÉ xééåléå MüÉ EimÉÉSlÉ WûÉåiÉÉ Wæû) QûÊsÉU/rÉÔUÉå xéqéiéé méælésé Måü xésxrééåç Måü qékré AaÉsÉå xéésé ClÉ SÉålÉÉåÇ qéñsìéaéåç MüÐ xéwûï MüÐqÉiÉ Måü BÇMüsÉlÉ méu MüÉåD xéwûqéìié léwûï oélé mééréï qééåoåû iééæu méu ClÉ SÉålÉÉåÇ qéñsìéaéåç Måü oéïcé MüÐ xéqéiéé $ méëìié réôuéå UWûlÉå MüÐ xéçpééuéléé SåZÉÏ aéréï xééuéïpééæíqémü CxÉ méu ÉÏ YsÉämÉÌuÉcÉ ué ÉÏ UÉåQèxÉ MüÉ LMü qéié jéé ÌMü réìs xééåléå Måü EimÉÉSlÉ qéå 10 réé 20 TüÐxÉSÏ MüÐ ÌaÉUÉuÉOû AÉiÉÏ Wæû iééå CxÉMüÉ xééåléå MüÐ uéæíµémü AÉmÉÔÌiÉï qéå TüMïü léwûï WûÉåaÉÉ xééjé WûÏ MüÐqÉiÉÉåÇ péï uéiéïqéélé xiéu méu UWåÇûaÉÏ séåìmülé, LåxÉÉ réìs mséåìoûléqé qéå WûÉå iééå réwû aéçpéïu qééqéséé WûÉåaÉÉ Financialisation of bullion markets would not only enable directing household savings in a transparent manner but also achieve the goal of channelizing capital for productive purposes within the economy. Mr.Rashesh Shah, Chairman, Edelweiss Group We suggest that the bullion industry should make a representation before the empowered committee on GST requesting them to maintain the VAT rate at 1% for gold bullion in the post-gst regime. Mr.Nishant Shah, ELP Making rupee freely tradable and export of bullion from India are two useful ideas that can resolve the current challenges in bullion industry. Mr. Philip Clewes Garner, HSBC Gold has moved above 200-day moving average. We expect the year to close at US$ an ounce for gold. Platinum would be at a 200 $ discount to gold same time next year. Mr.Philip Klapwijk, GFMS Thomson Reuters 60

61 MASTER CLASS Hedging Bullion Price Exposure using Options Anindya A. Boral Director Metals Products, CME Options Introduction Basics and Options Vocabulary Options Payoff Profile: Our options markets are based on option contracts on futures. The subsequent discussions will be focused on the options on futures (and not the underlying cash asset) Definition An option on a futures contract is the right, but not the obligation, to buy or sell a particular futures contract at a specific price (the Strike) and on or before a certain expiration date (the Expiration or Maturity ). Classification by right: Call options and Put options. Right to buy underlying futures Right to sell underlying futures Classification by Exercise: European options and American options. Exercise only on expiration date Can exercise anytime up to expiration date Purchasing a Call/Put option akin to purchasing insurance and you need to pay a premium for the optionality! Option Prices Introduction to Volatility An option s premium can be made up of one or both of two components: Based on difference between current futures prices 61

62 and the option strike. Only for in-the-money options. Option Premium = Time Value + Intrinsic Value Depends on: Time remaining to Expiration Moneyness of the option (i.e., how far is the futures prices from the Strike?) Volatility of the underlying fu tures prices Option value is higher for >>> longer time to expiry, futures price closer to Strike, and Higher Volatility (Vol) Moneyness terms >>> At-the-money (ATM), In-themoney (ITM), Out-of-the-Money (OTM) premiums to increase sometimes very dramatically. Lower volatility environments generally cause options premiums to decline. Relatively easy to calculate historic volatility based on the time-series futures price data. Technically speaking, Volatility is the standard deviation of daily returns expressed in annualised terms. Option Prices Some Important Concepts Option Value Recap and Option Delta: Option value made up of time value and intrinsic value, if in-the-money. Delta measures the rate of change of an option value with respect to a price change in the underlying futures contract. Delta is a measure of price sensitivity at any given moment. Time Value Erosion: Time value of an option erodes as each day passes, accelerating as expiration nears. This characteristic of options is referred to as time-decay. If time passes and the underlying futures contract does not move far enough by expiry, the option s time value will eventually decay to zero. Volatility is a function of price movement Measure of uncertainty of asset returns / degree of price fluctuation When prices are rising or falling substantially, volatility is said to be high. When a futures contract shows little price movement, volatility is said to below. High volatility generally causes options 62

63 Note: The OTC market also tends to refer to Strikes in terms of Deltas (10D, 25D etc.). Higher trading activity typically around the 25D mark. Implied Volatility In other words, option IVol can be seen as a measure of risk associated with an anticipated movement in the underlying futures price (e.g., due to a policy updates from a central bank, or release of key economic data). For many commodities, we observed an inverse leverage effect (in contrast to the equity markets). IVol levels tend to move (sometimes jump) higher during price increases and highprice periods. IVol is used in the market (in particular the OTC market) as a proxy for option value higher IVol consistent with higher option price paid (Vols are activity traded in the market and drive numerous strategies around options trading). Ultimately the cost of an option is determined by supply and demand. We can infer market s anticipation for risk or expected price change from observed market prices for options. Need to account for the Volatility Skew For a given expiration, IVols can edge higher as you move away from at the-money (ATM) strikes (options theory assumes constant vol across strikes though). The Vol Skew (and trends in the levels and shape of skew) are likely to provide some useful insights into market demand and aggregate market sentiment around price movements. Volatility Term Structure and Surfaces 63

64 Traders regularly use vol surfaces to assess trading and arbitrage opportunities. The Vol term structure and skews may be combined to create a Vol Surface. This is just a representative example (not based on gold market data) Source: Reuters Tracking Volatility in the Gold Markets From the CME Risk Management Handbook IVol is forward-looking assessment of underlying futures price risk, whereas HVol is backward-looking assessment of where price risk has been. Key Takeaway: Market s assessment of volatility can shift quite a bit. 64

65 COMEX Options Markets Volumes and Open Interest 2012 Open Interest: Gold Options: 1.2 million contracts Gold Futures: 425,000 contracts Silver Options: 190,000 contracts Silver Futures: 115,000 contracts We have seen a remarkable growth in our options markets driven by an increase in electronic trading volumes via our Globex platform. Options on metals futures products provide the liquidity, flexibility and market depth needed to achieve market participants trading objectives from the simple to the most sophisticated of trading strategies. COMEX has one of the most liquid precious metals futures and options markets in the world. Option contracts based on our flagship futures contracts that are global benchmarks Daily volumes: Gold Options: 40,000 contracts Gold Futures: 190,000 contracts Silver Options: 7,000 contracts Silver Futures: 55,000 contracts Gold option volumes grew almost 4-fold over the past 5 years to average around 40,000 contracts changing hands daily in first half of Almost 45% of our gold option volumes come viaour Globex electronic trading platform. It is noteworthy that electronic trading activity in gold options was virtually non-existent back in early However, the open outcry and off-exchange (ClearPort) venues still important for options - especially when it comes to executing complex option strategies. 65

66 COMEX Options Products Contract Specifications Short-Term Gold Options Our ST Gold Options are physically-settled options with expiries over the next 5 business days. These are European-style options with automatic exercise on expiration. COMEX Options Products Some Important Information Gold Option Specs Recap One standard monthly option contract (OG) delivers into one futures contract. One Gold futures contract (GC) constitutes a contract for delivery of 100 troy oz. of Gold to an Exchange-approved depository at a specific date in the future. One options contract would allow the buyer or assign the seller to take or give possession of one corresponding underlying futures contract the specific date of each contract. Options Expiration Procedure / monthly options Settlement is based on the COMEX close at 1:30 p.m. Eastern Time (ET). Abandonments and assignments must be submitted to the Exchange by 4:30 p.m. ET. Option Buyers exercise and sellers get assigned. Notice of exercise and abandonments are generally given by 8:00 p.m. ET. Margins An option buyer must only put up the amount of the premium, in full, at the time of the trade. 66

67 However, because option selling involves more risk, an option seller or writer will be required to post performance bond. the November futures price, the option must be valued with the December (Cycle Month) price in mind. Once an options position is exercised into a futures position, performance bond is required, just as for any other futures position. Cycle Months Gold options settle into underlying futures contracts on a cycle-month schedule. For example, a November options contract exercises into a December futures contract. Since the December futures price is generally different from Tools Available on CME Metals Website Delayed Quotes 67

68 Tools Available on CME Metals Website Open Interest Profile Our Metals Options Open Interest Profile provides powerful insights into open interest patterns for our core option contracts. A word of caution Options can be effective risk management instruments, but you need to have a good understanding of the entailed risks and operational aspects of options trading (especially if you are selling options). Further, there may be regulatory restrictions that are likely to restrict your ability to access the global options markets it is very important to have a thorough knowledge of these. Call or Put Protection Within options-based hedging, buying Calls (for metal consumers) or Puts (for metal distributors) for price protection is the most basic and relatively straightforward strategy. Why is this valuable? Options incorporate Calls/ Puts, variety of contract months, and a wide range of Strikes. Market participants can assess market sentiment and liquidity pools in the option markets. Can also help market participants draw inferences around likely support and resistance levels. Can also help identify pin risk potential around certain strikes. Can be rather expensive though: Realised Floor Price Strike = Premium paid = Basis, if any (may be positive too) = Exchange fee / Broker s commission = Floor Price Example A gold dealer looking to sell metal in December may purchase 90% Dec-12 Puts. Present Dec-12 futures price $1619.2/oz (16-Aug settle). Closest Put Strike is $1455. Some Basic Strategies Downside Protection Options can be used to provide effective downside protection but an options hedging strategy likely to require careful consideration and preparation. Premium: $10.50 (at 16-Aug settle) / less than 1% of notional Realised Floor at approx $1,443 (assuming no basis or brokerage fees) 68

69 (as strategy requires selling out-of-the-money Calls). Can be used to take advantage of the vol skew in periods of elevated volatility. Leg-risk needs to be considered when executing. Some Basic Strategies Downside Protection Following the earlier example A 90% near-cashless Collar would likely limit upside to 112% (i.e., price protection at $1450 with upside limit at $1820 based on 16-Aug settle). Option spreads can be used to reduce the strategy cost, while enabling reasonable price protection. Call or Put Spreads Purchasing Call- or Put-spreads enables price protection over a specific price range, as against complete downside risk protection (i.e., some tail risk remains). Can be used to take advantage of the vol skew in periods of elevated volatility. Leg-risk needs to be considered when executing. Following the earlier example a long 90%-80% Put spread costs $8.50 based on 16-Aug settle (price protection in approx $1445-$1295 range). Collars / Costless Collars These strategies involve forgoing some upside participation in return for far reduced costs US election is a non-event as far as the bullion markets are concerned Mr. Jeffrey Rhodes, INTL Commodities 69

70 Accessing Information DISCLAIMER Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures unless otherwise stated. The Globe Logo, CME, Chicago Mercantile Exchange, and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. CME Group is a trademark of CME Group Inc. All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Although every attempt has been made to ensure the accuracy of the information within this presentation, CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME, CBOT, NYMEX and CME Group rules. Current rules should be consulted in all cases concerning contract specifications. This presentation is issued by the Chicago Mercantile Exchange Inc. 70

71 MASTER CLASS Overview of Mining Costs Rohit Savant Senior Commodity Analyst, CPM Group Outline Other Factors Influencin Cash Costs 1. Factors Influencing Cash Costs Deep-Level Mining Boosts Cash Costs Major Cost Components South African Gold Mining This type of mining inherently pushes higher the mining cash costs because 4. Metals Prices and Costs 5. Costs and Mine Supply Primar Factors Influencin Cash Costs Two Distinct Set of Factors Drive Mining Cash Costs: Of the need for more skilled labor (to deal with increased complexities associated with such mining) Intricate infrastructure Increased electricity costs (for cooling deep underground shafts ) The first set of factors relates to the actual costs of inputs: Skilled labor, mining materials, equipment, reagents, structural steel, and everything else that goes into running a mine. The second set of factors relate to the price of the underlying metal of the mine. Overall increase in overhead and maintenance costs In the case of some metals, like platinum, depth of mining is rising as metal available at shallow levels has for the most part already been extracted. higher metal prices encourage mining lower grade properties driving higher the cash cost curve the price of the metal also influences input costs Reduced Production Raises Cash Costs There is an inverse relation between the level of production and the per ounce cash cost. 71

72 Higher production helps reduce the fixed cost components. Lower production can result from: Safety related production stoppages Technical problems Lower grades However Most cash cost components are variable costs. As a result of this, the rate at which these costs rise (input cost inflation) plays an important role in influencing the overall cash costs Typical Gold Mining Cash Cost Breakdown Com onent Range Typical Labor 30% -55% 50% Fuel 8% -10% 9% Utilities 8% -11% 10% Parts & Supplies 8% -15% 12% Consumable 14% -23% 7% Other 7% -15% 12% 100% South African Gold Minin South Mining Cash Costs Wages Have Been Rising Faster than the Benchmark Input Costs Labor Costs are the Largest Mining Cash Cost Component Typical Gold Mining Cash Cost Breakdown The benchmark is inflation plus two percent. Premium/Discount is the difference between the actual average wage inflation less the benchmark. Sharp Increases in South African Electricity Tariffs 72

73 Methodology to Calculate Input Cost Inflatio Determine the inflation of each component. This inflation then needs to be weighted by the weighting of that component in the cash cost breakdown. - poor management of issues related to trade, debt, and deficit imbalances These problems are real and some are expected to take several years to be resolved. Investors are expected to continue adding to their holdings in historically large volumes! The sum of the above then needs to be weighted by production at Mine level Country level They are not, however, expected to chase gold prices higher as was seen during the past few years. Instead investors are expected to add to their holding on prices declines. Price Underl in Metal Gold: Near a Cyclical Peak in a Secular Bull Market This is expected to both weigh on gold investment demand and the price of gold. Inverse Relation between Gold Price and Gold Grade Gold prices are expected to remain high by historical standards, going forward. Investment Demand Gold Mining Has Become Extremely Profitable Again Investors have been purchasing gold for a variety of reasons over the past decade. Just some of these reasons are: - increased concerns regarding major reserve currencies - two recessions in the past decade (2001, ) - negative real interest rates - concerns of inflation 73

74 Cash Costs and Mine Supply Most Gold Production Is Profitable Below $1,000 Gold Mining Cash Profit Margins in the 1980 and 1990s 90% of global gold production from primary gold mines was produced at cash costs lower than $1,033 per ounce during the third quarter of The flatness of the gold cash cost curve makes gold production relatively less sensitive to changes in the price of the metal. Cash Costs and Mine Production There is a lag effect between the margin between cash costs and prices and the increase/decrease in supply 74

75 Gold Mine Production Forecast to Rise COMMODITY RESEARCH PRODUCTS About CPM Group 75

76 MASTER CLASS Price Volatility and Hedging Solutions in Gold Bimal Das Director, ScotiaMocatta, New York ScotiaMocatta A Premier Bullion Bank ScotiaMocatta, the precious and base metal division of The Bank of Nova Scotia, is a global leader inmetals trading, finance and distribution of physicalprecious metal. Since 1671 the Mocatta name has been synonymous with excellence. Over Three Centuries of Precious Metals experience backed by the security of Canada s most international bank Deal execution across 5 continents 24 hour market capabilities Extensive coverage both in terms of product range and geographic location Local expertise with a global reach Founding and current member of the Gold and Silver Fixings Member of the COMEX division of the CME Authorized metals depository for most US exchanges Over 160 market professionals dedicated to ScotiaMocatta business Our fully integrated and comprehensive range of metals services include: Global Market-Maker Precious Metals financing Global Physical Delivery Fixing Services Scrap Purchase programs Hedging Programs Vaulting and Custodial Services Coins / Investment Bars Structured Financing Forward Rate Agreements/IRS Metal Certificate Programs Reserve Management Metal consignments and leases ETF Conversions Professionalisation is inevitable, if you want to grow fast and want to extend the life of your organisation beyond your lifetime. Mr.Parimal Merchant, SP Jain Institute of Management 76

77 Geopolitical instability Inflation (in the US, the global economy or in commodity prices) Safe haven or alternate investment product ETF holdings in gold are at an all time high at 78 MM ounces Mining shareholders desire to be exposed to rising prices The Western World is struggling with the debt many countries have allowed to build Existing debt may have to be written off resulting in defaults More layers of debt may have to be created, exacerbating the risks of hyper-inflation Tough economic decisions for the foreseeable future, especially in Europe and the US Falling confidence in the global economy and Governments ability to spur growth QE programs have stimulated growth, but at the cost of commodity inflation Central Banks have fewer tools left to fight inflation given low GDPs Deeper slowdown in Indian and Chinese economies may spur safe-haven investments Reasons for a sell-off: Liquidation of large speculative long positions Prolonged economic weakness - soft demand Increase in US dollar interest rates However, positive signs are beginning to emerge Unemployment rates in the US are gradually improving Investor interest in equity markets are sharply higher Positive earnings in many industrial sectors QE3 is on hold for now Reasons for continued high price environment: Bullish sentiment prevails in market Strong Central Bank buying 77

78 Net long fund position (126k contracts) has started to recover from recent lows Large funds and investors like Paulson & Co. and Soros Fund Management have recently reentered the market Gold ETF holdings are at an all time high million ounces After the strong gains seen between 2008 and 2011, it is not surprising that the market has taken a long time to consolidate Europe s financial system is straining at the seams and with no fix forthcoming, demand for safe-havens is likely to remain strong Precious metals prices are generally consolidating. But with good underlying support evident, there may be opportunities for rallies Resistance in gold has proved difficult to clear with technicals indicating consolidation may be required.although prices have been rangebound recently, on balance we expect the price consolidation to lead to another rally before too long A series of higher lows since mid-may suggests that there is good underlying buying interest. There appears to be pressure building up beneath resistance and we should not be surprised to see prices attempt a move above $1641 Fund and investor interest has re-emerged. With other safe-havens looking expensive,bullion looks relatively cheap Metal Loan / Lease Facility Fixed Price Hedges Spot Forward Contracts and Flat Forward Prices Futures Exchanges Variable Price Transactions Options Advantages Creates a natural price hedge for inventory against price volatility Loan programs can incorporate the process of acquiring metal Precious metal borrowings do not tie up expensive capital Borrowing costs are historically lower than traditional financing Allows borrower to maintain equity gold position through LIFO accounting Disadvantages Rising metal prices may increase interest costs Metal borrowing rates can be volatile Borrower does not participate in rising prices Rising metal prices may increase credit collateral costs 78

79 A forward contract is a non-standardized contract between two parties to buy or sell an asset at a specified future date at a price and location agreed upon today A futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed today with delivery and payment occurring at a specified future date. Futures contracts are typically traded on an Exchange (Comes, MCX, TOCOM etc.) Forward contract premiums could be expensive Could potentially lock in gold at the all time high gold price Date Forward Price *Flat Forward Price * 1 Month $ $ Months $ $ Months $ $ Months $ $ Year $ $ An option contract gives the option buyer the right (but not the obligation) to buy 13 (a Call option) or sell (a Put option) a specific underlying asset (commodities, currency, stocks, indices, debt etc.) at an agreed price (the strike price) during a predetermined period of time. The obligation (not the right) rests with the seller Identify when the Price Risk arises and understand what the risks are Quantify the Risk. How Long does the Risk Exist? Determine Hedge Objectives and Impact of Hedge on Business * Based on Spot Gold Price of $1640 * Prices and rates subject to market changes Consumers can protect against rising prices by buying a CALL# option. But current atthe- money Call options could cost up to $60 per ounce in option premiums Positives Complete protection against price volatility in the gold price Allows consumers to lock in prices without using up cash resources Ensures predictable pricing for manufacturing and costing Risks No participation in directional market movements An alternative could be to sell a PUT+ option Creates an obligation for the options seller to BUY GOLD Seller typically receives a premium from the Buyer The Seller receives a payment (premium) to leave an order below current market prices in exchange for assuming an obligation to buy the underlying metal if the option is exercised* 79

80 For Example: (Assume Gold Spot Price $1640) Sell a three month PUT with a Strike Price of $1600 Seller receives a premium of ~$25 per ounce If price trades below $1600 in three months, option is exercised Seller buys $1575 (Strike Price Option Premium) If price trades above $1600 in three months, option expires un-exercised and Seller keeps the $25 / per ounce premium received # A Gold CALL option gives the buyer of the option the right to BUY gold at the Strike Price if the market trades above the Strike Price on expiry of the contract + A Gold PUT option gives the buyer of the option the right to Sell gold at the Strike Price if the market trades below the Strike Price on expiry of the contract * Conditions may apply subject to terms of the option contract and the contract being exercised etc. Legal Notices TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with Global Banking and Markets, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc., Scotia Capital (USA) Inc., Scotiabank Europe plc; Scotiabank (Ireland) Limited; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Scotia Inverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V., Scotiabank Colombia S.A., Scotiabank Brasil S.A. Banco Multiplo all members of the Scotiabank Group and authorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability. Scotia Capital Inc. is a Member of the Canadian Investor Protection Fund. Scotia Capital (USA) Inc. is a registered broker-dealer with the SEC and is a member of FINRA, the NYSE and SIPC. The Bank of Nova Scotia, Scotiabank Europe plc, and Scotia Capital Inc. are each authorized and regulated by the Financial Services Authority (FSA) in the U.K. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities. The ScotiaMocatta trademark is used in association with the precious and base metals businesses of The Bank of Nova Scotia. The Scotia Waterous trademark is used in association with the oil and gas M&A advisory businesses of The Bank of Nova Scotia and some of its subsidiaries, including Scotia Waterous Inc., Scotia Waterous (USA) Inc., Scotia Waterous (UK) Limited and Scotia Capital Inc. - all members of the Scotiabank Group and authorized users of the mark 80

81 GOLD SURVEY 2012 Prepared by Thomson Reuters GFMS 81

82 WHY ARE GOLD AND SILVER MARKETS SO VOLATILE? GOLD AND SILVER ANNUAL TRADING RANGES AS A % OF ANNUAL AVERAGE PRICE REVIEW OF GOLD & SILVER PRICE VOLATIL- ITY WILL THIS VOLATILITY CONTINUE? HOW TO DEAL WITH IT? GOLD PRICE VOLATILITY GOLD AND SILVER ANNUAL TRADING RANGES IN 2011 USD TERMS GOLD AND SILVER PRICE VOLATILITY GOLD DEMAND: 2002 VS GOLD AND SILVER PRICE VOLATILITY: ANNUAL AVERAGES IN %* 82

83 *World Investment is the sum of Implied Net Investment, Physical Bar Investment and all Coins & Medals Source: Thomson Reuters GFMS SILVER DEMAND: 2002 VS *World Investment is the sum of Implied Net Investment, Physical Bar Investment and all Coins & Medals Source: Thomson Reuters GFMS]] WORLD INVESTMENT S SHARE OF TOTAL DEMAND GOLD FUTURES AND ETFs TOTAL ANNUAL TURNOVER 83

84 SILVER FUTURES AND ETFs TOTAL ANNUAL TURNOVER CORRELATION BETWEEN PRICE AND NET INVESTOR LONG POSITION ON COMEX GOLD FUTURES TURNOVER VS. FABRICA- TION GOLD PRICE VOLATILITY AND NET NON- COMMERCIAL LONG POSITIONS IN COMEX FUTURES SILVER FUTURES TURNOVER VS. FABRICA- TION SILVER PRICE VOLATILITY AND NET NON- COMMERCIAL LONG POSITIONS IN COMEX FUTURES 84

85 QUARTERLY CORRELATION OF DAILY SIL- VER PRICE WITH GOLD & COPPER PRICES WORLD INVESTMENT S SHARE OF GOLD DEMAND FORECASTS FOR GOLD, SILVER, COPPER AND USD/GBP VOLA- TILITY ANNUAL AVERAGES WORLD INVESTMENT S SHARE OF SILVER DEMAND FORECASTS FOR WHY ARE GOLD AND SILVER MARKETS SO VOLATILE? COMEX S SHARE OF GLOBAL GOLD AND SIL- VER FUTURES MARKETS TURNOVER REVIEW OF GOLD & SILVER PRICE VOLA- TILITY WILL THIS VOLATILITY CONTINUE? HOW TO DEAL WITH IT? 85

86 THOMSON REUTERS GFMS GOLD PRICE FORECAST FOR Information and Analysis: Limit risk through continuous monitoring of market and data releases, news stories/events that can impact on investor activity and the price Enforce disciplined and well thought out trading strategies (e.g. unemotional thinking + hard stops) Use options for protection if these are cost effective (e.g.straddles, collars or volatility swaps) THOMSON REUTERS GFMS SILVER PRICE- FORECAST FOR For those with access to credit, take advantage of gold loans and other consignment programmes that eliminate or at least mitigate price risk. DISCLAIMER WHY ARE GOLD AND SILVER MARKETS SO VOLATILE? WHY ARE GOLD AND SILVER MARKETS SO VOLATILE? WILL THIS VOLATILITY CONTINUE? HOW TO DEAL WITH IT? HOW TO DEAL WITH IT? The information and opinions contained in this presentation have been obtained from sources believed to be reliable, but no representation, guarantee, condition or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. Accordingly, Reuters Ltd accepts no liability whatsoever to the people or organizations attending this presentation, or to any third party, in connection with the information contained in, or any opinion set out or inferred or implied in, this presentation. This presentation does not purport to make any recommendation or provide investment advice to the effect that any gold, silver, platinum or palladium related transaction is appropriate for all investment objectives, financial situations or particular needs. Prior to making any investment decisions investors should seek advice from their advisers on whether any part of this presentation is appropriate to their specific circumstances. This presentation is not, and should not be construed as, an offer or solicitation to buy or sell gold, silver, platinum or palladium or any gold, silver, platinum or palladium related products. Expressions of opinion are those of Reuters Ltd only and are subject to change without notice. 86

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88 Taxation on Gold, Silver and Platinum India vs. Rest of the world Nishant Shah, Partner, ELP India Bullion and Jewellery Sector India is the world s largest gold consumer market, due to its jewellery sector which constitutes approximately 80% of total gold demand. India has one of the highest savings rate in the world; estimated at around 30% of the total income, of which, approximately 10% is invested in gold. Rapid economic growth, urbanisation and inflation continues to stimulate gold demand in the country As per 2011 Census, approximately 68.84% India s population is in rural areas, which does not have sophisticated banking network/ system Gold is the second most preferred mode of investment behind bank deposits With domestic inflation vis-a-vis strong domestic demand for the jewellery, in past 10 years, India has witnessed highest average increase in the price of precious metals, as compared to other major economies of the world Gold Price Increase 18.5% ( Silver Price Increase 22.9% ( This has a spiralling effect on all other economic indicators Role of Jewellery in Indian Economy Indian Jewellery has strong domestic demand as well as has substantial export market Gems and Jewellery contributes approximately 17.5% towards India s export revenue of FY and the said percentage contribution has been consistent for over a decade. Jewellery alone constituted 25% of the total exports of Gems and Jewellery sector (ie 4.4% of the total export turnover of India) United States of America is the one of the 88

89 major importer of Indian Jewellery. Approximately, 22.3% of the total export of gems and jewellery is to USA Gems and jewellery sector provides employment to approximately 1.8 million people directly and indirectly In India, the importance of gold and domestic demand for gold jewellery cannot be undermined: Stability in the gold price, makes jewellery an effective option to invest savings Tradition of Streedhan, wherein bride takes wealth in the form of jewellery at the time of marriage; Most effective source of investment for a country which lacks the banking infrastructure Personal effects for ever increasing middle-class population of India Impact of Indirect Taxes Dore Bars Bars with <95% Purity (other than tola bar) manufactured from ore/ concentrate/ dore bars Gold increased from 1.5% to 3% advalorem Silver retained at 4% ad- valorem Waste/ Scarp of precious metal arising in course of manufacture Excise duty is exempted Jewellery (whether or not branded) Excise duty exemption is available (8 May 2012 to 30 May 2012) Gold Jewellery 1% without Cenvat Credit Silver Jewellery - Nil Strips/ sheets/ wires/ plates and foils of gold used in the manufacture of jewellery is exempted Strips/ sheets/ wires/ plates and foils of silver is exempted Option to be pay Excise 6%, (especially for units catering to export sector), and avail CENVAT credit/ refund of excise duty/ CVD paid inputs used to manufacture of jewellery Indian Tax Structure for Domestic Transaction Indian Tax Structure for Domestic Transaction Excise duty, tax on manufacture, is increased from 10.3% to 12.36% Ores (Gold/ Silver) - Excise duty is exempted Bullions/ Coins/ Investment Gold Branded Bullion/ Coins 6% - Avail Cenvat Credit [typically opted by export sector] Branded Bullion/ Coins (irrespective of purity) 1% - No CENVAT on inputs and input services Unbranded Bullions/ Coins Exempted Branded Gold Coins ( >99.5% Purity) and Silver coins (>99.9% purity) manufactured 89

90 from duty paid gold/ silver - Exempted Primary Gold (unfinished/ semi-finished bars) Silver (other than mentioned specifically mentioned) / Platinum (unfinished/ semifinished bars) Gold not converted from ore/ concentrate/ dore bar Excise duty is Nil [Typically covers gold provided by customer] Goods manufactured during process of copper smelting from copper ore/ concentrate Gold bars (other than tola bars) and Gold Coins >99.5% Purity increased from 2% to 3% ad- valorem Silver in any form (except silver coins of < 99.9% purity) reduced from 6% to 4% Gold arising in course of zinc smelting Excise duty is exempted VAT / CST is 1% on the bullions/ jewellery/ articles of precious metals Import Regulations for Precious Metal gold/ silver, the same shall be routed through nominated agencies; as the EOUs and SEZs units are not permitted to trade Nominated Agencies means: MMTC Ltd, STCL Ltd, MSTC Ltd, Handicraft and Handloom Export Corporation (HHEC), State Trading Corporation (STC), The Project and Equipment Corporation of India Ltd (PEC), Diamond India Limited (DIL), Gems & Jewellery Export Promotion Council (G&J EPC), Star Trading House (only for Gems & Jewellery sector) and Premier Trading House under Paragraph of FTP and Any other agency authorised by RBI. Indian Tax Structure for Imports Customs duty is levied on tariff value Gold - $527 per 10 grams ( ~ Rs 29,500) Silver - $913 per 1 kilo gram ( ~ Rs 51,000) Import of Gold/ Silver bars (irrespective of the purity) is subjected to following regulations Foreign Trade Policy ( FTP ) RBI Regulations Chapter 4A of the FTP provides for various conditions subject to which an eligible importer can import gold/ silver bars into India Eligible importer means: (a) Nominated Agencies; (b) Export Oriented Units (i.e. EOUs); and (c) Special Economic Zones ( SEZ ) If any person wishes to procure imported Gold ore/ concentrate used in manufacture of gold [Free to be imported] BCD: Nil CVD : 2% (increased CVD rate from 1% to 2%) [Imported by anyone without any restriction] Dore bars Bars with <95% Purity for manufacturing bars of minimum purity %(gold) & 99.9%(Silver) Gold BCD : Nil CVD : 2% (increased CVD rate from 1% to 2%) Silver BCD : Nil CVD : 3% [no 90

91 change] [Imported by actual user. Charge being CVD, CENVAT credit can be availed] Bullions/ Coins- Investment Gold Gold bar/ coin having gold content >99.5% or Silver in any form including coin having silver content >99.9%, but excludes jewellery Gold BCD : 4% - CVD - Nil (increased BCD rate from 2% to 4%) Silver - BCD : 6% - CVD Nil [no change] [Imported by eligible persons] [These rates are commensurate with local excise duty rate] Indian Tax Structure for Imports Platinum (other than jewellery) BCD 4% + CVD as applicable (increased from 2% to 4%) [Imported by any persons] Jewellery of gold, silver or platinum BCD 10% + SAD 1% CVD is exempted as corresponding excise is exempted [Imported by any person] [Excise duty on jewellery manufactured by EOU and cleared to DTA in accordance with FTP is: For Plain Gold Jewellery - increased from 5% to 10% ad valorem For Studded Gold Jewellery - 5% ad valorem For Plain Silver Jewellery - 6% ad valorem] Special Additional Duties of customs ( SAD ) is exempted for all items of gold/ sliver/ platinum other than jewellery Since, items other than jewellery is imported through nominated agency, such agencies would be required to charge VAT on re-sale accordingly, SAD is not changed Further, since jewellery could be purchased by traded directly, each purchase shall be subjected to 1%, which is equivalent to VAT/ CST rate Reporting Requirement India, like other major economies, has introduced reporting of the transaction of precious metal, to track unaccounted monies, Purchaser of bullions or jewellery of Rs 5 lacs or more during a Financial Year needs to furnish his Permanent Account Number ( PAN ) issued under the Income tax Act, 1961 ( IT-Act ) Dealers are required to collect all such information and quote the same on the Invoice issued to such Purchaser However, there is no added compliance requirement on part of Dealer (ie No Need to file Annual Information Statement Under Rule 114E of the IT Act) However, there is no provision / requirement, which restrict quantum of gold possess by an individual Also, there is no requirement to disclose the quantum of gold owned and possessed with Income tax authorities Typically, bullion and jewellery sectors, are likely areas which may need to undergo rigorous reporting requirements and third party enquires 91

92 from tax departments International Tax Laws Bullions & Jewellery * We have relied on the data available on the government website with It is advisable not to rely on the data and instead obtain specific advise on the rates while analysing taking any commercial decision International Tax Laws Bullions & Jewellery * We have relied on the data available on the government website with and $ Directive (EC) No 1998/80EC available on It is advisable not to rely on the data and instead obtain specific advise on the rates while analysing taking any commercial decision 92

93 International Tax Laws Bullions & Jewellery * We have relied on the data available on the government website with and It is advisable not to rely on the data and instead obtain specific advise on the rates while analysing taking any commercial decision India vs Rest of the World Various developed/ developing nations have been encouraging investments in bullions, Returns on such investments is self corrected based on inflation and foreign currency rate India ranks 11th based on the % of GDP held in gold has restrictive import regulations, which increases the transaction cost In order to counter the issues of smuggling the effective self-recording of the procurement of gold, should be encouraged, vis-a-vis encouraging intermediaries. It has been witnessed in past that restrictive policies results in unfair trade practice and encourages corruption India, as compared to other developed nations, Regulatory restriction needs to be align with global standards Implementation and applicability of anti-money laundering laws should be accompanied by relaxation of import restrictions as in other foreign counties 93

94 Changes needed in India Rationalisation of duty structure to make Indian made goods more competitive in domestic as well as international market. Need for Representation to be filed with the DGFT to free import regulations on precious metal and impose other regulatory checks and measures, to counter smuggling. Inter-state transaction would be subject to Integrated GST ( IGST ) which shall be the total of CGST and SGST IGST will combine CGST and SGST May be levied by the Centre in the origin State Tax equivalent to SGST passed over to destination State via a clearing house mechanism Taxes to be subsumed into CGST and SGST GST Proposed Structure Dual and Concurrent Goods and Services Tax ( GST ) Federal Government may legislate Central GST; Central Excise duty, Service tax and CST to be abolished Basic Customs duties to be continued on import of goods- ACD and SACD may be replaced by creditable GST Levies and credits under GST Transaction Intra-State Inter-State State Government may legislate State GST; To subsume VAT, Entry tax - No clarity on Octroi, other levies the same may continue Sale of goods CGST + SGST Provision of services Imports** CGST + SGST CGST + SGST IGST IGST Introduction of uniform levy, whereby following Exports Zero-rating aspects shall be same across all States Tax Base; valuation, GST Rates, Credit Rules Credit of CGST Can be utilised against liability of CGST and IGST Almost all goods and services are expected to be taxable under the GST regime expect few specific goods SGST IGST SGST and IGST IGST, CGST and SGST 94

95 Seamless credit chain Time-bound refunds of credits in cases such as exports and inverted duty structures Though cross utilisation of tax credit between CGST and SGST is in general not allowed, the IGST mechanism will make these credits fungible Rate structure Rates proposed by Finance Minister for CGST SGST Dual rate structure for goods 6% lower rate for goods 10% standard rate for goods Single rate for services 8% States requested to fix rates on same basis Single rate for SGST and CGST in the year of introduction would be 12-20% for Goods Effective rate for Services16% Advent of GST GST regime, is absolutely essential to curtail cascading effect of domestic taxes Under GST regime, total tax incidence across the sectors is expected to be around 16%/ 20%, and there is no exception for bullions and jewellery GST does not provide for concessional rate of 1% Further, vide proposal TN/MA/W/61/ dated 21 September 2005 (as amended from time to time) various signatories to World Trade Organisation has proposed free international trade on bullions and jewellery, in following phases To reduced the existing customs duty to [x%] in [y] number of years in equal instalments Members may opt to retain [x%] for additional period of [z] years without further reducing the rates Complete duty exemption on import of gems and jewellery after the end of [z] years The said proposal is under consideration for various other members of WTO There are no comments from India, however, any acceptance would result in reduction of Customs Duty on import of bullions into India Under GST regime high tax on bullion, would impact the sustainability of the sector in India In most of the developed/ rapidly developing economies, GST/ VAT on bullion and jewellery, is either exempted or at concessional rates 95

96 Minted Investment Products Amresh Acharya, Director, World Gold Council The World Gold Council Market Development Organization for the Gold industry weights: 0.3g to 1000g. Most popular weight 100 g (B2B) Initially it used to be TT bars (10-tola bars) Based in UK, with operations in India, the Far East, Europe and the US. Is an association whose members include the world s leading gold mining companies, representing ~60% of global gold production. Working within Investment, Jewellery, Technology and Government Affairs sectors - Develop gold-backed solutions, services and markets - Provide insights into the international gold markets - Help people to better understand the wealth preservation qualities of gold Where are we? Coins - Available in variety of shapes round, oval and heart: 0.5g-50g. Mostly available weights 5g, 8g,10g & 50g; 8-10 g weight is most popular in terms of value ETFs - Gold ETFs are traded in stock exchanges. You can buy gold ETFs in your demat a/c. Better means of cost efficient & secured in vesting portfolio without holding physical gold personally; High liquidity, transpar ency in pricing. Physical delivery available only for hold ings greater than 1 kg Current ly14 differ ent schemes available in India Minted Products and other gold investment options available today Bars - Minted Bars available in 15 rectangular Where are we? Minted Products and other gold investment options 96

97 available today Players in the market E-Gold You can invest in small amounts through the demat a/c for certain tenure. Redemption in physical gold or Cash. Delivery denomination options available in 1g, 8g, 10g, 100g and 1 kg lots. Facility to make immediate transfer of ownership b/w invest FOF Enabling scheme for investors who do not have demat access or do not have the time to invest in Gold ETFs regularly. Gold Fin Muthoot Finance, Manappuram, Muthoot Fincorp etc; Apart from loans against gold, they also sell gold coins Jewellers Organised Jewellers (GRT, TBZ, Tanishq etc) provide purity certificate and sell gold coins in tamper proof packs 500,000 un organized jewellery shops; Buy back facility is available with jewellers but quality of the gold may not be guaranteed at many of the unorganized players. For such investors, Gold FoF pro vides fo lio management facility as well as provides the convenience of SIP. In FY12, the no. of products increased from 2 to 10. Players in the market Banks ICICI first to launch its branded coins in Now most leading banks sell 24 K pure gold coin Swiss made with Assay Certification; High quality finish is a distinctive feature. No buy back facility India Post 1100 post offices; 24 karat 99% pure gold coins in various denominations varying from 0.5 g to 50 g Market pricing Banks: The premium price is in general 10% 16% more than the market rate. India Post: The premium price is 10% 11% more than the market rate ETF: 0.25 to 0.85% transaction charges plus up to 1% FoF: The expense structure is in the range of % E-Gold: The Charges in e-gold are very low compared to Physical and ETFs as low as 0.6% per annum; 1% VAT for physical gold delivery Jewellers: 2 to 8% premium over the market rate. 97

98 Minted products - market size investment demand (FY 2011) What is the potential? How do we develop the market? Where are we? Standardize products and quality (9999 gold purity, Assay certification, High quality finish, Tamper proof packing) Repurchase experience (Introduction of Buyback scheme at Banks, India Post) Innovative products (MGP, Swarna Varsham etc) Transparent pricing Focus (Sales, Merchandising and Product development) 98

99 Structured Notes on MCX Gold Index New Product Idea Anshum Bhambri Why Gold? Put forth thy hand, reach at the glorious gold William Shakespeare These words probably best describe India s affection towards gold. It is a known fact that India as the largest consumer of gold in the world has a fascination for the metal in all its forms - jewellery, bars, coins, ETF s and now structured notes. Down the generations, Indians have always appreciated gold as a safe haven and a liquid asset. Gold has usually provided scope for capital appreciation and at the same time lent stability to the portfolio Since the beginning of this year, in an effort to reduce the trade deficit, the Indian government has been trying to influence the imports of gold by increasing the customs duty and controlling the rates at which the customs duty at the time of imports has to be paid. While the government continues with its purpose, we should not lose sight of the fact that the demand for gold in India One of the ways to reduce the imports of gold and still meet the requirements of the market is to provide products whereby the gold held in private hands (estimated to be in excess of 18,000 tones of gold) can be brought into the mainstream. This will not only meet the requirements of the physical market but also provide liquidity to the owners of the metal and into the economy at large. Unfortunately, there is a dearth of opportunities for the holders of the metal to get liquidity against the metals owned. The large amounts of gold held in private hands and the increase in demand for investment products like coins, bars, ETF s also indicates that the consumer appreciates the value of gold as an investment more than ever before highlighting the fact that the consumer is looking for investment products in gold the requirement to hold the physical upfrontmay not be there Why Gold-linked Structured Products? There is now a clear opportunity for structured products in India which can allow participation to all types of investors with the flexibility of having physical exposure and not necessarily holding the metal in physical form. Before we dwell further on this, we need to appreciate why there is a need for these products. The main reasons are: 99

100 - Ability to enjoy the yield of the asset - Protection of capital - Comfort of being able to buy the asset in physical form as and when required; and - Ability to exit at ease. product. Thus, we can take advantage of our slightly bearish view on gold in the near term. In essence, the asianing feature over the first three months helps the investor to get the best entry point for his bullish strategy At present the two common products where one can invest without holding physical gold are ETF s and gold future contracts.these products provide an opportunity in invest in gold but have their drawbacks as they do not provide capital protection Product Idea Theme We, at Quant Capital believe that gold is prone to downside weakness in the near to medium term. However, we are long term gold bulls on account of various macroeconomic scenarios that are likely to play out in the days to come. These include the unfolding of the European debt crisis; the devaluation of the US dollar on account of quantitative easing; slow growth and high inflation in the emerging economies and increasing demand for real assets in case there is a flight to safety To monetize our view, we are launching a 100% capital guaranteed structured product that is bullish on themcx Gold Index. Moreover, the final level of the strategy is set to the arithmetic average of the closing level of the MCX Gold Index on the first Friday of each of the last three months of the strategy. Again, the asianing effect helps the investor to overcome the exposure to the digital risk that is prevalent on the final day Product Idea Payoff Definition The payoff profile of the structured product is If Final Level > = Initial Level, The investor gets 100% of his capital back and a coupon of 28% at the end of two years If Final Level < Initial Level, The investor gets 100% of his capital back and a coupon equal to: 100% * MAX [ 0%, { 28% * (1 Final Value/ Initial Value) } ] The tenor of the structured product is two years and it incorporates asianing (i.e. averaging feature) to ascertain the initial level and final level for the strategy Coupon under various scenarios - To elaborate further, the initial level (or the entry point) of the strategy is fixed to the arithmetic average of the level of the MCX Gold Index on the first Friday of each of the first three months of the 100

101 Product Idea Payoff Profile Disclaimer I, Anshum Bhambri, hereby certify that all of the views expressed in this presentation accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this presentation. Sample Termsheet Sample Termsheet (continued) Quant Group generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Quant Group generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Quant Group. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this 101

102 material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Quant Group does not provide tax advice to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment in certain transactions including those involving futures, options, and other derivatives as well as non investment-grade securities that give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have long or short positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein and may from time to time add to or dispose of any such securities (or investment). We and our affiliates may act as market maker or assume an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or advisory services for or relating to those companies and may also be represented in the supervisory board or any other committee of those companies. For the purpose of calculating whether Quant Group and its affiliates hold, beneficially own, or control, including the right to vote for directors, 1% or more of the equity shares of the subject, the holding of the issuer of a research report is also included. Quant Group and its non-us affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non-us issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies, affectively assume currency risk. In addition, options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions. In the US, this material is only for Qualified Institutional Buyers as defined under rule 144(a) of the Securities Act, No part of this material may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Quant Group s prior written consent. No part of this document may be distributed in Canada or used by private customers in the United Kingdom. A two-tier system wherein individuals can allocate up to a certain level in physical gold and over and above that central bank sponsored paper products could be effective in addressing demand side issues facing the Indian bullion markets. Mr.Peter L Smith, J P Morgan 102

103 Professionalisation In Family Business Prof. Parimal Merchant, SP Jain Institute of Management Professionalisation is like Yoga or Jogging Every one agrees that good for health. and yet Few do it. do it well. Made it a way of life. PARALYSIS??? or PANACEA??? Family Venture From Molecule to a Business When complexities grow. When business beyond self. Who is Professional A non-family Manager? CA/MBA? Or one with Special training Rationale decision maker Value neutral Family -Professional dynamics DIFFERENCES Training and values Worldview and the assumptions Organisational and socialisation experiences Management style and method of operation Family -Professional dynamics IMPLICATIONS OF THE DIFFERENCES Decision making Driven by Relate with Employees The Issue OR v/s AND Family member Intuitive -right brain Personal interventions Business/family interface Personal How to Professionalise? The Alternative -I Professional Rational -left brain Systems dependent Organisational needs Impersonal 103

104 Imbibe Professional competence within members of the family, most viable when = potential in family = continuity in values is desired Advantages = rational and judgmental -benefit of both How to Professionalise? The Alternative -II Induct Professionals most viable when = limited family options flip side = likely to create tensions within the organisation = discontinuity in values The Concern Entrepreneur Outside Professional Family Professional How to make it work? Take time to socialise in the family ways Communicate clearly the values required Articulate ends rather than means Tie the interests Encourage to become part of the community Have role clarification and team building ses- sions To simplify It is like a kidney transplant You need to make sure that there is proper match You need to prepare both the body and the new You need to rest pay attention. Once settled, life is different. Finally SPJIMR submissions Ever after. Sustained growth requires transition Possible to have a synergistic blend Internal & External hurdles make it difficult How and when -No one size fits all strategy Transition is a process perfected over time Need to be planned carefully and implemented gradually. Cultural change 104

105 Price Outlook For Gold, Silver, Platinum & Palladium Jeffrey Rhodes, INTL Commodities The Outlook For Precious Metals Prices in

106 The Outlook For Precious Metals Prices in

107 Platinum Drivers: Demand & Supply Matthew Turner, Precious Metals Strategist, Mitsubishi Corporation Outline The basic facts of the platinum market S&D & price trends Platinum market introduction S&D by region Key price drivers in 2012 and beyond India s potential Platinum market introduction S&D by sector Platinum market introduction S&D by sector Europe largest consuming region, 30%, (diesel autocatalysts). China next largest, 24% (jewellery). The trend is demand in developed economies is declining and demand in China and Rest of World (including India) rising. 107

108 Platinum market introduction Price trends Platinum historically trades at a premium to gold. On only 1% of trading days from 1987 to 2011 was 2.00 it at a discount. But since Q it has been at a discount, at its lowest it was worth just 86% of gold its worst since the mid-1980s. This is clearly important in jewellery markets where platinum and gold compete. Platinum s all-time price high came in March 2008 when it reached $2,300/oz. Supply trends South African mine production struggling but might still need cuts It collapsed in the recession of 2008/2009 but recovered strongly in H It fell sharply in September 2011 and a brief rally in H fizzled out to leave it barely higher than in Platinum market introduction Platinum trading at a (growing) discount to gold Too much production or too little? Too little? Strikes and safety stoppages meant South African mine production of PGMs in year to May 2012 was lower than at any time since Too much? In May & June output recovered but min- 108

109 ers now being urged to cut production to shore up the price. The majors have cut CAPEX which will limit future production. Demand trends Macro-economy key especially in Europe Production very concentrated and at risk from disruption. Supply trends Platinum autocatalyst recycling set to soar Recycling volumes are increasing from autocatalysts, jewellery and electronics. This trend will continue as platinum-rich European autocatalysts begin to get recycled, although the pace depends on collection rates/legal changes etc. Over time this reduces the need for expensive South African platinum 109

110 Demand trends autocatalysts Platinum increasingly reliant on non-auto markets Battery electric vehicles (EVs) do not use PGMs in their catalyst EVs are now being sold but only in very small amounts % of US market. Unlikely to be major negative factor on platinum market until at least 2020, if ever. Platinum in car catalysts now mainly diesel vehicles. Other new technologies hybrids and fuelcell vehicles (FCV) do use PGMs EU declining; India growing. Future hopes are heavy-duty and non-road vehicles. Demand trend autocatalysts Electric vehicles (EVs) struggle to make an impact Demand trends jewellery All down to China for now Jewellery, net annual demand, 000 oz 110

111 Recycling also growing trend in China but market still strong and huge net consumer. Summary Challenging demand outlook Growing recycling Mine production under pressure A new market required India & platinum A lot to live up to Japan key consumer in the 1980s and early 1990s and China since. Japan has seen lower gross and much lower net purchases as consumers recycle old metal. 111

112 Platinum Jewellery Market in Asia Pacific Terry Harris, Regional Sales Manager, Asia Precious Metals Marketing, Johnson Matthey Summary PtJewelleryrepresented 28% of global demand in 2011 China dominates Ptjewellerydemand in both Asia and the World Indian Ptmarket has great potential 112

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