Asian banks reducing share of U.S. dollar deposits, BIS reports


3:20p ET Sunday, March 6, 2005

Dear Friend of GATA and Gold:

The following commentary from the Economic Times
in New Delhi about exchange-traded funds for gold
in India confirms that such funds will not have to
keep on hand all the gold they claim to have and
thus may become new agents of the scheme to
suppress the gold price.

The key assertion by the commentary's author,
Puneet Jain, is this: "While gold fund managers
could undertake trading to enhance the net asset
value, yet it would be largely determined by the
price of gold in the international markets."

Thus the gold price suppression scheme seems to
realize that Indian demand for gold is the greatest
immediate threat to the scheme and that the scheme
can continue only by diverting that demand away
from real metal into paper promises.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Stockistics: Gold

By Puneet Jain
Economic Times, New Delhi
Monday, March 7, 2005

Finance minister P Chidambaram's budget has managed to propel stock
indices to new highs despite offering little by way of concessions
on the fiscal front.

Market's euphoria appears to stem from the sense of relief among
investors that the FM has not rocked the boat in terms of the benign
tax treatment given to income from investment in stocks.

We believe that easy liquidity conditions will continue to prevail
for the stock markets and there would be plenty of foreign and
domestic money chasing India stocks over the next few months.
Therefore, short blips notwithstanding, stock markets appear to be
headed higher in the near term.

As anticipated by us in the run-up to the budget, the big
beneficiaries of government's fiscal policy appear to be companies
in agri sectors like sugar, tea, coffee and fertilisers. Textiles
and leather products companies too have received liberal handouts
from the government and should do well in the coming years.

An interesting feature of this year's budget has been the decision
by FM to allow gold-traded funds. These funds will be exactly like
mutual funds with the only difference that while mutual funds invest
in equities, gold-traded funds would buy gold for an amount equal to
their corpus.

For example, if there was a gold-traded fund that offers units of
the face value of, say, Rs 100, then investors could put in as
little as Rs 100 for buying a small part of this gold fund and get
the same degree of appreciation as the larger corpus.

We spoke with some potential fund managers who could float such
schemes and they pointed out that the entry and exit loads on such
units could be very small, as little as 0.25 percent, since gold is
highly liquid and fund management in this case would be passive as
the NAV would be linked to the price of gold alone.

While gold fund managers could undertake trading to enhance the NAV,
yet it would be largely determined by the price of gold in the
international markets.

Another interesting aspect of the proposed scheme could be that it
could itself lead to a rise in prices of gold. My estimate is that
as much as Rs 5,000 crore could be collected by such schemes in
India since gold is extremely popular with Indian investors and the
risk involved is also low, placing it at par with debt.

There's sense in silver too

This huge corpus could generate massive demand for gold in India
leading to higher prices globally. Let's see if I am right!

One only hopes that the market regulators would issue guidelines for
the gold funds quickly and allow the funds to be floated as early as
possible. A large number of asset management companies are eager to
float the scheme and tap a whole new market.

Government could also consider permitting similar funds for
investing in silver as well, since silver too is a good hedge
against inflation and unexpected crisis in financial markets.

While stock markets will continue to provide exciting times for
investors, investments in gold funds should be used as a measure of
prudence and risk management.


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