Sector View & Outlook on Gold and Reliance Gold Savings Fund - A Note

Performance Report for Reliance Gold Savings Fund

Competition for the World's Gold

1. As a direct result of worldwide debt and currency debasement, more people will be competing for the world's available gold. As discussed the peak oil, but gold is also reaching a peak as fewer and fewer new deposits are being found.

2. Smaller, lower grade deposits with none of the "economy of scale" benefits of larger deposits are being put into production out of desperation. Mine supply has been in a decline since 2000.

3. As safe haven demand accelerates, there will be a transition from the $200 trillion of financial assets to about the $3 trillion of above ground gold bullion. Of the $3 trillion of above ground gold bullion about half is owned by central banks and half is privately held.

4. The privately held gold is largely held by the world's richest families and is not for sale at any price. The central banks are now net buyers. If the world's pension funds and hedge funds moved only five percent of their assets into gold, which these days seems quite conservative, gold would trade above $5,000.

View on Gold

1. Gold prices made a new all time for the second consecutive month during April, 2011 with gold trading at 1478.18 USD/Oz.

2. Japan's nuclear crisis, the political unrest in Middle East & North African (MENA) nations, higher inflation expectation and weaker dollar outlook among others have supported gold prices.

3. The physical demand for gold was robust during the year 2010 despite higher gold prices and that was in line with our expectations as stated in prior outlooks. However, that has surprised many investors and such surprises induce more positivity in the mind of gold bulls. Japan has been hit by plethora of disasters. Japanese government is doing the best it could but crisis of events naturally reduce the risk appetite of mankind and increase gold appeal as a safe haven asset.

4. The growth prospects for MENA region have been cut down to 4.1% this year from 4.6% in January as per IMF's World Economic Outlook. Spreading social unrest, rising sovereign risk premiums and high import prices for commodities will hurt the growth outlook.

5. The crisis in Libya and fears that Oil supply disruptions might spread to other region has resulted in higher oil prices. The fundamental outlook for oil remains bullish. The current spare capacity is at an uncomfortable level constituting less than 4% of total oil demand. A higher crude oil price increases the inflation expectation and that supports higher gold prices. Rising crude oil prices have the potential to weaken the global growth momentum.

6. Regulators have a difficult choice to make, either they try and curb inflation by hurting growth outlook or they continue to support economic growth and neglect the consequences of higher inflation expectation. Either ways gold tends to benefit - as gold is seen as an alternative asset as well as a hedge against inflation.

7. The physical demand for gold has been robust despite higher prices. This is a paradigm shift – Investors are becoming increasing comfortable with higher gold prices and that indicates a structural change in investor's mindset.

8. The robust physical demand in India and China is the backbone of global gold markets and in hinting towards higher gold demand. Even the ETF flows are comforting, after a slight dip in total known Gold ETF holdings during February 2011, the holding have again started inching higher and currently stand at around 66 Mn Oz.

9. The physical demand will cap the downside for gold prices and investment demand will support the growth momentum.

Outlook

1. The current macroeconomic environment is very conducive for higher gold prices.

2. The natural disaster in Japan affects gold prices in more than one way. Increasing fear of nuclear radiation in Japan has increased gold's safe haven appeal. The efforts by the government to support Japanese markets via quantity easing raise the fear of inflation and that supports gold prices.

3. Rising commodity prices generally result in higher inflation expectation and that supports gold prices.

4. Crude oil prices have been oscillating at much higher levels than seen during the last year and higher crude oil prices have the potential to hurt the already feeble economic growth outlook. Gold tends to benefit during such an environment as gold is an alternative asset.

5. The fundamental weakness in dollar and Euro still remains and supports gold as gold is seen as an alternative currency.

6. Again, the easy monetary and fiscal policy provides favorable environment for higher inflation expectation. Gold is seen as an excellent hedge against inflation and continues to thrive during higher inflationary environment.

7. Besides, gold acts as an excellent portfolio diversification as the fundamental factors that drive gold prices are not the same as the one that affect other asset classes.

8. Gold has a low correlation with other financial assets and hence gives better risk adjusted returns.

9. All of the above mentioned factors are likely to drive up gold prices and long term prudent investors should keep investing in gold.

Please find attached the Detailed Portfolio for Reliance Gold Savings Fund as on March 31, 2011. For any further query feel free to revert.