Introduction:- The high Volatility in equity market with high-risk and the arrival

of low interest rates have increased the investor presence in alternative investments such
as gold . In India, gold has traditionally played a multi-faceted role. Apart from being
used for armament purpose, it has also served as an asset of the last resort and a hedge
against inflation and currency depreciation. But most importantly, it has most often
been treated as an investment.

Gold supply primarily comes from mine production, official sector sales of global
central banks, old gold scrap and net disinvestments of invested gold. Out of the total
supply of 3870 tons last year, 66% was from mine production, 20% from old gold scrap
and 14% from official sector sales. Demand globally generate from fabrication
(jewellery and other fabrication), bar hoarding, net producer hedging and Implied
investment.

The following factors have been predominantly responsible for the surge in the yellow
metal:

 Geopolitical tensions across the world particularly in the Middle East and
Nigeria, the threat of further attacks from Al Qaeda in the oil rich Middle East
continues. The continued stand off between Iran and the west over Tehran’s
resumption of its nuclear program is likely to underpin price.

 Any rallies in crude oil futures are likely to see fresh buying interest emerge as
gold is considered as hedge against inflation.

 Another crucial factor supportive of demand is the faster GDP growth in

developing countries particularly India as compare the industrialized nations.

 Expectations of an increase in demand for the marriage season in India could see
emergence of physical buying interest.

1
HISTORY OF GOLD

Gold has a history of more than 7000 years in India, which can be find in religious book
of Hindu, where it is considered as a metal of immense value. But looking at the history
of world, gold is found at Egypt at 2000B.C., which is the first metal used by the
humans value for ornament and rituals.

Gold has long been considered one of the most precious metals, and its value has been
used as the standard for many currencies (known as the gold standard) in history. Gold
has been used as a symbol for purity, value, royalty, and particularly roles that combine
these properties.

As a tangible investment gold is held as part of a portfolio by the countries as a reserves

because over the long period gold has an extensive history of maintaining its value. It
has in gained ground in relation to currencies owing to inflation. However, gold does
become particularly desirable in times of extremely weak confidence and during
hyperinflation because gold maintains its value even as fiat money becomes worthless.
When the value of currency depreciate.

But above all comment, it has a special role in India and in certain countries, gold
Jewelry is worn for ornamental value on all social functions, festivals and celebrations.
It is the popular form of investment in rural areas between the farmers after having
bumper crop or after harvesting, this all factor makes India as largest consumer (18.7%
of world total demand in 2004) and importer of gold due to its low production, which is
negligible, and untapped gold reserves. This is due to lack of new technology in finding
gold reserves and low interest shown by government in financing, encouraging for
exploration programs in gold mines.

HISTORY OF GOLD TRADING

Gold future trading debuted first at Winnipeg Commodity Exchange (known as Comex) in
Canada in 1972. The gold contract gain popularity among traders, led to many countries
had too started gold future trading. Which include London gold future, Sydney future
exchange, Singapore International Monetary Exchange (Simex), Tokyo Commodity

2
Exchange (Tocom), Chicago Mercantile Exchange, Chicago Board of Trade (CBOT),
Shanghai Gold

Exchange, Dubai Gold and Commodity Exchange are some of the world Top recognized
exchange, and in India, National Commodity and Derivative Exchange (NCDEX) and
Multi-Commodity Exchange (MCX), and National Board of Trade (NBOT) are some
Indian exchanges where Gold are traded. History of gold trading in India is dates back to
1948 with Bombay Bullion Association, which is formed by the group of Merchants.

PRODUCTION OF GOLD
Till know the total gold is extracted from the mines is about $1 trillion dollar, which is
accumulated in physical form is enough to built Eiffel tower.

Annual gold production worldwide is about US$35 billion and by far the one of the
largest-trading world commodity. Worldwide, gold mines produce about 2,464 tonnes
in the year 2004 from total supply of 3328 tonnes but unable to meet identifiable
demand of 3497 tonnes. Gold is mined in more than 118 countries around the world,
with the large number of development projects in these countries expected to keep
production growing well into the next century. Currently, South Africa is the largest
gold producing country, followed by the United States, Australia, Canada, Indonesia,
Russia and others, some of this country also account for highest gold reserves from
potential 50,000 tonnes of world-wide reserves.

GLOBAL GOLD PRODUCTION

2004 (metric tons)

South Africa: 343

United States: 262

Australia: 258

China: 217

Canada: 129

Indonesia: 114

Ghana: 58

Guyana: 15

Source: GFMS

3
Objective:-
1) The main objective of this project is to forecast gold prices with advanced technical
analysis tools by using lead & lag indicators, Elliot wave analysis and Fibonacci series.
2) Tools to analyze gold prices based on fundamental analysis like inventories, central
bank reserves and dollar fluctuations.
3) To understand what is fundamental and technical analysis on commodities.

Tools used in research:-

1) We applied lead & lag indicators on trending markets.
2) We apply Elliot wave analysis with gold prices forecast for long term.
3) We combine the Fibonacci series with Elliot wave for better results and absolute
forecast.

 TYPE OF RESEARCH
The research is basically a descriptive research. In this project Descriptive
research methodologies i s u s e d . The research methodology will be used
for gathering details of different aspects of GOLD ANALYSIS.
 SOURCE OF DATA COLLECTION

Secondary data was collected from articles in journals and magazines. The
database of MCX, FMC, GOLD COUNSIL and COMEX was taken. As this
topic is very new, article from other w e b s i t e l i n k s i s r e q u i r e d .
Report submitted b y MCX/FMC committee is used.

METHODOLOGY OF THE STUDY

Data collection instrument:-
Source of Data:

The data that is used in this project is also in the form of secondary
nature. The data is collected from secondary sources such as various websites, journals,
newspapers, books, etc. the analysis used in this project has been done using selective
technical tools. In Equity market, risk is analyzed and trading decisions are taken on
basis of technical analysis. It is collecting share prices of selected companies for a
period of five years.

TOOLS USED:

4
1. Winquote is using for charts building

2. Ms –excel is suing for demand and supply graphs.

Why central banks hold gold

Monetary authorities have long held gold in their reserves. Today their stocks amount to
some 30,000 tonnes - similar to their holdings 60 years ago. It is sometimes suggested
that maintaining such holdings is inefficient in comparison to foreign exchange.
However, there are good reasons for countries continuing to hold gold as part of their
reserves. These are recognised by central banks themselves although different central
banks would emphasise different factors.

Diversification
Economic security
Physical security
Unexpected needs
Confidence
Income
Insurance
How much gold to hold?

Diversification

In any asset portfolio, it rarely makes sense to have all your eggs in one basket.
Obviously the price of gold can fluctuate - but so too do the exchange and interest rates
of currencies held in reserves. A strategy of reserve diversification will normally
provide a less volatile return than one based on a single asset.

Gold has good diversification properties in a currency portfolio. These stem from the
fact that its value is determined by supply and demand in the world gold markets,
whereas currencies and government securities depend on government promises and the
variations in central banks’ monetary policies. The price of gold therefore behaves in a
completely different way from the prices of currencies or the exchange rates between
currencies.

5
Economic Security

Gold is a unique asset in that it is no one else's liability. Its status cannot therefore be
undermined by inflation in a reserve currency country. Nor is there any risk of the
liability being repudiated.

Gold has maintained its value in terms of real purchasing power in the long run and is
thus particularly suited to form part of central banks' reserves. In contrast, paper
currencies always lose value in the long run and often in the short term as well.

Physical Security

Countries have in the past imposed exchange controls or, at the worst, total asset
freezes. Reserves held in the form of foreign securities are vulnerable to such measures.
Where appropriately located, gold is much less vulnerable. Reserves are for using when
you need to. Total and incontrovertible liquidity is therefore essential. Gold provides
this.

Unexpected needs

If there is one thing of which we can be certain, it is that today’s status quo will not last
forever. Economic developments both at home and in the rest of the world can upset
countries’ plans, while global shocks can affect the whole international monetary
system.

Owning gold is thus an option against an unknown future. It provides a form of

insurance against some improbable but, if it occurs, highly damaging event. Such events
might include war, an unexpected surge in inflation, a generalised crisis leading to
repudiation of foreign debts by major sovereign borrowers, a regression to a world of
currency or trading blocs or the international isolation of a country.

In emergencies countries may need liquid resources. Gold is liquid and is universally
acceptable as a means of payment. It can also serve as collateral for borrowing.

6
Confidence

The public takes confidence from knowing that its Government holds gold - an
indestructible asset and one not prone to the inflationary worries overhanging paper
money. Some countries give explicit recognition to its support for the domestic
currency. And rating agencies will take comfort from the presence of gold in a country's
reserves.

The IMF's Executive Board, representing the world's governments, has recognized that
the Fund's own holdings of gold give a "fundamental strength" to its balance sheet. The
same applies to gold held on the balance sheet of a central bank.

Income

Gold is sometimes described as a non income-earning asset. This is untrue. There is a

gold lending market and gold can also be traded to generate profits. There may be an
"opportunity cost" of holding gold but, in a world of low interest rates, this is less than
is often thought. The other advantages of gold may well offset any such costs.

Insurance

The opportunity cost of holding gold may be viewed as comparable to an insurance

premium. It is the price deliberately paid to provide protection against a highly
improbable but highly damaging event. Such an event might be war, an unexpected
surge of inflation, a generalized debt crisis involving the repudiation of foreign debts by
major sovereign borrowers, a regression to a world of currency and trading blocs, or the
international isolation of a country.

How much gold?

This is a matter for countries and central banks to decide in the light of their particular
circumstances. The international average is about 10.2% at current market prices but, in
the EU it is over 50% and the USA holds around 75% of its reserves in gold. Countries
facing particular volatility in their economic and/or political circumstances will want to
consider the level of gold in their reserves.

7
LIMITATION OF STUDY:-

The study is based on the parameters of following factors.

1. Technical Analysis is done on Two methods by taking 7 & 14 day moving

averages (DMA) & Relative Strength Index (RSI) and price movement, Buy and
Sell signal suggests on the basis of this study characteristic of this methods.

2. The suggestion is based on the study on Fundamental and Technical Analysis

such as price movement, Relationship of gold with other factors, Volumes and
Open Interest (OI).

3. This analysis will be holding good for a limited time period that is based on
present scenario and study conducted, future movement on gold price may or
may not be similar.

4. It is based on Research done by authors and organizations like WGC, GFMS,

News, Articals and its affect on gold.

8
As per technical analysis concern we approached various methods like Elliot wave with
Fibonacci serious, Exponential moving average and price channel. We described briefly
over here.

1.1 Elliot wave:

In The Elliott Wave Principle — A Critical Appraisal, Hamilton Bolton made this
opening statement:

As we have advanced through some of the most unpredictable economic climate

imaginable, covering depression, major war, and postwar reconstruction and boom, I
have noted how well Elliott's Wave Principle has fitted into the facts of life as they have
developed, and have accordingly gained more confidence that this Principle has a good
quotient of basic value.

Although it is the best forecasting tool in existence, the Wave Principle is not primarily
a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that
description does impart an immense amount of knowledge about the market's position
within the behavioral continuum and therefore about its probable ensuing path. The
primary value of the Wave Principle is that it provides a context for market analysis.
This context provides both a basis for disciplined thinking and a perspective on the
market's general position and outlook. At times, its accuracy in identifying, and even
anticipating, changes in direction is almost unbelievable. Many areas of mass human
activity follow the Wave Principle, but the stock market is where it is most popularly
applied. Indeed, the stock market considered alone is far more important than it seems
to casual observers. The level of aggregate stock prices is a direct and immediate
measure of the popular valuation of man's total productive capability. That this
valuation has form is a fact of profound implications that will ultimately revolutionize
the social sciences. That, however, is a discussion for another time.

R.N. Elliott's genius consisted of a wonderfully disciplined mental process, suited to

studying charts of the Dow Jones Industrial Average and its predecessors with such
thoroughness and precision that he could construct a network of principles that covered
all market action known to him up to the mid-1940s.

9
At that time, with the Dow in the 100s, Elliott predicted a great bull market for the next
several decades that would exceed all expectations at a time when most investors felt it
impossible that the Dow could even better its 1929 peak. As we shall see, phenomenal
stock market forecasts, some of pinpoint accuracy years in advance, have accompanied
the history of the application of the Elliott Wave approach.

Elliott had theories regarding the origin and meaning of the patterns he discovered,
which we will present and expand upon in Lessons 16-19. Until then, suffice it to say
that the patterns described in Lessons 1-15 have stood the test of time.

Often one will hear several different interpretations of the market's Elliott Wave status,
especially when cursory, off-the-cuff studies of the averages are made by latter day
experts.

However, most uncertainties can be avoided by keeping charts on both arithmetic and
semi logarithmic scale and by taking care to follow the rules and guidelines as laid
down in this course. Welcome to the world of Elliott.

"The Wave Principle" is Ralph Nelson Elliott's discovery that social, or crowd, behavior
trends and reverses in recognizable patterns. Using stock market data as his main
research tool, Elliott discovered that the ever-changing path of stock market prices
reveals a structural design that in turn reflects a basic harmony found in nature. From
this discovery, he developed a rational system of market analysis. Elliott isolated
thirteen patterns of movement, or "waves," that recur in market price data and are
repetitive in form, but are not necessarily repetitive in time or amplitude. He named,
defined and illustrated the patterns. He then described how these structures link together
to form larger versions of those same patterns, how they in turn link to form identical
patterns of the next larger size, and so on. In a nutshell, then, the Wave Principle is a
catalog of price patterns and an explanation of where these forms are likely to occur in
the overall path of market development. Elliott's descriptions constitute a set of
empirically derived rules and guidelines for interpreting market action. Elliott claimed
predictive value for The Wave Principle, which now bears the name, "The Elliott Wave
Principle."

10
1.2 Short History:

Although it is the best forecasting tool in existence, the Wave Principle is not primarily
a forecasting tool; it is a detailed description of how markets behave. Nevertheless, that
description does impart an immense amount of knowledge about the market's position
within the behavioral continuum and therefore about its probable ensuing path. The
primary value of the Wave Principle is that it provides a context for market analysis.
This context provides both a basis for disciplined thinking and a perspective on the
market's general position and outlook. At times, its accuracy in identifying, and even
anticipating, changes in direction is almost unbelievable. Many areas of mass human
activity follow the Wave Principle, but the stock market is where it is most popularly
applied. Indeed, the stock market considered alone is far more important than it seems
to casual observers. The level of aggregate stock prices is a direct and immediate
measure of the popular valuation of man's total productive capability. That this
valuation has form is a fact of profound implications that will ultimately revolutionize
the social sciences. That, however, is a discussion for another time.

R.N. Elliott's genius consisted of a wonderfully disciplined mental process, suited to

studying charts of the Dow Jones Industrial Average and its predecessors with such
thoroughness and precision that he could construct a network of principles that covered
all market action known to him up to the mid-1940s. At that time, with the Dow in the
100s, Elliott predicted a great bull market for the next several decades that would
exceed all expectations at a time when most investors felt it impossible that the Dow
could even better its 1929 peak. As we shall see, phenomenal stock market forecasts,
some of pinpoint accuracy years in advance, have accompanied the history of the
application of the Elliott Wave approach.

Elliott had theories regarding the origin and meaning of the patterns he discovered,
which we will present and expand upon in Lessons 16-19. Until then, suffice it to say
that the patterns described in Lessons 1-15 have stood the test of time. Often one will
hear several different interpretations of the market's Elliott Wave status, especially
when cursory, off-the-cuff studies of the averages are made by latter day experts.

However, most uncertainties can be avoided by keeping charts on both arithmetic and
semi logarithmic scale and by taking care to follow the rules and guidelines as laid
down in this course. Welcome to the world of Elliott.

11
1.3 Basic Tenets:

Under the Wave Principle, every market decision is both produced by meaningful
information and produces meaningful information. Each transaction, while at once an
effect enters the fabric of the market and, by communicating transactional data to
investors, joins the chain of causes of others' behavior. This feedback loop is governed
by man's social nature, and since he has such a nature, the process generates forms. As
the forms are repetitive, they have predictive value.

Sometimes the market appears to reflect outside conditions and events, but at other
times it is entirely detached from what most people assume are causal conditions. The
reason is that the market has a law of its own. It is not propelled by the linear causality
to which one becomes accustomed in the everyday experiences of life. Nor is the market
the cyclically rhythmic machine that some declare it to be. Nevertheless, its movement
reflects a structured formal progression.

That progression unfolds in waves. Waves are patterns of directional movement. More
specifically, a wave is any one of the patterns that naturally occur under the Wave
Principle, as described in Lessons 1-9 of this course.

12
The Five Wave Pattern

In markets, progress ultimately takes the form of five waves of a specific structure.
Three of these waves, which are labeled 1, 3 and 5, actually effect the directional
movement. They are separated by two countertrend interruptions, which are labeled 2
and 4, as shown in Figure 1-1. The two interruptions are apparently a requisite for
overall directional movement to occur.

Figure 1-1

R.N. Elliott did not specifically state that there is only one overriding form, the "five
wave" pattern, but that is undeniably the case. At any time, the market may be identified
as being somewhere in the basic five wave pattern at the largest degree of trend.
Because the five wave pattern is the overriding form of market progress, all other
patterns are subsumed by it.

13
1.4 Wave Mode:

There are two modes of wave development: motive and corrective. Motive waves have
a five wave structure, while corrective waves have a three wave structure or a variation
thereof. Motive mode is employed by both the five wave pattern of Figure 1-1 and its
same-directional components, i.e., waves 1, 3 and 5. Their structures are called "motive"
because they powerfully impel the market. Corrective mode is employed by all
countertrend interruptions, which include waves 2 and 4 in Figure 1-1. Their structures
are called "corrective" because they can accomplish only a partial retracement, or
"correction," of the progress achieved by any preceding motive wave. Thus, the two
modes are fundamentally different, both in their roles and in their construction, as will
be detailed throughout this course.

In his 1938 book, The Wave Principle, and again in a series of articles published in
1939 by Financial World magazine, R.N. Elliott pointed out that the stock market
unfolds according to a basic rhythm or pattern of five waves up and three waves down
to form a complete cycle of eight waves. The pattern of five waves up followed by three
waves down is depicted in Figure 1-2.

Figure 1-2

One complete cycle consisting of eight waves, then, is made up of two distinct phases,
the motive phase (also called a "five"), whose subwaves are denoted by numbers, and
the corrective phase (also called a "three"), whose subwaves are denoted by letters. The
sequence a, b, c corrects the sequence 1, 2, 3, 4, 5 in Figure 1-2.
14
At the terminus of the eight-wave cycle shown in Figure 1-2 begins a second similar
cycle of five upward waves followed by three downward waves. A third advance then
develops, also consisting of five waves up. This third advance completes a five wave
movement of one degree larger than the waves of which it is composed. The result is as
shown in Figure 1-3 up to the peak labeled (5).

Figure 1-3

At the peak of wave (5) begins a down movement of correspondingly larger degree,
composed once again of three waves. These three larger waves down "correct" the
entire movement of five larger waves up. The result is another complete, yet larger,
cycle, as shown in Figure 1-3. As Figure 1-3 illustrates, then, each same-direction
component of a motive wave, and each full-cycle component (i.e., waves 1 + 2, or waves
3 + 4) of a cycle, is a smaller version of itself.

It is crucial to understand an essential point: Figure 1-3 not only illustrates a larger
version of Figure 1-2, it also illustrates Figure 1-2 itself, in greater detail. In Figure 1-2,
each sub wave 1, 3 and 5 is a motive wave that will subdivide into a "five," and each
sub wave 2 and 4 is a corrective wave that will subdivide into an a, b, c. Waves (1) and
(2) in Figure 1-3, if examined under a "microscope," would take the same form as
waves [1]* and [2]. All these figures illustrate the phenomenon of constant form within
ever-changing degree.

15
1.5 Essential Design:

The market's compound construction is such that two waves of a particular degree
subdivide into eight waves of the next lower degree, and those eight waves subdivide in
exactly the same manner into thirty-four waves of the next lower degree. The Wave
Principle, then, reflects the fact that waves of any degree in any series always subdivide
and re-subdivide into waves of lesser degree and simultaneously are components of
waves of higher degree. Thus, we can use Figure 1-3 to illustrate two waves, eight
waves or thirty-four waves, depending upon the degree to which we are referring.

Now observe that within the corrective pattern illustrated as wave [2] in Figure 1-3,
waves (a) and (c), which point downward, are composed of five waves: 1, 2, 3, 4 and 5.
Similarly, wave (b), which points upward, is composed of three waves: a, b and c. This
construction discloses a crucial point: that motive waves do not always point upward,
and corrective waves do not always point downward. The mode of a wave is determined
not by its absolute direction but primarily by its relative direction. Aside from four
specific exceptions, which will be discussed later in this course, waves divide in motive
mode (five waves) when trending in the same direction as the wave of one larger degree
of which it is a part, and in corrective mode (three waves or a variation) when trending
in the opposite direction. Waves (a) and (c) are motive, trending in the same direction as
wave [2]. Wave (b) is corrective because it corrects wave (a) and is countertrend to
wave [2]. In summary, the essential underlying tendency of the Wave Principle is that
action in the same direction as the one larger trend develops in five waves, while
reaction against the one larger trend develops in three waves, at all degrees of trend.

*Note: For this course, all Primary degree numbers and letters normally denoted by
circles are shown with bracket

16
Essential Concepts

Figure 1-4

The phenomena of form, degree and relative direction are carried one step further in
Figure 1-4. This illustration reflects the general principle that in any market cycle,
waves will subdivide as shown in the following table.

17
2.1 Introducing Fibonacci:

Statue of Leonardo Fibonacci, Pisa, Italy.

The inscription reads, “A Leonardo Fibonacci, insigne
Matematico Piisano del secolo XII”.
Photo by Robert R. Prechter, Sr.

18
HISTORICAL AND MATHEMATICAL BACKGROUND OF THE WAVE
PRINCIPLE:

The Fibonacci (pronounced fib-eh-nah´-chee) sequence of numbers was discovered

(actually rediscovered) by Leonardo Fibonacci da Pisa, a thirteenth century
mathematician. We will outline the historical background of this amazing man and then
discuss more fully the sequence (technically it is a sequence and not a series) of
numbers that bears his name. When Elliott wrote Nature's Law, he referred specifically
to the Fibonacci sequence as the mathematical basis for the Wave Principle. It is
sufficient to state at this point that the stock market has a propensity to demonstrate a
form that can be aligned with the form present in the Fibonacci sequence. (For a further
discussion of the mathematics behind the Wave Principle, see "Mathematical Basis of
Wave Theory," by Walter E. White, in New Classics Library's forthcoming book.)

In the early 1200s, Leonardo Fibonacci of Pisa, Italy published his famous Liber Abacci
(Book of Calculation) which introduced to Europe one of the greatest mathematical
discoveries of all time, namely the decimal system, including the positioning of zero as
the first digit in the notation of the number scale. This system, which included the
familiar symbols 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9, became known as the Hindu-Arabic
system, which is now universally used.

Under a true digital or place-value system, the actual value represented by any symbol
placed in a row along with other symbols depends not only on its basic numerical value
but also on its position in the row, i.e., 58 has a different value from 85. Though
thousands of years earlier the Babylonians and Mayas of Central America separately
had developed digital or place-value systems of numeration, their methods were
awkward in other respects. For this reason, the Babylonian system, which had been the
first to use zero and place values, was never carried forward into the mathematical
systems of Greece, or even Rome, whose numeration comprised the seven symbols I, V,
X, L, C, D, and M, with non-digital values assigned to those symbols. Addition,
subtraction, multiplication and division in a system using these non-digital symbols is
not an easy task, especially when large numbers are involved. Paradoxically, to
overcome this problem, the Romans used the very ancient digital device known as the
abacus. Because this instrument is digitally based and contains the zero principle, it
functioned as a necessary supplement to the Roman computational system.

19
Throughout the ages, bookkeepers and merchants depended on it to assist them in the
mechanics of their tasks. Fibonacci, after expressing the basic principle of the abacus in
Liber Abacci, started to use his new system during his travels. Through his efforts, the
new system, with its easy method of calculation, was eventually transmitted to Europe.
Gradually the old usage of Roman numerals was replaced with the Arabic numeral
system. The introduction of the new system to Europe was the first important
achievement in the field of mathematics since the fall of Rome over seven hundred
years before. Fibonacci not only kept mathematics alive during the Middle Ages, but
laid the foundation for great developments in the field of higher mathematics and the
related fields of physics, astronomy and engineering.

2.2 Introducing Fibonacci:

Although the world later almost lost sight of Fibonacci, he was unquestionably a man of
his time. His fame was such that Frederick II, a scientist and scholar in his own right,
sought him out by arranging a visit to Pisa. Frederick II was Emperor of the Holy
Roman Empire, the King of Sicily and Jerusalem, scion of two of the noblest families in
Europe and Sicily, and the most powerful prince of his day. His ideas were those of an
absolute monarch, and he surrounded himself with all the pomp of a Roman emperor.

The meeting between Fibonacci and Frederick II took place in 1225 A.D. and was an
event of great importance to the town of Pisa. The Emperor rode at the head of a long
procession of trumpeters, courtiers, knights, officials and a menagerie of animals. Some
of the problems the Emperor placed before the famous mathematician are detailed in
Liber Abacci. Fibonacci apparently solved the problems posed by the Emperor and
forever more was welcome at the King's Court. When Fibonacci revised Liber Abacci in
1228 A.D., he dedicated the revised edition to Frederick II.

It is almost an understatement to say that Leonardo Fibonacci was the greatest

mathematician of the Middle Ages. In all, he wrote three major mathematical works: the
Liber Abacci, published in 1202 and revised in 1228, Practica Geometriae, published in
1220, and Liber Quadratorum. The admiring citizens of Pisa documented in 1240 A.D.
that he was "a discreet and learned man," and very recently Joseph Gies, a senior editor
of the Encyclopedia Britannica, stated that future scholars will in
time "give Leonard of Pisa his due as one of the world's great intellectual pioneers." His
works, after all these years, are only now being translated from Latin into English.

20
For those interested, the book entitled Leonard of Pisa and the New Mathematics of the
Middle Ages, by Joseph and Frances Gies, is an excellent treatise on the age of
Fibonacci and his works.

Although he was the greatest mathematician of medieval times, Fibonacci's only

monuments are a statue across the Arno River from the Leaning Tower and two streets
which bear his name, one in Pisa and the other in Florence. It seems strange that so few
visitors to the 179-foot marble Tower of Pisa have ever heard of Fibonacci or seen his
statue. Fibonacci was a contemporary of Bonanna, the architect of the Tower, who
started building in 1174 A.D. Both men made contributions to the world, but the one
whose influence far exceeds the others is almost unknown.

2.3 The Fibonacci sequence:

In Liber Abacci, a problem is posed that gives rise to the sequence of numbers 1, 1, 2, 3,
5, 8, 13, 21, 34, 55, 89, 144, and so on to infinity, known today as the Fibonacci
sequence. The problem is this:

How many pairs of rabbits placed in an enclosed area can be produced in a single year
from one pair of rabbits if each pair gives birth to a new pair each month starting with
the second month?

In arriving at the solution, we find that each pair, including the first pair, needs a
month's time to mature, but once in production, begets a new pair each month. The
number of pairs is the same at the beginning of each of the first two months, so the
sequence is 1, 1. This first pair finally doubles its number during the second month, so
that there are two pairs at the beginning of the third month. Of these, the older pair
begets a third pair the following month so that at the beginning of the fourth month, the
sequence expands 1, 1, 2, 3. Of these three, the two older pairs reproduce, but not the
youngest pair, so the number of rabbit pairs expands to five. The next month, three pairs
reproduce so the sequence expands to 1, 1, 2, 3, 5, 8 and so forth. Figure 3-1 shows the
Rabbit Family Tree with the family growing with logarithmic acceleration. Continue the
sequence for a few years and the numbers become astronomical. In 100 months, for
instance, we would have to contend with 354,224,848,179,261,915,075 pairs of rabbits.
The Fibonacci sequence resulting from the rabbit problem has many interesting
properties and reflects an almost constant relationship among its components.

21
The sum of any two adjacent numbers in the sequence forms the next higher number in
the sequence, viz., 1 plus 1 equals 2, 1 plus 2 equals 3, 2 plus 3 equals 5, 3 plus 5 equals
8, and so on to infinity.

The Golden Ratio

After the first several numbers in the sequence, the ratio of any number to the next
higher is approximately .618 to 1 and to the next lower number approximately 1.618 to
1. The further along the sequence, the closer the ratio approaches phi (denoted f) which
is an irrational number, .618034.... Between alternate numbers in the sequence, the ratio
is approximately .382, whose inverse is 2.618. Refer to Figure 3-2 for a ratio table
interlocking all Fibonacci numbers from 1 to 144.

Phi is the only number that when added to 1 yields its inverse: .618 + 1 = 1 ÷ .618. This
alliance of the additive and the multiplicative produces the following sequence of
equations:

22
.6182 = 1 - .618,

.6183 = .618 - .6182,

.6184 = .6182 - .6183,

.6185 = .6183 - .6184, etc.

Or alternatively,

1.6182 = 1 + 1.618,

1.6183 = 1.618 + 1.6182,

1.6184 = 1.6182 + 1.6183,

1.6185 = 1.6183 + 1.6184, etc.

Some statements of the interrelated properties of these four main ratios can be listed as
follows:

1) 1.618 - .618 = 1,

2) 1.618 x .618 = 1,

3) 1 - .618 = .382,

4) .618 x .618 = .382,

5) 2.618 - 1.618 = 1,

6) 2.618 x .382 = 1,

7) 2.618 x .618 = 1.618,

8) 1.618 x 1.618 = 2.618.

Besides 1 and 2, any Fibonacci number multiplied by four, when added to a selected
Fibonacci number, gives another Fibonacci number, and so on.

23
Exponential Moving Average (EMA):-

In order to reduce the lag in simple moving averages, technicians often use exponential
moving averages (also called exponentially weighted moving averages). EMA's reduce
the lag by applying more weight to recent prices relative to older prices. The weighting
applied to the most recent price depends on the specified period of the moving average.
The shorter the EMA's period, the more weight that will be applied to the most recent
price. For example: a 10-period exponential moving average weighs the most recent
price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As we'll see,
the calculating and EMA is much harder than calculating an SMA. The important thing
to remember is that the exponential moving average puts more weight on recent prices.
As such, it will react quicker to recent price changes than a simple moving average.
Here's the calculation formula.

Exponential Moving Average Calculation:-

Exponential Moving Averages can be specified in two ways - as a percent-based EMA

or as a period-based EMA. A percent-based EMA has a percentage as it's single
parameter while a period-based EMA has a parameter that represents the duration of the
EMA.

The formula for an exponential moving average is:

EMA (current) = ((Price(current) - EMA(prev) ) x Multiplier) + EMA(prev)

For a percentage-based EMA, "Multiplier" is equal to the EMA's specified percentage.

For a period-based EMA, "Multiplier" is equal to 2 / (1 + N) where N is the specified
number of periods.

For example, a 10-period EMA's Multiplier is calculated like this:

(2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%)

This means that a 10-period EMA is equivalent to an 18.18% EMA.

Note: StockCharts.com only support period-based EMA's.

24
Below is a table with the results of an exponential moving average calculation for
Eastman Kodak. For the first period's exponential moving average, the simple moving
average was used as the previous period's exponential moving average (yellow highlight
for the 10th period). From period 11 onward, the previous period's EMA was used. The
calculation in period 11 breaks down as follows:

(C - P) = (57.15 - 59.439) = -2.289

(C - P) x K = -2.289 x .181818 = -0.4162
( (C - P) x K) + P = -0.4162 + 59.439 = 59.023

The 10-period simple moving average is used for the first calculation only. After that
the previous period's EMA is used.

25
Note that, in theory, every previous closing price in the data set is used in the
calculation of each EMA that makes up the EMA line. While the impact of older data
points diminishes over time, it never fully disappears. This is true regardless of the
EMA's specified period. The effects of older data diminish rapidly for shorter EMA's.
than for longer ones but, again, they never completely disappear.

Price Trend

As per Gold candlestick charts are prices are in the bullish phase. If we are look in to
the price trend for past couple of days 7 bullish candles out of 10 candles has formed.
Which means prices are more positive and trend would be expected to continue.
As per the moving averages concern EMA (5) is above the EMA (6) which
shows prices are positive territory. Open interest is negative which is positive
divergence for prices concern.
As per MACD histogram, the histogram is in positive zone which leads trend is
intact.Ofcourse already the trend confirms bullish so prices would be in bullish zone for
the next couple of days.

26
Fundamental analysis

DEMAND AND CONSUMPTION OF GOLD

Gold produced from different sources and demanded for consumption in form of
Jewellery, Industrial applications, Government & Central bank Investment and Private
investor, which has been worth US$ 38 billion on average over the past five years in
world.

Total of world gold produced is mostly consumed by different sectors are Jewellerys
80%, Industrial application 11.5% and rest of gold is used as investment purpose 8.5%.
Considering the situation in India, the demand for Gold consumption is far more ahead
than its availability through production, scrap or recycled gold. Where gold production
in India is only 2tonnes, where demand is 18.7% of world gold consumption, which
make India a leading consumer of gold followed by Italy, Turkey, USA, China, Japan.
According to Countries wise demand, the following graph shows the demand in each
country. Large part constitute by Jewelry consumption with 85.56% during 2004 by
Indian consumers, who seem to spend a disproportionate percentage of their disposable
income on gold and gold jewelry.

Gold fabrication for domestic and international market, also formed large part of
business in India with 527 tonnes of gold fabricated in India in 2004, making world
largest fabricator which is 60% more than its closet competitor Italy, Turkey, USA. But
this Jeweller Fabrication is unable to generate much revenue, as most of its consumed in
India (479 tonnes).

18.70%
India
Italy
Turkey
42.20% 11.10%
US
China

8.50% Japan
Rest of w orld

5.30% 7.30%
6.90%

27
GOLD CONSUMPTION IN INDIA

India consumed around 18% of world Gold produced. Even though it only contribute
1.6% of Global GDP.

“Traditionally, Gold has been a good safety net for Indian households. However, the
sharp rise in gold imports over the last three years when the rupee has started
appreciating, inflation is relatively low, banking facilities are improving And economic
can confidence has picked up, is surprising” say Market watchers.(Source: -Economic
Times, Article, “ Forget sensex, the Gold rush is on”, July 18 ‘05)
The demand is much that it consumed more than 1.5 times of US consumption of gold.
Increasing by nearly 60% in 2003-04, but during this fiscal Gold imports increased by
another 58%, with Import of gold account around $11 billion consumption increased by
88% during March’05quarter

Uses of Gold:-

1) Jewellery fabrication: The largest source of demand is the jewelry industry.

In new years, demand from the jewelry industry alone has exceeded Western mine
production. This shortfall has been bridged by supplies from reclaimed jewelry and
other industrial scrap, as well as the release of official sector reserves. Gold's
workability, unique beauty, and universal appeal make this rare precious metal the
favorite of jewelers all over the world.
India is the world's foremost gold jewellery fabricator and consumer with fabricator and
consumption annually of over 600 tons according to GFMS. Measures of consumption
and fabrication are made more difficult because Indian
jewellery often involves the re-making by goldsmiths of old family ornaments into
lighter or fashionable designs and the amount of gold thus recycled is impossible to
gauge. Estimates for this recycled jewellery vary between 80 tons and 300 tons a year.
GFMS estimates are that official gold bullion imports in 2001 were 654 tons. Exports
have increased dramatically since 1996, and in 2001 stood at over 60 tons. The US
accounted for about one third of total official exports. Manufacturers located in Special
Export Zones can import gold tax-free through various registered banks under an Export
Replenishment scheme.

28
2) Industrial applications: Besides jewelry, gold has many applications in a
variety of industries including aerospace, medicine, electronics and dentistry. The
electronics industry needs gold for the manufacture of computers, telephones,
televisions, and other equipment. Gold's unique properties provide superior electrical
conducting qualities and corrosion resistance, which are required in the manufacture of
sophisticated electronic circuitry. In dentistry, gold alloys are popular because they are
highly resistant to corrosion and tarnish. For this reason gold alloys are used for crowns,
bridges, gold inlays, and partial debenture.
3) Governments and central banks: The third source of gold demand is
governments and central banks that buy gold to increase their official reserves. Central
banks holds 28,225.4 tons, the holdings of Reserve Bank of India are only a modest
397.5 tons.
4) Private investors: Finally, there are private investors. Depending upon
market circumstances, the investment component of demand can vary substantially from
year to year.

NEWS FROM THE DEMAND AND SUPPLY SIDE

• The increase in investment demand is likely to offset the slowdown in demand

for jewelry fabrication.

• World investment demand has more than doubled to over 600 tonnes in 2005.

• A recent report by GFMS said the investment demand for gold likely to
continue until 2009 that could see global prices hitting new highs.GFMS
exports jewellry demand that represents 72% of total gold demand to decline
352 tonnes to 1485 tons in the first half of 2007.

• On the supply side mine production is expected to increase 56 tonnes to1236

tonnes while gold scrap is expected to increase 52 tonnes to 451 Tonnes.

• The increase in demand is likely to see dips being utilized as buying

opportunities, particularly as there have been no significant fresh discoveries of
gold deposits.

29
 • Most gold manufacturing of electrical components takes place in North
America, Western Europe and East Asia. A significant factor that could see.

• An increase in demand from East Asia in increased number of companies

shifting to the region due to the cost benefits on offers.

• Newer uses of gold include increased usage as an industrial metal, theYellow

metal being increasingly looked as a catalyst in fuel cells, chemical processing
and controlling pollution.

• Another avenue that could be focused upon is in the field of Nanotechnology

gold nanorods can be used to improve LCD displays in mobile phones and
laptops. However gold futures continue to be vulnerable to sharp slides due to
several factors.

GOLD DEMAND TRENDS

Third quarter 2009:-

• Gold demand, in tonnage terms, rebounded strongly in Q3 after several quarters of

weakness. Identifiable demand totalled 1,133.4 tons, up 170.1 tones (18%) on the levels
of a year earlier. In US$ value terms, this represented a 51% rise to $31.8 billion, an all-
time record high and a 45% leap from the previous record set in Q2. The recovery in
demand was Triggered by a fall in the gold price, which coincided with sharply
escalated levels of economic and financial uncertainty.
• After briefly testing levels above US$950/oz early in the quarter, the gold price fell
back, briefly touching levels under $750/oz in mid-September. Nevertheless, the
average for the quarter, at $872/oz, was 28% higher than Q3 2007’s $680/oz.

• The biggest contributor to the increase in total identifiable demand in Q3 was

identifiable investment, up 137.5 tones (56%) relative to year-earlier levels. Jewellery
demand rose 45.5 tones or 8%, while industrial and dental demand declined 11%.

30
• The strong recovery in jewellery demand to a record quarterly value of over US$18
billion Reflected significantly higher demand in some countries, partly offset by sharply
lower demand in others. In US dollar terms, demand in India surged by 65%, while the
Middle East, Indonesia and China all enjoyed rises of more than 40%. At the other
extreme, the US and UK were down by 9% and 5% respectively (declines of more than
25% in tonnage terms).

• Driving the improvement in identifiable investment was net retail investment, which
rose 121% from 105.1 tons to 232.1 tones. Switzerland, Germany, India and the US
enjoyed the biggest surge in demand, although shortages of bars and coins were
reported among bullion dealers in many parts of the world.

• Gold Exchange Traded Funds (ETFs) enjoyed a record net quarterly inflow of 150.0
tones, boosted by extreme levels of economic and financial uncertainty. The peak in
inflows Occurred in the latter part of the September, triggered by the collapse of
Lehman Brothers and a fear of banking sector collapses. Net inflows surged by an
unprecedented 111.0 tones during 5 consecutive trading days, equivalent to US$7bln.

• The strong rise in identifiable investment demand was offset by a significant outflow
in the “inferred investment” category. Inferred investment is calculated as a statistical
residual and is therefore subject to statistical uncertainty. It covers most institutional
investment outside ETFs. Several key factors contributed to the large outflow, including
gold’s inclusion in commodity indices; the recovery in the US dollar and unwinding of
long gold/short dollar trades; and a round of selling by hedge funds that were forced to
raise cash to fund significant. Redemptions and margin calls i.e. the selling reflects
gold’s better performance relative to other assets

• The significant outflow in inferred investment explains why the gold price did not
perform better during the quarter in the face of very strong jewellery buying and
investment in ETFs and bars and coins. Notably, this category largely reflects investors
with a shortterm focus. In contrast, the more fundamental, long-term sources of demand
were very strong.

• Industrial and dental demand declined 11% relative to year-earlier levels. Electronics,
the largest component of industrial demand, was hampered by the downturn in the
global economy and a lack of confidence within world markets.

31
• Gold supply was down 10% on year-earlier levels, the biggest contributor being a
significant reduction in official sector sales. For the year to September, sales by
signatories to the Central Bank Gold Agreement totaled a provisional 357.0 tonnes, the
lowest level of annual sales since the first agreement was signed in 1999.

Forth quarter 2009:-

The strong level of demand for jewellery, bars, coins and ETFs that was evident in Q3
appears to have continued into early Q4. ETF holdings broke record highs yet again in
October, bar and coin shortages have continued and anecdotal reports suggest that India
enjoyed buoyant sales during the mid-October Diwali
Festival offsetting these positive factors, though, is an outlook of continued weak
jewellery demand in Europe and the US.

Given the uncertainty that surrounds the global economy, gold’s safe haven appeal
should continue, but so too will the possibility of heightened levels of activity in the
speculative side of the gold market. While the commodity price related and margin call
related selling appears to have abated, it is too soon to call an end to market volatility.
The downward effect on total gold supply caused by de hedging is abating and this is
set to continue. However, the effect on total supply is likely to be offset by other factors.
In particular, net central bank sales should remain at subdued
Levels and the constraints on mine supply are unlikely to ease. The credit crisis will
continue to affect both explorations Activity and potentially mine expansion,
particularly among the smaller players.

32
TECHNICAL ANALYSIS

GOLD LONG TERM TREND:-

For the Gold, progress ultimately takes the form of five waves of a specific structure.
Three of these waves, which are labeled 1, 3 and 5, actually effect the directional
movement. They are separated by two countertrend interruptions, which are labeled 2
and 4, as shown in chart. The two interruptions are apparently a requisite for overall
directional movement to occur.

Motive mode is employed by both the five wave pattern on Gold chart and its
same-directional components, i.e., waves 1, 3 and 5. Their structures are called "motive"
because they powerfully impel the market. This is trend wave which is any wave that
trends in the same direction as the wave of one larger degree of which it is a part.

As per chart Fibonacci lines are drawn which is , the ratio of any number to the
next higher is approximately 0.618 to 1 and to the next lower number approximately
1.618 to 1. The further along the sequence, the closer the ratio approaches phi (denoted
f) which is an irrational number, 0.618034.... Between alternate numbers in the
sequence, the ratio is approximately .382, whose inverse is 2.618. As per Elliot wave
theory Prices are in the 5th wave which is motive wave.

33
 To find the target of 5th wave we can combine Elliot wave with Fibonacci on 3rd
wave.

The length of 3 rd wave is : Rs 13000 – Rs 8600 = Rs 4400

The 3rd wave approximately correct at Rs 11300 which is 38.2 % = Rs 17000

5th wave would be 11300 + 4400+1700 = Rs 17400

So the long term price target is Rs 17400

GOLD SHORT TERM TREND:-

As per gold chart shown prices are in the ‘bullish price channel’ and prices are near to
the resistance line. Prices are touches high and open interests is negative which leads to
positive divergence. The break above channel line resistance marked an acceleration of
the advance. This might consider the Gold overextended after this move, but the
advance was powerful and the trend never turned bearish. Once it croses the resistance
line(Rs 15600) then the immediate resistance at around Rs16000 ,which is channel
width.For Short term.

1st Resistance at Rs 15,600 /-

2nd Resistance at Rs 16,000 /-

34
Indian Rupee Vs Gold

Correlation between Gold and currencies

The US dollar and the gold price

Recall from last week that the PVE Gold Index consists of the GDP-weighted gold price
in thirty-six countries, including the United States. Since nine of the countries in the
index use the euro, twenty-eight currencies are represented. For convenience, I copied
last week’s chart below; let’s see what we can glean from it.

The PVE Gold Index gives us an idea of how the average gold price in the world is
changing. When the gold price in any given currency deviates from the PVE Gold Index
it implies a change in the exchange rate of that currency with respect to the other
currencies in the index.

We can therefore see that the US dollar exchange rate was relatively stable from
January 1990 to the middle of 1992, when the dollar started to strengthen. We know the
dollar strengthened because the gold price, in dollars, started to drop below the PVE

35
Gold Index indicating that the dollar’s purchasing power was increasing. But why did
the dollar strengthen?

In 1992 the Brazilian real collapsed and capital in search of safety made its way,
mainly, to the United States. The real was devalued to practically nothing; it was
replaced by the new real on July 1, 1994. As a result of the Brazilian currency crisis the
demand for US dollars soaked up US currency that would otherwise have been used for
settlement of international trade. The dollar, therefore, increased not only against the
real, but against many other currencies as well. Between 1992 and 1994 the dollar
increased by about ten percent against the other currencies in the PVE Gold Index.

This increase in the dollar’s exchange rate on foreign currency markets is represented in
the chart above by the decline in the US dollar gold price relative to the PVE Gold
Index that started in 1992.

The Brazilian real crisis was hardly behind us when, in 1995, the Mexican peso dropped
more than fifty percent against the dollar. This was the worst financial crisis in Mexico
since the Mexican Revolution. More capital flowed into the United States, competing
for dollars on foreign exchange markets and keeping the dollar strong.

Between 1995 and 1996 the Japanese yen lost about twenty-five percent against the
dollar. More demand for dollars meant that the dollar continued to strengthen on foreign
currency markets, further increasing the gap between the average, worldwide gold price
and the US dollar-gold price. Japan set the stage for the big one, the Southeast Asian
currency crisis.

Between 1996 and 1997, the Indonesian rupiah dropped seventy-six percent; the South
Korean won fell fifty-six percent and both the Malaysian ringgit and the Philippine peso
lost forty percent of their value against the dollar. This was a financial catastrophe and
its effect was felt across the globe. Since the US dollar was performing well on foreign
currency markets, thanks to the Brazilian, Mexican and Japanese devaluations earlier in
the decade, a tidal wave of capital made its way to the United States.

Still shaken from the events of 1996 and 1997, Russia defaulted on its foreign debt in
1998, sending the ruble down seventy percent in just one year. In conjunction with the
Southeast Asian crisis the mood is grim, and international capital pours into the US
seeking refuge.

36
The increase in the US dollar following the Southeast Asian currency crisis crushed the
US dollar-gold price and was large enough to be evident in the PVE Gold Index. The
US dollar represents twenty-eight percent of the Index and contributed to the Index’
decrease of more than twenty percent during 1996 and 1997. As you can see though, the
US dollar-gold price declined much more and for much longer.

When the euro was launched in January 1999 it collapsed almost twenty-five percent,
on average (PVE Euro Index), and about thirty-five percent against the dollar. As if this
was not enough, the Argentine peso had trouble in 1998; in 2000 it was the Turkish lira
and in 2002 it was back to Brazil for another round.

As an aside, all the currency devaluations mentioned are examples of how the dollar’s
exchange rate affects the US dollar-gold price. Even though the world is currently
fascinated by the euro’s exchange rate as a leading indicator for the US dollar gold price
we cannot ignore the impact of other currencies. Collectively, they could be more
important.

The compounding effect of capital flight during all these currency crises can be seen in
the increasing deviation between the US dollar gold price and the PVE Gold Index. The
index is currently more than sixty percent higher than it was in 1990 while the US
dollar-gold price has only recently recovered to its January 1990 level.

The dollar’s strength stemmed from the weakness in other currencies. It had very little
to do with America’s productivity, or a “New Era”. Because most major currencies in
the world had already devalued against the dollar it was obvious that the dollar could
not continue to increase indefinitely. A PVE Dollar Index, using the same GDP-
weighted currency data as for the PVE Gold Index, shows that the US dollar gained
112% from January 1990 to February 2002 (its peak) and has since declined by fourteen
percent. And from then onwards it has been started raising and increased to 126% in the
year 2009.

We have seen that the decline in the US dollar-gold price, and its under-performance
relative to the rest of the world, is a reflection of the US dollar’s exchange rate. It is my
belief that the US dollar gold price will again catch up with the PVE Gold Index as a
result of continued weakness in the dollar to correct America’s enormous trade deficit.
This correction of the dollar has only just begun and is likely to increase the US dollar-

37
gold price by approximately thirty-five to forty percent more than the concurrent
average increase in the gold price in other currencies.

As the Rupee start strengthening Gold prices start strengthening. As per charts the data
we analyze from Sept 2008 to Feb 2009. From Oct middle onwards the rupee starts
weakening and the gold is almost all flat but on Nov middle onwards when the rupee
starts strengthen up Gold is also starts rises. The means Gold prices are correlated to Ind
vs. Dollar currency.

38
FINDINGS:
1. The forward Market Commission should be measure and take steps to create
awareness among the traders about the commodity exchanges and their working.

2. The Government is better advised to give investors the options derivative contracts in
the commodity market like in the equity markets.

3. The factors other than the economic factors such as the geo political circumstances
have to be tracked constantly.

4. In case of Gold US dollar rate is of great significance and thus the US dollar rate has
to be tracked constantly.

1. Forward market Commission needs to re-look at its margin payment policy and
make it more investor friendly so that more and more people are encouraged to
invest in commodities market.

2. Banks, FII’s and Mutual funds should be allowed to invest in commodities

market as part of their portfolio. This will be shot in the arm for the growth of
the commodities market in India.

3. The investor in the commodity market should take decision based on in depth
analysis of the particular commodity in scientific manner rather than the market
rumors and gimmicks.

4. All social, economic and political factors have to be taken in to considerations

apart from the demand and supply scenario before trading in commodities.

5. Forward Market commission should initiate measure so that some of the major
regional commodity exchanges can be improved and brought up as the national
level commodity exchanges.

6. The members of the commodity exchanges must set up research wings in order
to give constructive advise its clients based on reason rather than the clients
depending upon rumors and gimmicks in the market.
39
7. Regulator should bring out policies which are more investor friendly so that
investors come to the exchanges to trade more in commodities and feed back
with all the player of the commodities market.

8. All exchanges should follow uniform norms as regard to margining system,

delivery mechanism and collateral mechanism.

9. Tax uniniformity and simplification to facilitate easier delivery of goods.

Creation of physical infrastructure to facilitate the same.

10. Commodities trading should be treated on par with equities. The income
generated from commodity trading should be treated as capital gain rather than
as income from business and profession as the later attracts higher rates of
taxation than the former.

11. Mutual funds must be permitted to launch commodity schemes so that small
investors can reap the benefits of diversification with in the arena commodities

40
Recommendations:-

For Short Term: (2 to 4 weeks)

Buy Gold (Mcx) above 14600 levels with stop loss of 14200 for Target of Rs.16000.

Buy gold above Rs14600

Stop loss Rs14200

1st resistance Rs15200

2nd resistance Rs16000

1st support Rs14200

2nd Support Rs14000

For Long Term: (1 month to 6 months)

Buy Gold at current levels (14100) with s/l of 13000 for Target of Rs.17400

Buy Gold at Rs 15100

Stop loss Rs 15000

1st resistance Rs 16000

2nd Resistance Rs 17400

1st Support Rs 14200

2nd Support Rs 14000

41
CONCLUSION:

1. Price movements are more predictable, purely based on demand on and supply of that
particular commodity unlike the equity markets and bond markets which are based on
different types of financial data like actions of different central banks on interest rates ,
quarterly rates of companies , and sales of companies and so on. To that extent, price
risk is reduced in commodity market.

2. Through both futures and options derivatives contracts are available in world
commodity markets, but in India options contracts have not been permitted by the
government.

3. Commodities prices are less volatile when compared to the stock and bond markets.
Thus it is relatively safer to trade in commodities, however all investments are subject
to markets risk and commodity market risk and commodity futures are not different.

4. In commodity markets though there is a possibility of physical delivery of the

contracts are squared off well before the expiry of the contract.

5. Most of the trading that takes places in the commodity markets takes place in the
nearest month contract rather than the far month contract.

6. In commodity markets as there is a possibility of delivery, there arises the

requirement of warehouse facility which is not required in case of equity markets.

7. Most of the trading takes place in the commodities market is of intraday nature and
thus mist of the traders are offset day only.

8. The future market contracts available on a wide spectrum of commodities like Gold
provide excellent opportunities for hedging risk for importers, traders and large-scale
consumers.

9. The prices of the Gold are subject to variety of reasons such as US Dollar rates ,
festival demand in India and other geo political circumstances.

42
10. Inspite of the high prices on Gold the demand for these commodities is still bullish
and remained so in the recent months also.

11. Gold is treated as most secured and is safe haven buy for investor as the world is
surrounded by geopolitical tensions, energy prices and instability in currency rate

43
 BIBLIOGRAPHY

BOOKS:

• Investment management
-V.K.Bhalla

• Investment management
-Preethi Singh

• Security Analysis & Portfolio Management

-V.A.Avadhani

• Marketing of Financial Services

-V.A.Avadhani

• Indian Financial System

-M.Y.Khan

BOOK:-

NCFM MODULE FOR COMMODITY MARKET

NEWS PAPERS:-
Business Standard

Business Line

44
 WEBSITES:-

• www.GEOJIT FINANCIAL SERVICES Ltd.com

• www.bseindia.com

• www.sebi.com

• www.moneycontrol.com

• www.economictimes.com

• www.nseindia.com

• www.icicidirect.com

• www.indiabulls.com

• www.hdfcsecurites.com

• www.5paisa.com

45