A REPORT ON Gold- Investment Rationale

Project Report
SCHOOL OF MANAGEMENT SCIENCES
For The Award Of Post Graduate Diploma in Management Submitted By Prashant Kumar Submitted To

(Roll No. : PG/08/32)

SCHOOL OF MANAGEMENT SCIENCES LUCKNO

A REPORT ON Gold- Investment Rationale

Submitted By Prashant Kumar

(Roll No. : PG/08/26)

SCHOOL OF MANAGEMENT SCIENCES LUCKNO

Abstract:
This project report is basically done on the gold which is a component traded in the commodity market. Gold is an inflation hedge & also short-term fluctuations in Gold offer good potential for trading. It is in the upward trend and in the current it is safe to in est in the gold. The basic objecti e behind the project is analy!ing the gold market the factors affecting it and fluctuation in the gold market. This project report will help the in estors to analy!e the right time for in estment in the gold. They will also come to know about the arious factors which affect the gold market. "hile doing this project t!e !isto"y and t!e #om$any
$"o%ile a"e basi#ally sea"#!ed eit!e" %"om t!e inte"net o" by t!e lite"atu"e "evie& o% t!e #om$any' T!is means t!at it is basi#ally based on t!e se#onda"y sou"#e' Also t!e to$i# "elated #on#e$ts a"e done on t!e basis o% t!e se#onda"y sou"#es' T!e data %o" t!e analysis is ta(en eit!e" by t!e #onsultin) t!e #om$any*s em$loyees o" %"om t!e net' So it is $a"tially $"ima"y and $a"tially se#onda"y' T!e analysis $a"t is done &it! t!e !el$ o% +i#"oso%t E,CEL by #om$utin) t!e "e-ui"ed out$ut' .inally t!e #on#lusions and "e#ommendations !ave been &"itten on t!e sel% %indin) basis'

DECLARATION
I hereby state that the $roject %eport titled Gold An Investment Rationale. submitted in partial fulfillment of the degree of Post Graduate Diploma In Management is an original work done entirely by me and is based entirely on my own obser ations. It has not pre iously formed the basis for the award of any other degree& diploma& fellowship or any other similar title. The facts presented here are true to the best of my knowledge.

$rashant 'umar $G()*(2+

Table o !ontents
!ontents #$ Ac%no&ledgements. '$ !ompan( Pro ile. )$ Introduction o t*e Pro+ect.
$reface -bjecti e of the project .cope of the project /ethodology 0iterature %e iew 1asic terms of In estment .hort term & 0ong Term In estment -ptions 2istory of Gold Gold as /oney "ays of In estment in Gold

P."o . / '#
22 2# 2# 2# 2, 2+ 26 3) 3) 32

,$ -actors A ecting Gold and T*eir Anal(sis

3rude -il 4. 5ollar %epo %ate Inflation %ate

)/
#) #, #7 ,, ,7

1ank 8ailure

+)
.tock /arket Gold 9nti Trust 3ommittee %eal Interest %ate "ar & -ther 3risis 5emand & .upply

+# +, +, ++

2/ 0$ 1cenario Anal(sis 2$ -indings 3$4imitations .$ Recommendations /$ Re erences 30 33 3. .5

A#(no&led)ements
This project simply shows the entire dedication of me and the people who ha e coordinated for successful accomplishment in this project. It shows the knowledge& skill and e:perience of able minded people. I am greatly obliged to 6nicon Investment 1olutions for pro iding me this opportunity to take up this project as long as a platform to learn and enhance my professional skill. I would like to e:press my deep sense of gratitude to Mr. 1ac*in 7ain Product Manager 8"ational$ Mutual -und9 6nicon Investment 1olutions & my corporate guide& for his kind help and support and aluable guidance throughout the project. I am thankful to him for pro iding me with necessary insights and helping me out at e ery single step. I also e:press my deep gratitude to Mr. D*ritiman !*a%rabort( 1enior Manager Researc*9 6nicon Investment 1olutions. I am highly thankful to Dr. 1ud*ir 1*aran my 5irector under whose able guidance this project work was carried out. I thank him for his continuous support and mentoring during the tenure of the project. I am also thankful to my academic guide Dr. :andana 1*rivastva with deep of my heart who has gi en me their co-ordination from time to time. I am also thankful to the entire teaching staff without which this acknowledgement will be incomplete.

Pras*ant ;umar PGDM PG<5.<'2 1M1= 4uc%no&

!>MPA"? PR>-I4@

3ompany $rofile;
Aasic In ormation:
3ompany <ame 1usiness Type $roduct(.er ices 9ddress 1rands <o of =mployees 3ompany website 4nicon In estment .olutions Trading company& 5istributor("holesaler /utual 8unds& Insurance& <8-& I$-&=>uity&5ebt 2+& IIIrd 8loor& $usa %oad& 'arol 1agh& <ew 5elhi 'otak&2dfc&2sbc&%eliance&I3I3I&1.$ etc 9bo e ?))) people www.uniconindia.in

>&ners*ip B !apital:
@ear =stablished %egistered 3apital -wnership Type 0egal %epresentati e 2))# 9bo e 4. A ?)) million $ri ate 0imitated 3ompany /r. Gajendra <agpal

Trade B Mar%et: .outh =ast 9sia.

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Detail Pro ile:

4nicon is a financial ser ices company which has emerged as a one stop in estment solution pro ider. It was founded in 2))# by two isionary and flamboyant entrepreneurs& Mr. Ga+endra "agpal and Mr. Ram Gupta who possess e:pertise in the field of finance .The 3ompany is head>uartered in <ew 5elhi& and has its corporate office in /umbai with regional offices in 'olkata& 3hennai& 2yderabad and <oida. 4nicon is a professionally managed company with outstanding managerial acumen and cumulati e e:perience of more than 2)) years in the financial markets. the company is supported by more 3,)) uniconians and has an e:tensi e network of o er ?)) branches & +)) plus business partner locations & 2,)) remisers pro iding it with a national footprint. "ith a customer base of o er 2)))))& the 4nicon Group has an eye for the intricate financial needs of its clients and caters to both their short term and long term financial needs through a comprehensi e bou>uet of in estment ser ices. These ser ices range from offline and online trading in e>uity& commodities& currency deri ati es to debt markets to corporate finance and portfolio management ser ices. The company has a si!able presence in the distribution of 3 rd party financial products like mutual funds& insurance products and property broking. It also pro ides e:pert 9d isory on life insurance& General insurance& mutual funds and I$-B.. The distribution network is backed by in C house back office support to pro ide prompt and efficient customer ser ice. The e>uity broking arm C 6"I!>" 1ecurities Pvt. 4td offers personali!ed premium ser ices on the <.=& 1.= & 5eri ati es market. The commodity broking arm 6"I!>" commodities Pvt. 4td offers .er ices in commodity trading on <35=D & /3D. The 4<I3-< Group 9lso has P!G division pro iding in estment solutions for 2igh <et worth Indi iduals. 4<I3-< can boast of some of the most respected names in the pri ate e>uity space like .e>uoia 3apital and <e:us India capital as its shareholders.

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4nicon has been founded with the aim of pro iding world class in esting e:perience to hitherto undeser ed in estor community. The technology today has made it possible to reach out to the last person in financial market & gi e him the same le el of ser ice which was a ailable to only the selected few. They gi e personali!ed premium ser ice with reasonable commissions on the <.=& 1.= & 5eri ati e market through their e>uity broking arm 4nicon securities $ t. 0td. "ith their sophisticated technology we can trade through our computer & if we want human touch we can also deal through their relationship managers out of their more than ?)) branches across the nation.

Mission o t*e compan(:

To create long term alue by empowering indi idual in estors through superior financial

ser ices supported by culture based on highest le el of team work& efficiency & integrity.

:ision o t*e compan(:

To pro ide the most useful and ethical in estment solutions guided by alues dri en approach to growth& client ser ice and employee de elopment.

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Management Team:
"ame /r. Gajendra <agpal/r. %am / Gupta /r. @.$. <arang Designation 8ounder & 3=3o- 8ounder & $resident 2ead- 8i:ed Income group 3hief -perating -fficer 3hief 8inancial -fficer <ational 2ead F=-1rokingG 5irector F$ & 5G 3hief 3ompliance -fficer <ational 2ead F1uss.9lliancesG 3hief Technology -fficer 2ead F3lient %elationsG 2ead F2% & TrainingG

/r. .andeep 9rora /r. Eikas /allan /r. Trinadh 'iran -

/r. .ubhash <agpal /s. 9njali /ukhija /r. Eijay 3hopra /r. 9nurag <ayar -

/r. 9shish 'ukreja /s. 5eepa /ohamed -

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Group !ompanies:

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1C>T A"A4?1I1 >- 6"I!>":

1trengt*s $rofessional .er ices 3ustomi!ed solution to customer needs .upport of e:tensi e network of ?)) branches and +)) franchises across India .trong brand <ame %egular information flow and research >pportunities Growing Indian economy and ad ent of young in estors .a ings of Indians are ery high and thus can be channeli!ed in estment 8inancial product penetration is ery low in Tier II and III cities. 8inancial product penetration is low in 3orporate !*anges to be incorporated in= Mar%et Plan Increase financial awareness amongst in estors $romote financial planning and its benefits $enetrate retail in tier II and III cities $enetrate 2<I and corporate segments within metro =:tend presence of brand in all states in India Product Plan .elling all products from e ery 9/3 and insurance companies. 3ross selling between mutual funds&0ife insurance& general insurance& I$- and fi:ed 5eposit scheme Cea%ness 0ack of strong /I. framework 4sage of manual paper based processes for reconciliation 9bsence of sustainable source of income

T*reat Global economic recession 8inancial /arkets in hibernation =nterprises in distress 8inancial intermediaries in pain

-inancial Plan 1etter incenti e plan to boost sales /ake efforts to increase o erall producti ity Increase Turno er Increase $rofit

People Plan Increase team si!e to 2,) across the country and acti ate ma:imum number of branches %ecruitment of >uality manpower to impro e sales Impro e moti ation le el within

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teams

Product B1ervices:
4nicon customers ha e the ad antage of trading in all the market segments in the same window& as they understand the need of transactions to be e:ecuted with high speed and reduced time. 9t the same time& they ha e the ad antage of ha ing all 9d isory ser ices for 0ife Insurance& General Insurance& /utual 8unds and I$-Bs also. 4nicon is a customer focused financial ser ices organi!ation pro iding a range of in estment solutions to our customers. They work with clients to meet their o erall in estment objecti es and achie e their financial goals. Their clients ha e the opportunity to get personali!ed ser ices depending on their in estment profiles. Their personali!ed approach enables clients to achie e their total in estment objecti es.

The 'ey products offering are as follows; @Duit(= It is of two types6nicon Plus=It is browser based trading terminal that can be accessed by a uni>ue I5 and password. This facility is a ailable to all online customers the moment they get registered. -eatures: Trading at <.=& 1.= & 5eri ati es on single screen. 9dd multiple scripBs on the market watch Greater e:posure for trading on the a ailable margin. 3ommon window for display of market watch and order e:ecution. %eal time updating of e:posure and portfolio while trading. -ffline order placement facility. .top C loss feature. 3ompetiti e 1rokerages.

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 1anking integration with I3I3I 1ank& 2583 1ank& 9DI. 1ank. $ro:y link to enable trading behind firewalls.

6nicon s&i t= It is application based terminal for acti e traders. It pro ides better speed& greater analytical features & priority access to %elationship /anagers.

-eatures: Trading at <.=& 1.= & 5eri ati es on the single screen. 9dd any number of scrips in the market watch. Tick by tick li e updation of Intraday chart. Greater e:posure for trading on the margin a ailable. 3ommon window for market watch and order e:ecution. 'ey board dri en short cuts for punching orders >uickly. %eal time updation of e:posure & portfolio. 8acility to customi!e any number of portfolio & watch lists. 1est , bids and offers& updated li e for all scripts. 8acility to cancel all pending orders with a single click. Instant trade confirmations. 1anking integration with I3I3I 1ank& 2583 1ank& 9:is bank& 1ank of India& 3orporation bank& 'arnataka bank& Eijaya 1ank etc.

!ommodit(=

4nicon offers a uni>ue feature of a single screen trading platform in /3D and <35=D 4nicon offers both offline & online trading platforms. @ou can walk in or place your orders through telephone at any of our branch locations. -eatures: 0i e market watch for commodity market F<35=D & /3DG in one screen. ?6

 9dd any number of scripBs in the market watch. Tick by tick li e updation of intraday chart.

Greater e:posure for trading on the margin a ailable. 3ommon window for market watch and order e:ecution. 'eyboard dri en shortcuts for punching order Depositor(= It offers demateriali!ation ser ices as a participant in central 5epository .er ices 0td through its 5epository operations. The company belie es in efficient and cost-effecti e and integrated ser ice support to its brokerage business. 4nicon securities $ t. 0td& as a depository participant& will offer depository accounts for indi idual in estors as well as corporate which will enable them to transact in the demateriali!ed segment& without any hassles. 5epository offers a safe& con enient way to hold securities as compared to holding securities in paper form. Their ser ice pro ides an integrated single platform for all their clients ensuring a risk free& efficient and prompt depository process. Distribution= 4nicon is a fast emerging as a leader in the insurance and mutual funds distribution space. It has o er ?)) branches and a huge number of H 1usiness 5e elopment =:ecuti esI who help to source and ser ice the customers throughout the country. 4nicon is fast becoming the preferred H Eendor IndependentI distribution houses because of pro iding efficient ser ice like free collection of che>ues & keeping track of the premiums etc. to the customers. 4nicon offers the following distribution products; I$-Bs /utual 8unds Insurance

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 $roperties

"RI service=

"ith India becoming the epicenter of growth the Global Indian feels the needs to be connected to the domestic growth story. It now offers a con enient and hassle free way of in esting in the Indian securities /arket to the people who are li ing outside India and wish to participate in the Indian growth story. Aac% o ice=

4nicon through its online back-office aims to increase the transparency and pro ides us the link to iew the details of our account online any time and any where.

-iEed Income=

The fi:ed income ertical of 4<I3-< group deals in so ereign paper& money market(fi:ed income instruments and merchant banking acti ities.

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!ompetitors o 6"I!>":
India 1ulls %eliance /oney India infoline <arayan .ecurities $ t. 0td Ei ek 8inancial 8ocus 0td /ultiple: 3apital 0td <ikunj stock 1roker 0td - J financial ser ices 0td =lite stock management 0td /ani stock brokers 0td Trans 9sia securities $ t. 0td ./3 %% 3entrum

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I"TR>D6!TI>" >- TF@ PR>7@!T

Pre ace:
Gold An Investment Paradise

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Gold has been synonymous to wealth and prosperity through the ages. The history of Gold dates back to as early as #))) 13 when the prehistoric men used it as a tool. .ince then Gold has filled the pages of history as the di ine metal that has attracted the attention of men Cpowerful and otherwise. Gold was the source of power for the kings. "ars were wagedK li es were lost as kingdoms piled up and hoarded tonnes of Gold. In the modern history& Gold became the international currency as the Gold standard came into e:istence. = en after the dismantling of Gold standard& Gold e:isted as the backbone of international trade and economics as the 4. accumulated tones of yellow metal. Till today& Gold has retained its basic use as a commodity without losing its sheen as a currency. Gold& because of its ability to protect the wealth of in estors can be an ideal addition to a portfolio. 9lso the short-term fluctuations in Gold offer good potential for trading. Gold has been on its long-term upwards trajectory which began in early 2))?. This long-term mo e has been punctuated by short-term pullbacks offering opportunities for late entrants to join the bandwagon. "ith the 4. economy outgrowing the league of de eloped nations during the last two years coupled with the worsening of long-term structural weaknesses and the subse>uent mo ements in the 4.5 ha e mo ed the focus away from GoldBs use as a commodity. 2owe er the long-term fundamentals of the yellow metal ha e also undergone a significant change with the mining output falling >uite steadily during the last decade coupled with an e ergreen demand especially from 9sia. This report analyses the long-term and short-term fundamental factors e:pected to mo e Gold prices. "e belie e that the short-term weakness e:pected in gold is a great opportunity for the late-comers to join the great Gold. .trategically& gold is one of the two most important commodities on the planet along with crude oil. Gold has been historically recogni!ed as the ultimate store of alue and method of payment. The following characteristics of Gold ha e enabled it play this role;

It is durable& homogenous and di isible GoldBs rarity gi es it intrinsic alue and that alue is high per unit of olume.

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Its alue is recogni!ed across the globe and is traded in a continuous market. Gold is the only financial medium of e:change that is not someone elseBs liability.

In updating our price outloo%9 &e *ave considered t*e ollo&ing actors: In estment demand will continue to be the prime dri er for the rally in Gold prices& 9s economic factors will make gold more attracti e compared to other financial assets.

8urthermore strong buying support from the 3entral 1anks of %ussia& 3hina and /iddle =ast countries will help support the rally in Gold prices.

/ine production will not be able to meet current demand due to lack of new 5isco eries.

The long term a erage in the 3rude(Gold ratio has been around ?+ times& but is 3urrently only around ?) times. In the remaining part of this report we will consider the major factors that are likely to

dri e Gold prices higher in the near future.

>b+ective o t*e pro+ect

The objecti e of my project is;

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To study the current in estment scenario To analy!e the different options a ailable for in estment options To o er iew the different ways of in estment in gold To ac>uaint the investor with the factors that affects the in estment scenario in gold. To ha e the e:tensi e o er iew on the working system of 6"I!>" !>MM>DIT? 1@!TI>".

To analy!e the different factors which affect the gold market and suggest the in estors about the right time to in est in gold.

9lso see that is it the right time to in est in gold or not.

1cope o t*e stud(

The analysis of the factors which affect the prices of gold and the in estment decisions in gold. 9 comparati e analysis of these factors has been done on the arious parameters like .tandard 5e iation& %egressionK correlation to make possible the tedious task of analysis of these factors. 8urther analy!ing the factors will suggest the in estors that whether it will be profitable for the in estors to in est in gold or not.

Met*odolog( The history and the company profile a"e basi#ally sea"#!ed eit!e" %"om t!e inte"net o" by
t!e lite"atu"e "evie& o% t!e #om$any' T!is means t!at it is basi#ally based on t!e se#onda"y sou"#e' Also t!e to$i# "elated #on#e$ts a"e done on t!e basis o% t!e se#onda"y sou"#es'

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 The data for the analysis is taken either by the consulting the companys employees or from the net. So it is partially primary and partially secondary. The analysis part is done with the help of Microsoft EXCEL by computing the re uired output. !inally the conclusions and recommendations has been written on the self finding basis.

4iterature Revie&/ %obert $reachter historical report on Gold and sil er has been studied .ites like uni#onindia0#o'in1 m#2india'in1 )old "esea"#!'o")1 et# !as been studied' The literature re iew of the commodity section of Uni#on' 9nnual report published by %1I & "orld Gold 3ouncil

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Aasic Descriptive terms:

Investment:
The money you earn is partly spent and the rest sa ed for meeting future =:penses. Instead of keeping the sa ings idle& you may like to use sa ings in -rder to get return on it in the future. This is called In estment.

Reasons or investment:
-ne needs to in est to; =arn return on your idle resources Generate a specified sum of money for a specific goal in life /ake a pro ision for an uncertain future

It is also to meet the cost of Inflation. Inflation is the rate at which the cost of li ing increases. The cost of li ing is simply what it costs to buy the goods and ser ices you need to li e. Inflation causes money to lose alue because it will not buy the same amount of a good or a ser ice in the future& as it does now or did in the past. This is why it is important to consider inflation as a factor in any long-term in estment strategy. The aim of in estments should be to pro ide a return abo e the inflation rate to ensure that the in estment does not decrease in alue.

Rig*t time or investment:

The sooner one starts in esting the better. 1y in esting early we allow our In estments more time to grow& whereby the concept of compounding increases your income& by accumulating the principal and the interest or di idend earned on it& year after year. The three golden rules for all in estors are; In est early In est regularly In est for long term and not short term

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:arious options available or investment:=

-ne may in est in; P*(sical assets like real estate& gold(jewellery& commodities etc. -inancial assets such as fi:ed deposits with banks& small sa ing instruments with post offices& insurance(pro ident(pension fund etc. or securities market related instruments like shares& bonds& debentures etc.

1*ort=term inancial options available or investment:

1avings Aan% Account is often the first banking product people use& which offers low interest F#L-,L p.a.G& making them only marginally better than fi:ed deposits. Mone( Mar%et or 4iDuid -unds are a speciali!ed form of mutual funds that in est in e:tremely short-term fi:ed income instruments and thereby pro ide easy li>uidity. 4nlike most mutual funds& money market funds are primarily oriented towards protecting your capital and then& aim to ma:imi!e returns. /oney market funds usually yield better returns than sa ings accounts& but lower than bank fi:ed deposits. -iEed Deposits &it* Aan%s are also referred to as term deposits and minimum in estment period for bank 85 is 3) days. 8i:ed 5eposits with banks are for in estors with low risk appetite& and may be considered +-?2 months in estment period as normally interest less than + months bank 85s is likely to be lower than money market returns G4ong=term inancial options available or investment: Post > ice 1avings: $ost -ffice /onthly Income .cheme is a low risk sa ing instrument& which can be a ailed through any post office. It pro ides an interest rate of *L per annum& which is paid monthly. /inimum amount& which can be in ested& is %s. ?&)))(- and additional

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in estment in multiples of ?&)))(-. /a:imum amount is %s. 3& ))&)))(- Fif .ingleG or %s. +& ))&)))(- Fif held jointlyG during a year. It has a maturity period of + years. $remature "ithdrawal is permitted if deposit is more than one year old. 9 5eduction of ,L is le ied from the principal amount if withdrawn prematurely.

Public Provident -und: 9 long-term sa ings instrument with a maturity of ?, years and interest payable at *L per annum compounded annually. 9 $$8 account can be opened through a nationali!ed bank at anytime during the year and is open all through the year for depositing money. Ta: benefits can be a ailed for the amount in ested and interest accrued is ta:-free. 9 withdrawal is permissible e ery year from the se enth financial year of the date of opening of the account and the amount of withdrawal will be limited to ,)L of the balance at credit at the end of the #th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whiche er is lower the amount of loan if any. !ompan( -iEed Deposits: These are short-term Fsi: monthsG to medium-term Fthree to fi e yearsG borrowings by companies at a fi:ed rate of interest& which is payable monthly& >uarterly& semiannually or annually. They can also be cumulati e fi:ed deposits ?) where the entire principal along with the interest is paid at the end of the loan period. The rate of interest aries between +-7L per annum for company 85s. The interest recei ed is after deduction of ta:es. Aonds: It is a fi:ed income FdebtG instrument issued for a period of more than one year with the purpose of raising capital. The central or state go ernment& corporations and similar institutions sell bonds. 9 bond is generally a promise to repay the principal along with a fi:ed rate of interest on a specified date& called the /aturity 5ate. Mutual -unds: These are funds operated by an in estment company& which raises money from the public and in ests in a group of assets Fshares& debentures etc.G& in accordance with a stated set of objecti es. It is a substitute for those who are unable to in est directly in e>uities or debt because of resource& time or knowledge constraints. 1enefits include professional money management& buying in small amounts and di ersification. /utual fund units are issued and redeemed by the 8und /anagement 3ompany based on the fundMs net asset alue F<9EG& which

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is determined at the end of each trading session. <9E is calculated as the alue of all the shares held by the fund& minus e:penses& di ided by the number of units issued. /utual 8unds are usually long term in estment ehicle though there some categories of mutual funds& such as money /arket mutual funds& which are short-term instruments.

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2istory of Gold;

Gold was first disco ered as shining& yellow nuggets. Gold became a part of e ery human culture. Its brilliance& natural beauty& and luster& and its great malleability and resistance to tarnish made it enjoyable to work and play with. Gold is the easiest of the metals to work. It occurs in a irtually pure and workable state& whereas most other metals tend to be found in ore-bodies that pose some difficulty in smelting. GoldMs early uses were no doubt ornamental& and its brilliance and permanence Fit neither corrodes nor tarnishesG linked it to deities and royalty in early ci ili!ations

Gold as /oney;
Gold& measured out& became money. GoldMs beauty& scarcity& uni>ue density Fno other metal outside the platinum group is as hea yG& and the ease by which it could be melted& formed& and measured made it a natural trading medium. Gold ga e rise to the concept of money itself; portable& pri ate& and permanent. Gold Fand sil erG in standardi!ed coins came to replace barter arrangements& and made trade in the 3lassic period much easier. Gold was money in ancient Greece. The Greeks mined for gold throughout the /editerranean and /iddle =ast regions by ,,) 1.3.& and both $lato and 9ristotle wrote about gold and had theories about its origins. Gold was associated with water Flogical& since most of it was found in streamsG& and it was supposed that gold was a particularly dense combination of water and sunlight.Their science may ha e been primiti e& but the Greeks learned much about the practicalities of gold mining. 1y the time of the death of 9le:ander of /acedon F323 1.3.G& the Greeks had mined gold from the $illars of 2ercules FGibraltarG all the way eastward to 9sia /inor and =gypt& and we find traces of their placer mines today. .ome of the mines were owned

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by the state& some were worked pri ately with a royalty paid to the state. 9lso& nomads such as the .cythians and 3immerians worked placer mines all o er the region. The sur i ing Greek gold coinage and .cythian jewelry both show superb artistry. The %oman =mpire furthered the >uest for gold. The %omans mined gold e:tensi ely throughout their empire& and ad anced the science of gold-mining considerably. They di erted streams of water to mine hydraulically& and built sluices and the first Mlong toms.M They mined underground& also& and introduced water-wheels and the MroastingM of gold-bearing ores to separate the gold from rock. They were able to more efficiently e:ploit old mine-sites& and of course their chief laborers were prisoners of war& sla es& and con icts. 9 monetary standard made the world economy possible. The concept of money& Fi.e.& gold and sil er in standard weight and fineness coinsG allowed the "orldMs economies to e:pand and prosper. 5uring the 3lassic period of Greek and %oman rule in the western world& gold and sil er both flowed to India for spices& and to 3hina for silk. 9t the height of the =mpire F9.5. 7*-?+)G& %oman gold and sil er coins reigned from 1ritain to <orth 9frica and =gypt. /oney had been in ented. Its name was gold.

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Ca(s o investment in gold/

!oins and small bars

1ullion coins and small bars offer pri ate in estors an attracti e way of in esting in relati ely small amounts of gold. In many countries - including the whole of the =uropean 4nion - gold purchased for in estment purposes is e:empt from Ealue 9dded Ta:.

Aullion coins

These coins are legal tender in their country of issue for their face alue& rather than for their gold content. 8or in estment purposes& the market alue of bullion coins is determined by the alue of their fine gold content& plus a premium or mark-up that aries between coins and dealers. The premium tends to be higher for smaller denominations. It is important not to confuse bullion coins with commemorati e or numismatic coins& whose alue depends on their rarity& design and finish rather than on their fine gold content.

32

1mall gold bars

Gold bars can be bought in a ariety of weights and si!es& ranging from as little as one gram to #)) troy ounces Fthe si!e of the internationally traded 0ondon Good 5eli ery barG. .mall bars are defined as those weighing ?)))g or less. 9ccording to industry specialists Gold 1ars "orldwide& there are 7# accredited bar manufacturers and brands in 2+ countries& producing a total of more than #)) types of standard gold bars between them. They normally contain a minimum of 77.,L fine gold. The Gold 1ars "orldwide website pro ides a wealth of additional information regarding the international gold bar market.

Gold=bac%ed securities:
Gold is traded in the form of securities on stock e:changes in 9ustralia& 8rance& 2ong 'ong& Japan& /e:ico& .ingapore& .outh 9frica& .wit!erland& Turkey& the 4nited 'ingdom and the 4nited .tates. 1y design& these forms of securiti!ed gold in estment& all regulated financial products& are generally referred to as =:change Traded 3ommodities or =:change Traded 8unds F=T8sG& and are e:pected to track the gold price almost perfectly. 4nlike deri ati e products& the securities are ?))L backed by physical gold held mainly in allocated form.

33

Gold utures
Gold futures contracts are firm commitments to make or take deli ery of a specified >uantity and purity of gold on a prescribed date at an agreed price. The initial margin - or cash deposit paid to the broker - is only a fraction of the price of the gold underlying the contract. That means in estors can achie e notional ownership of a alue of gold considerably greater than their initial cash outlay. "hile this le erage can be the key to significant trading profits& it can also gi e rise to e>ually significant losses in the e ent of an ad erse mo ement in the gold price. 8utures prices are determined by the marketMs perception of what the carrying costs - including the interest cost of borrowing gold plus insurance and storage charges - ought to be at any one time. The futures price is usually higher than the spot price for gold. 8utures contracts are traded on regulated commodity e:changes.

3#

Gold options
These gi e the holder the right& but not the obligation& to buy FMcallM optionG or sell FMputM optionG a specified >uantity of gold at a predetermined price by an agreed date. The cost of such an option depends on the current spot price of gold& the le el of the pre-agreed price Fthe Mstrike priceMG& interest rates& the anticipated olatility of the gold price and the period remaining until the agreed date. The higher the strike price& the less e:pensi e a call option and the more e:pensi e a put option. 0ike futures contracts& buying gold options can gi e the holder substantial le erage. "here the strike price is not achie ed& there is no point in e:ercising the option and the holderM loss is limited to the premium initially paid for the option. 0ike shares& both futures and options can be traded through broker

Carrants
In the past& gold warrants were mostly related to the shares of gold mining companies. <owadays commonly used by leading in estment banks& they gi e the buyer the right to buy gold at a specific price on a specific day in the future. 8or this right& the buyer pays a premium. 0ike futures& warrants are generally le eraged to the price of the underlying assets.

Gold Allocated account

=ffecti ely like keeping gold in a safety deposit bo:& this is the most secure form of in estment in physical gold. The gold is stored in a ault owned and managed by a recogni!ed bullion dealer or depository. .pecific bars For coins& where appropriateG& which are numbered and identified by hallmark& weight and fineness& are allocated to each particular in estor& who pays the custodian for storage and insurance. The holder of gold in an allocated account has full ownership of the gold in the account& and the bullion dealer or depository that owns the ault where the gold is stored may not trade& lease or lend the bars e:cept on the specific instructions of the account holder.

3,

Gold 6nallocated account

Traditionally& one ad antage of unallocated accounts has been the lack of any storage and insurance charges& because the bank reser es the right to lease the gold out. <ow that the gold lease rate is negati e in real terms& some banks ha e begun to introduce charges e en on unallocated accounts. In estors are e:posed to the creditworthiness of the bank or dealer pro iding the ser ice in the same way as they would be with any other kind of account. 9s a general rule& bullion banks do not deal in >uantities under ?))) ounces - their customers are institutional in estors& pri ate banks acting on behalf of their clients& central banks and gold market participants wishing to buy or borrow large >uantities of gold.

Gold pool accounts

There are alternati es for in estors wishing to open gold accounts holding less than ?))) ounces.

@lectronic currencies
There are also electronic McurrenciesM a ailable - linked to gold bullion in allocated storage which offer a simple and cost-effecti e way of buying and selling gold& and using it as money. 9ny amount of gold can be purchased& and these currencies allow gold to be used to send online payments worldwide.

Gold Accumulation Plans

Gold 9ccumulation $lans FG9$sG are similar to con entional sa ings plans in that they are based on the principle of putting aside a fi:ed sum of money e ery month. G9$s is different from ordinary sa ings plans is that the fi:ed sum is in ested in gold. 9 fi:ed sum of money iswithdrawn automatically from an in estorMs bank account e ery month and is used to buy gold e ery trading day in that month. The fi:ed monthly sums can be small& and purchases are not subject to the premium normally charged on small bars or coins. 1ecause small amounts of gold are bought o er a long period of time& there is less risk of in esting a large sum of money at the wrong time. 9t any time during the contract term Fusually a minimum of a yearG& or when the

3+

account is closed& in estors can get their gold in the form of bullion bars or coins& and sometimes e en in the form of Jewellery. If they choose to sell their gold& they can also get cash.

Gold certi icates

2istorically& gold certificates were issued by the 4... Treasury from the ci il war until ?733. 5enominated in dollars& these certificates were used as part of the gold standard and could be e:changed for an e>ual alue of gold. These 4... Treasury gold certificates ha e been out of circulation for many years& and they ha e become collectibles. They were initially replaced by sil er certificates& and later by 8ederal %eser e notes. <owadays& gold certificates offer in estors a method of holding gold without taking physical deli ery. Issued by indi idual banks& particularly in countries like Germany and .wit!erland& they confirm an indi idualMs ownership while the bank holds the metal on the clientMs behalf. The client thus sa es on storage and personal security issues& and gains li>uidity in terms of being able to sell portions of the holdings Fif need beG by simply telephoning the custodian. It runs a certificate programme that is guaranteed by the go ernment of "estern 9ustralia and is distributed in a number of countries.

Gold orientated unds

9 number of collecti e in estment ehicles speciali!e in in esting in the shares of gold mining companies. The term Ncollecti e in estment ehiclesN as used here should be taken to include mutual funds& open-ended in estment companies F-=I3sG& closed-end funds& unit trusts& and any similar structures. 9 wide range of such funds e:ists and they are domiciled in a number of different countries. These funds are regulated financial products and as such it is not possible here to pro ide details on any specific funds. 8unds are likely to differ in their structure - some may in est simply in the shares of gold mining companies& some may in est in companies that mine minerals other than gold& some may in est in futures as well as mining e>uities and some may in est partly in mining e>uities and partly in the underlying metal FsG.It would be misleading to e>uate in estment in a gold mining e>uity with direct in estment in gold bullion as there are some significant differences. The appreciation potential of a gold mining company share depends

36

on market e:pectations of the future price of gold& the costs of mining it& the likelihood of additional gold disco eries and se eral other factors. To a degree& therefore& the success of the in estment depends on the future earnings and growth potential of the company. /ost gold mining e>uities tend to be more olatile than the gold price. "hile they are subject to the same risk factors that influence the prices of most other e>uities there are additional risks linked to the mining industry in general and to indi idual mining companies specifically.

1tructured products
The market for structured products is dominated by institutional in estors - or& in the case of forwards& by gold market professionals - because the minimum in estment can be high. The following is a general o er iew of what these products are like and how they work.

-or&ards
0ike futures& forward contracts are agreements to e:change an underlying asset - in this case& gold - at an agreed price at some future date. They can therefore be used either to manage risk or for speculati e purposes. 1ut there are important differences between forwards and options traded in the o er-the-counter F-T3G gold market on the one hand& and futures and options traded on one of the e:changes on the other.

a forward contract For -T3 optionG is negotiated directly between counterparties and is therefore tailor-made& whereas futures contracts are standardi!ed agreements that are traded on an e:change

although forward contracts offer a greater fle:ibility and are pri ate agreements& there is a degree of counterparty risk& whereas futures contracts are guaranteed by the e:change on which they are traded

1ecause futures contracts can be sold to third parties at any point before maturity& they are more li>uid than forward contracts Fwhose obligations cannot be transferredG.

3*

 Gold=lin%ed bonds and structured notes

Gold-linked bonds are a ailable from the worldMs largest bullion dealers and in estment banks. Their products pro ide in estors with some combination of;

e:posure to gold price fluctuations a yield $rincipal protection.

.tructured notes tend to allocate part of the sum in ested to purchasing put(call options Fdepending on whether the product is designed for gold bulls or bearsG. The balance is in ested in traditional fi:ed income products& such as the money market& to generate a yield. They can be structured to pro ide capital protection and a arying degree of participation in any price appreciations depending on market conditions and in estor preferences.

37

DATA A"A4?1I1

#)

-actors a%%e#tin) $"i#e o% )old and t!ei" analysis'

#. !rude Oil-

The crude oil is one of the factors for inflation. 9s the prices of crude oil increases there is upward pressure on inflation. In order to hedge against the inflation people in est in gold . so we can say that there is no direct relationship between gold and crude oil prices. It &ill be mo"e #lea" %"om t!e %ollo&in) dis#ussion' Gold has almost always been the most-highly-sought-after uni ersal store of wealth. The seemingly magical yellow metal is the de facto standard by which e ery other form of money and wealth in history has been measured. =mpires and currencies rise and fall& but gold stands strong& monolithic and proud& casting an enormous shadow o er all of monetary history. .o we can say that the gold is the king of all the currencies. "here as the demand for crude oil is

#?

in elastic. <ow paper currencies loose their purchasing power with time but this doesnBt happen with the gold. .o during inflationary period when other currencies loose their alue more gold can be purchased with gold due to its purchasing power stability. .o during high crude oil prices& high inflation& and decling e>uity market gold can be stored to hedge the inflation.

Anal(sis/

Date
+ay-34 5un-34 5ul-34 Au)-34 Se$-34 O#t-34 Nov-34 6e#-34 5an-37 .eb-37 +a"-37 A$"-37 +ay-37 5un-37 5ul-37 Au)-37 Se$-37 O#t-37 Nov-37

Gold
6104.576 6185.849 6173.774 6276.731 6574.167 6889.167 7174.826 7610.6 7957.714 7998 8246.146 8958.106 9988.8 8896.447 9513.714 9572.941 9029.255 8703.302 9167.857

!rude oil
2162.145 2448.941 2550.24 2806.07 2890 2799.087 2658.758 2712.404 2905.925 2737.923 2797.556 3123.673 3212.491 3262.516 3456.657 3401.893 2956.86 2683.683 2589.456

Date
May07 Jun-07 Jul-07 Aug07 Sep07 Oct-07 Nov07 Dec07 Jan-08 e!08 Ma"08 Ap"-08 May08 Jun-08 Jul-08 Aug08 Sep08 Oct-08 Nov-

Gold
8863.392 8690.265 8732.315 8829.425 9286.778 9671.96 10301.33 10247.9 11264.54 11857.93 12609.42 11792.93 12142.66 12327.35 13005.86 11791 12194.02 12715 12108.59

!rude oil
2593.224 2739 2988.308 2950.413 3197.846 3357.95 3735.319 3507.764 3686.8 3755.872 4166.343 4479.091 5272.683 5726.128 5757.04 5037.213 4723.304 3748.739 2846.875

#2

6e#-37 5an-38 .eb-38 +a"-38 A$"-38

9152.87 9072.782 9494.511 9345.75 9311.894 #

2776.262 2412.615 2615.884 2665.638 2706.61 #

08 Dec08 Jan-09 e!09 Ma"09 Ap"-09 May09

12865.25 13475.67 14791.53 15254.53 14491.34 14559.66

2266.143 2075.2 1977.682 2452.408 2526.794 2859.558

T"end Analysis o% C"ude Oil

7000 6000 5000 3000 2000 1000 0 Aug-04 e!-05 Sep-05 Ma"-06 Oct-06 Ap"-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 +ont!s $"i#es $"i#es 4000

t"end analysis o% )old

18000 16000 14000 12000 10000 8000 6000 4000 2000 0 Aug-04 e!-05 Sep-05 Ma"-06 Oct-06 Ap"-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 mont!s

#3

12000 10000 8000 6000 4000 2000 0

No v05 No v06 e! -0 6 Au g05 M ay -0 5 Au g06 e! -0 7 ay -0 6
$ol% &"u%e#o'l

T*e above s*eet and diagram s*o&s t*e c*ange in gold and crude oil prices at di erent dates &it* iEed intervals.

F(pot*esis Assumed 9:3; / $ol%#p"'ce(#%o#not#%epen%#on#c"u%e#o'l#p"'ce( Alternative F(pot*esis 9:<;/$ol%#p"'ce(#%epen%#on#c"u%e#o'l#p"'ce(.#

Regression 1tatistics Multiple R R 1Duare Ad+usted R 1Duare 1tandard @rror >bservations

).32*,+6+?* ).?)67,++67 ).)**766)3# 2327.2,###7 #7

A">:A 1igni icance D Regression ? 11 3)*,77,,.+6 M1 3)*,77,,.+ ,.+**)2 ).)2??++#2

##

6 ,#2,#2+.2* Residual Total #6 #* 2,#77,)3,.+ 2*,*,#77?.2 7

!oe icients

1tandard @rror

T stat

p=value ,.77*+?=)6

4o&er //H

6pper //H ?),)+.#6,)6

Intercept 6?6).2)3)6 , I variable# Tabulated value o J= '.02 ).898366666

?2#2.6+,)7 2
0.376680305

,.6+7,, +
2.384958

3*33.73?)6,

0.021166

0.112852561

1.909585893

Anal(sis overvie&:
1igni icant correlation &it* r -0.3286 ApproE ##H o variation in gold prices accounted or &it* crude oil. 1igni icant linear regression &it* p value= 0'0212 Regression @Duation= )*0.90#+,#7170.2031

Interpretation= -e"e # .ult'ple # / # '( # 0.3256 # 01'c1 # (1o0( # t1at # t1e"e # '( # co""elat'on#
!et0een $"edi#ted )old $"i#es and A#tual one but it is #lose" to 3 &!i#! s!o&s t!at t!e
#o""elation is not si)ni%i#ant' It #an also be inte"$"etated %"om t!e R s-ua"e value &!i#! is only

#,

3'<3 &!i#! s!o&s insi)ni%i#an#e #o""elation' By R s-ua"e &e #an say t!at va"iation in #"ude oil $"i#es a##ounts %o" only <<= 9a$$"o2; %o" t!e va"iation in t!e $"i#es in )old'

9lso the t alue is 9>'?@;#less t!an t!e tabulated value 9>'47; 01'c1#
(1o0(#t1at t!e null :y$ot!esis is a##e$ted' T!e"e%o"e &e #an say t!at t!e #"ude oil $"i#es don*t a%%e#t t!e $"i#es o% )old si)ni%i#antly' -e"e#'t#'(#'.po"tant#to#2no0#t1at#t1e"e#'(#g"eat#'.pact#o3#t1e#cu""ent# econo.'c (cena"'o.#4e#can #analyAe %"om t!e )"a$! and t!e table t!at t!e"e is mo"e #o""elation in some time $e"iod' But sin#e t!e"e is an indi"e#t "elations!i$1 so it is not im$o"tant to analyAe t!e time $e"iod se$a"ately'

'. 61 Dollar=

5t#'(#an#'.po"tant#6ue(t'on#t1at#'(#t1e'"#any#co""elat'on#!et0een#gol%#p"'ce(#an%#t1e#value#o3 US 6OLLAR' No0#t1e#an(0e"#%epen%(#upon#('tuat'on#an%#c1ange(#0't1#c1ange#'n#glo!al#econo.'c#(cena"'o.#

<ow there is a in erse relationship between )old# $"i#es# an% #US 6olla"'# Be%o"e <@43 US B &as
also #onside"ed as t!e in%lation !ed)e' But t!is is not t"ue no&' So in t!e $ast &e #an obse"ve t!e $ositive #o""elation bet&een )old $"i#es and US B' But no& t!e "elation is ne)ative' US 1a(#a#la"ge# %e!t#73#t"'ll'on#89#an%#al(o#'t#pay(#.o"e#'nte"e(t#t1an#'t#ea"n(.#So#'t#c"eate(#a#%o0n0a"%#p"e((u"e#on#t1e# Dolla"#an%#.a2e#'t#0ea2.#:1'(#c"eate(#a#'nve"(e#"elat'on.#

9s a tool of hedge now gold is demanded more than the 4. A.

!en t!e $"i#e o%

)old de$"e#iates t!e investo"s outside US &ill bene%ited be#ause t!e dolla" $"i#e o% t!e )old &ill in#"ease' Investo" #an s!i%t a&ay %"om t!e dolla" denominated assets to )old' Past e2$e"ien#es also t!at )old !as been used as a !ed)e a)ainst #u""en#y "is('

#+

Anal(sis=

Date Ma(=50 7un=50 7ul=50 Aug=50 1ep=50 >ct=50 "ov=50 Dec=50 7an=52 -eb=52 Mar=52 Apr=52 Ma(=52 7un=52 7ul=52 Aug=52 1ep=52 >ct=52 "ov=52

Gold +?)#.,6 + +?*,.*# 7 +?63.66 # +26+.63 ? +,6#.?+ 6 +**7.?+ 6 6?6#.*2 + 6+?).+ 67,6.6? # 677* *2#+.?# + *7,*.?) + 77**.* **7+.## 6 7,?3.6? # 7,62.7# ? 7)27.2, , *6)3.3) 2 7?+6.*, 6

dollar #3.+7 #3.,? #3.#7 ##.)# #3.77 #,.?? #,.72 #,.)6 ##.)6 ##.## ##.+? ##.76 #+.#3 #+.)* #+.,? #+.,, #,.7+ #,.)2 ##.6+

Date Ma(=53 7un=53 7ul=53 Aug=53 1ep=53 >ct=53 "ov=53 Dec=53 7an=5. -eb=5. Mar=5. Apr=5. Ma(=5. 7un=5. 7ul=5. Aug=5. 1ep=5. >ct=5. "ov=5.

Gold **+3.37 2 *+7).2+ , *632.3? , **27.#2 , 72*+.66 * 7+6?.7+ ?)3)?.3 3 ?)2#6.7 ??2+#., # ??*,6.7 3 ?2+)7.# 2 ??672.7 3 ?2?#2.+ + ?2326.3 , ?3)),.* + ??67? ?2?7#.) 2 ?26?, ?2?)*., 7

Dollar #).63 #).6, #).## #).7+ 37.6# 37.32 37.+6 37.#? 37.37 37.72 37.76 #).#+ #2.,7 #2.7, #2.#7 #3.67 #+.7# #7.2, #7.*#

#6

?2*+,.2 Dec=52 7an=53 -eb=53 Mar=53 Apr=53 7?,2.*6 7)62.6* 2 7#7#.,? ? 73#,.6, 73??.*7 # ##.23 ##.?6 ##.3? #3.,7 #?.27 Dec=5. 7an=5/ -eb=5/ Mar=5/ Apr=5/ Ma(=5/ , ?3#6,.+ 6 ?#67?., 3 ?,2,#., 3 ?##7?.3 # ?#,,7.+ + #*.#, #7.)2 ,).63 ,).7, ,).22 #6.27

Gold vs US dolla"
mont! 18000 16000 14000 12000 10000 8000 6000 4000 2000 0

$ol% %olla" 60 50 40 30 20 10 0 6olla" e2#!an)e "ate

)old $"i#es

May-09 Ap"-09 Ma"-09 e!-09 Jan-09 Dec-08 Nov-08 Oct-08 Sep-08 Aug-08 Jul-08 Jun-08 May-08 Ap"-08 Ma"-08 e!-08 Jan-08 Dec-07 Nov-07 Oct-07 Sep-07 Aug-07 Jul-07 Jun-07 May-07 Ap"-07 Ma"-07 e!-07 Jan-07 Dec-06 Nov-06 Oct-06 Sep-06 Aug-06 Jul-06 Jun-06 May-06 Ap"-06 Ma"-06 e!-06 Jan-06 Dec-05 Nov-05 Oct-05 Sep-05 Aug-05 Jul-05 Jun-05 May-05 mont!

#*

t"end analysis o% US B 60 E2#!an)e "ate 50 40 30 20 10 0 Aug-04 e!-05 Sep-05 Ma"-06 Oct-06 Ap"-07 Nov-07 Jun-08 Dec-08 Jul-09 +ont!s Jan-10

F(pot*esis#Assumed#9:3;/#$ol% P"'ce(#%o#not#%epen%#upon#Dolla"#e;c1ange#"ate. Alternative F(pot*esis8F<;/$ol%#p"'ce(#%epen%#upon#Dolla"#e;c1ange#"ate.

Regression 1tatistics Multiple R R 1Duare Ad+usted R 1Duare 1tandard @rror >bservations

0.360509804 0.129967319 0.111455985 2300.338479 49

D% Re)"ession Residual Total ? #6 #*

SS
37151806.78 248703184.5 285854991.2

+S
37151806.78 5291557.116

.
7.020959231

Si)ni%i#an#e .
0.010939488

!oe icients

1tandard

T stat

p=value

4o&er

6pper

#7

@rror Inte"#e$t , va"iable<

-2085.412012 4582.615959 -0.455070211 0.651153944

//H
-14387.69939

//H
10216.87537

273.8503496

103.351093

2.649709273

0.651153944

-3.601406983

551.3021061

Tabulated value o J= '.02

Anal(tical >vervie&:

1igni icant correlation &it* r -0.36051 !*ange in US B e2#!an)e "ate a##ounts only <?= %o" t!e #!an)e in )old $"i#es' 1igni icant linear regression &it* p value= 0'6512 Regression @Duation= )*273.85 ,->3C4'D<>

Interpretation:-e"e#t1e#value#o3#.ult'ple#/#value#01'c1# is 3'?71 s!o&s t!at t!e #o""elation

bet&een t!e US B and Gold $"i#es is insi)ni%i#ant' T!is s!o&s t!at in t!e #u""ent s#ena"io t!e US B e2#!an)e "ate doesn*t a%%e#t t!e )old $"i#es si)ni%i#antly' T!is is be#ause R value is less t!an 3'4 and mo"e #lose" to 3' Also t!e value o% R s-ua"e is 3'<? &!i#! s!o&s t!e e2tent at &!i#! .lu#tuation in US B a%%e#ts Gold $"i#es'

1ut from t alue which is more than the tabulated alue Fhypothesis is acceptedG we can predict that there is a relation between 4. A and gold prices. The C e intercept of t alue as well

as C e intercept of regression e>uation shows the in erse relation between the 4.A and gold prices.

,)

9lso for time period /ay ), to -ct )+ there is high correlation F).*2G & t alue is ,.* which makes the hypothesis to be accepted. This tells that due to the change in the global economic scenario the effect of 4. A on gold prices is decreasing.
No& by doin) t!e "e)"ession analysis %o" yea" 3C to 3@ 9value o% multi$le RE'8< 1 t valueE?'@C; &e #an also $"edi#t t!at t!e t!e"e is im$"ovement in t!e s#ena"io and a)ain t!e #o""elation is bein) establis!in)' So t!e"e is )"eat im$a#t o% t!e #u""ent e#onomi# s#ena"io'

). R@P> RAT@:
/epo#/ate#'(#t1at#"ate#at#01'c1#t1e#co..e"c'al#!an2(#!o""o0#.oney#3"o.#t1e RBI' 5t#'(#a#
goo%#.ea(u"e#to#cont"ol#'n3lat'on.#41en#t1e#"epo#"ate#0'll#!e# !i)!1 t!e bo""o&in) %"om t!e ban(s &ill be lo& &!i#! &ill a#tually "edu#e t!e $u"#!asin) $o&e" o% t!e $ubli#' T!is &ill "edu#e t!e investment in )old and it &ill ultimately "edu#e t!e $"i#e t!e )old'

Anal(sis:

Re$o 6ate +ay-34 5un-34 5ul-34 Au)-34 Se$-34 O#t-34 Nov-34 6e#-34 5an-37 .eb-37 +a"-37 A$"-37 +ay-37 5un-37 5ul-37 Au)-37 Se$-37 O#t-37 Nov-37 6e#-37 5an-38 .eb-38 Gold 6104.576 6185.849 6173.774 6276.731 6574.167 6889.167 7174.826 7610.6 7957.714 7998 8246.146 8958.106 9988.8 8896.447 9513.714 9572.941 9029.255 8703.302 9167.857 9152.87 9072.782 9494.511 "ate 6 6 6 6 6 6.25 6.25 6.25 6.5 6.5 6.5 6.5 6.5 6.75 7 7 7 7 7.25 7.25 7.25 7.5 6ate 5un-38 5ul-38 Au)-38 Se$-38 O#t-38 Nov-38 6e#-38 5an-3C .eb-3C +a"-3C A$"-3C +ay-3C 5un-3C 5ul-3C Au)-3C Se$-3C O#t-3C Nov-3C 6e#-3C 5an-3@ .eb-3@ +a"-3@ Gold 8690.265 8732.315 8829.425 9286.778 9671.96 10301.33 10247.9 11264.54 11857.93 12609.42 11792.93 12142.66 12327.35 13005.86 11791 12194.02 12715 12108.59 12865.25 13475.67 14791.53 15254.53

Re$o "ate 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 8.5 9 9 9 6.5 6.5 6.5 6.5 5.75 5

,?

+a"-38 A$"-38 +ay-38

P"i#es 10000 12000 14000 16000 18000 2000 4000 6000 8000 0

9345.75 9311.894 8863.392 7.5 7.75 7.75 A$"-3@ +ay-3@

mont!

mont!

14491.34 14559.66 #

Gold $"i#es FS Re$o "ate

,2
0 1 2 3

,)
"e$o "ate value
4 5 6 7 8

4.75 4.75 #

May-05 Jun-0 5 Jul-05 Aug-05 Sep-05 Oct-05 No v-0 5 De c-0 5 Jan-0 6 e!- 06 Ma"-06 Ap"-06 May-06 Jun-0 6 J ul-06 Aug-06 Sep-06 Oct-06 No v-0 6 De c-0 6 Jan-0 7 e!- 07 Ma"-07 Ap"-07 May -07 Jun-0 7 J ul-07 Aug-07 Sep-07 Oct-07 No v-0 7 De c-0 7 Jan-0 8 e!-08 Ma"-08 Ap"-08 May-08 Jun-0 8 Jul-08 Aug-08 Sep-08 Oct-08 No v-0 8 De c-0 8 Jan-0 9 e!-09 Ma"-09 Ap"- 09 May-09
9 10

$ol%

/epo#"ate

T"end Analysis o% Re$o "ate

10 "e$o "ate in = 8 6 4 2 0 Jan-04 /epo#"ate <'nea"#7/epo#"ate9

May-05

Oct-06

e!-08

Jul-09

Nov-10

time $e"iod

F(pot*esis Assumed:8F3;- T!e Re$o "ate doesn*t a%%e#t t!e )old $"i#es' Alternate F(pot*esis 8F#;- T!e Re$o "ate a%%e#t t!e )old $"i#es'

G">T@= 1y analy!ing the graph and table we can obser

e that there are three time periods.

-ne that is there is continuous increase in the gold prices with the increase in time period 2nd is that period in which there is increase in gold prices but there is no change in repo rate. 0ast is that period in which there is decrease in repo rate but increase in gold prices. .o it will be better that we will show the regression analysis separately

in three different parts.

Regression Anal(sis or t*e &*ole period:

+ulti$le R R S-ua"e AdGusted R S-ua"e Standa"d E""o" Obse"vations 0.044010528 0.001936927 -0.019298458 2463.785839 49

ANOFA

,3

Re)"ession Residual Total

6% 1 47 48

SS 553680.1381 285301311.1 285854991.2

+S 553680.138 6070240.66 #

. 0.091212222 # #

Si)ni%i#an#e . 0.763974109 # #

Standa"d Inte"#e$t , Fa"iable < Coe%%i#ients @>83'<8>7D< <38'@7D@> E""o" 2527.017003 357.4836224 T Stat 3.668425115 0.302013612 P-value 0.000621127 0.763974109 Lo&e" @@'3= 2486.254969 -851.7197437 U$$e" @@'3= 16054.09031 1067.649584

Regression Anal(sis or t*e period o Ma( 50 to 1ep 5/:

+ulti$le R R S-ua"e AdGusted R S-ua"e Standa"d E""o" Obse"vations 0.85704807 0.734531395 0.727724508 982.2792188 41

ANOFA Re)"ession Residual Total

# d% 1 39 40

# SS 104119413.9 37630026.09 141749440

# +S 104119413.9 964872.4638 #

# . 107.9100273 # #

# Si)ni%i#an#e . 8.6124=-13 # #

Standa"d Coe%%i#ients Inte"#e$t , Fa"iable < 4542.661702 1911.568612 E""o" 1340.687899 184.0174421 t Stat 3.388306633 10.38797513 P-value 0.001619293 8.6124=-13 Lo&e" @@'3= 8173.128133 1413.265356

U$$e" @@'3= -912.195 2409.872

,#

Regression Anal(sis or t*e period o >ct 5. to ma( 5/ :

+ulti$le R R S-ua"e AdGusted R S-ua"e Standa"d E""o" Obse"vations

0.838340857 0.702815392 0.653284624 673.8858348 8

ANOFA

# 6% 1 6 7

# SS 6443752.59 2724732.71 9168485.3

# +S 6443752.587 454122.1183 #

# . 14.18947091 # #

# Si)ni%i#an#e . 0.009322706 # #

Re)"ession Residual Total

Standa"d Inte"#e$t , Fa"iable < Coe%%i#ients 20477.82008 1158.075451 E""o" 1793.258299 307.4353158 t Stat 11.41933658 3.766891412 P-value 2.70487=-05 0.009322706 Lo&e" @@'3= 13829.44402 -2297.869755

U$$e" @@'3= 27126.19615 -18.2811466

Interpretation:
<ow here we ha e di ided the regression analysis in three parts. The o er iew of the ?st part& 2 nd part and the 3rd part are as below;

#. 1igni icant #o""elation &it! " -).)##)?),2* !*ange in repo rate accounts ' H or t*e c*ange in gold prices.

,,

1igni icant linear regression &it* p value= ).6+376#?)7 Regression @Duation= )*##53./2,/'I,/'35.#3'2,#

'. 1igni icant correlation &it* r >).*,6)#*)6 !*ange in Re$o "ate a##ounts %o" t!e #!an)e8?= in )old $"i#es' 1igni icant linear regression &it* p value- 9A$$"o2; 3'33 Regression @Duation= )*#?7??.,+*+?2I-#,#2.++?6)2

). 1igni icant correlation &it* r -).*3*3#)*,6 !*ange in repo rate accounts 35 = %o" t!e #!an)e in )old $"i#es' 1igni icant linear regression &it* p value= ).))73226)+ Regression @Duation= )*#-??,*.)6,#,?I,2)#66.*2))* <ow the three cases are contradicting to each other. 3ase ? shows the poor correlation where as case 2 & 3 shows the stronger correlation. 9lso the t- alue and p- alue shows that the hypothesis should be accepted Fcase 2 & 3G but according to case ? the hypothesis should be rejected. Therefore& the >uestion is why here such contradiction arises. The answer could be found by obser ing the graphs of this section. "e can easily obser e that in the period Fwhich relates to the 2nd case-sep-)* to oct-)*G there is a sharp downfall in the repo rate which is affect of crisis in the economy and inflation rate downfall in this period. .o we can say that there is a high correlation between repo rate and gold prices& being other economic factors constant. 1y generali!ing the case 2 and 3 where multiple % alues are .*+ and .*# we can say that the there is significant correlation between gold prices and repo rate. 9lso the t- alues are ?).3* and -3.6+ which shows the acceptance of hypothesis. C e sign only shows the in erse correlation within that period.

#. Inflation %ate-

,+

Gold has always been considered a good hedge against inflation. %ising inflation rates typically appreciates gold prices. Traditional theory implies that the relati e price of consumer goods and of such real assets as land and gold should not be permanently affected by the rate of inflation. 9 change in the general rate of inflation should& in e>uilibrium& cause an e>ual change in the rate of inflation for each asset price The e:perience of the past decade has been ery different from the predictions of this theory; the prices of land& gold& and other such stores of alue ha e increased by substantially more than the general price le el. The present paper presents a simple theoretical model that e:plains the positi e relation between the rate of inflation and the relati e price of such real assets. /ore specifically& in an economy with an income ta:& an increase in the e:pected rate of inflation causes an immediate increase in the relati e price of such Mstore of alueM real assets. The beha ior of real asset prices discussed in this paper is thus a further e:ample of the non-neutral response of capital markets to inflation in an economy with income ta:es.

O ">T@: "hile calculating the price of gold there are two inflation rates. -ne is Gold internal inflation rate& which is change in its production from its mines. -ther is monetary inflation. The price of gold o er the medium to long term is determined by its inflation rate relati e to that of the currency you want to measure it with. "ith most fiat currency inflation rates& running substantially higher than goldMs inflation rate it is easy to see why the gold price will continue to increase o er time& and why it has consistently increased o er time. This is not about to change regardless of short-term olatility.

Anal(sis:
inflation 5ate /ay-), Jun-), Gold +?)#.,6 + +?*,.*# 7 rate ,.2 #.?# 5ate /ay-)6 Jun-)6 Gold **+3.37 2 *+7).2+ , Inflation rate ,.26 #.)3

,6

+?63.66 Jul-), 9ug-), .ep-), -ct-), <o -), 5ec-), Jan-)+ 8eb-)+ /ar-)+ 9pr-)+ /ay-)+ Jun-)+ Jul-)+ 9ug-)+ .ep-)+ -ct-)+ <o -)+ 5ec-)+ Jan-)6 # +26+.63 ? +,6#.?+ 6 +**7.?+ 6 6?6#.*2 + 6+?).+ 67,6.6? # 677* *2#+.?# + *7,*.?) + 77**.* **7+.## 6 7,?3.6? # 7,62.7# ? 7)27.2, , *6)3.3) 2 7?+6.*, ,.3 6 7?,2.*6 ,.,* 7)62.6* 2 ,* +.,* <o -)* 5ec-)* Jan-)7 3.*# 3.)? 3.6, #.6, #.,# #.# #.3 #.3# 3.7+ 3.,7 #.+* #.*# #.+6 ,.)? ,.?+ ,.)7 Jul-)6 9ug-)6 .ep-)6 -ct-)6 <o -)6 5ec-)6 Jan-)* 8eb-)* /ar-)* 9pr-)* /ay-)* Jun-)* Jul-)* 9ug-)* .ep-)* -ct-)*

*632.3? , **27.#2 , 72*+.66 * 7+6?.7+ ?)3)?.3 #.#? 3.7# 3.23 3.)6 3.2?

3 ?)2#6.7 3.#, ??2+#., #.?? # ??*,6.7 ,.)2 3 ?2+)7.# 6.#? 2 ??672.7 6.+? 3 ?2?#2.+ *.6, + ?2326.3 ??.*7 , ?3)),.* ?2.)? + ??67? ?2.? ?2?7#.) ??.* 2 ?26?, ?).62 ?2?)*., * 7 ?2*+,.2 ,.7? , ?3#6,.+ #.37 6

9pr-)6

8eb-)6 /ar-)6

Gold P"i#es 18000 16000 14000 12000 10000 8000 6000 4000 2000 0

# ,.++ 9pr-)7 /ay-)7

73??.*7

? 73#,.6, +.? ,.6# 8eb-)7 /ar-)7

7#7#.,?

Gold Fs In%lation Rate

,7
# Time Pe"iod 0 5 10 In%lation Rate 15

Time Pe"iod

?#67?.,

3 ?##7?.3 ).6

# ?#,,7.+ ).?3 +

3 2.#3 ?,2,#., ).2+

May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 e!-06 Ma"-06 Ap"-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 e!-07 Ma"-07 Ap"-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 e!-08 Ma"-08 Ap"-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 e!-09 Ma"-09 Ap"-09 May-09 $ol% 'n3lat'on "ate

T"end Analysis O% in%lation Rate 14 12 In%lation Rate 10 8 6 4 2 0 Jan-04 May-05 Oct-06 e!-08 Time Pe"iod Jul-09 Nov-10
:"en%#Analy('(#o3 'n3lat'on#"ate <'nea"#7:"en% Analy('(#o3#'n3lat'on "ate9

F(pot*esis Assumed :8F5$= T*e Repo rate doesnKt a ect t*e gold prices. Alternate F(pot*esis 8F#;- T!e Re$o "ate a%%e#t t!e )old $"i#es'

Re)"ession Analysis/

Regression 1tatistics Multiple R R 1Duare Ad+usted R 1Duare 1tandard @rror >bservations

).*73#67 ).67*3), ).6677+7 ,,#.7*#* #7

A">:A D Regression Residual Total ? #* #7 11 6?+*3++.#) * 26*+*++2#. * 2*,*,#77?. 2 M1 6?+*3++.#) * ,727,)2.+, + ?.2)*732? , 1igni icance ).266?#3*6*

+)

Intercept

!oe icient s 72*+.),#*, 3

1tandard @rror 6,6.,)+?,7 #

I :ariable ?37.7#3#)6 ?26.266#,# # + #

4o&er //.5H 62,2.#*6## # ?.)77,?#,) ).266?#3*6 2)?.63777+ * * + t 1tat P=value ?2.2,*6?*+ ? ).))

6pper //.5H ??3?7.+22 3 #*?.+2+*? 2

Anal(tical >vervie&:
1igni icant correlation &it* r -0.893479 !*ange in IN.LATION Rate a##ounts only C3= %o" t!e #!an)e in )old $"i#es' 1igni icant linear regression &it* p value= 0.277143878 Regression @Duation= )*139.943#+,9286.05

Interpretation:

The alue of multiple % shows that F).*7G shows that there is significant relation between gold prices and inflation rate. It erifies what e er our studies are until now that is the gold is an inflation hedge. This analysis also shows that change in inflation rate accounts *)L for the ariation in gold prices but this mo ement is in re erse direction. In addition& it should be noted that increase in inflation rate accounts for increase in in estment in gold& as it is an inflation hedge. 9lso from the t- alue we can see that the hypothesis can be rejected. This means that our assumption was wrong. FT- alue is ?.)77 which is less than tabulated alue 2.,+G. 9lso from the graph we can obser e that in the initial period the ariation from the trend line is less in later period Ffrom /ay )* to /ay )7G.9lso in the later period the

+?

gap between gold prices and inflation rate becomes larger which shows the in erse mo ement between them. <ow actually what happens is& when there is increase in inflation rate& generally the %1I increases the 3%% and %epo rate and the securities are demanded more. Gold is one of them uni ersally accepted within the accepted within the banking industry. Therefore the demand increases as well as prices also.

0. Aan% -ailures=
"hen dollars were fully con ertible into gold& both were regarded as money. 2owe er& most people preferred to carry around paper banknotes rather than the somewhat hea ier and less di isible gold coins. If people feared their bank would fail& a bank run might ha e been the result. This is what happened in the 4.9 during the great depression of the ?73)s& imposing a national emergency and to outlaw the ownership of gold by 4. citi!ens.

.ource; %1I .ite

+2

This means that gold and bank failure are in ersely related. 1ank failure will affect in ersely the in estment in gold but the relation is not isa- ersa absolutely.

2. 1toc% mar%et=
The performance of gold bullion is often compared to stocks. They are fundamentally different asset classes. Gold is regarded by some as a store of alue Fwithout growthG whereas stocks are regarded as a return on alue Fi.e. growth due to anticipated real price increase plus di idendsG. .tocks and bonds perform best in a stable political climate with strong property rights and little turmoil. 9s the crude oil becomes cheap& the inflation rate goes down. F9s on +th June 2))7G. "e ha e discussed earlier that how inflation rate is on the base of the gold prices. .imilarly the lower inflation rate or the situation of deflation makes the stock market down. It tends to lower return from the stock market. 9t this time in estment pattern mo es towards the gold market. <ow the return from both these sources is of long terms. In estment decision partly on& or solely on& technically analysis.

Anal(sis:
Date Ma(=50 7un=50 7ul=50 Aug=50 1ep=50 >ct=50 "ov=50 Dec=50 Gold +?)#.,6 + +?*,.*# 7 +?63.66 # +26+.63 ? +,6#.?+ 6 +**7.?+ 6 6?6#.*2 + 6+?).+ 1enseE +&6?,.?? 6?73.*, 6+3,.#2 6*),.#3 *+3#.#* 6*72.32 *6**.*? 7376.73 Date 7un=53 7ul=53 Aug=53 1ep=53 >ct=53 "ov=53 Dec=53 7an=5. Gold *+7).2+ , *632.3? , **27.#2 , 72*+.66 * 7+6?.7+ ?)3)?.3 3 ?)2#6.7 ??2+#., # +3 1enseE ?#+,).,? ?,,,).77 ?,3?*.+ ?627?.? ?7*36.77 ?73+3.?7 2)2*+.77 ?6+#*.6?

7an=52 -eb=52 Mar=52 Apr=52 Ma(=52 7un=52 7ul=52 Aug=52 1ep=52 >ct=52 "ov=52 Dec=52 7an=53 -eb=53 Mar=53 Apr=53 Ma(=53

67,6.6? # 677* *2#+.?# + *7,*.?) + 77**.* **7+.## 6 7,?3.6? # 7,62.7# ? 7)27.2, , *6)3.3) 2 7?+6.*, 6 7?,2.*6 7)62.6* 2 7#7#.,? ? 73#,.6, 73??.*7 # **+3.37 2

77?7.*7 ?)36).2 # ??267.7 + ?2)#2., + ?)37*.+ ? ?)+)7.2 , ?)6#3.* * ??+77.) , ?2#,#.# 2 ?27+?.7 ?3+7+.3 ? ?36*+.7 ? ?#)72.7 2 ?273*.) 7 ?3)62.? ?3*62.3 6 ?#,##.# +

-eb=5. Mar=5. Apr=5. Ma(=5. 7un=5. 7ul=5. Aug=5. 1ep=5. >ct=5. "ov=5. Dec=5. 7an=5/ -eb=5/ Mar=5/ Apr=5/ Ma(=5/

??*,6.7 3 ?2+)7.# 2 ??672.7 3 ?2?#2.+ + ?2326.3 , ?3)),.* + ??67? ?2?7#.) 2 ?26?, ?2?)*., 7 ?2*+,.2 , ?3#6,.+ 6 ?#67?., 3 ?,2,#., 3 ?##7?.3 # ?#,,7.+ +

?6,6*.62 ?,+##.## ?62*6.3? ?+#?,.,6 ?3#+?.+ ?#3,,.6, ?#,+#.,3 ?2*+).#3 76**.)+ 7)72.62 7+#6.3? 7#2#.2# **7?.+? 76)*., ??#)3.2, ?#+2,.2,

+#

Sense2 Falue
)old $"i#es 2000 4000 6000 8000 10000 12000 14000 16000 18000 0

10?000.00

15?000.00

20?000.00

25?000.00

5?000.00

Gold Fs Sense2

Time Pe"iod

Time Pe"iod

T"end Analysis o% Sense2 Falues

0.00 Aug-04 e!-05 Sep-05 Ma"-06 Oct-06 Ap"-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10

+,

Time $e"iod

May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 e!-06 Ma"-06 Ap"-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 e!-07 Ma"-07 Ap"-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 e!-08 Ma"-08 Ap"-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 e!-09 Ma"-09 Ap"-09 May-09 0.00 5?000.00 10?000.00 15?000.00 20?000.00 25?000.00

$ol%

(en(e;

Sense2 value

F(pot*esis Assumed 8F5$: 1enseE values and Gold prices are not su icientl( co=related. Alternative F(pot*esis 8F#$: 1enseE value and Gold Prices are su icientl( co=related.

Regression Anal(sis: Regression 1tatistics Multiple R ).+6?7)? R 1Duare ).#,?#,? Ad+usted R 1Duare ).37+,7+ 1tandard @rror #2?.)*37 >bservations #7

A">:A D Regression ? Residual Total #* #7 11 ?#,72+).#7 ?663??+.+) * 3232366.)7 7 M1 ?#,72+).#7 ?663??.++) * *.2277?*3# # 1igni icance ).)?+6)3,3

!oe icient s Intercep 6?26.?,#,3 t * I :ariabl ).?367##3+ e# 3

1tandard @rror 66#.22#*?, , ).)#*)*#+2 ?

t 1tat 7.2),,3+?+ 3 2.*+*6*3#2 +

P=value ).)))) ).)?+6)3, 3

4o&er //.5H #+63.#2#7* * ).)?###*7? ?

6pper //.5H 7,*).**#)*6 ).27)336+36

9nalytical - er iew; 1igni icant correlation &it* r -5.23#/5# !*ange in I"-4ATI>" Rate accounts ,2H or t*e c*ange in gold prices. 1igni icant linear regression &it* p value= 5.5#23 Regression @Duation= )*5.#)3/ D-3#'3.#0,0). ++

Interpretation:
The relation between the gold and stock market can be clearly interpretated from the analytical calculation from the data. The t- alue& p- alue& multiple % & % s>uare alues clearly shows the picture. 2ere the t- alue is 2.*+ which is greater than tabulated alue 2.,+. This means that our hypothesis is wrong. There is significant correlation between gold prices and .ense: alue. 9lso the /ultiple % is +6L which shows the significancy of relation between the two factors. The palue is also ery less. 8rom the graph-2 we can obser e the trend in the fluctuation in the .ense: alue. "e can obser e that now the market is reco ering. The graph-? shows the correlation. In the period after apr-)* the correlation is less which is due to the crisis effect.

3. T*e Gold Anti Trust !ommittee:

The Gold 9nti-Trust 9ction 3ommittee was organi!ed in January ?777 as a 5elaware corporation to ad ocate and undertake litigation against illegal collusion to control the price and supply of certain financial securities& particularly securities in ol ing gold. The committee arose from essays by 1ill /urphy& a financial commentator& and by 3hris $owell& a newspaper editor in 3onnecticut& published at /urphyMs Internet site. /urphyMs essays reported e idence of collusion among financial institutions to control the price of gold. $owell& whose newspaper had been in ol ed in antitrust litigation& replied with an essay proposing that gold interests should act on /urphyMs essays by bringing suit against the financial institutions in ol ed in the collusion against gold. The response to these essays from gold interests throughout the world was so fa orable that the committee was formed. /urphy is chairman and $owell is secretary(treasurer. G9T9 seeks to disclose and publici!e the huge speculati e short positions in gold taken by financial institutions and bullion banks. G9T9 belie es that ?)&))) tons of gold or more ha e been sold short by these speculators& e en as yearly mine supply of gold is only about 2&,)) tons. "hen we are able to show how the gap between gold demand and mine supply is being filled largely by dishoarding of central bank gold reser es& in estors may buy gold in >uantity&

+6

knowing the supply gap is too large to close without causing a substantial rise in the price of gold. Then the gold price suppression scheme will be o er.

.. 4o&

or negative real interest rates:

If the return on bonds& e>uities and real estate is not ade>uately compensating for risk and inflation then the demand for gold and other alternati e in estments such as commodities increases. 9n e:ample of this is the period of 1TAG-4ATI>" that occurred during the ?76)s and which led to an economic bubble forming in precious metals. O1TAG-4ATI>" is a situation &*en in lation and economic stagnation occurs simultaneousl(. G An economic bubble 8sometimes re erred to as a speculative bubble9 a mar%et bubble9 price bubble9 a inancial bubble9 or a speculative mania$ is trade in products or assets &it* in lated values.

/. Car9 invasion9 looting9 crisis:

In times of national crisis& people fear that their assets may be sei!ed and that the currency may become worthless. They see gold as a solid asset& which will always buy food or transportation. Thus in times of great uncertainty& particularly when war is feared& the demand for gold rises. .o price also rises.

+*

#5. Demand B 1uppl(:

5emand and .upply factor is ery important for the price analysis of Gold. The demand C supply dynamics play an important role in determining the price of Gold. 8or a long time Gold prices ha e been suppressed as a result of concerted selling by 3entral 1anks of arious countries. 2owe er this trend has re ersed& with 3entral 1anks& especially those of %ussia and 3hina becoming net importers of Gold. The demand for Gold is primarily dri en by three factors; P Jewellery P Industrial 4ses P In estment 9s a result of the huge spike in Gold prices& Jewellery demand from countries like India and the /iddle =ast fell by 22 L in tonnage terms from a year earlier. In 9sia and the /iddle =ast& which account for around two thirds of the Jewellery demand& consumers and the retail trade are ery sensiti e to price olatility. 2owe er we belie e that consumers within these markets will continue to purchase Gold Jewellery if they are offered the right products at the right price.

+7

5e&elle"y 6emand C!a"t

6emand in tonnes 1000 900 800 700 600 500 400 300 200 100 0 Q12004 Q22004 Q32004 Q42004 Q12005 Q22005 Q32005 Q42005 Q12006

Time $e"iod Demand (tonnes)

I"D61TRIA4:
The global economy enabled electronics demand to rise strongly& causing o erall industrial demand to increase by , L compared to a year earlier. This form of gold demand is not price sensiti e since manufacturers of electronic goods which need electronic components& cannot change specifications o ernight. The strong growth was due to a reco ery in the Japanese market for Gold bonding wire. There was also a slight growth in the dental use of gold.

Indust"ial 6emand C!a"t

6emand in tonnes 115 110 105 100 95 90 Q12004 Q22004 Q32004 Q42004 Q12005 Q22005 Q32005 Q42005 Q12006 @

Time $e"iod Demand (tonnes)

I":@1TM@"T:

6)

The main propellant for the high Gold prices was the in estment demand. The increase in in estment demand was due to the growing number of in estors who are seeking to use Gold to hedge against different types of risk. In countries like the 4. and .wit!erland& the rising price spurred interest from in estors dri ing o erall in estment demand up. /oreo er a recent de elopment has been that in India where traditionally Gold has been consumed as Jewellery& increasing promotion of Gold bars and coins by se eral banks resulted in Gold being purchased for in estment purposes. 2owe er the main dri er of in estment demand was the in estment in Gold =:change Traded 8unds whose total off take for the first >uarter was around ?)7 tonnes. 25
6emand in tonnes

Investment 6emand C!a"t

250 200 150 100 50 0 Q12004 Q22004 Q32004 Q42004 Q12005 Q22005 Q32005 Q42005 Q12006 @

Time $e"iod Demand (tonnes)

G16PP4? 1ID@:
"hile in estor acti ity was the main dri er behind the rising Gold price in the first >uarter of 2))+& a contraction in supply also helped. /ine production plays a ital role in determining the price of Gold as it is the only way by which new stocks can be added to the e:isting abo e the ground stocks. 9 sharp decline in mining production in the first >uarter of 2))+ contributed to the high prices of gold during that period. 9lthough Gold prices are attracti e now& it will take at least 3-# years to get a new mine into commercial production stage. .o any near term increase of supplies can be ruled out. 1ut& the main factor constraining supply in the first >uarter of 2))+ was a sharp reduction in net central bank selling which& at ??+ tonnes& was ,6 L lower than the comparati e period in the year 2)),. This sharp decline in supply caused by the fall in central bank sales was partly -ffset by a ery substantial rise in scrap supply which in the first >uarter of 2))+ was higher by ,? L compared to the first >uarter of 2)),. 2uge sales by 3entral 1anks

6?

were the primary factor in suppressing Gold prices in the nineties. %eduction in these sales due to the 3entral 1anks Gold .ales 9greement will play an important role in supporting higher Gold prices. The demand and supply factors as outlined pre iously do play a role in determining Gold pricesK howe er they are not the most important ones. 9s we ha e outlined pre iously& since Gold acts as a reser e currency to the 4. dollar& the factors which work negati ely for the 4. 5ollar work positi ely for Gold and ice ersa. These factors are outlined here in the following sections under arious categories like G5$& Trade 1alance& and the like. O .o we can say that the gold prices are directly proportional to the demand and in ersely proportional to the supply.

!urrent 1cenario Anal(sis:

The 3urrent .cenario is analy!ed in the terms of; !rude oil Prices 61 Dollar :alue Repo Rate In lation Rate Real interest rates Demand And 1uppl( 1toc% mar%et

62

 GDP

Fig* In lation Period To De lation Period=

There was the period of high inflation in the year )*.The inflation rate starts from the rare #.?? & lasts to ).?3 in the may )7. 1y obser ation the trend analysis Graph we can e:pect that now the inflation rate is rising from the deflationary period. -n +th June 2))7 the inflation rate ).#*and t*e current in lation rate is =#.2# means deflation.

This deflation is due to the downward trend in the crude oil prices as it can be obser ed from the graph of the crude oil. The mo ement of oil prices in the world markets has brought about the setting in of some important changes. "e ha e witnessed that the price of oil has been slowly coming down but not before the go ernments of the world interfered in some way. 8or starters& they reali!ed that there were two ways to deal with the problem. 8irstly to use the -$=3 meetings as a means to persuade oil producers to produce more oil in an effort to match supply with demand for oil. The second way was to strictly monitor the oil markets to make sure that the speculation o er the price of oil does not set in hence leading to inconsistent buying and selling fren!ies These two primary steps ha e brought down the le el of oil to where it is today. 8or India the cooling of oil prices has helped the rate of inflation to slightly decrease. TodayBs inflation figures show that the figures ha e fallen for the third week in a row. It is howe er premature to say that the grip of inflation has melted away.

GDP >- I"DIA:

63

India G5$ and .tandard of 0i ing are closely related as G5$ features among the significant factors in the assessment of the standard of li ing. .tandard of li ing comprises >uality as well as amount of commodities offered for consumption by the citi!ens and the distribution system. The substantial growth in arious sectors like IT& %eal =state& IT=. has led to the impro ement of the standard of li ing at a constant rate. 2owe er& the statistical figures still delineate that appro:imately 26., L of the Indian population li es below the po erty line. The most significant indicator re>uired to measure the standard of li ing is in realty per capita purchasing power parity-adjusted gross domestic product. 9 comparati e analysis of the standard of li ing of India with other countries will aid in the assessment of the position of India in the standard of li ing chart. The per capita- adjusted gross domestic product of 3hina in the year 2))3 was A#&7)) and that of the majority of western =uropean countries is A2+&))) and that of the most de eloped country like 4. is A33&))). The per capita- adjusted gross domestic product of India has been calculated to be 4. A 3?& )) Measurement o India GDP and 1tandard o 4iving: G5$ makes an assessment of IndiaMs national output by di iding the current G5$ of India with the total population of the country. In the e:amination of o erall production& G5$ takes into account both the public as well as the pri ate consumption accompanied with the manufacture of capital goods that conse>uently aid in the further production of commodities. !urrent 1tatistics: Industr( '55.=5/ Agriculture9 orestr( B is*ing Manu acturing !onstruction -inancing9 insurance9 real estate B business 1ervices L# ).5 0.2 ##., /.) L' '.3 0 /.3 /.' L) ='.' =5.' 2.3 /.0 5/ Gro&t* rate in H 8@stimated $ '.2H ,.#H 2.0H ..2H

6#

Mining B Duarr(ing Trade9 *otels9 transport and communication !ommunit(9 social B personal services @lectricit(9 gas B &ater suppl(

,.. ##.' ..0 '.2

)./ #5.3 3.3 ).2

0.) 2.. #3.) ).)

,.3H #5.)H /.)H ,.)H

1ource: RAI= Fand Aoo% o 1tatistics

Repo Rate and >t*er Rates=

The Indian economy ushered in 2))* amidst e:cess li>uidity related problems in the system. Growth in money supply saw 2?.2 L increase in the last week of 9pril 2))* on y-o-y basis& it touched 22.,L in /ay end and slowed to 2).6L by the end of June 2))*. 5uring Jan-/ay)*& "ith inflation and money supply growing far abo e %1IMs target& the %1I raised the 3%% by as much as 6, basis points effecti e in 3 phases during 9pril and /ay to control e:cess li>uidity and to rein in inflationary e:pectations. 1etween June and 9ug )*& the %1I increased repo rate by ?2, basis points and 3%% by 6, basis points to 7.)L each. The increase in capital outflows especially from the e>uity markets had put significant downward pressure on the rupee alue. This in turn led to %1I inter ention in the fore: market through dollar sales to support the falling alue of rupee and thereby adding to the tight li>uidity conditions. Global financial woes intensified significantly in .ep )*& with the collapse of 0ehman 1ros and bankruptcy of some other big financial institutions. The financial distress caused thereby was characteri!ed by se ere credit free!e and crisis of confidence worldwide. The substantial 8II outflows from domestic stock markets coupled with tight monetary policy followed by the %1I till 9ug )* led to significant li>uidity crunch in the money market. /eanwhile& 8II outflows from e>uity& increased dollar demand by oil importers Fdue to surging oil pricesG and strengthening of dollar against other major currencies e:erted significant downward pressure on rupee alue. In order to arrest further fall in rupee alue& the %1I inter ened in the fore: market by way of dollar sales& which in turn resulted into absorption of li>uidity from the system and added to the li>uidity pressures. 6,

O9lso the real interest rates are decling or not gi ing the proper return. O3urrent %epo %ate-#.6,L O3urrent 3%%-,L O3urrent .0%-2#L

Trends in t*e @Ec*ange Rates:

The rupee mo ed in the range of %s.37.*7-,).,3 per 4. dollar during the financial year 2))*-)7 so far. The rupee showed a depreciating trend during the second >uarter of 2))*-)7& which started in the beginning of current financial year. The rupee remained around the le el of %s.#3 per 4. dollar during third week of /ay 2))* to second week of 9ugust 2))*& depreciated thereafter sharply mainly on the back of widening trade deficit& capital outflows and strengthening of 4. dollar. 8rom January to /ay 22nd %upee depreciated by 6L as against the 4. dollar. The Indian rupee depreciated by about 2) per cent against the 4. dollar in 2))* due to a combination of factors. 9s the credit crisis deepened in the "est& foreign money started lea ing Indian shores& which resulted in the rupee falling. /oney from all across the world flowing into 4. Treasury bonds in search of safety resulted in the 4. dollar appreciating. 9s a result currencies across the world& including the Indian rupee& depreciated. The rupee is e:pected to appreciate in the ne:t fiscal and to be around #+.,(4.A by the end of 8@?). -n an a erage& rupee is e:pected to be around #,.7)(4.A during 8@)7 and #6.,)(4.A during 8@?). The appreciation in rupee in ne:t fiscal Ftowards endG would be on account of an e:pected fall in alue of 4. dollar and resumption in the 8II inflows as the global economy begins to stabili!e the latter part of 8@?). O3urrent e:change rate of 4. A- %s.#*.,3 6+

1toc% mar%et:
The stock market has badly crashed in the year )*. 1ut it is reco ering now. It is also below the trend line. .o we can say that this factor is supporter of gold in estment in the current scenario. O3urrent .ense: Ealue-?##22.63

1uppl( and demand in t*e current scenario=

Gold market is undergoing radical change with in estments in =urope and 4. taking a lead o er the traditional market C Jewelry in India. "hile Indian Jewelry is still the worldBs biggest consumer& the market seems more di erse now. Gold =T8- G05 has become the biggest market mo er and there has been hea y demand for coins and bars. If this fundamental change in consumer(in estor choices continues& Gold could see a significant upward mo ement in price in the short to medium term& and e en a A?2))(ounce is likely. It remains to be seen how this change in beha ior would continue after the end of this crisis Fin 3-, yearsG. If it is a permanent change& it is good for gold industry as it gi es a far wider(di erse base and remo es the >uirkiness associated with Indian marriage seasons and domestic economy. Indian consumption is the only bright aspect in the Jewelry scene& with the Jewelry consumption of rest of the world has gone to the toilet. This is most likely due to the fact that world recession has not come to India so far. 2owe er& Jewelry consumption could significantly tank once the reality sinks in and Indian market goes faces =conomic straight winds. India as-e:pected leads the space. It consumed nearly 2?.3L of world gold in Q# and it has regained back its lead from the 4.. 3hina& =urope and 4. for the ne:t 3 big markets. Indian Jewelry shows a significant upswing while Jewelry consumption in many other countries are facing deep downturn C most notably in Turkey& 4. and 4'. This is partly due to the fact that world recession has not come to India in a big way so far. 1ut this could change and Jewelry could be deeply hit.

66

9lso we can obser e that the demand has almost higher than the supply. The trends also show that demand is also on the higher side in the near future.

-I"DI"G1 B R@!>MM@"DATI>"1

6*

-indings:
a$ The dollar is weak and getting weaker due to national economic policies which donBt appear to ha e an end. b$ Gold price appreciation makes up for lost interest& specially in a bull market. c$ 3entral 1anks in se eral countries ha e stated their intent to increase their gold holdings instead of selling. d$ 9ll gold funds are in a long term up trend with bullion& most recently setting new all-time highs. e$ The trend of commodity prices to increase is relati e to gold price increases. $ "orldwide Gold production is not matching consumption. The price will go up with demand. g$ /ost Gold consumption is done in India &also its demand is increasing with their increase in national wealth. *$ .e eral gold funds reached all-time highs in 2))* and are still trending upward. 67

i$ 4.. go ernment economic policies o er the past decade ha e systematically projected the 4.. economy down a road with uncontrollable federal spending and uncontrollably increasing trade deficits. 1oth will cause the dollar to lose in international alue and will increase the price of alternati e in estments& specially gold. +$ "ith the recent de aluation of many international currencies& the 4.. dollar was the international safe ha en of last resort. "e can obser e the signs of this ending due to many financial factors& the most important one being a falling dollar. %$ There are o er one trillion dollars of 4.. debt owned by foreigners which could be repatriated under certain conditions. This could cause a major decline in the alue of the dollar and a soaring gold price. l$ Gold is still low& but climbing.

4imitations o t*e stud(:

= ery study suffers from some limitations which are ine itable;

The time period taken for the analysis part is only , years. It would ha e better if taken
more.

The analysis is based on the monthly data. The graph re eals more accurate picture if the
data is taken monthly or daily.

The project is ma:imum based on the secondary data. "e can clearly re iew the effect of global crisis on the analytical part.

*)

Recommendations:
<ow on the basis of abo e findings we can conclude and recommend that this is the right time to in est in gold. 1esides 1ank 85s& Indian in estors ha e a re ealed preference towards Gold as a iable in estment a enue. Gold remains a fa orable in estment a enue in India. The .ur ey depicted that 76L of the in estors in ested in Gold in Q#& 2))* compared to #2L in Q3& 2))*. The reason seems ob ious. Gold gained an impressi e 23.?3L between Jan ?& )* and Jan 7& )7. /oreo er& it gained 7?.?L between Jan ?& )6 and Jan 7& )7.. The 1.= .ense: and .&$ <ifty fell by 32.,3L and 2*.3? respecti ely. 2ence& the reasons for Gold 8und In esting are; =normous Eolatility in the =>uity /arkets. Global %ecessionary .yndrome. 0ow Inflationary pressures 5epreciation of 4. dollar as price of gold is in ersely proportional to the alue of the 4. dollar. 3ountries keep the major chunk of their foreign e:change reser es in 4. dollar or Gold. "ith the depreciation of dollar& countries will be compelled to keep their reser es in Gold so as to maintain the reser es.

*?

The sharp fall in e>uities prompted the in estors to park their money in Gold 8unds. Gold reser es with Gold Trust& the worldBs largest Gold =:change Traded 8und F=T8G touched 6*).23 metric tons on 5ec& 27& 2))* up from +26.** metric tons at the beginning of the year.

Gold miners are the best performers in the ?+2 member 1loomberg "orld /ining Inde:

3The subprime crisis leads to recessionary pressures across the globe. In order to tide o er the crisis&
go ernments are resorting to e:cessi e borrowing. This created an ad erse impact on the currency. In estors flock to gold as a hedge against currency depreciation

Gold is a safe in estment option in a situation of deflation. /errill e:pects that the global inflation will near to !ero. In a situation of low inflation& gold can act as a store of alue as bank deposits will generate low return. "ith reducing inflationary pressure& lending rate goes down. 2owe er& banksB offset the low interest income by reducing deposit rate as they ha e to maintain <et Interest /argin..o in my opinion this it is the right time to in est in gold.

*2

Cebsites Re erences:

i. ii. iii. i . . i. ii. iii. i:.

&&&.rbi.org.in &&&.goldresearc*.org.in &&&.ccilindia.com &&&.investopedia.com &&&.&ic%ipedia9com &&&.bseindia.com &&&.mone(control.com &&&.alibaba.com &&&.am iindia.com

*3

:. :i. :ii. :iii. :i . : .

Evi.

&&&.articlebase.com &&&.mcEindia.com &&&.gata.org &&&.%itco.com &&&.%arv(.com &&&.ratein lation.com &&&.uniconindia.in

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