FUNDAMENTAL AND TECHNICAL ANALYSIS

ON GOLD

Project report submitted in

Partial fulfillment for the award of

MASTER OF BUSINESS ADMINISTRATION

BY

BADRINATH

PRINCETON P.G COLLEGE

(OSMANIA UNIVERSITY)
HYDERABAD
(2008-10)

1
 DECLARATION

I Mr. BADRINATH bearing ROLL NO student of PRINCETON

P.G COLLEGE OSMANIA UNIVERSITY, hereby declare that the project
report titled “A STUDY ON FUNDAMENTAL AND TECHNICAL
ANALYSIS OF GOLD” AT “RELIGARE COMMODITIES Ltd””
submitted for the partial fulfillment of the requirement of the award of
degree in MASTER OF BUSINESS ADMINISTRATION, is a bona fide
work done by me and it is not submitted to any other university or Institution
for the award of any Degree, Diploma Certificate or published any time
before.

Date:
Place: Hyderabad BADRINATH

2
 ABSTRACT

Aim: An empirical study on GOLD based on fundamental and technical analysis.

Abstract: We study the gold and silver prices based on fundamental analysis like
inventories in the entire globe, central bank reserves and currency fluctuations. We
study the Inventories which will effect due to strikes, political conditions and demand &
supply mismatch. According to central Bank policies and central agreements reserves
will various. Currency trading on Dollar verses Euro or Dollar verses sterling pound
causes volatility which leads to gold/silver price fluctuations.

We forecast the gold and silver prices with advanced technical analysis tools by
using lead &lag indicators, Elliot wave analysis and Fibonacci series. We applied lag
indicators on trending markets and lead indicators for trading markets. Lag indicators
(like MACD or moving averages) smoothens the price trends so that we can find out
prices are in the trending zone or not. We can apply this method on both bullish as well
as bearish markets. Lead indicators are like oscillators for find out the trading ranges on
sideways markets. We apply Elliot wave for gold and silver prices forecast for long term
analysis. We combine the Fibonacci series with Elliot wave for better results and
absolute forecast.

In this study we are applying both fundamental and technical analysis

for predicting the future price actions based on historical data and previous trends.

3
 ACKNOWLEDGEMENT

Words never seemed so inadequate to acknowledge anybody’s cooperation

and guidance, as now. Many people have tended their ability and timely
support and it’s because of them that this study was made possible.

I extend my sincere thanks to, Head of the department PRINCETON P.G

COLLEGE for her continuous guidance.

I also express my heartfelt thanks to Research analyst of

RELIGARE COMMODITIES Ltd for his constant help in guiding
providing me the necessary information throughout the preparation of this
project.

Finally, many thanks to all of them not mentioned who have contributed
their bit towards the study.

BADRINATH

4
 TABLE OF CONTENT

Page
Chapter No Content No
1 Introduction
2 Objectives
3 Research and Methodology
4 Review of literature
5 Company Profile
Data Analysis and
6 Interpretation
7 Findings and Suggestions
8 Conclusion
9 Bibliography

5
 LIST OF TABLES

TABLE
PAGE NO.

Fibonacci Ratio Table 29

LIST OF FIGURES

FIGURES PAGE NUMBERS

1.FIVE WAVE PATTERN 21
2.WAVE MODE 22
3.ESSENTIAL DESIGN 24
4.PRICE TREND 34
5.DEMAND AND CONSUMPTION OF GOLD 44
6.GOLD LONG TERM TREND 55
7.GOLD SHORT TERM TREND 57
8.CORRELATION BETWEEN GOLD AND CURRENCY 62

6
 CHAPTER - I

INTRODUCTION

7
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 and silver. 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 and silver 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 crudeoil 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.

8
 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 the
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.

9
HISTORY OF GOLD TRADING

Gold future trading debuted first at Winnipeg Commodity Exchange (know

is 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 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 countries
also account for highest gold reserves from potential 50,000 tonnes of
world-wide reserves.

10
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

11
 CHAPTER - 2

OBJECTIVE AND LIMITATIONS

12
Objective: The main objective of this project is to forecast gold and
silver prices with advanced technical analysis tools by using lead &lag
indicators, Elliot wave analysis and Fibonacci series. We applied lag
indicators on trending markets and lead indicators for trading markets.
We apply Elliot wave analysis with gold and silver prices forecast for
long term .We combine the Fibonacci series with Elliot wave for better
results and absolute forecast. We also analyze gold and silver prices
based on fundamental analysis like inventories, central bank reserves
and dollar fluctuations.

LIMITATION OF STUDY

The study is based on the parameters of following factors.

1. It is based on Research done by authors and organizations like

WGC, GFMS, News, Articles and its affect on gold.

2. 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.

3. 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).

4. 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.

13
 CHAPTER - 3

RESEARCH AND METHODODLOGY

14
RESEARCH OF THE STUDY
 TYPE OF RESEARCH

The research is basically a descriptive research. In this

project Descriptive research methodologies i s us e d . The
research methodology will be used for gathering details of
different aspects of GOLD ANALYSIS.

 SOURCE OF DATA COLLECTION

Secondary data will be collected from articles in journals and

magazines. The database of MCX, FMC, GOLD COUNSIL and
COMEX will be taken. As this topic is very new, article from
other w e b s i t e l i n k s i s required. Report submitted b y
MCX/FMC committee is used.

METHODOLOGY OF THE STUDY

Data collection instrument:

Secondary 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:

1. Winquote is using for charts building

15
2.Ms –excel is suing for demand and supply graphs.

CHAPTER - 4

REVIEW OF LITERATURE

16
 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.

17
 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.

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

18
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.

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.

Elliotwave:

19
 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 andsemilogarithmic scale and by taking care to
follow the rules and guidelines as laid down in this course. Welcome
to the world of Elliott.
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
20 that this Principle has a
good quotient of basic value.

"The Wave Principle" is Ralph Nelson Elliott's discovery that social, or

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 andsemilogarithmic scale and by taking care to follow
the rules and guidelines as laid down in this course. Welcome to the
world of Elliott.

1.2 Short History

21
1.3 Basic Tenets

22
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.

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
23
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
1.4 Wave Mode

24
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.

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).
25
2.1 Introducing Fibonacci

26
Statue of Leonardo Fibonacci, Pisa, Italy.
The inscription reads, "A. Leonardo Fibonacci, Insigne
Matematico Piisano del Secolo XII."
Photo by Robert R. Prechter, Sr.

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
27 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.)
2.2 Introducing Fibonacci

28
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. 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 other's 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?
29
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
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:

30
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.

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

31
The 10-period simple moving average is used for the first calculation only.
After that the previous period's EMA is used.

Note
that, in theory, every previous closing price in the data set is used in

32
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 postive and trend would
be expected to continue.
As per the moving averages concern EMA(5) is above the EMA(6)
which shows prices are postive territory. Open interest is negaive which is
postive divergence for prices concern.
As per MACD hisorigm , the historigm is in postive zone which
leads trend is is intact.Ofcourse already the trend confirms bullish so prices
would be in bullish zone for the next couple of days.

33
CHAPTER - 5

34
 COMPANY PROFILE

Religare Enterprises Limited

Religare Enterprises Limited (REL), is one of the leading integrated
financial services groups of India. REL's businesses are broadly clubbed
across three key verticals, the Retail, Institutional and Wealth
spectrums, catering to a diverse and wide base of clients.

The vision is to build Religare as a globally trusted brand in the

financial services domain and present it as the 'Investment Gateway of
India'. All employees of the group guided by an experienced and
professional management team are committed to providing financial
care, backed by the core values of diligence and transparency.

REL offers a multitude of investment options and a diverse bouquet of

financial services with its pan India reach in more than 1550 locations
across more than 460 cities and towns. REL also currently operates
from 10 countries globally following its acquisition of London's oldest
brokerage & investment firm, Hichens, Harrison & Co. plc.

35
With a view to expand, diversify and introduce offerings benchmarked
against global best practices, Religare operates its Life Insurance
business in partnership with the global major – Aegon. For its wealth
management business, Religare has partnered with Australia based
financial services major-Macquarie. Religare has also partnered with
Vistaar Entertainment to launch India's first SEBI approved Film Fund
offering a unique alternative asset class of investments.

Vision and Mission

Vision - To build Religare as a globally trusted brand in the financial
services domain and present it as the ‘Investment Gateway of India'.

Mission - Providing complete financial care driven by the core values

of diligence and transparency.

Brand Essence - Core brand essence is Diligence and Religare is

driven by ethical and dynamic processes for wealth creation

Group Structure
Religare COMMODITIES Limited
• Equity Broking
• Online Investment Portal
• Portfolio Management Services
• Depository Services

Religare Commodities Limited

• Commodity Broking

Religare Capital Markets Limited

• Investment Banking
• Proposed Institutional Broking

36
Religare Realty Limited
• In house Real Estate Management
Company

Religare Hichens Harrison**

Religare Finvest Limited

• Lending and Distribution business
• Proposed Custodial business

Religare Insurance Broking Limited

• Life Insurance
• General Insurance
• Reinsurance

Religare Arts Initiative Limited

• Business of Art
• Gallery launched - arts-i

Religare Venture Capital Limited

• Private Equity and Investment
Manager

Religare Asset Management*

* ReligareAsset Management Company (P) Limited is a wholly owned subsidiary of

Religare COMMODITIES Limited (RSL), which in turn is a 100% subsidiary of
Religare Enterprises Limited.

** Religare Hichens, Harrison plc. (RHH) is a part of Religare Enterprises Limited

(REL) – a leading integrated financial services group of India. Hichens, Harrison &
Co. plc. (HH), established in 1803 is London’s oldest brokerage and investment

37
firm with a global footprint. Post its acquisition through REL’s indirect subsidiary -
Religare Capital Markets International (UK) Limited, HH has been rechristened as
Religare Hichens Harrison plc.

Our Joint Ventures

AEGON Religare Life Insurance Company

Life Insurance business (AEGON as a partner)
For more information log on to
www.aegonreligare.com

Religare Macquarie Wealth Management Ltd.

Private Wealth business (Macquarie, Australian
Financial Services major as a partner)
For more information log on to
www.religaremacquarie.com

Vistaar Religare -The Film Fund

India's first SEBI approved Film Fund

38
BrandIdentity
Name

Religare is a Latin word that translates as 'to bind together'. This

name has been chosen to reflect the integrated nature of the financial
services the company offers.

Symbol

The Religare name is paired with the symbol of a four-leaf clover.

Traditionally, it is considered good fortune to find a four-leaf clover as
there is only one four-leaf clover for every 10,000 three-leaf clovers
found.

For us, each leaf of the clover has a special meaning. It is a symbol
of Hope. Trust. Care. Good Fortune.

39
For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope. The aspirations to

succeed. The dream of becoming. Of new possibilities. It is the
beginning of every step and the foundation on which a person
reaches for the stars.

The second leaf of the clover represents Trust. The ability to

place one’s own faith in another. To have a relationship as
partners in a team. To accomplish a given goal with the
balance that brings satisfaction to all, not in the binding, but in
the bond that is built.

The third leaf of the clover represents Care. The secret

ingredient that is the cement in every relationship. The truth of
feeling that underlines sincerity and the triumph of diligence in
every aspect. From it springs true warmth of service and the
ability to adapt to evolving environments with consideration to
all.

The fourth and final leaf of the clover represents Good Fortune.
Signifying that rare ability to meld opportunity and planning with
circumstance to generate those often looked for remunerative
moments of success.

Hope. Trust. Care. Good Fortune. All elements perfectly

combine in the emblematic and rare, four-leaf clover to visually
symbolize the values that bind together and form the core of
the Religare vision.

40
 CHAPTER - 6

DATA ANALYSIS &

INTERPRETATION

41
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.

42
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%

Ind ia
Italy
42.20% 11.10% Turkey
US
China
Japan
Rest o f world

8.50%

7.30%
5.30%
6.90%

GOLD CONSUMPTION IN INDIA

India consumed around 18% of world Gold produced. Even though it

only contribute 1.6% of Global GDP.

43
“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
and silver 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

44
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.
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.

45
 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 expects
jewelery 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.

 Most gold manufacturing of electrical components takes place

in north America,wstern 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 increasinglylooked 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
diplays in mobile phones and laptops. However gold futures
continue to be vulnerable to sharp slides due to several factors.

46
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%.

• 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

47
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,

48
was hampered by the downturn in the global economy and a lack of
confidence within world markets.

• 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.

Outlook for Q4 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

49
 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.

50
 As per chart fibonacci lines are drawn which is , 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. As
per Elliotwave theory Prices are in the 5th wave which is motive
wave.To find the target of 5 th
wave we can combine elliotwave with
fibonacci on 3 rd wave.

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

Rs 4400

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

Rs 1700

5 th 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

51
 immediate resistance at around Rs16000 ,which is channel width.For
Short term 1st Resistance at Rs 15,600 /-

2nd Resistance at Rs 16,000 /-

Indian Rupees 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.

52
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 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

53
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.

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.

54
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.

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

55
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.

56
 CHAPTER - 7

FINDINGS
AND
SUGGESTIONS

57
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.
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.

58
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.

59
 CHAPTER - 8

RECOMONDATI
ONS AND
CONCLUSIONS

60
 Recommendati
ons

For Short Term: (2 to 4 weeks)

Buy Gold (Mcx) above 14600 levels with stop loss of

14200 for Target 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 Rs17400

Buy Gold at Rs 15100

Stop loss Rs 15000

1st resistance Rs 16000

2nd Resistance Rs 17400

1st Support Rs 14600

2nd Support Rs 14000

61
CONCLUSION:
1.Commodities market, contrary to the benefits of the many people
has been existence in India through the ages, However , the
government permission t set up national level commodity exchanges
has indeed comes as a shot in the arm.

2. 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.

3. Contrary to the myth, that the volume of the commodity markets is

very low the volumes of commodity market in India are likely to touch
16 lakh corers in 2009 according to the estimates of forward
commission.

4. 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.

5. Commodites 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.

6. Another conclusion is that the farmers and traders are not fully
aware of the existence of the commodity exchanges in India.

7. In commodity markets though there is a possibility of physical

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

8. Most of the trading that takes places in the commodity markets

takes place in the nearest month contract rather than the far month
contract.

62
9. 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.

10. The initial margin payment and its very rigid and strict
implementation though necessary have found some times
discouraging investors from investing in commodity markets.

11. Though volumes are huge in commodity market, these volumes are
mostly in precious metals like Gold and Silver.

12. Most of the trading now taking place in the commodities is being
done by the speculators only traders are not fully aware of the
commodities market.

13. As the commodities market are working virtually round the clock,
any drastic news is digested by the market which is not so with equity
market like the September incident when equity markets all over the
world opened far down the next day morning and the investors were
left hanging.
14. Most of the trading takes place I the commodities market is of
intraday nature and thus mist of the traders are offset day only.

15. The future market contracts available on a wide spectrum of

commodities like Gold and Silver provide excellent opportunities for
hedging risk for importers, traders and large-scale consumers.

16. The price movements of certain commodities like Gold , Silver,

Natural and crude oil are not only dependant on the demand and
supply but also depends on a host of social, political and economic
circumstances.

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

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

19. 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 rates.

20. Long-term outlook of Gold remain bullish even at this point of high
price and will invite significant buying interest at every lower levels.
Every correction on lower side of the market is expected to

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invite significant buying interest.

CHAPTER - 9

BIBLIOGRAPHY

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BIBLIOGRAPHY

BOOKS:

• Investment management
-V.K.Bhalla
• Investment management
-Preethi Singh
• Security Analysis And Portfolio Management
-V.A.Avadhani
• Marketing of Financial Services
-V.A.Avadhani
• Indian Financial System
-M.Y.Khan

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

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• www.hdfcsecurites.com
• www.5paisa.com

BOOK:
NCFM MODULE FOR COMMODITY MARKET

NEWS PAPERS:
Business
Standard
Business Line

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