You are on page 1of 77



1.1 INTRODUCTION: India has a long history o !o""odity #t#r$s trading% $&t$nding o'$r on$ h#ndr$d and t($nty) i'$ y$ars. Still% s#!h trading (as int$rr#*t$d s#dd$nly sin!$ th$ "id) s$'$nti$s in th$ ond ho*$ o #sh$ring in an $l#si'$ so!ialisti! *att$rn o so!i$ty. As th$ !o#ntry $"+ar,$d on $!ono"i! li+$rali-ation *oli!i$s and sign$d th$ .ATT Agr$$"$nt in th$ $arly nin$ti$s% th$ go'$rn"$nt r$ali-$d th$ n$$d or #t#r$s trading to str$ngth$n th$ !o"*$titi'$n$ss o Indian agri!#lt#r$ and th$ !o""odity trad$ and ind#stry. /#t#r$s trading +$gan to +$ *$r"itt$d in s$'$ral !o""oditi$s% and th$ #sh$ring in o th$ 01st C$nt#ry sa( th$ $"$rg$n!$ o n$( National Co""odity E&!hang$s (ith !o#ntry(id$ r$a!h or trading in al"ost all *ri"ary !o""oditi$s and th$ir *rod#!ts. A !o""odity #t#r$s !ontra!t is $ss$ntially a inan!ial instr#"$nt. /ollo(ing th$ a+s$n!$ o #t#r$s trading in !o""oditi$s or n$arly o#r d$!ad$s% th$ n$( g$n$ration o Co""odity *rod#!$rs% *ro!$ssors% "ar,$t #n!tionari$s% inan!ial organi-ations% +ro,ing ag$n!i$s and in'$stors at larg$ ar$% #n ort#nat$ly% #na(ar$ at *r$s$nt o th$ $!ono"i! #tility% th$ o*$rational t$!hni1#$s and th$ inan!ial ad'antag$s o s#!h trading. Th$ M#lti Co""odity E&!hang$ o India 2MCX3 th$ *r$"i$r N$( Ord$r E&!hang$ in th$ !o#ntry is% th$r$ or$% la#n!hing this Co""odity /#t#r$s Ed#!ation S$ri$s to *ro'id$ 'al#a+l$ insights into th$ rational$ or s#!h trading% and th$ trading *ra!ti!$s and r$g#latory *ro!$d#r$s *r$'ailing at th$ E&!hang$. /or $asy #nd$rstanding and si"*li i!ation o 'ario#s iss#$s and n#an!$s in'ol'$d in !o""odity #t#r$s trading% a !on'$ni$nt 1#$stion) ans($r a**roa!h is ado*t$d.

Kousali Institute of Management Studies

1. To ,no( th$ o'$rall #n!tioning o th$ !o""odity "ar,$t. 0. Th$ r$l$'an!$ o t$!hni!al analysis and tools to *r$di!t th$ *ri!$ o !o""oditi$s. 4. Th$ "ain *#r*os$ o st#dy is to ,no(n th$ gold as in'$st"$nt *$rs*$!ti'$% to h$l* th$ in'$stor o gold to ,no(n th$ "$thod o in'$sting in gold and *ot$ntial or #rth$r in'$st"$nt in gold.

Data !oll$!tion or th$ *ro5$!t is a !o"+ination o *ri"ary and s$!ondary data so#r!$s. 6ri"ary data !oll$!tion so#r!$s in!l#d$ *$rsonal int$r'i$(s (ith th$ "anag$rs and so"$ $"*loy$$s o organi-ation% di $r$nt trading !o"*ani$s $"*loy$$s. S$!ondary data !oll$!tion so#r!$s in!l#d$ Int$rn$t% +#sin$ss "aga-in$s% *a*$rs% t$&t+oo,s% organi-ation !harts and "an#als. Th$ MS $&!$l is #s$d as a tool in !al!#lating th$ "o'ing a'$rag$ o gold *ri!$s 7 or so"$ o th$ !harts .

Th$r$ "ay +$ ins# i!i$nt ti"$ or !o'$ring and *r$s$nting all d$tails r$garding this !o"*any)STOC8 9O:DIN. COR6ORATION O/ INDIA. Th$ int$ra!tion (ith !o"*any *$o*l$ "ay +$ in l#$n!$d +y th$ir +#sy s!h$d#l$s and attit#d$. Th$ #nda"$ntal analysis as*$!t is not *ossi+l$ to +$ !o'$r$d in this st#dy.

Kousali Institute of Management Studies


.$n$rally !a*ital "ar,$t is th$ *la!$ (h$r$ in #nds ar$ rais$d or !o"*ani$s or "$$ting th$ long t$r" r$1#ir$"$nts. This !an +$ d$ in$d as th$ "$!hanis" (hi!h !oordinat$s th$ d$"and 7 s#**ly or!$s o long)t$r" !a*ital. ;roadly s*$a,ing !a*ital "ar,$t is !o"*os$d o t(o s$g"$nts: a3 6ri"ary "ar,$t +3 S$!ondary "ar,$t In oth$r (ords Ca*ital "ar,$t is a '$ry (id$ t$r". Th$r$ ar$ ind$*$nd$nt s$g"$nts (ithin th$ "ar,$t.Ea!h o th$ s$g"$nts #n!tions ind$*$nd$ntly o th$ oth$r altho#gh th$r$ ar$ int$rlin,ag$s. SE.MENT 1: This is th$ sto!, "ar,$t%also !all$d as shar$ "ar,$t. In this $1#ity shar$sin!l#ding *r$ $r$n!$ shar$s ar$ trad$d. SE.MENT 0: S$!#riti$s in th$ or" o d$+t)instr#"$nts ar$ trad$d in this s$g"$nt.S#!h d$+t instr#"$nts ar$ !all$d loan)sto!,s. SE.MENT 4: This is th$ s$g"$nt in (hi!h "on$y "ar,$t ass$ts or inan!ial ass$ts)*arti!#larly short)t$r" d$+ts o l$ss than 10 "onths ar$ trad$d. SE.MENT<: This is th$ s$g"$nt (h$r$ +oth "on$y "ar,$t and sto!, "ar,$t d$ri'ati'$s ar$ trad$d.

Kousali Institute of Management Studies

6lay$rs in !a*ital "ar,$t: *lay$rs in !a*ital "ar,$t ar$ di'id$d into thr$$
!at$gori$s: A3 N$( !o"*ani$s. ;3 E&isting #nlist$d !o"*ani$s. C3 E&isting list$d !o"*ani$s.

Bomb ! S"o#$ E%#& '() : Th$ ;o"+ay Sto!, E&!hang$ 2;SE3 is lo!at$d in Dalal Str$$t%M#"+ai.Esta+lish$d in 1=>?%;SE is th$ old$st sto!, $&!hang$ in Asia.Th$r$ ar$ aro#nd 4%?@@ !o"*ani$s in th$ !o#ntry (hi!h ar$ list$d and ha'$ a signi i!ant trading 'ol#"$. As o Aan#ary 0@@?%th$ "ar,$t !a*itali-ation o th$ ;SE is a+o#t Rs.10 trillion. Th$ ;SEBS$ns$& is a (id$ly #s$d "ar,$t ind$& or th$ ;SE. As o 0@@?%it is a"ong th$ ? +igg$st sto!, $&!hang$s in th$ (orld in t$r"s o n#"+$r o transa!tions. Dalal Str$$t in M#"+ai% INDIA is th$ lo!ation o th$ ;o"+ay Sto!, E&!hang$ and "any r$lat$d inan!ial ir"s and instit#tions. Si"ilar to Call Str$$t% in th$ Unit$d Stat$s its na"$ is o t$n #s$d as a "$tony" or th$ Indian inan!ial $sta+lish"$nt in g$n$ral.

An in or"al gro#* o sto!,+ro,$rs ha'$ +$$n trading #nd$r a +anyan tr$$ o**osit$ th$ To(n 9all o ;o"+ay ro" "id)1=?@s.This +anyan tr$$ still stands in 9orni"an Cir!l$ 6ar,%M#"+ai.This in or"al gro#* o sto!, +ro,$rs has organi-$d th$"s$l'$s as DTh$ Nati'$ Shar$ and Sto!,+ro,$rs Assos!iationE(hi!h in 1=>?.(as or"ally organi-$d as th$ ;o"+ay Sto!, E&!hang$. ;SE is th$ old$st sto!, $&!hang$ in Asia.Th$ s$!ond +$ing th$ To,yo Sto!, E&!hang$ $sta+lish$d in1=>=.

Kousali Institute of Management Studies


Dalal Str$$t Aa"$s M. MaCl$an ina#g#rat$d th$ ;ro,$rsB 9all in Aan#ary 1=FF. A t$r th$ /irst Corld Car% ;SE (as shi t$d to an old +#ilding% n$ar th$ ;o"+ay To(n 9all and in th$ y$ar 1F0=% th$ *lot on (hi!h th$ ;SE +#ilding no( stands% on th$ Dalal Str$$t% (as a!1#ir$d% and a +#ilding (as !onstr#!t$d in 1F4@. Th$ ;o"+ay Sto!, E&!hang$ (as ollo(ing th$ a"iliar o#t!ry syst$" or sto!, trading% (hi!h (as r$*la!$d% in th$ y$ar 1FF?% (ith s!r$$n)+as$d $Trading. ;SE is *r$s$ntly ho#s$d in a 0=)stori$d A$$5$$+hoy To($rs% (h$r$ th$ old$r str#!t#r$s on!$ stood% and th$ *r$s$nt +#ilding d$ri'$s its na"$ ro" Sir 6hiro-$ Aa"sh$d5$ A$$5$$+hoy% th$ !hair"an o th$ ;o"+ay Sto!,$ E&!hang$ ro" 1FGG% #ntil his d$ath in 1F=@.

Th$ BSE S)'*)% or BSE S)'*+"+,) I'-)% is a 'al#$)($ight$d ind$& !o"*os$d o 4@ !o"*ani$s (ith th$ +as$ A*ril 1F>F H 1@@. It !onsists o th$ 4@ larg$st and "ost a!ti'$ly trad$d sto!,s% r$*r$s$ntati'$ o 'ario#s s$!tors% on th$ ;o"+ay Sto!, E&!hang$. Th$ s$t o !o"*ani$s in th$ ind$& is $ss$ntially i&$d. Th$s$ !o"*ani$s a!!o#nt or aro#nd on$) i th o th$ "ar,$t !a*itali-ation o th$ ;SE. Th$ S$ns$& is g$n$rally r$gard$d as th$ "ost *o*#lar and *r$!is$ +aro"$t$r o th$ Indian sto!, "ar,$ts. Th$ +as$ 'al#$ o th$ S$ns$& is 1@@ on A*ril 1% 1F>F. At irr$g#lar int$r'als% th$ ;o"+ay Sto!, E&!hang$ 2;SE3 a#thoriti$s r$'i$( and "odi y its !o"*osition to "a,$ s#r$ it r$ l$!ts !#rr$nt "ar,$t !onditions. Th$ a++r$'iat$d or" ISENSEXJ (as !oin$d +y D$$*a, Mohoni aro#nd 1FF@ (hil$ (riting "ar,$t analysis !ol#"ns or so"$ o th$ +#sin$ss n$(s*a*$rs and "aga-in$s. It gain$d *o*#larity o'$r th$ n$&t y$ar or t(o

Kousali Institute of Management Studies

Commo-+"+)* m .$)":
/&! #ommo-+"! m .$)"* 0).) *" .")- 1 Th$ irst r$!ord$d instan!$ o #t#r$s trading o!!#rr$d (ith ri!$ in 1>th C$nt#ry Aa*an. Th$r$ is so"$ $'id$n!$ that th$r$ "ay also ha'$ +$$n ri!$ #t#r$s trad$d in China as long as G%@@@ y$ars ago. /#t#r$sB trading is a nat#ral o#tgro(th o th$ *ro+l$"s o "aintaining a y$ar) ro#nd s#**ly o s$asonal *rod#!ts li,$ agri!#lt#ral !ro*s. In Aa*an% "$r!hants stor$d ri!$ in (ar$ho#s$s or #t#r$ #s$. In ord$r to rais$ !ash% (ar$ho#s$ hold$rs sold r$!$i*ts against th$ stor$d ri!$. Th$s$ ($r$ ,no(n as Jri!$ ti!,$ts.J E'$nt#ally% s#!h ri!$ ti!,$ts +$!a"$ a!!$*t$d as a ,ind o g$n$ral !o""$r!ial !#rr$n!y. R#l$s !a"$ into +$ing to standardi-$ th$ trading in ri!$ ti!,$ts. Th$s$ r#l$s ($r$ si"ilar to th$ !#rr$nt r#l$s o A"$ri!an #t#r$s trading. In th$ Unit$d Stat$s% #t#r$s trading start$d in th$ grain "ar,$ts in th$ "iddl$ o th$ 1Fth C$nt#ry. Th$ Chi!ago ;oard o Trad$ (as $sta+lish$d in 1=<=. In th$ 1=>@s and 1==@s th$ N$( Yor, Co $$% Cotton and 6rod#!$ E&!hang$s ($r$ +orn. Today th$r$ ar$ t$n !o""odity $&!hang$s in th$ Unit$d Stat$s. Th$ larg$st ar$ th$ Chi!ago ;oard o Trad$% Th$ Chi!ago M$r!antil$ E&!hang$% th$ N$( Yor, M$r!antil$ E&!hang$% th$ N$( Yor, Co""odity E&!hang$ and th$ N$( Yor, Co $$% S#gar and Co!oa E&!hang$. Corld(id$ th$r$ ar$ "a5or #t#r$s trading $&!hang$s in o'$r t($nty !o#ntri$s in!l#ding Canada% England% /ran!$% Singa*or$% Aa*an% A#stralia and N$( K$aland. Th$ +igg$st in!r$as$ in #t#r$s trading a!ti'ity o!!#rr$d in th$ 1F>@s (h$n #t#r$s on inan!ial instr#"$nts start$d trading in Chi!ago. /or$ign !#rr$n!i$s s#!h as th$ S(iss /ran! and th$ Aa*an$s$ Y$n ($r$ irst. Also *o*#lar ($r$ int$r$st rat$ instr#"$nts s#!h as Unit$d Stat$s Tr$as#ry ;onds and T);ills. In th$ 1F=@s #t#r$s +$gan trading on sto!, "ar,$t ind$&$s s#!h as th$ S76 ?@@. Th$ 'ario#s $&!hang$s ar$ !onstantly loo,ing or n$( *rod#!ts on (hi!h to trad$ #t#r$s. V$ry $( o th$ n$( "ar,$ts th$y try s#r'i'$ and gro( into 'ia+l$ trading '$hi!l$s. So"$ $&a"*l$s o l$ss than s#!!$ss #l "ar,$ts att$"*t$d in r$!$nt y$ars ar$ Tig$r Shri"* and Ch$ddar Ch$$s$.

Kousali Institute of Management Studies

/#t#r$sB trading is r$g#lat$d +y an ag$n!y o th$ D$*art"$nt o Agri!#lt#r$ !all$d th$ Co""odity /#t#r$s Trading Co""ission. It r$g#lat$s th$ #t#r$s $&!hang$s% +ro,$rag$ ir"s% "on$y "anag$rs and !o""odity ad'isors.

COMMODITY: A. Co""odity in!l#d$s all ,inds o goods. /CRA d$ in$s JgoodsJ as J$'$ry ,ind o "o'a+l$ *ro*$rty oth$r than a!tiona+l$ !lai"s% "on$y and s$!#riti$sJ. /#t#r$sL trading is organi-$d in s#!h goods or !o""oditi$s as ar$ *$r"itt$d +y th$ C$ntral .o'$rn"$nt. At *r$s$nt% all goods and *rod#!ts o agri!#lt#ral 2in!l#ding *lantation3% "in$ral and ossil origin ar$ allo($d or #t#r$s trading #nd$r th$ a#s*i!$s o th$ !o""odity $&!hang$s r$!ogni-$d #nd$r th$ /CRA. Th$ national !o""odity $&!hang$s ha'$ +$$n r$!ogni-$d +y th$ C$ntral .o'$rn"$nt or organi-ing trading in all *$r"issi+l$ !o""oditi$s (hi!h in!l#d$ *r$!io#s 2gold 7 sil'$r3 and non $rro#s "$talsM !$r$als and *#ls$sM ginn$d and #nginn$d !ottonM oils$$ds% oils and oil!a,$sM ra( 5#t$ and 5#t$ goodsM s#gar and ga#rM *otato$s and onionsM !o $$ and t$aM r#++$r and s*i!$s% $t!.


STOC8 9O:DIN. COR6ORATION O/ INDIA :TD. SHCIL +* C2*"o-+ '3P.o4)**+o' 5 C5) .+'( M)mb). o4 -).+, "+,)

*)(m)'" " "&) Bomb ! S"o#$ E%#& '() '- " "&) F2"2.)* & O6"+o'* S)(m)'" o4 "&) NSEIL .)*6)#"+,)5!.

S9CI: ha'$ d$'$lo*$d in)ho#s$ ;a!, O i!$ syst$"s and *ro!$d#r$s to !at$r to th$ n$$ds o 'ario#s $ntiti$s in th$ s$g"$nt. A d$di!at$d t$a" o *ro $ssionals handl$ d$ri'ati'$ o*$rations and assist its !li$nts. As a *ro $ssional !l$aring "$"+$r% S9CI: *$r or"s th$ ollo(ing #n!tions: C5) .+'( ) Co"*#ting o+ligations o all his TMBs i.$. d$t$r"ining *ositions to s$ttl$.

Kousali Institute of Management Studies


S)""5)m)'" ) 6$r or"ing a!t#al s$ttl$"$nt S9CI: has al(ays +$$n a *ion$$r in !l$aring and s$ttl$"$nt s$r'i!$s in th$ !ash s$g"$nt at +oth $&!hang$s.S9CI: has th$ !a*a+ility to handl$ larg$ 'ol#"$s o +#sin$ss (ith gr$at$st a!!#ra!y%,$$*ing !#sto"$r int$r$sts as th$ to* *riority. S9CI: in itBs $nd$a'o#r to s$r'$ 'ario#s $ntiti$s in th$ d$ri'ati'$s s$g"$nt has d$'$lo*$d indig$no#s sol#tion ,$$*ing in 'i$( th$ stri!t r$g#latory r$1#ir$"$nts. A-, '" ()*

6ri'a!y o $a!h TMBs o*$ration stri!tly "aintain$d: S9CI: +$ing a *ro $ssional "$"+$r has no trading int$r$sts in th$ d$ri'ati'$s s$g"$nt.Th$r$ is stri!tly no diss$"inat$d in or"ation on trading or any oth$r o*$ration o any o its !li$nts. On$)*oint !onta!t or all th$ a!ti'iti$s: S9CI:Bs D$ri'ati'$s s$g"$nt is !$ntrali-$d o*$ration




P.+, #! o4 ) #& TM7* o6). "+o'* *".+#"5! m +'" +')- : S9CI: +$ing a *ro $ssiona in or"ation on trading or any oth$r o*$ration o any o its !li$nts.

"$"+$r has no trading int$r$sts in th$ d$ri'ati'$s s$g"$nt. Th$r$ is stri!tly no diss$"

O')86o+'" #o'" #" 4o. 55 "&) #"+,+"+)* : S9CI:Bs D$ri'ati'$s s$g"$nt is !$ntralis o*$rations ar$ handl$d +y an $&!l#si'$ d$ri'ati'$s t$a".

D)-+# ")- ") m o4 6.o4)**+o' 5* "o & '-5) D).+, "+,)* o6). "+o'*: S9CI: has a (

t$a" o *ro $ssionals s#**ort$d +y +$st syst$"s% to handl$ d$ri'ati'$s o*$rations at NSE and ;S to d$ri'ati'$s trading. T+)826 0+"& b '$* & ,+'( ' "+o'80+-) .) #& 4o. b '$+'(

!an a**roa!h th$ t$a" or tro#+l$shooting% !on!$*t#al #nd$rstanding or any oth$r o*$rational is

#"+,+"+)* : Sin!$ s$t

Kousali Institute of Management Studies

d$ri'ati'$s trading ta,$s *la!$ daily. /#nds "o'$"$nt has to +$ ast. S9CI: has ti$ #* (ith +an a!iliti$s li,$ TTNany(h$r$ +an,ing $t!. to !ontain th$ ti"$ lag in +an,ing transa!tions.

;an,% ICICI ;an,% .T;% ID;I ;an,%UTI ;an,% Canara ;an, $t!.3 ha'ing (id$ r$a!h an

N)"0o.$ o4 mo.) "& ' 19: b. '#&)* "o *266o." o2"*" "+o' #5+)'"* : S9CI: has na

r$a!h (ith its 14@ *l#s +ran!h$s a!ross th$ !o#ntry to s#**ort o#tstation !li$nts. S9CI:Bs +r r$s*$!ti'$ +ran!h$s.

g$ar$d #* to *ro'id$ d$ri'ati'$s !l$aring and s$ttl$"$nt s$r'i!$s to trading "$"+$rs o*$ra

I' b2+5" #&)#$* '- #o'".o5* :S9CI: has indig$no#sly d$sign$d syst$"s that ta,$ ! string$nt r$g#latory r$1#ir$"$nts or d$ri'ati'$s trading in India.

Co55 "). 5 M ' ()m)'":S9CI: has $&!$ll$nt syst$" to "anag$ !ashN!ash $1#i'al$nts d$*osit$d as !ollat$ral or d$ri'ati'$s trading. Cli$nts ar$ in or"$d as and (h$n $&*iry o any "onitor$d and !li$nts ar$ +$ing in or"$d a!!ordingly.

a**roa!h$s. S$!#riti$s ar$ trans $rr$d in "ini"#" *ossi+l$ ti"$. Cor*orat$ a!tions on s$!

S266o." I'*"+"2"+o' 5 6 ."+#+6 '"*:S9CI: +$ing a !#stodian !l$aring "$"+ "a5or instit#tional !li$nts li,$ UTI% ID;I $t!. (ho ar$ also *ro"ot$rs o S9CI:% *ro'id$s "or$ to its !li$nts.

Com6)"+"+,) *).,+#) #& .()*: S9CI: is th$ *ion$$r in introd#!ing D$ri'ati'$s Cl$ +$!o"$ a hindran!$ or any+ody $nt$ring this "ar,$t.

S$ttl$"$nt s$r'i!$s in th$ !o#ntry. To *ro"ot$ d$ri'ati'$s trading% th$ s$r'i!$ !harg$s ar$ d$

Mo.) 5),). (): Th$r$ is no n$$d to +lo!, ass$ts (orth Rs. ?@ la,h as initial "argin d$* 6CM li,$ S9CI:.

$&!hang$. Inst$ad a Trading "$"+$r !an ta,$ h#g$ $&*os#r$s +y in'$sting th$ sa"$ a"o#nt

Lo0 +',)*"m)'"*: D$ri'ati'$s trading r$1#ir$ !o"*lying (ith string$nt r$g#latory r$1

and h#g$ in'$st"$nt in +a!, o i!$ syst$"s or a Cl$aring M$"+$r. ;y !hoosing a 6CM li,$ o th$ +a!, o i!$ a!ti'iti$s.

trading "$"+$r !an start trading (ith '$ry littl$ in'$st"$nt in +a!, o i!$ syst$"s sin!$ a 6CM

Kousali Institute of Management Studies

I'*"+"2"+o' 5 A-, '" (): Ad'antag$ o trading or instit#tional !li$nts. A trading " $&$!#t$ instit#tional ord$rs (itho#t shrin,ing his o(n $&*os#r$ li"its as instit#tional trad$s ar$ onlin$ +y th$ r$s*$!ti'$ 6CM. Co'4+-)'"+ 5+"! o4 T. -)*: Sin!$ S9CI: has no trading rights% th$ +#sin$ss d$tails o "$"+$r ar$ not li,$ly to +$ "is#s$d .Th$r$ is no o'$rla**ing o +#sin$ss int$r$sts.

Fo#2*: D#$ to highly !o"*$titi'$ nat#r$ o th$ "ar,$t% S9CI:Bs s$r'i!$ !harg$s ar$ nor o!#s on th$ !or$ +#sin$ss o trading.

lo( and it "a,$s "or$ +#sin$ss s$ns$ or a TM to o#tso#r!$ th$ !l$aring and s$ttl$"$nt a!t


' A##o2'" ; R)<2+.)m)'"*

A(.))m)'": Th$ TM has to sign an agr$$"$nt (ith S9CI: to !l$ar his trad$ in t *r$s!ri+$d +y NSEN;SE and s#ita+ly "odi i$d +y S9CI:. Th$ agr$$"$nt has to +$ sign$d th$ agr$$"$nt th$ trading "$"+$r sho#ld also s#+"it : ;oard R$sol#tion a**ointing S9CI: as !l$aring "$"+$r Att$st$d !o*y o M$"orand#" 7 Arti!l$s o Asso!iation Co*y o SE;I r$gistration !$rti i!at$

TM +$gins his trading. A !o*y o th$ CM)TM agr$$"$nt (ill +$ or(ard$d to NSCC:N;SE.A

Co'*)'": At th$ a**li!ation stag$% a TM "#st "$ntion that S"o#$ Ho5-+'( Co.6o. "+o' o4 I =SHCIL> (ill !l$ar his trad$s.

:$tt$r o !ons$nt ro" S9CI: !an +$ o+tain$d% (hi!h th$ TM has to or(ard to ; th$ !as$ "ay +$.

A665+# "+o' Fo.m: An a**li!ation or"% *ro'id$d +y S9CI:% to +$ ill$d +y TM% gi'ing

Kousali Institute of Management Studies


addr$ss$s% *hon$s% a!!o#nts $t!. A**ro'$d $)"ail addr$ss$s sho#ld +$ "$ntion$d in th$ a**l r$!$i'ing daily +ills.

MARGINS: Trading M$"+$rs ha'$ to d$*osit "argins (ith th$ Cl$aring M$"+$r or th$ *

ta,ing E&*os#r$ on th$ E&!hang$ and or daily s$ttl$"$nt. At S9CI:% th$r$ ar$ t(o !o"*

"argins i.$. initial "argin 2IM3 or $&*os#r$ and "aint$nan!$ "argin 2MM3 or daily s$ttl$"$ I'+"+ 5 M .(+'=IM> "ini"#" Rs. 1@ la,h as initial "argin 2IM3 in $ith$r o th$ ollo(ing (ays: $ntir$ Rs. 0 Rs. la,h in !ash 1@ and Rs. la,h = la,h in as !ash !ash $1#i'al$nt

Rs 0 la,h in !ash% +alan!$ Rs. = la,h as a !o"+ination o !ash $1#i'al$nt O and s*$!i i$d d$"at 2s#+5$!t to "a&i"#" o Rs. ? la,h a t$r 'al#ation3 No"): T&) bo,) 6.o6o."+o' +* , 5+- 4o. NSE. Fo. BSE m+'+m2m # *& .)<2+.)m)'"* .) R*.2.? 5 M)mb).* # ' *" ." ". -+'( 0+"& R* @.?: 5 $&=R*.2.? 5 $& +' # *&A b 5 '#) R*. ?.:: 5 $&* *


# *& )<2+, 5)'" '- *6)#+4+)- -)m " *)#2.+"+)* =*2bB)#" "o m %+m2m o4 R*. 2.?: 5 $&* 4"). , 52 "+o'>

M +'")' '#) M .(+' =MM> A trading "$"+$r has to d$*osit a !$rtain *$r!$ntag$ o initial "argin 2IM3 in !ash only to(ards s$ttl$"$nt o "ar,$d)to)"ar,$t "argins% *r$"i#"s or any oth$r !harg$s *aya+l$ +y th$ TM.

I'+"+ 5 M .(+'=IM> CC Mor$ than or $1#al to Rs. ?@ la,h :$ss than Rs. ?@ la,h

M +'")' '#) M .(+' =MM>

1@P o initial "argin in !ash only O 0@P o initial "argin in !ash only

Kousali Institute of Management Studies


Cash $1#i'al$nt in!l#d$s ;an, g#arant$$% i&$d d$*osit r$!$i*ts or go't. s$!#riti$s 2A Var"a Co""itt$$ r$*ort on d$ri'ati'$s3


Th$ s*$!i i$d initial "argin rang$ sho#ld +$ or a *$riod o atl$ast on$ !ontin#o#s "on

S#+5$!t to +an, o*$rating *o($rs and +an,$rBs !$rti i!at$ on !r$dit li"its or th$ +an, a


2.2.1 S HARES MARKET: /l#!t#ations in a sto!, s *ri!$ o!!#r *artly +$!a#s$ !o"*ani$s "a,$ or los$ "on$y. ;#t that is not th$ only r$ason. Th$r$ ar$ "any oth$r a!tors not dir$!tly r$lat$d to th$ !o"*any or its s$!tor. Int$r$st rat$s% or instan!$. Ch$n int$r$st rat$s on d$*osits or +onds ar$ high% sto!, *ri!$s g$n$rally go do(n. In s#!h a sit#ation% in'$stors !an "a,$ a d$!$nt a"o#nt o "on$y +y ,$$*ing th$ir "on$y in +an,s or in +onds. Chy sho#ld th$y

Kousali Institute of Management Studies


a!$ th$ $&tra ris,s o th$ sto!,"ar,$tQ Mon$y s#**ly "ay also a $!t sto!, *ri!$s. I th$r$ is "or$ "on$y loating aro#nd% so"$ o it "ay lo( into sto!,s% *#shing #* th$ir *ri!$s. Oth$r a!tors that !a#s$ *ri!$ l#!t#ations ar$ th$ ti"$ o y$ar% and *#+li!ity. So"$ sto!,s ar$ s$asonalM th$y do ($ll only d#ring !$rtain *arts o th$ y$ar and (ors$ d#ring oth$r *arts. 6#+li!ity a $!ts sto!, *ri!$s. I a n$(s*a*$r story r$*orts that K$$ T$l$'ision has +o#ght a sta,$ in Asian$t% odds ar$ that th$ *ri!$ o K$$ s sto!, (ill ris$ i th$ "ar,$t thin,s it s a good d$!ision. Oth$r(is$ it (ill all. Th$ *ri!$ o Asian$t sto!,s "ay also go #* +$!a#s$ in'$stors "ay $$l that it is no( in +$tt$r hands. Con'$rs$ly% i an arti!l$ says that a !o"*anyLs *r$sid$nt is a !roo, and has #s$d th$ "on$y rais$d to +#ild a *alatial +#ngalo( or hi"s$l % th$n it is a good +$t that th$ *ri!$ o that !o"*any s sto!, (ill all. Th#s% "any a!tors a $!t th$ *ri!$ o a sto!,. Th$ +$ha'io#r o th$ *ri!$ "o'$"$nt o a sto!, is said to *r$di!t its #t#r$ "o'$"$nt. Th$ +$ha'io#r is analys$d +y *lotting on a gra*h th$ *ri!$ "o'$"$nt against any standard ind$&. This is !all$d t$!hni!al analysis. It t$lls yo# (h$n to +#y a sto!,. Analysis o th$ #nda"$ntals o a !o"*any% on th$ oth$r hand% t$lls yo# (hi!h sto!, to +#y. E,),a)do. Sto!,s also go or s*lits. On$ in$ day i th$ !o"*any (hos$ ?@ sto!,s yo# o(n and ha'ing a !#rr$nt "ar,$t *ri!$ o Rs <@% d$!lar$s a 0) or)1 s*lit% yo# (ill no( o(n 1@@ sto!,s o th$ !o"*any. Th$ "ar,$t (ill th$n hal'$ th$ *ri!$% #nl$ss it has r$asons to +$ "or$ +#llish% to aro#nd Rs 0@. Sto!, s*lits sho#ld not nor"ally rais$ th$ 'al#$ o yo#r sto!,s% sin!$ th$ *ri!$s all to !o"*$nsat$ or th$ larg$r n#"+$r o shar$s h$ld. Th$ "ain ad'antag$ o a sto!, s*lit is that it i"*ro'$s li1#idity. Yo# !an s$ll ?@ shar$s and r$tain th$ oth$r ?@. Us#ally !o"*ani$s go or sto!, s*lits (h$n th$ sto!,Ls *ri!$ -oo"s #* to so"$ *h$no"$nal l$'$l and h$n!$% +$!o"$s o#t o r$a!h o "any in'$stors. S*lits in s#!h !as$s "a,$ sto!,s a orda+l$ and #s#ally l$ad to in!r$as$d +#ying and% h$n!$% also in!r$as$ li1#idity. Nat#rally% it is $&*$!t$d that th$ sto!,Ls 'al#$ (ill "a,$ an #*(ard as!$nt soon a t$r th$ s*lit and in'$stors (ill stand to gain.

Kousali Institute of Management Studies


C$ !an also ha'$ a do),a)$,. Co"*ani$s so"$ti"$s d$!lar$ to r$tir$ th$ir sto!,s in a !$rtain *ro*ortion o th$ir o#tstanding sto!,s. 9$n!$% a 1) or)0 r$'$rs$ s*lit (o#ld "$an that any shar$hold$r (ill no( o(n hal th$ n#"+$r o shar$s (ith th$ *ri!$ o $a!h +$ing do#+l$ as +$ or$ th$ r$'$rs$ s*lit. 9o($'$r% th$ total 'al#$ o th$ holding (ill r$"ain th$ sa"$ on th$ day o th$ s*lit. R$'$rs$ s*lits ar$ !#rr$ntly not allo($d in India tho#gh !o"*ani$s !an +#y +a!, th$ir shar$s #*to a !$rtain *$r!$ntag$ o th$ o#tstanding n#"+$r o shar$s.

B2!+'( '- selling stocks Till 1FF?% th$ ;o"+ay Sto!, E&!hang$% IndiaBs old$st sto!, $&!hang$ and also AsiaBs old$st% (or,$d on th$ o*$n o#t)!ry syst$" o sto!, trading. Th$ o#t)!ry syst$" ollo($d a syst$" o *#+li! a#!tions in (hi!h '$r+al +ids and o $rs ar$ "ad$ or sto!,s on th$ trading loor. R$"$"+$r thos$ ranti! s!$n$s )) "$n r#nning aro#nd% sho#ting at th$ to* o th$ir 'oi!$s and $&!hanging signs. Things ha'$ got a +it "or$ !i'ilis$d sin!$ th$nR In 1FF? th$ o*$rations and d$alings o th$ ;SE ($r$ #lly !o"*#t$ris$d and th$ o#t)!ry syst$" (as r$*la!$d +y th$ #lly a#to"at$d !o"*#t$ris$d "od$ o trading ,no(n as ;O:T 2;SE On :in$ Trading3 Syst$". S)""5)m)'" o4 ". -)

A +#y$r o a sto!, has to *ay th$ s$ll$r and g$t th$ sto!, in r$t#rn% $&a!tly li,$ +#ying '$g$ta+l$s in th$ lo!al "ar,$t. C$ll% th$ *ro+l$" is #nli,$ a '$g$ta+l$ "ar,$t% +#y$rs and s$ll$rs ar$ not *hysi!ally *r$s$nt in th$ sto!,"ar,$t. India do$s not y$t ha'$ th$ in rastr#!t#r$ to a!ilitat$ th$ trans $r o sto!,s and "on$y +$t($$n +#y$rs and s$ll$rs on a daily +asis. Th$r$ or$% ($ ha'$ a s$ttl$"$nt *$riod. I th$ s$ttl$"$nt *$riod is s$'$n days% th$ a!t#al trans $r o sto!,s and "on$y (ill ta,$ *la!$ at th$ $nd o th$ *$riod% i.$. $'$ry s$'$n days. Th$ ;SE and NSE +oth ollo( a s$ttl$"$nt *$riod o on$ ($$,. Th$ trad$ dat$ is th$ dat$ th$ d$al (as str#!, or th$ trad$ o sto!,s (as $&$!#t$d. S$ttl$"$nt dat$ is th$ dat$ on (hi!h a trad$r is s#**os$d to gi'$ d$li'$ry o shar$s or gi'$ "on$y or th$ shar$s h$ has *#r!has$d. On th$ ;SE th$ s$ttl$"$nt dat$ is /riday and

Kousali Institute of Management Studies


on th$ NSE th$ s$ttl$"$nt dat$ is on T#$sday. B *) D ") '- V 52) Th$ +as$ *$riod s$l$!t$d or S76 CNX Ni ty ind$& is th$ !los$ o *ri!$s on No'$"+$r 4% 1FF?% (hi!h "ar,s th$ !o"*l$tion o on$ y$ar o o*$rations o NSELs Ca*ital Mar,$t S$g"$nt. Th$ +as$ 'al#$ o th$ ind$& has +$$n s$t at 1@@@ and a +as$ !a*ital o Rs.0.@G trillion.

C.+").+ 4o. S)5)#"+o' o4 Co'*"+"2)'" S"o#$* : Th$ !onstit#$nts and th$ !rit$ria or th$ s$l$!tion 5#dg$ th$ $ $!ti'$n$ss o th$ ind$&. S76 CNX Ni ty is #ni1#$ in this r$s*$!t. S$l$!tion o th$ ind$& s$t is +as$d on < !rit$ria : :i1#idity 2i"*a!t !ost3. Mar,$t !a*itali-ation. /loating sto!,

L+<2+-+"! =Im6 #" Co*"> /or in!l#sion in th$ ind$&% th$ s$!#rity sho#ld ha'$ trad$d at an a'$rag$ i"*a!t !ost o @.>?P or l$ss d#ring th$ last si& "onths or F@P o th$ o+s$r'ations 2inst$ad o th$ $arli$r !rit$ria o 1.?P or l$ss d#ring th$ last on$ y$ar or =?P o th$ o+s$r'ations3. I"*a!t !ost is !ost o $&$!#ting a transa!tion in a s$!#rity in *ro*ortion to th$ ($ightag$ o its "ar,$t !a*italisation as against th$ ind$& "ar,$t !a*italisation at any *oint o ti"$. This is th$ *$r!$ntag$ "ar, #* s# $r$d (hil$ +#ying N s$lling th$ d$sir$d 1#antity o a s$!#rity !o"*ar$d to its id$al *ri!$ 2+$st +#y S +$st s$ll3 N 0

Kousali Institute of Management Studies


/or $&a"*l$% or th$ +$lo( ord$r +oo,: ;#y 2Tty.3 1@@@ 0@@@ 1@@@ ;#y 26ri!$3 F= F> FG S$ll 2Tty.3 1@@@ 1?@@ 1@@@ S$ll 26ri!$3 FF 1@@ 1@1

To ;#y 1?@@ Shar$s: Id$al 6ri!$ H 2FF S F=3N0 H F=.? A!t#al ;#y 6ri!$ H 21@@@ X FF S ?@@ X 1@@3N1?@@ H FF.44 2/or 1?@@ shar$s3 I"*a!t Cost H U2FF.44 ) F=.?3NF=.?V X 1@@ H @.=<P

M .$)" C 6+" 5+* "+o' Co"*ani$s $ligi+l$ or in!l#sion in Ni ty "#st ha'$ a si& "onthly a'$rag$ "ar,$t !a*italisation o Rs.?@@ !ror$s or "or$ d#ring th$ last si& "onths. F5o "+'( S"o#$ Co"*ani$s $ligi+l$ or in!l#sion in S76 CNX Ni ty sho#ld ha'$ atl$ast 10P loating sto!,. /or this *#r*os$% loating sto!, shall "$an sto!,s (hi!h ar$ not h$ld +y th$ *ro"ot$rs and asso!iat$d $ntiti$s 2(h$r$ id$nti ia+l$3 o s#!h !o"*ani$s. O"&).* A !o"*any (hi!h !o"$s o#t (ith a I6O (ill +$ $ligi+l$ or in!l#sion in th$ ind$&% i it #l ills th$ nor"al $ligi+lity !rit$ria or th$ ind$& li,$ i"*a!t !ost% "ar,$t !a*italisation and loating sto!,% or a 4 "onth *$riod inst$ad o a G "onth *$riod.

Kousali Institute of Management Studies


I'-)% M +'")' '#) Ind$& Maint$nan!$ *lays a !r#!ial rol$ in $ns#ring sta+ility o th$ Ind$& as ($ll as in "$$ting its o+5$!ti'$ o +$ing a !onsist$nt +$n!h"ar, o th$ $1#ity "ar,$ts. IIS: has !onstit#t$d an Ind$& 6oli!y Co""itt$$% (hi!h is in'ol'$d in *oli!y and g#id$lin$s or "anaging th$ CNX Indi!$s. Th$ Ind$& Maint$nan!$ S#+)!o""itt$$ ta,$s all d$!isions on additionN d$l$tion o !o"*ani$s in any Ind$&. Th$ ind$& is r$'i$($d $'$ry 1#art$r and a si& ($$,s noti!$ is gi'$n to th$ "ar,$t +$ or$ "a,ing !hang$s to th$ ind$& s$t.

T. -+'( +' N+4"! Th$ National Sto!, E&!hang$ o India :i"it$d 2NSE3 !o""$n!$d trading in d$ri'ati'$s (ith ind$& #t#r$s on A#n$ 10% 0@@@. Th$ #t#r$s !ontra!ts on NSE ar$ +as$d on S76 CNX Ni ty. Th$ E&!hang$ lat$r introd#!$d trading on ind$& o*tions +as$d on Ni ty on A#n$ <% 0@@1. Th$ t#rno'$r in th$ d$ri'ati'$s s$g"$nt has sho(n !onsid$ra+l$ gro(th in th$ last y$ar% (ith NSE t#rno'$r a!!o#nting or G@P o th$ total t#rno'$r in th$ y$ar 0@@@)0@@1. /#rth$r d$tails on ind$& +as$d d$ri'ati'$s ar$ a'aila+l$ #nd$r th$ D$ri'ati'$s 2/7O3 s$!tion o th$ ($+sit$.

To" 5 R)"2.'* I'-)% S76 CNX Ni ty r$ l$!ts th$ r$t#rn on$ (o#ld g$t i in'$st"$nt is "ad$ in th$ ind$& *ort olios. As Ni ty is !o"*#t$d in r$al)ti"$% it ta,$s into a!!o#nt only th$ *ri!$ "o'$"$nts. 9o($'$r% th$ *ri!$ indi!$s do not !onsid$r th$ r$t#rn ro" di'id$nd *ay"$nts o ind$& !onstit#$nt sto!,s. Only th$ !a*ital gains d#$ to *ri!$ "o'$"$nt is "$as#r$d +y th$ *ri!$ ind$&. In ord$r to g$t a tr#$ *i!t#r$ o r$t#rns% th$ di'id$nds

Kousali Institute of Management Studies


r$!$i'$d ro" th$ ind$& !onstit#$nt sto!,s also n$$ds to +$ in!l#d$d in th$ ind$& "o'$"$nt. S#!h an ind$&% (hi!h in!l#d$s th$ di'id$nds r$!$i'$d% is !all$d th$ Total R$t#rns Ind$&. Th$ Total R$t#rns Ind$& is an ind$& to r$ l$!t th$ r$t#rns on th$ ind$& ro" ind$& gainNloss *l#s di'id$nd *ay"$nts +y !onstit#$nt ind$& sto!,s.


FUTURES CONTRACT: A. /#t#r$s !ontra!t is a ty*$ o J or(ard !ontra!tJ. /CRA d$ in$s or(ard !ontra!t as Ja !ontra!t or th$ d$li'$ry o goods and (hi!h is not a r$ady d$li'$ry !ontra!tJ. Und$r th$ A!t% a r$ady d$li'$ry !ontra!t is on$% (hi!h *ro'id$s or th$ d$li'$ry o goods and th$ *ay"$nt o *ri!$ th$r$ or$% $ith$r i""$diat$ly or (ithin s#!h *$riod not $&!$$ding 11 days a t$r th$ dat$ o th$ !ontra!t% s#+5$!t to s#!h !onditions as "ay +$ *r$s!ri+$d +y th$ C$ntral .o'$rn"$nt. A r$ady d$li'$ry !ontra!t is r$1#ir$d +y la( to +$ #l ill$d +y gi'ing and ta,ing th$ *hysi!al d$li'$ry o goods. In "ar,$t *arlan!$% th$ r$ady d$li'$ry !ontra!ts ar$ !o""only ,no(n as Js*otJ or J!ashJ !ontra!ts. All !ontra!ts in !o""oditi$s *ro'iding or d$li'$ry o goods andNor *ay"$nt o *ri!$ a t$r 11 days ro" th$ dat$ o th$ !ontra!t ar$ J or(ardJ !ontra!ts. /or(ard !ontra!ts ar$ o t(o ty*$s ) JS*$!i i! D$li'$ry Contra!tsJ and J/#t#r$s Contra!tsJ. S*$!i i! d$li'$ry !ontra!ts *ro'id$ or th$ a!t#al d$li'$ry o s*$!i i! 1#antiti$s and ty*$s o goods d#ring a s*$!i i$d #t#r$ *$riod% and B. In (hi!h th$ na"$s o +oth th$ +#y$r and th$ s$ll$r ar$ "$ntion$d.Th$ t$r" D/#t#r$s !ontra!t is no(h$r$ d$ in$d in th$ /CRA.;#t th$ A!t i"*li$s that it is a or(ard !ontra!t %(hi!h is not s*$!i i!ally a d$li'$ry !ontra!t 9o($'$r +$ing a or(ard !ontra!t%it is n$!$ssarily D a !ontra!t or th$ d$li'$ry o goodsE. A #t#r$ !ontra!t in (hi!h d$li'$ry is not int$nd$d is 'oid2i.$.% not $n or!$a+l$ +y la(3% and is not th$r$ or$% not *$r"itt$d or trading at any !o""odity $&!hang$.

Kousali Institute of Management Studies


COMMODITIES EDCHANGE: A !o""oditi$s $&!hang$ is an $&!hang$ (h$r$ 'ario#s !o""oditi$s and d$ri'ati'$s *rod#!ts ar$ trad$d. Most !o""odity "ar,$ts a!ross th$ (orld trad$ in agri!#lt#ral *rod#!ts and oth$r ra( "at$rials 2li,$ (h$at% +arl$y% s#gar% "ai-$% !otton% !o!oa% !o $$% "il, *rod#!ts% *or, +$lli$s% oil% "$tals% $t!.3 and !ontra!ts +as$d on th$". Th$s$ !ontra!ts !an in!l#d$ s*ots% or(ards% #t#r$s and o*tions on #t#r$s. Oth$r so*histi!at$d *rod#!ts "ay in!l#d$ int$r$st rat$s% $n'iron"$ntal instr#"$nts% s(a*s% or o!$an r$ight !ontra!ts.


T&) C&+# (o Bo .- O4 T. -) =CBOT> T&) C&+# (o M).# '"+5) E%#& '() =CME> T&) N)0 Yo.$ M).# '"+5) E%#& '() =NYMED> T&) N)0 Yo.$ Bo .- O4 T. -) =NYBOT> T&) Lo'-o' M)" 5 E%#& '() =LME> T&) To$!o Commo-+"! E%#& '() =TOCOM> 203 INDIAN MAR8ETS:

M25"+8Commo-+"! E%#& '() =MCD> N "+o' 5 Commo-+"! '- D).+, "+,) E%#& '() =NCDED> N "+o' 5 m25"+ #ommo-+"! )%#& '() =NMCE> =9> FORED ; EUROA POUNDA YENA S/ISS FRA


Kousali Institute of Management Studies


TYPE OF MARKET: C *& m .$)": it d$als (ith th$ s*ot "ar,$t trading F2"2.) m .$)": it d$als (ith #t#r$ "ar,$t trading CASH AND FUTURE MARKET: 9$dging is a "$!hanis" +y (hi!h th$ *arti!i*ants in th$ *hysi!alN!ash "ar,$ts !an !o'$r th$ir *ri!$ ris,. Th$or$ti!ally% th$ r$lationshi* +$t($$n th$ #t#r$s and !ash *ri!$s is d$t$r"in$d +y !ost o !arry. Th$ t(o *ri!$s th$r$ or$ "o'$ in tand$". This $na+l$s th$ *arti!i*ants in th$ *hysi!alN!ash "ar,$ts to !o'$r th$ir *ri!$ ris, +y ta,ing o**osit$ *osition in th$ #t#r$s "ar,$t. /#t#r$s *ri!$s $'ol'$ ro" th$ int$ra!tion o +ids and o $rs $"anating ro" all th$ +#y$rs and s$ll$rs W (hi!h !on'$rg$ in th$ trading loor or th$ trading $ngin$. Th$ +id and o $r *ri!$s ar$ +as$d on th$ $&*$!tations o *ri!$s on th$ "at#rity dat$. 6arti!i*ants in *hysi!al "ar,$ts #s$ #t#r$s "ar,$t or *ri!$ dis!o'$ry and *ri!$ ris, "anag$"$nt. In a!t% in th$ a+s$n!$ o #t#r$s "ar,$t% th$y (o#ld +$ !o"*$ll$d to s*$!#lat$ on *ri!$s.

Kousali Institute of Management Studies


Th$ s*ot *ri!$ is th$ r$al *ri!$ o th$ *hysi!al !o""odity (hil$ th$ #t#r$s *ri!$ r$ $rs to th$ *ri!$ o a !ontra!t +$ing trad$d in th$ #t#r$s "ar,$t.


A -).+, "+,) is a g$n$ri! t$r" or s*$!i i! ty*$s o in'$st"$nts ro" (hi!h *ayo s o'$r ti"$ ar$ derived ro" th$ *$r or"an!$ o ass$ts 2s#!h as !o""oditi$s% shar$s or +onds3% int$r$st rat$s% $&!hang$ rat$s% or indi!$s 2s#!h as a sto!, "ar,$t ind$&% !ons#"$r *ri!$ ind$& 2C6I3 or an ind$& o ($ath$r !onditions3. A d$ri'ati'$ !ontra!t is an $n or!$a+l$ agr$$"$nt (hos$ 'al#$ is d$ri'$d ro" th$ , 52) o4 ' 2'-).5!+'( **)"M th$ #nd$rlying ass$t !an +$ a !o""odity% *r$!io#s "$tal% !#rr$n!y% +ond% sto!,% or% indi!$s o !o""oditi$s% sto!,s $t!. D$ri'ati'$ s$!#rity or d$ri'ati'$ is a !ontra!t (hi!h s*$!i i$s th$ right or o+ligation +$t($$n t(o *arti$s to r$!$i'$ or d$li'$r #t#r$ !ash lo(s 2or $&!hang$ o oth$r s$!#riti$s or ass$ts3 +as$d on so"$ #t#r$ $'$nt. Anoth$r (ay o d$ ining a d$ri'ati'$ is that it is a s$!#rity (hos$ 'al#$ is d$t$r"in$d 2d$ri'$d3 ro" on$ or "or$ oth$r s$!#riti$s% !o""oditi$s% or $'$nts. Th$ 'al#$ is in l#$n!$d +y th$ $at#r$s o th$ d$ri'ati'$ !ontra!t% (hi!h "ay in!l#d$ th$ ti"ing o th$ !ontra!t #l ill"$nt% th$ 'al#$ o th$ #nd$rlying s$!#rity or !o""odity% and oth$r a!tors s#!h as 'olatility.

Th$ *ay"$nts +$t($$n th$ *arti$s "ay +$ d$t$r"in$d +y th$ #t#r$ !hang$s o : a3 Th$ *ri!$ o so"$ oth$r% ind$*$nd$ntly trad$d ass$t in th$ #t#r$ 2$.g.% a !o""on sto!,3 +3 Th$ l$'$l o so"$ ind$& 2$.g.% a sto!, ind$& or h$ating)d$gr$$)days3 !3 Th$ o!!#rr$n!$ o so"$ ($ll)s*$!i i$d $'$nt 2$.g.% a !o"*any d$ a#lting3

Kousali Institute of Management Studies


So"$ d$ri'ati'$s ar$ th$ right to +#y or s$ll th$ #nd$rlying s$!#rity or !o""odity at so"$ *oint in th$ #t#r$ or a *r$d$t$r"in$d *ri!$. I th$ *ri!$ o th$ #nd$rlying s$!#rity or !o""odity "o'$s into th$ right dir$!tion% th$ o(n$r o th$ d$ri'ati'$ "a,$s "on$yM oth$r(is$% th$y los$ "on$y. D$*$nding on th$ d$ inition o th$ !ontra!t% th$ *ot$ntial loss or gain "ay +$ "#!h high$r than i th$y had trad$d th$ #nd$rlying s$!#rity or !o""odity dir$!tly.

CLASSIFICATION OF DERIVATIVES: D$ri'ati'$s ar$ +asi!ally !lassi i$d +as$d #*on th$ "$!hanis" that is #s$d to trad$ on th$". Th$y ar$: 1.O'$r th$ Co#nt$r d$ri'ati'$s 0.E&!hang$ trad$d d$ri'ati'$s

Th$ OTC d$ri'ati'$s ar$ +$t($$n t(o *ri'at$ *arti$s and ar$ d$sign$d to s#it th$ r$1#ir$"$nts o th$ *arti$s !on!$rn$d. Th$ E&!hang$ trad$d on$s ar$ standardi-$d on$s (h$r$ th$ $&!hang$ s$ts th$ standards or trading +y *ro'iding th$ !ontra!t s*$!i i!ations and th$ !l$aring !or*oration *ro'id$s th$ trad$ g#arant$$ and th$ s$ttl$"$nt a!ti'iti$s

Co""on $&a"*l$s o d$ri'ati'$s ar$: A3 /or(ard !ontra!ts. ;3 /#t#r$s !ontra!ts . C3 O*tions s#!h as sto!, o*tions . D3 S(a*s .

Kousali Institute of Management Studies



T$!hni!al Analysis Th$ory Is th$r$ a *att$rn to !o""odity *ri!$sQ Can yo# *r$di!t #t#r$ *ri!$s +as$d #*on *ast *$r or"an!$Q Th$s$ 1#$stions ar$ on$s $'$ry !o""odity "ar,$t *arti!i*ant (ond$rs a+o#t. To ans($r th$s$ 1#$stions r$1#ir$s st#dy o th$ a!tors that in l#$n!$ "ar,$t *ri!$s. To a!!o"*lish this tas, th$r$ ar$ t(o "$thods a'aila+l$ to th$ "ar,$t analyst% 42'- m)'" 5 '- ")#&'+# 5. /#nda"$ntal analysis is +as$d #*on th$ traditional st#dy o s#**ly and d$"and a!tors that !a#s$ *ri!$s to ris$ or all. S#!h a!tors in!l#d$ dro#ght% lood% (ar% *oliti!s% $&!hang$ rat$s% in lation and d$ lation. Th$ *r$'io#s s$!tion on s#**ly 7 d$"and and sto!,sN#s$ ratios ar$ "$thods #s$d +y #nda"$ntalists to arri'$ at an $sti"at$ o th$ $1#ili+ri#" "ar,$t *ri!$ o a !o""odity o'$r ti"$ in ord$r to d$t$r"in$ i th$ !#rr$nt "ar,$t *ri!$ is o'$r or #nd$r'al#$d. T$!hni!al or !hart analysis% +y !ontrast% is +as$d #*on th$ st#dy o th$ "ar,$t a!tion its$l . Chil$ #nda"$ntal analysis st#di$s th$ r$asons or !a#s$s or *ri!$s going #* or do(n% t$!hni!al analysis st#di$s th$ $ $!t o th$ *ri!$ "o'$"$nt its$l . T$!hni!al analysts !lai" that "ar,$ts do tr$nd and that +y !harting "ar,$t *ri!$s yo# !an !ontrol !o""odity *ri!$ ris, "anag$"$nt. Th$y #rth$r !lai" that +y !o"+ining th$ #s$ o *ri!$ !harts (ith a**ro*riat$ "ar,$ting tools and *ri!ing strat$gi$s !an ha'$ a "a5or *ositi'$ i"*a!t on yo#r *ro ita+ility and% th$r$ or$% th$ long)t$r" s#r'i'al o yo#r +#sin$ss. Charting !an +$ #s$d +y its$l (ith no #nda"$ntal in*#t% or in !on5#n!tion (ith #nda"$ntal in or"ation. C$ (ill ind that as yo# +$!o"$ "or$ s,ill$d in !harting and t$!hni!al analysis that th$ ill#sion o rando"n$ss in th$ !o""odity "ar,$t (ill grad#ally disa**$ar. This (ill l$ad to "or$ !on id$n!$ in "a,ing thos$ '$ry !r#!ial "ar,$ting d$!isions.

Kousali Institute of Management Studies


C$ (ill l$arn (hat t$!hni!al th$ory is% ho( to !onstr#!t daily% ($$,ly% and "onthly +ar !harts. C$ (ill also $&*lor$ th$ +asi! !on!$*ts o tr$nd% tr$nd)lin$s% *ri!$ s#**ort% *ri!$ r$sistan!$% 'ol#"$ and o*$n int$r$st. /inally ($ (ill l$arn ho( to #s$ all o th$s$ tools to !on ir" *ri!$ a!tion or to (arn o i"*$nding *ri!$ tr$nd !hang$s as ($ do so"$ *ri!$ or$!asting o o#r o(n. Th$ a+ility to "a,$ !o""odity *ri!$ or$!asts is only th$ irst st$* in th$ *ri!$ d$!ision)"a,ing *ro!$ss. Th$ s$!ond% and o t$n "or$ di i!#lt st$*% is "ar,$t ti"ing. Sin!$ !o""odity #t#r$s "ar,$ts ar$ so highly l$'$rag$d 2initial "argin r$1#ir$"$nts ar$ g$n$rally l$ss than 1@P o a !ontra!tBs 'al#$3% "inor *ri!$ "o'$s !an ha'$ a dra"ati! i"*a!t on trading *$r or"an!$. Th$r$ or$% th$ *r$!is$ ti"ing o $ntry and $&it *oints is an indis*$nsa+l$ as*$!t o any "ar,$t !o""it"$nt. Ti"ing is $'$rything (h$n d$aling in th$ !o""oditi$s "ar,$ts% and ti"ing is al"ost *#r$ly t$!hni!al in nat#r$. This is (h$r$ a *ra!ti!al a**li!ation o !harting *rin!i*l$s +$!o"$s a+sol#t$ly $ss$ntial in th$ *ri!$ or$!asting and ris, "anag$"$nt *ro!$ss. Th$r$ ar$ thr$$ +asi! ass#"*tions on (hi!h t$!hni!al analysis is +as$d: 1. T&) 42"2.)* m .$)" -+*#o2'"* ),).! "&+'(: Th$ t$!hni!ian +$li$'$s that th$ *ri!$ *ost$d on th$ +oard o a !o""odity $&!hang$ at any gi'$n ti"$ is th$ intrinsi! 'al#$ o th$ !o""odity +as$d #*on th$ #nda"$ntal a!tors a $!ting th$ s#**ly and d$"and o th$ *rod#!t. Th$r$ or$% i th$ #nda"$ntals ar$ alr$ady r$ l$!t$d in th$ *ri!$% "ar,$t a!tion 2!harts) *ri!$% 'ol#"$% o*$n int$r$st3 is all that is n$$d$d to or$!ast #t#r$ *ri!$ dir$!tion. Altho#gh not ,no(ing th$ s*$!i i!s o th$ #nda"$ntal n$(s% th$ t$!hni!ian indir$!tly st#di$s th$ #nda"$ntals +y st#dying th$ !harts% (hi!h r$ l$!t th$ #nda"$ntals o th$ "ar,$t*la!$. 2. P.+#)* mo,) +' ".)'-*: 6ri!$s !an "o'$ in on$ o thr$$ dir$!tions% #*% do(n or sid$(ays. On!$ a tr$nd in any o th$s$ dir$!tions is in $ $!t it #s#ally (ill *$rsist. Th$ "ar,$t tr$nd is si"*ly th$ dir$!tion o "ar,$t *ri!$s% a !on!$*t that is a+sol#t$ly $ss$ntial to th$ s#!!$ss o t$!hni!al analysis. Id$nti ying tr$nds is 1#it$ si"*l$M a *ri!$ !hart (ill #s#ally indi!at$

Kousali Institute of Management Studies


th$ *r$'ailing tr$nd as !hara!t$ri-$d +y a s$ri$s o (a'$s (ith o+'io#s *$a,s and tro#ghs. It is th$ dir$!tion o th$s$ *$a,s and tro#ghs that !onstit#t$s th$ "ar,$t tr$nd. 9. H+*"o.! .)6) "* +"*)54 : T$!hni!al analysis in!l#d$s th$ *sy!hology o th$ "ar,$t *la!$. 6att$rns o h#"an +$ha'ior ha'$ +$$n id$nti i$d and !at$gori-$d or s$'$ral h#ndr$d y$ars and ar$ r$*$titi'$ in nat#r$. Th$ r$*$titi'$ nat#r$ o th$ "ar,$t*la!$ is ill#strat$d +y s*$!i i! !hart *att$rns% (hi!h (ill indi!at$ a !ontin#ation o or !hang$ in tr$nd.

Th$ ;AR C9ART is th$ ty*$ o !hart "ost !o""only #s$d +y t$!hni!al analysts. Th$ hori-ontal s!al$ on th$ +otto" o th$ !hart indi!at$s th$ *assag$ o ti"$. Th$ ti"$ s!al$ !an +$ any(h$r$ ro" "in#t$s to y$ars% (ith th$ "ost *o*#lar s!al$ +$ing th$ daily +ar !hart% th$ ($$,ly +ar !hart and th$ "onthly +ar !hart. Th$ daily +ar !hart indi!at$s th$ rang$ o *ri!$s or on$ dayBs trad$% as "$as#r$d on th$ '$rti!al s!al$ o th$ !hart.

DAI:Y ;AR C9ART: Th$ J+arJ is th$ rang$ o *ri!$ or a *arti!#lar ti"$ *$riodM or a daily +ar !hart% th$ to* o th$ +ar r$*r$s$nts th$ high$st 'al#$ or th$ day (hil$ th$ +otto" o th$ +ar r$*r$s$nts th$ lo($st 'al#$ or th$ day. Atta!h$d to th$ +ar ar$ t(o ti!s% on$ $&t$nding to th$ l$ t and on$ $&t$nding to th$ right. Th$ l$ t ti! r$*r$s$nts th$ o*$ning *ri!$ or th$ trading day and th$ right ti! r$*r$s$nts th$ !losing or s$ttl$"$nt *ri!$ or th$ day

Kousali Institute of Management Studies


Th$ daily +ar !hart is #s$d or short t$r" "ar,$ting d$!isions% and is $&tr$"$ly #s$ #l or ti"ing $ntry and $&it *oints (h$n d$signing a "ar,$ting strat$gy. 2/or $&a"*l$ (h$n to trigg$r a h$dg$ *osition (h$n *ro ita+l$ *ri!$s ar$ a'aila+l$ or (h$r$ to *la!$ a *rot$!ti'$ sto* on a s*$!#lati'$ *osition3

Kousali Institute of Management Studies



/or a ($$,ly !hart th$ *ri!$ rang$ is or on$ ($$,% Monday to /riday. I a holiday o!!#rs d#ring th$ ($$, only th$ data a'aila+l$ or th$ ($$, is #s$d. Th$ to* o th$ +ar r$*r$s$nts th$ high$st 'al#$ or th$ ($$, and th$ +otto" o th$ +ar r$*r$s$nts th$ lo($st 'al#$ or th$ ($$,. Th$ ti! to th$ l$ t is th$ o*$ning *ri!$ or th$ irst trading day o th$ ($$,% #s#ally Monday% and th$ ti! to th$ right is th$ s$ttl$"$nt *ri!$ #s#ally th$ !los$ o trad$ on /riday. Th$ "onthly !hart in!l#d$s th$ rang$ o trad$ or an $ntir$ "onth% ro" th$ irst trading day o th$ "onth to th$ last trading day o th$ "onth% (ith th$ o*$ning and !losing *ri!$s +$ing th$ 'al#$s or th$ irst and last day o th$ trading "onth r$s*$!ti'$ly. Th$ ($$,ly and "onthly !harts ar$ #s$d or a long$r)t$r" *$rs*$!ti'$ o th$ "ar,$ts% and ar$ $&tr$"$ly #s$ #l or "ar,$t *lanning *#r*os$s. /or $&a"*l$% i "ar,$t *ri!$s as indi!at$d on th$ "onthly !hart ar$ at histori!al lo(s% sal$s o !o""oditi$s sho#ld +$ d$lay$d (hil$ i *ri!$s ($r$ histori!ally high% a "or$ aggr$ssi'$ a**roa!h to "ar,$ting (o#ld +$ #nd$rta,$n.

Kousali Institute of Management Studies



Kousali Institute of Management Studies



Vol#"$ r$*r$s$nts th$ total a"o#nt o trading a!ti'ity or !ontra!ts that ha'$ !hang$d th$ hands in a gi'$n day hans in a gi'$n !o""odity "ar,$t or a singl$ trading day .th$ gr$at$r th$ a"o#nt o trading d#ring a "ar,$t s$ssion th$ high$r (ill +$ th$ trading 'ol#"$. As "$ntion$d $arli$r% a high$r 'ol#"$ +ar on th$ !hart "$ans that th$ trading a!ti'ity (as h$a'i$r or that day.anoth$r (ay to loo, at this is that th$ 'ol#"$ r$*r$s$nts a "$as#r$ o int$nsity or *r$ss#r$ +$hind a *ri!$ tr$nd .Th$ gr$at$r th$ 'ol#"$ th$ "or$ ($ !an $&*$!t th$ $&isting tr$nd to !ontin#$ rath$r than r$'$rs$. T$!hni!ians +$li$'$ that 'ol#"$ *r$!$d$s *ri!$%"$aning that th$ loss o #*sid$ *ri!$ *r$ss#r$ in an #*tr$nd or do(nsid$ *r$ss#r$ in a do(ntr$nd (il sho( #* in th$ 'ol#"$ ig#r$s +$ or$ *r$s$nting its$l as a r$'$rsal in tr$nd on th$ +ar !hart.

O6)' +'").)*": O*$n Int$r$st is th$ total n#"+$r o o#tstanding !ontra!ts that ar$ h$ld +y "ar,$t *arti!i*ants at th$ $nd o $a!h day. Ch$r$ 'ol#"$s "$as#r$ th$ *r$ss#r$ or int$nsity +$hind a *ri!$ tr$nd% o*$n int$r$st "$as#r$s th$ lo( o "on$y into th$ #t#r$ "ar,$t. /or $a!h s$ll$r o a #t#r$s !ontra!t th$r$ "#st +$ a +#y$r o that !ontra!t th#s a s$ll$r and a +#y$r !o"+in$ to !r$at$ only on$ !ontra!t. Th$r$ or$% to d$t$r"in$ th$ total o*$n int$r$st or any gi'$n "ar,$t ($ n$$d only to ,no( th$ totals ro" on$ sid$ or th$ oth$r%+#y$rs or s$ll$rs% not th$ s#" o +oth.

Ea!h trad$ !o"*l$t$d on th$ loor o a #t#r$ $&!hang$ has an i"*a!t #*on th$ l$'$l o o*$n int$r$st or that day.

Kousali Institute of Management Studies


Fo. )% m65): I +oth *arti$s to th$ trad$ ar$ initiating a n$( *osition 2on$ n$( +#y$r and n$( s$ll$r3%o*$n int$r$st (ill in!r$as$ +y on$ !ontra!t.I +oth th$ trad$rs ar$ !losing an $&isting or old *osition 2on$ old +#y$r and on$ old s$ll$r3 o*$n int$r$st (ill d$!lin$ +y on$ !ontra!t. Th$ third and inal *ossi+ility is on$ old trad$r *assing o his *osition to a n$( trad$r 2on$ old +#y$r s$lls to on$ n$( +#y$ this !as$ th$ o*$n int$r$st (ill not !hang$. ;y "onitoring th$ !hang$s in th$ o*$n int$r$st ig#r$s at th$ $nd o $a!h trading day% so"$ !on!l#sions a+o#t th$ dayBs a!ti'ity !an +$ dra(n. In!r$asing o*$n int$r$st "$ans that n$( "on$y is lo(ing into th$ "ar,$t *la!$ .Th$ r$s#lt (ill +$ that th$ *r$s$nt tr$nd 2#*% do(n or sid$(ays3 (ill !ontin#$. D$!lining o*$n int$r$st "$ans that th$ "ar,$t is li1#idating and i"*li$s that th$ *r$'ailing *ri!$ tr$nd is !o"ing to an $nd. 8no(l$dg$ o o*$n int$r$st !an *ro'$ #s$ #l to(ards th$ $nd o "a5or "ar,$t "o'$s. A l$'$ling o o a st$adily in!r$asing o*$n int$r$st ollo(ing a s#stain$d *ri!$ ad'an!$ is o t$n an $arly (arning o th$ $nd to an #* tr$nding or +#ll "ar,$t.

A' 5!*+* '- F+'-+'(* : Th$ r$lationshi* +$t($$n th$ *r$'ailing *ri!$ tr$nd% 'ol#"$% and o*$n int$r$st !an +$ s#""ari-$d as ollo(s in th$ ta+l$ :

6ri!$ Rising


O*$n int$r$st

Int$r*r$tation Mar,$t is Strong Mar,$t is ($a,$ning Mar,$t is ($a, Mar,$t str$ngth$ning



Rising /alling /alling

/alling Rising /alling

/alling Rising alling

Kousali Institute of Management Studies


2> RELATIVE STRENGTH INDED =RSI>: RSI "$as#r$s th$ str$ngth or ($a,n$ss o r$!$nt a!ti'ity r$lati'$ to histori!al a!ti'ity or a *arti!#lar sto!, or ind$&. Th$ RSI is an os!illator. Its 'al#$ s(ings +$t($$n an #**$r li"it and a lo($r li"it. RSI is !al!#lat$d #sing an $&*on$ntial "o'ing a'$rag$ o th$ #*(ard *ri!$ "o'$"$nts di'id$d +y th$ do(n(ard *ri!$ "o'$"$nts o'$r a *arti!#lar ti"$ int$r'al% s#!h as 1< days. Th$ RSI !an id$nti y o'$r+o#ght or o'$rsold !onditions (h$n th$ +#ying "o"$nt#" !hang$s. Th$ RSI (ill rang$ ro" @ to 1@@. Val#$s a+o'$ ?@ ar$ g$n$rally !onsid$r$d +#llish and 'al#$s +$lo( ?@ ar$ g$n$rally !onsid$r$d +$arish. Ch$n th$ RSI ris$s a+o'$ >@ or =@ 2in a +#ll "ar,$t3% it is !onsid$r$d o'$r+o#ght and a +$arish s$ll signal is g$n$rat$d (h$n it r$'$rs$s. Ch$n th$ RSI alls +$lo( 4@ or 0@ 2in a +$ar "ar,$t3% it is !onsid$r$d o'$rsold and a +#llish +#y signal is g$n$rat$d (h$n it r$'$rs$s. As (ith a sto!,% a s$ri$s o high$r highs and high$r lo(s on th$ RSI indi!at$s a !ontin#$d +#llish tr$nd. Si"ilarly% a s$ri$s o lo($r lo(s and lo($r highs indi!at$s a !ontin#ing +$ar tr$nd. Ch$n th$ RSI indi!at$s that th$ sto!, is o'$r+o#ght% it (ill to* o#t ah$ad o a "ar,$t *ri!$ to*. Ch$n th$ RSI indi!at$s that th$ sto!, is o'$rsold% it (ill +otto" o#t ah$ad o a "ar,$t *ri!$ +otto". Th#s RSI is a good l$ad indi!ator o a li,$ly tr$nd r$'$rsal. RSI H 1@@ ) U1@@N21 S RS3V Ch$r$: RS H A.NA: A. H A'$rag$ gain o #*(ard *ri!$ "o'$s o'$r RSI *$riod o n days A: H A'$rag$ loss o do(n(ard *ri!$ "o'$s o'$r RSI *$riod o n 2"any analysts #s$ F ) 1? day RSI3 S"all n "a,$s th$ RSI "or$ 'olatil$% "a,ing it hit $&tr$"$s "or$ o t$n. :arg$ n "a,$s th$ RSI l$ss 'olatil$% "a,ing it l$ss li,$ly to hit $&tr$"$s. days nH days

Kousali Institute of Management Studies


F2"2.)* S6.) -* : Co""odity s*r$ads "$as#r$ th$ *ri!$ di $r$n!$ +$t($$n t(o di $r$nt !ontra!ts% #s#ally #t#r$s !ontra!ts. S*r$ads !an also "$as#r$ th$ di $r$n!$ +$t($$n a !ash !ontra!t and a #t#r$s !ontra!t 2r$ $rr$d to as th$ +asis3 or th$ *ri!$ di $r$n!$ +$t($$n t(o o*tion !ontra!ts% or 'ario#s !o"+inations o th$ a+o'$. /or th$ *#r*os$ o this s$!tion (ill $&a"in$ s*r$ads ro" th$ !ont$&t o th$ *ri!$ di $r$n!$ +$t($$n t(o di $r$nt #t#r$s !ontra!ts. 2S$$ ig#r$3 In th$ grain +#sin$ss th$ di $r$n!$ +$t($$n t(o !ontra!t "onths o th$ sa"$ !o""odity 2i.$.% !anola3 r$*r$s$nts th$ !arrying !harg$s or th$ !ost o holding th$ !o""odity or a *$riod o ti"$. Carrying !harg$s ar$ d$t$r"in$d +y th$ !ost o int$r$st and storag$ (h$n *hysi!al !o""oditi$s ar$ h$ld in stor$. .rain trad$rs (ill "onitor s*r$ad r$lationshi*s '$ry !los$ly as th$ r$lati'$ di $r$n!$ +$t($$n 'ario#s !ontra!t *ositions (ill d$t$r"in$ th$ handling "argins or *ro ita+ility o th$ir in'ol'$"$nt in "ar,$ting grain. Ch$n #sing s*r$ads% th$ trad$r ho*$s to *ro it +y !hang$s in th$ s*r$ad 2di $r$n!$3 +$t($$n th$ t(o !ontra!ts. Th$ trad$r is loo,ing or $ith$r a (id$ning or narro(ing o th$ s*r$ad r$lationshi* o'$r ti"$. S*r$ad trading is !onsid$r$d to +$ a l$ss ris,y and o t$n l$ss $&*$nsi'$ (ay in (hi!h to *arti!i*at$ in th$ #t#r$s "ar,$t. Margin r$1#ir$"$nts or s*r$ads ar$ g$n$rally lo($r than o#tright long or short *ositions% and (h$th$r th$ *ri!$ in!r$as$s or d$!r$as$s th$ trad$rs ris, is li"it$d to th$ !hang$ in th$ s*r$ad% sin!$ +oth a long and a short *osition ar$ h$ld at th$ sa"$ ti"$. Sin!$ th$ ris, is lo($r% so (ill +$ th$ *ot$ntial or *ro it or loss. S*r$ad trading is "or$ !o"*li!at$d than o#tright trading and r$1#ir$s a high$r d$gr$$ o so*histi!ation on th$ *art o th$ trad$r. Th$ *#r*os$ o this s$!tion is to a"iliari-$ yo# (ith th$ #s$ o !o""odity s*r$ads in or$!asting "ar,$t dir$!tion. ;y "onitoring th$ r$lati'$ str$ngth +$t($$n 'ario#s !ontra!ts and +$t($$n di $r$nt "ar,$ts% yo# (ill +$ +$tt$r a+l$ to s$l$!t th$ a**ro*riat$ *ri!ing and ris, "anag$"$nt strat$gi$s (h$n d$'$lo*ing yo#r "ar,$ting *lan. ;$sid$s +$ing #s$d or s*r$ad trading% tra!,ing th$ s*r$ad r$lationshi*s +$t($$n di $r$nt !ontra!ts in th$ sa"$ "ar,$t or in di $r$nt "ar,$ts !an *ro'id$ #s$ #l insights into #t#r$ *ri!$ dir$!tion. Th$ r$lationshi*s +$t($$n th$ n$ar+y and th$ distant "onths in

Kousali Institute of Management Studies


th$ sa"$ !o""odity o t$n t$ll #s a+o#t th$ r$lati'$ str$ngth or ($a,n$ss o th$ "ar,$t its$l . /or $&a"*l$M th$ A#n$ 1FF4 Canola !ontra!t trad$d at a s#+stantial *r$"i#" to th$ No'$"+$r 1FF4 !ontra!t #* #ntil May 1FF4. A *$r!$i'$d shortag$ o to* 1#ality !anola ollo(ing th$ rost o A#g#st 1FF0 r$s#lt$d in 1FF0 !anola 'al#$s gaining on th$ 1FF4 !ontra!t *ositions. This r$lationshi* !ontin#$d #ntil it +$!a"$ a**ar$nt lat$r in th$ "ar,$ting y$ar that an ad$1#at$ s#**ly o !anola (as a'aila+l$ to satis y +#y$rBs n$$ds in addition to ar"$rsL r$1#ir$"$nts or !ash lo( *rior to s$$ding a n$( !ro*. Th$ s*r$ad r$lationshi* +$t($$n th$ t(o di $r$nt "ar,$ting y$ars th$n r$'$rs$d dir$!tion% as +#y$rs and s$ll$rs o!#s$d th$ir att$ntion on th$ #*!o"ing 1FF4NF< !anola *rod#!tion *ros*$!ts.

In sit#ations s#!h as this% !a#s$d +y *$r!$i'$d tightn$ss o sto!,s% th$ n$ar+y "onths (ill #s#ally ris$ ast$r than th$ distant "onths. This is r$ $rr$d to as a +#ll s*r$ad. In ord$r to *ro it ro" this r$lationshi* yo# (o#ld +#y th$ n$ar+y #t#r$s !ontra!t and si"#ltan$o#sly s$ll th$ "or$ distant !ontra!t. Con'$rs$ly in sit#ations (h$r$ th$ n$ar t$r" s#**li$s ar$ in r$lati'$ o'$r a+#ndan!$ in r$lation to #t#r$ s#**li$s% th$ n$ar+y "onths (ill #s#ally all ast$r than th$ distant "onths. A +$arish a**roa!h to th$ "ar,$t (o#ld +$ #nd$rta,$n +y $nt$ring a +$ar s*r$ad. In ord$r to *ro it ro" this r$lationshi* yo# (o#ld s$ll th$ n$ar+y !ontra!t "onth and +#y th$ distant !ontra!t "onth. ;y "onitoring th$ r$lationshi* +$t($$n th$ n$ar+y and th$ distant "onths% that o t$n (ill +$ *ro'id$d (ith a l$ad indi!ation as to (h$th$r th$ "ar,$t (ill tr$nd high$r or lo($r.

Kousali Institute of Management Studies



i 3 Co""odity "ar,$t is th$ (holly #t#r$s "ar,$t (h$r$in th$ #t#r$s ar$ "or$ *r$'al$nt. Shar$s "ar,$t is +oth th$ #t#r$s 7 $1#ity "ar,$t (h$r$in th$ #t#r$s ar$ !o"*arati'$ly l$ss *r$'al$nt 7 is *ossi+l$ or only $( !o"*ani$s. ii3 Co""oditi$s "ar,$t ar$ trad$d on di $r$nt "argin s$t)#* or 'ari$ty o !o""oditi$s% Ch$r$as th$ sto!,hold$rs n$$d not "aintain any "argin "a,$o'$r +$ or$ th$ trading. iii3 In !o""odity trading th$ !ontra!ts ar$ on th$ +asis o s$asonal yi$ld in !as$ o agri)*rod#!ts 7 or th$ *$riod o i&$d "onths. Th$ shar$s ar$ trad$d as *$r th$ !lass$s grad$d or th$ list$d 7 #nlist$d !o"*ani$s. i'3 Th$ !o""odity trading ar$ larg$ly analy-$d on th$ #nda"$ntal analysis t$!hni1#$s% (h$r$as shar$s trading analysis is +$st *ossi+l$ thro#gh th$ t$!hni!al analysis.

NCDEX is a *#+li! li"it$d !o"*any in!or*orat$d on A*ril 04% 0@@4 #nd$r th$ Co"*ani$s A!t% 1F?G. It o+tain$d its C$rti i!at$ or Co""$n!$"$nt o ;#sin$ss on May F% 0@@4. It has !o""$n!$d its o*$rations on D$!$"+$r 1?% 0@@4. NCDEX is a nation)l$'$l% t$!hnology dri'$n d$)"#t#ali-$d on)lin$ !o""odity $&!hang$ (ith an ind$*$nd$nt ;oard o Dir$!tors and *ro $ssionals not ha'ing any '$st$d int$r$st in !o""odity "ar,$ts. It is !o""itt$d to *ro'id$ a (orld)!lass !o""odity $&!hang$ *lat or" or "ar,$t *arti!i*ants to trad$ in a (id$ s*$!tr#" o !o""odity d$ri'ati'$s dri'$n +y +$st glo+al *ra!ti!$s% *ro $ssionalis" and trans*ar$n!y. NCDEX is r$g#lat$d +y /or(ard Mar,$t Co""ission in r$s*$!t o #t#r$s trading in !o""oditi$s. ;$sid$s% NCDEX is s#+5$!t$d to 'ario#s la(s o th$ land li,$ th$ Co"*ani$s A!t% Sta"* A!t% Contra!ts A!t% /or(ard Co""ission 2R$g#lation3 A!t and 'ario#s oth$r l$gislations% (hi!h i"*ing$ on its (or,ing.

Kousali Institute of Management Studies


NCDEX is lo!at$d in M#"+ai and o $rs a!iliti$s to its "$"+$rs in "or$ than 4F@ !$nt$rs thro#gho#t India. Th$ r$a!h (ill grad#ally +$ $&*and$d to "or$ !$nt$rs.

2.? T!6)* o4 T. -).* +' Commo-+"! & D).+, "+,) M .$)" :

9$dg$rs% S*$!#lators and Ar+itrators ar$ th$ ty*$s o trad$rs in d$ri'ati'$s "ar,$t. H)-().*: 9$dg$rs ar$ thos$ (ho *rot$!t th$"s$l'$s ro" th$ ris, asso!iat$d (ith th$ *ri!$ o an ass$t +y #sing d$ri'ati'$s. A *$rson ,$$*s a !los$ (at!h #*on th$ *ri!$s dis!o'$r$d in trading and (h$n th$ !o" orta+l$ *ri!$ is r$ l$!t$d a!!ording to his (ants% h$ s$lls #t#r$s !ontra!ts. In this (ay h$ g$ts an ass#r$d i&$d *ri!$ o his *rod#!$. In g$n$ral% h$dg$rs #s$ #t#r$s or *rot$!tion against ad'$rs$ #t#r$ *ri!$ "o'$"$nts in th$ #nd$rlying !ash !o""odity. 9$dg$rs ar$ o t$n +#sin$ss$s% or indi'id#als% (ho at on$ *oint or anoth$r d$al in th$ #nd$rlying !ash !o""odity. Ta,$ an $&a"*l$: A 9$dg$r *ay "or$ to th$ ar"$r or d$al$r o a *rod#!$ i its *ri!$s go #*. /or *rot$!tion against high$r *ri!$s o th$ *rod#!$% h$ h$dg$ th$ ris, $&*os#r$ +y +#ying $no#gh #t#r$ !ontra!ts o th$ *rod#!$ to !o'$r th$ a"o#nt o *rod#!$ h$ $&*$!ts to +#y. Sin!$ !ash and #t#r$s *ri!$s do t$nd to "o'$ in tand$"% th$ #t#r$s *osition (ill *ro it i th$ *ri!$ o th$ *rod#!$ ris$ $no#gh to o s$t !ash loss on th$ *rod#!$. S6)#25 "o.*: S*$!#lators ar$ so"$ (hat li,$ a "iddl$ "an. Th$y ar$ n$'$r int$r$st$d in a!t#al o(ing th$ !o""odity. Th$y (ill 5#st +#y ro" on$ $nd and s$ll it to th$ oth$r in anti!i*ation o #t#r$ *ri!$ "o'$"$nts. Th$y a!t#ally +$t on th$ #t#r$ "o'$"$nt in th$ *ri!$ o an ass$t.

Kousali Institute of Management Studies


Th$y ar$ th$ s$!ond "a5or gro#* o #t#r$s *lay$rs. Th$s$ *arti!i*ants in!l#d$ ind$*$nd$nt loor trad$rs and in'$stors. Th$y handl$ trad$s or th$ir *$rsonal !li$nts or +ro,$rag$ ir"s. ;#ying a #t#r$s !ontra!t in anti!i*ation o *ri!$ in!r$as$s is ,no(n as Igoing longB. S$lling a #t#r$s !ontra!t in anti!i*ation o a *ri!$ d$!r$as$ is ,no(n as Igoing shortB. S*$!#lati'$ *arti!i*ation in #t#r$s trading has in!r$as$d (ith th$ a'aila+ility o alt$rnati'$ "$thods o *arti!i*ation. Speculators have certain advantages over other investments they are as follows: i trad$rs h$ !an "a,$ "or$ "on$y in th$ #t#r$s "ar,$t ast$r +$!a#s$ *ri!$s t$nd% on a'$rag$% to !hang$ "or$ 1#i!,ly than r$al $stat$ or sto!, *ri!$s. /#t#r$s ar$ highly l$'$rag$d in'$st"$nts. Th$ trad$r *#ts #* a s"all ra!tion o th$ 'al#$ o th$ #nd$rlying !ontra!t as "argin% y$t h$ !an rid$ on th$ #ll 'al#$ o th$ !ontra!t as it "o'$s #* and do(n. Th$ "on$y h$ *#ts #* is not a do(n *ay"$nt on th$ #nd$rlying !ontra!t% +#t a *$r or"an!$ +ond. Th$ a!t#al 'al#$ o th$ !ontra!t is only $&!hang$d on thos$ rar$ o!!asions (h$n d$li'$ry ta,$s *la!$.

A.b+". "o.*: A!!ording to di!tionary d$ inition% a *$rson (ho has +$$n o i!ially !hos$n to "a,$ a d$!ision +$t($$n t(o *$o*l$ or gro#*s (ho do not agr$$ is ,no(n as Ar+itrator. In !o""odity "ar,$t Ar+itrators ar$ th$ *$rson (ho ta,$ th$ ad'antag$ o a dis!r$*an!y +$t($$n *ri!$s in t(o di $r$nt "ar,$ts. I h$ inds #t#r$ *ri!$s o a !o""odity $dging o#t (ith th$ !ash *ri!$% h$ (ill ta,$ o s$tting *ositions in +oth th$ "ar,$ts to lo!, in a *ro it. Mor$o'$r th$ !o""odity #t#r$s in'$stor is not !harg$d int$r$st on th$ di $r$n!$ +$t($$n "argin and th$ #ll !ontra!t 'al#$.

Kousali Institute of Management Studies


REGULATORY FRAME/ORK Fo.0 .- Co'". #"* =R)(25 "+o'> A#"A 1F?2 Co""odity E&!hang$s in India ar$ go'$rn$d and r$g#lat$d #nd$r th$ /or(ard Contra!ts R$g#lations A!t% 1F?0 and R#l$s ra"$d th$r$ #nd$r. Fo.0 .- M .$)"* Comm+**+o' Th$ /or(ard Mar,$ts Co""ission% #nd$r th$ Ministry o Cons#"$r a airs% /ood and 6#+li! Distri+#tion% .o'$rn"$nt o India is th$ r$g#lating a#thority or all Co""odity /#t#r$s E&!hang$s India.


X To ad'is$ h$ C$ntral .o'$rn"$nt in r$s*$!t o th$ r$!ognition o or th$ (ithdra(al o r$!ognition ro" any asso!iation or in r$s*$!t o any oth$r "att$r arising o#t o th$ ad"inistration o this A!tM X To ,$$* or(ard "ar,$ts #nd$r o+s$r'ation and to ta,$ s#!h a!tion inr$lation to th$" as it "ay !onsid$r n$!$ssary% in $&$r!is$ o th$ *o($rs assign$d to it +y or #nd$r this A!t. X To !oll$!t and (h$n$'$r th$ Co""ission thin,s it n$!$ssary% *#+lish in or"ation r$garding th$ trading !onditions in r$s*$!t o goods to (hi!h any o th$ *ro'isions o this A!t is "ad$ a**li!a+l$% in!l#ding in or"ation r$garding s#**ly% d$"and and *ri!$s% and to s#+"it to th$ C$ntral .o'$rn"$nt *$riodi!al r$*orts on th$ o*$ration o this A!t and on th$ (or,ing o or(ard "ar,$ts r$lating to s#!h goods. To "a,$ r$!o""$ndations g$n$rally (ith a 'i$( to i"*ro'ing th$ organi-ation and (or,ing o or(ard "ar,$tsM

Kousali Institute of Management Studies


X To #nd$rta,$ th$ ins*$!tion o a!!o#nts and oth$r do!#"$nts o any r$!ogni-$d asso!iation or r$gist$r$d asso!iation or any "$"+$r o s#!h asso!iation (h$n$'$r it !onsid$rs it n$!$ssaryM and X To *$r or" s#!h oth$r d#ti$s and $&$r!is$ s#!h oth$r *o($rs as "ay +$ assign$d to th$ Co""ission +y or #nd$r this A!t% or "ay +$ *r$s!ri+$d.

REGULATORY MEASURES EVOLVED BY THE OMMISSION X :i"it on o*$n *ositions o an indi'id#al o*$rator to *r$'$nt o'$rtrading. X :i"it on *ri!$ l#!t#ations to *r$'$nt a+r#*t #*s(ing or do(ns(ing in *ri!$s. X S*$!ial "argin d$*osits to +$ !oll$!t$d to +$ !oll$!t$d on o#tstanding *#r!has$s or sal$s to !#r+ $&!$ssi'$ s*$!#lati'$ a!ti'ity thro#gh inan!ial r$straints. X Mini"#"N"a&i"#" *ri!$s to +$ *r$s!ri+$d to *r$'$nt #t#r$s *ri!$s ro" alling +$lo( th$ l$'$ls that ar$ #n r$"#n$rati'$ and ro" rising a+o'$ th$ l$'$ls not (arrant$d +y g$n#in$ s#**ly and d$"and a!tors. X D#ring shortag$s% $&tr$"$ st$*s li,$ s,i**ing trading in !$rtain d$li'$ri$s o th$ !ontra!t% !losing th$ "ar,$ts or a s*$!i i$d *$riod and $'$n !losing o#t th$ !ontra!t to o'$r!o"$ $"$rg$n!y sit#ations ar$ ta,$n

Kousali Institute of Management Studies


9.1 INTRODUCTION OF GOLD HISTORY: .old is a #ni1#$ ass$t +as$d on $( +asi! !hara!t$risti!s. It is *ri"arily a
"on$tary ass$t% and *artly a !o""odity. As "#!h as t(o thirds o goldBs total a!!#"#lat$d holdings r$lat$ to Dstor$ o 'al#$E !onsid$rations. 9oldings in this !at$gory in!l#d$ th$ !$ntral +an, r$s$r'$s% *ri'at$ in'$st"$nts% and high)!arat ag$ 5$($lry +o#ght *ri"arily in d$'$lo*ing !o#ntri$s as a '$hi!l$ or sa'ings. Th#s% gold is *ri"arily a "on$tary ass$t. :$ss than on$ third o goldBs total a!!#"#lat$d holdings !an +$ !onsid$r$d a !o""odity% th$ 5$($lry +o#ght in C$st$rn "ar,$ts or adorn"$nt% and gold #s$d in ind#stry. Th$ distin!tion +$t($$n gold and !o""oditi$s is i"*ortant. .old has "aintain$d its 'al#$ in a t$r)in lation t$r"s o'$r th$ long r#n% (hil$ !o""oditi$s ha'$ d$!lin$d. .old has +$$n #s$d as "on$y% a stor$ o 'al#$ and in 5$($lry. Mod$rn ind#strial #s$s in!l#d$ d$ntistry and $l$!troni!s. .old or"s th$ +asis or a "on$tary standard #s$d +y th$ Int$rnational Mon$tary /#nd 2IM/3 and th$ ;an, or Int$rnational S$ttl$"$nts 2;IS3. So"$ analysts li,$ to thin, o gold as a D!#rr$n!y (itho#t a !o#ntryB. It is an int$rnationally R$!ogni-$d ass$t that is not d$*$nd$nt #*on any go'$rn"$ntBs *ro"is$ to *ay. This is an i"*ortant $at#r$ (h$n !o"*aring gold to !on'$ntional di'$rsi i$rs li,$ T)+ills or +onds% (hi!h #nli,$ gold% do ha'$ !o#nt$r)*arty ris,.

/$at#r$s o .old M$tal:

.old is '$ry d#!til$ and "all$a+l$% +rilliant y$llo( *r$!io#s "$tal that is r$sistant to air and (at$r !orrosion. It is a *r$!io#s "$tal that is '$ry so t (h$n *#r$ 20< 8t.3. .old is th$ "ost "all$a+l$ 2ha""$ra+l$3 and d#!til$ 2a+l$ to +$ "ad$ into (ir$3 "$tal. .old is alloy$d 2"i&$d (ith oth$r "$tals% #s#ally sil'$r and !o**$r3 to "a,$ it l$ss $&*$nsi'$ and hard$r. Th$ *#rity o gold 5$($lry is "$as#r$d in ,arats. So"$ !o#ntri$s hall"ar, gold (ith a thr$$)digit n#"+$r that indi!at$s th$ *arts *$r tho#sand o gold. In this syst$"% J>?@J "$ans >?@N1@@@ gold 2$1#al to 1=83M J?@@J "$ans ?@@N1@@@ gold 2$1#al to 1083.

Kousali Institute of Management Studies



Major Participants in the World Market : Bullion bank plays a crucial role in the international market. They act as buyers, sellers, stockholders, and distributors of gold. They actively uote t!o" !ay prices, provide credit for all bullion banking transactions, trade finance for consumers, project financing, day"to"day hedging facilities for producers. #ollo!ing Banks are the members of $nternational Bullion Trading %ommunity &B'"&mro, &$( $nternational, Barclays Bank, %hase Manhattan, %itibank, %ommer) bank, %*#B, +eutsche Bank, +resdner Bank, (oldman *achs, ,*B%, - P Morgan, Mitsui, M.*, Morgan, *tanley, ' M /othschild, Phibro Bullion, Prudential"Bache, /abobank, *cotia Mocatta, *ociete (enerale, *tandard Bank, *umitomo,

Kousali Institute of Management Studies


Mac0uarie Bank, Mitsubishi,

1B*, West 2B.

/o.5- Go5- M .$)"* a3 :ondon as th$ gr$at !l$aring ho#s$ +3 N$( Yor, as th$ ho"$ o #t#r$s trading !3 K#ri!h as a *hysi!al t#rnta+l$ d3 Istan+#l% D#+ai% Singa*or$ and 9ong 8ong as door(ays to i"*ortant !ons#"ing r$gions. $3 To,yo (h$r$ TOCOM s$ts th$ "ood o Aa*an 3 M#"+ai #nd$r IndiaLs li+$rali-$d gold r$gi"$ 2E &o2.* .o2'- "&) #5o#$ m .$)" 9ong 8ong .old Mar,$t K#ri!h .old Mar,$t :ondon .old Mar,$t N$( Yor, Mar,$t M Bo. (o5- 6.o-2#+'( #o2'".+)* 1. So#th A ri!a 0. Unit$d Stat$s 4. A#stralia <. China ?. Canada G. R#ssia >. Indon$sia =. 6$r# F. U-+$,istan 1@. 6a*#a N$( .#in$a 11. ;ra-il 10. Chil$ 14. 6hilli*in$s 1<. M$&i!o 1?. Arg$ntina 1G. Ki"+a+($ <1 1>. Colo"+o 1=. 8yrgystan 1F. Mali. 0@..hana

Kousali Institute of Management Studies

4.4 Indian .old Mar,$t

.old is 'al#$d in India as a sa'ings and in'$st"$nt '$hi!l$ and is th$ s$!ond *r$ $rr$d in'$st"$nt a t$r +an, d$*osits. India is th$ (orldLs larg$st !ons#"$r o gold in 5$($ll$ry as in'$st"$nt. In A#ly 1FF> th$ R;I a#thori-$d th$ !o""$r!ial +an,s to i"*ort gold or sal$ or loan to 5$($ll$rs and $&*ort$rs. At *r$s$nt% 14 +an,s ar$ a!ti'$ in th$ i"*ort o gold. This r$d#!$d th$ dis*arity +$t($$n int$rnational and do"$sti! *ri!$s o gold ro" ?> *$r!$nt d#ring 1F=G to 1FF1 to =.? *$r!$nt in 0@@1. Th$ gold hoarding t$nd$n!y is ($ll ingrain$d in Indian so!i$ty. Do"$sti! !ons#"*tion is di!tat$d +y "onsoon% har'$st and "arriag$ s$ason. Indian 5$($ll$ry o ta,$ is s$nsiti'$ to *ri!$ in!r$as$s and $'$n "or$ so to 'olatility. In th$ !iti$s gold is a!ing !o"*$tition ro" th$ sto!, "ar,$t and a (id$ rang$ o !ons#"$r goods. /a!iliti$s or r$ ining% assaying% "a,ing th$" into standard +ars in India% as !o"*ar$d to th$ r$st o th$ (orld% ar$ insigni i!ant% +oth 1#alitati'$ly and 1#antitati'$ly.

I'-+ +' /o.5- Go5- I'-2*".! =Ro2'-)F+(2.)*> To" 5 S"o#$* C)'". 5 B '$ &o5-+'( A''2 5 I'-+ =I' To'*> /o.5=I' To'*> S& .) G








Kousali Institute of Management Studies


P.o-2#"+o' A''2 5 R)#!#5+'( A''2 5 D)m 'A''2 5 Im6o."* A''2 5 E%6o."* 4@@ 1@@) 10@@ 11@@)







M .$)" Mo,+'( F #"o.* ) A+o'$ gro#nd s#**ly ro" sal$s +y !$ntral +an,s% r$!lai"$d s!ra* and o i!ial gold loans% 6rod#!$r N "in$r h$dging int$r$st Corld "a!ro)$!ono"i! a!tors ) US Dollar% Int$r$st rat$ Co"*arati'$ r$t#rns on sto!, "ar,$ts Do"$sti! d$"and +as$d on "onsoon and agri!#lt#ral o#t*#t

T&) 62.+"! o4 (o5- ."+#5)* +* ()'). 55! -)*#.+b)- +' "&.)) 0 !* P).#)'" G =P ."* o4 (o5- 6). 1::> 1::G F1.@:G @?.::G F+')')**=P ."* o4 (o56). 1:::> FFF /in$ F1> /in$ >?@ /in$ K . "*=P ."* o4 (o5- 6). 2E> 0< 8arats 00 8arats 1= 8arats

Kousali Institute of Management Studies


?H.?:G E1.I:G

?=4 /in$ <1G /in$

1< 8arats 1@ 8arats

Go5- #o ")- m) *2.)*: Many gold)!oat$d arti!l$s ar$ also #s$d as s#+stit#t$s or solid ,arat gold. Th$ thi!,n$ss o th$ !oatings ar$ o t$n $&*r$ss$d in "illionths o an in!h% or "i!roin!h$s% and th$ ta+l$ +$lo( *ro'id$s a (ay to translat$ +$t($$n th$s$ and oth$r "$as#r$"$nt #nits. 1 "illionth in!h 2"i!roin!h3 H @.@0?< "i!ron 1 tho#santh in!h 2"il3 H 0?.< "i!rons 1 "illionth "$t$r 2"i!ron3 H 4F.4> "i!roin!h$s 1 "illi"$t$r H 4F.4> "ils F+') (o5- #o'")'": Th$ "ini"#" in$n$ss is FF? *arts *$r 1@@@ in$ gold and gold said to +$ 1@@@ in$ is "ar,$d do(n to FFF.F in$. Th$ ollo(ing in$ gold !ont$nts o oth$r +ar ($ights ar$ a!!$*t$d +y th$ :ondon ;#llion Mar,$t Asso!iation 2:;MA3. Th$s$ +ars ar$ a'aila+l$ at th$ s*ot :o!o):ondon *ri!$ *l#s a *r$"i#" (hi!h 'ari$s d$*$nd$nt on *r$'ailing "ar,$t !onditions in di $r$nt lo!ations.

Kousali Institute of Management Studies


4.4.1. Co"*arison o *r$!io#s M$tals Trad$d

P.)#+o2* M)" 5* Data as o A#n 1G% 0@@> @?:14 2D$lay$d at l$ast 0@ "in#t$s3. Trad$ Dat$N Co""odity 1@@ OK .O:D AU.> .O:D A6R= SI:VER ?@@@ AU:> SI:VER A6R= 6:ATINUM A6R= 6A::ADIUM A6R= MINI .O:D AU.> MINI SI:VER AU:> C;T US Dollar @>N0> 14.0?F 1G:?? C;T TCE Y$n US Dollar @=N0F G?=.>@ 1G:?G @GN1? TCE Y$n Aa*an$s$ @<N0< 1%<>0 @0:41 @GN1? TCE Y$n Aa*an$s$ @<N0< ?%@@?.@ @0:41 @GN1? Aa*an$s$ @<N0< ?01.>@ @0:41 @GN1? CMX TCE Y$n US Dollar @>N0> 1%40G.@ 1>:14 @GN1? Aa*an$s$ @<N0< 0%G@0.@ @0:41 @GN1? @GN1? E&!h CMX C#rr$n!y US Dollar E&*ir$ @=N0F :ast G?F.0 1>:1< Ti"$ @GN1?

Kousali Institute of Management Studies


9333 8333 7333 6333 5333 4333 3

83 33 *$ 2< =/ P2 &T $ P& ' 1 M 22 &+ $1 M M $' $( : M 2 $' $* + $2 <= / 2+ ( ( : 2+ :

9333 8333 7333 6333 5333 4333 3

:pen ,igh 2o! 2ast

This is sto!, !hart in (hi!h th$ 'ario#s "$tals o*$ning *ri!$% high *ri!$ 7 lo( *ri!$ along(ith th$ last trad$d 'ol#"$ is indi!at$d +y th$ +la!, s*ot in th$ !hart and high lo( lin$s ar$ r$*r$s$ntat$d or $a!h o th$ s*$!i i! "$tals. Th$ "or$ trad$d 1#antity is o "ini sil'$r (h$r$as th$ high$st 'al#$ *ri!$ is o *latin#" "$tal. 9$r$in th$ *r$!io#s "$tal gold 7 sil'$r ar$ trad$ in t(o or"s o "ini gold 7 "ini sil'$r or th$ s"all in'$stors so to a'ail th +#ying in s"all slots in gra"s (h$r$as th$ 1@@ ogold 7 sil'$r ?@@@ ar$ o high$r 1#antity lots or h#g$$ "argin di $rs in +oth ,inds o slots.

Kousali Institute of Management Studies

43 3

*$ 2<




.old is "or$ than 5#st anoth$r !o""odity% itBs a !#rr$n!y. It is T9E !#rr$n!y that $'ol'$d in th$ "ar,$t*la!$ o'$r th$ last ?%@@@ y$ars. .old and sil'$r ar$ th$ only !#rr$n!i$s not !r$at$d and !ontroll$d +y go'$rn"$nts. No( C$ ha'$ list$d so"$ o th$ Most *o*#lar (ays to in'$st in gold M = >Go5- B .* :: Th$ "ost traditional (ay to in'$st in gold "ar,$t is +y +#ying +#llion gold +ars. In so"$ !o#ntri$s% li,$ A#stria% :i$!ht$nst$in and S(it-$rland% th$s$ !an $asily +$ +o#ght or sold Jo'$r th$ !o#nt$rJ o th$ "a5or +an,s. Alt$rnati'$ly% th$r$ ar$ +#llion d$al$rs (hi!h *ro'id$ th$ sa"$ s$r'i!$.

2+3Go5- Co+'* :: ;#ying gold !oins is a *o*#lar (ay o in'$sting in gold . Ty*i!ally +#llion !oins ar$ *ri!$d a!!ording to th$ir ($ight% (ith littl$ or no *r$"i#" a+o'$ th$ gold *ri!$.

2!3Go5- C)."+4+# ")* :: A !$rti i!at$ o o(n$rshi* !an +$ h$ld +y gold in'$stors% inst$ad o storing th$ a!t#al gold +#llion. .old !$rti i!at$s allo( in'$stors to +#y and s$ll th$ s$!#rity (itho#t th$ hassl$s asso!iat$d (ith th$ trans $r o a!t#al *hysi!al gold.

2d3Go5- A##o2'"* :: Most S(iss +an,s o $r gold a!!o#nts (h$r$ gold !an +$ instantly +o#ght or sold 5#st li,$ any or$ign !#rr$n!y. Digital gold !#rr$n!y a!!o#nts and th$ ;#llionVa#lt gold $&!hang$ (or, on a si"ilar *rin!i*l$.

=)>Go5- E%#& '() T. -)- F2'-*: .old $&!hang$)trad$d #nds 2or .ET/s3 ar$ trad$d on th$ "a5or sto!, $&!hang$s in!l#ding :ondon% N$( Yor, and Sydn$y. Th$ irst gold ET/% na"$ly .old ;#llion S$!#riti$s 2ti!,$r sy"+ol J.O:DJ3% (as la#n!h$d in Mar!h 0@@4 on th$ A#stralian Sto!, E&!hang$% and originally r$*r$s$nt$d $&a!tly on$)t$nth o an o#n!$ o gold. D#$ to !osts% th$ a"o#nt o gold in $a!h !$rti i!at$ is no(

Kousali Institute of Management Studies


slightly l$ss. Th$y ar$ #lly +a!,$d +y gold (hi!h is +oth d$*osit$d and ins#r$d. Th$ in'$ntory o gold is "anag$d +y +#ying and s$lling gold +as,$ts 2th$r$ ar$ 1@%@@@ troy o#n!$s o gold *$r +as,$t3 on th$ o*$n "ar,$t .old ;#llion S$!#riti$s is t(o thirds o(n$d +y th$ Corld =4> GOLD COUNCIL: .old ET/s r$*r$s$nt a 1#i!, and $asy (ay or an in'$stor to gain $&*os#r$ to th$ gold *ri!$% (itho#t th$ hassl$ o storing *hysi!al +ars. Ty*i!ally a s"all !o""ission o @.0P is !harg$d or trading in gold ET/s and a s"all ann#al storag$ $$ is !harg$d. Th$ ann#al $&*$ns$s o th$ #nd s#!h as storag$% ins#ran!$% and "anag$"$nt $$s ar$ !harg$d +y s$lling a s"all a"o#nt o gold r$*r$s$nt$d +y $a!h !$rti i!at$% so th$ a"o#nt o gold in $a!h !$rti i!at$ (ill grad#ally d$!lin$ o'$r ti"$. In so"$ !o#ntri$s% gold ET/s r$*r$s$nt a (ay to a'oid th$ sal$s ta& or th$ VAT (hi!h (o#ld a**ly to *hysi!al gold !oins and +ars. In May 0@@G% gold ET/s h$ld <F1 tonn$s o gold in total. =(>GOLD SHARES: Th$s$ do not r$*r$s$nt gold at all% +#t rath$r ar$ shar$s in gold "ining !o"*ani$s. I th$ gold *ri!$ ris$s% th$ *ro its o th$ gold "ining !o"*any !o#ld +$ $&*$!t$d to ris$ and as a r$s#lt th$ shar$ *ri!$ "ay ris$. 9o($'$r% th$r$ ar$ "any a!tors to ta,$ into a!!o#nt and it is not al(ays th$ !as$ that a shar$ *ri!$ (ill ris$ (h$n th$ gold *ri!$ in!r$as$s.

=&>DERIVATIVES: S#!h as gold #t#r$s and o*tions% !#rr$ntly trad$ on 'ario#s $&!hang$s aro#nd th$ (orld. In th$ U.S.% gold #t#r$s ar$ *ri"arily trad$d on COMEX 2Co""odity E&!hang$3 (hi!h is a s#+sidiary o th$ N$( Yor, M$r!antil$ E&!hang$. S*$!#lation a+o#t th$ #t#r$ *ri!$ o gold and oth$r !o""oditi$s ta,$s *la!$ at COMEX.


Kousali Institute of Management Studies

Th$r$ ar$ 'ario#s a!tors that a $!t th$ *ri!$ o gold. Th$ "a5or a!tors that a $!t th$ *ri!$s ar$: P.o-2#"+o' ) A!!ording to th$ Corld .old Co#n!il% ann#al gold

*rod#!tion o'$r th$ last $( y$ars has +$$n !los$ to 0%?@@ tonn$s. 9o($'$r% th$ $ $!ts o o i!ial gold sal$s 2?@@ tonn$s3% s!ra* sal$s 2=?@ tonn$s3% and *rod#!$r h$dging a!ti'iti$s ta,$ th$ ann#al gold s#**ly to aro#nd 4%?@@ tonn$s D)m '-8 A+o#t 4%@@@ tonn$s go$s into 5$($lry or ind#strialNd$ntal *rod#!tion% and aro#nd ?@@ tonn$s go$s to r$tail in'$stors and $&!hang$ trad$d gold #nds. /or th$ last $( y$ars% th$ o i!ial s$!tor sal$s o aro#nd ?@@ tonn$s ha'$ +$$n ta,$n #* +y r$tail in'$stors and gold #nds. S2665!& D)m '-8 So"$ in'$stors !onsid$r that s#**ly and d$"and a!tors ar$ l$ss r$l$'ant than (ith oth$r !o""oditi$s sin!$ "ost o th$ gold $'$r "in$d is still a+o'$ gro#nd and a'aila+l$ or sal$ at a *ri!$. 9o($'$r% s#**ly and d$"and do *lay a rol$. A!!ording to th$ Corld .old Co#n!il% gold d$"and ros$ 0FP in ro" 5$($lry. .old d$"and (as at an all ti"$ r$!ord. D$"and ro" th$ $l$!troni!s ind#stry is rising +y 11P a y$ar% 5$($lry +y 1FP% and ind#strial and d$ntal +y 01P. C2..)'#! 452#"2 "+o') (h$n dollar is ($a, th$ *ri!$ o gold (ill ris$ Ho .-+'(8 (h$n *$o*l$ start hording th$ gold th$ *ri!$ o gold is also Go,).'m)'" 6o5+#!) .o'$rn"$nt *oli!y is th$ a!tor that !an a $!t gold S6)#25 "+o') S*$!#lator is th$ *$rson (ho !an !r$at$ a,$ i"*r$ssion or +$!a#s$ *$o*l$ (ill starts +#ying gold% so that th$y !an h$dg$ gold +y *aying l$ss. a $!t$d. *ri!$ th$ *ri!$ o gold +$!a#s$ at +$arish ti"$ th$y !r$at$ !risis o gold% +y +#ying a larg$ 'ol#"$. So that "ar,$t g$ts "ani*#lat$d. P.o-2#). 3 m+'). &)-(+'( +'").)*") (h$n th$ *rod#!$r o gold starts h$dging th$ gold th$n th$ *ri!$ o al(ays t$nds to ris$ +$!a#s$ th$ir (ill +$ a shortag$ in th$ s#**ly o gold. th$ irst hal o 0@@?. Th$ in!r$as$ !a"$ "ainly ro" th$ la#n!h o a gold $&!hang$)trad$d #nd% +#t also

Kousali Institute of Management Studies


/o.5- m #.o8)#o'om+# 4 #"o.* ) US Dollar% Int$r$st rat$. Com6 . "+,) .)"2.'* o' *"o#$ m .$)"*: / .A +', *+o' '- 5oo"+'(8 In ti"$s o national !risis% *$o*l$ $ar that

th$ir ass$ts "ay +$ s$i-$d% and th$ !#rr$n!y "ay +$!o"$ (orthl$ss. Th$y s$$ gold as a solid ass$t (hi!h (ill al(ays +#y +r$ad or trans*ortation. Th#s in ti"$s o gr$at #n!$rtainty% *arti!#larly (h$n (ar is $ar$d% th$ d$"and or gold ris$s I'45 "+o'8 In ti"$s o in lation *$o*l$ s$$, to *rot$!t th$ir sa'ings +y *#r!hasing li1#id% tangi+l$ ass$ts that ar$ 'al#$d or so"$ oth$r *#r*os$. .old is in this r$s*$!t a good !andidat$% and *rod#!ing "or$ is ar "or$ di i!#lt than iss#ing n$( iat !#rr$n!y% and do$s not r$ly on any *arti!#lar go'$rn"$ntLs h$alth C)'". 5 b '$*8 C$ntral +an,s *lay an i"*ortant rol$ in th$ gold *ri!$. At th$ $nd o 0@@< !$ntral +an,s and o i!ial organisations h$ld 1F *$r!$nt o all a+o'$ gro#nd gold as o i!ial gold r$s$r'$s .


In'$stors "ay +#y gold as an in'$st"$nt +$!a#s$ th$y ar$ $ith$r on$ o % or a !o"+ination o % th$ ollo(ing: = > ASSET ALLOCATOR: Ass$ts allo!ator ar$ th$ *$rson (ho allo!at$s an a"o#nt to +$ in'$st$d on gold in his *ort olio Traditional ass$t allo!ation strat$gists #s$d to r$!o""$nd a ?P to 1@P $&*os#r$ to gold (as s$nsi+l$ on th$ gro#nds o di'$rsi i!ation. Altho#gh th$ in!l#sion o gold in *ort olios has larg$ly +$$n a+andon$d sin!$ th$ 1F=@s% it is on!$ again +$ing !onsid$r$d +y ass$t allo!ators. =b> CACHEUR: 6hysi!al gold !an +$ anony"o#s% i th$ +#llion has no s$rial n#"+$rs or its o(n$rshi* is not r$!ord$d any(h$r$. Ca!h$#rs s$$, to hid$ *art o th$ir ($alth ro" th$ir (i'$s% a"ily% ta& a#thoriti$s% !r$ditors% $&tortionists% ,idna**$rs% +la!,"ail$rs% *oli!$% in'ad$rs or oth$rs. Th$ d$nsity o gold allo(s th$" to stor$ a larg$ 'al#$ in a '$ry s"all s*a!$% (itho#t $ar o d$*r$!iation or $rosion o'$r a long *$riod o ti"$. A "$tri! tonn$ o gold 21%@@@ ,g or 00@<.G *o#nds3 (o#ld +$ $1#i'al$nt to a !#+$ o sid$ 4>.0>!" 21 t

Kousali Institute of Management Studies


0Y in3% or ro#ghly th$ si-$ o a +as,$t+all. This s"all !#+$ (o#ld !ontain 40%1?@ troy o#n!$s% and +$ (orth a+o#t Z01%@@@%@@@ 2lat$ A*ril 0@@G3. =#> CURRENCY SPECULATOR: Sin!$ th$ "ain gold "ar,$t is *ri!$d in US dollars% s*$!#lators (ho +$li$'$ th$ dollar (ill d$!lin$ "ay +#y gold. Th$y thin, that i th$ dollar d$!lin$s% th$ gold *ri!$ (ill r$"ain !onstant in oth$r !#rr$n!i$s% th#s rising in t$r"s o th$ U.S. dollar. .old "ay also +$ +o#ght i th$y $$l that a di $r$nt !#rr$n!y (ill d$!lin$% sin!$ th$y $&*$!t th$ dollar *ri!$ to +$ sta+l$% +#t th$ or$ign !#rr$n!y *ri!$ to ris$. Many !#rr$n!y trad$rs tr$at gold as th$ i th (orld !#rr$n!y% a t$r th$ US dollar% E#ro*$an $#ro% Aa*an$s$ y$n and ;ritish *o#nd st$rling. =-> GOLD BUG: .old +#gs% in th$ traditional s$ns$% +$li$'$ in% $ar or $'$n ho*$ or th$ S$!ond .r$at D$*r$ssion or Ar"ag$ddon% and +$li$'$ that +y holding gold th$y (ill s#r'i'$ and *ros*$r. 8r#g$rands ar$ a *o*#lar (ay to in'$st in gold +$!a#s$ th$ir gold !ont$nt is $&a!tly on$ troy o#n!$ $a!h. =)> HOARDER: So"$ in'$stors r$s*$!t gold as a long)t$r" stor$ o 'al#$% and s$$, no *ro it% oth$r than to "aintain th$ir *#r!hasing *o($r. ;y +#ying gold and hanging on or th$ long t$r"% th$y +$li$'$ th$y !an ,$$* th$ir ($alth inta!t. =4> INFLATION HEDGER: /or !$nt#ri$s gold has r$"ain$d a stor$ o 'al#$. It has *$r or"$d this #n!tion +$st in ti"$s o high in lation. In'$stors th#s +#y gold to *rot$!t th$"s$l'$s against a ris$ in in lation and a d$!lin$ in th$ 'al#$ o "on$y% *arti!#larly *a*$r "on$y% or iat !#rr$n!y. =(> PORTFOLIO HEDGER: Si"ilar to ass$t allo!ators% $&!$*t th$ *#r*os$ o th$ in'$st"$nt is as an ins#ran!$ against #n or$s$$n !ala"iti$s (hi!h "ay a $!t th$ *ri!$ o oth$r in'$st"$nts n$gati'$ly. 6ort olios that !ontain gold ar$ +$tt$r a+l$ to (ithstand "ar,$t s#r*ris$s than thos$ that do not. So"$ r$!$nt ind$*$nd$nt st#di$s ha'$ s#gg$st$d that traditional di'$rsi i$rs% s#!h as +onds% *ro*$rty and h$dg$ #nds% o t$n ail to stand #* to "ar,$t str$ss and "ay s$ll o (ith $1#iti$s in ti"$s o #n!$rtainty. E'$n a s"all allo!ation o gold to a *ort olio

Kousali Institute of Management Studies


signi i!antly i"*ro'$s its *$r or"an!$ d#ring #nsta+l$ *$riods. Th$ in'$stor +$li$'$s that !$rtain $'$nts% i th$y o!!#r 2$.g. (ar or $!ono"i! !risis3% "ay ha'$ a n$gati'$ in l#$n!$ on th$ 'al#$ o his oth$r in'$st"$nts% +#t th$ o**osit$ $ $!t on th$ 'al#$ o his gold. =&>SPECULATOR: S*$!#lators att$"*t to "a,$ a *ro it +y *r$di!ting th$ gold *ri!$. Th$y "ay thin, that "a!ro$!ono"i!s ar$ a $!ting th$ d$"and or gold% or +$li$'$ th$y ha'$ d$t$!t$d a "ar,$t tr$nd sho(ing th$" th$ #t#r$ *ri!$ dir$!tion.


1. ItLs s#*$r !h$a*. .old is !h$a*% (hil$ sto!,s ar$ $&*$nsi'$. In Aan#ary o 1F=@% +oth th$ Do( Ind#strials and th$ *ri!$ o gold ($r$ at th$ sa"$ l$'$l: =@@. No(% n$arly 0< y$ars lat$r% th$ Do( is n$ar 1@%@@@% (hil$ gold is l$ss than hal its Aan#ary 1F=@ 'al#$. Th$r$ ar$ so"$ gr$at o**ort#niti$s in gold sto!,% as ($Lll r$*ort +$lo(. 2. .o'$rn"$nts (ill "a,$ o#r "on$y (orth l$ss to *ay o th$ir r$!ord d$+ts. .o'$rn"$nts !an *rint "on$y to *ay o th$ir d$+ts. ;#t th$y !anLt !r$at$ gold. Th$ s#**ly o *a*$r "on$y !an +$ in init$. ;#t th$ s#**ly o gold is $&tr$"$ly li"it$d 2th$y say that th$ $ntir$ gold *rod#!tion in th$ history o th$ (orld !o#ld it on th$ +as,$t+all !o#rt at Madison S1#ar$ .ard$n3. And itLs di i!#lt to $&tra!t. ;ill .at$s !o#ld +#y all th$ gold "in$d in th$ (orld in a y$ar ro" his !h$!,+oo,. 9. .old sho#ld do ($ll in "a5or int$rnational !on li!ts. Th$ *ri!$ o gold (as i&$d d#ring Corld Car I and Corld Car II. ;#t sil'$r% or $&a"*l$% ros$ +y o'$r 1@@P in +oth (orld (ars. ItLs +$$n rising or th$ d#ration o th$ Car on T$rroris". It all !o"$s +a!, to [0% a+o'$...go'$rn"$nts #lti"at$ly *rint "on$y to *ay or (ars. E. .old sho#ld do ($ll in $&tr$"$ +$ar "ar,$ts. Sil'$r "or$ than do#+l$d in 'al#$ ro" 1F40 to 1F4G d#ring th$ .r$at D$*r$ssion 2th$ *ri!$ o gold (as i&$d +y go'$rn"$nt3. Th$ n$&t long +$ar "ar,$t (as 1FG=)1F=@. Sil'$r ros$ ro" aro#nd Z0 in 1FG= to a *$a, n$ar Z?@ in 1F=@. ?. .old sto!, (ill ris$ d#ring in lation... and d#ring d$ lation. In'$sting in gold is good in lation *rot$!tion... gold ris$s as th$ 'al#$ o th$ dollar alls. ;#t (hat "any *$o*l$ donLt #nd$rstand is that gold sto!,s (ill do $'$n +$tt$r d#ring d$ lation% as th$

Kousali Institute of Management Studies


go'$rn"$nt lo($rs int$r$st rat$s signi i!antly and (ildly *rints "on$y 2!r$ating in lation3 to o s$t that d$ lation... l$ading to s#+stantially high$r gold *ri!$s. This is (h$r$ ($ ar$ no(% and gold has don$ (hat itLs s#**os$d to do. I. Ch$n yo# +#y gold in'$st"$nts% yo# lo($r ris, in yo#r in'$st"$nt *ort olio. In th$ *ast% gold has t$nd$d to do th$ o**osit$ o sto!, s,yro!,$t$d in th$ 1F>@s% (h$n sto!,s did horri+ly. Th$n in th$ 1F=@s and 1FF@s% (h$n sto!,s soar$d% gold lost o'$r hal its 'al#$. No( in th$ n$( "ill$nni#" gold has soar$d (hil$ sto!,s ar$ still +$lo( th$ir y$ar 0@@@ highs. 9olding a *ortion o yo#r *ort olio in gold sto!, (ill s"ooth o#t yo#r *ort olio l#!t#ations


Today% gold trad$s in "any "ar,$ts aro#nd th$ (orld. At any ti"$ o th$ day or night a !#rr$nt "ar,$t *ri!$ is +$ing $sta+lish$d so"$(h$r$. T(o o th$ "ost i"*ortant (orld "ar,$ts% ho($'$r% ar$ in :ondon and N$( Yor,. Th$ :ondon "ar,$t is on$ o th$ old$st in th$ (orld and is th$ larg$st "ar,$t or *hysi!al gold. Sin!$ S$*t$"+$r 10% 1F1F th$ *ri!$ o gold has +$$n s$t at Jth$ :ondon gold i&J and this *ri!$ is #s$d in !ontra!t arrang$"$nts aro#nd th$ (orld. Today% th$ gold i&ings ta,$ *la!$ at 1@:4@a" and 4*" and *ro'id$ *#+lish$d *ri!$s (hi!h ar$ #s$d as o i!ial *ri!ing "$di#" +y *rod#!$rs% !ons#"$rs and !$ntral +an,s. Th$ N$( Yor, "ar,$t o*$ns as th$ s$!ond :ondon i& ta,$s *la!$ and gold th$n trad$s thro#gho#t th$ day. Th$ N$( Yor, "ar,$t is *arti!#larly not$d or th$ 'ol#"$ o J*a*$r gold transa!tionsJ s#!h as #t#r$s !ontra!ts that ar$ trad$d on th$ $&!hang$. Th$ Co"$& di'ision o th$ N$( Yor, M$r!antil$ E&!hang$ is th$ !$nt$r o th$s$ a!ti'iti$s. Th$r$ ar$ oth$r i"*ortant gold "ar,$ts in K#ri!h% To,yo% Sydn$y% 9ong 8ong and $ls$(h$r$ ) so gold is +$ing trad$d so"$(h$r$ 0< ho#rs a day. Go5- T. -+'( !onsists o OTC transa!tions in s*ot% or(ard and o*tions and oth$r $&oti! d$ri'ati'$s tog$th$r (ith $&!hang$ trad$d #t#r$s and o*tions. OTC "ar,$ts o*$rat$ on a 0<)ho#r +asis aro#nd th$ (orld. Main !$nt$rs o OTC ar$ :ondon% N$( Yor, and K#ri!h% (hi!h ar$ th$ "ain (hol$sal$ "ar,$ts (h$r$ th$ lo($st transa!tion si-$ is 1@@@ o#n!$s. .$n$rally% "ining !o"*ani$s and C$ntral ;an,s

Kousali Institute of Management Studies


t$nd to transa!t th$ir +#sin$ss thro#gh :ondon and N$( Yor,. K#ri!h s*$!iali-$s in s#**lying *hysi!al gold to "an# a!t#r$rs o 5$($lry and ind#strial *rod#!ts. D#+ai transa!tions in'ol'$ 5$($lry and s"all +ars o 1 ,g or l$ss or *ri'at$ in'$st"$nts. 9.?.1 STRUCTURE OF GOLD MARKET: B *+# *".2#"2.) o4 "&) (o5- m .$)": It !onsists o !$ntral +an,s% +#llion +an,s 2int$rnational +an,s (ith s*$!ialist s,ill in +#llion trading s#!h as A 6 Morgan% .old"an Sa!hs% D$#ts!h$ ;an,% Chas$ Manhattan% Citigro#*3% "ining !o"*ani$s and in'$stor.

Th$ !$ntral +an,s l$nd gold to +#llion +an,s at an int$r$st rat$ ,no(n as th$ l$as$ rat$. ;#llion +an,s% th$ inan!ial int$r"$diary% in t#rn s$ll th$ gold in th$ s*ot "ar,$t to di $r$nt s$g"$nts o th$ "ar,$t% s#!h as 5$($l$rs and a+ri!ators% and th$ r$s#ltant !ash *ro!$$ds ar$ #s$d or in'$st"$nt. At th$ sa"$ ti"$% +#llion +an,s or th$ir !#sto"$rs r#n a *ri!$ ris,% as th$r$ is an o+ligation to r$t#rn th$ *hysi!al gold +a!, to th$ !$ntral +an,s a t$r th$ l$as$ *$riod. /or this% th$y go long in th$ gold or(ard "ar,$t. Th$ !o#nt$r) *arty in this d$al is g$n$rally a gold)"ining !o"*any% in'$stor or s*$!#lator 2h$dg$ #nd% or instan!$3% (hi!h (ant to gain ro" !ontango. In a!t% th$ gold or(ard *r$"i#" has a !los$ lin, (ith th$ gold l$as$ and th$ "on$y "ar,$t rat$s. Th$ gold or(ard rat$ is al"ost sa"$ as th$ di $r$n!$ +$t($$n th$ dollar rat$ 2:i+or3 and th$ gold l$as$ rat$. And as long th$ di $r$n!$ +$t($$n th$ t(o is *ositi'$% th$r$ is a s*r$ad or !ontangoM i th$ di $r$n!$ is n$gati'$% th$r$ is +a!,(ardation% that is% s*ot gold is in d$"and. .old

Kousali Institute of Management Studies


+$ing th$ s$!ond larg$st !o"*on$nt o !$ntral +an, r$s$r'$s 240%@@@)4?%@@@ tonn$s3% ha'ing an intrinsi! 'al#$ lin, to th$ dollar and is o t$n ,$*t in a sa $ +and +y ($ll) or!h$strat$d $ orts o !$ntral +an,s. 9.?.2 PRICE MECHANISM: Th$ #s#al +$n!h"ar, or th$ *ri!$ o gold is ,no(n as th$ :ondon /i&ing. This is don$ at a t(i!$)daily "$$ting o a !o""itt$$ !onsisting o i'$ r$*r$s$ntati'$s ro" +#llion)trading ir"s. So th$ *ri!$ o gold is d$t$r"in$d on th$ o*$n "ar,$t% +#t a *ro!$d#r$ ,no(n as th$ .old /i&ing in :ondon% originating in 1F1F% *ro'id$s a t(i!$) daily +$n!h"ar, ig#r$ to th$ ind#stry. In addition to th$ gold i&% th$r$ is a!ti'$ gold trading +as$d on intra)day s*ot *ri!$. Th$s$ ar$ d$ri'$d ro" "#lti*l$ gold)trading "ar,$ts aro#nd th$ (orld as th$y o*$n and !los$ thro#gho#t th$ day. :i,$ oth$r *r$!io#s "$tals% gold is "$as#r$d +y ".o! 0)+(&" =T.o! 0)+(&" is a syst$" o #nits o "ass !#sto"arily #s$d or *r$!io#s "$tals% +la!, *o(d$r% and g$"ston$s.3 and +y (. m*. Ch$n it is alloy$d (ith oth$r "$tals th$ t$r" carat or karat is #s$d to indi!at$ th$ a"o#nt o gold *r$s$nt% (ith 0< !arats +$ing *#r$ gold and lo($r ratings *ro*ortionally l$ss. Th$ *#rity o a gold +ar !an also +$ $&*r$ss$d as a d$!i"al ig#r$ ranging ro" @ to 1% ,no(n as th$ m+55)*+m 5 4+')')**% s#!h as @.FF?. 9.?.9 INVESTMENT STRATEGIES: ;$ or$ in'$sting in gold on$ sho#ld loo, that th$ #nda"$ntal analysis o gold is in his a'or or in'$st"$nt or not. T$!hni!al analysis sho#ld +$ s#**ort$d +y #nda"$ntal analysis th$n only on$ sho#ld go or in'$st"$nt in gold. .old is a !ontro'$rsial% anti $sta+lish"$nt in'$st"$nt. Th$r$ or$ do not r$ly on !on'$ntional inan!ial "$dia and +ro,$rag$ ho#s$ !o""$ntary. In this ar$a s#!h !o""$ntary is $'$n "or$ "isl$ading and ill in or"$d than #s#al. A r$asona+l$ allo!ation in a !ons$r'ati'$% di'$rsi i$d *ort olio is @ to 4P d#ring a gold +$ar "ar,$t and ?Pto 1@P d#ring a +#ll "ar,$t.

Kousali Institute of Management Studies


Und$rstanding th$ int$rnal dyna"i!s o th$ gold "ar,$t !an +$ h$l* #l as to in'$st"$nt ti"ings iss#$s. /or $&a"*l$% th$ ($$,ly *osition r$*orts o !o""odity trading #nds or s$nti"$nts indi!ators o $rs #s$ #l !l#$s as to $ntry or $&it *oints or a!ti'$ trading strat$gi$s An in'$st"$nt in gold sho#ld +$ +as$d on "a!ro$!ono"i!s !onsid$ration. i on$ $&*$!ts or $ars rising in lation% d$sta+ili-ing d$ lation% a +$ar "ar,$t in sto!,s or +onds or inan!ial t#r"oil% gold sho#ld do ($ll and $&*os#r$ is (arrant$d. Do not $nt$r in th$ "ar,$t i at a s#dd$n th$r$ is all or ris$ in th$ *ri!$ o gold. On$ !an also go or ar+itrag$ trading i h$ (ants to +$ on th$ sa $r sid$. Ent$r or "a,$ *osition or +#ying gold i th$r$ is any g$o)*oliti!al t$nsion% (ar or dollar +$!o"$s ($a, +$!a#s$ *$o*l$ (ill starts h$dging gold at this "o"$nt o ti"$. ;#llish in'$stors "ay !hoos$ to l$'$rag$ th$ir *osition +y +orro(ing "on$y against th$ir $&isting gold ass$ts and th$n *#r!hasing "or$ gold on a!!o#nt (ith th$ loan$d #nds. In ord$r to ,$$* th$ !ost o d$+t to a "ini"#"% th$s$ indi'id#als (o#ld nor"ally s$$, a loan in th$ !#rr$n!y (ith th$ lo($st :I;OR% (hi!h as o A*ril 0@@G (as th$ Aa*an$s$ y$n. This t$!hni1#$ is r$ $rr$d to as a Jy$n) gold !arry trad$J. :$'$rag$ is also an int$gral *art o +#ying gold d$ri'ati'$s. :$'$rag$ "ay in!r$as$ in'$st"$nt gains +#t also in!r$as$s ris,% as i th$ gold *ri!$ d$!r$as$s th$ in'$stor "ay +$ s#+5$!t to a "argin !all. 3.5.4. Supply Chain and Channel Members: Gold The channel involved in movement of gold from mines to its end uses is e>hibited belo!. RBI and Its Gold Policy Measures The /eserve Bank of $ndia ?/B$@ holds 68A.A8 tons of gold forming about 9 per cent of the current value of its total foreign e>change reserves. The evolution of the gold related policy since independence !as centered around

Kousali Institute of Management Studies


some major objectives, vi)., !eaning a!ay people from gold, regulating the supply of gold, reducing the domestic demand and prices and curbing smuggling. $n the !ake of the %hinese !ar, it !as felt in some circles that it !ould be feasible to make a frontal attack on demand for gold in $ndia. &ccordingly, the (old %ontrol :rder 4B95 !as issued, banning the making and selling of je!ellery above 47 carats, making it compulsory for gold smiths to be licensed and submit accounts of all gold received and utili)ed by them etc., The measures met !ith lot of resistance and criticism. This coupled !ith comple>ities resulted in the failure of the (old %ontrol order. Bullion imports and e>ports !ere also banned but restrictions on import of gold into the country resulted in the flourishing of smuggling and unofficial transactions in foreign e>change. :fficial imports to discourage smuggling !as first mooted in 4BAA but vie!ed against the #ore> reserves available then, it !as thought as an impossible proposition. The (overnment decided to sell confiscated gold in small uantities through the /B$.

3. . !"C#$IC%& %$%&'SIS !((&S : Candle stic) charts

Kousali Institute of Management Studies


A' 5!*+* o4 # '-5) *"+#$ #& ."* Th$r$ ar$ lots o *att$rns in'ol'$ in this !andl$ sti!, !harts so that it going to gi'$ th$ ni!$ *i!t#r$ a+o#t th$ !andl$ sti!, analysis. I yo# s$$ th$ Mar!h "onth "any s"all !andl$ sti!,s ar$ th$r$ that sho(ing th$r$ is not "#!h 'olatility in intraday "any *la!$s th$r$ do5i o!!#r and r$'$rs$ th$ tr$nd. Ch$n do5i o!!#r it "$ans that n$&t day i "ar,$t is o*$n in #* th$n it going to ollo( #* tr$nd or 'is$ '$rsa% and in $nd o "ar!h "ar,$t is in #* tr$nd and do5i o!!#r% n$&t day "ar,$t o*$n in #* tr$nd it ollo($d a sa"$ tr$nd. I yo# s$$ th$ !hart it dir$!tly t$lling that th$ "ar,$t is in #* tr$nd (itho#t sho(ing any indi!ator that sho( th$ tr$nd is going to +$ !hang$. In "id o "ay a t$r a long +#ll tr$nd th$ do5i o!!#r and it !l$arly t$lling that th$ n$&t day !andl$ sho( th$ #t#r$ tr$nd and n$&t day +$ar !andl$ o!!#r and "ar,$t ollo($d a +$ar tr$nd

Kousali Institute of Management Studies


In "id o "ay only on$ hanging "$n !andl$ o!!#r it d$ init$ly t$lls th$ n$&t day "ar,$t (ill +$ +#llish% and it o!!#rs +#t th$n also "ar,$t ollo(s +$arish tr$nd a t$r gi'ing on$ +#ll !andl$. CANDLE STICK USING FORMATION:

Cith th$ h$l* o or"ation ($ !an dra(n t(o *arall$l lin$ (hi!h sho(s that th$ *ri!$ o gold (ill not go o#t o th$ t(o *arall$l lin$ i its *ri!$ +r$a, th$ *arall$l lin$ th$ *ri!$ (ill drasti!ally !#t so ro" th$ in'$stor *oint o 'i$( it sa $ to loo, that *ri!$ sho#ld not +r$a, this lin$. =1> Bo55+'(). B '-* I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o': Th$ ;olling$r ;ands ar$ indi!ating an o'$rsold !ondition o gold. An o'$rsold r$ading o!!#rs (h$n th$ !los$ is n$ar$r to th$ +otto" +and than th$ to* +and. A--+"+o' 5 A' 5!*+*: Th$ "ar,$t a**$ars o'$rsold% +#t "ay !ontin#$ to +$!o"$ "or$ o'$rsold +$ or$ r$'$rsing. :oo, or so"$ *ri!$ str$ngth +$ or$ ta,ing any +#llish *ositions +as$d on this indi!ator. =2> Mo,+'( A,). () I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o' 8 S&o." T).m: Th$ "ar,$t is +$arish +$!a#s$ th$ ast "o'ing a'$rag$ is +$lo( th$ slo( "o'ing a'$rag$.

Kousali Institute of Management Studies


A--+"+o' 5 A' 5!*+* 8 S&o." T).m: Th$ "ar,$t is EXTREME:Y ;EARIS9. E'$rything in this indi!ator is *ointing to lo($r *ri!$s: th$ ast a'$rag$ is +$lo( th$ slo( a'$rag$M th$ ast a'$rag$ is on a do(n(ard slo*$ ro" th$ *r$'io#s +arM th$ slo( a'$rag$ is on a do(n(ard slo*$ ro" th$ *r$'io#s +arM and *ri!$ is +$lo( th$ ast a'$rag$ and th$ slo( a'$rag$. CARNIN.: Mar,$t "o"$nt#" slo($d do(n on this +ar. This is indi!at$d +y th$ a!t that th$ di $r$n!$ +$t($$n th$ t(o "o'ing a'$rag$ lin$s is s"all$r on this +ar than on th$ *r$'io#s +ar. ItBs *ossi+l$ that ($ "ay s$$ a "ar,$t rally.


ANALYSIS OF RSI: I yo# s$$ th$ RSI !hart or gold in "ar!h it sho(ing th$ o'$r sold *osition "$ans +$lo( ? "$ans that th$ "ar,$t going to +$ t#rn #* and it ha**$n th$ o'$r sold sit#ation !hang$ in o'$r +o#ght in A*ril +#t th$n also RSI r$a!h a+o'$ >@P th$ *$o*l$ is t$lling not to +#y gold +#t its anoth$r "$aning is not to s$ll th$ gold hold and i so"$ ti"$ rsi !ross th$ F?P it is again !han!$ that th$ "ar,$t (ill go #*. So holding is +$tt$r o*tion i

Kousali Institute of Management Studies


yo# s$$ gold RSI going do(n a t$r r$a!hing th$ =@Pas soon as yo# o+s$r'$ th$ rsi going do(n +$tt$r to !o"$ o#t ro" th$ "ar,$t. A!!ording to RSI l$'$l ($ !an *r$di!t that th$ gold is in o'$r sold *osition and it going to +$ ollo(s an #* tr$nd no(.


TFC Commo-+"! C& ."*: Go5- 1:: oJ. =GCA COMED> D +5! Commo-+"! F2"2.)* P.+#) C& .": J2')A 2::@

Kousali Institute of Management Studies


/ri GN00N@>

Mo, A,(8E%6o')'"+ 5 I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o': 6ri!$ is +$lo( th$ "o'ing a'$rag$ so th$ tr$nd is

A--+"+o' 5 A' 5!*+*: Mar,$t tr$nd is DOCN. Mo, A,( 9 5+')* I'-+# "o.: No"): In $'al#ating th$ short t$r"% *lot1 r$*r$s$nts th$ ast "o'ing a'$rag$% and *lot0 is
th$ slo( "o'ing a'$rag$. /or th$ long$r t$r" analysis% *lot0 is th$ ast "o'ing a'$rag$ and *lot4 is th$ slo( "o'ing a'$rag$

Co',)'"+o' 5 I'").6.)" "+o' 8 S&o." T).m: Th$ "ar,$t is +$arish +$!a#s$ th$
ast "o'ing a'$rag$ is +$lo( th$ slo( "o'ing a'$rag$.

A--+"+o' 5 A' 5!*+* 8 S&o." T).m: Th$ "ar,$t is EXTREME:Y ;EARIS9.

E'$rything in this indi!ator is *ointing to lo($r *ri!$s: th$ ast a'$rag$ is +$lo( th$ slo( a'$rag$M th$ ast a'$rag$ is on a do(n(ard slo*$ ro" th$ *r$'io#s +arM th$ slo( a'$rag$ is on a do(n(ard slo*$ ro" th$ *r$'io#s +arM and *ri!$ is +$lo( th$ ast a'$rag$ and th$ slo( a'$rag$.

Bo55+'(). B '-* I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o': Th$ ;olling$r ;ands ar$ indi!ating an o'$rsold
!ondition. An o'$rsold r$ading o!!#rs (h$n th$ !los$ is n$ar$r to th$ +otto" +and than th$ to* +and.

A--+"+o' 5 A' 5!*+*: Th$ "ar,$t a**$ars o'$rsold% +#t "ay !ontin#$ to +$!o"$ "or$
o'$rsold +$ or$ r$'$rsing. :oo, or so"$ *ri!$ str$ngth +$ or$ ta,ing any +#llish *ositions +as$d on this indi!ator.

Vo5 "+5+"! I'-+# "o.: Volatility is in a do(ntr$nd +as$d on a F +ar "o'ing a'$rag$. R ") o4 #& '() I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o': Rat$ o Chang$ 2)<.G?3 is +$lo( -$ro% indi!ating an
o'$rsold "ar,$t.

Kousali Institute of Management Studies


A--+"+o' 5 A' 5!*+*: Th$ long t$r" tr$nd% +as$d on a <? +ar "o'ing a'$rag$% is U6.
Th$ short t$r" tr$nd% +as$d on a F +ar "o'ing a'$rag$% is DOCN. Rat$ o Chang$ is in +$arish t$rritory.

RSI I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o': RSI is in n$#tral t$rritory. 2RSI is at <F.>43. This
indi!ator iss#$s +#y signals (h$n th$ RSI lin$ di*s +$lo( th$ +otto" lin$ into th$ o'$rsold -on$M a s$ll signal is g$n$rat$d (h$n th$ RSI ris$s a+o'$ th$ to* lin$ into th$ o'$r+o#ght -on$.

A--+"+o' 5 A' 5!*+*: RSI is so"$(hat o'$rsold 2RSI is at <F.>43. 9o($'$r% this +y
its$l isnLt a strong $no#gh indi!ation to signal a trad$. :oo, or additional $'id$n!$ h$r$ +$ or$ g$tting too +#llish h$r$.

O6)' I'").)*" I'-+# "o.: O*$n Int$r$st is tr$nding #* +as$d on a F +ar "o'ing
a'$rag$. This is nor"al as d$li'$ry a**roa!h$s and indi!at$s in!r$as$d li1#idity.

Vo52m) I'-+# "o.: Co',)'"+o' 5 I'").6.)" "+o': No indi!ations or 'ol#"$. A--+"+o' 5 A' 5!*+*: Th$ long t$r" "ar,$t tr$nd% +as$d on a <? +ar "o'ing a'$rag$%
is U6. Th$ short t$r" "ar,$t tr$nd% +as$d on a ? +ar "o'ing a'$rag$% is DOCN. Vol#"$ is tr$nding lo($r. In g$n$ral this is +$arish.



.old +#llion 6ri!$s d#ring th$ *ast 0@ y$ars ) !hart

Kousali Institute of Management Studies


This is th$ *ast 0@ y$ars !hart o *ri!$ l#!t#ation in gold d$noting th$ #*s 7 do(ns in th$ gold "ar,$t. As *$r th$ y$ar $nd o 0@@G it st#!,$d to ZG?4.?F *$r troy o-. (hi!h has start$d ro" th$ "$r$ *ri!$ o Z <>? a*ro&l. /ro" th$ y$ar 0@@@ th$ tr$nd o gold *ri!$s ar$ high 7 soaring #*.

II3 1@ y$ar gold !hart

Kousali Institute of Management Studies


This !hart has th$ *ri!$ tr$nd o gold in last t$n y$ars (h$r$in th$ *ri!$ USD *$r o#n!$ has +$$n indi!at$d on Y a&is 7 th$ y$arly A#ly +as$d rat$s on X a&is (hi!h signi i$s that th$ high$st r$!ord till th$ y$ar 0@@> is Z >0?.>? *$r o#n!$ 7 th$ lo($st +$ingZ0?0.=@. Th$ MACD is slo( "o'ing thro#gh th$ y$ars o 1FF>% 1FF=% 1FFF% 0@@@%0@@1.Th$ *ri!$ got its *a!$ o s(ing ro" th$ y$ar 0@@0 and !rash$d th$ high$st as on th$ y$ar 0@@G%(h$r$ it or"$d th$ t(o sho#ld$rs sha*$ signi ying th$ highs and lo(s o th$ tr$nd.


Kousali Institute of Management Studies


.old "ar,$t Val#$s or th$ *ast ? y$ars ) !hart

As in th$ *ast i'$ y$ars r$!ord o th$ y$ar +$ginning 0@@4 to 0@@>% th$ *ri!$ ($r$ l$ss 'arying 7 sta+l$ in th$ irst $( thr$$ y$ars 7 th$n +y th$ $nd o 0@@? 7 in th$ initiation o y$ar 0@@G it had st$$* ris$ in *ri!$s (hi!h has +$$n !ontin#$d (ith all 7 ris$ *r$'ailing th$ sa"$ #*till th$ y$ar 0@@>.

IV> 1 YEAR GOLD PRICE :Chart 9istory

.old ;#llion Val#$s or th$ *ast y$ar ) !hart and gra*h

As *$r th$ !hart d$sign$d on th$ *ri!$ 'ariation o gold or th$ *ast y$ar $nd 0@@G th$ *ri!$ had d$!lin$d !o"*ar$d to th$ st$* ris$ in gold *ri!$ o th$ *r$'io#s "onths.This has l$d th$ r$sistan!$ *ri!$ l$'$l to r$"ain stati! at ZG<=.0> 7 Z 0@%=<0 as a!!ording to th$ standard ($ights ollo($d.

Kousali Institute of Management Studies



6ri!$ "o'$"$nt o gold o'$r th$ *ast "onth 2May)A#n$3 ) !hart

Th$ "onthly !hart h$r$in indi!at$s th$ *ri!$ rang$ in th$ (hol$ "onth as *$r th$ ($$,ly int$r'als on X a&is 7 on Y a&is th$ USD *$r troy o- as ($ll as *$r ,ilo.Th$ *in, lin$ is or *ri!$ l#!t#ation 7 th$ +l#$ lin$ is th$ r$sistan!$ l$'$l at th$ sa"$ rat$ o G?4.?FZ *$r troy o- 7 Z01%@14 *$r ,ilo.As *$r th$ o+s$r'an!$ th$r$ is (id$ l#!t#ation in th$ *ri!$s in th$ irst ($$, o th$ "onth%as +$!a#s$ o th$ s$asonal d$"and in th$ "ar,$t.


6ri!$ "o'$"$nt o gold as *$r th$ day o 04)@G)@> ) !hart.

As th$ intraday trad$s !hart as *$r th$ dat$ 04)@G)@> has +$$n indi!at$d h$r$in in t$r"s o +oth th$ *$r troy o- 7 *$r ,ilo on Y a&is% 7 on X a&is th$ ti"$ ga* o on$

Kousali Institute of Management Studies


ho#r.Th$ *in, lin$ signi i$s th$ *ri!$ rat$ l#!t#ation on th$ *arti!#lar day and th$ +l#$ lin$ r$*r$s$nts r$sistan!$ *ri!$ rat$ (hi!h (as noti!$d or long$r ti"$ as o ZG?4.?F *$r troy o- 7 01%@14 *$r ,ilo.

9.@.1.T.)'- A' 5!*+* o4 (o5- 6.+#)* 4o. "&) ')%" "&.)) !) .*


4BB8 4BB9 4BBA 4BBC 4BBB 5333 5334 5335 5336 5337 5338 5339 533A 533C 533B 5343

Price *+,o-.
6C6.C 6CA.C 664 5B7.5 5AB 5AB.4 5A4 63B.A 73B.A 777.A 83B.4 97C.5A 986.8B 9C8.A4 9B3.4 A38.5

Kousali Institute of Management Studies


!rend %nalysis
C33 A33 PRIC" I$ + 933 833 733 633 533 433 3 4 5 6 7 8 9 A C B 43 44 45 46 47 48 49 '"%RS Price ?DEo)@


Mo'ing a'$rag$s ar$ #s$d to s"ooth o#t short)t$r" l#!t#ations%th#s highlighting long$r)t$r" tr$nds or !y!l$s. Th$ "o'ing a'$rag$ is a si"*l$ "$thod (h$n !o"*ar$d to l$ast s1#ar$ and it also gi'$s th$ *ri!$ "o'$"$nt in an $asy (ay.



/I0" '"%R !(!%&

/I0" '"%R %0"R%G"

1FF? 1FFI 1FF@ 1FFH 1FFF 2::: 2::1 2::2 2::9

9H9.H 9H@.H 991 2FE.2 2@F.1 2@1 9:F.@ 9I9.E E:F.@

1I@?.F 1?I9.1 1EH? 1?1@.E 1I92.F

99?.1H 912.I2 2F@ 9:9.EH 92I.?H


Kousali Institute of Management Studies

2::E 2::? 2::I 2::@

EEE.@ ?:F.1 I?9.I @::.2

1@FH.? 2:9I.I 29H:.? 2@1@.9

9?F.@ E:@.92 E@I.1 ?E9.E

Th$ !hart +$lo( sho(s #s th$ s"ooth !#r'$ o gold *ri!$s. In th$ gra*h% th$ tr$nd 'al#$ or th$ ?)y$ars "o'ing a'$rag$ is #*(ard slo*ing. It sho(s that th$ *ri!$ or th$ n$&t !ons$!#ti'$ ? y$ar *$riods (o#ld also in th$ sa"$ dir$!tion% +#t th$ l#!t#ation (onBt +$ to a larg$ $&t$nt.

M(0I$G %0"R%G" C#%R!

C33 PRIC" I$ + 933 733 533 3 4 5 6 7 8 9 A C B '"%RS /R(M 11 !( 2334 #$<= F=&/ &<=/&(= P/$%=?P=/ :;@

Kousali Institute of Management Studies


3.1 !R%5I$G S!R%!"GI"S :

/act Sheet: /(R !#" '"%R 2334: *pot prices: Prices in /sE43(ms +ate 45E3AE3A 46E3AE37 #utures prices: +ate 7E3CE3A 8E3BE3A 8E43E3A M%G ? 3A@ CACB CC98 =F01 '%+=G ?&1(3A@ CC74 =F@0 ==0? '%+=G ?*=P 3A@ =F@0 ) ) Mumbai =><@ CC64 %,=''&$ =><@ CC64

The period for discussion is three months from 7th &1(1*T 533A to 8th :%T:B=/ 533A. %ase $: & corporate based in Mumbai, $ndia ME* & ; 2td. is a consumer of gold at 8kg per month. /ecent fluctuation in gold prices from /s. ?@ to /s?@ per 43 gm has caused a lot of !orry for the company. The firm is finali)ing its plans to buy its :ctober 533A re uirement of 8 kg. The company has decided to continue !ith its e>isting buying from the physical ?spot@ market. ,o!ever, it is interested in using futures for containing the price risk. $t has summoned a consultant to e>plain them as to ho! to go about hedging their price risk. *olution: Premise H The company is planning to commit itself into buying at the current levels ?/s. CC64@. $n such a situation, the company !ould lose, should the price of gold fall subse uently. This !ill put the company at a relatively disadvantageous position vis"I"vis the competitors.

Kousali Institute of Management Studies


+efining the objective and approach: The company is long on the physical market ?as it plans to hold a buy position@. To should safeguard itself from any unanticipated fall in prices. $n such a case, it should go short ?sell@ in the futures market.

*trategy: 46E3AE533A: Buy gold in the Mumbai spot market. *ell 8:ctober kilo gold contract in '%+=G. 4BE43E3A: *ell 8 :%T:B=/ kilo gold contract in '%+=G and offset the position created in the futures market. Pay6o77s: +ate 46E3AE3A 53E3BE3A Position Mumbai '%+=G May 37 CB35.3 CC86.3

Buy in spot market CCC6.4 and sell in futures 2i uidated the position in futures market 'il =F@0




The company has suffered a loss of /s. 4B per 43 gm on the position initiated in the spot market as the prices fell subse uent to its purchase. ,o!ever, since the company has hedged its position in the futures market, it made a gain of /s. 7B per 43 gm in the futures market. Thus, the company has gained a loss of /s.63 .$n all the effective purchase price of gold for the company has become /s. per CC86.4 per43 gm. ?$gnoring the transaction costs@ Conclusions: ,edging through futures enabled the company to lock"in its prices at a particular level, !hich is acceptable to the company. &ll the subse uent event that had a bearing on the prices of gold has not affected the company as it hedged its price risk through futures. Thus, hedging through futures reduces the variability in prices.

Kousali Institute of Management Studies


$n this specific case, the company !ould have gained /s. 4B per 43 gm had it not gone for hedging and bought its re uirement from spot market in *eptember 533A. ,o!ever, since market prices are governed by independent factors, the

company could as !ell have incurred a loss to the same e>tent had the market moved adversely. Thus, not hedging !ould have increased the risk of loss as much. ,edging the price risk brings in certainty. %ompanies prefer certainty to uncertsainty and hence resort to hedging. $n other !ords, hedging price risk using futures tends to reduce the volatility of net income substantially. This is al!ays preferred by every hedger as it enables him to plan his actions better.

Speculation usin8 7utures: & professional investor closely tracking the gold prices, feels that the prices have peaked"off and are on a correction mode. ,is analysis based on fundamental and technical aspects makes him feel that the prices should correct till 8B33 levels and the rally up !ill continue. ,ence they decided to take a position of buy at 8B33 levels on 46T, -12F 533A in anticipation of up!ard rally till :%T:B=/ 533A. Premise" since the market e>pectation of the firm is bullish the firm has to go long to get the ma>imum benefit of the move. The company !ill lose if the market moves against the e>pectations. :bjective is to make profit out of the bull move of the gold market. *trategy follo!ed is take a long position in the May contract and !atch the market movements till May. $f any move is strongly negating the up!ard move come out of the market. 46E3AE533A: Buy gold in the '%+=G futures *=PT=MB=/ contract at CCC6 Payo77s: The market movement !as as e>pected till end of -1'= and touched Klevels !here it took a correction do!n. The do!n movement continued, !hich made the investor a little !orried. They analy)ed the market and found market is e>pected to move do!n further. They li uidated their position on and came out of market.

Kousali Institute of Management Studies


+ate 46E3AE3A 53E3CE3A

Position Buy 2i uidated

Price ===4 CC74

&nticipated C866 "

+ifference 683 "

The e>pected profit !as 683 per contract and actual !as 75 per contract and total it is 7533 for all 433 contracts. $f they had not reacted to the changes and !aited till *=PT=MB=/ they !ould have lost huge amount. +ate 46E3AE3A 43E43E3A Position Buy 2i uidation Price CCC6 CC58 &nticipated C866 " +ifference 683 "

The e>pected profit !as 683 per contract and actual is loss to the tune of 8C per contract. $n total the firm might have lost /s. 8C33 for 433 contracts purchased.

Conclusion: *peculation is a risky game and this is only for those !ho are very actively tracking the market. *ince the investor could able to judge the market move in time, he is out of loss and made a little

APPLICATIONS OR USES OF GOLD: .old !an +$ "ad$ into thr$ad and #s$d in $"+roid$ry. .old *$r or"s !riti!al #n!tions in !o"*#t$rs%!o""#ni!ations $1#i*"$nt% s*a!$!ra t% 5$t air!ra t $ngin$s% and a host o oth$r *rod#!ts. .old is #s$d in r$storati'$ d$ntistry $s*$!ially in tooth r$storations s#!h as !ro(ns and +ridg$s.

Kousali Institute of Management Studies


Colloidal gold 2a gold nano*arti!l$3 is an int$ns$ly !olor$d sol#tion that is !#rr$ntly st#di$d in "any la+s or "$di!al% +iologi!al and oth$r a**li!ations. It is also th$ or" #s$d as gold *aint on !$ra"i!s *rior to iring. Chlora#ri! a!id is #s$d in *hotogra*hy or toning th$ sil'$r i"ag$. .old2III3 !hlorid$ is #s$d as a !atalyst in organi! !h$"istry. It is also th$ #s#al starting *oint or "a,ing oth$r gold !o"*o#nds. .old is #s$d as a !oating $na+ling +iologi!al "at$rial to +$ 'i$($d #nd$r a s!anning $l$!tron "i!ros!o*$. Many !o"*$titions and honors% s#!h as th$ Oly"*i!s and th$ No+$l 6ri-$% a(ard a gold "$dal to th$ (inn$r 2(ith sil'$r to th$ s$!ond)*la!$ inish$r% and +ron-$ to th$ thi

Th$ !o""odity "ar,$t di $rs ro" th$ sto!, trading 7 "ar,$t in "any as*$!ts..old is '$ry s$nsiti'$ "$tal +$!a#s$ th$ *ri!$ o gold is d$t$r"in$d ro" th$ int$rnational a!ti'iti$s. inh$r$nt 'olatility. As an in'$stor on$ sho#ld loo, t$!hni!al !hart li,$ !andl$ sti!,% lin$ gra*h% +ar !hart. In !andl$ sti!, on$ sho#ld loo, or th$ r$sistan!$ and s#**ort l$'$l o th$ *ri!$ (h$r$ h$ (ill a+l$ to 5#dg$ th$ rang$ in (hi!h th$ *ri!$ li$s. In "y 'i$( "ost attra!ti'$ in'$st"$nt in gold is thro#gh .ET/. .ET/ is $asy (ay o *#r!hasing gold +$!a#s$ ($ ha'$ to *ay only on$)t$nth o th$ *ri!$ o gold% so it is '$ry $asy (ay o in'$sting in gold. /or +$ing on th$ sa $r sid$ an in'$stor sho#ld al(ays $nt$r into th$ "ar,$t (ith h$dging or ar+itraging o*tion !a#s$ that (ill ass#r$d th$ in'$stor (ith a r$asona+l$ *ro it% (hi!h in t#rn in'ol'$s lo( ris,.

Kousali Institute of Management Studies


9$n!$ thro#gh th$ a+o'$ st#dy o !harts 7 gra*hs o th$ gold rat$s 7 its l#!t#ation in th$ "ar,$t% on$ !an $asily g$t an id$a o its 'olatility and th$ in l#$n!ing a!tors. Th$ strat$gi$s to +$ ollo($d (hil$ trading in gold *ro'id$s a ,no(l$dg$ or th$ in'$stors. 6$rha*s no oth$r "ar,$t in th$ (orld has th$ #ni'$rsal a**$al o th$ gold #t#r$s "ar,$t. /or !$nt#ri$s% gold has +$$n !o'$t$d or its #ni1#$ +l$nd o rarity% +$a#ty% and n$ar ind$str#!ti+ility. Nations ha'$ $"+ra!$d gold as a stor$ o ($alth and a "$di#" o int$rnational $&!hang$M indi'id#als ha'$ so#ght to *oss$ss gold as ins#ran!$ against th$ day)to)day #n!$rtainti$s o *a*$r "on$y. In'$stors in *r$!io#s "$tals gold 7 sil'$r ar$ not sol$ly +as$d on th$ t$!hni!al analysis o th$ *ri!$s. Th$y ar$ l$ast a(ar$ 7 !on!$rn$d to(ards th$ t$!hni!al analysis "$thod or in'$st"$nt. Th$r$ is '$ry l$ss or al"ost no !oo*$ration ro" th$ in'$stors to ,no( th$ir *$r!$*tion to(ards th$ in'$st"$nt in +#llion "ar,$t.

O'$rall tr$nds in th$ .old "ar,$t o'$r th$ *ast t(o to thr$$ y$ars ar$ +roadly $&*$!t$d to !ontin#$. As *$r o#r *ro5$!t analysis as /inan!ial *lanning +$st ad'i!$ or in'$stors (ill +$ to ha'$ a *art o th$ir *ort olio in th$ or" o gold. Th$ *ro*ortion o gold in on$s tho#gh !o#ld di $r +as$d on on$Bs !o" ort l$'$ls 7 ris, *r$ $r$n!$s. E&*$rts s#gg$stion is that th$ in'$st"$nt o'$r long t$r" gold r$t#rns (o#ld 5#st +$at in lation Th$r$ or$% th$ +#ll "ar,$t in .old is $&*$!t$d to !ontin#$ at a st$ady *a!$% altho#gh th$ high$r th$ *ri!$s "o'$s th$ "or$ 'olatil$ th$ *ri!$ a!tion "ay +$!o"$. In th$ n$ar t$r"% *ri!$s loo, to ha'$ r#n ah$ad o th$"s$l'$s so #rth$r !onsolidation N!orr$!tions s$$"s in ord$r% +#t o'$rall di*s ar$ li,$ly to r$"ain ($ll s#**ort$d. .old *ri!$s or$!ast to gain #rth$r in 0@@= 7 th$ ollo(ing y$ars. C$a,$r dollar o#tloo, 7 *hysi!al d$"and to +oost in'$stors int$r$st ar$ th$ indi!ators o ris$ in gold *ri!$s in th$ n$ar #t#r$.

Kousali Institute of Management Studies



000.*&#+5 o'5+').#om &""6:33000.42"2.)*o2.#).#om3#& ."*3#& ."*.B*6 &""6:33000..)65o. o' (o5-3Go5- F+.) S 5).&"m &""6:33000. (o5- ".)'-*A #ommo-+"!.&"m3 &""6:33000.#ommo-+"!". -).#om3( ").&"m51' m)NE'#!#5o6)-+ &""6:33000.*"o#$#& ."*.#om3)-2# "+o'3C& ."A' 5!*+*3# '-5)*"+#$

&+*"o.! o4 (o5- bo""om* *+'#) 1F@I.&"m3

&""6:33000.$+"#o 8 P 25 , ' ))-)' 0))$5! #o52m' 8 (o5-A

Kousali Institute of Management Studies