RESEARCH PAPER

Faculty : Dr.Vikram Joshi

Prepared By
Rahul Choudhuri (58)
& Rajat Dangra (59)
MBA 1st Year, Semester II (Shift 2)
Shri Ramdeobaba College Of Engineering And Management.

GOLD PRICES: FACTORS AFFECTING IT, IN INDIAN CONTEXT

INDEX

Sr. Topic Page No.

No.

1 ABSTRACT

2 INTRODUCTION

3 LITERATURE REVIEW

4 QUESTIONNAIRE

5 CONCLUSION

6 REFERENCE (CITATIONS)

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ABSTRACT
In this research paper we are going to dive deep into the various
aspects related to the ever fluctuating prices of gold, particularly
in India. What are the various variables that are playing its role in
affecting the prices of gold and up to what extent. Factors ranging
from crude oil prices, Inflation, Nifty 50, exchange rate, sensex
etc. All of these variables are Independent to each other. The
purpose of doing this research is because gold is the most
popular metal in India and has shown continuous increase in its
price since the year 2000, this report shows the reasons for the
sudden change in trend. Various methods are used to figure out
the relationship between the factors and the gold prices such as
regression method, Unit root test, Correlation test, Granger
causality test and Johansson’s co-integration test. This report
particularly looks after the trends in the Indian Gold Market. This
study also conveys that integration between Gold and Stock
Market price necessitates the need for global investors to follow
portfolio stock selection strategy to add value from investments in
India. Although, the scope of these opportunities is limited in the
short run. Among all the
variables, inflation had 38.79% explanatory power for gold prices
in the long term.

Keywords : Gold Price, Stock market price, Causality test,

Co-integration test Crude oil, Gold, Nifty 50, Exchange Rate

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INTRODUCTION

Gold, this metallic element has always been regarded as one of the
most precious metals in the history of mankind and also one of the
most liquid and widely accepted medium of exchange. Gold is
considered to be one the most preferred investment avenues since its
discovery. This yellow glittering metal has always fascinated all
classes of investors irrespective of their gender, geographical
location etc, because of its properties like liquidity, security and
portfolio.

Gold, a metallic element has always been considered to be one of the most precious metals in the
mankind’s history and also one of the most liquid and widely accepted medium of exchange. Gold is
measured as one of the most preferred investment avenues since its discovery. This glittering
yellow metal has always fascinated all classes of investors irrespective of their gender, geographical
location etc. due to the properties it offers such as liquidity, security & portfolio. One of the key
features of gold is its less susceptibility to fluctuations in exchange rate and its ability to resist both
internal and external changes in purchasing power of the domestic currency (Thai-Ha et al).

There are various factors that affect the gold prices, which the most popular
metal in India and many different countries throughout the world. There are
a number of studies that were conducted in the recent past which have
brought up the independent factors affecting the gold prices in India like
Inflation, Stock market, exchange rate, crude oil etc. Gold is seen as hedge
and safe haven against inflation (Batten et al.
2014; Chua et al. 1982; Aye et al. 2016; Aye et al.2017;
Worthington et al. 2007; Ghosh, Dipak, et al. 2004).
However gold and hedge are not quite the same in different countries, It is
stronger in countries like US and UK as compared to European countries
and Japan ). A

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similar observation was made by Wang et al. 2011 that in the
US context gold is a long term hedge against inflation but its
effect was partial in the Japanese context. Van Hoang et al.
(2016) also had a similar observation that gold is an effective
hedge against inflation in both long run and short run in US
and UK context but it was not effective in the context of
China, Japan and France.

There are two different views on the relationship between gold demand
and income. The
classical theory argues that there exists a positive relationship between
gold price and real
income, while Keynesian theory argues that more demand means more
economic backwardness
hence low income, which indicates an inverse relationship. India and China
are the major
gold purchasers in the world. In the last 10 years, Indian population has
increased by 12%,
while the demand for Indian gold has increased by 13%. According to the
World Gold Council
(WGC), Indians own more than 18,000 tons of gold, which represents 11%
of the global
stock and is the largest in the world. And this stock is expected to grow
over the next decade.
Indians roughly save 30% of their income, which is one of the highest in the
world, and of
this 10% is invested in gold. (Causal Relationship Between Stock
Market
Indices and Gold Price: Evidence from India
Samveg A Patel*(page no. 2))

Gold is a very interesting area in the Indian context as it is as popular as investments

and ornaments. The market of gold in India has been through several changes ever
since the abolition of the gold control act in 1992. The authorizing of commercial banks
to import gold for loan purposes or loan, the exemption of gold for prevention of money
laundering act and monetization of gold, all had very positive effect on the purchases of
gold in India. In the last 10 years the prices of gold have seen a dramatic increase of
900% (Parimini 2018). ). As
investment in India gold has seen an increase of 47% in 2008,
(Gold trends 2009). During 2008 the Nifty 50 has come
down from 6144.35 to 2959.15 points Sensex also has
declined from 20300.71 to 9647 points. During the crisis

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period gold was seen as safe haven as there was uncertainty
with other asset categories. India continued to be the world
largest consumer of gold in 2009(Gold trends 2010). India continued to be the world
largest consumer of gold in 2009(Gold trends 2010). It is
therefore interesting to examine factors that affect gold
prices. (SCMS Journal of Indian Management, October-December – 2019)

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