ABSTRACT

The commodities markets are one of the fastest growing areas in the investment world. A
commodity market is an exchange for buying and selling of commodities for future delivery.
Commodity trading in India started much before it started in many other countries. However,
years of foreign rule, draughts and periods of scarcity and government policies, caused the
commodity trading in India to diminish.

Commodity trading was however restarted in India recently, but a lot more developments and
initiatives needs to be taken in this avenue. Investing on commodities offers protection against
risk, diversified portfolio, trading on lower margin and safety. The study focuses on
understanding the concepts and mechanism of commodity trading with special reference to Gold.
It also aims to analyze the factors that influence the prices of gold and analyze the gold trend in
the commodity market.

Human interaction with gold can be traced far back in history, and throughout history, the metal
has been both worshipped and fought for. People almost intuitively place a high value on this
yellow metal and gold has always had a special place in the human heart. One of the reasons for
augmented interest in investing in gold is the perceived risk in the economy. Risk management is
especially crucial in an era of heightened economic, financial and political uncertainty as today.
Gold, influenced by its history as a currency, has often taken the role as an inflation hedge and a
portfolio stabilizer during turbulent financial markets. Inflation hedge assets like gold should be
negatively correlated with the market and should give the best diversification benefits in a
portfolio. This indicates that gold may be an appropriate diversifier in an equity portfolio.

The Indian commodity market requires large investments and enhanced trading activity both in
the national as well as the regional commodity markets. The participation of non-professional
people trading commodity markets makes the market a risky venture. Non-professional
participants simply add to the volatility factor of the market. Growth of commodity market
operations, in India has witnessed a number of ups and downs. There is a need to reform and
restructured Indian commodity markets in terms of improving the efficiency, making these more
relevant to crucial stakeholders such as investors. Dealing the volatility and ensuring a
consistent regulatory framework potent solution to such issues may results in a healthy
improvement in the efficiency and relevance of commodity markets in India.