Chapter 1

ANALYSING FINANCIAL ASPECTS OF GOLD

1.1 INTRODUCTION

Gold is one of the most malleable, ductile, dense, conductive, non-destructive, brilliant, and
beautiful of metals. This unique set of qualities has made it a coveted object for most of human
history in almost every civilization, and there have been active gold markets for over6,000 years
Green (2007). As money, as an investment, as a store and source of value, hundreds of papers
have been written on Gold. This review provides a state of the art overview of this voluminous
research, and acts as an introduction to this special issue of the International Review of Financial
Analysis, while also assisting as a source of reference for future research.

The main problem with gold is that, unlike other commodities such as oil or wheat, it does not
get used up or consumed. Once gold is mined, it stays in the world. A barrel, on the other hand,
of oil is turned into gas and other products that are expended in your car's gas tank or an
airplane's jet engines. Grains are consumed in the food we and our animals eat. Gold, on the
other hand, is turned into jewelry, used in art, stored in ingots locked away in vaults, and put to a
variety of other uses. Regardless of gold's final destination, its chemical composition is such that
the precious metal cannot be used up - it is permanent.

Gold, by reason of its occurrence in the metallic state, was probably one of the first metals
known to man. Its brilliant colour, high specific gravity, resistance to corrosion and excellent
malleability have since given it a privileged place among metals. For several centuries in the
medieval period, alchemists endeavored to transmute base metals into gold; their efforts, of
course, were unsuccessful but resulted in early knowledge of the chemical behavior of gold and
its compounds. From the beginning of quantitative chemical analysis, the high value of gold
dictated careful sampling and a degree of analytical accuracy far greater than that required for all
other metals except those of the platinum group.
1.2 THEORETICAL INFORMATION ABOUT THE TITLE

During the long association of man with gold, the determination of the latter in ores and
metallurgical products has been generally carried out by fire assay. In this technique of analytical
chemistry, the sample is mixed with appropriate fluxes and litharge in a crucible, .and is melted
in a Furnace. Gold, having a weak of unity for non-metallic elements at high temperature, but a
very strength affinity for the molten lead formed by reduction of litharge, is collected in a lead
button. When the latter is heated under oxidizing conditions in a porous vessel called a cupel, the
lead is rapidly oxidized to PbO which is 98.5 per cent absorbed by the cupel and 1.5 per cent
volatilized, leaving the gold, and silver if present, in the form of a bead. Subsequent treatment
with dilute nitric acid, termed 'parting', dissolves the silver, and the residue of gold is then
weighed on a special type of balance which is sensitive to at least 0.005 mg. Gold is one of the
oldest ways to store wealth. In 3000 BC goldsmiths in Sumeria were already working gold into
the various forms of jewellery still used today. Excavations at the royal cemetery of Ur (founded
about 2500 BC) showed that gold had already become a store of wealth by this time, as well as
being utilized as money by traders. Gold has had an impact on the everyday economic activities
of ordinary people since at least Egypt in 1400 BC, where it was used as a monetary standard.
Perhaps the most famous usage of gold was as money under various gold standards. The primary
sources of gold leasing demand have traditionally been jewelers and gold miners. Jewelers
borrow gold for fabrication, and return the leased gold once the jewellery has been sold using the
proceeds of the sale. Miners can borrow some proportion of their expected mine output which
they sell forward in order to finance production. This gives both a natural hedge against gold
price movements and, as lease rates are usually lower than dollar interest rates, a cheap source

of financing.

1.3 INDUSTRY PROFILE

Ultra Gold Industries

Established as a Sole Proprietorship firm in the year 2017, we “Ultra Gold Industries” are a

leading Manufacture of a wide range of Steel Nails and Binding Wire. Situated in Mehsana
(Gujarat, India), With the support of our vendors, we are able to provide these products in
diverse specifications within stipulated time period. We offer these products at reasonable
rates and deliver these within the promised time-frame. Under the headship of our
mentor “Mr. Mukesh Patel ( Managing Director ) ”, we have gained a huge clientele across
the nation.

Factsheet

Basic Information

Nature of
Manufacturer
Business

Company CEO Mukesh Patel

Total Number of
26 to 50 People
Employees

Year of
2017
Establishment

Legal Status of
Individual - Proprietor
Firm

Annual
Rs. 5 - 10 Crore
Turnover

1.4 STATEMENT OF THE PROBLEM

Indian consumers are ready to pay any price for gold. Cultural and religious traditions involving
wearing of jewellery play a major role in influencing Indian gold demand, this fondness for gold
is acting against “The law of demand” because of this the price does not determine demand as
gold comes under luxury goods and people think of it as more of a status symbol and a valuable
investment. To determine the nature of visible gold, including identification and location of all
gold minerals, their size distributions, compositions, liberation characteristics, and associations
with other minerals for predicting the grinding fineness and possible response of the to
conventional gold recovery techniques

1.5 OBJECTIVES OF THE STUDY

1. To determine any other valuable metals (such as silver and copper)and deleterious
minerals (e.g., talc, serpentine, graphite, cyanicides, oxygen consumers, and water
soluble minerals) in terms of species, amount, and distribution, liberation characteristics
for predicting their possible response to the common mineral processing techniques, and
investigate their mineral processing requirements
2. To find out the Gold's impact on the economy waxes and wanes, depending on how safe
other investments. And to determine the reason(s) for highgold losses to tailings and
opportunities to improve gold recovery

1.6 LIMITATIONS OF THE STUDY

With an annual demand equivalent to about 25 percent of the total physical demand worldwide,
India is one of the largest consumers of gold. Traditionally, there is a surge in jewellery demand
during the festive and wedding seasons, leading to a rally in gold prices. While the demand for
gold has a role to play in its price, there are several other factors that have a bearing on it as well.
According to a report by the World Gold Council, annual data from 1990 to 2015, revealed two
significant factors affecting gold consumer demand ( jewellery, and bar and coin combined) over
the long-term. "All else being equal, gold demand is driven firstly by, income i.e. gold demand is
seen to rise with income levels. For a 1 percent increase in income per capita gold demand rises
by 1 percent and secondly, gold price level i.e. higher prices deter gold purchases. For a 1
percent increase in price , gold demand falls by 0.5 percent”.
 CHAPTER 2

REVIEW OF LITERATURE

We are going to look into the research done on determinants of gold price, which are inflation
rate, exchange rate, and demand& supply factors. In these fields, there have been a number of
researches done based on different purposes, such as the influence of inflation rate on GDP,
impacts of exchange rate on international trade, influences of demand & supply factors on gold
price, and so forth. Thus, we are going to investigate how these factors are influencing gold as a
medium to reduce investment risks.

As the value of gold cannot be blindly rejected forecasting the future prices of gold has long
been an intriguing topic and is extensively studied by researchers from different fields including
economics, statistics, and computer science. The motivation for these studies is naturally to
predict the future prices so that gold can be bought and sold at profitable positions and reduce the
risk of investments.

However, there are still a lot of un-tackled questions and room for improvements in these
forecasting techniques. This is because there are no optional models for all forecasting
problems. Different questions needs a different answer, therefore, more experiments and
modeling need to be done in order for researcher to enhance their findings. The target of this
paper is to present a critical literature review and an up to date bibliography on gold forecasting
techniques over the world.

As gold has been a liquid asset for centuries with the property to hedge against inflation, in times with
and without the Gold Standard, much has been written about the price of gold. Despite the attention gold
has to investors, it still is not completely clear what drives the price of gold exactly. To date, no theory
exists which shows how inflation and exchange rates and other variables affect the price of gold. This
paper seeks to give a review of papers about the structure of the gold market.

The determinants of the gold price and to use this literature on the influences on the gold price to test if
such relations are still present today. The multivariate model explains 4.00% of the price of gold over the
last twenty year. The variables used include: the London Interbank Offered Exchange Rate (LIBOR), the
physical gold rate, the inflation rate, the amount of economic and political instability and US Dollar
exchange rate to the Great Britain Pound, the Indian Rupee and the Chinese Yuan.
To give an overview of the structure of the gold market, first the agents which participate in the physical
trade of gold will be explained. These agents consist mainly of the gold producing firms, central banks
and gold jewellery firms. Also recycling and fabrication firms are involved in physical gold traded.