Gold An Investment Rationale

A REPORT
ON
Gold- Investment Rationale
Project Report
Submitted To
SCHOOL OF MANAGEMENT SCIENCES
For The Award Of
Post Graduate Diploma in Management
Submitted By
Prashant Kumar
(Roll No. : PG/08/32)

LUCKNOW
A REPORT
ON
Gold- Investment Rationale
Submitted By
Prashant Kumar
(Roll No. : PG/08/26)

LUCKNOW
2
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Abstract:
This project report is basically done on the gold which is a component traded in the
commodity market. Gold is an inflation hedge & also short-term fluctuations in
Gold offer good potential for trading. It is in the upward trend and in the current it
is safe to invest in the gold.
The basic objective behind the project is analyzing the gold market the
factors affecting it and fluctuation in the gold market.
This project report will help the investors to analyze the right time for
investment in the gold. They will also come to know about the various factors
which affect the gold market. While doing this project the history and the company
profile are basically searched either from the internet or by the literature review of
the company. This means that it is basically based on the secondary source. Also
the topic related concepts are done on the basis of the secondary sources. The data
for the analysis is taken either by the consulting the company’s employees or from
the net. So it is partially primary and partially secondary. The analysis part is done
with the help of Microsoft EXCEL by computing the required output. Finally the
conclusions and recommendations have been written on the self finding basis.
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DECLARATION
I hereby state that the Project Report titled “Gold –An Investment Rationale.”
submitted in partial fulfillment of the degree of Post Graduate Diploma In
Management is an original work done entirely by me and is based entirely on my
own observations. It has not previously formed the basis for the award of any other
degree, diploma, fellowship or any other similar title. The facts presented here are
true to the best of my knowledge.
Prashant Kumar
PG/08/26
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Table of Contents
Contents P.No
1) Acknowledgements. 8
2) Company Profile. 9
3) Introduction of the Project. 21
• Preface 22
• Objective of the project 24
• Scope of the project 24
• Methodology 24
• Literature Review 25
• Basic terms of Investment 26
• Short term & Long Term Investment Options 27
• History of Gold 30
• Gold as Money 30
• Ways of Investment in Gold 32
4) Factors Affecting Gold and Their Analysis 39
• Crude Oil 40
• US Dollar 45
• Repo Rate 49
• Inflation Rate 55
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• Bank Failure 59
• Stock Market 60
• Gold Anti Trust Committee 64
• Real Interest Rate 65
• War & Other Crisis 65
• Demand & Supply 66
5) Scenario Analysis 69
6) Findings 75
7)Limitations 77
8) Recommendations 78
9) References 80
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Acknowledgements
This project simply shows the entire dedication of me and the people who have coordinated for
successful accomplishment in this project. It shows the knowledge, skill and experience of able
minded people. I am greatly obliged to Unicon Investment Solutions for providing me this
opportunity to take up this project as long as a platform to learn and enhance my professional
skill.
I would like to express my deep sense of gratitude to Mr. Sachin Jain –Product Manager
(National) Mutual Fund, Unicon Investment Solutions, my corporate guide, for his kind help
and support and valuable guidance throughout the project. I am thankful to him for providing me
with necessary insights and helping me out at every single step. I also express my deep gratitude
to Mr. Dhritiman Chakraborty – Senior Manager Research, Unicon Investment Solutions.
I am highly thankful to Dr. Sudhir Sharan my Director under whose able guidance this project
work was carried out. I thank him for his continuous support and mentoring during the tenure of
the project. I am also thankful to my academic guide Dr. Vandana Shrivastva with deep of my
heart who has given me their co-ordination from time to time. I am also thankful to the entire
teaching staff without which this acknowledgement will be incomplete.
Prashant Kumar
PGDM
PG/08/26
SMS- Lucknow
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COMPANY PROFILE
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Company Profile:
Basic Information:
Company Name Unicon Investment Solutions

Business Type Trading company, Distributor/Wholesaler
Product/Services Mutual Funds, Insurance, NFO, IPO,Equity,Debt
Address 26, IIIrd Floor, Pusa Road, Karol Bagh, New Delhi
Brands Kotak,Hdfc,Hsbc,Reliance,ICICI,BSP etc
No of Employees Above 1000 people
Company website www.uniconindia.in
Ownership & Capital:
Year Established 2004

Registered Capital Above US $ 100 million
Ownership Type Private Limitated Company
Legal Representative Mr. Gajendra Nagpal
Trade & Market: South East Asia.
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Detail Profile:
Unicon is a financial services company which has emerged as a one stop investment solution
provider. It was founded in 2004 by two visionary and flamboyant entrepreneurs, Mr. Gajendra
Nagpal and Mr. Ram Gupta who possess expertise in the field of finance .The Company is
headquartered in New Delhi, and has its corporate office in Mumbai with regional offices in
Kolkata, Chennai, Hyderabad and Noida.
Unicon is a professionally managed company with outstanding managerial acumen and

cumulative experience of more than 200 years in the financial markets. the company is supported
by more 3500 uniconians and has an extensive network of over 100 branches , 600 plus business
partner locations & 2500 remisers providing it with a national footprint.
With a customer base of over 200000, the Unicon Group has an eye for the intricate financial
needs of its clients and caters to both their short term and long term financial needs through a
comprehensive bouquet of investment services. These services range from offline and online
trading in equity, commodities, currency derivatives to debt markets to corporate finance and
portfolio management services. The company has a sizable presence in the distribution of 3rd
party financial products like mutual funds, insurance products and property broking. It also
provides expert Advisory on life insurance, General insurance, mutual funds and IPO’S. The
distribution network is backed by in – house back office support to provide prompt and efficient
customer service.
The equity broking arm – UNICON Securities Pvt. Ltd offers personalized premium services
on the NSE, BSE & Derivatives market. The commodity broking arm UNICON commodities
Pvt. Ltd offers Services in commodity trading on NCDEX & MCX. The UNICON Group Also
has PCG division providing investment solutions for High Net worth Individuals. UNICON can
boast of some of the most respected names in the private equity space like Sequoia Capital and
Nexus India capital as its shareholders.
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Unicon has been founded with the aim of providing world class investing experience to hitherto
undeserved investor community. The technology today has made it possible to reach out to the
last person in financial market & give him the same level of service which was available to only
the selected few. They give personalized premium service with reasonable commissions on the
NSE, BSE & Derivative market through their equity broking arm Unicon securities Pvt. Ltd.
With their sophisticated technology we can trade through our computer & if we want human
touch we can also deal through their relationship managers out of their more than 100 branches
across the nation.
Mission of the company:
To create long term value by empowering individual investors through superior financial
services supported by culture based on highest level of team work, efficiency & integrity.
Vision of the company:

To provide the most useful and ethical investment solutions guided by values driven approach to
growth, client service and employee development.
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Management Team:
Name Designation
Mr. Gajendra Nagpal- Founder & CEO
Mr. Ram M Gupta - Co- Founder & President
Mr. Y.P. Narang - Head- Fixed Income group
Mr. Sandeep Arora - Chief Operating Officer
Mr. Vikas Mallan - Chief Financial Officer
Mr. Trinadh Kiran - National Head (E-Broking)
Mr. Subhash Nagpal - Director (P & D)
Ms. Anjali Mukhija - Chief Compliance Officer
Mr. Vijay Chopra - National Head (Buss.Alliances)
Mr. Anurag Nayar - Chief Technology Officer
Mr. Ashish Kukreja - Head (Client Relations)
Ms. Deepa Mohamed - Head (HR & Training)
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Group Companies:
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SWOT ANALYSIS OF UNICON:
Strengths Weakness
• Professional Services • Lack of strong MIS framework
• Customized solution to customer • Usage of manual paper based
needs processes for reconciliation
• Support of extensive network of • Absence of sustainable source of
100 branches and 600 franchises income
across India
• Strong brand Name
• Regular information flow and
research
Opportunities Threat
• Growing Indian economy and • Global economic recession
advent of young investors • Financial Markets in hibernation
• Savings of Indians are very high • Enterprises in distress
and thus can be channelized • Financial intermediaries in pain
investment
• Financial product penetration is
very low in Tier II and III cities.
• Financial product penetration is low
in Corporate
Changes to be incorporated in-
Market Plan Financial Plan

• Increase financial awareness • Better incentive plan to boost sales
amongst investors • Make efforts to increase overall
• Promote financial planning and its productivity
benefits • Increase Turnover
• Penetrate retail in tier II and III • Increase Profit
cities
• Penetrate HNI and corporate
segments within metro
• Extend presence of brand in all
states in India
Product Plan People Plan
• Selling all products from every • Increase team size to 250 across the
AMC and insurance companies. country and activate maximum
• Cross selling between mutual number of branches
funds,Life insurance, general • Recruitment of quality manpower to
insurance, IPO and fixed Deposit improve sales
scheme • Improve motivation level within
teams
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Product &Services:
Unicon customers have the advantage of trading in all the market segments in the same window,
as they understand the need of transactions to be executed with high speed and reduced time. At
the same time, they have the advantage of having all Advisory services for Life Insurance,
General Insurance, Mutual Funds and IPO’s also.
Unicon is a customer focused financial services organization providing a range of investment

solutions to our customers. They work with clients to meet their overall investment objectives
and achieve their financial goals. Their clients have the opportunity to get personalized services
depending on their investment profiles. Their personalized approach enables clients to achieve
their total investment objectives.
The Key products offering are as follows:
• Equity- It is of two types-
Unicon Plus-It is browser based trading terminal that can be accessed by a unique ID and
password. This facility is available to all online customers the moment they get registered.
Features:
 Trading at NSE, BSE & Derivatives on single screen.
 Add multiple scrip’s on the market watch
 Greater exposure for trading on the available margin.
 Common window for display of market watch and order execution.
 Real time updating of exposure and portfolio while trading.
 Offline order placement facility.
 Stop – loss feature.
 Competitive Brokerages.
 Banking integration with ICICI Bank, HDFC Bank, AXIS Bank.
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 Proxy link to enable trading behind firewalls.
Unicon swift- It is application based terminal for active traders. It provides better speed, greater
analytical features & priority access to Relationship Managers.
Features:
 Trading at NSE, BSE & Derivatives on the single screen.
 Add any number of scrips in the market watch.
 Tick by tick live updation of Intraday chart.
 Greater exposure for trading on the margin available.
 Common window for market watch and order execution.
 Key board driven short cuts for punching orders quickly.
 Real time updation of exposure & portfolio.
 Facility to customize any number of portfolio & watch lists.
 Best 5 bids and offers, updated live for all scripts.
 Facility to cancel all pending orders with a single click.
 Instant trade confirmations.
 Banking integration with ICICI Bank, HDFC Bank, Axis bank,
Bank of India, Corporation bank, Karnataka bank, Vijaya Bank etc.
• Commodity-
Unicon offers a unique feature of a single screen trading platform in MCX and NCDEX
Unicon offers both offline & online trading platforms. You can walk in or place your orders
through telephone at any of our branch locations.
Features:
 Live market watch for commodity market (NCDEX , MCX) in one screen.
 Add any number of scrip’s in the market watch.
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 Tick by tick live updation of intraday chart.
 Greater exposure for trading on the margin available.

 Common window for market watch and order execution.
 Keyboard driven shortcuts for punching order
• Depository-
It offers dematerialization services as a participant in central Depository Services Ltd

through its Depository operations. The company believes in efficient and cost-effective and
integrated service support to its brokerage business. Unicon securities Pvt. Ltd, as a
depository participant, will offer depository accounts for individual investors as well as
corporate which will enable them to transact in the dematerialized segment, without any
hassles.
Depository offers a safe, convenient way to hold securities as compared to holding securities
in paper form. Their service provides an integrated single platform for all their clients
ensuring a risk free, efficient and prompt depository process.
• Distribution-
Unicon is a fast emerging as a leader in the insurance and mutual funds distribution
space. It has over 100 branches and a huge number of “ Business Development
Executives” who help to source and service the customers throughout the country.
Unicon is fast becoming the preferred “ Vendor Independent” distribution houses because
of providing efficient service like free collection of cheques , keeping track of the
premiums etc. to the customers.
Unicon offers the following distribution products:-
 IPO’s
 Mutual Funds
 Insurance
 Properties
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• NRI service-
With India becoming the epicenter of growth the Global Indian feels the needs to be
connected to the domestic growth story. It now offers a convenient and hassle free way of
investing in the Indian securities Market to the people who are living outside India and wish
to participate in the Indian growth story.
• Back office-
Unicon through its online back-office aims to increase the transparency and provides us the
link to view the details of our account online any time and any where.
• Fixed Income-
The fixed income vertical of UNICON group deals in sovereign paper, money market/fixed
income instruments and merchant banking activities.
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Competitors of UNICON:
• India Bulls
• Reliance Money
• India infoline
• Narayan Securities Pvt. Ltd
• Vivek Financial Focus Ltd
• Multiplex Capital Ltd
• Nikunj stock Broker Ltd
• O J financial services Ltd
• Elite stock management Ltd
• Mani stock brokers Ltd
• Trans Asia securities Pvt. Ltd
• SMC
• RR
• Centrum
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INTRODUCTION OF THE PROJECT
Preface:
Gold – An Investment Paradise
Gold has been synonymous to wealth and prosperity through the ages. The history of Gold dates
back to as early as 4000 BC when the prehistoric men used it as a tool. Since then Gold has filled
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the pages of history as the divine metal that has attracted the attention of men –powerful and
otherwise. Gold was the source of power for the kings. Wars were waged; lives were lost as
kingdoms piled up and hoarded tonnes of Gold. In the modern history, Gold became the
international currency as the Gold standard came into existence. Even after the dismantling of
Gold standard, Gold existed as the backbone of international trade and economics as the US
accumulated tones of yellow metal. Till today, Gold has retained its basic use as a commodity
without losing its sheen as a currency.
Gold, because of its ability to protect the wealth of investors can be an ideal addition to a
portfolio. Also the short-term fluctuations in Gold offer good potential for trading. Gold has been
on its long-term upwards trajectory which began in early 2001. This long-term move has been
punctuated by short-term pullbacks offering opportunities for late entrants to join the
bandwagon. With the US economy outgrowing the league of developed nations during the last
two years coupled with the worsening of long-term structural weaknesses and the subsequent
movements in the USD have moved the focus away from Gold’s use as a commodity. However
the long-term fundamentals of the yellow metal have also undergone a significant change with
the mining output falling quite steadily during the last decade coupled with an evergreen demand
especially from Asia.
This report analyses the long-term and short-term fundamental factors expected to move Gold
prices. We believe that the short-term weakness expected in gold is a great opportunity for the
late-comers to join the great Gold. Strategically, gold is one of the two most important
commodities on the planet along with crude oil. Gold has been historically recognized as the
ultimate store of value and method of payment. The following characteristics of Gold have
enabled it play this role:
• It is durable, homogenous and divisible
• Gold’s rarity gives it intrinsic value and that value is high per unit of volume.
• Its value is recognized across the globe and is traded in a continuous market.
• Gold is the only financial medium of exchange that is not someone else’s liability.
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In updating our price outlook, we have considered the following factors:
• Investment demand will continue to be the prime driver for the rally in Gold prices,
• As economic factors will make gold more attractive compared to other financial assets.
• Furthermore strong buying support from the Central Banks of Russia, China and
Middle East countries will help support the rally in Gold prices.
• Mine production will not be able to meet current demand due to lack of new
Discoveries.
• The long term average in the Crude/Gold ratio has been around 16 times, but is
Currently only around 10 times.
In the remaining part of this report we will consider the major factors that are likely to
drive Gold prices higher in the near future.
Objective of the project

The objective of my project is:
• To study the current investment scenario
• To analyze the different options available for investment options
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• To overview the different ways of investment in gold
• To acquaint the investor with the factors that affects the investment scenario in gold.
• To have the extensive overview on the working system of UNICON COMMODITY

SECTION.
• To analyze the different factors which affect the gold market and suggest the investors
about the right time to invest in gold.
• Also see that is it the right time to invest in gold or not.
Scope of the study
The analysis of the factors which affect the prices of gold and the investment decisions in gold.
A comparative analysis of these factors has been done on the various parameters like Standard
Deviation, Regression; correlation to make possible the tedious task of analysis of these factors.
Further analyzing the factors will suggest the investors that whether it will be profitable for the
investors to invest in gold or not.
Methodology
⇒ The history and the company profile are basically searched either from the internet or by
the literature review of the company. This means that it is basically based on the
secondary source. Also the topic related concepts are done on the basis of the secondary
sources.
24
⇒ The data for the analysis is taken either by the consulting the company’s employees or
from the net. So it is partially primary and partially secondary.
⇒ The analysis part is done with the help of Microsoft EXCEL by computing the required
output.
⇒ Finally the conclusions and recommendations has been written on the self finding
basis.
Literature Review:
⇒ Robert Preachter historical report on Gold and silver has been studied
⇒ Sites like [email protected], mcxindia.in, gold research.org, etc has been studied.
⇒ The literature review of the commodity section of Unicon.
⇒ Annual report published by RBI & World Gold Council
Basic Descriptive terms:
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Investment:
The money you earn is partly spent and the rest saved for meeting future Expenses. Instead of
keeping the savings idle, you may like to use savings in Order to get return on it in the future.
This is called Investment.
Reasons for investment:
One needs to invest to:

 Earn return on your idle resources
 Generate a specified sum of money for a specific goal in life
 Make a provision for an uncertain future
It is also to meet the cost of Inflation. Inflation is the rate at which the cost of living increases.
The cost of living is simply what it costs to buy the goods and services you need to live. Inflation
causes money to lose value because it will not buy the same amount of a good or a service in the
future, as it does now or did in the past. This is why it is important to consider inflation as a
factor in any long-term investment strategy. The aim of investments should be to provide a return
above the inflation rate to ensure that the investment does not decrease in value.
Right time for investment:
The sooner one starts investing the better. By investing early we allow our Investments more
time to grow, whereby the concept of compounding increases your income, by accumulating the
principal and the interest or dividend earned on it, year after year. The three golden rules for all
investors are:
 Invest early
 Invest regularly
 Invest for long term and not short term
Various options available for investment:-
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One may invest in:
 Physical assets like real estate, gold/jewellery, commodities etc.
 Financial assets such as fixed deposits with banks, small saving instruments with post
offices, insurance/provident/pension fund etc. or securities market related instruments
like shares, bonds, debentures etc.
Short-term financial options available for investment:
Savings Bank Account is often the first banking product people use, which offers low interest
(4%-5% p.a.), making them only marginally better than fixed deposits.
Money Market or Liquid Funds are a specialized form of mutual funds that invest in extremely
short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual
funds, money market funds are primarily oriented towards protecting your capital and then, aim
to maximize returns. Money market funds usually yield better returns than savings accounts, but
lower than bank fixed deposits.
Fixed Deposits with Banks are also referred to as term deposits and minimum investment
period for bank FD is 30 days. Fixed Deposits with banks are for investors with low risk
appetite, and may be considered 6-12 months investment period as normally interest less than 6
months bank FDs is likely to be lower than money market returns
*Long-term financial options available for investment:
Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument,
which can be availed through any post office. It provides an interest rate of 8% per annum,
which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional
investment in multiples of 1,000/-. Maximum amount is Rs. 3, 00,000/- (if Single) or Rs. 6,
00,000/- (if held jointly) during a year. It has a maturity period of 6 years. Premature
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Withdrawal is permitted if deposit is more than one year old. A Deduction of 5% is levied from
the principal amount if withdrawn prematurely.
Public Provident Fund: A long-term savings instrument with a maturity of 15 years and interest
payable at 8% per annum compounded annually. A PPF account can be opened through a
nationalized bank at anytime during the year and is open all through the year for depositing
money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A
withdrawal is permissible every year from the seventh financial year of the date of opening of the
account and the amount of withdrawal will be limited to 50% of the balance at credit at the end
of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of
the preceding year whichever is lower the amount of loan if any.
Company Fixed Deposits: These are short-term (six months) to medium-term (three to five
years) borrowings by companies at a fixed rate of interest, which is payable monthly, quarterly,
semiannually or annually. They can also be cumulative fixed deposits 10 where the entire
principal along with the interest is paid at the end of the loan period. The rate of interest varies
between 6-9% per annum for company FDs. The interest received is after deduction of taxes.
Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government, corporations and similar institutions
sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest
on a specified date, called the Maturity Date.
Mutual Funds: These are funds operated by an investment company, which raises money from
the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated
set of objectives. It is a substitute for those who are unable to invest directly in equities or debt
because of resource, time or knowledge constraints. Benefits include professional money
management, buying in small amounts and diversification. Mutual fund units are issued and
redeemed by the Fund Management Company based on the fund's net asset value (NAV), which
is determined at the end of each trading session. NAV is calculated as the value of all the shares
held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are
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usually long term investment vehicle though there some categories of mutual funds, such as
money Market mutual funds, which are short-term instruments.
History of Gold:
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Gold was first discovered as shining, yellow nuggets. Gold became a part of every human
culture. Its brilliance, natural beauty, and luster, and its great malleability and resistance to
tarnish made it enjoyable to work and play with.
Gold is the easiest of the metals to work. It occurs in a virtually pure

and workable state, whereas most other metals tend to be found in ore-bodies that pose
some difficulty in smelting. Gold's early uses were no doubt ornamental, and its brilliance
and permanence (it neither corrodes nor tarnishes) linked it to deities and royalty in early
civilizations
Gold as Money:
Gold, measured out, became money. Gold's beauty, scarcity, unique density (no other metal
outside the platinum group is as heavy), and the ease by which it could be melted, formed, and
measured made it a natural trading medium. Gold gave rise to the concept of money itself:
portable, private, and permanent. Gold (and silver) in standardized coins came to replace barter
arrangements, and made trade in the Classic period much easier.
Gold was money in ancient Greece. The Greeks mined for gold throughout the Mediterranean
and Middle East regions by 550 B.C., and both Plato and Aristotle wrote about gold and had
theories about its origins. Gold was associated with water (logical, since most of it was found in
streams), and it was supposed that gold was a particularly dense combination of water and
sunlight.Their science may have been primitive, but the Greeks learned much about the
practicalities of gold mining. By the time of the death of Alexander of Macedon (323 B.C.), the
Greeks had mined gold from the Pillars of Hercules (Gibraltar) all the way eastward to Asia
Minor and Egypt, and we find traces of their placer mines today. Some of the mines were owned
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by the state, some were worked privately with a royalty paid to the state. Also, nomads such as
the Scythians and Cimmerians worked placer mines all over the region. The surviving Greek
gold coinage and Scythian jewelry both show superb artistry.
The Roman Empire furthered the quest for gold. The Romans mined gold
extensively throughout their empire, and advanced the science of gold-mining considerably.
They diverted streams of water to mine hydraulically, and built sluices and the first 'long toms.'
They mined underground, also, and introduced water-wheels and the 'roasting' of gold-bearing
ores to separate the gold from rock. They were able to more efficiently exploit old mine-sites,
and of course their chief laborers were prisoners of war, slaves, and convicts.
A monetary standard made the world economy possible. The concept of money,
(i.e., gold and silver in standard weight and fineness coins) allowed the World's economies to
expand and prosper. During the Classic period of Greek and Roman rule in the western world,
gold and silver both flowed to India for spices, and to China for silk. At the height of the Empire
(A.D. 98-160), Roman gold and silver coins reigned from Britain to North Africa and Egypt.
Money had been invented. Its name was gold.
Ways of investment in gold:
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Coins and small bars
Bullion coins and small bars offer private investors an attractive way of investing in relatively
small amounts of gold. In many countries - including the whole of the European Union - gold
purchased for investment purposes is exempt from Value Added Tax.
Bullion coins
These coins are legal tender in their country of issue for their face value, rather than for their
gold content. For investment purposes, the market value of bullion coins is determined by the
value of their fine gold content, plus a premium or mark-up that varies between coins and
dealers. The premium tends to be higher for smaller denominations. It is important not to confuse
bullion coins with commemorative or numismatic coins, whose value depends on their rarity,
design and finish rather than on their fine gold content.
Small gold bars
Gold bars can be bought in a variety of weights and sizes, ranging from as little as one gram to
400 troy ounces (the size of the internationally traded London Good Delivery bar). Small bars
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are defined as those weighing 1000g or less. According to industry specialists Gold Bars
Worldwide, there are 94 accredited bar manufacturers and brands in 26 countries, producing a
total of more than 400 types of standard gold bars between them. They normally contain a
minimum of 99.5% fine gold. The Gold Bars Worldwide website provides a wealth of additional
information regarding the international gold bar market.
Gold-backed securities:
Gold is traded in the form of securities on stock exchanges in Australia, France, Hong Kong,
Japan, Mexico, Singapore, South Africa, Switzerland, Turkey, the United Kingdom and the
United States. By design, these forms of securitized gold investment, all regulated financial
products, are generally referred to as Exchange Traded Commodities or Exchange Traded Funds
(ETFs), and are expected to track the gold price almost perfectly. Unlike derivative products, the
securities are 100% backed by physical gold held mainly in allocated form.
Gold futures
Gold futures contracts are firm commitments to make or take delivery of a specified quantity and
purity of gold on a prescribed date at an agreed price. The initial margin - or cash deposit paid to
the broker - is only a fraction of the price of the gold underlying the contract. That means
investors can achieve notional ownership of a value of gold considerably greater than their initial
cash outlay. While this leverage can be the key to significant trading profits, it can also give rise
to equally significant losses in the event of an adverse movement in the gold price. Futures prices
are determined by the market's perception of what the carrying costs - including the interest cost
of borrowing gold plus insurance and storage charges - ought to be at any one time. The futures
price is usually higher than the spot price for gold. Futures contracts are traded on regulated
commodity exchanges.
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Gold options
These give the holder the right, but not the obligation, to buy ('call' option) or sell ('put' option) a
specified quantity of gold at a predetermined price by an agreed date. The cost of such an option
depends on the current spot price of gold, the level of the pre-agreed price (the 'strike price'),
interest rates, the anticipated volatility of the gold price and the period remaining until the agreed
date. The higher the strike price, the less expensive a call option and the more expensive a put
option. Like futures contracts, buying gold options can give the holder substantial leverage.
Where the strike price is not achieved, there is no point in exercising the option and the holder'
loss is limited to the premium initially paid for the option. Like shares, both futures and options
can be traded through broker
Warrants
In the past, gold warrants were mostly related to the shares of gold mining companies. Nowadays
commonly used by leading investment banks, they give the buyer the right to buy gold at a
specific price on a specific day in the future. For this right, the buyer pays a premium. Like
futures, warrants are generally leveraged to the price of the underlying assets.
Gold Allocated account
Effectively like keeping gold in a safety deposit box, this is the most secure form of investment
in physical gold. The gold is stored in a vault owned and managed by a recognized bullion dealer
or depository. Specific bars (or coins, where appropriate), which are numbered and identified by
hallmark, weight and fineness, are allocated to each particular investor, who pays the custodian
for storage and insurance. The holder of gold in an allocated account has full ownership of the
gold in the account, and the bullion dealer or depository that owns the vault where the gold is
stored may not trade, lease or lend the bars except on the specific instructions of the account
holder.
34
Gold Unallocated account
Traditionally, one advantage of unallocated accounts has been the lack of any storage and
insurance charges, because the bank reserves the right to lease the gold out. Now that the gold
lease rate is negative in real terms, some banks have begun to introduce charges even on
unallocated accounts. Investors are exposed to the creditworthiness of the bank or dealer
providing the service in the same way as they would be with any other kind of account. As a
general rule, bullion banks do not deal in quantities under 1000 ounces - their customers are
institutional investors, private banks acting on behalf of their clients, central banks and gold
market participants wishing to buy or borrow large quantities of gold.
Gold pool accounts
There are alternatives for investors wishing to open gold accounts holding less than 1000 ounces.
Electronic currencies
There are also electronic 'currencies' available - linked to gold bullion in allocated storage -
which offer a simple and cost-effective way of buying and selling gold, and using it as money.
Any amount of gold can be purchased, and these currencies allow gold to be used to send online
payments worldwide.
Gold Accumulation Plans
Gold Accumulation Plans (GAPs) are similar to conventional savings plans in that they are based
on the principle of putting aside a fixed sum of money every month. GAPs is different from
ordinary savings plans is that the fixed sum is invested in gold. A fixed sum of money is-
withdrawn automatically from an investor's bank account every month and is used to buy gold
every trading day in that month. The fixed monthly sums can be small, and purchases are not
subject to the premium normally charged on small bars or coins. Because small amounts of gold
are bought over a long period of time, there is less risk of investing a large sum of money at the
35
wrong time. At any time during the contract term (usually a minimum of a year), or when the
account is closed, investors can get their gold in the form of bullion bars or coins, and sometimes
even in the form of Jewellery. If they choose to sell their gold, they can also get cash.
Gold certificates
Historically, gold certificates were issued by the U.S. Treasury from the civil war until 1933.
Denominated in dollars, these certificates were used as part of the gold standard and could be
exchanged for an equal value of gold. These U.S. Treasury gold certificates have been out of
circulation for many years, and they have become collectibles. They were initially replaced by
silver certificates, and later by Federal Reserve notes.
Nowadays, gold certificates offer investors a method of holding gold without taking physical
delivery. Issued by individual banks, particularly in countries like Germany and Switzerland,
they confirm an individual's ownership while the bank holds the metal on the client's behalf. The
client thus saves on storage and personal security issues, and gains liquidity in terms of being
able to sell portions of the holdings (if need be) by simply telephoning the custodian. It runs a
certificate programme that is guaranteed by the government of Western Australia and is
distributed in a number of countries.
Gold orientated funds
A number of collective investment vehicles specialize in investing in the shares of gold mining
companies. The term "collective investment vehicles" as used here should be taken to include
mutual funds, open-ended investment companies (OEICs), closed-end funds, unit trusts, and any
similar structures. A wide range of such funds exists and they are domiciled in a number of
different countries. These funds are regulated financial products and as such it is not possible
here to provide details on any specific funds. Funds are likely to differ in their structure - some
may invest simply in the shares of gold mining companies, some may invest in companies that
mine minerals other than gold, some may invest in futures as well as mining equities and some
may invest partly in mining equities and partly in the underlying metal (s).It would be misleading
to equate investment in a gold mining equity with direct investment in gold bullion as there are
36
some significant differences. The appreciation potential of a gold mining company share depends
on market expectations of the future price of gold, the costs of mining it, the likelihood of
additional gold discoveries and several other factors. To a degree, therefore, the success of the
investment depends on the future earnings and growth potential of the company. Most gold
mining equities tend to be more volatile than the gold price. While they are subject to the same
risk factors that influence the prices of most other equities there are additional risks linked to the
mining industry in general and to individual mining companies specifically.
Structured products
The market for structured products is dominated by institutional investors - or, in the case of
forwards, by gold market professionals - because the minimum investment can be high. The
following is a general overview of what these products are like and how they work.
Forwards
Like futures, forward contracts are agreements to exchange an underlying asset - in this case,
gold - at an agreed price at some future date. They can therefore be used either to manage risk or
for speculative purposes. But there are important differences between forwards and options
traded in the over-the-counter (OTC) gold market on the one hand, and futures and options
traded on one of the exchanges on the other.
• a forward contract (or OTC option) is negotiated directly between counterparties and is
therefore tailor-made, whereas futures contracts are standardized agreements that are
traded on an exchange
• although forward contracts offer a greater flexibility and are private agreements, there is a
degree of counterparty risk, whereas futures contracts are guaranteed by the exchange on
which they are traded
• Because futures contracts can be sold to third parties at any point before maturity, they
are more liquid than forward contracts (whose obligations cannot be transferred).
37
Gold-linked bonds and structured notes
Gold-linked bonds are available from the world's largest bullion dealers and investment banks.
Their products provide investors with some combination of:
• exposure to gold price fluctuations

• a yield
• Principal protection.
Structured notes tend to allocate part of the sum invested to purchasing put/call options
(depending on whether the product is designed for gold bulls or bears). The balance is invested
in traditional fixed income products, such as the money market, to generate a yield. They can be
structured to provide capital protection and a varying degree of participation in any price
appreciations depending on market conditions and investor preferences.
38
DATA ANALYSIS
39
Factors affecting price of gold and their analysis.
1. Crude Oil-
The crude oil is one of the factors for inflation. As the prices of crude oil increases there is
upward pressure on inflation. In order to hedge against the inflation people invest in gold . so we
can say that there is no direct relationship between gold and crude oil prices. It will be more clear
from the following discussion.
Gold has almost always been the most-highly-sought-after universal store of wealth.
The seemingly magical yellow metal is the de facto standard by which every other form of
money and wealth in history has been measured. Empires and currencies rise and fall, but gold
stands strong, monolithic and proud, casting an enormous shadow over all of monetary history.
40
So we can say that the gold is the king of all the currencies. Where as the demand for crude oil is
in elastic. Now paper currencies loose their purchasing power with time but this doesn’t happen
with the gold. So during inflationary period when other currencies loose their value more gold
can be purchased with gold due to its purchasing power stability.
So during high crude oil prices, high inflation, and decling equity
market gold can be stored to hedge the inflation.
Analysis:
Date Gold Crude Date Gold Crude oil

oil
May-05 6104.576 2162.145 May- 8863.392 2593.224
07
Jun-05 6185.849 2448.941 Jun-07 8690.265 2739
Jul-05 6173.774 2550.24 Jul-07 8732.315 2988.308
Aug-05 6276.731 2806.07 Aug- 8829.425 2950.413
07
Sep-05 6574.167 2890 Sep- 9286.778 3197.846
07
Oct-05 6889.167 2799.087 Oct-07 9671.96 3357.95
Nov-05 7174.826 2658.758 Nov- 10301.33 3735.319
07
Dec-05 7610.6 2712.404 Dec- 10247.9 3507.764
07
Jan-06 7957.714 2905.925 Jan-08 11264.54 3686.8
Feb-06 7998 2737.923 Feb- 11857.93 3755.872
08
Mar-06 8246.146 2797.556 Mar- 12609.42 4166.343
08
Apr-06 8958.106 3123.673 Apr-08 11792.93 4479.091
May-06 9988.8 3212.491 May- 12142.66 5272.683
08
Jun-06 8896.447 3262.516 Jun-08 12327.35 5726.128
Jul-06 9513.714 3456.657 Jul-08 13005.86 5757.04
Aug-06 9572.941 3401.893 Aug- 11791 5037.213
08
Sep-06 9029.255 2956.86 Sep- 12194.02 4723.304
08
Oct-06 8703.302 2683.683 Oct-08 12715 3748.739
41
Nov-06 9167.857 2589.456 Nov- 12108.59 2846.875
08
Dec-06 9152.87 2776.262 Dec- 12865.25 2266.143
08
Jan-07 9072.782 2412.615 Jan-09 13475.67 2075.2
Feb-07 9494.511 2615.884 Feb- 14791.53 1977.682
09
Mar-07 9345.75 2665.638 Mar- 15254.53 2452.408
09
Apr-07 9311.894 2706.61 Apr-09 14491.34 2526.794
May- 14559.66 2859.558
09
T r e n d A n a ly s is o f C r u d e O il tre n d a n a ly s is o f g o ld
7000 18000
6000 16000
14000
5000
12000
4000 10000
prices
prices
3000 8000
6000
2000
4000
1000 2000
0 0
A u g -0 F4 e b -0 5S e p -0 M
5 a r-0 6O c t -0 6A p r-0 7N o v-0 7J u n -0 8D e c -0 8J u l-0 9J a n -1 0 A u g -0 4F e b -0 5S e p -0 5M a r-0 6O c t -0 6A p r-0 7N o v-0 7J u n -0 8D e c -0 8J u l-0 9 J a n -1 0
M o n th s m o n th s
42
12000
10000
8000
Gold
6000
Crude oil
4000
2000
0
05
06
06
07
05
06
5
6
-0
-0
v-
v-
b-
b-
g-
g-
ay
ay
No
No
Fe
Fe
Au
Au
M
The above sheet and diagram shows the change in gold and crude oil prices at different dates
with fixed intervals.
Hypothesis Assumed (H0) : Gold prices do not depend on crude oil prices
Alternative Hypothesis (H1):Gold prices depend on crude oil prices.
Regression Statistics
Multiple R 0.328567618
R Square 0.107956679
Adjusted R Square 0.088977034
Standard Error 2329.254449
Observations 49
ANOVA
Significance
Df SS MS F F
Regression 1 30859955.67 30859955.6 5.68802 0.02116642
43
7 4
5425426.28
Residual 47 254995035.6 9
Total 48 285854991.2
Coefficients Standard T stat p-value Lower Upper
Error 99% 99%

Intercept 7170.20307 1242.76509 5.76955 5.99861E- 3833.931075 10506.47507
5 2 6 07
X 0.89836666 0.37668030 2.38495 0.021166 0.112852561 1.909585893

variable1 6 5 8
Tabulated value of z- 2.56
Analysis overview:
Significant correlation with r -0.3286
Approx 11% of variation in gold prices accounted for with crude oil.
Significant linear regression with p value- 0.0212
Regression Equation- Y=0.90 X+ 7170.2031
Interpretation- Here multiple R is 0.3256 which shows that there is correlation between
predicted gold prices and Actual one but it is closer to 0 which shows that the correlation is not
significant. It can also be interpretated from the R square value which is only 0.10 which shows
44
insignificance correlation. By R square we can say that variation in crude oil prices accounts for
only 11% (approx) for the variation in the prices in gold.
Also the t value is (2.39) less than the tabulated value (2.56)
which shows that the null Hypothesis is accepted. Therefore we can say that the crude oil prices
don’t affect the prices of gold significantly.
Here it is important to know that there is great impact of the current

economic scenario. We can analyze from the graph and the table that there is more correlation in
some time period. But since there is an indirect relationship, so it is not important to analyze the
time period separately.
2. US Dollar-
It is an important question that is their any correlation between gold prices and the value of US
DOLLAR. Now the answer depends upon situation and changes with change in global economic
scenario.
Now there is a inverse relationship between gold prices and US Dollar. Before 1950 US $ was
also considered as the inflation hedge. But this is not true now. So in the past we can observe the
positive correlation between gold prices and US $. But now the relation is negative. US has a
large debt (3 trillion $) and also it pays more interest than it earns. So it creates a downward
pressure on the Dollar and make it weak. This creates a inverse relation.
45
As a tool of hedge now gold is demanded more than the US $. When the price of
gold depreciates the investors outside US will benefited because the dollar price of the gold will
increase. Investor can shift away from the dollar denominated assets to gold. Past experiences
also that gold has been used as a hedge against currency risk.
Analysis-
Date Gold dollar Date Gold Dollar

6104.57 8863.39
May-05 6 43.69 May-07 2 40.73
6185.84 8690.26
Jun-05 9 43.51 Jun-07 5 40.75
6173.77 8732.31
Jul-05 4 43.49 Jul-07 5 40.44
6276.73 8829.42
Aug-05 1 44.04 Aug-07 5 40.96
6574.16 9286.77
Sep-05 7 43.99 Sep-07 8 39.74
6889.16
Oct-05 7 45.11 Oct-07 9671.96 39.32
7174.82 10301.3
Nov-05 6 45.92 Nov-07 3 39.67
Dec-05 7610.6 45.07 Dec-07 10247.9 39.41
7957.71 11264.5
Jan-06 4 44.07 Jan-08 4 39.39
11857.9
Feb-06 7998 44.44 Feb-08 3 39.92
8246.14 12609.4
Mar-06 6 44.61 Mar-08 2 39.97
8958.10 11792.9
Apr-06 6 44.97 Apr-08 3 40.46
12142.6
May-06 9988.8 46.43 May-08 6 42.59
8896.44 12327.3
Jun-06 7 46.08 Jun-08 5 42.95
9513.71 13005.8
Jul-06 4 46.51 Jul-08 6 42.49
9572.94
Aug-06 1 46.55 Aug-08 11791 43.79
Sep-06 9029.25 45.96 Sep-08 12194.0 46.94
46
5 2
8703.30
Oct-06 2 45.02 Oct-08 12715 49.25
9167.85 12108.5
Nov-06 7 44.76 Nov-08 9 49.84
12865.2
Dec-06 9152.87 44.23 Dec-08 5 48.45
9072.78 13475.6
Jan-07 2 44.17 Jan-09 7 49.02
9494.51 14791.5
Feb-07 1 44.31 Feb-09 3 50.73
15254.5
Mar-07 9345.75 43.59 Mar-09 3 50.95
9311.89 14491.3
Apr-07 4 41.29 Apr-09 4 50.22
14559.6
May-09 6 47.29
G o ld v s U S d o lla r G old
m o n th dollar
18000 60
16000
50
14000
Dollar exchange rate

12000 40
gold prices
10000
30
8000
6000 20
4000
10
2000
0 0
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
m o n th
47
trend analysis of US $
60
50
Exchange rate
40
30
20
10
0
Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10
Months
Hypothesis Assumed (H0): Gold Prices do not depend upon Dollar exchange rate.
Alternative Hypothesis(H1):Gold prices depend upon Dollar exchange rate.
Regression
Statistics
R Square 0.129967319
Observations 49
Df SS MS F Significance F
Regression 1 37151806.78 37151806.78 7.020959231 0.010939488
Residual 47 248703184.5 5291557.116
Total 48 285854991.2
48
Coefficients Standard T stat p-value Lower Upper
Error 99% 99%

-2085.412012 4582.615959 -0.455070211 0.651153944 -14387.69939 10216.87537
Intercept
273.8503496 103.351093 2.649709273 0.651153944 -3.601406983 551.3021061

X
variable1
Tabulated value of z- 2.56
Analytical Overview:
Change in US $ exchange rate accounts only 13% for the change in gold prices.
Regression Equation- Y=273.85 X-2085.412
Interpretation:Here the value of multiple R value which is 0.36, shows that the correlation
between the US $ and Gold prices is insignificant. This shows that in the current scenario the US
$ exchange rate doesn’t affect the gold prices significantly. This is because R value is less than
0.5 and more closer to 0. Also the value of R square is 0.13 which shows the extent at which
Fluctuation in US $ affects Gold prices.
But from t value which is more than the tabulated value (hypothesis is accepted) we can
predict that there is a relation between US $ and gold prices. The –ve intercept of t value as well
as –ve intercept of regression equation shows the inverse relation between the US$ and gold
prices.
49
Also for time period May 05 to Oct 06 there is high correlation (0.82) & t value is 5.8 which
makes the hypothesis to be accepted. This tells that due to the change in the global economic
scenario the effect of US $ on gold prices is decreasing.
Now by doing the regression analysis for year 08 to 09 (value of

multiple R=.71 , t value=3.98) we can also predict that the there is improvement in the scenario
and again the correlation is being establishing. So there is great impact of the current economic
scenario.
3. REPO RATE:
Repo Rate is that rate at which the commercial banks borrow money from the RBI. It is a good
measure to control inflation. When the repo rate will be high, the borrowing from the banks will be
low which will actually reduce the purchasing power of the public. This will reduce the investment in
gold and it will ultimately reduce the price the gold.
Analysis:
Repo Repo
Date Gold rate Date Gold rate
May-05 6104.576 6 Jun-07 8690.265 7.75
Jun-05 6185.849 6 Jul-07 8732.315 7.75
Jul-05 6173.774 6 Aug-07 8829.425 7.75
Aug-05 6276.731 6 Sep-07 9286.778 7.75
Sep-05 6574.167 6 Oct-07 9671.96 7.75
Oct-05 6889.167 6.25 Nov-07 10301.33 7.75
Nov-05 7174.826 6.25 Dec-07 10247.9 7.75
Dec-05 7610.6 6.25 Jan-08 11264.54 7.75
Jan-06 7957.714 6.5 Feb-08 11857.93 7.75
Feb-06 7998 6.5 Mar-08 12609.42 7.75
Mar-06 8246.146 6.5 Apr-08 11792.93 7.75
Apr-06 8958.106 6.5 May-08 12142.66 7.75
May-06 9988.8 6.5 Jun-08 12327.35 8.5
Jun-06 8896.447 6.75 Jul-08 13005.86 9
Jul-06 9513.714 7 Aug-08 11791 9
Aug-06 9572.941 7 Sep-08 12194.02 9
Sep-06 9029.255 7 Oct-08 12715 6.5
Oct-06 8703.302 7 Nov-08 12108.59 6.5
Nov-06 9167.857 7.25 Dec-08 12865.25 6.5
50
Prices
Apr-07
Jan-07
Feb-07
Mar-07
Dec-06
May-07
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
May-05
Jun-0 5
Jul-05
Aug-05
Sep-05
Oc t- 05
No v-0 5
De c-0 5
9345.75
Jan-0 6
8863.392
9311.894
9494.511
9072.782
9152.87
Feb-06
Mar- 06
Apr-06
May-06
7.5
7.5
7.75
7.75
7.25
7.25
Jun-0 6
Jul-06
Aug-06
Sep-06
Oc t- 06
No v-0 6
De c-0 6
Jan-0 7
Apr-09
Jan-09
Mar-09
Feb-09
Feb-07
May-09
Mar- 07
Apr-07
May-07
Jun-0 7
m onth
m onth
Jul-07
51
43
Aug-07
Sep-07
14559.66
14491.34
15254.53
14791.53
13475.67
Oc t- 07
No v-0 7
5
De c-0 7
6.5
Jan-0 8
4.75
4.75
5.75
Feb-08
Mar- 08
Apr- 08
May-08
Gold prices VS Repo rate
Jun-0 8
Jul-08
Aug-08
Sep-08
Oc t- 08
No v-0 8
De c-0 8
Jan-0 9
Feb-09
Mar- 09
Apr- 09
May-09
0
1
2
3
4
5
6
7
8
9
10
repo rate value

Gold
Repo rate
Trend Analysis of Repo rate
10
8
repo rate in %
6 Repo rate
4 Linear (Repo rate)
0
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10
time period
Hypothesis Assumed:(H0)- The Repo rate doesn’t affect the gold prices.
Alternate Hypothesis (H1)- The Repo rate affect the gold prices.
*NOTE- By analyzing the graph and table we can observe that there are three time periods.
• One that is there is continuous increase in the gold prices with the increase in time period
• 2nd is that period in which there is increase in gold prices but there is no change in repo rate.
• Last is that period in which there is decrease in repo rate but increase in gold prices.
So it will be better that we will show the regression analysis separately
in three different parts.
Regression Analysis for the whole period:
R Square 0.001936927
Adjusted R Square -0.019298458
Observations 49
ANOVA
52
Regression 1 553680.1381 553680.138 0.091212222 0.763974109
Residual 47 285301311.1 6070240.66
Total 48 285854991.2
Standard
Coefficients Error T Stat P-value Lower 99.0% Upper 99.0%
Intercept 9270.172641 2527.017003 3.668425115 0.000621127 2486.254969 16054.09031
X Variable
1 107.96492 357.4836224 0.302013612 0.763974109 -851.7197437 1067.649584
Regression Analysis for the period of May 05 to Sep 09:
R Square 0.734531395
Adjusted R
Square 0.727724508
Observations 41
ANOVA
df SS MS F Significance F
Regression 1 104119413.9 104119413.9 107.9100273 8.6124E-13
Residual 39 37630026.09 964872.4638
Total 40 141749440
Standard Upper
Coefficients Error t Stat P-value Lower 99.0% 99.0%
- - -
Intercept 4542.661702 1340.687899 3.388306633 0.001619293 8173.128133 -912.195
X Variable 1 1911.568612 184.0174421 10.38797513 8.6124E-13 1413.265356 2409.872
53
Regression Analysis for the period of Oct 08 to may 09 :
R Square 0.702815392
Adjusted R
Square 0.653284624
Observations 8
ANOVA
Significance
Df SS MS F F
Regression 1 6443752.59 6443752.587 14.18947091 0.009322706
Residual 6 2724732.71 454122.1183
Total 7 9168485.3
Standard Upper
Coefficients Error t Stat P-value Lower 99.0% 99.0%
Intercept 20477.82008 1793.258299 11.41933658 2.70487E-05 13829.44402 27126.19615
- -
X Variable 1 1158.075451 307.4353158 3.766891412 0.009322706 -2297.869755 -18.2811466
Interpretation:
Now here we have divided the regression analysis in three parts. The overview of the 1st part, 2nd part
and the 3rd part are as below:
1. Significant correlation with r -0.044010528
Change in repo rate accounts 2 % for the change in gold prices.
54
Regression Equation- Y= 107.96492X+9270.172641
2. Significant correlation with r –0.85704807
Change in Repo rate accounts for the change73% in gold prices.
Significant linear regression with p value- (Approx) 0.00

Regression Equation- Y= 1911.568612X-4542.661702
3. Significant correlation with r -0.838340857
Change in repo rate accounts 70 % for the change in gold prices.

Regression Equation- Y= -1158.075451X+20477.82008
Now the three cases are contradicting to each other. Case 1 shows the poor correlation where as
case 2 & 3 shows the stronger correlation. Also the t-value and p-value shows that the hypothesis
should be accepted (case 2 & 3) but according to case 1 the hypothesis should be rejected.
Therefore, the question is why here such contradiction arises. The answer could be found by
observing the graphs of this section. We can easily observe that in the period (which relates
to the 2nd case-sep-08 to oct-08) there is a sharp downfall in the repo rate which is affect of
crisis in the economy and inflation rate downfall in this period.
So we can say that there is a high correlation between repo rate and gold prices, being other
economic factors constant. By generalizing the case 2 and 3 where multiple R values are .86
and .84 we can say that the there is significant correlation between gold prices and repo rate.
Also the t-values are 10.38 and -3.76 which shows the acceptance of hypothesis. –ve sign only
shows the inverse correlation within that period.
4. Inflation Rate-
55
Gold has always been considered a good hedge against inflation. Rising inflation rates typically
appreciates gold prices. Traditional theory implies that the relative price of consumer goods and
of such real assets as land and gold should not be permanently affected by the rate of inflation. A
change in the general rate of inflation should, in equilibrium, cause an equal change in the rate of
inflation for each asset price The experience of the past decade has been very different from the
predictions of this theory: the prices of land, gold, and other such stores of value have increased
by substantially more than the general price level. The present paper presents a simple theoretical
model that explains the positive relation between the rate of inflation and the relative price of
such real assets. More specifically, in an economy with an income tax, an increase in the
expected rate of inflation causes an immediate increase in the relative price of such 'store of
value' real assets. The behavior of real asset prices discussed in this paper is thus a further
example of the non-neutral response of capital markets to inflation in an economy with income
taxes.
* NOTE: While calculating the price of gold there are two inflation rates. One is Gold internal
inflation rate, which is change in its production from its mines. Other is monetary inflation. The
price of gold over the medium to long term is determined by its inflation rate relative to that of
the currency you want to measure it with. With most fiat currency inflation rates, running
substantially higher than gold's inflation rate it is easy to see why the gold price will continue to
increase over time, and why it has consistently increased over time. This is not about to change
regardless of short-term volatility.
Analysis:
inflation Inflation
Date Gold rate Date Gold rate
6104.57 8863.39
May-05 6 5.2 May-07 2 5.27
6185.84 8690.26
Jun-05 9 4.14 Jun-07 5 4.03
56
6173.77 8732.31
Jul-05 4 3.84 Jul-07 5 4.41
Aug-05 6276.73 3.01 Aug-07 8829.42 3.94
1 5
Sep-05 6574.16 3.75 Sep-07 9286.77 3.23
7 8
Oct-05 6889.16 4.75 Oct-07 9671.96 3.07
7
Nov-05 7174.82 4.54 Nov-07 10301.3 3.21
6 3
Dec-05 7610.6 4.4 Dec-07 10247.9 3.45
Jan-06 7957.71 4.3 Jan-08 11264.5 4.11
4 4
Feb-06 7998 4.34 Feb-08 11857.9 5.02
3
Mar-06 8246.14 3.96 Mar-08 12609.4 7.41
6 2
Apr-06 8958.10 3.59 Apr-08 11792.9 7.61
6 3
May-06 9988.8 4.68 May-08 12142.6 8.75
6
Jun-06 8896.44 4.84 Jun-08 12327.3 11.89
7 5
Jul-06 9513.71 4.67 Jul-08 13005.8 12.01
4 6
Aug-06 9572.94 5.01 Aug-08 11791 12.1
1
Sep-06 9029.25 5.16 Sep-08 12194.0 11.8
5 2
Oct-06 8703.30 5.09 Oct-08 12715 10.72
2
Nov-06 9167.85 5.3 Nov-08 12108.5 8
7 9
Dec-06 9152.87 5.58 Dec-08 12865.2 5.91
5
Jan-07 9072.78 6.58 Jan-09 13475.6 4.39
2 7
57
Gold Prices
0
Feb-07
2000
4000
6000
8000
Apr-07
1 0000
1 2000
1 4000
1 6000
1 8000
May-05 Mar-07
Jun-05
Jul-05
Aug-05
4
1
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
9311.89
9345.75
9494.51
Feb-06
Mar-06
Apr-06
May-06
Jun-06
6.1
Jul-06
5.66
5.74
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Feb-09
Apr-09
Mar-09
Jul-07
May-09
Aug-07
58
T im e P e rio d
T im e P e rio d
Sep-07
Oct-07
Nov-07
Dec-07
G o ld V s In fla tio n R a te
Jan-08
Feb-08
Mar-08
6
4
3
14791.5
Apr-08
May-08
Jun-08
Jul-08
14491.3 0.7
Aug-08
14559.6 0.13
15254.5 0.26
3 2.43
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
0 5 10 15
rate
G old
Inflation Rate
inflation
Trend Analysis Of inflation R ate
14
12
10
Inflation Rate
Trend A nalysis of
8 inf lation rate
Linear (Trend
6 A nalysis of inf lation
4 rate)
2
0
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10
Time Period
Hypothesis Assumed :(H0)- The Repo rate doesn’t affect the gold prices.
Alternate Hypothesis (H1)- The Repo rate affect the gold prices.
Regression Analysis:
Multiple R 0.893479
R Square 0.798305
Observations 49
ANOVA
Significance
Df SS MS F F
7168366.40 7168366.40 1.2089321
Regression 1 8 8 5 0.277143878
278686624. 5929502.65
Residual 48 8 6
285854991.
Total 49 2
59
Coefficient Standard Lower Upper
s Error t Stat P-value 99.0% 99.0%
9286.05485 757.506159 12.2587186 7252.48744 11319.622
Intercept 3 4 1 0.00 4 3
-
X Variable 139.943407 127.277454 1.09951450 0.27714387 201.739996 481.62681
1 6 4 8 8 6 2
Change in INFLATION Rate accounts only 80% for the change in gold prices.
Regression Equation- Y=139.943 X+9286.05
Interpretation:
The value of multiple R shows that (0.89) shows that there is significant relation between gold
prices and inflation rate. It verifies what ever our studies are until now that is the gold is an
inflation hedge. This analysis also shows that change in inflation rate accounts 80% for the
variation in gold prices but this movement is in reverse direction. In addition, it should be noted
that increase in inflation rate accounts for increase in investment in gold, as it is an inflation
hedge.
Also from the t-value we can see that the hypothesis can be
rejected. This means that our assumption was wrong. (T-value is 1.099 which is less than
tabulated value 2.56). Also from the graph we can observe that in the initial period the variation
60
from the trend line is less in later period (from May 08 to May 09).Also in the later period the
gap between gold prices and inflation rate becomes larger which shows the inverse movement
between them.
Now actually what happens is, when there is increase in inflation rate, generally the RBI
increases the CRR and Repo rate and the securities are demanded more. Gold is one of them
universally accepted within the accepted within the banking industry. Therefore the demand
increases as well as prices also.
5. Bank Failures-
When dollars were fully convertible into gold, both were regarded as money. However, most
people preferred to carry around paper banknotes rather than the somewhat heavier and less
divisible gold coins. If people feared their bank would fail, a bank run might have been the
result. This is what happened in the USA during the great depression of the 1930s, imposing a
national emergency and to outlaw the ownership of gold by US citizens.
Source: RBI Site
61
This means that gold and bank failure are inversely related. Bank failure will affect inversely the
investment in gold but the relation is not visa-versa absolutely.
6. Stock market-
The performance of gold bullion is often compared to stocks. They are fundamentally different
asset classes. Gold is regarded by some as a store of value (without growth) whereas stocks are
regarded as a return on value (i.e. growth due to anticipated real price increase plus dividends).
Stocks and bonds perform best in a stable political climate with strong property rights and little
turmoil.
As the crude oil becomes cheap, the inflation rate goes down. (As on 6th June 2009). We have
discussed earlier that how inflation rate is on the base of the gold prices. Similarly the lower
inflation rate or the situation of deflation makes the stock market down. It tends to lower return
from the stock market. At this time investment pattern moves towards the gold market. Now the
return from both these sources is of long terms. Investment decision partly on, or solely on,
technically analysis.
Analysis:
Date Gold Sensex Date Gold Sensex

6104.57 8690.26
May-05 6 6,715.11 Jun-07 5 14650.51
6185.84 8732.31
Jun-05 9 7193.85 Jul-07 5 15550.99
6173.77 8829.42
Jul-05 4 7635.42 Aug-07 5 15318.6
6276.73 9286.77
Aug-05 1 7805.43 Sep-07 8 17291.1
6574.16
Sep-05 7 8634.48 Oct-07 9671.96 19837.99
6889.16 10301.3
Oct-05 7 7892.32 Nov-07 3 19363.19
7174.82
Nov-05 6 8788.81 Dec-07 10247.9 20286.99
11264.5
Dec-05 7610.6 9397.93 Jan-08 4 17648.71
62
7957.71 11857.9
Jan-06 4 9919.89 Feb-08 3 17578.72
10370.2 12609.4
Feb-06 7998 4 Mar-08 2 15644.44
8246.14 11279.9 11792.9
Mar-06 6 6 Apr-08 3 17287.31
8958.10 12042.5 12142.6
Apr-06 6 6 May-08 6 16415.57
10398.6 12327.3
May-06 9988.8 1 Jun-08 5 13461.6
8896.44 10609.2 13005.8
Jun-06 7 5 Jul-08 6 14355.75
9513.71 10743.8
Jul-06 4 8 Aug-08 11791 14564.53
9572.94 11699.0 12194.0
Aug-06 1 5 Sep-08 2 12860.43
9029.25 12454.4
Sep-06 5 2 Oct-08 12715 9788.06
8703.30 12108.5
Oct-06 2 12961.9 Nov-08 9 9092.72
9167.85 13696.3 12865.2
Nov-06 7 1 Dec-08 5 9647.31
13786.9 13475.6
Dec-06 9152.87 1 Jan-09 7 9424.24
9072.78 14092.9 14791.5
Jan-07 2 2 Feb-09 3 8891.61
9494.51 12938.0 15254.5
Feb-07 1 9 Mar-09 3 9708.5
14491.3
Mar-07 9345.75 13072.1 Apr-09 4 11403.25
9311.89 13872.3 14559.6
Apr-07 4 7 May-09 6 14625.25
8863.39 14544.4
May-07 2 6
63
Sensex Value gold prices
10000
12000
14000
16000
18000
2000
4000
6000
8000
0
May-05
Jun-05
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
64
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Time Period
Time Period
Aug-07
Sep-07
Gold Vs Sensex
Oct-07
Nov-07
Dec-07
Jan-08
Time period
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Trend Analysis of Sensex Values
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Gold
sensex
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 Sensex value
Hypothesis Assumed (H0): Sensex values and Gold prices are not sufficiently co-related.
Alternative Hypothesis (H1): Sensex value and Gold Prices are sufficiently co-related.
Regression Analysis:
Multiple R 0.671901
R Square 0.451451
Adjusted R
Square 0.396596
Standard
Error 421.0839
Observations 49
ANOVA
8.22991834
Regression 1 1459260.49 1459260.49 4 0.01670353
1773116.60 177311.660
Residual 48 8 8
3232377.09
Total 49 9
Coefficient Standard Lower Upper

s Error t Stat P-value 99.0% 99.0%
Intercep 7127.15453 774.224815 9.20553616 4673.42498
t 8 5 3 0.0000 8 9580.884087
X -
Variabl 0.13794436 0.04808462 2.86878342 0.0167035 0.01444891
e1 3 1 6 3 1 0.290337637
Change in INFLATION Rate accounts 46% for the change in gold prices.
Regression Equation- Y=0.1379 X-7127.154538
65
Interpretation:
The relation between the gold and stock market can be clearly interpretated from the analytical
calculation from the data. The t-value, p-value, multiple R & R square values clearly shows the
picture. Here the t- value is 2.86 which is greater than tabulated value 2.56. This means that our
hypothesis is wrong. There is significant correlation between gold prices and Sensex value. Also
the Multiple R is 67% which shows the significancy of relation between the two factors. The p-
value is also very less.
From the graph-2 we can observe the trend in the fluctuation in the Sensex value. We can
observe that now the market is recovering. The graph-1 shows the correlation. In the period after
apr-08 the correlation is less which is due to the crisis effect.
7. The Gold Anti Trust Committee:
The Gold Anti-Trust Action Committee was organized in January 1999 as a Delaware
corporation to advocate and undertake litigation against illegal collusion to control the price and
supply of certain financial securities, particularly securities involving gold. The committee arose
from essays by Bill Murphy, a financial commentator, and by Chris Powell, a newspaper editor
in Connecticut, published at Murphy's Internet site. Murphy's essays reported evidence of
collusion among financial institutions to control the price of gold. Powell, whose newspaper had
been involved in antitrust litigation, replied with an essay proposing that gold interests should act
on Murphy's essays by bringing suit against the financial institutions involved in the collusion
against gold. The response to these essays from gold interests throughout the world was so
favorable that the committee was formed. Murphy is chairman and Powell is secretary/treasurer.
GATA seeks to disclose and publicize the huge speculative short positions in gold taken by
financial institutions and bullion banks. GATA believes that 10,000 tons of gold or more have
been sold short by these speculators, even as yearly mine supply of gold is only about 2,500 tons.
When we are able to show how the gap between gold demand and mine supply is being filled
largely by dishoarding of central bank gold reserves, investors may buy gold in quantity,
66
knowing the supply gap is too large to close without causing a substantial rise in the price of
gold. Then the gold price suppression scheme will be over.
8. Low or negative real interest rates:
If the return on bonds, equities and real estate is not adequately compensating for risk and
inflation then the demand for gold and other alternative investments such as commodities
increases. An example of this is the period of STAGFLATION that occurred during the 1970s
and which led to an economic bubble forming in precious metals.
*STAGFLATION is a situation when inflation and economic stagnation occurs

simultaneously.
* An economic bubble (sometimes referred to as a speculative bubble, a market bubble,

price bubble, a financial bubble, or a speculative mania) is trade in products or assets with
inflated values.
9. War, invasion, looting, crisis:
In times of national crisis, people fear that their assets may be seized and that the currency may
become worthless. They see gold as a solid asset, which will always buy food or transportation.
Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises. So
price also rises.
67
10. Demand & Supply:
Demand and Supply factor is very important for the price analysis of Gold. The demand – supply
dynamics play an important role in determining the price of Gold. For a long time Gold prices
have been suppressed as a result of concerted selling by Central Banks of various countries.
However this trend has reversed, with Central Banks, especially those of Russia and China
becoming net importers of Gold. The demand for Gold is primarily driven by three factors:
Ø Jewellery
Ø Industrial Uses
Ø Investment
As a result of the huge spike in Gold prices, Jewellery demand from countries like India and the
Middle East fell by 22 % in tonnage terms from a year earlier. In Asia and the Middle East,
which account for around two thirds of the Jewellery demand, consumers and the retail trade are
very sensitive to price volatility. However we believe that consumers within these markets will
continue to purchase Gold Jewellery if they are offered the right products at the right price.
68
Jewellery Demand Chart
Demand in tonnes
1000
900
800
700
600
500
400
300
200
100
0
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1-
2004 2004 2004 2004 2005 2005 2005 2005 2006
Time period
Demand (tonnes)
INDUSTRIAL:
The global economy enabled electronics demand to rise strongly, causing overall industrial
demand to increase by 5 % compared to a year earlier. This form of gold demand is not price
sensitive since manufacturers of electronic goods which need electronic components, cannot
change specifications overnight. The strong growth was due to a recovery in the Japanese market
for Gold bonding wire. There was also a slight growth in the dental use of gold.
Industrial Demand Chart
115
Demand in tonnes
110
105
100
95 z
90
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1-
2004 2004 2004 2004 2005 2005 2005 2005 2006
Time period
Demand (tonnes)
INVESTMENT:
69
The main propellant for the high Gold prices was the investment demand. The increase in
investment demand was due to the growing number of investors who are seeking to use Gold to
hedge against different types of risk. In countries like the US and Switzerland, the rising price
spurred interest from investors driving overall investment demand up. Moreover a recent
development has been that in India where traditionally Gold has been consumed as Jewellery,
increasing promotion of Gold bars and coins by several banks resulted in Gold being purchased
for investment purposes. However the main driver of investment demand was the investment in
Gold Exchange Traded Funds whose total off take for the first quarter was around 109 tonnes.
60
Investment Demand Chart

Demand in tonnes
250
200
150
100
50 z
0
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1-
2004 2004 2004 2004 2005 2005 2005 2005 2006
Time period
Demand (tonnes)
*SUPPLY SIDE:
While investor activity was the main driver behind the rising Gold price in the first quarter of
2006, a contraction in supply also helped. Mine production plays a vital role in determining the
price of Gold as it is the only way by which new stocks can be added to the existing above the
ground stocks. A sharp decline in mining production in the first quarter of 2006 contributed to
the high prices of gold during that period. Although Gold prices are attractive now, it will take at
least 3-4 years to get a new mine into commercial production stage. So any near term increase of
supplies can be ruled out. But, the main factor constraining supply in the first quarter of 2006
was a sharp reduction in net central bank selling which, at 116 tonnes, was 57 % lower than the
comparative period in the year 2005. This sharp decline in supply caused by the fall in central
bank sales was partly Offset by a very substantial rise in scrap supply which in the first quarter of
2006 was higher by 51 % compared to the first quarter of 2005. Huge sales by Central Banks
70
were the primary factor in suppressing Gold prices in the nineties. Reduction in these sales due
to the Central Banks Gold Sales Agreement will play an important role in supporting higher
Gold prices.
The demand and supply factors as outlined previously do play a role in determining Gold prices;
however they are not the most important ones. As we have outlined previously, since Gold acts
as a reserve currency to the US dollar, the factors which work negatively for the US Dollar work
positively for Gold and vice versa. These factors are outlined here in the following sections
under various categories like GDP, Trade Balance, and the like.
* So we can say that the gold prices are directly proportional

to the demand and inversely proportional to the supply.
Current Scenario Analysis:
The Current Scenario is analyzed in the terms of:
⇒ Crude oil Prices
⇒ US Dollar Value
⇒ Repo Rate
⇒ Inflation Rate
⇒ Real interest rates
⇒ Demand And Supply
⇒ Stock market
71
⇒ GDP
• High Inflation Period To Deflation Period-

There was the period of high inflation in the year 08.The inflation rate starts from the rare 4.11 &
lasts to 0.13 in the may 09. By observation the trend analysis Graph we can expect that now the
inflation rate is rising from the deflationary period. On 6th June 2009 the inflation rate 0.48and
the current inflation rate is -1.61 means deflation.
This deflation is due to the downward trend in the crude oil prices as it can be
observed from the graph of the crude oil. The movement of oil prices in the world markets has
brought about the setting in of some important changes. We have witnessed that the price of oil
has been slowly coming down but not before the governments of the world interfered in some
way. For starters, they realized that there were two ways to deal with the problem. Firstly to use
the OPEC meetings as a means to persuade oil producers to produce more oil in an effort to
match supply with demand for oil. The second way was to strictly monitor the oil markets to
make sure that the speculation over the price of oil does not set in hence leading to inconsistent
buying and selling frenzies These two primary steps have brought down the level of oil to where
it is today. For India the cooling of oil prices has helped the rate of inflation to slightly decrease.
Today’s inflation figures show that the figures have fallen for the third week in a row. It is
however premature to say that the grip of inflation has melted away.
• GDP OF INDIA:
72
India GDP and Standard of Living are closely related as GDP features among the significant
factors in the assessment of the standard of living. Standard of living comprises quality as well as
amount of commodities offered for consumption by the citizens and the distribution system.
The substantial growth in various sectors like IT, Real Estate, ITES has led to the
improvement of the standard of living at a constant rate. However, the statistical figures still
delineate that approximately 27.5 % of the Indian population lives below the poverty line. The
most significant indicator required to measure the standard of living is in realty per capita
purchasing power parity-adjusted gross domestic product.
A comparative analysis of the standard of living of India with other countries will aid in the
assessment of the position of India in the standard of living chart. The per capita- adjusted gross
domestic product of China in the year 2003 was $4,900 and that of the majority of western
European countries is $26,000 and that of the most developed country like US is $33,000. The
per capita- adjusted gross domestic product of India has been calculated to be US $ 31, 00
Measurement of India GDP and Standard of Living:

GDP makes an assessment of India's national output by dividing the current GDP of India with
the total population of the country. In the examination of overall production, GDP takes into
account both the public as well as the private consumption accompanied with the manufacture of
capital goods that consequently aid in the further production of commodities.
Current Statistics:
Industry Q1 Q2 Q3 09 Growth rate in %

2008-09 (Estimated )
Agriculture, forestry 3.0 2.7 -2.2 2.6%
& fishing
Manufacturing 5.6 5 -0.2 4.1%
Construction 11.4 9.7 6.7 6.5%
Financing, 9.3 9.2 9.5 8.6%
insurance, real estate
& business
Services
73
Mining & quarrying 4.8 3.9 5.3 4.7%
Trade, hotels, 11.2 10.7 6.8 10.3%
transport and
communication
Community, social 8.5 7.7 17.3 9.3%
& personal services
Electricity, gas & 2.6 3.6 3.3 4.3%
water supply
Source: RBI- Hand Book of Statistics
Repo Rate and Other Rates-

The Indian economy ushered in 2008 amidst excess liquidity related problems in the system.
Growth in money supply saw 21.2 % increase in the last week of April 2008 on y-o-y basis, it
touched 22.5% in May end and slowed to 20.7% by the end of June 2008. During Jan-May08,
With inflation and money supply growing far above RBI's target, the RBI raised the CRR by as
much as 75 basis points effective in 3 phases during April and May to control excess liquidity
and to rein in inflationary expectations. Between June and Aug 08, the RBI increased repo rate
by 125 basis points and CRR by 75 basis points to 9.0% each. The increase in capital outflows
especially from the equity markets had put significant downward pressure on the rupee value.
This in turn led to RBI intervention in the forex market through dollar sales to support the falling
value of rupee and thereby adding to the tight liquidity conditions.
Global financial woes intensified significantly in Sep 08, with the collapse of Lehman Bros and
bankruptcy of some other big financial institutions. The financial distress caused thereby was
characterized by severe credit freeze and crisis of confidence worldwide. The substantial FII
outflows from domestic stock markets coupled with tight monetary policy followed by the RBI
till Aug 08 led to significant liquidity crunch in the money market. Meanwhile, FII outflows
from equity, increased dollar demand by oil importers (due to surging oil prices) and
strengthening of dollar against other major currencies exerted significant downward pressure on
rupee value. In order to arrest further fall in rupee value, the RBI intervened in the forex market
by way of dollar sales, which in turn resulted into absorption of liquidity from the system and
added to the liquidity pressures.
74
*Also the real interest rates are decling or not giving the proper return.
*Current Repo Rate-4.75%
*Current CRR-5%
*Current SLR-24%
Trends in the Exchange Rates:
The rupee moved in the range of Rs.39.89-50.53 per US dollar during the financial year 2008-09
so far. The rupee showed a depreciating trend during the second quarter of 2008-09, which
started in the beginning of current financial year. The rupee remained around the level of Rs.43
per US dollar during third week of May 2008 to second week of August 2008, depreciated
thereafter sharply mainly on the back of widening trade deficit, capital outflows and
strengthening of US dollar.
From January to May 22nd Rupee depreciated by 7% as against the US
dollar. The Indian rupee depreciated by about 20 per cent against the US dollar in 2008 due to a
combination of factors. As the credit crisis deepened in the West, foreign money started leaving
Indian shores, which resulted in the rupee falling. Money from all across the world flowing into
US Treasury bonds in search of safety resulted in the US dollar appreciating. As a result
currencies across the world, including the Indian rupee, depreciated.
The rupee is expected to appreciate in the next fiscal and to be around
46.5/US$ by the end of FY10. On an average, rupee is expected to be around 45.90/US$ during
FY09 and 47.50/US$ during FY10. The appreciation in rupee in next fiscal (towards end) would
be on account of an expected fall in value of US dollar and resumption in the FII inflows as the
global economy begins to stabilize the latter part of FY10.
*Current exchange rate of US $- Rs.48.53
75
Stock market:
The stock market has badly crashed in the year 08. But it is recovering now. It is also below the
trend line. So we can say that this factor is supporter of gold investment in the current scenario.
*Current Sensex Value-14422.73
Supply and demand in the current scenario-
Gold market is undergoing radical change with investments in Europe and US taking a lead over
the traditional market – Jewelry in India. While Indian Jewelry is still the world’s biggest
consumer, the market seems more diverse now. Gold ETF- GLD has become the biggest market
mover and there has been heavy demand for coins and bars. If this fundamental change in
consumer/investor choices continues, Gold could see a significant upward movement in price in
the short to medium term, and even a $1200/ounce is likely. It remains to be seen how this
change in behavior would continue after the end of this crisis (in 3-5 years). If it is a permanent
change, it is good for gold industry as it gives a far wider/diverse base and removes the
quirkiness associated with Indian marriage seasons and domestic economy.
Indian consumption is the only bright aspect in the Jewelry scene, with the Jewelry consumption
of rest of the world has gone to the toilet. This is most likely due to the fact that world recession
has not come to India so far. However, Jewelry consumption could significantly tank once the
reality sinks in and Indian market goes faces Economic straight winds.
India as-expected leads the space. It consumed nearly 21.3% of world gold in Q4 and it has
regained back its lead from the US. China, Europe and US for the next 3 big markets. Indian
Jewelry shows a significant upswing while Jewelry consumption in many other countries are
facing deep downturn – most notably in Turkey, US and UK. This is partly due to the fact that
world recession has not come to India in a big way so far. But this could change and Jewelry
could be deeply hit.
76
Also we can observe that the demand has almost higher than the supply. The trends also show that
demand is also on the higher side in the near future.
FINDINGS
&
RECOMMENDATIONS
77
Findings:
a) The dollar is weak and getting weaker due to national economic policies which don’t
appear to have an end.
b) Gold price appreciation makes up for lost interest, specially in a bull market.
c) Central Banks in several countries have stated their intent to increase their gold
holdings instead of selling.
d) All gold funds are in a long term up trend with bullion, most recently setting new all-
time highs.
e) The trend of commodity prices to increase is relative to gold price increases.
f) Worldwide Gold production is not matching consumption. The price will go up with
demand.
g) Most Gold consumption is done in India &also its demand is increasing with their
increase in national wealth.
78
h) Several gold funds reached all-time highs in 2008 and are still trending upward.
i) U.S government economic policies over the past decade have systematically
projected the U.S economy down a road with uncontrollable federal spending and
uncontrollably increasing trade deficits. Both will cause the dollar to lose in international
value and will increase the price of alternative investments, specially gold.
j) With the recent devaluation of many international currencies, the U.S dollar was the
international safe haven of last resort. We can observe the signs of this ending due to many
financial factors, the most important one being a falling dollar.
k) There are over one trillion dollars of U.S debt owned by foreigners which could be
repatriated under certain conditions. This could cause a major decline in the value of the
dollar and a soaring gold price.
l) Gold is still low, but climbing.
Limitations of the study:
Every study suffers from some limitations which are inevitable:
⇒ The time period taken for the analysis part is only 5 years. It would have better if taken
more.
⇒ The analysis is based on the monthly data. The graph reveals more accurate picture if the
data is taken monthly or daily.
⇒ The project is maximum based on the secondary data.
⇒ We can clearly review the effect of global crisis on the analytical part.
79
Recommendations:
Now on the basis of above findings we can conclude and recommend that this is the right time to
invest in gold. Besides Bank FDs, Indian investors have a revealed preference towards Gold as a
viable investment avenue. Gold remains a favorable investment avenue in India. The Survey depicted
that 97% of the investors invested in Gold in Q4, 2008 compared to 42% in Q3, 2008. The reason
seems obvious. Gold gained an impressive 23.13% between Jan 1, 08 and Jan 9, 09. Moreover, it
gained 91.1% between Jan 1, 07 and Jan 9, 09.. The BSE Sensex and S&P Nifty fell by ‐32.53% and
‐28.31 respectively.
Hence, the reasons for Gold Fund Investing are:
• Enormous Volatility in the Equity Markets.
• Global Recessionary Syndrome.
• Low Inflationary pressures
• Depreciation of US dollar as price of gold is inversely proportional to the value of the US
dollar.
• Countries keep the major chunk of their foreign exchange reserves in US dollar or Gold.
With the depreciation of dollar, countries will be compelled to keep their reserves in Gold
so as to maintain the reserves.
80
• The sharp fall in equities prompted the investors to park their money in Gold Funds. Gold
reserves with Gold Trust, the world’s largest Gold Exchange Traded Fund (ETF) touched
780.23 metric tons on Dec, 29, 2008 up from 627.88 metric tons at the beginning of the
year.
• Gold miners are the best performers in the 162 member Bloomberg World Mining Index
7The sub‐prime crisis leads to recessionary pressures across the globe. In order to tide over the crisis,
governments are resorting to excessive borrowing. This created an adverse impact on the currency.
• Investors flock to gold as a hedge against currency depreciation
• Gold is a safe investment option in a situation of deflation. Merrill expects that the
global inflation will near to zero. In a situation of low inflation, gold can act as a store of
value as bank deposits will generate low return. With reducing inflationary pressure,
lending rate goes down. However, banks’ offset the low interest income by reducing
deposit rate as they have to maintain Net Interest Margin.So in my opinion this it is the
right time to invest in gold.
81
Websites References:
i. www.rbi.org.in
ii. www.goldresearch.org.in
iii. www.ccilindia.com
iv. www.investopedia.com
v. www.wickipedia,com
vi. www.bseindia.com
vii. www.moneycontrol.com
viii. www.alibaba.com
ix. www.amfiindia.com
82
x. www.articlebase.com
xi. www.mcxindia.com
xii. www.gata.org
xiii. www.kitco.com
xiv. www.karvy.com
xv. www.rateinflation.com
xvi. www.uniconindia.in
83

Gold An Investment Rationale

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A REPORT

For The Award Of

Post Graduate Diploma in Management

SCHOOL OF MANAGEMENT SCIENCES

SCHOOL OF MANAGEMENT SCIENCES

3) Introduction of the Project. 21

• Objective of the project 24

• Scope of the project 24

• Basic terms of Investment 26

• Short term & Long Term Investment Options 27

• Ways of Investment in Gold 32

4) Factors Affecting Gold and Their Analysis 39

• Gold Anti Trust Committee 64

• Real Interest Rate 65

• War & Other Crisis 65

• Demand & Supply 66

Company Name Unicon Investment Solutions

Ownership & Capital:

Year Established 2004

Trade & Market: South East Asia.

Unicon is a professionally managed company with outstanding managerial acumen and

Mission of the company:

Vision of the company:

Mr. Gajendra Nagpal- Founder & CEO

Mr. Ram M Gupta - Co- Founder & President

Mr. Y.P. Narang - Head- Fixed Income group

Mr. Sandeep Arora - Chief Operating Officer

Mr. Vikas Mallan - Chief Financial Officer

Mr. Trinadh Kiran - National Head (E-Broking)

Mr. Subhash Nagpal - Director (P & D)

Ms. Anjali Mukhija - Chief Compliance Officer

Mr. Vijay Chopra - National Head (Buss.Alliances)

Mr. Anurag Nayar - Chief Technology Officer

Mr. Ashish Kukreja - Head (Client Relations)

Ms. Deepa Mohamed - Head (HR & Training)

Market Plan Financial Plan

Unicon is a customer focused financial services organization providing a range of investment

The Key products offering are as follows:

• Equity- It is of two types-

 Greater exposure for trading on the margin available.

It offers dematerialization services as a participant in central Depository Services Ltd

• It is durable, homogenous and divisible

Objective of the project

• To analyze the different options available for investment options

• To have the extensive overview on the working system of UNICON COMMODITY

• Also see that is it the right time to invest in gold or not.

Scope of the study

⇒ The literature review of the commodity section of Unicon.

⇒ Annual report published by RBI & World Gold Council

Basic Descriptive terms:

Reasons for investment:

One needs to invest to:

Various options available for investment:-

Short-term financial options available for investment:

Gold is the easiest of the metals to work. It occurs in a virtually pure

Ways of investment in gold:

Small gold bars

Gold Allocated account

Gold pool accounts

Gold Accumulation Plans