Gold [www.writekraft.com]

Comprehensive Analysis of Gold as a Good
Investment to Diversify a Portfolio

2
Abstract
This project report is basically done on the gold which is a component
traded in the commoditymarket. Gold is an inflation hedge & also short-
term fluctuations in Gold offergood 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 projectreport 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 affectthe 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 MicrosoftEXCEL by
computing the required output. Finally the conclusions and
recommendations have been written on the self finding basis.

3
Table of Contents
Chapter
P. No
1) Introduction of the Project.
 Objective of the project
 Scope of the project
 Methodology
 Literature Review
 Basic terms of Investment
 Short term & Long Term Investment Options
 History of Gold
 Gold as Money
 Ways of Investment in Gold
Factors Affecting Gold and Their Analysis
 Crude Oil
 US Dollar
 Repo Rate
 Inflation Rate
 Bank Failure
 Stock Market
 Gold Anti Trust Committee
 Real Interest Rate
 War & Other Crisis
5
9
13
19
23
26
27
30
30
32
39
40
45
49
55
59
60
64
65
65

4
 Demand & Supply
5) Scenario Analysis
6) Findings
7)Limitations
8) Recommendations
9) References
66
69
75
77
78
80

5
1. INTRODUCTIONOF THE PROJECT
Gold – An InvestmentParadise
Gold has been synonymous to wealth and prosperitythrough 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 the pages of history as the divine
metal that has attracted the attention of men –powerfuland otherwise. Gold
was the source of power for the kings. Wars were waged; lives were lost as
kingdoms piled up and hoarded tones 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 economicsas the US accumulated tones of yellow
metal. Till today, Gold has retained its basic use as a commoditywithout
losing its sheen as a currency.
Gold, because of its ability to protectthe wealth of investors can be an ideal
addition to a portfolio.Also the short-term fluctuations in Gold offergood
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 economyoutgrowing the league of developednations during the last

6
two years coupled with the worsening of long-term structural weaknesses and
the subsequentmovements 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 especiallyfrom 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 mostimportant commoditieson
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.

7
 Gold is the only financial medium of exchange that is not someone else’s
liability.
In updating our price outlook,we have consideredthe 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 supportthe rally in Gold prices.
 Mine productionwill not be able to meetcurrent demand due to lack of
new discoveries.
 The long term average in the Crude/Gold ratio has beenaround 16 times,
but is Currently only around 10 times.
In the remaining part of this report we will considerthe major factors that
are likely to drive Gold prices higher in the near future.

8
1.2. Objectives ofthe project
The objective of my projectis:
 To study the current investment scenario
 To analyze the differentoptions available for investment options
 To overview the differentways 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
COMMODITYSECTION.
 To analyze the differentfactors which affectthe 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.
1.3. Scope of the study
The analysis of the factors which affectthe 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.

9
Further analyzing the factors will suggestthe investors that whether it will
be profitable for the investors to invest in gold or not.
1.4. 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 secondarysource. Also the topic related concepts
are done on the basis of the secondarysources.
 The data for the analysis is taken either by the consulting the company’s
employees orfrom the net. So it is partially primary and partially secondary.
 The analysis part is done with the help of MicrosoftEXCEL by computing
the required output.
 Finally the conclusions and recommendations has been written on the self
finding basis.
1.5. LiteratureReview:
 RobertPreachter historical report on Gold and silver has been studied
 Sites like uniconindia@co.in, mcxindia.in, gold research.org, etc has been
studied.
 The literature review of the commoditysectionof Unicon.

10
 Annual report published by RBI & World Gold Council
1.6. Basic Descriptive terms:
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
considerinflation 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.

11
Right time for investment:
The sooner one starts investing the better. By investing early we allow our
Investments more time to grow, whereby the conceptof compounding
increases your income,by accumulating the principal and the interest or
dividend earned on it, year after year. The three goldenrules for all
investors are:
 Invest early
 Invest regularly
 Invest for long term and not short term
Various optionsavailablefor investment:-
One may invest in:
 Physicalassetslike real estate, gold/ jewellery, commodities etc.
 Financialassetssuch as fixed depositswith banks, small saving
instruments with post offices,insurance/provident/pensionfund etc. or
securities market related instruments like shares, bonds,debentures etc.
Short-term financialoptions availablefor investment:
Savings Bank Account is often the first banking productpeople use,
which offers low interest (4%-5% p.a.), making them only marginally better
than fixed deposits.

12
MoneyMarketor Liquid Funds are a specialized form of mutual funds
that invest in extremely short-term fixed income instruments and thereby
provide easy liquidity. Unlike mostmutual 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 Depositswith
banks are for investors with low risk appetite, and may be considered6-12
months investment period as normally interest less than 6 months bank
FDs is likely to be lower than money market returns
*Long-term financialoptions availablefor investment:
Post Office Savings: PostOfficeMonthly 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
Withdrawal is permitted if depositis more than one year old. A Deductionof
5% is levied from the principal amount if withdrawn prematurely.

13
Public ProvidentFund: 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 openall through the year fordepositing 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.
CompanyFixed 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 deductionof taxes.
Bonds: Itis 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

14
generally a promise to repay the principal along with a fixed rate of interest
on a specifieddate, called the Maturity Date.
MutualFunds: 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
professionalmoney 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 usually long term investment
vehicle though there some categories of mutual funds, such as money
Market mutual funds, which are short-term instruments.

15
History of Gold:
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 conceptof 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.

16
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 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 efficientlyexploit old

17
mine-sites,and of course their chief laborers were prisoners of war, slaves,
and convicts. A monetary standard made the world economypossible.The
conceptof money, (i.e., gold and silver in standard weight and fineness
coins) allowed the World's economiesto 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 beeninvented. Its name was gold.

18
Ways of investmentin gold:
Coins and small bars
Bullion coins and small bars offerprivate 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 exemptfrom Value Added Tax.
Bullion coins
These coins are legal tender in their country of issue for their face value,
rather than fortheir 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 betweencoins 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

19
value depends ontheir rarity, designand 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 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-backedsecurities:
Gold is traded in the form of securities on stockexchanges 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

20
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.

21
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 depositpaid 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 perceptionof 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 spotprice for gold. Futures contracts are traded on regulated
commodityexchanges.

22
Gold options
These give the holder the right, but not the obligation, to buy ('call' option)
or sell ('put' option) a specifiedquantity 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 commonlyused by leading investment banks, they
give the buyer the right to buy gold at a specific priceon a specificday in
the future. For this right, the buyer pays a premium. Like futures, warrants
are generally leveraged to the price of the underlying assets.

23
Gold Allocated account
Effectivelylike keeping gold in a safety depositbox, 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.Specificbars (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 depositorythat owns the vault where the gold is stored may not trade,
lease or lend the bars excepton the specific instructions of the account
holder.
Gold Unallocated account
Traditionally, one advantage of unallocated accounts has beenthe 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,

24
private banks acting on behalf of their clients, central banks and gold
market participants wishing to buy or borrow large quantities of gold.
Gold poolaccounts
There are alternatives for investors wishing to open gold accounts holding
less than 1000 ounces.
Electroniccurrencies
There are also electronic 'currencies' available - linked to gold bullion in
allocated storage - which offera 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 AccumulationPlans
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 differentfrom 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

25
small, and purchases are not subjectto 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
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 evenin 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 becomecollectibles.They were initially replaced by
silver certificates,and later by Federal Reserve notes.
Nowadays, gold certificates offerinvestors 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

26
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 WesternAustralia and is distributed in a number of
countries.
Gold orientatedfunds
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 differentcountries. These funds are regulated financial
products and as such it is not possible here to provide details on any
specificfunds. Funds are likely to differin 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 some significant differences. The appreciation potential of a gold

27
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 mostother 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 betweenforwards and options traded in the

28
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 offera 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).
 Gold-linked bondsand 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.

29
Structured notes tend to allocate part of the sum invested to purchasing
put/call options (depending on whether the product is designed forgold
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 protectionand a varying degree of participation in any price
appreciations depending on market conditions and investor preferences.

30
DATA ANALYSIS
Factors affecting priceof 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 betweengold 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. 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.

31
Analysis:
Date Gold Crude
oil
Date Gold Crude
oil
May-10 6104.576 2162.145 May-
12
8863.392 2593.224
Jun-10 6185.849 2448.941 Jun-
12
8690.265 2739
Jul-10 6173.774 2550.24 Jul-
12
8732.315 2988.308
Aug-10 6276.731 2811.12 Aug-
12
8829.425 2950.413
Sep-10 6574.167 2890 Sep-
12
9286.778 3197.846
Oct-10 6889.167 2799.087 Oct-
12
9671.96 3357.95
Nov-10 7174.826 2658.758 Nov-
12
10301.33 3735.319
Dec-10 7610.6 2712.404 Dec- 10247.9 3512.764

32
12
Jan-11 7957.714 2910.925 Jan-
08
11264.54 3686.8
Feb-11 7998 2737.923 Feb-
08
11857.93 3755.872
Mar-11 8246.146 2797.556 Mar-
08
12609.42 4166.343
Apr-11 8958.111 3123.673 Apr-
08
11792.93 4479.091
May-11 9988.8 3212.491 May-
08
12142.66 5272.683
Jun-11 8896.447 3262.516 Jun-
08
12327.35 5726.128
Jul-11 9513.714 3456.657 Jul-
08
13010.86 5757.04
Aug-11 9572.941 3401.893 Aug-
08
11791 5037.213
Sep-11 9029.255 2956.86 Sep-
08
12194.02 4723.304

33
Oct-11 8703.302 2683.683 Oct-
08
12715 3748.739
Nov-11 9167.857 2589.456 Nov-
08
12108.59 2846.875
Dec-11 9152.87 2776.262 Dec-
08
12865.25 2266.143
Jan-12 9122.782 2412.615 Jan-
09
13475.67 2125.2
Feb-12 9494.511 2615.884 Feb-
09
14791.53 1977.682
Mar-12 9345.75 2665.638 Mar-
09
15254.53 2452.408
Apr-12 9311.894 2711.61 Apr-
09
14491.34 2526.794
May-
09
14559.66 2859.558

34
The above sheetand diagram shows the change in gold and crude oil
prices at differentdates with fixed intervals.
Trend Analysis of Crude Oil
0
1000
2000
3000
4000
5000
6000
7000
Aug-04 Feb-05 Sep-05 Mar-06 Oct-06 Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10
Months
prices
trend analysis of gold
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
months
prices
0
2000
4000
6000
8000
10000
12000
M
ay-05
Aug-05
Nov-05
Feb-06
M
ay-06
Aug-06
Nov-06
Feb-07
Gold
Crude oil

35
Hypothesis Assumed(H0) : Gold prices do not depend on crude oil prices
Alternative Hypothesis (H1):Gold prices depend oncrude oil prices.
Regression
Statistics
Multiple R 0.328567618
R Square 0.107956679
Adjusted R
Square 0.088977034
StandardError 2329.254449
Observations 49
ANOVA
Df SS MS F
Significanc
e F
Regressio
n 1
30859955.6
7
30859955.6
7
5.68802
4 0.02116642
Residual 47 254995035. 5425426.28

36
6 9
Total 48
285854991.
2
Coefficie
nts
Standard
Error
T stat p-value Lower
99%
Upper
99%
Interce
pt
7170.203
075
1242.765
092
5.7695
56
5.99861E
-07
3833.931
075
10506.475
07
X
variabl
e1
0.898366
666
0.376680
305
2.3849
58
0.021166 0.112852
561
1.9095858
93
Tabulatedvalue of z- 2.56

37
Analysis overview:
Significantcorrelationwith r -0.3286
Approx 11% of variation in gold prices accountedfor with crude oil.
Significantlinear regressionwith 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 closerto
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
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.Thereforewe can say that the crude
oil prices don’t affectthe 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.

38
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 dependsupon 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 makes it weak. This
creates a inverse relation.
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.

39
Analysis-
Date Gold dollar Date Gold Dollar
May-05 6104.576 43.69
May-
07 8863.392 40.73
Jun-05 6185.849 43.51
Jun-
07 8690.265 40.75
Jul-05 6173.774 43.49
Jul-
07 8732.315 40.44
Aug-05 6276.731 44.04
Aug-
07 8829.425 40.96
Sep-05 6574.167 43.99
Sep-
07 9286.778 39.74
Oct-05 6889.167 45.11
Oct-
07 9671.96 39.32
Nov-05 7174.826 45.92
Nov-
07 10301.33 39.67
Dec-05 7610.6 45.07
Dec-
07 10247.9 39.41

40
Jan-06 7957.714 44.07
Jan-
08 11264.54 39.39
Feb-06 7998 44.44
Feb-
08 11857.93 39.92
Mar-06 8246.146 44.61
Mar-
08 12609.42 39.97
Apr-06 8958.106 44.97
Apr-
08 11792.93 40.46
May-06 9988.8 46.43
May-
08 12142.66 42.59
Jun-06 8896.447 46.08
Jun-
08 12327.35 42.95
Jul-06 9513.714 46.51
Jul-
08 13005.86 42.49
Aug-06 9572.941 46.55
Aug-
08 11791 43.79
Sep-06 9029.255 45.96
Sep-
08 12194.02 46.94
Oct-06 8703.302 45.02 Oct- 12715 49.25

41
08
Nov-06 9167.857 44.76
Nov-
08 12108.59 49.84
Dec-06 9152.87 44.23
Dec-
08 12865.25 48.45
Jan-07 9072.782 44.17
Jan-
09 13475.67 49.02
Feb-07 9494.511 44.31
Feb-
09 14791.53 50.73
Mar-07 9345.75 43.59
Mar-
09 15254.53 50.95
Apr-07 9311.894 41.29
Apr-
09 14491.34 50.22
May-
09 14559.66 47.29

42
Gold vs US dollar
0
2000
4000
6000
8000
10000
12000
14000
16000
18000 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
month
goldprices
0
10
20
30
40
50
60
month
Dollarexchangerate
Gold
dollar
trend analysis of US $
0
10
20
30
40
50
60
Months
Exchangerate

43
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
Adjusted R
Square 0.111455985
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

44
Coefficien
ts
Standard
Error
T stat p-value Lower
99%
Upper
99%
Interce
pt
-
2085.4120
12
4582.615
959
-
0.4550702
11
0.651153
944
-
14387.699
39
10216.87
537
X
variabl
e1
273.85034
96
103.3510
93
2.6497092
73
0.651153
944
-
3.6014069
83
551.3021
061
Tabulatedvalue of z- 2.56
AnalyticalOverview:
Change in US $ exchange rate accounts only 13% for the changein
gold prices.

45
Regression Equation-Y=273.85 X-2085.412
Interpretation:Here the value of multiple R value which is 0.36,shows that
the correlation betweenthe US $ and Gold prices is insignificant. This
shows that in the current scenario the US $ exchange rate doesn’taffect
the gold prices significantly. This is because R value is less than 0.5 and
more closerto 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 predictthat there is a relation betweenUS $ and gold
prices.The –ve intercept of t value as well
as –ve intercept of regressionequation shows the inverse relation between
the US$ and gold prices.
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 effectof US $ on gold
prices is decreasing.

46
Now by doing the regressionanalysis for year 08 to 09 (value of multiple
R=.71 , t value=3.98) we can also predict that the there is improvementin
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 commercialbanks 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:
Date Gold
Repo
rate Date Gold
Repo
rate
May-05 6104.576 6
Jun-
07 8690.265 7.75
Jun-05 6185.849 6 Jul- 8732.315 7.75

47
07
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

48
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
Dec-06 9152.87 7.25
Jan-
09 13475.67 6.5
Jan-07 9072.782 7.25 Feb- 14791.53 5.75

49
09
Feb-07 9494.511 7.5
Mar-
09 15254.53 5
Mar-07 9345.75 7.5
Apr-
09 14491.34 4.75
Apr-07 9311.894 7.75
May-
09 14559.66 4.75
May-07 8863.392 7.75

50
43
Gold prices VS Repo rate
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
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
month
Prices
0
1
2
3
4
5
6
7
8
9
10
month
reporatevalue
Gold
Repo rate
Trend Analysis of Repo rate
0
2
4
6
8
10
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10
time period
reporatein%
Repo rate
Linear (Repo rate)

51
Hypothesis Assumed:(H0)-The Repo rate doesn’taffectthe 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 regressionanalysis separately in
three differentparts.
Regression Analysis for the whole period:
R Square 0.001936927

52
Adjusted R
Square
-
0.019298458
Standard
Error 2463.785839
Observations 49
ANOVA
Df SS MS F
Significance
F
Regression 1 553680.1381 553680.138 0.091212222 0.763974109
Residual 47 285301311.1 6070240.66
Total 48 285854991.2
Coefficients
Standard
Error T Stat P-value
Lower
99.0%
U
9
Intercept 9270.172641 2527.017003 3.668425115 0.000621127 2486.254969 1
X 107.96492 357.4836224 0.302013612 0.763974109 - 1

53
Variable
1
851.7197437
Regression Analysis for the period of May 05 to Sep 09:
R Square 0.734531395
Adjusted R
Square 0.727724508
Standard
Error 982.2792188
Observations 41
ANOVA
df SS MS F Significance

54
F
Regressio
n 1
104119413.
9
104119413.
9
107.910027
3 8.6124E-13
Residual
3
9
37630026.0
9
964872.463
8
Total
4
0 141749440
Coefficients
Standard
Error t Stat P-value
Lower
99.0%
Intercept
-
4542.661702 1340.687899
-
3.388306633 0.001619293
-
8173.12813
X Variable 1 1911.568612 184.0174421 10.38797513 8.6124E-13 1413.26535
Regression Analysis for the period of Oct 08 to may 09 :

55
R Square 0.702815392
Adjusted R
Square 0.653284624
Standard
Error 673.8858348
Observations 8
ANOVA
Df SS MS F
Significan
ce F
Regressio
n 1
6443752.
59
6443752.5
87
14.189470
91
0.0093227
06
Residual 6
2724732.
71
454122.11
83
Total 7 9168485.

56
3
Coefficients
Standard
Error t Stat P-value
Lower
99.0%
Intercept 20477.82011 1793.258299 11.41933658 2.70487E-05 13829.4440
X Variable 1
-
1158.075451 307.4353158
-
3.766891412 0.009322706
-
2297.86975
Interpretation:
Now here we have divided the regressionanalysis in three parts. The
overview of the 1st part, 2nd
part and the 3rd
part are as below:
1. Significantcorrelationwith r -0.044010528
Change in repo rate accounts 2 % for the change in gold prices.

57
Regression Equation-Y= 107.96492X+9270.172641
2. Significantcorrelationwith r –0.85704807
Change in Repo rate accounts for the change73% in gold prices.
Significantlinear regressionwith p value- (Approx)0.00
Regression Equation-Y= 1911.568612X-4542.661702
3. Significantcorrelationwith r -0.838340857
Change in repo rate accounts 70 % for the changein gold prices.
Regression Equation-Y= -1158.075451X+20477.82011
Now the three cases are contradicting to each other. Case 1 shows the
poor correlation where as case 2 & 3 shows the strongercorrelation. 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

58
observe that in the period (which relates to the 2nd
case-sep-08to oct-08)
there is a sharp downfall in the repo rate which is affectof crisis in the
economyand 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 betweengold 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-
Gold has always been considereda 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 assetprice The experience of
the past decade has been very differentfrom the predictions of this theory:

59
the prices of land, gold,and other such stores of value have increased by
substantially more than the general price level. The presentpaper presents
a simple theoretical modelthat explains the positive relation between the
rate of inflation and the relative price of such real assets.More specifically,
in an economywith 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 discussedin this paper
is thus a further example of the non-neutral response of capital markets to
inflation in an economywith 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 productionfrom 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.

60
Analysis:
Date Gold
inflation
rate Date Gold
Inflation
rate
May-05 6104.576 5.2
May-
07 8863.392 5.27
Jun-05 6185.849 4.14
Jun-
07 8690.265 4.03
Jul-05 6173.774 3.84 Jul-07 8732.315 4.41
Aug-05 6276.731 3.01
Aug-
07 8829.425 3.94
Sep-05 6574.167 3.75
Sep-
07 9286.778 3.23
Oct-05 6889.167 4.75
Oct-
07 9671.96 3.07
Nov-05 7174.826 4.54
Nov-
07 10301.33 3.21
Dec-05 7610.6 4.4
Dec-
07 10247.9 3.45

61
Jan-06 7957.714 4.3
Jan-
08 11264.54 4.11
Feb-06 7998 4.34
Feb-
08 11857.93 5.02
Mar-06 8246.146 3.96
Mar-
08 12609.42 7.41
Apr-06 8958.106 3.59
Apr-
08 11792.93 7.61
May-06 9988.8 4.68
May-
08 12142.66 8.75
Jun-06 8896.447 4.84
Jun-
08 12327.35 11.89
Jul-06 9513.714 4.67 Jul-08 13005.86 12.01
Aug-06 9572.941 5.01
Aug-
08 11791 12.1
Sep-06 9029.255 5.16
Sep-
08 12194.02 11.8
Oct-06 8703.302 5.09
Oct-
08 12715 10.72

62
Nov-06 9167.857 5.3
Nov-
08 12108.59 8
Dec-06 9152.87 5.58
Dec-
08 12865.25 5.91
Jan-07 9072.782 6.58
Jan-
09 13475.67 4.39
Feb-07 9494.511 6.1
Feb-
09 14791.53 2.43
Mar-07 9345.75 5.74
Mar-
09 15254.53 0.26
Apr-07 9311.894 5.66
Apr-
09 14491.34 0.7
May-
09 14559.66 0.13

63
Gold Vs Inflation Rate
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
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
Time Period
GoldPrices
051015
Time Period
InflationRate
Gold
inflation
rate
Trend Analysis Of inflation Rate
0
2
4
6
8
10
12
14
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10
Time Period
InflationRate
Trend Analysis of
inflation rate
Linear (Trend
Analysis of inflation
rate)

64
Hypothesis Assumed:(H0)- The Repo rate doesn’taffect the gold
prices.
Alternate Hypothesis (H1)- The Repo rate affect the gold prices.
Regression Analysis:
Regression Statistics
Multiple R 0.893479
R Square 0.798305
Adjusted R
Square 0.779969
Observations 49
ANOVA
Df SS MS F
Significanc
e F
Regressio
n 1
7168366.40
8
7168366.40
8
1.2089321
5
0.27714387
8

65
Residual 48
278686624.
8
5929502.65
6
Total 49
285854991.
2
Coefficie
nts
Standar
d Error t Stat P-value
Lower
99.0%
Upper
99.0%
Interce
pt
9286.054
853
757.5061
594
12.25871
861 0.00
7252.487
444
11319.6
223
X
Variab
le 1
139.9434
076
127.2774
544
1.099514
508
0.277143
878
-
201.7399
966
481.626
812
AnalyticalOverview:
Change in INFLATIONRate accounts only 80% for the changein gold
prices.

66
Regression Equation-Y=139.943X+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 movementis 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 assumptionwas 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 from the trend line is less in later period (from May 08

67
to May 09).Also in the later period the gap between gold prices and inflation
rate becomeslarger which shows the inverse movementbetween 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, mostpeople preferredto 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 beenthe result. This is
what happened in the USA during the great depressionof the 1930s,
imposing a national emergencyand to outlaw the ownership of gold by US
citizens.

68
Source: RBI Site
This means that gold and bank failure are inversely related. Bank failure
will affectinversely the investment in gold but the relation is not visa-versa
absolutely.
6. Stock market-
The performance of gold bullion is oftencompared to stocks. They are
fundamentally differentasset 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

69
and bonds perform bestin 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 2012).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 decisionpartly on, or solely on, technically analysis.
Analysis:
Date Gold Sensex Date Gold Sensex
May-05 6104.576 6,715.11 Jun-07 8690.265 14650.51
Jun-05 6185.849 7193.85 Jul-07 8732.315 15550.99
Jul-05 6173.774 7635.42
Aug-
07 8829.425 15318.6
Aug-05 6276.731 7805.43
Sep-
07 9286.778 17291.1
Sep-05 6574.167 8634.48 Oct-07 9671.96 19837.99

70
Oct-05 6889.167 7892.32
Nov-
07 10301.33 19363.19
Nov-05 7174.826 8788.81
Dec-
07 10247.9 20286.99
Dec-05 7610.6 9397.93 Jan-08 11264.54 17648.71
Jan-06 7957.714 9919.89 Feb-08 11857.93 17578.72
Feb-06 7998 10370.24 Mar-08 12609.42 15644.44
Mar-06 8246.146 11279.96 Apr-08 11792.93 17287.31
Apr-06 8958.106 12042.56
May-
08 12142.66 16415.57
May-06 9988.8 10398.61 Jun-08 12327.35 13461.6
Jun-06 8896.447 10609.25 Jul-08 13005.86 14355.75
Jul-06 9513.714 10743.88
Aug-
08 11791 14564.53
Aug-06 9572.941 11699.05
Sep-
08 12194.02 12860.43
Sep-06 9029.255 12454.42 Oct-08 12715 9788.06
Oct-06 8703.302 12961.9
Nov-
08 12108.59 9092.72

71
Nov-06 9167.857 13696.31
Dec-
08 12865.25 9647.31
Dec-06 9152.87 13786.91 Jan-09 13475.67 9424.24
Jan-07 9072.782 14092.92 Feb-09 14791.53 8891.61
Feb-07 9494.511 12938.09 Mar-09 15254.53 9708.5
Mar-07 9345.75 13072.1 Apr-09 14491.34 11403.25
Apr-07 9311.894 13872.37
May-
09 14559.66 14625.25
May-07 8863.392 14544.46

72
Gold Vs Sensex
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
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
Time Period
goldprices
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Time Period
Sensexvalue
Gold
sensex
Trend Analysis of Sensex Values
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Time period
SensexValue

73
Hypothesis Assumed(H0): Sensex values and Gold prices are not
sufficiently co-related.
Alternative Hypothesis (H1): Sensexvalue and Gold Prices are
sufficiently co-related.
Regression Analysis:
Regression Statistics
Multiple R 0.671901
R Square 0.451451
Adjusted R
Square 0.396596
Standard
Error 421.0839
Observations 49

74
ANOVA
Df SS MS F
Significanc
e F
Regressio
n 1 1459260.49 1459260.49
8.22991834
4 0.01670353
Residual 48
1773116.60
8
177311.660
8
Total 49
3232377.09
9
Coefficie
nts
Standar
d Error t Stat P-value
Lower
99.0%
Upper
99.0%
Interc
ept
7127.154
538
774.2248
155
9.205536
163 0.0000
4673.424
988
9580.884
087
X
Variab
le 1
0.137944
363
0.048084
621
2.868783
426
0.01670
353
-
0.014448
911
0.290337
637

75
AnalyticalOverview:
Significant correlation with r -0.671901
Change in INFLATIONRate accounts 46% for the change in gold prices.
Significant linear regressionwith p value- 0.0167
RegressionEquation- Y=0.1379X-7127.154538
Interpretation:
The relation between the gold and stockmarket 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.

76
7. The Gold Anti TrustCommittee:
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 newspaperhad beeninvolved in antitrust
litigation, replied with an essayproposing 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 discloseand 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

77
by dishoarding of central bank gold reserves,investors may buy gold in
quantity, 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 realinterestrates:
If the return on bonds,equities and real estate is not adequately
compensating forrisk and inflation then the demand for gold and other
alternative investments such as commodities increases.An example of this
is the period of STAGFLATIONthat occurred during the 1970s and which
led to an economic bubble forming in precious metals.
*STAGFLATIONis a situation when inflation and economic
stagnation occurs simultaneously.
* An economic bubble(sometimesreferred to as a speculativebubble,
a marketbubble,price bubble,a financialbubble,or a speculative
mania)is trade in products or assets with inflated values.

78
9. War, invasion,looting,crisis:
In times of national crisis, people fearthat their assets may be seized and
that the currency may becomeworthless. 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.

79
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

80
these markets will continue to purchase Gold Jewellery if they are offered
the right products at the right price.
INDUSTRIAL:
The global economyenabled 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.
Jewellery Demand Chart
0
100
200
300
400
500
600
700
800
900
1000
Q1-
2004
Q2-
2004
Q3-
2004
Q4-
2004
Q1-
2005
Q2-
2005
Q3-
2005
Q4-
2005
Q1-
2006
Time period
Demandintonnes
Demand (tonnes)

81
INVESTMENT:
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 differenttypes of
risk. In countries like the US and Switzerland, the rising price spurred
interest from investors driving overall investment demand up. Moreover a
recent developmenthas beenthat in India where traditionally Gold has
been consumed as Jewellery, increasing promotionof 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.
Industrial Demand Chart
90
95
100
105
110
115
Q1-
2004
Q2-
2004
Q3-
2004
Q4-
2004
Q1-
2005
Q2-
2005
Q3-
2005
Q4-
2005
Q1-
2006
Time period
Demandintonnes
Demand (tonnes)
z

82
60
*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
productionplays 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 commercialproductionstage. So any near term increase of supplies
can be ruled out. But, the main factorconstraining 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
Investment Demand Chart
0
50
100
150
200
250
Q1-
2004
Q2-
2004
Q3-
2004
Q4-
2004
Q1-
2005
Q2-
2005
Q3-
2005
Q4-
2005
Q1-
2006
Time period
Demandintonnes
Demand (tonnes)
z

83
sharp decline in supply caused by the fall in central bank sales was partly
Offsetby 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 were the primary factor in suppressing Gold prices in the
nineties. Reductionin these sales due to the Central Banks Gold Sales
Agreementwill 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.

84
CurrentScenario Analysis:
The Current Scenario is analyzed in the terms of:
 Crude oil Prices
 US Dollar Value
 Repo Rate
 Inflation Rate
 Real interestrates
 Demand And Supply
 Stock market
 GDP

85
 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 observationthe trend
analysis Graph we can expectthat now the inflation rate is rising from the
deflationary period.On 6th
June 2012 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 movementof 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 effortto 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

86
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:
India GDP and Standard of Living are closelyrelated as GDP features
among the significant factors in the assessmentof the standard of living.
Standard of living comprises quality as well as amount of commodities
offeredforconsumptionby the citizens and the distribution system.
The substantial growth in various sectors like IT, Real Estate, ITES has led
to the improvementof 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 assessmentof the positionof India in the standard
of living chart. The per capita- adjusted gross domestic productof China in
the year 2003 was $4,900 and that of the majority of western European
countries is $26,000and that of the most developed country like US is

87
$33,000.The per capita- adjusted gross domestic productof India has
been calculated to be US $ 31, 00
Measurementof India GDP and Standardof Living:
GDP makes an assessmentof 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 consumptionaccompanied with the manufacture of
capital goods that consequentlyaid in the further productionof
commodities.
CurrentStatistics:
Industry
2012-2013
Q1 Q2 Q3 09 Growth rate in
%
(Estimated )
Agriculture,
forestry &
fishing
3.0 2.7 -2.2 2.6%
Manufacturing 5.6 5 -0.2 4.1%

88
Construction 11.4 9.7 6.7 6.5%
Financing,
insurance,real
estate &
business
Services
9.3 9.2 9.5 8.6%
Mining &
quarrying
4.8 3.9 5.3 4.7%
Trade,hotels,
transportand
communication
11.2 10.7 6.8 10.3%
Community,
social&
personal
services
8.5 7.7 17.3 9.3%
Electricity,gas
& water supply
2.6 3.6 3.3 4.3%
Source:RBI- Hand Book of Statistics

89
Repo Rate and Other Rates-
The Indian economyushered in 2011 amidst excess liquidity related
problems in the system. Growth in money supply saw 21.2 % increase in
the last week of April 2011 on y-o-y basis, it touched 22.5% in May end and
slowed to 20.7% by the end of June 2011. 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
especiallyfrom 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 supportthe 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 confidenceworldwide. The substantial FII outflows from
domestic stockmarkets coupled with tight monetary policy followed by the
RBI till Aug 08 led to significant liquidity crunch in the money market.

90
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 absorptionof
liquidity from the system and added to the liquidity pressures.
*Also the real interest rates are decling or not giving the properreturn.
*Current Repo Rate-4.75%
*Current CRR-5%
*Current SLR-24%
Trendsin the Exchange Rates:

91
The rupee moved in the range of Rs.39.89-50.53 perUS dollar during the
financial year 2012-2013 so far. The rupee showed a depreciating trend
during the second quarter of 2012-2013,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 2011 to second week of August 2011,
depreciated thereaftersharply mainly on the back of widening trade deficit,
capital outflows and strengthening of US dollar.
From January to May 22nd Rupee depreciatedby 7% as against the US
dollar. The Indian rupee depreciated by about 20 per cent against the US
dollar in 2011 due to a combination of factors.As the credit crisis deepened
in the West,foreignmoney 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 fiscaland 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 resumptionin the FII inflows as
the global economybegins to stabilize the latter part of FY10.

92
*Current exchange rate of US $- Rs.48.53
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
supporterof gold investment in the current scenario.
*Current SensexValue-14422.73
Supply and demand in the currentscenario-
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 biggestconsumer, the market seems more
diverse now. Gold ETF-GLD has become the biggestmarket mover and
there has been heavy demand for coins and bars. If this fundamental
change in consumer/investorchoices continues, Gold could see a
significant upward movementin price in the short to medium term, and
even a $1200/ounceis 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

93
wider/diverse base and removes the quirkiness associated with Indian
marriage seasons and domestic economy.
Indian consumptionis 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 recessionhas not come to India so far.
However, Jewelry consumptioncould significantly tank once the reality
sinks in and Indian market goes faces Economic straight winds.
India as-expected leadsthe 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
recessionhas not come to India in a big way so far. But this could change
and Jewelry could be deeplyhit.
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

94
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 commodityprices to increase is relative to gold price
increases.
f) Worldwide Gold productionis not matching consumption.The price will go
up with demand.

95
g) Most Gold consumptionis done in India &also its demand is increasing with
their increase in national wealth.
h) Several gold funds reached all-time highs in 2011 and are still trending
upward.
i) U.S government economic policies overthe past decade have
systematically projected the U.S economydown a road with uncontrollable
federalspending 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 mostimportant one being a
falling dollar.

96
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 secondarydata.
 We can clearly review the effectof global crisis on the analytical part.

97
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, 2011 compared to 42% in
Q3, 2011.The reason seems obvious.Gold gained an impressive 23.13%
between Jan 1, 08 and Jan 9, 09. Moreover, it gained 91.1% betweenJan
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
 Depreciationof US dollar as price of gold is inversely proportional to the
value of the US dollar.
 Countries keep the major chunk of their foreignexchange reserves in US
dollar or Gold.With the depreciationof dollar, countries will be compelledto
keep their reserves in Gold so as to maintain the reserves.

98
 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,
2011 up from 627.88 metric tons at the beginning of the year.
 Gold miners are the best performers in the 162 memberBloomberg World
Mining Index
7The sub‐prime crisis leads to recessionarypressures 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’
offsetthe low interest income by reducing depositrate as they have to
maintain Net Interest Margin. So in my opinion this it is the right time to
invest in gold.

99
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