GOLD

PRICE
FLUCTUATION
ARUN KR. THAKUR-13108028
DEEPAK JINDAL-13107069
AKSHIT GUPTA-13109044
GURPREET SINGH-13109034
PULKIT SHARMA-13109018
ROHAN DRAVID - 13109019

PEC UNIVERSITY OF
TECHNOLOGY ,CHANDIGARH

AGENDA

Introduction
Gold in the investment portfolio
Price history of gold
Factors affecting gold price in India
Effects of gold price fluctuation on Indian
Economy

INTRODUCTION
Precious & finite natural commodity
Ornaments and jewellery
India & China at the forefront of consumption
World Gold Council's GDT
Toppers: South Africa, United States, Australia &
Indonesia.

TYPES OF GOLD INVESTMENT:1. Gold exchange-traded funds: - The recent explosion in exchange traded funds
(ETFs) presents an even more interesting way to invest in gold. An ETF is a type of
mutual fund that trades on a stock exchange like an ordinary stock. The ETFs exact
portfolio is fixed in advance and does not change. Thus, the two gold ETFs that trade in
the United States both hold gold bullion as their one and only asset. ETF offers a
practical way to hold gold in an investment portfolio.
2. Direct ownership: - There is nothing like gold bullion, the ultimate expression of pure
value. Gold is the only real money, and its value cannot be changed or controlled by
government fiat-the underlying reason for governments to go off the gold standard,
unfortunately. Golds value will rise based on the pure forces of supply and demand, no
matter what Mr Greenspan decrees regarding interest rates or greenbacks in circulation.
The big disadvantage to owning gold is that it tends to trade with a wide spread between
bids and ask prices.
3. Gold mutual funds: - For people who are hesitant to invest in physical gold, but still
desire some exposure to the precious metal, gold mutual funds provide a helpful
alternative. These funds hold portfolios of gold stocks-that is, the stocks of companies
like Newmont Mining that mine for gold. Newmont is an example of a senior gold stock.
A senior is a large, well-capitalized company that has been around several years and
has a profitable track record

TYPES OF INVESTMENT

Physical Metal
Gold ETF's
Gold Mining Stock

PHYSICAL METAL

Jewellery
Gold Coins
Tola(10 gm.) Bars
Kilo Bars

GOLD ETFs
ETF-Exchange Traded Funds
Open Ended Index funds that are listed and traded
through exchanges.
ETF are mainly in Gold, Silver, Platinum and Palladium
besides others .
They are listed in major stock exchanges.

4. Junior gold stocks: - This level of stock is more speculative. Junior stocks
are less likely to own productive mines, and may be exploration plays-with
higher potential profits but also with greater risk of loss. Capitalization is likely to
be smaller than capitalization of the senior gold stocks. This range of
investments is for investors whose risk tolerance is broader, and who accept the
possibility of gold-based losses in exchange for the potential for triple-digit gains.
5. Gold options and futures: - For the more sophisticated and experienced
investor, options allow you to speculate in gold prices. But in the options market,
you can speculate on price movements in either direction. If you buy a call, you
are hoping prices will rise. A call fixes the purchase price so the higher that price
goes, the greater the margin between your fixed option price and current market
price. When you buy a put, you expect the price to fall. Buying options is risky,
and more people lose than win. In fact, about three-fourths of all options bought
expire worthless. The options market is complex and requires experience and
understanding

USES OF GOLD
JEWELLERY

FINANCIAL GOLD

GOLD IN THE INVESTMENT PORTFOLIO

Hedge against inflation

Hedge against a declining dollar
Gold as a safe haven
Supply and demand
Store of value
Portfolio diversifier

GOLD INVESTMENT PRACTICES IN INDIA

Physical gold.
25,000 tonnes jewellery, Coins and Bars.
Form of storing wealth
At past jewellery investment

Contd

Investment in the Bars, Coins.

Fluctuations in gold prices.
Fields of investment
Wedding ceremonies
Personal asset

WHATS DRIVING GOLD

FACTORS AFFECTING GOLD PRICE AND INVESTMENT:-

Weak US Dollar: - Projections about a declining dollar due to an ever-increasing twin

deficit supported by many investment veterans are met by much denial from politicians
as well as from investors. As long as foreigners are willing to pour in the amount of $2
billion dollars every working day, the dollar won't crash. But if foreign confidence were to
wane, the US dollar will be heading south. No matter how you look at the US twin
deficits and America's future fiscal liabilities, this problem is huge and some painful
adjustments not only seem to be necessary but unavoidable as well.
Growth in Demand for jewellery: - The demand for gold jewellery has seen a regular
growth year on year. Countries which are primarily responsible for this growth are India,
China, Italy, Turkey and the USA. The demand for consumption of gold in jewellery was
6% higher at 735 tonnes and also comprised a new first-quarter record. The US, which
accounts for 10 % of world gold demand, is also one of the markets where public taste in
gold jewellery is enjoying a renaissance. The renewed interest in gold also extends to
Japan, a market which showed a 19% increase in demand.

Increase in demand for exchange traded paper backed products: -For the first time
in history, gold can be purchased like any listed stock at select stock exchanges of the
world like London Stock Exchange, Australian Stock Exchange (Gold Bullion Securities)
and New York Stock Exchange. The World Gold Council initiated Electronic Traded
Funds have displayed very good performance and growth in volumes since launch.
Central banks reserves: - Central banks keep ingot reserves as a hedge against
inflation. Other monetary policies of the central banks also affect the price of gold. Low
interest rates discourage people to invest in paper money; they turn towards the golden
metal in the hope of better returns. If the central banks give high interest rates, the
chances are that the ingot price will fall.
Gold during times of fluctuation: - Gold is purchased more during a downturn in
economy. This is because; the companies might start reducing production due to
declining sales. Due to this, the stock prices will start going down. In this scenario, Gold
is the safest option to invest in. Thought the return on investment may not be as high as
other investment options, safety and good value for money are very important in times of
fluctuation

Gold
Fluctuation
Instability
Inflation
Oil Prices

Contd.
Bond
Fluctuating
Money
Hoarding &
Disposing

INDIA AND GOLD

India produces approx.

only 4 tons & imported
800-900 tons gold.

Gold as a symbol of
purity, prosperity and
good fortune

Over 13 per cent of

household savings is in
physical assets like gold.

GOLD % IN FOREX RESERVE

Countries

Gold as % of
Total
Reserves

USA

77 per cent

Germany

74 per cent

Italy

73 per cent

France

72 per cent

Netherlands

62 per cent

India

9 per cent

IMPACT OF GOLD ON INDIAS

C/A BALANCE

IMPACT OF GOLD ON INDIAN

FINANCIAL SYSTEM
Reverse demand
supply mechanism

An unproductive
investment

widens c/a
deficit

Deprives
financial
markets of funds

Indian Policy Advisors

Discourage Buying Gold .?

D. SUBRATO RAO
FORMER RBI GOVERNER

IMPORTANCE OF GOLD IN MARKET

Electronics: - Gold is highly conductive to electricity, and has been used for electrical
wiring in some high-energy applications. For example, gold electrical wires were used
during some of the Manhattan Project's atomic experiments. Gold is used in the
connectors of the more expensive electronics cables, such as audio, video and USB
cables. The benefit of using gold over other connector metals such as tin in these
applications is highly debated Fine gold wires are used to connect semiconductor
devices to their packages through a process known as wire bonding
Aerospace: - Gold is used in hundreds of ways in every space vehicle that NASA
launches.
Gold is used in circuitry because it is a dependable conductor and connector. Many
parts of every space vehicle are fitted with gold-coated polyester film. Gold is also used
as a lubricant between mechanical parts. Gold has very low shear strength and thin
films of gold between critical moving parts serves as a lubricant - the gold molecules slip
past one another under the forces of friction and that provides a lubricant action.
Jewellery: - Gold is found in the pure state, is very easy to work and was probably the
first metal used by humans. Today, most of the gold that is newly mined or recycled is
used in the manufacture of jewellery. About 78% of the gold consumed each year is
used in the manufacture of jewellery. Special properties of gold make it perfect for
manufacturing jewellery. These include: very high lustre; desirable yellow colour; tarnish
resistance; ability to be drawn into wires, hammered into sheets or cast into shapes.

ELECTRONICS

MEDICAL

Medicine: - Gold was often seen as beneficial for the health, in the belief that something
that rare and beautiful could not be anything but healthy. Even some modern
esotericisms and forms of alternative medicine assign metallic gold a healing power.
Inject able gold has been proven to help to reduce the pain and swelling of rheumatoid
arthritis and tuberculosis. Gold alloys are used in restorative dentistry, especially in tooth
restorations, such as crowns and permanent bridges. The isotope gold-198, is used in
some cancer treatments and for treating other diseases.
Decoration: - Gold has the highest malleability of any metal. This enables gold to be
beaten into sheets that are only a few millionths of an inch thick. These thin sheets,
known as "gold leaf" can be applied over the irregular surfaces of picture frames,
moulding or furniture
Public investment: Gold is also considered as a public investment. Many countries
have huge Gold reserves. Countries like India, United States are supposed to have
huge Gold reserves that can be sold in times of need. It also gives these countries an
edge in various financial deals. Various banks also have huge reserves of Gold that are
used at times of crisis in the economy. This Gold is sold at times of economic crisis to
stabilize the economy.

AWARDS AND STATUS

SYMBOLS

WORLD SCENARIO

GOLD PRICE FLUCTUATION

Average annual gold price in USD($) and GBP() since 1900
US$/oz, GB/oz
1,400
1,200
1,000
800
600
400
200
0
USD

Source: Reuters Datastream, World Gold Council

GBP

GOLD PRICE:LAST DECADE

CURRENT GOLD PRICE

FACTORS AFFECTING GOLD PRICE

Integral part of Indian culture

Largest consumer of gold
Rise in population
Gold investment

Contd

Effect of U.S dollar

Change in worlds gold supply
Parallel economy
Global economic situation

AN OVERVIEW OF HOW GOLD PRICE

AFFECTS THE ECONOMY

Inflation
Electronic Industry
Health Sector
Aerospace Industry
Glass Industry

Contd

Gold Mining Industry

Commodity Market

DATA ANALYSIS
Frequency of investment
Frequency of investment in gold

quarterly; 16%
seldom; 24%

half-yearly; 20%

yearly; 40%

seldom

Seldom
Yearly

yearly

half-yearly

quarterly

6
10

Half-Yearly

Quarterly

2. BIS hallmark taken into account

BIS Hallmark

12

10

0
yes
no
neutral

Yes

12

No

Neutral

Low prices will boost investment

boost in investment

8
7
6
5
4
3
2
1
0

strongly agree

agree

neutral

disagree

strongly disagree

boost in investment

Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

8
5
8
4
0

4. Low gold price will lead to hoarding

Hoarding of gold

strongly agree; 16%

strongly disagree; 20%

disagree; 16%
agree; 32%

neutral; 16%

strongly agree

Strongly Agree
Agree
Neutral
Disagree

agree

neutral

disagree

strongly disagree

4
8
4
4

w gold prices will have adverse effect on the economy.

adverse effect on economy

6
6
5
5

4
3

3
2

2
rural

0
urban

strongly agree

agree

neutral
urban

Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

disagree

strongly disagree

rural

Urban

Rural

Total

3
6
5
2
2

0
2
2
1
1

3
8
7
3
3

w gold price trend will remain in the economy for a long ti

reviews

strongly disagree; 8%
strongly agree; 20%
disagree; 12%

neutral; 12%

agree; 48%

strongly agree

Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

agree

neutral

disagree

strongly disagree

5
12
3
3
2

Low gold prices leads to increased sales

Increased sales for traders
4
4
3.5
3
2.5
2

2
1.5
1

1
0.5
0

0
strongly agree

agree

urban

Strongly Agree
Agree
Neutral
Disagree
Strongly Disagree

0
0
disagree

neutral

0 disagree
0
strongly

rural

Urban
4
2
1
0
0

Rural
0
2
1
0
0

Total
4
4
2
0
0

Investment in gold for future use.

future investment

strongly agree

agree

neutral

disagree

future investment

Strongly Agree
Agree
Neutral
Disagree

0
6
3
1

. Areas of investment
less
preferred

more
preferred
Gold ETFs

MF+ PPF
Real Estate

PPF
Fixed Deposit
Mutual Fund
Real Estate
Gold ETFs

Fixed
Deposit
LIC

5
12
4
6
8

Percentage of income spent on various investments

% income in investment

50% and above; 4%

20-35%; 32%
50% and above
20-35%
35-50%
0-20%

0-20%; 56%

35-50%; 8%

0-20%
20-35%
35-50%
50% and above

14
8
2
1

FINDINGS
Majority of the people i.e. 40% make investment in gold on a
yearly basis.
Nearly 50% consumers are aware of the quality of the product.
Thats why they do check BIS Hallmark before purchasing.
More than 50% consumers hold the view that low gold prices
will boost their investment plan. Even many of them are willing
to invest for their future need hoping that gold prices may soon
follow up recovery trend.
Nearly half of the consumers surveyed are of the opinion that
low gold prices will trigger hoarding of gold. This is mainly
because investment in gold is considered to be a lucrative
option.
Majority of the consumers are of the view that the adverse
effect of low gold prices is going to have a long lasting impact
on the Indian economy. This is also perceived mainly because
declining value of Indian currency and huge import of gold from
foreign market.

Gold merchants and traders accept that low gold prices has increased their
sales. Sale for the present as well as future demand has rose exponentially.
Among the various areas of investment people from rural areas mostly
prefer investing in LIC and Fixed Deposits, returns being their primary
concern. On the other hand people from the urban areas hailing from
economically sound background invest a huge chunk of their income in Gold
ETFs with the view of higher returns, tax savings and status in the society.
People in the rural areas invest somewhere between 0-20% of their income
in gold. On the other hand people from the urban areas mostly invest 2035%of their income in gold and allied merchandise.
As per the data provided by the leading gold merchants and traders the sale
of gold and gold articles shoots up during the auspicious occasions of
marriage and festivals. But during the current Fiscal due to low gold prices
investment during marriages and festivals has surpassed the previous
benchmark.
Data collected from the survey also reveals the fact that consumers who are
well qualified and belong to upper strata of society are also brand conscious
in making their investments. They prefer articles from reputed brands such
as TANISHQ, NAKSHATRA, and KALYAN JEWELLARS etc.
Sale of gold articles is also seasonal and time dependent. Sale is maximum
during auspicious occasions and low price and minimum during lean period

LIMITATIONS
The survey report reveals that for commercial investments the consumers
show major inclination towards gold coins.
Most of them are completely ignorant about Gold ETFs (Exchange Traded
Funds), Gold certificates, Gold Stock and other lucrative investment avenues.
Most of the consumers were not willing to furnish the information about
percentage of income that they spend in various form of investment in gold.
The gold traders and merchants were reluctant to give the information about
their sale statistics.
The traders and merchants did not provide any clear information about by
how much the sale has gone up.
The consumers were not very cooperative in sharing their investment
opinions.
The consumers of the rural areas were ignorant about the quality of product.
They were not even aware of the BIS Hallmark product.
Most of the consumers of the rural areas were not clear about their
investment objectives. Despite of limited means whatever little do they
spend they fail to use that in a judicious manner.
Many of the consumers have no idea about the impact that the low gold
prices is going to cast on the Indian Economy. They dont even have the idea
about as to how long it is going to persist,and what all corrective measures

The research has given a much better understanding of consumer

behavior regarding
investment decisions, overview of the steps consumers go through before
making the actual
investment purchase, and shown where is currently physical golds
position among other
investment instruments by consumers minds.
Research shows that the main motive to investing comes from the factor
that more money is left over from other expenses and one wants to
preserve its worth for the future in the
situation where inflation is growing. For the most part investing is not
natural way of life, but
higher level prerogative, which comes after other needs are met. As more
difficult economic
period is expected, this means that investment decisions might be put
forward.
Investors go through a very long and thorough information search and
evaluation period
before making the investment decision. The survey shows that potential
investors listen to
almost all available sources regardless of how big role the source will play
in the final
decision. The longest period in investment process is spent on