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The case deals with the uncertain demand and price of gold in the Indian market which has been affected by price & non price factors. India is a conglomeration of different culture & tradition.It is the land of festivals where gold is auspicious. There is a huge demand of gold for various festivals like Diwali & Akhay tritiya. Gold is a commodity which represents status symbol (conspicuous goods). One forth of gold is consumed by Indians. Even though India produces only 3 tonnes per annum, demand for gold is more than 700 tonnes which is largly being imported.

The law of demand states ; Qd=f (Px) i.e when price decreases,demand for the commodity increases and vice versa, when other factors are constant,like: Y=Income of the consumer Ps=Price of substitute goods Pc=Price of complementary goods T=Taste and Preference of consumer G=Government policies

Here, Qd=Demand of the quantity of the commodity Px=Price of the commodity

In the given case, it is observed that in Diwali time of 2008,price for gold had been reduced from $900 to $712 and demand for gold had increased.Here law of demand is clearly applicable. In the years gold 2005 and 2007, it seems that Gold demand is not following law of demand. In the year 2007,with the increase of price of gold , demand decreases. And , in the year 2005, demand increases with the rise in price of gold. Non-price factors plays an important role in determining demand and price of gold in Indian market.

Following are the non price determinants of Demand 1. 2. 3. 4. 5. Income of the customer Price of related goods Consumerss taste & preference Population Expected future prices of the good.


1. The year 2004 saw a rapid growth in income of average Indian which resulted in more spending on consumer good including gold. Thus there was a growth in demand for gold. 2. A study conducted in 2006 by the world Gold Council states that gold has become a more relevant and desirable product to a greater number of women. 3. In year 2009,price of platinum has come down from Rs 35000 to Rs 22000, so many Indian buyers started to buy platinum over gold. Price Effect = Substitution Effect + Income Effect 4. Price of gold is expected to increase from Rs 15000 to Rs 20000, this increased the demand for gold.

Summary :
It appears as a paradox that demand and price of Indian Gold market is not exactly following the law of demand. When the price of gold was increasing the demand for it was also increasing. But, after careful analysis of the price and demand of gold by considering non price factors also, we can conclude that gold is following the law of demand.

Do Soaring Price and Mounting Demand in Indian Gold Market Speak of a Paradox?