THE IMPACT OF GOLD PRICE CHANGES IN INDIA AN ASSIGNMENT ON

THE IMPACT OF GOLD PRICE CHANGES IN INDIA (CURRENT ISSUES)

SUBMITTED BY ( FACULTY OF BBA)

SUBMITTED

DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY

By: MOHAMMAD YOUNIS MIR

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INTRODUCTION Understanding the gold price, why it is where it is, why it declined by 40% from February 1996 to August 1999, why the gold industry got slaughtered and why the hedge funds made out like bandits, requires us to look at several aspects of gold and the gold market. As you will see there is no conspiracy against gold. The major decline in the gold price did not occur because of central bank sales or producer hedging, as many people believe. Instead, a proper analysis of the gold market, and an understanding of foreign exchange markets with the role played by derivatives, sheds light on the real factors that determine the gold price. These are not necessarily complicated matters as even enormous markets yield to basic economic principles. The research that underlies this article shows that:

The gold price is less sensitive to changes in mine production and jewelry demand than it is to currency exchange rates The average international gold price, as measured against a basket of currencies, has not declined substantially during the last four years, in fact it is close to its ten year average The decline in the US dollar denominated gold price is predominantly due to international currency problems that caused an abnormal amount of foreign investment in the United States Gold is money, it always has been and furthermore, gold has not lost its value as store of wealth If the dollar devalues, as this paper suggests it will, the dollar denominated gold price should soar U.S.-based gold mining companies probably offer the best leverage to the US dollar based gold price This appears to be an excellent time to speculate on gold and gold stocks.

What is Gold is your key to unlocking a huge wealth creating opportunity. Gold prices have been rising steadily since 2001, when one could buy an ounce of Gold for $256, and those of us who bought Gold at that time have since enjoyed gains of over 550% in 10 years! So far, Gold is the best investment of the Century, second only to Silver which has raised a jaw dropping 775% in price. If Gold follows the historical patterns, and there are many reasons it will, in the

By: MOHAMMAD YOUNIS MIR

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near future the Gold price could rise much higher and much faster. Some say at least as high as $5000 per ounce. Some say $10,000 in the near future. What is Gold Doing Now? The past month investors have been hit hard from the falling stock market. Those who owned gold and bonds have been rewarded. During times of economic fear which leads to selling of stock shares investors and traders find safety in gold and bonds. It was this surge of money coming out of stocks that propelled the price of gold and bonds sharply higher through-out this sell off. On Sunday I warned subscribers that any day now gold should start to correct and there is potential for it to drop all the way back down to the $1640-$1670 area depending how much of the recent buying volume was investment versus speculative money which will quickly sell out if prices began to fall. Take a look at the intraday charts below to get a visual of how money is moving around the market and how economic fear plays a roll on investment decisions. The Indian Gold market has reaffirmed its dominance in 2010 and will continue in 2011. Expect China to overtake the sub-continent in demand for gold. The love of gold in India goes far beyond a simple source of future profits. It is an expression of wealth, financial security and family stability. It also carries religious overtones.

Gold remains the wealth of the wife -men only inheriting assets. It represents her and her family's financial security. It is difficult to make a distinction between investment and jewelry demand because in India, these two ideas are inseparable. Gold jewelry is usually 24-carat. Higher gold prices, increased uncertainty due to the global recession coupled with lower purchasing power because of drought are expected to hit domestic demand for the precious metal, Citi India's economist Rohini Malkani said in a report in Mumbai.

Reduced domestic demand saw India's imports dip 51.5 per cent year on year to just 16.5 tonnes inNovember. India is the world's largest importer of gold. Historically, Indian gold demand has been price inelastic, with the bulk of the demand coming for jewelleries. However, record-high prices and
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the global recession, coupled with the drought, have kept away consumers this year, the report said. The lower offtake could also be due to consumers meeting demand by exchanging old items, theportadded. According to the latest data by the World Gold Council (WGC), India's gold demand stood at 137.6 tonnes in the third quarter of 2009, down 49 per cent YoY. Cumulatively, demand in 9M 09 was 264-tonnes, versus 553-tonnes in the same period last year.

REASONS FOR GOLD PRICE HIKE Yellow metal experts say there are at least six reasons for the high price of gold namely: 1. The weakness of the dollar due to the political stalemate in Washington, who was accompanied by raising the debt ceiling and the U.S. led to a reduction in the level of credit. 2. The large swings in the European markets because of the debts of Greece, Portugal and Italy. 3. The high demand for the yellow metal in India and China.

4. Draws some central banks to increase the share of gold in its reserves strategy in light of the deterioration of the dollar and fears of the future of U.S. Treasury bonds.

5. The high cost of gold mining and the lack of large mines in recent years. 6. The possibility of rising inflation in the next few years. 7. Investors think that Gold is a secured element and it gives more profit than any other investments like shares, savings, Real estate, etc. They also think that they can get higher profit in a short term. 8. Even Banks, Companies (Corporate) are really interested in investing their many in Gold. Reserve Bank of India recently bought 200 Tonnes Gold as their investment for their future. 9. Demand for this precious metal Gold was there even before the birth of Jesus Christ. People around the world feel that Gold is a holy metal and they have the tradition to buy Gold when Festivals, Marriage, and good things come across in their life. Remember India is a big consumer of Gold has a celestial love affair with Gold and
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more than One Billion people in India now feel like never before that it is their great wealth and they keep increasing the level of buying every year. So, demand is more when compared to availability of the metal. 10. The mining cost of Gold has been increased sharply in the last few years. 11. Investors generally buy gold as a hedge against economic uncertainties, inflation, currency devaluation, deflation, etc. 12. Gold has been treated as money for a very long time and both are mutually inter-related in all the countries. Combination of these factors, some or all led to higher prices of yellow metal, for the first time at these rates since the start of the rush to gold in 1848. In the latest World Gold Council reports that the signs of strength in the market is still concentrated in Asia (China and India in particular) and that buying gold coins and bullion, jewelry, gold-backed funds back in Europe and the United States. The strong start of gold was strengthened during the second quarter of 2011, with total global demand for gold, 919.8 million tons valued at $ 44.5 billion. He has received broad support in the sectors and all geographic ranges. The India and China leading the markets where the share of investments of these two markets of gold, 52% of total investments of bullion and gold coins, and 55% of the volume of demand for gold jewellery.

Customers look at gold jewelry at a shop on the occasion of a Hindu festival 'Akshay Tritiya' in Allahabad, India, 16 May 2010. Record high prices of gold have failed to dent its consumption in India the world's largest market for the precious metal. R.K. Garg,
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50, and his wife are shopping for gold earrings at the Gold Souk Mall in Gurgaon, close to New Delhi. Prices are up by 25 percent since he bought gold jewelry for his daughter's wedding last year, but he says he has no choice except to buy another piece. Model below displays newly launched gold jewelry on the eve of Hindu festival Dhanteras in Calcutta. A centuries-old tradition of gifting gold at marriages and other occasions and buying it during festivals is keeping the gold market buoyant in India, although prices are hovering around $1340 an ounce an all-time high. The economic recession and a drought had led to a sharp fall in demand, last year. But those memories have faded as the Indian economy grows briskly once again and good rains this monsoon season boost farm incomes.

According to the report of trends in global demand for gold for the second quarter of 2011, the demand for gold during the second half of this year will be driven by the following factors: Despite the high price of gold, the volume of demand during the second quarter of 2011 increased by 38% in India and 25 percent in China compared to the same period of 2010. Is likely to continue this growth as a result of economic prosperity and high levels of inflation, events and solutions in demand for gold. it is expected that the impact of European sovereign debt crisis and reduce the credit rating of U.S. debt and the pressure caused by inflation, in addition to a cautious outlook for economic growth in the West, to enhance the levels of investment in the future. It is expected that central banks continue to buy gold, gold purchases reached 69.4 tons in the second quarter of 2011, and this trend of central banks buying gold enhance the diversification of
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their reserves.

Managing Director for Investment, World Gold Council, says in this context: the back of strong demand for gold in both India and China, mixed with an overall decline in recycling activity in the second quarter of this year, and this is an indication that consumers are accustomed to current prices, they expect continued increase in prices. In addition, the case of constant vigilance, which controls the economies of scale and sovereign debt crisis and the continuing pressure of inflation, will lead to continued increase in demand for gold. NUMERICAL FACTS REGARDING GOLD In terms of number demand could stop at the following facts:

The volume of global demand for gold 919.8 tons during the second quarter of 2011, a decrease of 17% for the observed high levels of $ 1.107 tons in the same period last year has increased the volume of demand in value by 5% from the same period last year, reaching $ 44.5 billion U.S., compared with 42.6 billion dollars during the second quarter of 2010, and record demand in terms of the value of a rise in the quarter, second quarter, the lowest part of the value amounting to 44.7 billion dollars recorded in the fourth quarter of 2010. The average gold price in the current quarter of the year by 26%, reaching more than 1,506.13 dollars under the gold indexs benchmark London fix. total investment demand for gold 359.4 tons during the second quarter of 2011, a decline of 37% for investment demand for gold in the same period of last years record 574.2 tonnes in the second quarter of 2010, the highest second quarter in at all. total cash flows of investment funds traded nearly 51.7 tons during the second quarter of 2011, compared to the previous quarter Balatna tenth (except the top two limitations) with an average flow of investment funds traded 41.4 tons. The total demand for bullion and gold coins 307.7 tons during the second quarter of 2011, an increase of 9% from its levels in the same quarter of last year, amounting to 282.6 tonnes, and value, the volume of demand for bullion coins, gold $ 14.9 billion, iean increase of 37% for the second quarter of 2010 reaching $ 10.9 billion. Volume of demand for jewelry and gold jewelry 442.5 tons during the second quarter of 2011, an increase of 6% from the same period last year, amounting to 416.7 tonnes. In value terms, this represents an increase of 34% of the $ 16 billion in the second quarter of 2010 to $ 21.4 billion in
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the second quarter of 2011. Formed markets India, China, Turkey, the equivalent of 59% of the volume of global demand for gold jewelry, or 260.1 tons in the second quarter of 2011, and recorded these markets the combined growth of 36.1 tonnes compared to the levels achieved in the same period last year. Increased industrial demand by 2% from 116.1 tonnes in the second quarter of 2010 to 117.9 tonnes in the second quarter of 2011, as a result of an increase in demand in the field of electronics. In value terms, reached a record $ 5.7 billion, an increase of 28% of which is the second highest fourth quarter of 2010 reaching $ 4.5 billion. Decreased supply of gold during the second quarter of 2011 increased by 4% compared to the same quarter last year to score a ton, compared with 1.058.7 1.108.3 tons during the same period of 2010; This decline is due to the increase in purchases by central banks, while the record mine production of gold, an increase of 7 percent reached 708.8 tons in the second quarter of 2011 after it was 659.4 tonnes in the second quarter of 2010. Central bank purchases have doubled to more than four times in the second quarter of 2011 compared to levels in the second quarter of 2010.

Why the rise? The answer is that nothing more than gold as an asset that humans can save the money, because it had not been any strikes during the last decade. Otherwise, prices rose unexpectedly during the last two years. Experts say that the future of this metal is bright as long as the situation on the state of ambiguity and confusion in the securities markets and even on the level of the dollar and euro. The second answer is that of all the precious metals gold is the most consistently popular, and investors see him as a safe haven in the face of economic crises and political and social. But the gold market is also vulnerable to speculation just like other goods, particularly through the use of futures and derivatives. Gold has played since ancient times, the role of reserves in
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central banks, and used throughout history as money, was the standard relative to the currencies in the economic zones or countries.

Today, like most commodities, driving both supply and demand, the price of gold as well as speculation, but unlike most other commodities, the Aktnazh and get rid of him playing a bigger role in influencing the price. It must be mentioned here that the central banks and the IMF have enjoyed an important role in the price of gold, and that in times of uncertainty, especially when the people fear the war, rising demand for gold.

In short the session the market for all investments in constant change over time, but gold maintained its market value and its since ancient times, and collects all economists agree that in all cases of economic recession to boom to inflation, could gold to maintain its purchasing power. This is in addition to gold is:

- The only safe shelter for investment. Although the investment in gold has a small amount of risk, gold is considered the only refuge of capital when investors wise.

- From which you can manage your wealth, gold has proved over the centuries as an effective means to manage wealth. At the very least could be gold in tune with inflation in the world. - Another consideration is that gold is entirely separate from any other investments, and the movement of prices does not depend on important economic indicators. Any small amount of gold is to help reduce investment risk, and we can say that it is sometimes close to zero.

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Gold Market Analysis & Gold Investment Research - Gold Price Commentary & Forecasts

Monsoon impact on India gold demand Demand for gold in India was temporarily down on (July 26th) as prices increased, but this is not likely to have an effect on overall demand, Reuters reports. Moderate sales were made the day before, with one dealer saying: "Demand was good yesterday, but it is nothing much today."
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Mayank Khumka of Khemka International Pvt Ltd commented: "There might be a 10 to 15 days delay in the start of the busy season this year as the [Hindu] festivals are delayed, but that doesn't reduce the overall demand." The busy season for gold in India will begin next month when people shop for precious metals for festivals and weddings. Meanwhile, Mineweb notes that the monsoon has a significant effect on gold demand in India, as the quality of the harvest directly impacts local affluence and gold purchasing. The Indian Meteorological Department said that rainfall over the country in June was 107 per cent of the average, but that this year's season would be 93 per cent of the long-term average. "On the basis of a forecast good harvest, however, and all other things being equal, the gold market should be able to look forward to healthy purchases over the latter part of this year and into the early part of next year.

GRAPHS SHOWING RECENT TRENDS IN GOLD

(i.) Looking at the 10 year up trend chart below:

Gold price has been on a rising trend since 2001, when price of gold was at around USD250, and the uptrend became steeper started in 2007. As long as gold price remains on the uptrend, gold price should continue to rise in 2011. (ii.) Looking at the Gold Price Weekly Chart:
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Gold price went up from USD 1044 (Feb 2010) to 1431.33 (Dec 2010). The resistance line indicates that near term key resistance should be around 1550. While key horizontal support should be at 1287. That is, if gold price fell through 1287, then the uptrend of gold price could be collapsed. (iii.) Looking at the Gold Price Quarterly Chart:

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Gold price should enter a corrections season in Q1 of 2011, could see a 8% - 10% C correction. Gold price could go though another step-by-step rising trend, where Q1 and Q3 could see technical corrections, and Q2 and Q4 would see gold price on a rally. Key horizontal support: 1287. BRIEF SUMMARY We forecast gold price to continue to rise in 2011. As long as the demands are still up, gold price should continue to rise in 2011. However, the rate of increase would not be as significant as in 2010. The trend could also be more volatile as gold price had already gone up by over 30% in 2010, and has come up from USD682 (20 Oct 2008) to 1431 (6 Dec 2010) which is a 110% increase in 2 years. We expect a 15% - 25% increase in gold price this year, in step-by-step uptrend, and if technicals hold, gold price could see USD1680-USD1900 per troy ounce in 2011.

CONCLUSION It has been shown that the gold price is far more sensitive to changes in foreign exchange markets than fluctuations in annual mine production or jewelry demand. This is due to the fact that gold is money, it always has been and still is today. The gold price as quoted in US dollars depends heavily on the US dollar exchange rate against other currencies. This is logical and obvious, but often overlooked. On average, the gold price has not declined much during the past ten years relative to a basket of currencies. In fact, the gold price is currently trading at its ten year average price and has not fluctuated more than 15% up or down during the last decade.

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In US dollars, the gold price has declined by 35% due to the strength in the US dollar. This strength in the dollar came about because of currency problems in the rest of the world, not because the United States has repealed the business cycle or achieved nirvana. If the dollar devalues, as this report argues it will, the gold price in terms of dollars should rise. As such, it represents an excellent hedge against the dollar and offers superb protection of dollar denominated investments. Gold has not lost its value as a store of wealth. For speculators, this could be the opportunity of a lifetime. Gold mines based in the United States will gain the most out of a weakening dollar, more than South African or Australian gold mines. Buy gold and gold stocks while the dollar is abnormally strong and gold is historically cheap in terms of US dollars.

BIBLIOGRAPHY/ REFERENCES: 1. http://www.siliconindia.com/shownews/Rising_gold_prices_expected_to_hit_demand_in _India___-nid-25265.html 2. http://www.moneyweek.com/investments/precious-metals-and-gems/why-the-price-ofgold-is-set-to-rise 3. http://www1.goldtrades.info/index.php/weekly-analysis/gold-price-forecasts 4. http://www.usagold.com/gildedopinion/vaneedengold.html 5. http://www.commodityonline.com/news/India-silver-imports-soar-on-rising-gold-price35645-3-1.html. 6. AUTHOR:- Paul van Eeden CHAPTER:-03 http://www.theminingweb.com

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