Impact of Fluctuation-Stock-Forex-Crude Oil on Gold.

Project Report on Impact of Fluctuation: Stock/Forex/Crude Oil on Gold

 

Finance Dissertation Topic-Impact of Fluctuation: Stock/Forex/Crude Oil on Gold

Research Papers on Finance-

Impact of Fluctuation: Stock/Forex/Crude Oil on Gold

  Gold which traditionally viewed as a safe haven in uncertain times, hit record highs in post-2000. The current bull-run in gold has lasted for a decade from ... 4473.60 per 10 gms in 2000-01 to record highs of ... 14,578.08 per 10 gnzs in 2009-10. Before 2000, the demand for gold was elastic. However, now the gold market seems entirely inelastic, as the appetite for the metal is high even as the prices move higher. In this paper the efforts are made to analyze the reasons for rising gold demand and prices in Indian market and its relationship with the forex market, the fluctuations in the stock market and the soaring crude oil price in the international market.

 In India, gold standard was treated as one of the most important measures or instruments of monetary system. The gold standard ceased to function a long time back but gold bullion still retains some of its old halo. Gold bullion still figures in the discussions of the monetary system. Gold bullion is prized even in the age of demat trading and plastic money, because of its inherent quality as the original currency for trading, and therefore, a symbol of financial security. Paper money has been known to become worthless in a matter of days and stocks in a matter of hours. But gold hardly loses its glitter. Since 1980s, the perception of gold has slowly changed from an asset that must be hoarded to guard against a rainy day to a commodity that can be traded. This may be one of the reasons why India is the world's largest consumer of gold, importing around 800 tonnes annually. As gold which traditionally is viewed as a safe heaven in uncertain times, hit record highs in post-2000. The current bull-run in gold has lasted for a decade from Rs. 4473.60 per 10 gms in 2000-01 to record highs of  Rs. 14,578.08 per 10 gms in 2009-10.  It is seen that, before 2000, the demand for gold was elastic, however. now the gold market seems entirely inelastic, as the appetite for the metal is high even as the prices move higher. 

The table below shows the gold prices
 

Prices of Gold

Thus, we conclude that, when SENSEX is relatively volatile; Value of Rupees/Dollar is relatively stable and Crude Oil Prices are relatively volatile,  the individual value of SENSEX determines only 64 percent  influence on gold prices, individual value of Rupees/Dollar determines percent influence and crude oil price determines 89 percent influence. If two variables SENSEX and Value of Rupees/ Dollar are taken into consideration together into an econometric relationship, it determines 81 percent influence of these variables. But when SENSEX is relatively stable; Value of Rupees/Dollar is relatively volatile and Crude Oil Prices are relatively stable,  If two variables SENSEX and Value of Rupees/Dollar are taken into consideration together into an econometric relationship, it determines only 47 percent influence of these variables. Hence if all the three variables are taken into consideration for determining gold prices then irrespective of the occasions as mentioned in Part (a) or (b) of Tables 4, the econometric model determines 90 percent influence of the relationship and 86 percent influence of the relationship which is highly appreciable and reliable.

Thus, in a nutshell, we conclude on the basis of an econometric analysis and enquiry that for determination of gold prices if individual values are taken for consideration for formulating an econometric model, they may give misleading figures at different occasions. Hence the best method is to take all the three variables viz., SENSEX, Value of Rupees/Dollar and Crude Oil Price for determination of gold prices irrespective of whether one is volatile and others are stable and vice versa as the coefficient of determination is moderately high for their econometric relationship with gold prices.

Source-SCMS Journal of Indian Management; Oct-Dec2012, Vol. 9 Issue 4, p96-114, 19p




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