GOLD FLUCTUATION AND ITS IMPACT ON INDIAN ECONOMY

INTRODUCTION History of gold International monetary system - gold or silver as a means of exchange. Gold is one of the most valuable economic indicators. Gold’s price elasticity is negative.

Rising gold prices can change destiny of many unprofitable mines and turn them into a very successful business. Gold is a safe investment. Gold prices have been determined more by landed costs and by the rupee-dollar exchange rate.

Factors affecting gold price fluctuation Currency Inflation: When the supply of currency is inflated, the price of gold increases as the per-unit value of the currency declines. During times of monetary contraction (i.e. when currency is “soaked up”), the price of gold goes down.

Central Banks: Central banks can decide to sell a portion of their reserves or buy more on the market limited to 400 tonnes. Central banks influence the price of gold is through loan agreements with the central banks of other nations. RBI now has gold reserves over $5bn.

Factors The Cause An Increase In Demand: Times of political unrest and war leads to monetary expansion. Mining production can also play a role. Large deficits also support high gold prices.

OBJECTIVE To review the fluctuation in the gold prices. To review the factors that affects the gold prices. To calculate the Compound Growth Rate and then forecast for the year 2015. To review whether international review of gold reserve (foreign exchange reserve) affects the gold prices or not.

Data Analysis- Growth Rate Years Y log y t t*t log y*t   1990-91 3451.52 3.538010394 -19 361 -67.22219749 1991-92 4297.63 3.633229023 -17 289 -61.76489338 1992-93 4103.66 3.613171371 -15 225 -54.19757057 1993-94 4531.87 3.656277443 -13 169 -47.53160676 1994-95 4667.24 3.669060134 -11 121 -40.35966147 1995-96 4957.6 3.695271483 -9 81 -33.25744335 1996-97 5070.71 3.705068773 -7 49 -25.93548141 1997-98 4347.07 3.638196634 -5 25 -18.19098317 1998-99 4268 3.630224411 -3 9 -10.89067323 1999-00 4393.56 3.642816562 -1 1 -3.642816562 2000-01 4473.6 3.65065715 2001-02 4579.12 3.660782025 3 10.98234607 2002-03 5332.36 3.726919462 5 18.63459731 2003-04 5718.95 3.7573163 7 26.3012141 2004-05 6145.38 3.788548743 34.09693868 2005-06 6900.56 3.838884336 11 42.2277277 2006-07 9240.32 3.965687011 13 51.55393115 2007-08 9995.62 3.999809737 15 59.99714606 2008-09 12889.74 4.110244157 17 69.87415067 2009-10 15756.09 4.197448453 19 79.7515206 total 125120.6 75.1176236 2660 34.0769021

Growth rate chart

Price of gold and gold reserves

Analysis CO-RELATION   Column 1 Column 2 1 0.979756876

Regression Statistics SUMMARY OUTPUT   Regression Statistics Multiple R 0.978931791 R Square 0.958307451 Adjusted R Square 0.955854948 Standard Error 686.9454905 Observations 19

ANOVA Test ANOVA df SS MS F Significance F Regression 1 184391072.8   df SS MS F Significance F Regression 1 184391072.8 390.7467164 0.006255 Residual 17 8022199.819 471894.107 Total 18 192413272.6

Upper 95% Upper 95.0% Coefficients Standard Error t Stat P-value   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 2363.105589 258.1041979 9.155626327 5.55095E-08 1818.553337 2907.657842 6828 0.181533739 0.009183531 19.76731434 3.62316E-13 0.162158183 0.200909296

Residual plot

RECOMENDATION As a gold trader, the market fluctuations in the rate of gold shares and prices are sometimes difficult to keep up with, although it is your business! It seems that things happen at the speed of light and it’s essential to be online and have access to the rate of gold on a minute-to-minute basis! You can also review analyses of the rate of gold over similar time frames in past years and these are presented in table and “at-a-glance” graph forms.

CONCLUSION We have seen that the prices of gold were increasing from1990 to1997 and then from 1997 till 2002 the prices of gold were decreasing and after 2002 the prices of gold are increasing. We have analyzed from compound growth rate that the prices of gold are increasing by 2.99%. We forecast from the exponential method that the gold price will be 8994.975815 in the year 2015.   It makes sense to buy at the lowest prices and if you can afford to stockpile your gold, you can then wait until the rate of gold increases and make your profits.

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