PADALA RAMA REDDI COLLEGE

A STUDY ON CUSTOMER PERCEPTION

TOWARDS GOLD AS AN INVESTMENT

NAME : B.SOWMYA
H.T.NO : 2146-17-672-107
COURSE : MBA IV SEMESTER
GUIDE : DR.R.BHARATHI
 CHAPTER I

INTRODUCTION

INTRODUCTION

In finance an investment is a monetary asset purchased with the ideas that the asset will
provide income in the future or appreciate and be sold at a higher price. Investment
ensures one’s dreams turn real and enjoy life to the fullest without actually worrying
about the future. It controls an individual’s spending pattern. It decides how and what
amount one should spend so that he has sufficient money for future. There are various
avenues for investment for an individual, namely, bank deposits, real estate, securities,
mutual funds, commodity exchanges and gold investment.

Gold investment is a long term investment scheme involving low risks. People willing
to invest in gold have a natural advantage because the demand for gold is much more
than its actual supply.

The price of gold is generally in a continual rise. However investor should not invest all
their funds in one kind of gold investment. The gold industry is huge and has many facts,
and a savvy investor can exploit this. Money can be invested directly in gold mines, for
example, which can be more lucrative than investing in physical gold.

The perception about gold in India has come a long way from the days when its main
function was to merely adorn and act as a status symbol. The emotional investment in
the metal was so huge that parting with it seemed unthinkable. People use gold for coins,
jewellery, ornaments, and many industrial purposes. Now, however, it is becoming clear
that an increasing number of Indians are realizing that gold deserves a place not just in
the cupboard at home or the bank locker, but also in their investment portfolio. Until
recently, gold reserves formed the basis of world monetary systems. Gold plays an
important role in providing the best possible protection against the fluctuations of both
political and economic scenario, mainly in India. Investment is a planned method of
safely putting ones savings into different outlets to get a good return. The essential
quality of an investment is that it involves waiting for a reward. Gold as an asset plays a
very important role in an investor’s portfolio as it not only provides stability for returns
but also gives an opportunity to maximize the wealth of the investor .Investors generally
buy gold as a way of diversifying risk. Price of gold is determined by the market force of
demand and supply. Gold is a hedging tool against inflation. Gold is a precious metal
that has been valued by people since ancient times. People use gold for coins, jewellery,
ornaments, and many industrial purposes. Until recently, gold reserves formed the basis
of world monetary systems. Gold plays an important role in providing the best possible
protection against the fluctuations of both political and economic scenario, mainly in
Asia, the Middle east countries and also in India.

FACTS ABOUT GOLD

Gold, like no other metal, has a fascinating history and a special place in the world. .
Gold is a very soft metal when it is pure (24 Kt. is pure gold). Gold’s many unique
properties have secured it a central role in history and human development. Gold is a
remarkable, rare metal, with an unparalleled combination of chemical and physical
properties. It is the only yellow metal and bears its name from the Old English word for
yellow, ‘geolu’. It is also the only metal that forms no oxide film on it’s surface in air at
normal temperatures, meaning that it will never rust or tarnish. From the ancient time,
gold has been in use as decorative ornaments for kings and also a currency and standard
for global transactions. It has a wrinkle role in a wide range of electronic devices and
medical applications, recently. Even through gold was mainly used to wear it as an
ornament, thus acting as a status symbol in India, the perception about gold has taken
different dimensions, making a long journey from those days. Increase of belief in gold
among the Indians, not only deserves a place in home cupboard or bank locket, but also
in the Indians investment portfolio. Reserve Bank of India makes changes in policy,
according to the gold store in the Indian treasury. In the year 2010, Gold jewellery and
ornaments occupy nearly 75% of the total gold demand in India; the remaining 25% of
Indian demand is accounted for the investment and technology sector.

WHY DO PEOPLE INVEST IN GOLD?

To know this answer, a study has been conducted in Madurai city with a sample of 75
respondents by asking them the factors influencing to buy gold. A simple questionnaire
has been prepared which contains factors to motivate them and the risk involved in
buying gold. The respondent has been asked to rank them on their priority. Analysis
from the above table indicates that liquidity is the highest preference followed by
appreciation of the value of gold and for beauty and pride. So the above analysis
indicates that investors consider that gold can be realizable easily into cash.

RISKS ON INVESTING IN GOLD

It is not an essential commodity. People cannot eat gold. Gold investment does not
provide any current income like dividend or rental as in Stocks or real estate where
investors can reap the rewards of their investment without having to sell their asset.
Besides when an investor purchases gold, attention needs to be given to how the gold
will be safely stored. Storing gold coins in one’s house is the equivalent of putting
money under one’s mattress: It is not a safe place to keep it. Some investors use safe
deposit boxes (available at some banks) to store gold. Other investors purchase gold in a
manner that does not require taking delivery on the gold. For instance, a gold exchange
traded fund enables the purchase of gold without having to take possession of gold. So
the study identified the risk in investing in gold. The above table indicates that No
Regular return has been given highest score followed by Less realizable value and High
making charges. These things are real concerns, though most people agree that the
advantages outweigh the negatives and they purchase gold anyway.

2.1 Gold “Gold is a chemical element with the symbol Au and an atomic number of 79.
Gold is a dense, soft, shiny metal and the most malleable and ductile metal known”.
People took gold to make jewellery and currency. It is the symbol of wealth, beauty and
heritage carrying memories and cultures. Gold has a place in history regardless of the
country of origin. History states that the gold coins have been minted since around 670
BC when king Gyges of Turkey minted some gold coins for his personal currency when
travelling. The Roman Legions were apprehensive when Julius Caesar first issued gold
coins as payment for their service. From the past many centuries, Indians have made
gold as an integral part of their lives. Gold is believed as symbol of good luck and
prosperity and therefore we can easily find gold in every Indian life. In Indian culture,
women and gold have remained more near to each other and this tradition is very old and
still continuing. Gold is a metal that lures many it gives security against any financial
crisis. Because of its easy liquidity it is also used by women for adorning themselves.
Today earning capacity of the Indian people is increasing fast which is making it
possible for them to buy more and more gold thus pushing the prices of gold further high
level.

2.2 Gold a good investment: Historically, gold played a major role in the economies of
many nations. Although it is no longer a primary form of currency, gold is still a solid,
long term investment and may be a valuable portfolio addition; particularly in a bear
market. Gold was considered a universal currency for hundreds of years. Due to its
recognized value worldwide a gold standard was used as far back as the Byzantine
Empire over 1500 years ago. Until recently, in fact gold was used as the world reserve
currency. Liquidity also refers both to a business ability to meet its payment obligations,
in terms of possessing sufficient liquid assets, and to such assets themselves. Liquidity is
not the first thing most people start to think of when they invest to the precious metals.
However, liquidity is very important primarily when one buy a precious metal.

2.3 Advantages of gold investment

• Liquidity

• Holds its value

• Diversification

• Universally desired investment

• Gold is used as input in products

3. CHI-SQUARE ANALYSIS In this section Chi-square test is used to test the

independence of two attributes. For the purpose of applying the Chi square test the
factors such as age, education, marital status, education level, occupation, annual family
income and savings per annum are compared with the factor namely “Respondents belief
that gold investment is a better investment and would generate a good return”.
Demographic Factors Vs Respondents Belief That Gold Investment Is A Better
Investment and Would Generate A Good Return - A Relationship Analysis
Demographic factors, namely, gender, age, marital status, educational level,
occupational status, family annual income and savings per annum are considered with
respondents’ belief that gold investment is a better investment and would generate a
good return.

An investor has numerous investment options to choose, depending on his risk profile
and expectations of returns. As such, different investment options represent a different
risk-return trade off. The low risk investments are those that offer assured, but lower
returns, where as the high risk investments provide the potential to earn greater returns.
Hence, an investor’s risk tolerance plays a vital role in choosing the most suitable
investment. Various investment options are available such as bank deposits, investment
on commodities like gold and silver, post office savings schemes, public provident fund,
company fixed deposits and stock market options like bonds and debentures, mutual
funds and equity shares of the various types of investment options, gold happens to be
one of the best options to be included in the portfolio for diversifications of risk. Gold is
always considered as one of the best investment alternatives available with common
Indian investor. Indians consider the investment in gold as a traditional method of
investment. As a world’s top consumer of gold, India accounts for 20% of world gold
demand. If we consider the price growth of gold since 2001, it has risen by as much as
450 percent. As the importance of gold investment is increased due to extreme
unpredictable change in the financial markets, economic uncertainty and fears that
national currencies will lose their value etc, force the investment in gold. It is mainly
because gold is always considered as the best means to hedge against market volatility.
As its importance is increased in the investment arena, now a days gold is measured as
an equivalent to investment opportunities in the mainstream of financial markets. Gold
ETF is an open ended exchange traded funds, listed in the stock exchange, available for
trading with an intention of offering to investors a means of participating in the gold
bullion market without the necessity of taking physical delivery of gold. However, the
performance of the scheme may differ from that of the domestic prices of gold due to the
expenses or other related factors. All gold bullion held in the scheme is an allocated
account with the custodian which shall have the purity of 99.5%. A demat account and
registration with the broker (member of NSE/ BSE) are mandatory for the investors who
are willing to invest in Gold ETFs.

The perception about gold in India has come a long way from the days when its main
function was to merely adorn and act as a status symbol. The emotional investment in the
metal was so huge that parting with it seemed unthinkable. Now, however, it is becoming
clear that an increasing number of Indians are realizing that gold deserves a place not just in
the cupboard at home or the bank locker, but also in their investment portfolio.

Gold jewellery represented around 75 per cent of the total Indian gold demand in 2010, the
remainder accounted for by investment and technology. This brought the Bretton Woods
system to an end and saw the dollar become fiat currency. This action, referred to as the
Nixon shock, created the situation in which the United States dollar became a reserve
currency used by many states. At the same time, many fixed currencies (such as GBP, for
example), also became free floating.

Design of the financial system

Free trade relied on the free convertibility of currencies. Negotiators at the Bretton Woods
conference, fresh from what they perceived as a disastrous experience with floating rates in
the 1930s, concluded that major monetary fluctuations could stall the free flow of trade.
The new economic system required an accepted vehicle for investment, trade, and
payments. Unlike national economies, however, the international economy lacks a central
government that can issue currency and manage its use. In the past this problem had been
solved through the gold standard, but the architects of Bretton Woods did not consider this
option feasible for the postwar political economy. Instead, they set up a system of fixed
exchange rates managed by a series of newly created international institutions using the
U.S. dollar (which was a gold standard currency for central banks) as a reserve currency.

GROWTH AND DEVLOPMENT

These are the types of banks operating in today's market:

Commercial banks: This type of banking includes national and state-charted banks, stock
savings banks, and industrial banks. This kind of banking service has provided many
services to the society which includes the basic functions of savings, providing loans,
dealing in time deposits, etc. The reserve requirements of these banks are totally
different from the mutual saving banks.

Mutual savings bank: This type of banks provides some limited type of loans and deals
in savings and other deposits. But recently the modifications have been done and now,
these banks are also providing a huge number of facilities. In these banks, the investment
and loan amount depends on the available customer's deposits. Once, the national level
banks started rolling, the concept of international banking emerged. Actually, the growth
in the trade and commerce, the growth in the exchanges between countries, the multi-
national trades, etc. demanded some kind of international organization to carry out the
business smoothly.

So, the following international banks were formed in order to fulfill the demands of the
modern global market:

World Bank (International Bank for Reconstruction and Development): It was

founded in 1945 with the view to approve loans to private investors and to the
governments of different countries.

IMF (International Monetary Fund): The bank has been involved in simplifying the
process of debt clearance between the nations. It has also provided valuable suggestions
to the members in the field of international banking.

There are several organizations, which have developed in the recent times and which are
performing some of the orthodox banking operations, but these are not under the
supervision of state or federal banking authorities. These organizations are also serving
the society in the same manner as the traditional banks .

Some of these organizations are:

Savings associations

Loan associations

Finance companies

Mortgage companies

Insurance companies

Credit unions

Investment bankers

Credit securities

Brokers and dealers in securities

Financial sector is the set of institutions, instruments, markets. It also includes the legal
and regulatory framework that permit transactions to be made through the extension of
credit. Fundamentally, financial sector development concerns overcoming “costs”
incurred in the financial system. This process of reducing costs of acquiring information,
enforcing contracts, and executing transactions results in the emergence of financial
contracts, intermediaries, and markets. Different types and combinations of information,
transaction, and enforcement costs in conjunction with different regulatory, legal and tax
systems have motivated distinct forms of contracts, intermediaries and markets across
countries in different times.

The five key functions of a financial system in a country are:

(i) information production extent about possible investments and capital

allocation
(ii) monitoring investments and the exercise of corporate governance after
providing financing
(iii) facilitation of the trading, diversification, and management of risk
(iv) mobilization and pooling of savings
(v) promoting the exchange of goods and services

PERFOMANCE AND OTHER STASTICAL DATA

The word ‘Performance is derived from the word ‘parfourmen’, which means ‘To do’,
‘to carry out’ or ‘to render’. It refers the act of performing; execution, accomplishment,
fulfilment, etc. In border sense, performance refers to the accomplishment of a given
task measured against preset standards of accuracy, completeness, cost, and speed. In
other words, it refers to the degree to which an achievement is being or has been
accomplished. In the words of Frich Kohlar

“The performance is a general term applied to a part or to all the conducts of activities of
an organization over a period of time often with reference to past or projected cost
efficiency, management responsibility or accountability or the like. Thus, not just the
presentation, but the quality of results achieved refers to the performance. Performance
is used to indicate Firm’s success, conditions, and compliance. Financial performance
refers to the act of performing financial activity. In broader sense, financial performance
refers to the degree to which financial objectives being or has been accomplished. It is
the process of measuring the results of a firm's policies and operations in monetary
terms. It is used to measure firm's overall financial health over a given period of time
and can also be used to compare similar firms across the same industry or to compare
industries or sectors in aggregation.

In the last decade the banking industry of India has experienced exponential growth. The
CNX Bank Index1 has grown by more than 1100% in absolute terms, and at a
compounded annual growth rate of over 25% in the period from 2000 – 2010, while the
Sensex2 grew at a compounded annual growth rate of 14%. In the year 2010 the banking
sector contributed16.35% to the GDP of India.3 This calls for an analysis of the
performance of Indian banks. The reforms of 1991 and 1998 have helped improve the
performance, profitability and efficiency of the Indian banking system. Prior studies
have shown the effectiveness of there forms on Indian banks in helping improve total
factor productivity, efficiency and profitability among other things. Much less has been
done to examine how the banking industry of India has fared compared to other
countries in recent years. In addition, there is insufficient published research on the
performance of the public and private banks in the wake of the financial crisis, which is
a true litmus test. The purpose of this thesis is to analyze the growth of the
banking\sector of India, starting in the 21st century. The analysis is conducted in two
parts: (1) examination of the performance of private and public banks in India in the last
ten years and (2) comparison of the performance of the Indian banking sector share price
performance to the banking sectors and overall market indices of other developed and
developing countries over the last ten year.
Nationalization led to major structural changes in the banking sector of India. Branch
expansion was accompanied by development of priority sectors of the economy, with
credit being directed towards these sectors contrary to profit motives of the banks. The
Credit Guarantee Corporation of India Ltd. was established for providing guarantees
against the risk of default in payment, which increased the number of loans to smaller
borrowers by the banks. The number of rural bank offices increased from 1,443 branches
in 1969 to 19,453 branches in 1981\(Reserve Bank of India 2008a). The amount of credit
outstanding increased from Rs. 1.15 billion in 1969 to Rs. 36 billion in 1981, which
accounted for 11.9% of the total loans to the rural areas (Reserve Bank of India 2008a).
RBI was monitoring the economy by controlling and changing micro factors affecting
banks, to prevent banking failures during crises. In April 1980, there was a second wave
of nationalization when an additional six banks were nationalized. All these banks had
deposit liabilities of Rs. 2 billion or more. The number of public sector banks reached
twenty, representing 92% of the deposits of the banking sector. The government
increased the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR).5
Banks were earning less than the market rate eligible on CRR balances and yield on
government securities was lower than the interest rate paid by the banks on deposits. The
nationalization phase was marked by stringent controls on the banking industry. As of
September 22nd, 1990 the Cash Reserve Ratio was 15.00% and the Statutory Liquidity
Ratio was 38.5% (Reserve Bank of India), combined they amounted to 53.5% of all
demands and liabilities being saved in liquid government securities or as cash with the
RBI. The banks were being used by the government to fund their projects for economic
development. This led the banks to be unprofitable forcing the government\to adopt
changes and thus, came about the reforms of 1991 led by the Narasimham Committee.
There are two main approaches to banking regulation. One endpoint is government
ownership of the banking industry and the other endpoint is free banking system. Barth,
Caprio and Levine (2008) describe the two main approaches as the “Public Interest
Approach” and the “Private Interest View of Regulation”.

OBJECTIVES OF THE STUDY

The study is based on following objectives

 To study the current investment scenario.

 The gold is a preferred investment of customers and to analyze the reasons for
investing in gold.
 To analyse the factors that influence the customers to invest in gold as an
investment.
 To ascertain the investment pattern of gold by the customers.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem, as to how

research is done scientifically. It is necessary for researcher to develop certain tests.

SOURCE OF DATA:

Information is collected by conducting a survey by distributing a questionnaire to 100

customers. These 100 customers are of different age group, different occupation, and
different qualifications.

TOOLS FOR ANALYSIS:

Chi-square test is used to test the independence of two attributes. The chi-square tests
show the relationship between one variable with another and results in analyzing a
hypothesis. The hypothesis is accepted or rejected according to its significance level.

SCOPE OF THE STUDY

As consumer have adjusted their price expectations upwards, a further rise in gold
jewellery and investment demand anticipated and this trend projected to continue over
the long run as local investors are buying gold driven by wealth accumulation motives.
Moreover, gold is the most popular investment in the country. This study is based on
consumer’s preference towards gold as investment and respondents.

LIMITATIONS

The main limitations are:

 The study is conducted on the limited sample size and so it cannot be considered to
be fullest.
 The time period of the data is limited.
 The information obtained from the consumers based on questionnaires was assumed
to be factual.
CHAPTER II
 REVIEW OF LITERATURE

1) Eastwood, D.B, (1985): The concept of consumer needs to be understood before

getting an insight about the behaviour and perceptions of consumer. Thus, ‘A consumer
unit is one or more persons who collectively generate income and allocate it for
consumption among the members of the unit’ .Making it more clear it can be said that
the term customer unit refers domiciliary which includes individuals, ancestry and those
who are living together.

2) (Zeithaml, 1996): Perceptions of Consumers’ about a brand are positively enhanced

and dampen with increasing levels of perceived quality and with increasing levels of
endure they ambience respectively. For instance, customers’ judgments of quality are
likely to be affected by the quality suggested by such exotic cues as brand name and
price. Brand name, price, store name/image, and country of origin have also been
identified by researchers as extrinsic cues to (quality) perceptions (Teas and Agarwal,
2000).

3) (Bhattacharya, C.B. &Sen, S., 2003): Customer behaviour advert to the mental ,
emotional process and the noticeable behaviour of customers during searching, buying
and post consumption of a product or service. It includes study of how people buy, what,
when and why they purchase. It amalgam the aspects from Psychology, Sociology,
Sociopsychology, Anthropology and Economics. And also tries to evaluate the access
on the customers from groups such as ancestry, friends, reference groups and society in
general.

4) ( Aaker, D. J. &Joachimsthaler, E ,2000) :Checking the inducement of brand names

Consumers can either be subjective or objective. The decisions of customers are also
yield by retail stores selling the products. Sales or the service of the sales ladies or the
clerks could be determined by the package or visual appeal of the retail outlet. moreover,
consumers may select distinct products/brands not only because these products gives the
functional or performance benefits expected, but also because products can be utilized to
absolute consumers’ personality, social dignity or alliance (symbolic purposes) or to
fulfill their internal psychological needs, such as the need for difference or newness.

5) Ritu Narang (2006) :With an aim to consider the purchase behavior of the buyers of
branded men’s wear in a study entitled “A Study on Branded Men’s wear”, was catch up
in the city of Lucknow. This research was executed with objectives as to study the
purchase behaviour of the buyers of branded men’s garments, to study the impact of
advertising on the purchase decision of purchasers, to study the effect of promotional
activities on purchase behaviour of buyers (Kazmi, 2001;Mathur, 2002). An exploratory
type of research was conducted to develop abstraction about the purchasing behaviour of
buyers of class men’s attire and the impact of advertising on their purchase decision.
Hence from the study it could be concluded that most of the times purchasers visit the
showrooms of branded attire with the intension of shopping (Jaishri and Jethwaney,
1999). The purchasing of branded garments is not impetuous. However, compared to
female, male buyers visit the showroom for passing the time; the number of people
visiting the showroom with a brand in mind is same as the number of people visiting the
showroom with no brand in mind; And Advertising has maximum effect in creating
brand awareness

6) Pathak and Tripathi (2009): An exploratory research was executed entitled

“Customer Shopping Behaviour among Modem Retail Formats: A Study of Delhi &
NCR”. It particularly emphasis on consumer shopping behaviour the modern retail
formats in Indian scenario among (Sumathi, 2003). Objectives of the study are to
analyze the factors that affect the buyer's decisions among the modern retail formats and
to inquiry the comparative strength of these factors in buying decision of the consumers.
7) Mishra, (2009) : On the basis of primary as well as secondary research the authors
beamed that retailers tries to apply their own offerings upon consumers and usually over
look the schemes and offerings expected by the customer which eventually cause the
dissatisfaction (Fornell, et al., 2006; 2009). It is also been noticed that in the fast moving
retailing environment, understanding the mind of a customer is difficult for success in
retailing. Agglomerated level picture may be misleading, as it averages the weary and
the cleft. Hence, Individual understanding is adorable

8) Jayashree Y (1998):“In the matter of textiles, the consumers go for a wide range of
fabrics to select them, and their desire changes according to the season and geographical
areas. Consumer taste is a controlling aspect in determining the character of goods that
appears in the market. A prudent approach to clothing needs and expense makes the
customer more impressive participates in entire market economy”. Gender has been
identified in much literature on consumer shopping behaviour as a crucial aspect in catch
on consumer behaviour and as a basic market segmentation index for companies to meet
their consumer’ needs and wants; Marketers should focus to understand the gender
differences in decision-making styles. Research addressing the issue of gender
differences in decision-making styles could assist marketers to identify better ways of
communicating with both sexes and to supervise marketing mix decisions (Mitchell and
Walsh, 2004)

9) Elliot,R. &Wattanasuwan, K., (1998) :Brand preference ascribe to eclectic demand

for a company's brand rather than a product; the degree to which customers select one
brand over another brand. In a perusal to build brand preference exhibiting, the
advertising must drive a target audience to acknowledge the advantages of a brand, often
by building its reputation as a long-established and faithful name in the industry. If the
advertising is impressive, the target consumer will prefer the brand over other brands in
any category. 2.4. Consumer Perception and Socio-Cultural Background Of Consumers

10)Henry, W. A., (1976): The fashion boosted by the presence of celebrities and
socialites who actually accord to the making of the specific brand. In the events we
generally grasp that the public who are from higher part of the society, are seated on the
front rows of a fashion show or any other big sociable event. Though many times the
product does not necessarily fulfill a commitment, but they develop desire and feelings.
So these products are generally preferred by this particular group. Therefore brand
preference takes place.
11)(Kahle, L. R., 1983): As a survey conducted in Poland concluded that the Polish
students opiate Polish products like electronics, clothing, cosmetics and variety of other
products. It is apparent that these socio-cultural aspects affect the customers to purchase
only those products made in their own country. Patriotism is a crucial key dimension in
this scenario as it affects the consumer behaviour. Likewise even some Indians would
operate products made only in India. 2.5 Consumers` Perception and Their Economic
Background

12)Jones, B., (1996): The target audience plays a very important role in the achievement
of the product. The competitive markets these days are cataract with multiple discretion
but the consumer select his choice as per his financial standing. The size of the dent in
his pocket makes him prioritize his needs. For instance: In spite of there being number of
shampoos in the market, an average middle class family chooses to buy sunsilk because
it fits into their monthly budget. However the key word here is necessity over want.

13)Barry Berman and Joel R. Evans, (2007):"As HNI customers become more
discerning about their expenditure in luxury goods, the desire luxury handbag category
players are accretion the bar in uniqueness, exclusivity and artistic value to satisfy
customer demand for true luxury," said Milton Pedraza, CEO of the Luxury Institute.
"The Judith Leiber brand is rated as much for being a work of art as it is rated a luxury
by the only pundits who count wealthy customers who can purchase the brands. Candid
surveys are placed on the principle that highly educated; discerning luxury consumers
have the farthest expertise and reliableness in luxury consumption. The Luxury Institute
executes its research with independent panels, and uses third party analytical firms to
tabu

14)(Richins, M.L., & Dawson, S, 1992) :Price sensitivity is an major contrivance in the
market today, as an decent customer would definitely adopt a product that is cheaper
than a product which is above his budget. Although brand image comes into picture, but
it’s the money that plays vital role in the consumer behaviour. It is the pricing of the
product that affects or influences the consumer to go ahead and choose a product that he
desires.

15)(Reda, Susan, 2001): When marketers discuss about what they do as part of their
liability for marketing products, the tasks aide with setting price are constantly not at the
top of the list. Marketers are much more likely to discuss their activities concerned to
promotion, product development, market research and other tasks that are vista as the
more interesting and exciting parts of the job. 2.7. Influence of Brand Ambassadors on
Consumer Perception

16)Sharma, R., Smitha, D.C., Parking, C.W., (2000): According to Sarika Sharma,
Director, Exclussive Writing Instruments Ltd (EWIL), “Brand endorsement is a method
to get your brand attention in the market. Brand endorsement is a important tool to create
awareness rating of your brand up there in the stratosphere and it totally depends on the
celebrity whom you are appointing as brand ambassador for your brand. When we made
Mr. Amer the brand ambassador for Premium the sales automatically went up 30 per
cent. Exclusive Writing Instruments Ltd has now renewed Mr. Amar contract and raised
its annual ad spend by 25 per cent to touch Rs 05 crore this year. Premium now accounts
for 40 per cent of our turnover, at Rs 150 crore”

17)Aronson, E., Wilson, T.D. and Akert, R.M., (2005):When you identify a chocolate
bar as ‘Dairy Milk’ and noodles as ‘Maggie’, you have made a confer to a brand
manager’s success by diagnosing the brand’s name that enacts the product. If you can
build a powerful brand, you will have a effective marketing program. If you can’t then
all the advertising, decorative packaging, sales promotion and public relations in the
world won’t help you attain your objective.”.

18)R. B. Balki, Sethi, R., Smith, D.C., Park, C.W. (2001): Executive Creative
Director, Lowe, says, “Today organizations believe that celebrity endorsements are the
simple way to develop awareness for a particular brand in the mind of the consumer. It
also depends on how effective a brand uses the celebrity. Sometimes, a good brand uses
a celebrity ineffectively, and there are times when a smaller brand does extremely well
with good use of a celebrity endorser. It is not that the customer gets tired or confused
about the same star accrediting various products. If an ad film is told well with a
differentiated story, it works. Or sometimes it doesn’t.”

19)Erdem, Oumlil and Tuncalp , (1999): Brand management needs planning,

developing, and directing marketing strategies. It includes amend the brand’s acme; as a
brand manager one should first diagnose the competitors brand building strategies and
should be smart enough to face potential threats by the competitors before launching
your company’s product and make their weakness as your strength.

20) Gupta, Monica, (2007): The very first thing that strikes our mind when we listen
the biscut word is Parle G. The same thing happens when we think of toothpaste; the
first thing that strikes our mind is the brand Colgate. or in soft drink as Coca- cola.
These brand names are just fitted in our mind’s dictionary to enact the product itself; this
is the basic goal where the brand management concept works. The very first thing that
bangs our mind when we hear the word ‘fast food’ is either a pizza from Pizza Hut,
burger from McDonald’s.

This chapter deals with the review of literature. In order to evaluate the objectives of the
present study, an attempt is made to comprehend the existing research studies on the
working, growth and performance of the urban cooperative banks as well as other
cooperative institutions. Further, the findings of the studies are critically assessed and
called out further research problems to be included in the present study.
Dutta and basak (2008) Studied and suggested that co-operative banks should improve
their recovery performance adopt new system of computerized monitoring of loans,
implement proper prudential norms and organize regular workshops to sustain in the
competitive banking environment.
L Jyothi Gupta and suman Jain (2012) analyzed the lending practices of co-operative
banks in India, comparison of efficiency of co-operative banks in India, Impact of size
on the efficiency of the co-operative banks and different types of loans preferred by
different set of customer from these banks
S.Sivesan (2012) He found the impact of the service quality on customer satisfaction in
banking sectors. Service quality are inter related with customer satisfaction. Manager of
the bank or administrative body needs to identify the primary quality determinants,
clearly managing the customer expectation, educating the knowledge to customer
regarding the service for improving the service quality in the banking sectors
A.H.Sequeira (2012) He made an attempt to address the issues related to customer
satisfaction and quickness of transactions in co-operative banks. It is clear from the
results that the customer services are reasonably satisfactory.
Ravi C.S & Kundan Basavaraj (2013) investigated the preference and satisfaction
level of level of customer toward loans, deposits schemes, insurance and value added
services rendered, by and public banks in private banks in shivamogga district. Business
and vehicle, loans are fast moving than other services and overall satisfaction resulted at
50%.Further, overall satisfaction on bank deposit schemes resulted positively while
other services of banking still need to be given attention by focusing on customer
issues. New innovative schemes, strategies to cater to non-users other services have to
be adopted.
Dr.Balwindersigh and Ruchika sonsi (2015) study is genuine attempt to understudy
the construct of customer satisfaction and the factor affecting customer satisfaction in
the urban co-operative banking sector in the states of Punjab, Harayana, and himachal
pradesh through a qualitative approach. The very widely representation profile of
respondents to helps us to reply and appropriately weight the above outcomes.

Anand S.K. (1981) employed the solvency, stock turnover, working capital and
profitability ratios to evaluate the financial position and performance of the state
consumer’s co-operative federation, Maharashtra.
Anand, G. S. (1984) evaluated the performance of the Grape Growers' Marketing and
Processing Co-operative Society in Bangalore. He applied the solvency, liquidity,
turnover, total sales to fixed assets and total sales to owned funds ratios to examine the
performance of the society.
M.K. Goyal (1985) analyzed debt-equity ratio of all the Apex Co-operative Banks in
India for the period from 1970-71 to 1978-79. The author calculated debt-equity ratio
by two ways: i) Ratio of deposits to owned funds and ii) Ratio of total outside liabilities
to owned funds. The study indicated that the increase in deposits was more than the
owned funds during the study period. The ratio was in between 300 percent to 492
percent and the ratio of total outside liabilities to owned funds varied between 583
percent and 717 percent during the study period.
Shankarmurthy H.G. (1986) studied the performance of Karnataka State Co-operative
Marketing Federation Ltd. He used different ratios to study the different aspects of
financial position of the federation such as solvency, liquidity, turnover profitability
efficiency and strength. He expressed that the ratio analysis would provide a better idea
of the financial position of the federation. Further, he employed cluster analysis
technique to analyses the scores obtained from three different groups of respondents in
the opinion survey in order to evaluate the working of the Marketing Federation Ltd.
S.S. Hugar (1986) studied financial analysis of 19 District Central Co-operative Banks
in Karnataka for the period from 1978-79 to 1982-83. The author used Ratio Analysis
technique to test the working capital position, deposit mobilization, credit disbursed and
recoveries, operating efficiency, cost and profitability of the DCCBS.
The study revealed poor performance in respect of the working capital, credit disbursed,
recoveries, operating efficiency and profitability. However, deposit mobilization was
noticed a steady rise from year to year during study period.
N. Thanulingom and T.R Gurumoorthy (1987). The authors analyzed the financial
performance of the thirty handloom cooperative societies in Paramakudi town in Tamil
Nadu. The performance has been analyzed with the help of liquidity, profitability and
turnover ratios. The study revealed that due to heavy accumulation of inventory and a
large quantity of debtors, high current ratio was noticed and the gross profit margin was
too little to meet the expenses to be incurred. It was concluded that the performance of
the handloom co-operative societies was too poor to improve the profits for the
societies.
N. Narayanasamy and S.R. Ramachandran (1987) the authors evaluated the
profitability performance of the district central cooperative Bank (South Arcot) in Tamil
Nadu. The study period was 1974- 75 to 1983-84. The variables considered for the study
were: interest earned, interest paid, manpower expenses, establishment expenses, profits
and income of business. They employed ratio analysis technique namely spread ratio,
burden ratio and profitability ratio to study the profitability performance of the bank.
Further, the correlation technique was employed to work out the relationship between
the profitability, spread and burden ratios. In order to prove the influence of these ratios
on profitability, the regression technique was used. The study revealed that the
profitability of the bank has decreased over a decade. The spread ratio declined as a
result of fall in interest earned ratio coupled with rise in interest paid ratio. The
correlation test revealed that the spread ratio is more associated with profitability and the
burden ratio is negatively correlated.
C.S. Shreshthi (1989) evaluated the financial performance of the five Wholesale
Consumers' Co-operative Stores in Pune city in Maharashtra state for a period from
1978-79 to 1982-83. He employed the ratio analysis technique to evaluate the
performance of the stores. The ratios were: profitability ratios, liquidity ratios, solvency
ratio and others. The results of the analysis revealed that the earning capacity of these
stores was considerably low. The net profit margin was below 2 percent and the gross
profit margin was below 6 percent. Out of the 5 stores, two suffered losses. The liquidity
ratios of three stores showed a satisfactory financial position. However, the study was
concluded that the overall financial performance of the five stores was not so
satisfactory during the study period.
Sukumaran A. and Shaheena P. (1991) analyzed the spread, burden and profitability
management in Palghat District Co-operative bank in Kerala. The period for the study
was 1977 to 1987. The results revealed that the profitability and the interest expenditure
of the banks showed a fluctuating but unfavorable trend during the study period.
Analysis of the spread ratio and the burden ratio also indicated some deficiency in the
fund. Management within the bank. The reserves and surplus management the bank
thrown a light on the idle reserves indicating ineffective management. In nutshell, the
management of spread, burden and profitability within the bank was not much effective
and called for necessary steps to improve the bank's position.
E.V.K. Padmini and P.K. Lekha (1992) studied the financial performance of Shire
Narayana Power loom Industrial Co-operative Society, Nadathara in Kerala for the
period from 1980-81 to 1987-88. The performance was evaluated with the help of the
selected ratios namely turnover ratios, financial ratios and liquidity ratios. The relevant
parameters used for the evaluation were: cost of goods sold, administrative expenses,
sales, current assets, current liabilities and fixed assets. The study revealed that the cost
of goods ratio was very high around 70to 80 percent of the value of sales, administrative
ratio more or less remained the same, current and liquidity ratios were found to be low
from 1983-84 onwards. The study concluded that the financial performance of the
society was not up to the level.

T. Paranjothi and A. Mayilmurugan (1994) studied the overall trading and financial
operations of the Madurai District Pandian Consumers' Co-operative Wholesale Stores
Ltd, Madurai. The study used the ratio analysis statistical tool to analyze the liquidity,
profitability and solvency aspects of the society for a period of 5 years from 1988-89 to
1992-93. The results of the analysis disclosed that the current and the liquidity ratios
have not satisfactory. These ratios were even below the standard ratios. The debtors, and
the creditor’s turnover ratios were found satisfactory and the store suffered a very high
net loss during the period 1987-88 to 1989-90.
N.C. Pillai and Vasantha Kumari P (1994) analyzed the financial performance of
women's industrial co-operative societies (WICS) in Thrissur district in Kerala for a
period of 5 years from 1986-87 to 1990-91. The study used ratio analysis technique to
evaluate the financial performance. The study disclosed that the profitability ratios
represented a poor financial performance. The gross profit margin was very low and the
net profit margin was almost negative. Both the current and acid test ratios failed to
satisfy the standard norm of 2:1 and 1:1 respectively and inventory ratio was proved to
be very low.
Bankim Chakraborty (1996) the author examined the performance of Maharashtra
State Co-operative Bank for the period 1989- 90 to 1992-93. The variables for the study
were: working capital structure and composition, deposit mix, credit mix, credit-deposit
ratio, loan outstanding, overdues and profitability. The findings of the study were: the
working capital mix indicated a major share of deposits and borrowings; deposits
contributed 70 percent in working capital and among various deposits, the fixed deposits
alone contributed 69 percent; the credit mix was rational; high degree of relationship
between the credit and the deposits; excellent performance in recovery and an upward
trend in profit.
C.V. Babu (1997) analyzed the liquidity, profitability and business strength of three
urban co-operative banks in Thrissur district of Kerala state for the period 1980-81 to
1989-90. For the purpose of analysis, the author used the various ratios viz. profitability
performance ratios (developed by Varsha S. Varde and Sampat P.Singh) liquid assets to
deposit ratio, cash asset to deposit ratio, credit-deposit ratio, owned fund to borrowed
fund ratio and overdue - demand ratio.
Devads Bhorali (1978) the author evaluated the progress of Nagaland State Co-
operative Bank Ltd. for the period from 1972 to 1976. He considered the share capital.
Owned funds, working capital, investment, outstanding loans, advances and overdues for
assessing the performance. Nevertheless, the assets and liability position was
satisfactory, there was a need to build a strong base of self-generated capital resources.
John D' Silva (1984) studied the working of Abhyudaya cooperative Bank Ltd. in
Mumbai, for the period from 1964 to 1984. The variables chosen for the study were:
membership paid up share capital, deposits, advances, working capital and the number
of branches. The study revealed an excellent growth in all its selected variables during
the study period. The author remarked that the dedicated service rendered by the bank in
its short span of life of two decades has earned a place of pride among the urban co-
operative banks in the country especially in Maharashtra.
N. Subba Rao and M. Koteswara Rao (1984) analyzed the progress and performance
of the state as well as Primary Co-operative Housing Societies in India from 1960-61 to
1977-78. The variables selected for the study were: number of societies, membership,
paid up share capital, working capital, fixed assets, borrowings and profitability. The
study exhibited a phenomenal increase in all the selected performance indicators of both
the state and primary societies during the study period. On the contrary, an increasing
trend of loans outstanding and overdues, a declining trend of owned funds to the
working capital, around 62 percent of the societies running either under loss or without
profit etc. were observed. Further, despite of an increase in the number of societies, the
construction activities did not pace with this increase.
M.B. Patil (1985) analyzed the growth of the urban cooperative banks in India and their
advances to the various priority sectors of the economy in accordance with the national
plan priorities for the period from 1978 to 1982. The study revealed that the deposits
grew by 25.5 percent per annum which was higher than the deposits grew in commercial
banks during the same period. The loans and advances also registered more than
threefold rise. Over 60 percent of their advances were made to priority sector and
percentage of overdues to loans outstanding was below 9 percent. He further pointed out
the following: the state wise picture of the urban banks indicated too regional imbalance
out of 1281 banks 996 were found in only 4 states, neglecting of small scale industries; a
very conservative attitude towards advances and lack of planning.
G. Krishna Murthy and P. Parameshwar (1985) examined the trends in deposits of
all the central co-operative banks in Andhra Pradesh. A period for the study was 12
years (1970-82). Exponential trend was used to examine the growth of deposits. The
results of the analysis disclosed that all the banks recorded 6 1/2 times growth in deposit
mobilization by all the banks during the study period. Further deposits per 100
populations also increased over the years. On the contrary, poor and unattractive
services, no effective efforts towards deposit mobilization as all the registered primary
co-operative societies compulsorily have to deposit all their appropriations of profits
with the DCC bank which was worked out around 60 percent of the. DCC Banks' total
deposits and lack of training for the managers etc. were noticed.

C.R. Reddy and V. Sreenivasulu (1986) evaluated the performance of Anantapur urban
co-operative bank for a period of 15 years from 1970-71 to 1984-85. The variables
considered for the study were: membership, share capital, deposits, and reserve fund,
loans outstanding and net profits. They employed the technique of 'Best Fit Line' for
computing the growth rates. Symbolically the line equation is represented by the study
exhibited that the growth rate in respect of net profit is the highest followed by loans
outstanding, deposits, reserve fund, share capital and membership. The authors further
remarked that the urban co-operative bank has achieved brisk pace.
S.G. Hundekar (1986) the author evaluated the growth of the urban banks in India for
the period from 1967 to 1979, soon after the urban cooperative banks were brought
under the preview of Banking Regulation Act as applicable to co-operative banks. The
study indicated a considerable growth in the present in respect of the number of banks,
membership, paid up share capital, reserve funds, deposits and advances as compared to
the past. He highlighted the role of the staff members in improving the quality of
service.
S.L. Tripathi (1986) studied the working of Adarsh Cooperative Marketing Society
Ltd., Debalpur, Indore district in Madhya Pradesh for the period from 1981-82 to 1985-
86. The membership, share capital and cash credit were the main variables for the study.
The study disclosed a satisfactory growth in both the membership and the share capital
and the society was running in losses up to 1982-83 started earning profit during the
latter years of the study period.
S.G. Hundekar (1989) evaluated the performance of Nipani Urban Co-operative Credit
Bank Ltd., Nipani in the Belgaum District of Karnataka State. The study period was 7
years from 1981-82 to 1987-88. The indicators selected for the study were membership,
deposit mobilization, loans and advances, credit-deposit ratio, profit, manpower, share
capital, reserves, branch expansion and the management. The study concluded that the
bank registered a successful growth in all its performance indicators among all the urban
co-operative banks in Belgaum district.
B.V. Bhatt, R.L. Shiyani and N.M. Patel (1989) analyzed the credit and deposit
performance Junagarh District central co-operative bank (JDCCB) Ltd.in Gujarat. The
study period was 1975-76 to 1986-87. The variables selected for the study were:
deposits, total outstanding loan, net outstanding loan, apex bank loan, credit deposit ratio
and effective C.D. ratio. The study revealed that all the variables showed a significant
growth during the study period. Further, the credit advanced depended on the total
deposits received or generated share capital and other funds etc. The authors opined that
the effective credit-deposit ratio (based on net outstanding) should be used for judging
the performance efficiency in relation to the credit and deposit of banking sector.
Mettigatti R.M. (1990) studied the performance of Milk Producers Co-operative
Societies and their impact on dairy farming in Dharwad District. The author selected a
number of physical and financial indicators to evaluate the performance. He opined that
both the physical and financial indicators of the societies showed a significant growth in
their values.
P. Raghu Ram et al (1990) evaluated the progress and performance of Primary Co-
operative Agricultural Development Bank, Bapatla, and Guntur district of Andhra
Pradesh. The study period was 1966-67 to 1985-86. The performance indicators like
membership, paid. Up share capital, borrowings, amount repaid and loans outstanding
etc. were considered for the study.
Sujata K.S. et al (1993) analyzed the efficiency of Ernakulam District Central Co-
operative Bank, with regard to the mobilization, deployment of funds and profitability.
A compound growth rates were calculated for the various indicators. The results
indicated that the deposits, advances and the reserves were increasing at 18 percent, 15
percent and 18 percent respectively. The spread, burden and profitability ratios were
also found satisfactory.
M.M. Bhalerao and D.K. Shukla (1993) analyzed the growth and performance of
District Central Co-operative Banks in India for the period 1969 to 1988. The variables
considered for the study were: number of the offices, membership, share capital
deposits, loans and advances and outstanding overdues. The study revealed a
considerable increase in number of offices, share capital, deposits, loans advanced and
out standings. The growth rate of overdues during the study period was significantly
high. The authors suggested an effective measures need to be urgently taken by
incentives and disincentives against the defaulting societies so as to bring down the
overdue percentage.
R. Dayanandan and K. Sasikumar (1993) evaluated the performance of the Central
Co-operative Banks in Kerala for the period from 1981-82 to 1989-90. The variables
viz., membership, share capital, it deposits, reserve fund, total loan overdues and net
profits were considered for the study. They employed the technique of 'Best Fit Line' to
compute linear growth rates of the selected variables.
The study disclosed that the bank has achieved better performance in all its selected
variables. Further they opined that the growth of the bank in later years is affected
because of the high overdues.
Indrasena Reddy (1994) assessed the working of Malkanoor Co-operative Rural Bank.
The indicators selected for the study were share capital, reserves, deposits and
borrowings for the period 1978-79 to 1992-93. The compound growth rate were
calculated with the help of the Least Square Method of fitting an exponential function Y
= abx. The study revealed that the growth rates were relatively higher for the deposits,
reserves, investments, and credit and non-credit services of the bank.
R.L. Hyderabad (1994) analyzed the working of the Karnataka University Employees
Co-operative Credit Society Ltd., Dharwad, Karnataka state for the period of 10 years
from 1982-83 to 1992-93. The study employed both financial and non- financial
indicators viz. membership, share capital, deposits, turnover of funds, credit sanctioned
and credit collection. The study revealed an excellent performance in all its indicators.
Membership, share capital and fixed deposits showed an increase trend. The credit
sanctioned was around 94 percent and credit collection stood around 90 percent during
the study period indicating an effective and a sound credit collection policies and
practices of the credit society.
B. Veeresh (1995) evaluated the performance of Mahila Co-operative Bank Ltd. in
Bangalore city of Karnataka State, for the period of 14 years from 1979-80 to 1992-93.
The variables selected for the study were membership, share capital, deposits, loans and
profits. The study indicated a successful operation of the bank during the 14 years
period. All the variables registered an increasing growth over a period. Author
suggested the bank to provide non-credit service to its members.
M.B. Patil (1995) analyzed the performance of the Primary Co-operative Agriculture
and Rural Development Banks in Karnataka for the period 1976-77 to 1990-91. The
author incorporated the parameters like membership, share capital, working capital,
deposits, loans, overdues, cost of management, profit and loss account, etc. for analysis.
The study exhibited that almost all the parameters registered an increased growth during
the study period except the management cost and overdues. The management cost
showed a wide fluctuations and overdues increased steadily. The study further revealed
that the PCARDB in Karnataka have become sick units. They are weak in terms of
resources.
S.B. Hosmani (1995) analyzed the performance and impact of Malaprabha Grameen
Bank (RRB) in Karnataka for the period from 1976 to 1994. The author selected 11
physical and 20 financial variables for the study. He employed various analytical tools
viz. ratio analysis technique, growth rates, principal component, cluster analysis and
others to evaluate the performance of the bank.
The analysis revealed the followings: the bank had favorable liquidity ratio and
sufficient solvency position, borrowings were well within the norm of 3 times of
working funds, the profitability ratios were far from satisfaction, a substantial growth
rate in the important variables and the officials, non-officials and borrowers expressed a
favorable opinion about the bank's performance.
S.K. Anand (1984) studied the working of Bank Employees Credit Co-operative
Society of State Bank of Indore covering all the 270 branches of the state bank of
Indore all over the country. The variables considered for the study were: membership,
share capital, management, loans and advances, deposits, reserve funds, profit and other
special schemes.
The study disclosed that the society has made a remarkable progress on all fronts. The
society functioning on its own resources and funds and not borrowed any funds from
other institutions.
B.S. Ghuman and Anil Monga (1987) the authors analyzed the financial as well as
physical performance of Co-operative Sugar Factories in Punjab. The period of study
was '15 years from 1969-70 to 1983-84. The indicators selected for the study were:
capital structure,
Profit and loss account, sugar cane crushed and sugar produced. They concluded that
the co-operative mills were running into losses during the study period due to internal
as well as external factors. The authors suggested that the political interference should
be minimized and the mills should be located in the area having a sufficient quantity of
sugar cane.
John D' Silva (1987) stressed the need to reexamine the management structure of the
urban co-operative banks. He pointed out the existing system of managing committee
features: the promoter members who sacrificed a lot for the society till its registration
without any return is not given any status after the registration; the depositors who
contribute the resources for the success of the bank do not get any benefit out of the
profit and the non-borrowing members do not contribute anything to the bank but get all
the privileges including participation in the management.Considering the above, the
author recommended the composition of the board of directors should consist of 1/4th
promoter members, 1/4th borrowing members, 1/4th non-borrowing members and 1/4th
depositors.
K. Asaithambi (1988) analyzed the performance of Andaman and Nicobar State Co-
operative Bank for the period from 1982- 83 to 1985-86. The performance indicators
selected for the study were membership, share capital, working capital, deposits, loans
outstanding and overdue. The results of the analysis showed that the bank has been
maintaining high degree of efficiency in all the vital aspects of its operations.
Jaya S. Arland (1989) examined the operational efficiency of the State Co-operative
Bank for the period 1975-76 to 1984-85. The study disclosed that the bank was efficient
in mobilizing funds but not in disbursement of credit. The profitability position was
found unstable and a higher level of liquid assets was maintained by the bank. The
norms of the NABARD, Government and RBI were coming in the way of
diversification of its activities.
K. Parameswara Rao (1989) evaluated the progress and prospects of Bhimavaram Co-
operative Urban Bank Ltd in west Godavari District of Andhra Pradesh for the period
1930 to 1987. The variables selected for the study were: membership, deposits,
advances and management of the bank. The study disclosed that the bank made a
considerable progress in all its selected variables during the study period. Further, he
remarked, that the staff members work with dedication and co- - operative spirit.
B.Subburaj (1990) the author examined the sales performance of the Regional office of
Cooptex (Tamil Nadu Handloom Weavers' Co-operative Society Ltd) Madurai in Tamil
Nadu. The study revealed an impressive sales performance of all the sales depots during
the study period. (1986 to 1988). Further cash sales were found to be less than 30
percent to total sales.
L.H. Gajare (1990) the author in his paper suggested certain steps to increase
productivity and profitability in urban cooperative banks. He opined that the
performance of the financial institutions is judged by its allocation and operational
efficiencies. Operational efficiency refers to the difference between the rate at which the
funds are raised and deployed. The following were the suggestions. Cash and
investment management; credit management; ancillary business; cost effectiveness and
cost control; profit planning and budgeting and control.
K. Padmanabhan (1991) studied the performance efficiency of cane jaggery
marketing and the scope for co-operative marketing in North Arcot district in Tamil
Nadu. For the purpose of the study, the author selected 120 sample producers of jaggery
and 50 traders consisted of wholesalers, commission agents and retailers from
Tirupattur and Vellore markets with the help of a multistage random sampling. The
variables namely pricing efficiency; operational efficiency and price Spread were
considered for evaluating the performance. The results of the study indicated the
following: the existing market is not in favor of the producer sellers, market margin was
found high, most of the firms were not operationally efficient, a small quantity of
jaggery sold through the regulated markets. The author suggested the establishment of
co-operative marketing society to overcome all the shortcomings.
Vanaja Menon and Sanjeev C.V. (1993) considering the present trends and changes in
banking industry and a stiff competition from the commercial banks, the authors
emphasized an immediate need to upgrade the management information system (MIS)
in urban co-operative banks by computerization of its operation in order to facilitate a
quick and speedy decision making and policy formulation so as to render an efficient
service to the customers.
Satyanarayan K (1994) analyzed the capital adequacy position of all the public sector
banks and a sample of 14 private sector banks. The results revealed that the public
sector banks have achieved the capital adequacy norm of four percent one year earlier
than the time prescribed by RBI. The private sector banks and SBI group did not
achieve this norm though their profitability levels were higher.
Sinha et al, (1994) analyzed the pattern of income, expenditure, profits or loss and
breakeven levels for deposits and loan business of the Central Co-operative Bank and
the Regional Rural Bank (RRB). The results revealed that the income and expenditure
of cooperative bank were higher than the RRB, but the establishment expenses were
higher in case of RRB due to the deputation of higher salaried staff from the sponsoring
bank. The co-operative bank earned profits throughout the period where as RRB
incurred losses during the corresponding period. Break-even-analysis indicated the co-
operative bank was operating above the break-even-level where as RRB was operating
below the break-even-level.
Sumitra Gowaikar (1994) the author suggested some major areas which essentially
need a proper and systematic planning for the growth of an urban bank. She remarked
that in this 20th century, the age of competition with the advancement of high
technology, the concept of planning has been becoming more and more meaningful.
The areas suggested for the effective planning were; share' capital, deposit mobilization,
advances, recruitment of staff, profit/income, expenditure, recovery, investments etc.
N. Patio (1994) enquired into the performance of Kancheeptuam Central Co-operative
Bank, Chingleput MGR district in Tamil Nadu and stressed the need of cost and
performance audit for central co-operative banks. So as to measure the quantitative and
qualitative accomplishment of all the performance of the bank set forth in performance
budget with the actual achievements. He worked out an average expenditure of Rs. 2.95
for lending Rs. 100/- and bank earned an average interest margin of Rs. 3.08 during
1991-92 and a net margin of only .13 paisa per Rs. 100/- loan advanced which was
found to be very low. Further staff salary accounted a vary i.e. 60.4 percent of the total
expenditure of the bank and the position of owned fund was very low as compared to
the borrowed fund.
M. Mahadeva (1994) evaluated the performance of the two Apex Housing Societies
viz, Karnataka State Cooperative Housing Federation (KSCHF) and the Karnataka State
Scheduled Caste/Tribe Cooperative Housing Corporation (HSSCSTCHC) in Karnataka
state. The period of the study was 1950-51 to 1990-91. The variables considered for the
study were; membership, share capital and advances. The study revealed that
nevertheless a rise in membership, share capital and advances in the initial years, both
the apex societies failed to establish a co-ordination between the co-operative housing
sector and other related housing agencies in the state. The lack of initiative on the part
of the primary societies further worsened the situation in the state.
R.S. Khot et al, (1996) in this paper the authors evaluated the performance of total 16
Sugar Factories in Northern Karnatak. The study period was from 1989-90 to 1993-94.
The variables for the study were the total cane crushed, total sugar produced and
recovery percentage. The study depicted that out of the total 16 sugar factories in
Northern Karnataka, Belgaum district alone has 7 sugar factories encompassing 41
percent of the total state area and 35 percent of the total production; there was a
fluctuation in the quantity of sugar cane crushed due to a shortage of rainfall and
reduction in the sugar cane area, a similar observation was made in sugar production and
an average recovery was around 10.73 percent. The authors suggested that the recovery
percentage could be improved by growing a suitable varieties and proper management
practices.
N. Narayana (1979) studied the performance and the problems of overdues of the Land
Development Bank of Anantapur in Rayalsemma region of Andhra Pradesh for the
period 1970-71 to 1977-78. The study exhibits that the collection and recovery
performance of the bank is far from satisfactory and loans outstanding increased rapidly.
The percentage of overdues to the demand has increased from 22 percent in 1970-71 to
the peak level of 78 percent in 1976-77. The burden of overdues can be attributed to the
inability of the farmers to repay the loans due to frequent droughts besides the policies
and procedures adopted by the bank.
L.D. Vaikunthe (1988) studied the existing loan recovery procedures as well as
recovery performance of the District Central Cooperative Bank, Dharwad in Karnataka
state for the period 1984-85. About 180 borrower households, belonging to a big (60),
medium (60) and small (60), farmers both from the irrigated and non-irrigated villages
of Navalgund talks of the Dharwad district, were selected for the study. The study
reveals that the recovery procedure begins with a demand notice to the borrower loanee
requesting him to repay the amount due for the co-operative year within the specified
time. The percent of repayment is more in all the categories of farmers in the non-
irrigated area (69.82 percent) where as in case of irrigated area it was only 57.80 percent.
The amount sanctioned in the non-irrigated area is less than the irrigated area in all the
three category of fanners. The reasons for the overdues are unsound lending policies,
inadequate supervision, unsatisfactory management and a lack of right type of
leadership.
Rama B.R. and J.V. Venkatram (1989) the authors evaluated the working
performance of the Farmers Service Co-operative Society (FSS) Ltd.,
Singanyakanahalli, Bangalore north talk in Karnataka state, for a period from 1977 to
1982. They found the membership had increased two folds, the share capital increased
about five fold, a considerable rise in short term and medium term loans for the different
agricultural purposes, more than 50 percent recovery during all the years, as against the
poor recovery performance in most of the societies in the country. They opined that the
society has not only served as a purveyor of credit but also as a distribution and guidance
center to meet the needs and requirements of its members, and the success is mainly
attributed to the sincere efforts on the part of the management of the society.
Yogesh Gupta (1992) analyzed the performance of Agricultural Credit Co-operative
Societies in Shimla district of Himachal Pradesh for a period of seven years from 1979-
80 to 1985-86. The main emphasis of the study was on the total loan advances, short
term and medium term advances, cash and kind components of loan advances, loan
advances to the different categories of farmers, recovery position and overdue of loans.
The study revealed that there has been around 12 times increase in the total loans
advances, more stress on the provision of short term cultivation finance, provided both
short and medium term loans in cash, higher share of large and medium farmers in total
loans and the higher percentage of loans recovered in case of medium size farmers
following large, marginal and small size farmers.
B.L. Patil and H.G. Shankara Murthy (1993) the authors evaluated the performance
of Karnataka State Co-operative Milk Producers Federation Ltd., (KMF) for a period of
15 years from 1974-75 to 1988-89. They used a SWOT (P) management technique to
examine the functioning of the KMF from the four different broad angles namely,
strengths, weaknesses, opportunities and threats (problems). The results of the analysis
revealed certain pros and cons of KMF. For instance, a wide coverage of membership
and competent officials (S), planning implementation was dull and increased volume of
liabilities (w), KMF has vast scope for registering new Dairy cooperatives (0) and
underutilization of the installed dairy capacities (p).
Pradeep Kumar G.S. (1992) studied the performance of Horticultural Producers Co-
operative Marketing and Processing Society Ltd., (HOPCOMS). He employed principal
component analysis to develop a composite index of performance based on the 15 ratios
considered to explain the performance of HOPCOMS. The results revealed that four
dimensions associated with assets, profits, sales and activity was important to explain the
performance of HOPCOMS.
V. Alagappan and V. Rengasamy. (1989) analyzed the factors influencing profitability
in the Tamil Nadu State Co-operative Bank Ltd. The period for the study was 11 years
from 1975 to 1985. The variables considered for the study were; interest rate spread,
salary and other expenses. The author used Linear Multiple Regression statistical tool to
achieve the objective of the study. The study revealed that the coefficient of interest rate
spread is positively related to the annual net profit and the variables salary and other
expenses are found to have a negative effect on the annual net profits. Further, interest
rate spread, salary and other expenses jointly accounted around 99 percent of variations
in its annual net profits.
 CHAPTER 3

INDUSTRY PROFILE
Gold Investment in India – How to Invest, Options, Benefits

Updated on Feb 12, 2019 - 04:06:35 PM

Gold is a favourite investment by all and sundry in India. High liquidity and inflation-
beating capacity are its strong selling points, not to mention beauty, prestige and so on.
Though, there are phases when markets witness a fall in gold prices, it never lasts and
always makes a strong comeback.

1. Why Should You Invest in Gold

2. How to Invest in Gold
3. What are Gold Funds
4. Gold Investment vs Mutual Funds
5. Conclusion

1. Why Should You Invest in Gold

Safety, Liquidity and Returns are the three criteria most conventional investors look for
before making any investment. While gold meets the first two criteria swimmingly, it
doesn’t do badly at the last one either. Here are two main reasons why you should invest
in gold:

a. Gold investment is worthwhile because it is an inflation-beating investment. Over a

period of time, the return on gold investment is in line with the rate of inflation.

b. Gold has an inverse relationship to equity investments. Example, if the equity markets
start performing poorly, gold too would have performed well. Considering gold as an
investment option in your investment portfolio will be a buffer to the overall volatility of
your portfolio.

2. How to Invest in Gold

The ‘Golden question’ here is, how does one invest in gold. Traditionally, it was by
buying physical gold in the form of coins, bullions, artifacts or jewellery. Nowadays,
there are more advanced forms of gold investments such as Gold ETFs (exchange-traded
funds) and Gold Funds.

Gold ETFs are similar to buying an equivalent sum of physical gold but without the
hassles of having to securely store the physical gold. Here, there is no risk of
theft/burglary as the gold is in Demat (paper) form. Gold Funds involve making an
investment gold mining companies.

Let’s understand different ways of investing in Gold from the table below:

Gold Gold ETFs (Exchange Gold Funds

Traded Funds)

Investment in physical gold Investor buys a proportionate The investment is made in

value of gold but not in the bullion and companies
physical form involved in mining gold

No need for Demat account The investor needs a No need for a Demat account
Demat account to invest

Market fluctuations directly Changes in the gold prices Changes in the gold prices
affect the prices of Gold affect that of Gold ETFs doesn’t affect Gold funds
directly

No additional charges other Gold ETFs involve asset There’s a minimum charge to
than the physical gold itself management and brokerage manage the gold funds.
fees

Risks of theft and burglary Gold ETFs remove the burden Eliminates the risk of theft/
associated of trading gold in the physical burglary and buffers
with storing physical gold form investments to changing
market fluctuations

No paperwork required for Paperwork required for Paperwork is required for

investing investing in Gold ETFs investing in Gold funds
Systematic Investment Plan No SIP option SIP available
(SIP) not available

Best suited for conventional Best suited for investors who Best suited for investors who
investors have the required time and skill expect high returns taking
set to trade calculated risks

3. What are Gold Funds

Investing in gold funds is to invest in stocks of companies operating in gold and gold-
related activities. Funnily, gold mutual funds also include silver, platinum and other
metals in their investment basket. A mutual fund manager on behalf of an Asset
Management Company manages gold fund, unlike gold ETFs. They utilize the
fundamental trading analysis to buy and sell stocks to try to maximize returns for the
investors. Returns from gold funds depend on market conditions to an extent.

Gold mutual funds eliminate the risks on returns substantially by distributing

investments along with a wide range of investment domains. In other words, mutual
funds work on the principle of diversifying i.e. not putting all eggs in one basket.
Investors need to weigh their risk appetite and goals before choosing such a mutual fund.

4. Gold Investment vs Mutual Funds

Particulars Gold Investment Mutual Fund

Definition Gold is a Pools investors’ money in equities, debts

precious high- and other market instruments to multiply
value metal that money
is liquid in nature

Management Investments are Experts manage the investment

made and professionally to create wealth and reduce
managed by the risks
 investor himself

Risk Involved Physical carrying Investment in mutual funds can be done

and storage of with safe and secure methods
gold involves
high risks of theft
and burglary

Returns Gold does not Mutual funds yield substantial returns to the
pay any investor
dividends

Investment Cost Taking an Mutual fund investment is affordable and

average cost of flexible. One can begin investments from
Rs. 31 thousand Rs 1000
per 10 grams, one
needs to carefully
think before
making an initial
investment in
gold; considering
the high cost to
begin investing

5. Conclusion

Investments of any kind have their own set of pros and cons. For gold investment, the
safety and security of physically protecting the gold can be risky and cumbersome.
Although investing in gold comes with a bunch of disadvantages, the other viable
investment option that one can consider is Mutual Funds. They are also more tax-
efficient as compared to traditional investments.
Of all the precious metals, gold is the most popular as an investment.[1] Investors
generally buy gold as a way of diversifying risk, especially through the use of futures
contracts and derivatives. The gold market is subject to speculation and volatility as are
other markets. Compared to other precious metals used for investment, gold has the most
effective safe haven and hedging properties across a number of countries.

Gold price

Gold prices (US$ per troy ounce), in nominal US$ and inflation adjusted US$ from 1914
onward.

Gold price history in 1960–2014

Gold price per gram between Jan 1971 and Jan 2012. The graph shows nominal price in
US dollars, the price in 1971 and 2011 US dollars. The notable peak in 1980 followed
the Soviet Union military involvement in Afghanistan, and can possibly be interpreted as
a fear for a World War

Gold has been used throughout history as money and has been a relative standard for
currency equivalents specific to economic regions or countries, until recent times. Many
European countries implemented gold standards in the latter part of the 19th century
until these were temporarily suspended in the financial crises involving World War
I.[3] After World War II, the Bretton Woods system pegged the United States dollar to
gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock,
when the US unilaterally suspended the direct convertibility of the United States dollar
to gold and made the transition to a fiat currency system. The last major currency to be
divorced from gold was the Swiss Franc in 2000.[4]

Since 1919 the most common benchmark for the price of gold has been the London gold
fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms
of the London bullion market. Furthermore, gold is traded continuously throughout the
world based on the intra-day spot price, derived from over-the-counter gold-trading
markets around the world (code"XAU"). The following table sets out the gold price
versus various assets and key statistics at five-year intervals.[5]

Debt per Trade

DJIA World GDP US Debt
capita -
weigh
Gold U
Ye ted
SD/
ar USD XAU USD XAU US
ozt[6] USD XA USD [
XA
(trillion (billio (billions (billio dollar
[8] 11]
U U index[
s)[9] ns) )[10] ns)
7]

197 22. 50.

37 839 3.3 89.2 370 10.0 1,874
0 7 6

197 140 852 6.1 6.4 45.7 533 3.8 2,525 18. 33.0
5 0

198
590 964 1.6 11.8 20.0 908 1.5 4,013 6.8 35.7
0

198 1,54 23.

327 4.7 13.0 39.8 1,823 5.6 7,657 68.2
5 7 4

199 2,63 12,89 33.

391 6.7 22.2 56.8 3,233 8.3 73.2
0 4 2 0

199 5,11 13. 18,59 48.

387 29.8 77.0 4,974 12.9 90.3
5 7 2 9 1

200 10,7 39. 20,00 73.

273 31.9 116.8 5,662 20.7 118.6
0 87 5 1 3

200 10,7 20. 26,75 52.

513 45.1 87.9 8,170 15.9 111.6
5 18 9 2 1

201 11,5 43,79 31.

1,410 8.2 63.2 44.8 14,025 9.9 99.9
0 78 2 1

1970 to 2010 net change, %

1,28
3,792 ... ... ... 3,691 ... 2,237 ... ...
0

1975 (post US off gold standard) to 2010 net change, %

 1,25
929 ... ... ... 2,531 ... 1,634 ... ...
9

Influencing factors

Like most commodities, the price of gold is driven by supply and demand, including
speculative demand. However, unlike most other commodities, saving and disposal play
larger roles in affecting its price than its consumption. Most of the gold ever mined still
exists in accessible form, such as bullion and mass-produced jewelry, with little value
over its fine weight — so it is nearly as liquid as bullion, and can come back onto the
gold market.[12][13] At the end of 2006, it was estimated that all the gold ever mined
totalled 158,000 tonnes (156,000 long tons; 174,000 short tons).[14] The investor Warren
Buffett has said that the total amount of gold in the world that is above ground could fit
into a cube with sides of just 20 metres (66 ft)[15] (which is roughly consistent with
158,000 tonnes based on a specific gravity of 19.3). However, estimates for the amount
of gold that exists today vary significantly and some have suggested the cube could be a
lot smaller or larger.[by whom?]

Given the huge quantity of gold stored above ground compared to the annual production,
the price of gold is mainly affected by changes in sentiment, which affects market
supply and demand equally, rather than on changes in annual production.[16] According
to the World Gold Council, annual mine production of gold over the last few years has
been close to 2,500 tonnes.[17] About 2,000 tonnes goes into jewelry, industrial and
dental production, and around 500 tonnes goes to retail investors and exchange-traded
gold funds.[17]

Central banks

Central banks and the International Monetary Fund play an important role in the gold
price. At the end of 2004, central banks and official organizations held 19% of all above-
ground gold as official gold reserves.[18] The ten-year Washington Agreement on
Gold (WAG), which dates from September 1999, limited gold sales by its members
(Europe, United States, Japan, Australia, the Bank for International Settlements and the
International Monetary Fund) to less than 500 tonnes a year.[19] In 2009, this agreement
was extended for a further five years, but with a smaller annual sales limit of 400
tonnes.[20] European central banks, such as the Bank of England and the Swiss National
Bank, have been key sellers of gold over this period.[21]
Although central banks do not generally announce gold purchases in advance, some,
such as Russia, have expressed interest in growing their gold reserves again as of late
2005.[22] In early 2006, China, which only holds 1.3% of its reserves in
gold,[23] announced that it was looking for ways to improve the returns on its official
reserves. Some bulls hope that this signals that China might reposition more of its
holdings into gold, in line with other central banks. Chinese investors began pursuing
investment in gold as an alternative to investment in the Euro after the beginning of the
Eurozone crisis in 2011. China has since become the world's top gold consumer as of
2013.[24]

It is generally accepted that the price of gold is closely related to interest rates. As
interest rates rise, the general tendency is for the gold price, which earns no interest, to
fall, and vice versa. As a result, the gold price can be closely correlated to central
banks[clarification needed] via their monetary policy decisions on interest rates. For example, if
market signals indicate the possibility of prolonged inflation, central banks may decide
to raise interest rates, which could reduce the price of gold. But this does not always
happen: after the European Central Bank raised its interest rate slightly on April 7, 2011,
for the first time since 2008,[25] the price of gold drove higher, and hit a new high one
day later.[26] Similarly, in August 2011 when interest rates in India were at their highest
in two years, the gold prices peaked as well.[27]

The price of gold can be influenced by a number of macroeconomic variables.[28] Such

variables include the price of oil, the use of quantitative easing, currency exchange rate
movements and returns on equity markets.[28]

Years Amount of gold sold by IMF[29][30] sold to

1970–1971 "as much gold as IMF bought from South Africa"

1976–1980 50 million ounces (1555 tons)

1999–2000 14 million ounces (435 tons)

2009–2010 13 million ounces (403 tons) 200 tons to India

 10 tons to Sri Lanka

10 tons to Bangladesh

2 tons to Mauritius

IMF still have a balance of 2,814.1 metric tons of gold

Hedge against financial stress

Gold, like all precious metals, may be used as a hedge against inflation, deflation or
currency devaluation, though its efficacy as such has been questioned; historically, it has
not proven itself reliable as a hedging instrument.[31] A unique feature of gold is that it
has no default risk.[32] As Joe Foster, portfolio manager of the New York-based Van Eck
International Gold Fund, explained in September 2010:

The currencies of all the major countries are under severe pressure because of massive
government deficits. The more money that is pumped into these economies – the
printing of money basically – then the less valuable the currencies become.[33]

Deutsche Bank's view of the point at which gold prices can be considered close to
fair value (on 10 October 2014)[34]

USD/oz

In real terms (PPI) 725

In real terms (CPI) 770

Relative to per capita income 800

Relative to the S&P500 900

Versus copper 1050

Versus crude oil 1400

Jewelry and industrial demand

Jewelry consistently accounts for over two-thirds of annual gold demand. India is the
largest consumer in volume terms, accounting for 27% of demand in 2009, followed by
China and the USA.[35]

Industrial, dental and medical uses account for around 12% of gold demand. Gold has
high thermal and electrical conductivity properties, along with a high resistance to
corrosion and bacterial colonization. Jewelry and industrial demand have fluctuated over
the past few years due to the steady expansion in emerging markets of middle classes
aspiring to Western lifestyles, offset by the financial crisis of 2007–2010.[36]

Gold jewelry recycling

In recent years the recycling of second-hand jewelry has become a multibillion-dollar

industry. The term "Cash for Gold" refers to offers of cash for selling old, broken, or
mismatched gold jewelry to local and online gold buyers. There are many websites that
offer these services.

However, there are many companies that have been caught taking advantage of their
customers, paying a fraction of what the gold or silver is really worth, leading to distrust
in many companies.[37]

War, invasion and national emergency

When dollars were fully convertible into gold via the gold standard, both were regarded
as money. However, most people preferred to carry around paper banknotes rather than
the somewhat heavier and less divisible gold coins. If people feared their bank would
fail, a bank run might result. This happened in the USA during the Great Depression of
the 1930s, leading President Roosevelt to impose a national emergency and
issue Executive Order 6102outlawing the "hoarding" of gold by US citizens. There was
only one prosecution under the order, and in that case the order was ruled invalid by
federal judge John M. Woolsey, on the technical grounds that the order was signed by
the President, not the Secretary of the Treasury as required.[38]
Investment vehicles

Bars

Main article: Gold bars

1 troy ounce (31 g) gold bar with certificate

The most traditional way of investing in gold is by buying bullion gold bars. In some
countries, like Canada, Austria, Liechtenstein and Switzerland, these can easily be
bought or sold at the major banks. Alternatively, there are bullion dealers that provide
the same service. Bars are available in various sizes. For example, in Europe, Good
Delivery bars are approximately 400 troy ounces (12 kg).[39] 1 kilogram (32 ozt) are also
popular, although many other weights exist, such as the 10oz, 1oz, 10 g, 100 g, 1 kg,
1 Tael, and 1 Tola.

Bars generally carry lower price premiums than gold bullion coins. However larger bars
carry an increased risk of forgery due to their less stringent parameters for appearance.
While bullion coins can be easily weighed and measured against known values to
confirm their veracity, most bars cannot, and gold buyers often have bars re-assayed.
Larger bars also have a greater volume in which to create a partial forgery using
a tungsten-filled cavity, which may not be revealed by an assay. Tungsten is ideal for
this purpose because it is much less expensive than gold, but has the same density (19.3
g/cm³).

Good delivery bars that are held within the London bullion market (LBMA) system each
have a verifiable chain of custody, beginning with the refiner and assayer, and
continuing through storage in LBMA recognized vaults. Bars within the LBMA system
can be bought and sold easily. If a bar is removed from the vaults and stored outside of
the chain of integrity, for example stored at home or in a private vault, it will have to be
re-assayed before it can be returned to the LBMA chain. This process is described under
the LBMA's "Good Delivery Rules".[40]
The LBMA "traceable chain of custody" includes refiners as well as vaults. Both have to
meet their strict guidelines. Bullion products from these trusted refiners are traded at
face value by LBMA members without assay testing. By buying bullion from an LBMA
member dealer and storing it in an LBMA recognized vault, customers avoid the need of
re-assaying or the inconvenience in time and expense it would cost.[41] However this is
not 100% sure, for example, Venezuela moved its gold because of the political risk for
them, and as the past shows, even in countries considered as democratic and stable, for
example in the US in the 1930s gold was seized by the government and legal moving
was banned.[42]

Efforts to combat gold bar counterfeiting include kinebars which employ a unique
holographic technology and are manufactured by the Argor-Heraeus refinery in
Switzerland.

Coins

Gold coins are a common way of owning gold. Bullion coins are priced according to
their fine weight, plus a small premium based on supply and demand (as opposed
to numismatic gold coins, which are priced mainly by supply and demand based on
rarity and condition).

The sizes of bullion coins range from one-tenth of an ounce to two ounces, with the one-
ounce size being most popular and readily available.[citation needed]

The Krugerrand is the most widely held gold bullion coin, with 46 million troy ounces
(1,400 tonnes) in circulation. Other common gold bullion coins include the Australian
Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100
Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, Malaysian Kijang
Emas, French Napoleon or Louis d'Or, Mexican Gold 50 Peso, British
Sovereign, American Gold Eagle, and American Buffalo.

Coins may be purchased from a variety of dealers both large and small. Fake gold coins
are common and are usually made of gold-layered alloys.[43]

Gold rounds

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Gold rounds look like gold coins, but they have no currency value.[44][45] They range in
similar sizes as gold coins, including 0.05 troy ounce, 1 troy ounce, and larger. Unlike
gold coins, gold rounds commonly have no additional metals added to them for
durability purposes and do not have to be made by a government mint, which allows the
gold rounds to have a lower overhead price as compared to gold coins. On the other
hand, gold rounds are normally not as collectible as gold coins.

Exchange-traded products

Gold exchange-traded products may include exchange-traded funds (ETFs), exchange-

traded notes (ETNs), and closed-end funds (CEFs), which are traded like shares on the
major stock exchanges. The first gold ETF, Gold Bullion Securities (ticker symbol
"GOLD"), was launched in March 2003 on the Australian Stock Exchange, and
originally represented exactly 0.1 troy ounces (3.1 g) of gold. As of
November 2010, SPDR Gold Shares is the second-largest exchange-traded fund in the
world by market capitalization.[46]

Gold exchange-traded products (ETPs) represent an easy way to gain exposure to the
gold price, without the inconvenience of storing physical bars. However exchange-
traded gold instruments, even those that hold physical gold for the benefit of the
investor, carry risks beyond those inherent in the precious metal itself. For example, the
most popular gold ETP (GLD) has been widely criticized, and even compared
with mortgage-backed securities, due to features of its complex structure.[47][48][49][50][51]

Typically a small commission is charged for trading in gold ETPs and a small annual
storage fee is charged. The annual expenses of the fund such as storage, insurance, and
management fees are charged by selling a small amount of gold represented by each
certificate, so the amount of gold in each certificate will gradually decline over time.

Exchange-traded funds, or ETFs, are investment companies that are legally classified as
open-end companies or unit investment trusts (UITs), but that differ from traditional
open-end companies and UITs.[52] The main differences are that ETFs do not sell
directly to investors and they issue their shares in what are called "Creation Units" (large
blocks such as blocks of 50,000 shares). Also, the Creation Units may not be purchased
with cash but a basket of securities that mirrors the ETF's portfolio. Usually, the
Creation Units are split up and re-sold on a secondary market.
ETF shares can be sold in two ways: The investors can sell the individual shares to other
investors, or they can sell the Creation Units back to the ETF. In addition, ETFs
generally redeem Creation Units by giving investors the securities that comprise the
portfolio instead of cash. Because of the limited redeemability of ETF shares, ETFs are
not considered to be and may not call themselves mutual funds.[52]

Certificates

Gold certificates allow gold investors to avoid the risks and costs associated with the
transfer and storage of physical bullion (such as theft, large bid-offer spread,
and metallurgical assay costs) by taking on a different set of risks and costs associated
with the certificate itself (such as commissions, storage fees, and various types of credit
risk).

Banks may issue gold certificates for gold that is allocated (fully reserved)
or unallocated (pooled). Unallocated gold certificates are a form of fractional reserve
banking and do not guarantee an equal exchange for metal in the event of a run on the
issuing bank's gold on deposit. Allocated gold certificates should be correlated with
specific numbered bars, although it is difficult to determine whether a bank is
improperly allocating a single bar to more than one party.[53]

The first paper bank notes were gold certificates. They were first issued in the 17th
century when they were used by goldsmiths in England and the Netherlands for
customers who kept deposits of gold bullion in their vault for safe-keeping. Two
centuries later, the gold certificates began being issued in the United States when the US
Treasury issued such certificates that could be exchanged for gold. The United States
Government first authorized the use of the gold certificates in 1863. On April 5, 1933
the US Government restricted the private gold ownership in the United States and
therefore, the gold certificates stopped circulating as money (this restriction was
reversed on January 1, 1975). Nowadays, gold certificates are still issued by gold pool
programs in Australia and the United States, as well as by banks
in Germany, Switzerland and Vietnam.[54]

Accounts

Many types of gold "accounts" are available. Different accounts impose varying types of
intermediation between the client and their gold. One of the most important differences
between accounts is whether the gold is held on an allocated (fully reserved) or
unallocated (pooled) basis. Unallocated gold accounts are a form of fractional reserve
banking and do not guarantee an equal exchange for metal in the event of a run on the
issuer's gold on deposit. Another major difference is the strength of the account holder's
claim on the gold, in the event that the account administrator faces gold-
denominated liabilities (due to a short or naked short position in gold for example), asset
forfeiture, or bankruptcy.

Many banks offer gold accounts where gold can be instantly bought or sold just like any
foreign currency on a fractional reserve basis.[citation needed]
Swiss banks offer similar
service on a fully allocated basis. Pool accounts, such as those offered by some
providers, facilitate highly liquid but unallocated claims on gold owned by the
company. Digital gold currency systems operate like pool accounts and additionally
allow the direct transfer of fungible gold between members of the service. Other
operators, by contrast, allows clients to create a bailment on allocated (non-fungible)
gold, which becomes the legal property of the buyer.

Other platforms provide a marketplace where physical gold is allocated to the buyer at
the point of sale, and becomes their legal property.[citation needed]
These providers are
merely custodians of client bullion, which does not appear on their balance sheet.

Typically, bullion banks only deal in quantities of 1000 ounces or more in either
allocated or unallocated accounts. For private investors, vaulted gold offers private
individuals to obtain ownership in professionally vaulted gold starting from minimum
investment requirements of several thousand U.S.-dollars or denominations as low as
one gram.

Derivatives, CFDs and spread betting

Derivatives, such as gold forwards, futures and options, currently trade on various
exchanges around the world and over-the-counter (OTC) directly in the private market.
In the U.S., gold futures are primarily traded on the New York Commodities Exchange
(COMEX) and Euronext.liffe. In India, gold futures are traded on the National
Commodity and Derivatives Exchange (NCDEX) and Multi Commodity
Exchange (MCX).[55]

As of 2009 holders of COMEX gold futures have experienced problems taking delivery
of their metal. Along with chronic delivery delays, some investors have received
delivery of bars not matching their contract in serial number and weight. The delays
cannot be easily explained by slow warehouse movements, as the daily reports of these
movements show little activity. Because of these problems, there are concerns that
COMEX may not have the gold inventory to back its existing warehouse receipts.[56]
Outside the US, a number of firms provide trading on the price of gold via contract for
differences (CFDs) or allow spread bets on the price of gold.

Mining companies

Instead of buying gold itself, investors can buy the companies that produce the gold
as shares in gold mining companies. If the gold price rises, the profits of the gold mining
company could be expected to rise and the worth of the company will rise and
presumably the share price will also rise. However, there are many factors to take into
account and it is not always the case that a share price will rise when the gold price
increases. Mines are commercial enterprises and subject to problems such
as flooding, subsidence and structural failure, as well as mismanagement, negative
publicity, nationalization, theft and corruption. Such factors can lower the share prices of
mining companies.

The price of gold bullion is volatile, but unhedged gold shares and funds are regarded as
even higher risk and even more volatile. This additional volatility is due to the
inherent leverage in the mining sector. For example, if one owns a share in a gold mine
where the costs of production are $300 per ounce and the price of gold is $600, the
mine's profit margin will be $300. A 10% increase in the gold price to $660 per ounce
will push that margin up to $360, which represents a 20% increase in the mine's
profitability, and possibly a 20% increase in the share price. Furthermore, at higher
prices, more ounces of gold become economically viable to mine, enabling companies to
add to their production. Conversely, share movements also amplify falls in the gold
price. For example, a 10% fall in the gold price to $540 will decrease that margin to
$240, which represents a 20% fall in the mine's profitability, and possibly a 20%
decrease in the share price.

To reduce this volatility, some gold mining companies hedge the gold price up to 18
months in advance. This provides the mining company and investors with less exposure
to short-term gold price fluctuations, but reduces returns when the gold price is rising.

Investment strategies

Fundamental analysis

Investors using fundamental analysis analyze the macroeconomic situation, which

includes international economic indicators, such as GDP growth rates, inflation, interest
rates, productivity and energy prices. They would also analyze the yearly global gold
supply versus demand.

Gold versus stocks

Dow/Gold Ratio 1968–2008

The performance of gold bullion is often compared to stocks as different investment

vehicles. Gold is regarded by some as a store of value (without growth) whereas stocks
are regarded as a return on value (i.e., growth from anticipated real price increase plus
dividends). Stocks and bonds perform best in a stable political climate with strong
property rights and little turmoil. The attached graph shows the value of Dow Jones
Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have
consistently gained value in comparison to gold in part because of the stability of the
American political system.[57] This appreciation has been cyclical with long periods of
stock outperformance followed by long periods of gold outperformance. The Dow
Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear
market) and proceeded to post gains throughout the 1980s and 1990s.[58] The gold price
peak of 1980 also coincided with the Soviet Union's invasion of Afghanistan and the
threat of the global expansion of communism. The ratio peaked on January 14, 2000 a
value of 41.3 and has fallen sharply since.

One argument follows that in the long-term, gold's high volatility when compared to
stocks and bonds, means that gold does not hold its value compared to stocks and
bonds:[59]

To take an extreme example [of price volatility], while a dollar invested in bonds
in 1801 would be worth nearly a thousand dollars by 1998, a dollar invested in
stocks that same year would be worth more than half a million dollars in real
 terms. Meanwhile, a dollar invested in gold in 1801 would by 1998 be worth just
78 cents.[59]

Using leverage

Investors may choose to leverage their position by borrowing money against their
existing assets and then purchasing or selling gold on account with the loaned funds.
Leverage is also an integral part of trading gold derivatives and unhedged gold
mining company shares (see gold mining companies). Leverage or derivatives may
increase investment gains but also increases the corresponding risk of capital loss if
the trend reverses.

Cryptocurrencies

Some of the economic mechanics of gold have been compared to those

of cryptocurrencies. For example, they are both scarce, fungible and do not come
attached to debt. Nick Szabo created a digital currency call "bit gold" that mimicked
some features of gold.[60]

Some cryptocurrencies and services are backed by gold.[61]

Taxation
Main article: Taxation of precious metals

Gold maintains a special position in the market with many tax regimes. For example,
in the European Union the trading of recognised gold coins and bullion products are
free of VAT. Silver and other precious metals or commodities do not have the same
allowance. Other taxes such as capital gains tax may also apply for individuals
depending on their tax residency. U.S. citizens may be taxed on their gold profits at
collectibles or capital gains rates, depending on the investment vehicle used.[62]

Scams and frauds

Gold attracts a fair share of fraudulent activity. Some of the most common to be
aware of are:

 Cash for gold – With the rise in the value of gold due to the financial crisis of
2007–2010, there has been a surge in companies that will buy personal gold in
exchange for cash, or sell investments in gold bullion and coins. Several of these
have prolific marketing plans and high value spokesmen, such as prior vice
 presidents. Many of these companies are under investigation for a variety
of securities fraud claims, as well as laundering money for terrorist
organizations.[63][64][65][66] Also, given that ownership is often not verified, many
companies are considered to be receiving stolen property, and multiple laws are
under consideration as methods to curtail this.[67][68]
 High-yield investment programs – HYIPs are usually just dressed up pyramid
schemes, with no real value underneath. Using gold in their prospectus makes
them seem more solid and trustworthy.
 Advance fee fraud – Various emails circulate on the Internet for buyers or sellers
of up to 10,000 metric tonnes of gold (an amount greater than US Federal
Reserve holdings). Through the use of fake legalistic phrases, such as "Swiss
Procedure" or "FCO" (Full Corporate Offer), naive middlemen are drafted as
hopeful brokers. The end-game of these scams varies, with some attempting to
extract a small "validation" amount from the innocent buyer/seller (in hopes of
hitting the big deal),[69] and others focused on draining the bank accounts of their
targeted dupes.[70]
 Gold dust sellers – This scam persuades an investor to purchase a trial quantity of
real gold, then eventually delivers brass filings or similar.
 Counterfeit gold coins.[43]
 Shares in fraudulent mining companies with no gold reserves, or potential of
finding gold. For example, the Bre-X scandal in 1997.
 There have been instances of fraud when the seller keeps possession of the
gold.[71] In the early 1980s, when gold prices were high, two major frauds
were International Gold Bullion Exchange and Bullion Reserve of North
America.[72] More recently, the fraud at e-Bullion resulted in a loss for investors.

See also
 CHAPTER-4

DATA ANALYSIS

&

INTERPRETATION
Gold is a symbol of wealth and good fortune in India and is also used for daily
consumption in the form of jewellery and ornaments. Since the start of 2018, Indian gold
demand has recovered well from 2017 levels amidst the global economic uncertainty.

India is the largest gold market in the world. In terms of jewellery consumption,
investment and industrial demand, it accounted for nearly 600 tonnes (15%) of total
global demand for gold in 2017. Based on WGC estimates, the nation owns over 18,000.
tonnes of above ground gold stocks2 worth approximately US$800bn at today’s gold
price and represents 11% of global stock. This is equivalent to nearly half an ounce of
gold ownership per capita.

In 2017, total Indian gold consumption reached US$19bn or Rs974bn equivalent at the
end of 2017. Over the past decade, this has increased at an average rate of 13% per year,
outpacing the country’s real GDP, inflation and population growth by 6%, 8% and 12%
respectively.

2017
 2017-2018

Gold jewellery demand in India, the world’s largest gold jewellery market, rose
67% year-on-year to 272 tonnes in the first half of 2018. Over the same period, the
average domestic gold price surged to almost Rs52,800/oz, before hitting a new high of
Rs60,460/oz on 15 October 2018. Despite the higher gold price, market sentiment
remains positive, especially with the local gold market also benefitting from the
strengthening of the rupee against the US dollar.

In India gold often represents a large percentage of the family assets and during the first
six months of 2018 the Indian retail investment market was one of the strongest in the
world. Demand increased substantially by 264% to 93 tonnes in this period (from 25
tonnes in H1 2017) and accounted for 25% of total domestic gold demand. The recovery
in Indian demand for gold investment has stemmed from an increased appetite for
capital preservation among local investors’, as well as for gold’s properties as a US
dollar hedge; heightened risk aversion; and higher inflation expectations.

The main participants in the domestic gold industry, including State Reserve Bank of
India and commercial banks such as HDFC, India Post Office, Muthoot Pappachan
Group, and gold jewellers (such as Tanishq, GRT, TBZ to name a few) provide
consumers and investors with a broad range of other channels and products. These
products include the sale of gold coins and bars, gold saving schemes and “Swarna
Varsham” microfinance gold link scheme.
India’s gold Exchange Traded Funds (ETFs) market has also enjoyed further growth in
recent quarters. Total holdings amounted to 11 tonnes by the end of August 2018, up
77% from the same period last year, from 6 tonnes. Gold ETFs are structured to allow
the inclusion of investments other than gold for up to 18% of their assets. However,
currently all the Indian ETFs are backed by physical gold. The recent growth in holdings
and the development of new products suggests the Indian gold ETF market may now be
maturing after a relatively slow start. However, historic figures indicate that price
corrections have not triggered significant redemptions, but in fact have encouraged
Investors to increase their holdings.

India is currently Asia’s third largest economy and its recent growth compared favorably
with that of China. The domestic economy has grown at an average 8% over the past
four years and is projected to grow at 8.5% in FY2018 according to Reserve Bank of
India (RBI). Therefore India stands out as one of the world’s fastest growing economies
and based on Consensus Economics forecasts, the country’s growth forecast will reach
8.3% in FY2011. The International Monetary Fund (IMF) also expects the outlook for
India’s economy to remain strong and forecasts the country’s real GDP growth to remain
in excess of 8% from 2018-15, an enviable rate of growth in comparison with most other
economies and the second fastest in the BRICs.3

The country’s rapid economic growth, high savings rate and favorable demographics
make India an important target destination for global foreign investment. India’s foreign
direct investment (FDI) inflows rose 13% year-on-year to US$1.5bn in 2017. As a result
of the FDI inflows, the rupee gained 5% against the US dollar in the same period and
continues to exhibit an upward trend albeit with rising volatility. It is currently one of
Asia’s best performing currencies and there is a strong consensus that the rupee will
appreciate rather than depreciate over the longer term. While the likely scale and timing
of this appreciation is unclear, the implications would be positive for the Indian gold
market and for the global gold demand balance. India is the world’s largest consumer of
gold in tonnage terms and an appreciating rupee in a country with a strong affinity to
gold is likely to stimulate higher gold demand.
2017-2018
JEWELLERY CONSUMPTION

Gold jewellery accounted for around 75% of total Indian gold demand in 2017, the
remainder being investment (23%) and decorative and industrial (2%). Indian consumers
also regard gold jewellery as an investment and are well aware of gold’s benefit as a
store of value.

Gold plays a fundamental role in the marriage ceremony, and when it comes to Indian
weddings, gold is said to be considered a necessity rather than a luxury. The gold (and
other gifts) the bride receives are called her “Streedhan” (“Stree” meaning woman and
“dhan” meaning wealth) and are a means of passing on some inheritance to daughters, as
Hindu tradition dictates that the family’s assets are only passed down.

Gold is especially important in this respect as it remains directly under a wife’s control,
whereas she may not be privy to the family’s other financial affairs.

Wedding-related demand accounts for a substantial proportion of overall jewellery

demand. This is particularly true in the south of India, where the most popular wedding
jewellery sets tend to be the more traditional, intricate but bulky styles in heavier
weights. In the northern cities there has been a trend towards more “western” styles, and
lighter wedding sets, as well as diamond-set pieces, are becoming increasingly popular.
In 2018, Indian gold jewellery consumption is likely to recover to near pre-credit crisis
level following the fall in demand in 2017. As consumers have adjusted their price
expectations upwards, a further rise in demand is anticipated.

Gold jewellery demand has picked up more forcefully as initiatives from gold jewellers’
such as “save and buy schemes” have proven effective in reviving local gold jewellery
demand. The saving scheme provides consumers the opportunity to purchase gold
jewellery, (and, in some cases gold coins or gift vouchers as well) through easy
installments. At the time of maturity, the jeweller will also contribute a bonus amount as
a scheme benefit to the consumer’s accumulated amount. These schemes are well
aligned to the culture of Indian gold demand, where the purchase of gold jewellery is
also considered as a form of investment.
Despite being the largest source of global gold demand, Indian jewellery consumption
intensity is still relatively low. National jewellery consumption on a per capita basis was
0.4 grams in 2017, well below countries such as Italy and the US.
This is a reflection of both India’s large population and its relative poverty compared to
most other key gold markets. According to IHS Global Insight, only 356 million of the
Indian population lived in cities in 2017. IHS Global Insight expects the urban
population to reach 468 million (i.e. an additional 112 million) in 2020, hence providing
more room for growth and improvement in the standards of living through urbanisation.
It is also worth noting that a unique feature of the Indian market is that the average age
of the population is younger than in Europe and the United States.

In the longer term, India’s favourable demographic and age profile are likely to ensure
buoyant consumption growth, especially given the existing strong affinity to gold in
Indian
Culture. The improving economic position of many domestic consumers will also play a
part in determining demand for gold in coming years.
 1) To study the trend of gold price movements in the post liberalization period
and its relationship with international prices.

SEASONAL VARIATION OF GOLD PRICES MOVEMENT IN NATIONAL AND

INTERNATIONAL TRADE

Exhibition 1:

Seasonal national gold price

Month/Year jan feb march april may june july august sep oct nov dec Total AVERAGE
2000 4509 4707 4542 4460 0 4521 4529 4516 4518 4538 4483 4541 49864 4155.333333
2001 4404 4343 4372 4340 4557 4527 4497 4577 4815 4848 4727 4709 54716 4559.666667
2002 4848 5127 5109 5278 5494 5604 5445 5373 5511 5458 5489 5696 64432 5369.333333
2003 6096 6108 5781 5541 5968 5929 5780 5890 6191 6131 6331 6609 72355 6029.583333
2004 6702 6534 6522 5758 5852 5920 5954 6163 6311 6329 6528 6307 74880 6240
2005 5984 5877 6051 5951 5925 5941 5994 6090 6268 6572 6745 7263 74661 6221.75
2006 7627 7792 7841 8350 9382 8315 9214 9328 8671 8320 8904 9022 102766 8563.833333
2007 8775 9171 9196 9052 8594 8595 8542 8650 8927 9200 9882 9938 108522 9043.5
2008 11290 11888 12632 11810 12143 12353 13028 11861 12220 12691 12143 12923 146982 12248.5
2009 13473 14800 15232 14474 14621 14639 14720 14952 15723 15882 17057 17159 182732 15227.66667
Total 73708 76347 77278 75014 72536 76344 77703 77400 79155 79969 82289 84167 931910 77659.16667
Average 7370.8 7634.7 7727.8 7501.4 7253.6 7634.4 7770.3 7740 7915.5 7996.9 8228.9 8416.7 93191 7765.917
SEASONAL AVERAGE 94.91 98.31 99.51 96.59 93.4 98.31 100.05 99.67 101.93 102.97 105.96 108.38 1200 100
Exhibit 2:

Seasonal International gold prices

Month/year jan feb march april may june july aug sep oct nov dec Total Average
2000 284.82 299.94 286.39 279.86 275.31 285.73 281.51 274.47 273.68 270 266.01 271.44 3349.16 279.0966667
2001 265.49 261.86 263.03 260.48 272.35 270.23 267.53 272.39 283.42 283.06 276.16 275.85 3251.85 270.9875
2002 281.65 295.5 294.05 302.68 314.49 321.18 313.29 310.25 319.16 316.56 319.15 332.43 3720.39 310.0325
2003 356.86 358.97 340.55 328.18 355.68 356.53 351.02 359.77 378.95 378.92 389.91 407.59 4362.93 363.5775
2004 413.89 405.33 406.67 403.02 383.83 391.99 389.09 400.48 405.27 420.46 439.39 441.46 4900.88 408.4066667
2005 424.15 423.35 434.24 428.93 421.87 430.66 424.44 437.93 456.04 469.9 476.67 509.76 5337.94 444.8283333
2006 549.86 555 557.09 610.65 676.51 596.15 633.77 632.59 598.19 585.78 627.83 629.79 7253.21 604.4341667
2007 637.17 664.75 654.9 679.37 666.86 655.49 655.3 655.41 712.65 754.63 806.25 803.2 8345.98 695.4983333
2008 889.6 922.3 968.43 909.7 888.66 889.49 939.77 839.02 829.93 806.62 760.86 816.09 10460.47 871.7058333
2009 858.69 943.16 924.27 890.2 928.64 945.67 934.23 949.38 996.59 1043.16 1127.04 1134.72 11675.75 972.9791667
Total 4962.18 5130.16 5129.62 5093.07 5184.2 5143.12 5189.95 5131.69 5253.88 5329.09 5489.27 5622.33 62658.56 5221.546667
Average 496.218 513.016 512.962 509.307 518.42 514.312 518.995 513.169 525.388 532.909 548.927 562.233 6265.856 522.15
SEASONAL AVERAGE 95.03 98.25 98.24 97.54 99.29 98.5 99.4 98.28 100.62 102.06 105.13 107.68 1200.02 100

From EXHIBIT 1 & 2, it is clear that prices of gold in both the Indian market and
international market do not show any seasonal affects. The values of seasonal indices in
Indian market range from 93.4 to 188.38 while in the International market, the values
vary from 95.03 to 187.68 . So in both the markets, there is only marginal difference in
the values of monthly seasonal indices, which show that no seasonality is associated
with gold price movements in the two markets.
 2) Co-efficient of correlation between gold prices in both the markets.

We calculate r using

YEAR x y x² y² xy
2000 4155 279 17264025 77841 1159245
2001 4560 271 20793600 73441 1235760
2002 5369 318 28826161 96180 1664390
2003 6030 364 36361700 132496 2194920
2004 6240 408 38937600 166464 2545920
2005 6222 445 38713284 198025 2768790
2006 8564 604 73342176 364816 5172656
2007 9044 695 81793936 483025 6285580
2008 12249 872 150038001 760384 18681128
2017 15228 973 231891984 946729 14816844
77661 5221 717961587 3299321 48525233
TOTAL Gold
prices
in Indian market (Rs/18gms) -X
Gold prices in International market ($/oz)-Y

∑ 𝑥𝑖 ∑ 𝑦𝑖
∑ 𝑥𝑖 𝑦𝑖−
𝑟= 𝑛
2 2
√(∑𝑥𝑖 2 − (∑ 𝑥𝑖) ) √(∑ 𝑦𝑖 2 − (∑ 𝑦𝑖) )
𝑛 𝑛

(7761)(5221.5)
48527613.27−
18
r= (7761)² (5221.5)²
√717922461.9− √3299924.288−
18 18

(7761)(5221.5)
48527613.27−
18
r=
√717922461.9−603123172.1√3299924.288− 2726406.225

(7761)(5221.5)
48527613.27−
18
r= (18714.4467799) (757.3177536677)

7976922.12
r = 8114155.05156

r = 0.98
The value of r was found to be r=0.98. To test whether this value of r shows a significant
relationship between two prices, Students t-test has been used. The hypothesis developed
was:

t - Test:

t - Test is one of the statistical tools for hypothesis which is used when the sample size
is 18. Since, in this project study, we have taken past years data.

1. Define Null and Alternative Hypothesis

 Null Hypothesis (Ho): There is no correlation between the gold prices in the Indian
market and prices in the international market ( r = 0)
 Alternative Hypothesis (H1): There is significant correlation between the gold prices

in the Indian market and prices in the international market ( r ≠0)

2. State Alpha:

α = 5% of significant level = 0.05%

3. Degree of Freedom:

df = n-2 = 18-2 = 8

4: State Decision Rule

Using our alpha level and degrees of freedom, we look up a critical value in the r-
table .We find a critical r of 0.632.

If r is greater than 0.632, reject the null hypothesis

6: State Results

r= 0.98

7. State conclusion:

There is relationship between the gold prices in the Indian market and prices in the
international market, r (8) = 0.98
 3) To find out whether changes in exchange rates of Indian rupee vis a vis US dollar
also affected the gold prices in the two markets, value of karl pearson coefficient
was calculated between (1) Exchange rates and prices in Indian gold prices and
(2) Exchange rates and prices in International gold market.

1) Value of ‘r’ between gold prices in Indian market and exchange rate.

YEAR average prices in Average Exchange Rate (Y) X² Y² XY

indian market (Rs/10gms) (X)
2000 4155 45.92 17264025 2108.6464 190797.6
2001 4560 47.6 20793600 2265.76 217056
2002 5369 48.32 28826161 2334.8224 259430.08
2003 6030 45.87 36360900 2104.0569 276596.1
2004 6240 44.81 38937600 2007.9361 279614.4
2005 6222 44.19 38713284 1952.7561 274950.18
2006 8564 45.14 73342096 2037.6196 386578.96
2007 9044 40.27 81793936 1621.6729 364201.88
2008 12249 46.41 150038001 2153.8881 568476.09
2009 15228 47.42 231891984 2248.6564 722111.76
77661 455.95 717961587 20835.8149 3539813.05

∑ 𝑥𝑖 ∑ 𝑦𝑖
∑ 𝑥𝑖 𝑦𝑖−
𝑟= 𝑛
2 2
√(∑𝑥𝑖 2 − (∑ 𝑥𝑖) ) √(∑ 𝑦𝑖 2 − (∑ 𝑦𝑖) )
𝑛 𝑛

r= (-0.165265631)

Interpretation: further value of r between the gold prices in international market and
exchange rate was found to be (-0.165265631) which is statistically not significant. It
means changes in gold prices in Indian gold market are dependent on changes in
exchange rate of Indian rupee vis-à-vis US dollar.
 2) Value of ‘r’ between gold prices in International market and exchange rate.

average prices in london market

YEAR ($/0z) X Average Exchange Rate Y X² Y² XY

2000 279 45.92 77841 2108.6464 12811.68

2001 271 47.6 73441 2265.76 12899.6
2002 310 48.32 96100 2334.8224 14979.2
2003 364 45.87 132496 2104.0569 16696.68
2004 408 44.81 166464 2007.9361 18282.48
2005 445 44.19 198025 1952.7561 19664.55
2006 604 45.14 364816 2037.6196 27264.56
2007 695 40.27 483025 1621.6729 27987.65
2008 872 46.41 760384 2153.8881 40469.52
2009 973 47.42 946729 2248.6564 46139.66
5221 455.95 3299321 20835.8149 237195.58

∑ 𝑥𝑖 ∑ 𝑦𝑖
∑ 𝑥𝑖 𝑦𝑖−
𝑟= 𝑛
2 2
√(∑𝑥𝑖 2 − (∑ 𝑥𝑖) ) √(∑ 𝑦𝑖 2 − (∑ 𝑦𝑖) )
𝑛 𝑛

r= (-0.015557835)

Interpretation: further value of r between the gold prices in international market and
exchange rate was found to be (-0.015557835) which is statistically not significant. It
shows that changes in exchange rate significantly affect the gold price changes in
international market. Though there might be other factors also which effect the gold
price movements in international market, but changes in international exchange rate is
also major factor.
CHAPTER V

FINDINGS
FINDINGS:

 The price of the gold is increasing these days and investment in gold bullion
coins is really a worthy venture. As there is limited supply of the precious metal,
the price of the gold goes high.

 The popularity of investment in gold bars exceeded the demand for jewellery as
these days gold investment is considered to be wise compared to real estate and
stock investments. Even in the days of inflation, the fundamental price for the
metal remains constant. Purchasing this metal in the forms of bars is cost
effective compared with jewellery.

 Here the prices are dependent mainly on prices in international gold market and
then the exchange rate.

 No definite increasing or decreasing trend was observed regarding variation in

monthly average gold prices during a year for both the Indian gold market and
international gold market.

 Prices are mainly dependent on international gold market.

 SUGGESTIONS

Gold policy should be reviewed because of the following reasons:

(a) We should not waste scarce foreign exchange on unproductive purposes. The
recent liberalization of imports through NRI and SIL route has shown that in
reality , there is no adverse impact on liberalized gold import.
(b) Import on use of gold should be discouraged since it affects domestic savings
adversely and implies diversion of resources for unproductive purposes.

Now, even depreciating luxury goods are produced and traded in our economy:
still the question remains as to why gold is discriminated .So the main objective
of the new gold policy should perhaps to:

 Recognize the importance of gold in the Indian Economic System and enable
gold to play a transparent and positive role in the industrial development,
employment and export sectors of the economy.

 Create and nurture appropriate official regulatory framework and self regulatory
trade bodies.

 Exploit the scope for generating revenues to the central, state, and local
governments.

 Ensure orderly development of gold related industry in India in terms of physical

standards and consumer protection.
 CONCLUSIONS

 It can be concluded that in international markets, exchange rate might be the

most important factor. When rates in general decrease and gold prices increases,
people may go for gold purchases in case of currency depreciation.

 But in the Indian gold market, exchange rate variation has an effect on price.
Here, the prices are dependent mainly on prices in international gold market and
then the exchange rate.

 No definite increasing or decreasing trend observed regarding variation in

monthly average gold prices during a year for both the Indian gold market &
International market.

 After 2001, it shows an increasing trend. If monthly variations are considered,

Indian gold market has greater variability than the internal gold market.

 While taking into account the yearly variations in gold prices in the two markets,
it was found that the Indian gold market has lesser variability than the
international gold market.
 BIBLIOGRAPHY

Internet Web sites visited:

 www.google.com
 www.wikipedia.com
 www.goldprice.org
 www.worldgoldcouncil.com
 www.rbi.org
 www.kitco.com