International Journal of Business and Management Tomorrow

Vol. 2 No. 6

Relationship of Gold Market and Stock Market: An Analysis

Dr.S.Kaliyamoorthy, Professor & Director, Alagappa Institute of Management, Alagappa University Mrs.S.Parithi, Research Scholar, Alagappa Institute of Management, Alagappa University

Abstract
Gold is a rare heavy metal that is soft malleable, ductile and bright sun yellow in colour when pure. Most gold is hoarded in the form of bullion and jewellery. Gold has been traded in the commodity market since 1971. The global gold market has recently attracted a lot of attention and the price of gold is relatively higher than its historical trend. Most of the persons feel that gold prices are increased because of the stock market fear. In this paper an attempt made to identify the relationship between gold market and stock market. For this purpose, gold price and stock market index are collected and collected data is analysed with the help of Chi-square analysis. Keywords: Gold, Stock Market, Relationship, Gold Price, Increased Price.

1. Introduction

No other commodity enjoys as much universal acceptability and marketability as does gold. -Hans F.Sennholz Gold is worshipped in all climates, without a single temple and by all classes, without a single hypocriteCaleb.C.Colten. It is a traditional think such as high prices cut demand! But it is not suitable in the gold market. In the past recent years, has been happened a major revolutionary change in the structure of the gold and silver markets. Now-a-days gold price is volatility. The price of gold depends on a host of factors, which make it very difficult to predict.

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As gold and silver prices rises just like a thermometer measuring global financial uncertainty and instability. Gold is very safe investment. Gold is hard copy possession with the person purchasing it when other investments are risky. One of the earliest used of gold seems to have been as currency of issuing gold coins. Gold has been a part of our culture. When a baby is born, a gold coin is used to feed the first grain of rice to the baby. Even today, no Indian wedding is complete without gold jewelers. Gold is considered appropriate for gifting not just as jewel, but as coins as well. India is in possession of 557.7 tons of gold which tones of gold which constitutes about 6 percent of the countrys forex reserves. Gold has always been a popular investment both jewel and bullion in countries like India. India takes 11 places in the worlds largest gold reserve. Gold is traditionally weighed in Troy ounces, 31.1035 grams. Gold prices are increased rapidly within last ten years.

2. Gold Market
Gold is the world's oldest international currency and has played a role in most countries' currency systems for well over two thousand years. The gold market remained liquid throughout the financial crisis, even at the height of liquidity strains in other markets. This reflects the depth and breadth of the gold market, as well as the flight-to-quality tendencies exhibited by some investors. The global gold market has recently attracted a lot of attention and the price of gold is relatively higher than its historical trend. Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. The worlds top five gold producing countries with the share of their global output are listed below, China-12.8% Australia -9.4% South Africa-8.9% USA-8.9% Russia-7.9% Figure: 1 Gold Producing Country
Gold Producing Countries

1 2 3 4 5

Souce: UPI

Gold demand comes from three sources such as jewellery, industry (including electronics and medical application) and investment. In the five years 2005 to 2009, the annual demand for gold was an average, 3692 tones. The primary source of demand came from jewellery, which has accounted for 61% of the total over the past 5 years, followed by investment demand which has accounted for a further 27%. Industry accounts for the remaining 12%.Jewellery demand has come from four countries such as China,India,Turkey and the middle east. Figure: 2 Demand flow up to 5 year average
Demand flow up to 5 year average

1 2 3

Source: GFMS, WGC

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2.1 Gold Prices in India

The Gold price moves very fast throughout the world. It shows different exchange values at the different part of the world at the same point of time in comparison to various currencies. Gold Market is analyzed through the gold price .Gold prices are rapidly increased in last 10 years.
Table: 1 Gold Prices up to last 30 years
March end 1975 1980 1985 1990 1995 1996 1997 1998 1999 2000 Gold price per 10 gm(Rs.) 540 1330 2130 3200 4658 5713 4750 4050 4220 4395 March end 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Gold price per 10 gm(Rs.) 4410 5030 5260 6005 6165 8210 9500 9162 9226 11130

Source: www.goldprice.org

The above data shows that the gold market increased in 2002 onwards. But it is rapidly increased every year. It clearly understands by the following chart.
Figure: 3 increasing gold market
INCREASING GOLD RATE
12000

GOLD PRICE PER 10 GM(RS.)

10000 8000

6000

4000 2000

19 75

19 85

19 95

19 97

19 99

20 01

20 03

20 05

20 07

M ARCH E ND OF THE YE AR

The gold price is speedily increased in 2009. The gold price reached Rs.10000 in 2009. This chart clearly explains that gold market will have the bright future.

3. Stock Market in India

Volatility is a characteristic feature of stock markets all over the globe. The Indian stock market is now well integrated with the global markets and follows the trends in these markets. The Indian stock market is once again in the limelight with the market indices on the rise. BSE Sensex is the benchmark index for the Indian stock market. It is the most frequently used indicator while reporting on the state of the market. Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. The stock market behaviour during the year 2005 was characterized by a persistent and continuous rise in stock prices and stock market indices. Between January 2004 and May 2006, the sensex had moved up from 6000 to 12,671.The Mumbai stock exchange bench mark index sensex closed above 15,000 for the first time on July 9, 2007.The BSE sensex rate reached 21,000 points in January 2008.

3.1 Sensex Land Mark

Sensex, the market index of the Mumbai stock exchange, is the most popular figure which can be used to represent the market movements. As India's premier market index, the BSE is an important benchmark for fund managers. Apart from indicating market movements, it also acts as a basis for index based derivative products.
Dates 1978-79 April 1993 May 2003 Nov. 2003 Jan. 2004 June 2005 Sep. 2005 Feb.2006 Table: 2 Sensex landmarks Sensex values Dates Sensex values 100 March 2006 11000 2000 April 2006 12000 3000 N0v.2006 13000 5000 Jan.2007 14000 6000 July 2007 15000 7000 Sep.2007 17000 8000 Oct.2007 20000 10000 Jan.2008 21000 Source: BSE website

20 09

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The rise and fall seen in the Indian stock market .The above indices are clearly explained through the following chart.
Sensex landmarks

Oct.2007 Jul-07 N0v.2006 Dates Mar-06 Sep. 2005 Jan. 2004 May-03 1978-79 0 5000 10000 15000 20000 25000 Sensex values

Sensex values

Figure: 4 Sensex land marks

The movement of the stock market is generally taken as a reflection of the performance of the corporate sector in the country. The rising index gives a sense of well being in the economy, while volatility is a cause of concern.

4. Objectives
The specific objectives of the study are as follows: To enumerate the growth of gold market and stock market. To analyze the relationship between gold price and stock market.

5. Methodology
The present study intends to examine the issue framed in the objective and hypotheses relating to the gold market and stock market. The study is based on secondary data and the data collected through the websites. The collected data are arranged sub sequentially and tabulated in a systematic manner.

6. Period of the Study

The study period is June 2009 to June 2010 and analyses only the relationship between the gold market and capital market.

7. Importance of the Study

Most of the persons feel that gold prices are increased because of the market fear. Whenever the stock markets looks bad then people tend to fly towards gold. Somebody feel that the reason of increasing price of gold is depend upon the stock market. Investors have historically used simple risk adherent strategies in their portfolios such as diversifying across countries and including gold investments because this investment typically had an inverse relationship with stock market movements. During bull market, gold at low price can be bought and in bear markets, sold in high prices for profit booking. So, it pushed to increase the gold price. If the stock market crashes, gold and other precious metals will become very, very popular and valuable as people rush to buy them. So, finding the relationship between the stock market and the gold market is necessary one. For, this purpose, we collect the NSE index in the June 2009 to June 2010. Each month closing rate is taken for finding the correlation between them.

8. Analysis
8.1 Chi-Square Analysis
In order to find the relationship between gold market and stock market, a chi-square test is used. As to prove the significance of the hypothesis H0 and H1 is framed. ISSN: 2249-9962 June|2012 www.ijbmt.com Page | 4

International Journal of Business and Management Tomorrow H0 -There is no significant relationship between gold price and stock market. H1-There is significant relationship between gold price and stock market
TABLE: 3 GOLD PRICE AND NSE INDEX IN LAST ONE YEAR Date Gold Rate NSE index Jun-09 927 4291 Jul-09 953 4571 Oct-09 1029 4826 Nov-09 1181 4941 Feb-10 1096 4859 Apr-10 1180 5322 May-10 1212 4917 Jun-10 1243 5269

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Source: www.gold price.org.

8.2 Chi-Square Tests

Value df Asymp. Sig. (2-sided) Pearson Chi-Square 56.00049 .229* Likelihood Ratio 33.27149 .958 Linear-by-Linear Association 5.415 1 .020 N of Valid Cases 8 * -Accepted ** -Rejected The Chi-square test was applied to ascertain whether there is any association between Gold market and Stock market. For this purpose last one year gold rate and NSE index was collected. According to the Chi-square test, relationship between two is identified. The chi-square Asyymp. Sig. is greater than 0.05 at 5 percent level of significance, the null hypotheses (H0) is accepted.

9. Findings
In the above analysis helps to know, there is no relationship with the stock market and gold rate. Stock market is increased and gold rate is also increased. Stock market is not a reason for increasing gold rate.

10. Recommendations
Investment is the employment of funds with the aim of achieving additional income. Gold normally yields a return only by way of rising prices and is primarily in demand for jewel and less so for investment purpose. Stock market index is also reached in 20,000 points. When clearly analyzed, stock market and gold market has no relationship and both are increased. The price of gold depends on a host of factors, which makes it very difficult to predict.

11. Conclusions
Gold has always been a popular investment both jewellery and bullion in countries like India and China. India is the world's largest consumer of gold. China and India are very important consumers where there seems to be an emerging business population looking to invest in some physical cash assets. With a population of 1.1 billion people, gold has a great future in India. It is an assumption, gold price may be increased Rs.2000 per gram. The Indian wedding season from December to May adds to the demand in gold. Any festive occasion in India seems a spurt in the demand. People even mortgage their properties to buy gold in India. At the turn of the century, the Jewellery and Industrial gold buyers, alongside rural, agricultural Indian demand, dominated the gold price. In the developed world gold was not bought for itself and its value. It served a more complimentary role in jewelry, often the cheaper part of a piece of jewelry. Since there is no regular income from investment in gold, the income will not be subjected to tax. So, people and country invested their money into gold. Gold price is rapidly increased.
Dr.S.Kaliyamoorthy, Professor & Director, Alagappa Institute of Management, Alagappa University Mrs.S.Parithi, Research Scholar, Alagappa Institute of Management, Alagappa University

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International Journal of Business and Management Tomorrow

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References
A.K.Vashisht & R.K.Guptha, Investment management and stock market Kevins., Indian stock market: The Driving Forces, Institute of Management in Keral, Vol.1, no2, p5. (July -December 2008) Kothari.C.R., Research Methodology methods& Techniques. Shahriar Shafiee and Erkan Topal , An overview of global gold market and gold price forecasting. Business line, August 6, 2010 Journal of international business and economics May 1.2007. www.bse.com www.nse.com www.dinamalar.com. www.goldprice.org. www.siffy.com www.iie.com www.worldgold council.com www.GoldForecaster.com www.rediff.com www.Top foreign stocks .com

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