Escolar Documentos
Profissional Documentos
Cultura Documentos
ON GOLD
BY
BADRINATH
1
DECLARATION
Date:
Place: Hyderabad BADRINATH
2
ABSTRACT
Abstract: We study the gold and silver prices based on fundamental analysis like
inventories in the entire globe, central bank reserves and currency fluctuations. We
study the Inventories which will effect due to strikes, political conditions and demand &
supply mismatch. According to central Bank policies and central agreements reserves
will various. Currency trading on Dollar verses Euro or Dollar verses sterling pound
causes volatility which leads to gold/silver price fluctuations.
We forecast the gold and silver prices with advanced technical analysis tools by
using lead &lag indicators, Elliot wave analysis and Fibonacci series. We applied lag
indicators on trending markets and lead indicators for trading markets. Lag indicators
(like MACD or moving averages) smoothens the price trends so that we can find out
prices are in the trending zone or not. We can apply this method on both bullish as well
as bearish markets. Lead indicators are like oscillators for find out the trading ranges on
sideways markets. We apply Elliot wave for gold and silver prices forecast for long term
analysis. We combine the Fibonacci series with Elliot wave for better results and
absolute forecast.
3
ACKNOWLEDGEMENT
Finally, many thanks to all of them not mentioned who have contributed
their bit towards the study.
BADRINATH
4
TABLE OF CONTENT
Page
Chapter No Content No
1 Introduction
2 Objectives
3 Research and Methodology
4 Review of literature
5 Company Profile
Data Analysis and
6 Interpretation
7 Findings and Suggestions
8 Conclusion
9 Bibliography
5
LIST OF TABLES
TABLE
PAGE NO.
LIST OF FIGURES
6
CHAPTER - I
INTRODUCTION
7
Introduction: The high Volatility in equity market with high-risk and
the arrival of low interest rates have increased the investor presence in
alternative investments such as gold and silver. In India, gold has
traditionally played a multi-faceted role. Apart from being used for
armament purpose, it has also served as an asset of the last resort and
a hedge against inflation and currency depreciation. But most
importantly, it has most often been treated as an investment.
Gold and silver supply primarily comes from mine production, official
sector sales of global central banks, old gold scrap and net
disinvestments of invested gold. Out of the total supply of 3870 tons
last year, 66% was from mine production, 20% from old gold scrap and
14% from official sector sales. Demand globally generate from
fabrication (jewellery and other fabrication), bar hoarding, net producer
hedging and Implied investment.
8
HISTORY OF GOLD
Gold has a history of more than 7000 years in India, which can be find
in religious book of Hindu, where it is considered as a metal of
immense value. But looking at the history of world, gold is found at the
Egypt at 2000B.C., which is the first metal used by the humans value
for ornament and rituals.
Gold has long been considered one of the most precious metals, and
its value has been used as the standard for many currencies (known as
the gold standard) in history. Gold has been used as a symbol for
purity, value, royalty, and particularly roles that combine these
properties.
But above all comment, it has a special role in India and in certain
countries, gold Jewelry is worn for ornamental value on all social
functions, festivals and celebrations. It is the popular form of
investment in rural areas between the farmers after having bumper
crop or after harvesting, this all factor makes India as largest consumer
(18.7% of world total demand in 2004) and importer of gold due to its
low production, which is negligible, and untapped gold reserves. This is
due to lack of new technology in finding gold reserves and low interest
shown by government in financing, encouraging for exploration
programs in gold mines.
9
HISTORY OF GOLD TRADING
PRODUCTION OF GOLD
Till know the total gold is extracted from the mines is about $1 trillion
dollar, which is accumulated in physical form is enough to built Eiffel
tower.
Annual gold production worldwide is about US$35 billion and by far the
one of the largest-trading world commodity. Worldwide, gold mines
produce about 2,464 tonnes in the year 2004 from total supply of 3328
tonnes but unable to meet identifiable demand of 3497 tonnes. Gold is
mined in more than 118 countries around the world, with the large
number of development projects in these countries expected to keep
production growing well into the next century. Currently, South Africa
is the largest gold producing country, followed by the United States,
Australia, Canada, Indonesia, Russia and others, some of this countries
also account for highest gold reserves from potential 50,000 tonnes of
world-wide reserves.
10
GLOBAL GOLD PRODUCTION
2004 (metric tons)
Australia: 258
China: 217
Canada: 129
Indonesia: 114
Ghana: 58
Guyana: 15
Source: GFMS
11
CHAPTER - 2
12
Objective: The main objective of this project is to forecast gold and
silver prices with advanced technical analysis tools by using lead &lag
indicators, Elliot wave analysis and Fibonacci series. We applied lag
indicators on trending markets and lead indicators for trading markets.
We apply Elliot wave analysis with gold and silver prices forecast for
long term .We combine the Fibonacci series with Elliot wave for better
results and absolute forecast. We also analyze gold and silver prices
based on fundamental analysis like inventories, central bank reserves
and dollar fluctuations.
LIMITATION OF STUDY
4. This analysis will be holding good for a limited time period that is
based on present scenario and study conducted, future
movement on gold price may or may not be similar.
13
CHAPTER - 3
14
RESEARCH OF THE STUDY
TYPE OF RESEARCH
Secondary Data:
The data that is used in this project is also in the form of secondary
nature. The data is collected from secondary sources such as various websites,
journals, newspapers, books, etc. the analysis used in this project has been done
using selective technical tools. In Equity market, risk is analyzed and trading
decisions are taken on basis of technical analysis. It is collecting share prices of
selected companies for a period of five years.
TOOLS USED:
15
2.Ms –excel is suing for demand and supply graphs.
CHAPTER - 4
REVIEW OF LITERATURE
16
Why central banks hold gold
Monetary authorities have long held gold in their reserves. Today their
stocks amount to some 30,000 tonnes - similar to their holdings 60
years ago. It is sometimes suggested that maintaining such holdings is
inefficient in comparison to foreign exchange. However, there are good
reasons for countries continuing to hold gold as part of their reserves.
These are recognised by central banks themselves although different
central banks would emphasise different factors.
Diversification
Economic security
Physical security
Unexpected needs
Confidence
Income
Insurance
How much gold to hold?
Diversification
In any asset portfolio, it rarely makes sense to have all your eggs in
one basket. Obviously the price of gold can fluctuate - but so too do
the exchange and interest rates of currencies held in reserves. A
strategy of reserve diversification will normally provide a less volatile
return than one based on a single asset.
17
Economic Security
Gold has maintained its value in terms of real purchasing power in the
long run and is thus particularly suited to form part of central banks'
reserves. In contrast, paper currencies always lose value in the long
run and often in the short term as well.
Physical Security
Countries have in the past imposed exchange controls or, at the worst,
total asset freezes. Reserves held in the form of foreign securities are
vulnerable to such measures. Where appropriately located, gold is
much less vulnerable. Reserves are for using when you need to. Total
and incontrovertible liquidity is therefore essential. Gold provides this.
Unexpected needs
Confidence
The public takes confidence from knowing that its Government holds
gold - an indestructible asset and one not prone to the inflationary
worries overhanging paper money. Some countries give explicit
recognition to its support for the domestic currency. And rating
18
agencies will take comfort from the presence of gold in a country's
reserves.
Income
Insurance
This is a matter for countries and central banks to decide in the light of
their particular circumstances. The international average is about
10.2% at current market prices but, in the EU it is over 50% and the
USA holds around 75% of its reserves in gold. Countries facing
particular volatility in their economic and/or political circumstances will
want to consider the level of gold in their reserves.
Elliotwave:
19
Although it is the best forecasting tool in existence, the Wave
Principle is not primarily a forecasting tool; it is a detailed
description of how markets behave. Nevertheless, that description
does impart an immense amount of knowledge about the market's
position within the behavioral continuum and therefore about its
probable ensuing path. The primary value of the Wave Principle is
that it provides a context for market analysis. This context provides
both a basis for disciplined thinking and a perspective on the
market's general position and outlook. At times, its accuracy in
identifying, and even anticipating, changes in direction is almost
unbelievable. Many areas of mass human activity follow the Wave
Principle, but the stock market is where it is most popularly applied.
Indeed, the stock market considered alone is far more important
than it seems to casual observers. The level of aggregate stock
prices is a direct and immediate measure of the popular valuation
of man's total productive capability. That this valuation has form is
a fact of profound implications that will ultimately revolutionize the
social sciences. That, however, is a discussion for another time.
Elliott had theories regarding the origin and meaning of the patterns
he discovered, which we will present and expand upon in Lessons 16-
19. Until then, suffice it to say that the patterns described in Lessons
1-15 have stood the test of time. Often one will hear several different
interpretations of the market's Elliott Wave status, especially when
cursory, off-the-cuff studies of the averages are made by latter day
experts.
21
1.3 Basic Tenets
22
Under the Wave Principle, every market decision is both produced by
meaningful information and produces meaningful information. Each
transaction, while at once an effect, enters the fabric of the market
and, by communicating transactional data to investors, joins the chain
of causes of others' behavior. This feedback loop is governed by man's
social nature, and since he has such a nature, the process generates
forms. As the forms are repetitive, they have predictive value.
Figure 1-1
23
R.N. Elliott did not specifically state that there is only one overriding
form, the "five wave" pattern, but that is undeniably the case. At any
time, the market may be identified as being somewhere in the basic
1.4 Wave Mode
24
There are two modes of wave development: motive and corrective.
Motive waves have a five wave structure, while corrective waves have
a three wave structure or a variation thereof. Motive mode is
employed by both the five wave pattern of Figure 1-1 and its same-
directional components, i.e., waves 1, 3 and 5. Their structures are
called "motive" because they powerfully impel the market. Corrective
mode is employed by all countertrend interruptions, which include
waves 2 and 4 in Figure 1-1. Their structures are called "corrective"
because they can accomplish only a partial retracement, or
"correction," of the progress achieved by any preceding motive wave.
Thus, the two modes are fundamentally different, both in their roles
and in their construction, as will be detailed throughout this course.
In his 1938 book, The Wave Principle, and again in a series of articles
published in 1939 by Financial World magazine, R.N. Elliott pointed
out that the stock market unfolds according to a basic rhythm or
pattern of five waves up and three waves down to form a complete
cycle of eight waves. The pattern of five waves up followed by three
waves down is depicted in Figure 1-2.
Figure 1-2
26
Statue of Leonardo Fibonacci, Pisa, Italy.
The inscription reads, "A. Leonardo Fibonacci, Insigne
Matematico Piisano del Secolo XII."
Photo by Robert R. Prechter, Sr.
28
Although the world later almost lost sight of Fibonacci, he was
unquestionably a man of his time. His fame was such that Frederick II,
a scientist and scholar in his own right, sought him out by arranging a
visit to Pisa. Frederick II was Emperor of the Holy Roman Empire, the
King of Sicily and Jerusalem, scion of two of the noblest families in
Europe and Sicily, and the most powerful prince of his day. His ideas
were those of an absolute monarch, and he surrounded himself with all
the pomp of a Roman emperor.
The meeting between Fibonacci and Frederick II took place in 1225 A.D.
and was an event of great importance to the town of Pisa. The Emperor
rode at the head of a long procession of trumpeters, courtiers, knights,
officials and a menagerie of animals. Some of the problems the
Emperor placed before the famous mathematician are detailed in Liber
Abacci. Fibonacci apparently solved the problems posed by the
Emperor and forever more was welcome at the King's Court. When
Fibonacci revised Liber Abacci in 1228 A.D., he dedicated the revised
edition to Frederick II.
30
EMA(current) = ( (Price(current) - EMA(prev) ) x Multiplier) +
EMA(prev)
31
The 10-period simple moving average is used for the first calculation only.
After that the previous period's EMA is used.
Note
that, in theory, every previous closing price in the data set is used in
32
the calculation of each EMA that makes up the EMA line. While the
impact of older data points diminishes over time, it never fully
disappears. This is true regardless of the EMA's specified period. The
effects of older data diminish rapidly for shorter EMA's. than for longer
ones but, again, they never completely disappear.
Price Trend
As per Gold candlestick charts are prices are in the bullish phase.if we are
look in to the price trend for past couple of days 7 bullish candles out of 10
candles has formed.Which means prices are more postive and trend would
be expected to continue.
As per the moving averages concern EMA(5) is above the EMA(6)
which shows prices are postive territory. Open interest is negaive which is
postive divergence for prices concern.
As per MACD hisorigm , the historigm is in postive zone which
leads trend is is intact.Ofcourse already the trend confirms bullish so prices
would be in bullish zone for the next couple of days.
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CHAPTER - 5
34
COMPANY PROFILE
35
With a view to expand, diversify and introduce offerings benchmarked
against global best practices, Religare operates its Life Insurance
business in partnership with the global major – Aegon. For its wealth
management business, Religare has partnered with Australia based
financial services major-Macquarie. Religare has also partnered with
Vistaar Entertainment to launch India's first SEBI approved Film Fund
offering a unique alternative asset class of investments.
Group Structure
Religare COMMODITIES Limited
• Equity Broking
• Online Investment Portal
• Portfolio Management Services
• Depository Services
36
Religare Realty Limited
• In house Real Estate Management
Company
37
firm with a global footprint. Post its acquisition through REL’s indirect subsidiary -
Religare Capital Markets International (UK) Limited, HH has been rechristened as
Religare Hichens Harrison plc.
38
BrandIdentity
Name
Symbol
For us, each leaf of the clover has a special meaning. It is a symbol
of Hope. Trust. Care. Good Fortune.
39
For the world, it is the symbol of Religare.
The fourth and final leaf of the clover represents Good Fortune.
Signifying that rare ability to meld opportunity and planning with
circumstance to generate those often looked for remunerative
moments of success.
40
CHAPTER - 6
41
Fundamental analysis
DEMAND AND CONSUMPTION OF GOLD
42
Gold fabrication for domestic and international market, also formed
large part of business in India with 527 tonnes of gold fabricated in
India in 2004, making world largest fabricator which is 60% more than
its closet competitor Italy, Turkey, USA. But this Jeweller Fabrication is
unable to generate much revenue, as most of its consumed in India
(479 tonnes).
18.70%
Ind ia
Italy
42.20% 11.10% Turkey
US
China
Japan
Rest o f world
8.50%
7.30%
5.30%
6.90%
43
“Traditionally, Gold has been a good safety net for Indian households.
However, the sharp rise in gold imports over the last three years when
the rupee has started appreciating, inflation is relatively low, banking
facilities are improving And economic can confidence has picked up, is
surprising” say Market watchers.(Source: -Economic Times, Article, “
Forget sensex, the Gold rush is on”, July 18 ‘05)
Uses of Gold
44
have increased dramatically since 1996, and in 2001 stood at over 60
tons. The US accounted for about one third of total official exports.
Manufacturers located in Special Export Zones can import gold tax-free
through various registered banks under an Export Replenishment
scheme.
2) Industrial applications: Besides jewelry, gold has many
applications in a variety of industries including aerospace, medicine,
electronics and dentistry. The electronics industry needs gold for the
manufacture of computers, telephones, televisions, and other
equipment. Gold's unique properties provide superior electrical
conducting qualities and corrosion resistance, which are required in the
manufacture of sophisticated electronic circuitry. In dentistry, gold
alloys are popular because they are highly resistant to corrosion and
tarnish. For this reason gold alloys are used for crowns, bridges, gold
inlays, and partial debenture. 3) Governments and central banks:
The third source of gold demand is governments and central banks
that buy gold to increase their official reserves. Central banks holds
28,225.4 tons, the holdings of Reserve Bank of India are only a modest
397.5 tons.
45
NEWS FROM THE DEMAND AND SUPPLY
SIDE
46
GOLD DEMAND TRENDS
• After briefly testing levels above US$950/oz early in the quarter, the
gold price fell back,
briefly touching levels under $750/oz in mid-September. Nevertheless,
the average for the
quarter, at $872/oz, was 28% higher than Q3 2007’s $680/oz.
47
extreme, the US and UK were down by 9% and 5% respectively
(declines of more than
25% in tonnage terms).
48
was hampered by the downturn in the global economy and a lack of
confidence within world markets.
49
TECHNICAL ANALYSIS
For the Gold, progress ultimately takes the form of five waves of a specific structure.
Three of these waves, which are labeled 1, 3 and 5, actually effect the directional
movement. They are separated by two countertrend interruptions, which are labeled 2 and
4, as shown in chart. The two interruptions are apparently a requisite for
overall directional movement to occur.
50
As per chart fibonacci lines are drawn which is , the ratio of any
number to the next higher is approximately .618 to 1 and to the next
lower number approximately 1.618 to 1. The further along the
sequence, the closer the ratio approaches phi (denoted f) which is an
irrational number, .618034.... Between alternate numbers in the
sequence, the ratio is approximately .382, whose inverse is 2.618. As
per Elliotwave theory Prices are in the 5th wave which is motive
wave.To find the target of 5 th
wave we can combine elliotwave with
fibonacci on 3 rd wave.
As per gold chart shown prices are in the ‘bullish price channel’
and prices are near to the resistance line. Prices are touches high
and open interests is negative which leads to positive divergence.
The break above channel line resistance marked an acceleration of
the advance. This might consider the Gold overextended after this
move, but the advance was powerful and the trend never turned
bearish. Once it croses the resistance line(Rs 15600) then the
51
immediate resistance at around Rs16000 ,which is channel width.For
Short term 1st Resistance at Rs 15,600 /-
Recall from last week that the PVE Gold Index consists of the GDP-
weighted gold price in thirty-six countries, including the United States.
Since nine of the countries in the index use the euro, twenty-eight
currencies are represented. For convenience, I copied last week’s chart
below; let’s see what we can glean from it.
52
The PVE Gold Index gives us an idea of how the average gold price in
the world is changing. When the gold price in any given currency
deviates from the PVE Gold Index it implies a change in the exchange
rate of that currency with respect to the other currencies in the index.
We can therefore see that the US dollar exchange rate was relatively
stable from January 1990 to the middle of 1992, when the dollar
started to strengthen. We know the dollar strengthened because the
gold price, in dollars, started to drop below the PVE Gold Index
indicating that the dollar’s purchasing power was increasing. But why
did the dollar strengthen?
53
a result of the Brazilian currency crisis the demand for US dollars
soaked up US currency that would otherwise have been used for
settlement of international trade. The dollar, therefore, increased not
only against the real, but against many other currencies as well.
Between 1992 and 1994 the dollar increased by about ten percent
against the other currencies in the PVE Gold Index.
The Brazilian real crisis was hardly behind us when, in 1995, the
Mexican peso dropped more than fifty percent against the dollar. This
was the worst financial crisis in Mexico since the Mexican Revolution.
More capital flowed into the United States, competing for dollars on
foreign exchange markets and keeping the dollar strong.
Between 1995 and 1996 the Japanese yen lost about twenty-five
percent against the dollar. More demand for dollars meant that the
dollar continued to strengthen on foreign currency markets, further
increasing the gap between the average, worldwide gold price and the US
dollar-gold price. Japan set the stage for the big one, the Southeast Asian
currency crisis.
Still shaken from the events of 1996 and 1997, Russia defaulted on its
foreign debt in 1998, sending the ruble down seventy percent in just
one year. In conjunction with the Southeast Asian crisis the mood is
grim, and international capital pours into the US seeking refuge.
54
When the euro was launched in January 1999 it collapsed almost
twenty-five percent, on average (PVE Euro Index), and about thirty-five
percent against the dollar. As if this was not enough, the Argentine
peso had trouble in 1998; in 2000 it was the Turkish lira and in 2002 it
was back to Brazil for another round.
We have seen that the decline in the US dollar-gold price, and its
under-performance relative to the rest of the world, is a reflection of
the US dollar’s exchange rate. It is my belief that the US dollar gold
price will again catch up with the PVE Gold Index as a result of
continued weakness in the dollar to correct America’s enormous trade
deficit. This correction of the dollar has only just begun and is likely to
increase the US dollar-gold price by approximately thirty-five to forty
percent more than the concurrent average increase in the gold price in
other currencies.
55
As the Rupee start strengthening Gold prices start strengthening. As
per charts the data we analyze from Sept 2008 to Feb 2009. From Oct
middle onwards the rupee starts weakening and the gold is almost all
flat but on Nov middle onwards when the rupee starts strengthen up
Gold is also starts rises. The means Gold prices are correlated to Ind
vs. Dollar currency.
56
CHAPTER - 7
FINDINGS
AND
SUGGESTIONS
57
FINDINGS:
1. The forward Market Commission should be measure and take steps
to create awareness among the traders about the commodity
exchanges and their working.
3. The factors other than the economic factors such as the geo political
circumstances have to be tracked constantly.
58
8. All exchanges should follow uniform norms as regard to
margining system, delivery mechanism and collateral
mechanism.
9. Tax uniniformity and simplification to facilitate easier delivery of
goods. Creation of physical infrastructure to facilitate the same.
10. Commodities trading should be treated on par with
equities. The income generated from commodity trading should
be treated as capital gain rather than as income from business
and profession as the later attracts higher rates of taxation than
the former.
11. Mutual funds must be permitted to launch commodity
schemes so that small investors can reap the benefits of
diversification with in the arena commodities.
59
CHAPTER - 8
RECOMONDATI
ONS AND
CONCLUSIONS
60
Recommendati
ons
61
CONCLUSION:
1.Commodities market, contrary to the benefits of the many people
has been existence in India through the ages, However , the
government permission t set up national level commodity exchanges
has indeed comes as a shot in the arm.
5. Commodites prices are less volatile when compared to the stock and
bond markets. Thus it is relatively safer to trade in commodities,
however all investments are subject to markets risk and commodity
market risk and commodity futures are not different.
6. Another conclusion is that the farmers and traders are not fully
aware of the existence of the commodity exchanges in India.
62
9. In commodity markets as there is a possibility of delivery, there
arises the requirement of warehouse facility which is not required in
case of equity markets.
10. The initial margin payment and its very rigid and strict
implementation though necessary have found some times
discouraging investors from investing in commodity markets.
11. Though volumes are huge in commodity market, these volumes are
mostly in precious metals like Gold and Silver.
12. Most of the trading now taking place in the commodities is being
done by the speculators only traders are not fully aware of the
commodities market.
13. As the commodities market are working virtually round the clock,
any drastic news is digested by the market which is not so with equity
market like the September incident when equity markets all over the
world opened far down the next day morning and the investors were
left hanging.
14. Most of the trading takes place I the commodities market is of
intraday nature and thus mist of the traders are offset day only.
17. The prices of the Gold and Silver are subject to variety of reasons
such as US Dollar rates , festival demand in India and other geo
political circumstances.
18. Inspite of the high prices on Gold the demand for these
commodities is still bullish and remained so in the recent months also.
19. Gold is treated as most secured and is safe haven buy for investor
as the world is surrounded by geopolitical tensions, energy prices and
instability in currency rates.
20. Long-term outlook of Gold remain bullish even at this point of high
price and will invite significant buying interest at every lower levels.
Every correction on lower side of the market is expected to
63
invite significant buying interest.
CHAPTER - 9
BIBLIOGRAPHY
64
BIBLIOGRAPHY
BOOKS:
• Investment management
-V.K.Bhalla
• Investment management
-Preethi Singh
• Security Analysis And Portfolio Management
-V.A.Avadhani
• Marketing of Financial Services
-V.A.Avadhani
• Indian Financial System
-M.Y.Khan
WEBSITES:
65
• www.hdfcsecurites.com
• www.5paisa.com
BOOK:
NCFM MODULE FOR COMMODITY MARKET
NEWS PAPERS:
Business
Standard
Business Line
66