c


 

   

The gold price and oil price runs because of its intrinsic value. All are important in this
world. People are wearing gold and they have to travel to exhibit it and they need fuel for it.
All are found below ground levels and both are to be processed. Crude to remain in a
priority position till another source of energy not discovered.

Basically, Gold is an inflation Hedge. If inflation of any country increases, investors buy gold
to balance their portfolio and gold price will move up. So, during inflation the gold price-
rises-and-the-stock-market-falls. 

The crude price directly affects the oil import bill of any country. Increase in Imports Bill will
increase the Trade deficit (Export - Imports) of countries. Higher Trade deficit would hit the
value of currency of the country. This will affect the money circulation in the economy there
by leading inflation. So, If Crude price rises, Gold will also move up

So, there is some indirect relationship between these three things (i.e. Gold, Crude and
Nifty). So, to assess the relationship between these three things, the following study is
carried out.

c 

Ñor comparing the prices of gold, crude and nifty, the researcher has taken the price data
for 5 years (from Apr'2005-Apr'2010). The daily prices of these three things are considered
to calculate the monthly average price. Ñor this, historical price of gold has been collected
through ncdex.com, the price of crude has been collected form mcxindia.com and nifty
values are collected through nseindia.com. By using these data, the researcher tries to find
out the following things:

1. Monthly average price movement and returns of Crude, Nifty and crude.

2. By using the monthly average prices, the researcher calculated the monthly average
returns of gold, crude and nifty.

3. The researcher has used correlation method and cross price elasticity of demand
concepts to assess the relationship between the gold & nifty and gold & crude.

!"   #$  $  !

"# "%%
& '  
& "#"
 

() $& 
*+, & *+-
 

Source: secondary data

!"  # "%$  !

    $c
'  
"
 $& .+,*
& .+

Source: secondary data

In the year of 2009, Nifty has given good return followed by gold and crude.

//0*)) 

In statistics, the /"  &  *$ $  
"    (sometimes referred
to as the /, and typically denoted by ÷) is a measure of the correlation (linear
dependence) between two variables and
, giving a value between +1 and ¥1 inclusive.
It is widely used in the sciences as a measure of the strength of linear dependence between
two variables

Pearson's correlation coefficient between two variables is defined as the covariance of the
two variables divided by the product of their standard deviations.

 
"   * ) $
" 


Correlation(r) = N¥XY - (¥X)(¥Y) / Sqrt([N¥X2 - (¥X)2][N¥Y2 - (¥Y)2])

  &  "   $/"   
"    


* The correlation coefficient ranges from ¥1 to 1.
 * A value of 0 implies that there is no linear correlation between the variables

* +1 indicates a perfect positive linear relationship: as one variable increases in its values,
the other variable also increases in its values via an exact linear rule. 

By applying the figures of Average monthly return from gold, crude and nifty in the
correlation formula , we will get the result as follows: 

"1
  
"   %
2 ! "



 
"   %
2 !  
"     $" 3

Crude (Ñrom 2005-2010) 0.24 positive relationship
Crude (Ñrom 2007-2010) 0.18 positive relationship
Nifty (Ñrom 2005-2010) 0.06 positive relationship
Nifty((Ñrom 2007-2010) -0.02 negative relationship

)

In economics, the cross elasticity of demand or cross-price elasticity of demand measures

the responsiveness of the demand for a good to a change in the price of another good.

It is measured as the percentage change in demand for the first good that occurs in
response to a percentage change in price of the second good. Ñor example, if, in response
to a 10% increase in the price of fuel, the demand of new cars that are fuel inefficient
decreased by 20%, the cross elasticity of demand would be ¥20%/10% = ¥2.

The formula used to calculate the coefficient cross elasticity of demand is

"1
  $&"   $" %
"  
& ( $++4*++5-

 "
(
&  "%-
Avg demand of gold from 2004-2006(in metric tons) 3548
Avg demand of gold from 2007-2009(in metric tons) 3581
Price of crude from 2004-2006(in Rs.) 2734
Price of crude form 2007-2009(in Rs.) 3341

Change in demand (from 2004-06 to 2007-09) =0.9301%

Change in price of crude (from 2004-06 to 2007-09) = 22.2019%

/6++4Here, CPeOD is greater than Zero

 %  !c
" " 1   

"1
  $&"   $" %
"#"
 
( $++4*++5-

 "
(&  "%-

Avg demand of gold from 2004-2006(in metric tons) 3548
Avg demand of gold from 2007-2009(in metric tons) 3581
Value of nifty from 2004-2006(in points) 2645
Value of nifty from 2007-2009(in points) 4335

Change in demand (from 2004-06 to 2007-09) =0.9301%

Change in value of nifty (from 2004-06 to 2007-09) =63.89%/6++

Here also, CPeOD is greater than zero 'c
"

" 1   

4)c)0 

1. In the year of 2009, Nifty has given good return followed by gold and crude

 ) $ 
"  $ !  In the short term, from 2007 to 2009, Nifty shows negative
correlation with gold and it implies that gold price increases when nifty decreases. That is,
during the time of stock market fall, people are showing their interest more in purchasing
gold to hedge their risk level. And crude and gold shows positive relationship with each
other both in the long run and short run. 

-) $ & 
" 

 $" It is implied that increase in the value of nifty
creates an increase in the demand for gold. That is when stock market is in a peak position,
people is having a fear about the market and at that time itself, they are thinking about
hedging of their funds by purchasing gold. And hence demand for gold is increasing. So,
gold and nifty are substitutes. As per the same rule, Gold and crude are also substitutes

,0 

People are always looking for various investments to hedge the risk. If he/ she have got
good return in one instrument, they are booking the profit and tried to switch over to next
instrument to earn more profit. So, only they are going for the investments like gold, stock
market and crude etc. Before investing in any of these three products (gold, nifty or crude)
one should carefully analyze the pricing behavior of other products also.