Acknowledgement

It would be a great pleasure for me to take this opportunity in thinking everybody who had
been of great help in the completion of my CP project. This Project has been a platform in
my learning and acquiring knowledge about financial sector so as to help me in my future
endeavors.
I would like to express my appreciation to Dr. Surya Krishna Manthrala, HOD of LDRP-
ITR Dr. Sejal Acharya, mentor of MBA department, my internal supervisor, Prof, Hemali
G. Broker, Professor, and all the faculty member of LDRP MBA department, Kadi Sarva
Vishwavidyalaya, Gandhinagar for providing me all the guidance and support that I
needed mostly.
This was really a good way of learning and I really appreciate her efforts towards giving
me proper line directions.

Executive summary
In
dia is one the largest agrarian makes it a natural territory for trading commodities.
Agriculture share in india GDP stands 26%, while the commodity sector, including agro
commodities and bullion related industries, constitutes about 55% of the country’s GDP.
Therefore, it is necessary to study the Indian Commodity Market.

The scope of this study is as follows.

1) Origin of commodity market.
2) Meaning of and objective of commodity Futures.
3) Commodity profiles of gold & silver.
index Title Page

Preface

Acknowledgement

Declaration

Executive Summary

Table of Content

List of Tables

List of Graphs

List of Figure

Sr. No. Particulars Total no. of

Pages.

1. Introduction to Industry

Global Scenario

Indian Scenario

History of industry Evolution

Growth and Development of industry in India

Key Characteristics of Industry

Various Segments in Industry

Major Players in various segment of Industry

Market Share and Growth Rate Details

2 Background of the Study

Need of the Study

Significance of the Study

Objectives of the Study

 Limitations of the Study

3 Major Players in segment

Product Profile of the segment

4 Demand Determinant of the Industry Segment

Price

Income of Target Segment

Penetration Level

Promotion scheme

Distribution Structure in the Industry

5 Key issues and current trend

Product Quality/Technology

Segmentation and Positioning

Total Market

Growth Rate Statistics

6 Data Analysis and Interpretation

PESTEL Analysis

Porter’s Five Force Model of Industry Analysis

SWOT Analysis

Value Chain Analysis

Key Success factors

Key Driving Forces

 7 Project Trend Projections

8 Conclusion

9 Bibliography

Chapter-1

Introduction to industry

“We are moving from a world in which the big eat the small to one in which the fast eat
the slow”.-Klaus Schwab, 2000 (founder of the World Economic Forum)

“A strong and vibrant cash market is a pre-condition for a successful and transparent
futures market.”
Before the North American futures market originated some 150 years ago, farmers would
grow their crops and then them to market in the hope of selling their commodity of inventory.
But without any indication of demand, supply often exceeded what was needed, and not
purchased crops were left to rot in the streets. Conversely, when a given commodity such
soybeans were out of season, the goods made from it became very expensive because the
crop was no longer available, lack of supply.
In the mid-19th century, grain markets were established and a central marketplace was
created for farmers to bring their commodities and sell them either for immediate delivery
(spot trading) or for forward delivery. The latter contracts, forwards contracts, were the fore-
runners to today’s future contracts. In fact, this concept saved many farmers from the loss of
crops and helped stabilize supply and prices in the off-season.
Commodity markets are markets where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and
sold in standardized contracts,
A commodity exchange is an exchange where various commodities and derivatives products
are trade. Most commodity markets across the world trade in agriculture products and other
raw materials like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, metals,
etc. and contract based on them. These contracts based on them. These contracts can include
spot prices, forwards, futures and options.
Commodities exchanges usually trade futures contracts on commodities, such as trading
contracts to receive something, say corn, in a certain month. A former raising corn can sell a
future contract on his corn, which will not be harvested for several months, and guarantee the
price he will be paid when he delivers; a breakfast cereal producer buys the contract now and
guarantees the price will
Not go up when it is delivered. This protects the farmer from price drops and the buyer from
price rises. Speculators and investors also buy and sell the future contracts to make a profit
and provide liquidity to the system.
Commodities have occupied a large space in everyone’s life without even notifying them.
Man has bought commodities either for their survival or to make their life comfortable. But at
present scenario one can reverse the cycle i.e. by trading in commodities and make money.
Yes, it is just like buying and selling of shares of companies, one can buy and sell
commodities. The commodities market is one of the oldest prevailing markets in the human
history. It dates back to Greek times when olive trees were auctioned and the future market
was born. In fact, during the 17th century, rice futures were traded in china.
Commodities are much diversified and each commodity has got its own value which keeps on
changing according to their demand in the market. This fluctuation can differ from time to
time owing to numerous factors.
In this project is specifically focused on Gold and Silver, the precious metals. Gold and silver
are most talked about commodities. This study gives a complete picture to the investor about
the investment in gold and silver.

Commodity
Any product that can be used for commerce or an article of commerce which is traded on
an authorized commodity exchange is known as commodity. The article should be movable
of value, something which is bought or sold and which is produced or used as the subject or
barter or sale. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as
“every kind of movable property other than actionable claims, money and securities”.
In current situation, all goods and products of agricultural(including plantation), mineraland
fossil origin are allowed for commodity trading recognized under the FCRA. The national
commodity exchanges, recognized by the Central Government, permits commodities which
include precious (gold and silver) and non-ferrous metals, cereals and pulses, ginned and
un-ginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and potatoes
and onions, coffee and tea, rubber and spices. Etc.

Commodity market:-
Commodity market is an important constituent of the financial markets of any country. It is
the market where a wide range of products, viz., precious metals, base metals, crude oil,
energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop
a vibrant, active and liquid commodity market. This would help investors hedge their
commodity risk, take speculative positions in commodities and exploit arbitrage
opportunities in the market

Commodity markets are markets where raw or primary products are exchanged. These
raw commodities are traded on regulated commodities exchanges, in which they are bought
and sold in standardized contracts.
The modern commodity markets have their roots in the trading of agricultural products.
While wheat and corn, cattle and pigs, were widely traded using standard instruments in the
19th century in the United States, other basic foodstuffs such as soybeans were only added
quite recently in most markets. For a commodity market to be established there must be
very broad consensus on the variations in the product that make it acceptable for one
purpose or another.
The economic impact of the development of commodity markets is hard to overestimate.
Through the 19th century "the exchanges became effective spokesmen for, and innovators
of, improvements in transportation, warehousing, and financing, which paved the way to
expanded interstate and international trade."

History of commodity markets

Commodities future trading was evolved from need of assured continuous supply of
seasonal agricultural crops. The concept of organized trading in commodities evolved in
Chicago, in 1848. But one can trace its roots in Japan. In Japan merchants used to store
Rice in warehouses for future use. To raise cash warehouse holders sold receipts against the
stored rice. These were known as “rice tickets”. Eventually, these rice tickets become
accepted as a kind of commercial currency. Latter on rules came in to being, to standardize
the trading in rice tickets. In 19 th century Chicago in United States had emerged as a major
commercial hub. So that wheat producers from Mid-west attracted here to sell their produce
to dealers & distributors. Due to lack of organized storage facilities, absence of uniform
weighing & grading mechanisms producers often confined to the mercy of dealers
discretion. These situations lead to need of establishing a common meeting place for
farmers and dealers to transact in spot grain to deliver wheat and receive cash in return.
Gradually sellers & buyers started making commitments to exchange the produce for cash
in future and thus contract for “futures trading” evolved. Whereby the producer would
agree to sell his produce to the buyer at a future delivery date at an agreed upon price. In
this way producer was aware of what price he would fetch for his produce and dealer would
know about his cost involved, in advance. This kind of agreement proved beneficial to both
of them. As if dealer is not interested in taking delivery of the produce, he could sell his
contract to someone who needs the same. Similarly producer who not intended to deliver
his produce to dealer could pass on the same responsibility to someone else. The price of
such contract would dependent on the price movements in the wheat market. Latter on by
making some modifications these contracts transformed in to an instrument to protect
involved parties against adverse factors such as unexpected price movements and
unfavorable climatic factors. This promoted traders entry in futures market, which had no
intentions to buy or sell wheat but would purely speculate on price movements in market to
earn profit.
Trading of wheat in futures became very profitable which encouraged the entry of other
commodities in futures market. This created a platform for establishment of a body to
regulate and supervise these contracts. That’s why Chicago Board of Trade (CBOT) was
established in 1848. In 1870 and 1880s the New York Coffee, Cotton and Produce
Exchanges were born. Agricultural commodities were mostly traded but as long as there are
buyers and sellers, any commodity can be traded. In 1872, a group of Manhattan dairy
merchants got together to bring chaotic condition in New York market to a system in terms
of storage, pricing, and transfer of agricultural products. In 1933, during the Great
Depression, the Commodity Exchange, Inc. was established in New York through the
merger of four small exchanges – the National Metal Exchange, the Rubber Exchange of
New York, the National Raw Silk Exchange, and the New York Hide Exchange.
The largest commodity exchange in USA is Chicago Board of Trade, The Chicago
Mercantile Exchange, the New York Mercantile Exchange, the New York Commodity
Exchange and New York Coffee, sugar and cocoa Exchange. Worldwide there are major
futures trading exchanges in over twenty countries including Canada, England, India,
France, Singapore, Japan, Australia and New Zealand.

International Commodity Exchanges

Futures’ trading is a result of solution to a problem related to the maintenance of a year
round supply of commodities/ products that are seasonal as is the case of agricultural
produce. The United States, Japan, United Kingdom, Brazil, Australia, Singapore are
homes to leading commodity futures exchanges in the world.

The New York Mercantile Exchange (NYMEX)

The New York Mercantile Exchange is the world’s biggest exchange for trading in physical
 commodity futures. The exchange is in existence since last 132 years and performs trades
through two divisions, the NYMEX division, which deals in energy and platinum and the
COMEX division, which trades in all the other metals.
Commodities traded: - Light sweet crude oil, Natural Gas, Heating Oil, Gasoline, RBOB
Gasoline, Electricity Propane, Gold, Silver, Copper, Aluminum, Platinum, Palladium, etc.

London Metal Exchange

The London Metal Exchange (LME) is the world’s premier non-ferrous market, with
highly liquid contracts. The exchange was formed in 1877 as a direct consequence of the
industrial revolution witnessed in the 19th century.
Commodities traded:- Aluminum, Copper, Nickel, Lead, Tin, Zinc, Aluminum Alloy,
North American Special Aluminum Alloy (NASAAC), Polypropylene, Linear Low Density
Polyethylene, etc.

The Chicago Board of Trade

The first commodity exchange established in the world was the Chicago Board of Trade
(CBOT) during 1848 by group of Chicago merchants who were keen to establish a central
market place for trade. Presently, the Chicago Board of Trade is one of the leading
exchanges in the world for trading futures and options. More than 50 contracts on futures
and options are being offered by CBOT currently through open outcry and/or electronically.
Commodities Traded: - Corn, Soybean, Oil, Soybean meal, Wheat, Oats, Ethanol, Rough
Rice, Gold, and Silver etc.

Tokyo Commodity Exchange (TOCOM)

The Tokyo Commodity Exchange (TOCOM) is the second largest commodity futures
exchange in the world. It trades in to metals and energy contracts. It has made rapid
advancement in commodity trading globally since its inception 20 years back. TOCOM’s
recent tie up with the MCX to explore cooperation and business opportunities is seen as one
of the steps towards providing platform for futures price discovery in Asia for Asian players
in Crude Oil since the demand-supply situation in U.S. that drives NYMEX is different from
demand-supply situation in Asia
Commodities traded: - Gasoline, Kerosene, Crude Oil, Gold, Silver, Platinum, Aluminum,
Rubber, etc

Chicago Mercantile Exchange

The Chicago Mercantile Exchange (CME) is the largest futures exchange in the US and the
largest futures clearing house in the world for futures and options trading. Formed in 1898
primarily to trade in Agricultural commodities, the CME introduced the world’s first
financial futures more than 30 years ago.
Commodities Traded: - Butter milk, Diammonium phosphate, Feeder cattle, frozen pork
bellies, Lean Hogs, Live cattle, Non-fat Dry Milk, Urea, Urea Ammonium Nitrate, etc.
Introduction to Indian commodity market
India, a commodity based economy where two-third of the one billion population depends
on agricultural commodities, surprisingly has an under developed commodity market. The
vast geographical extent of India and her huge population is aptly complemented. The
broadest classification of the Indian Market can be made in terms of the commodity market
and the bond market.
India Commodity Market can be subdivided into the following two categories:
• Wholesale Market
• Retail Market
The traditional wholesale market in India dealt with wholesalers who bought goods from the
farmers and manufacturers and then sold them to the retailers after making a profit in the
process. It was the retailers who finally sold the goods to the consumers. With the passage of
time the importance of whole sellers began to decline due to various [Link] recent
years, the extent of the retail market (both organized and unorganized) has evolved in
leaps and bounds. In fact, the success stories of the commodity market of India in recent
years has mainly centered on the growth generated by the Retail Sector. Almost every
commodity under the sun both agricultural and industrial is now being provided at well
distributed retail outlets throughout the country.
Moreover, the retail outlets belong to both the organized as well as the unorganized sector.
The unorganized retail outlets of the yesteryears consist of small shop owners who are price
takers where consumers face a highly competitive price structure. The organized sectors on
the other hand are owned by various business houses like Pantaloons, Reliance, Tata and
others. Such markets are usually selling a wide range of articles both agricultural and
manufactured, edible and inedible, perishable and durable. Modern marketing strategies and
other techniques of sales promotion enable such markets to draw customers from every
section of the society. However the growth of such markets has still centered on the urban
areas primarily due to infrastructural limitations.
Considering the present growth rate, the total valuation of the Indian Retail Market is
estimated to cross Rs. 10,000 billion in the year 2010. Demand for commodities is likely to
become four times by 2012 than what it presently is.

History of Commodity Market in India

The history of organized commodity derivatives in India goes back to the nineteenth century
when Cotton Trade Association started futures trading in 1875, about a decade after they
started in Chicago. Over the time datives market developed in several commodities in India.
Following Cotton, derivatives trading started in oilseed in Bombay (1900), raw jute and jute
goods in Calcutta (1912), Wheat in Hapur (1913) and Bullion in Bombay (1920).
However many feared that derivatives fuelled unnecessary speculation and were detrimental
to the healthy functioning of the market for the underlying commodities, resulting in to
banning of commodity options trading and cash settlement of commodities futures after
independence in 1952. The parliament passed the Forward Contracts (Regulation) Act, 1952,
which regulated contracts in Commodities all over the India. The act prohibited options
trading in Goods along with cash settlement of forward trades, rendering a crushing blow to
the commodity derivatives market. Under the act only those associations/exchanges, which
are granted reorganization from the Government, are allowed to organize forward trading in
regulated commodities. The act envisages three tire regulations: (i) Exchange which
organizes forward trading in commodities can regulate trading on day-to-day basis. (ii)
Forward Markets Commission provides regulatory oversight under the powers delegated to
it by the central Government. (iii) The Central Government- Department of Consumer
Affairs, Ministry of Consumer Affairs, Food and Public Distribution- is the ultimate
regulatory authority.
The commodities future market remained dismantled and remained dormant for about four
decades until the new millennium when the Government, in a complete change in a policy,
started actively encouraging commodity market. After Liberalization and Globalization in
1990, the Government set up a committee (1993) to examine the role of futures trading.
Commodity exchange in India plays an important role where the prices of any commodity
are not fixed, in an organized way. Earlier only the buyer of produce and its seller in the
market judged upon the prices. Others never had a say.
Today, commodity exchanges are purely speculative in nature. Before discovering the price,
they reach to the producers, end-users, and even the retail investors, at a grassroots level. It
brings a price transparency and risk management in the vital market. Since 2002, the
commodities future market in India has experienced an unexpected boom in terms of modern
exchanges, number of commodities allowed for derivatives trading as well as the value of
futures trading in commodities, which crossed $ 1 trillion mark in 2006. Since 1952 till 2002
commodity datives
market was virtually non- existent, except some negligible activities on OTC basis.
In India there are 25 recognized future exchanges, of which there are three national level
multi-commodity exchanges. After a gap of almost three decades, Government of India has
allowed forward transactions in commodities through Online Commodity Exchanges, a
modification of traditional business known as Ad hat and VaydaVyapar to facilitate better
risk coverage and delivery of commodities. The three exchanges are: National Commodity
& Derivatives Exchange Limited (NCDEX) Mumbai, Multi Commodity Exchange of India
Limited (MCX) Mumbai and National Multi-Commodity Exchange of India Limited
(NMCEIL) Ahmedabad. There are other regional commodity exchanges situated in
different parts of India.
Legal framework for regulating commodity futures in India
The commodity futures traded in commodity exchanges are regulated by the Government
under the Forward Contracts Regulations Act, 1952 and the Rules framed there under. The
regulator for the commodities trading is the Forward Markets Commission, situated at
Mumbai, which comes under the Ministry of Consumer Affairs Food and Public Distribution
Forward Markets Commission (FMC)
It is statutory institution set up in 1953 under Forward Contracts (Regulation) Act, 1952.
Commission consists of minimum two and maximum four members appointed by Central
Govt. Out of these members there is one nominated chairman. All the exchanges have been
set up under overall control of Forward Market Commission (FMC) of Government of India.
National Commodities & Derivatives Exchange Limited (NCDEX)
National Commodities & Derivatives Exchange Limited (NCDEX) promoted by ICICI Bank
Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank of
Agriculture and Rural Development (NABARD) and National Stock Exchange of India
Limited (NSC). Punjab National Bank (PNB), Credit Ratting Information Service of India
Limited (CRISIL), Indian Farmers Fertilizer Cooperative Limited (IFFCO), Canara Bank
and Goldman Sachs by subscribing to the equity shares have joined the promoters as a share
holder of exchange. NCDEX is the only Commodity Exchange in the country promoted by
national level institutions.
NCDEX is a public limited company incorporated on 23 April 2003. NCDEX is a national
level technology driven on line Commodity Exchange with an independent Board of
Directors and professionals not having any vested interest in Commodity Markets.
It is committed to provide a world class commodity exchange platform for market
participants to trade in a wide spectrum of commodity derivatives driven by best global
practices, professionalism and transparency.

NCDEX is located in Mumbai and offers facilities to its members in more than 550 centers
throughout India. NCDEX currently facilitates trading of 57 commodities.

Commodities Traded at NCDEX

 Bullion - Gold KG, Silver, Brent
 Minerals - Electrolytic Copper Cathode, Aluminum Ingot, Nickel
Cathode, Zinc Metal Ingot, Mild steel Ingots
 Oil and Oil seeds - Cotton seed, Oil cake, Crude Palm Oil, Groundnut (in shell),
Groundnut expeller Oil, Cotton, Mentha oil, RBD Pamolein,
Refined soya oil, Rape seeds, Mustard seeds, Caster seed, Yellow soybean.
Pulses -Urad, Yellow peas, Chana, Tur, Masoor,
 Grain -Wheat, Indian Pusa Basmati Rice, Indian parboiled Rice,
Indian raw Rice (ParmalPR-106), Barley, Yellow red maize
 Spices -Jeera, Turmeric, Pepper
 Plantation - Cashew, Coffee Arabica, Coffee Robusta
 Fibers and other - Guar Gum, Guar seeds, Jute sacking bags, Indian 28 mm cotton,
Indian 31mm cotton, Lemon, Grain Bold, Medium Staple, Mulberry, Green
Cottons Potato, Raw Jute,Mulberry raw Silk, V-797 Kapas, Sugar, Chilli LCA334
 Energy -Crude Oil, Furnace oil.
Multi Commodity Exchange of India Limited (MCX)
Multi Commodity Exchange of India Limited (MCX) is an independent and de-metalized
exchange with permanent reorganization from Government of India, having Head Quarter in
Mumbai. Key shareholders of MCX are Financial Technologies (India) Limited, State Bank
of India, Union Bank of India, Corporation Bank of India, Bank of India and Canara Bank.
MCX facilitates online trading, clearing and settlement operations for commodity futures
market across the country.
MCX started of trade in Nov 2003 and has built strategic alliance with Bombay Bullion
Association, Bombay Metal Exchange, Solvent Extractors Association of India, pulses
Importers Association and ShetkariSanghatana. MCX deals with about 100 commodities.

Commodities Traded at MCX

 Bullion - Gold, Silver, Silver Coins,
 Minerals - Aluminum, Copper, Nickel, Iron/steel, Tin, Zinc, Lead
 Oil and Oil seeds - Castor oil/castor seeds, Crude Palm oil/ RBD Pamolein,
Groundnut oil, Mustard/ Rapeseed oil, Soy seeds/Soy meal/Refined Soy Oil,
Coconut Oil Cake, Copra, Sunflower oil, Sunflower Oil cake, Tamarind seed oil,
 Pulses - Chana, Masur, Tur, Urad, Yellow peas
 Grains - Rice/ Basmati Rice, Wheat, Maize, Bajara, Barley,
 Spices - Pepper, Red Chili, Jeera, Cardamom, Cinnamon, Clove,
 Ginger,
 Plantation - Cashew Kernel, Rubber, Areca nut, Betel nuts, Coconut,
 Coffee,
 Fiber and others - Kapas, KapasKhalli, Cotton (long staple, medium staple,
 short staple), Cotton Cloth, Cotton Yarn, Gaur seed and Guargum, Gur and Sugar,
Khandsari, Mentha Oil, Potato, Art Silk Yarn, Chara or Berseem, Raw Jute, Jute
Goods, Jute Sacking,
 Petrochemicals - High Density Polyethylene (HDPE), Polypropylene (PP), Poly
 Vinyl Chloride (PVC)
 Energy - Brent Crude Oil, Crude Oil, Furnace Oil, Middle East Sour Crude Oil,
Natural Gas
National Multi Commodity Exchange of India Limited (NMCEIL)
 National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-mutualized
Electronic Multi Commodity Exchange in India. On 25th July 2001 it was granted approval
by Government to organize trading in edible oil complex. It is being supported by Central
warehousing Corporation Limited, Gujarat State Agricultural Marketing Board and Neptune
Overseas Limited. It got reorganization in Oct 2002. NMCEIL Head Quarter is at
Ahmedabad

STRUCTURE OF COMMODITY MARKET

Ministry of consumer
affairs

Forwards market commission

Commodity Exchange

Regional stock exchange

National stock exchange

GOLD
Gold is a chemical element with the symbol Au (Latin aurum, “shining dawn”) and an atomic
number of 79. It MCX NMCE
has been a highly sought NBOT jewelry, in20rocks,
–after precious metal for coinage, other
NCDEX
regional
in veins and in alluvial deposits. Gold is dense, soft, shiny and the most malleable and exchanges
ductile
pure metal known. Pure gold has a bright yellow color and luster traditionally considered
attractive, which it maintains without oxidizing in air or water. Gold is one of the coinage
metals and has served as a symbol of wealth and a store of value throughout history. Gold
standards have provided a basis for monetary policies. It also has been linked to a variety of
symbolisms and ideologies.
A total of 158,000 tones (=8,333.33’ cubic meters) of gold have been mined in human
history, as of 2009. Modern industrial uses include dentistry and electronics, where gold has
traditionally found use because of its good resistance to oxidative corrosion and excellent
quality as conductor of electricity.
For thousands of years gold served individuals as the most common medium of exchange.
People began experimenting with convertible paper currencies backed by gold in the 1700
and 1800s. The international system of central bank managed gold-backed currencies that
developed was called the gold standard. The “shackles” placed on central banks by the
necessity of ensuring gold convertibility prevented them from issuing excess paper money to
pay for government expenses, thereby causing inflation.
The gold standard was dismantled and the shackles removed on the eve of World War I when
most central banks removed gold convertibility, ostensibly to make it easier for them to
finance war spending. After this, the world would experience some of the greatest inflations
in history, including that Germany in the early 1920s the hardships experienced in the Great
Depression and World War II kept the gold standard from being properly reconstructed. It
was only after WWII that the world’s nations attempted to reconnect the international
monetary system to gold. In the resulting Breton Woods system that developed, all currencies
were fixed in price to the United States dollar, while the dollar itself was convertible by the
world’s central banks into 0.028 ounces of gold (1 ounce was worth $35). The dollar had
moved to the centre of the world’s monetary system, challenging gold.
This shows the gradual unraveling of both the Breton Woods system and gold’s $35 fixed
price, the end of dollar convertibility god, the elimination of gold as a monetary asset, and the
emergence of today’s system of freely floating competing currencies. Even though the dollar
is no longer linked to gold, it has retained its position as the world’s pre-eminent medium of
exchange. Till today 10 times more silver has been mined when compared to gold. On
Ground availability of Gold is five times more than that of silver.

History of Gold
A child finds a shiny rock in a creek, thousands of years ago, and the human race is
introduced to gold for the first time.
Gold was first discovered as shining, yellow nuggets. "Gold is where you find it," so the
saying goes, and gold was first discovered in its natural state, in streams all over the world.
No doubt it was the first metal known to early hominids.
 Gold became a part of every human culture. Its brilliance,
natural beauty, and luster, and its great malleability and
resistance to tarnish made it enjoyable to work and play with.
Because gold is dispersed widely throughout the geologic
world, its discovery occurred to many different groups in
many different locales. And nearly everyone who found it was
impressed with it, and so was the developing culture in which they lived Gold was the first
metal widely known to our species. When thinking about the historical progress of
technology, we consider the development of iron and copper-working as the greatest
contributions to our species' economic and cultural progress - but gold came first.

As far back as 3100 B.C., we have evidence of a gold/silver value ratio in the code of Menes,
the founder of the first Egyptian dynasty. In this code it is stated that "one part of gold is
equal to two and one half parts of silver in value." This is our earliest of a value relationship
between gold and silver.

In ancient Egypt, around the time of Sati I (1320 B.C.), we find the creation of the first gold
treasure map now known to us. Today, in the Turin Museum is a papyrus and fragments
known as the "Carte des mines d'or." It pictures gold mines, miners' quarters, road leading to
the mines and gold-bearing mountains, and so on.

Where is that gold mine located? Well, you know how it is with treasure maps - there's
always something a little vague about them, to throw you off the trail.

Modern thought is that it portrays the Wadi Fawakhir region in which the El Sid gold mine is
located, but the matter is far from settled. Jason and the Argonauts sought the Golden Fleece
around 1200 B.C.

That Greek myth makes more sense when you realize that the fleece that it refers to is the
sheep's fleece used in the recovery of fine placer gold. Early miners would use water power
to propel gold-bearing sand over the hide of a sheep, which would trap the tiny, but heavy,
flakes of gold. When the fleece had absorbed all it could hold, this 'golden fleece' was hung
up to dry, and when dry would be beaten gently so that the gold would fall off and be
recovered.
This primitive form of hydraulic mining began thousands of years ago, and was still being
used by some miners as recently as the California gold rush of 1849.

The first use of gold as money occurred around 700 B.C., when Lydian merchants produced
the first coins. These were simply stamped lumps of a 63% gold and 27% silver mixture
known as 'electrum.' This standardized unit of value no doubt helped Lydian traders in their
wide-ranging

successes, for by the time of Croesus of Mermnadae, the last King of Lydia (570 -546 B.C.),
Lydia had amassed a huge hoard of gold. Today, we still speak of the ultra-wealthy as being
'rich as Croesus.'
A monetary standard made the world economy possible. The concept of money, (i.e., gold
and silver in standard weight and fineness coins) allowed the World's economies to expand
and prosper. During the Classic period of Greek and Roman rule in the western world, gold
and silver both flowed to India for spices, and to China for silk. At the height of the Empire
(A.D. 98-160), Roman gold and silver coins reigned from Britain to North Africa and Egypt.
Money had been invented. Its name was gold.

Uses of Gold

 Gold is an investment.

Since 2001, we have been in the early stage of a gold bull market. A young bull market is the
investment opportunity of a lifetime. This asset class (precious metals) should vastly
outperform traditional asset classes — like stocks, bonds, real estate - for the next 5-10 years.
All signs point to a continued upswing in gold prices. The reality is, gold responds well to
currency debasement and monetary uncertainty.
 Gold's Usefulness as safe haven

The geo-political and world economic structure is currently undergoing major change-some
have even called the situation an "upheaval." This means that the investment outlook,
particularly for certain parts of the world, is more unpredictable than usual. Under these
circumstances, it is logical to conclude that certain investment portfolios should include real
(non-paper) assets such as commodities for protection against a potential decline in the paper
markets.

 Gold's Usefulness as an Asset Diversifier

most portfolios are invested primarily in traditional financial assets such as stocks, bonds and
mutual funds. Adding gold to a portfolio introduces an entirely different asset; a tangible or
real asset, thus increasing the portfolio's degree of diversification. The purpose of
diversification is to protect the total portfolio against fluctuations in the value of any one
asset or type of asset. Gold does exactly that.

 The reason is basic

The economic forces which determine the price of gold are different from, and in many
cases opposed to, the forces which determine the prices of most financial assets. The price of
an equity depends on the earnings and growth potential of the company it represents.
Likewise, the price of a bond depends on its safety, its yield, and the yields of competing
fixed income investments.

 Gold is money

Gold is still the most important money in the world. Gold has been the ultimate store of value
and currency for 4,000 years, outlasting all paper currency and fiat money. Stocks and bonds
expire; governments come and go; but gold is forever. Gold has intrinsic value as a rare asset.
Gold is precious. And what keeps it precious is that the total amount of gold in the world is a
small quantity.

 Gold is insurance.

Gold has always acted as portfolio insurance - protecting you against potential disaster of
your financial assets. Gold is a hedge because it is negatively correlated to traditional
financial assets. In other words, when paper assets go up - like, stocks and bonds — gold
goes down. And when paper assets go down, gold goes up. History has shown that a gold-
hedged portfolio during uncertain financial and political times provides the ultimate
insurance against potential economic calamity.

SILVER

Silver is a metallic chemical element with the chemical symbol Ag (Latin: argentums, from
the Indo European root * arg-for “white” or “shining”) and atomic number 47. a soft, white,
lustrous transition metal, it has the highest electrical conductivity of any element and the
highest thermal conductivity of any metal. The metal occurs naturally in its pure, free from
native silver, as an alloy with gold and other metals, and in minerals such as argentite and
chlorargyrite. Most silver is produced as a by-product of copper, gold, lead, and zinc refining.

Silver has long been valued as precious metal, and it is used to make ornaments, jewelry,
high-value tableware, utensils, and currency coins. Today, silver metal is also used in
electrical contacts and conductor, in mirrors and in catalysis of chemical reactions. Its
compounds are used in photographic film and dilute silver nitrate solutions and other silver
compounds are used as disinfectants and micro biocides. While many medical antimicrobial
uses of silver have been supplanted by antibiotics, further research into clinical potential
continues.

Many well-known uses of silver involve its precious metal properties including currency,
decorative items and mirrors. The contrast between the appearances of its bright white color
in contrast with other media makes it very useful to the visual art. It has also long been used
to confer high monetary value as objects (such as silver coins and investment bars) or make
objects symbolic of high social or political rank.

Silver, in the form of electrum (a gold-silver alloy), was coined to produce money in around
700BC by the Lydian’s. Later, silver was refined and coined in its pure form. Many nations
used silver as the basic unit of monetary value. In the modern world, silver bullion has the
ISO currency code XAG. The name of the United Kingdom monetary unit “pound” (£)
reflects the fact that it originally represented the value of one troy pound of sterling silver. In
the 1800s, many nations, such as the United States and Great Britain, switched from silver to
a gold standard of monetary value, then in the 20th century to fiat currency.

History of silver

Silver has attracted man’s fascination for many thousands of years. Ancient civilizations
found silver deposits plentiful on or near the earth’s surface. Relics of these civilizations,
include jewelry, religious artifacts, and food vessels formed from the durable, malleable
metal. This metal took on near mystical qualities in marking important historical milestones
throughout the ages, and served as a medium of exchange. The Mesopotamian merchants
were doing just that as early as 700 BC.

In 1792, silver assumed a key role in the United States monetary system when Congress
based the currency on the silver dollar, and its fixed relationship to gold. Silver was used for
the nation’s coinage until its use was discontinued in 1965. The dawn of the 20th century
marked an important economic function for silver, that of an industrial raw material.

Today, silver is sought as a valuable and practical industrial commodity, as well as an

appealing investment precious metal. Many countries now issue silver bullion coins, among
them the Unites States, Canada and Mexico. Private issue silver bullion is also available from
select private mints.

Although silver is relatively scarce, it is the most plentiful and least expensive of the precious
metals. The largest silver producing countries are Mexico, Peru, the United States, Australia
and Chile. Sources of silver include; silver mined directly, silver mined as a by-product of
gold, copper, lead and zinc mining, and silver extracted from recycled materials, primarily
used photographic materials. Today, silver bullion stocks make up a significant component of
silver supply.

The American Eagle Bullion program was launched in 1986 with the sale of gold and silver
bullion coins. Platinum was added to the American Eagle Bullion family in 1997. A bullion
coin is a coin that is valued by its weight in a specific precious metal.
Silver Uses

Demand for silver is built on three main pillars: industrial and decorative uses, photography,
and jewelry & silverware. Together, these three categories represent more than 95 percent of
annual silver consumption. In 2007, 455.5 million ounces of silver were used for industrial
applications, while over 128 million ounces of silver were committed to the photographic
sector, 163.4 million ounces were consumed in the jewelry market, and 58.8 million ounces
were used in the silverware market.

Why is this indispensable metal in such demand? The reasons are simple. Silver has a number
of unique properties including its strength, malleability and ductility, its electrical and
thermal conductivity, its sensitivity to and high reflectance of light and the ability to endure
extreme temperature ranges. Silver’s unique properties restrict its substitution in most
applications. Choose from the following list to learn more about some of the various
applications of silver:

Traditional

 Coinage, Silver jewelry, Photography, Silverware and Table Settings.

Industrial

 Batteries, Bearings, Brazing and Soldering, Catalysts, Electronics.

Emerging
 Medical Applications, Solar Energy, Mirrors & Coatings, Solar Energy, Water
Purification.

Characteristics of the Commodities Market

Basic economic principles of supply and demand typically drive the commodities markets:
lower supply drives up demand, which equals higher prices, and vice versa. Major disruptions
in supply, such as a widespread health scare among cattle, might lead to a spike in the
generally stable and predictable demand for livestock. On the demand side, global economic
development and technological advances often have a less dramatic, but important effect on
 prices. Case in point: The emergence of China and India as significant manufacturing players
has contributed to the declining availability of industrial metals, such as steel, for the rest of
the world.

Types of Investment Commodities

Today, tradable commodities fall into the following four categories:

 Metals (such as gold, silver, platinum, and copper)

 Energy (such as crude oil, heating oil, natural gas, and gasoline)
 Livestock and Meat (including lean hogs, pork bellies, live cattle, and feeder cattle)
 Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar)

Various segment of commodity market

 The commodities market exists in two distinct forms, namely, the Over the Counter
(OTC) market and the exchange-based market.
 Also, as in equities, there exists the spot and the derivatives segment. The spot
markets are essentially over-the-counter markets and the participation is restricted to
people who are involved with that commodity, say, the farmer, processor, wholesaler, etc.
A majority of the derivative trading takes place through exchange-based markets with
standardized contracts, settlements, etc.

 Trading in food product is not a new thing, it started from ancient time. People were
exchanging for different food product between them. But as the time passes toward
the future, as the commodity market goes organized.
 But the starting of commodities trading in proper organized way from 19th century.
Trading in commodity is not only limited in food product it also covers the other
valuable products like gold, silver, copper etc.
 As the market develop in rapid speed as the participant, volume and products
increases simultaneously and today it reach all over the world. Now a days it plays an
important part to represent an economy.

 Commodity Market: - Commodity market is the place where commodity products

are bought and sold. We can distinguished the commodity product into two category
such as-
 Soft commodity and hard commodity. In soft commodity agriculture products such as
wheat, sugar soya bean, and other seeds are includes.
 In hard commodity includes gold, silver, copper and other precious metals and natural
gas and crude oil.
 Commodity market provides two other facility to trade in market called Spot market
and Derivative market.
 Spot Market: - In this market all the exchanging take place instantly. I.e. at the
negotiated price, they bought and sold the commodities product. There are so many
mandis present to deal with this type of commodities. In spot market buying and
selling of commodities in cash with instant delivery.
  Derivative Market: - This market provide the facility to buyer or seller to buy or sell
commodity product via Derivative contracts. A derivative contract is an agreement
and a standard preform to buy or sell commodity products for the particular price and
for a fixed time period in the future. In future contracts buyer can take the physically
delivery of commodity on specified cost.
 Derivative Contract: - It is an agreement between two parties i.e., Buyer and Seller,
where the value of the contract is obtain from the value of an underlying asset. It can
be stocks, metals etc.
 Here are some commonly used contracts are :
 Forward Contract: - It is a customized contract between two parties to exchange
assets at specific future date and price. On the due date of contract, deal is executed
and seller party have to deliver the asset and buyer have to pay the amount.
 Futures Contract: - It is an agreement between two parties to exchange commodities
at pre-determined price in the future. The price of commodity is fixed by the bidding
process.
 Option Contract: - This contracts give the right to the owner not the obligation to
buy or sell on negotiated amount of the commodity on or before the specified date.
 The Participant: - They are the main entity of commodity market.
 Here are some participant of market are :
 Day Traders or Intraday: - They are the short term traders. Who take position for a
single day or less time Trader can take share market tips from various resources.
 Position Traders: - They are the long term traders. Who take position for a weeks or
even months.
 Brokers: - It acts as a mediator between trader and exchange and provide a platform
to buy or sell commodities.
 Exchange:-It is a central place where financial instrument are traded. Financial
instrument like Commodities, Equity, Mutual funds etc

Latest price of commodity trading of gold and silver

Commodity Price Change % Chg

GOLD
38,970.00 -110.00 -0.28

SILVER
46,809.00 -157.00 -0.33

Chapter 2
RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. In fact research is an art of
scientific investigation. The Advanced Learner’s Dictionary of current English lays down the
meaning of research as “a careful investigation or inquiry especially through search for new
facts in any branch of knowledge”.
For the preparation of the project report several method were used to collect data and
pertinent information. The data required for the studies were collected is primary source.
Detailed questionnaire were prepared for the different departments covering as many
variables as possible

Statement of the problem

The Research main intention is to know the various price drivers that determine the price of
commodity. The main problem in the commodity market is the prediction of future price of
commodity; especially prediction of price of global metals (gold and silver) is very difficult.
The future prediction will be made on the basis of the past response of commodity market to
various price drivers. Especially this research on Gold and silver because these two
commodities have global market with high volatility. The price of gold and silver are highly
affected by the various factors happening in and around the world. In order to know behavior
of this to commodity to that factor, researcher referred past reacts of commodity market.

Need of study

1. The main purpose of this project is to study commodity trading sector in brief, in
reference to commodity trading of gold and silver.
2. The research project is all about the Indian commodity trading of gold and silver, how
its evaluate in the Indian commodity trading of gold and silver and from the
evaluation to growth stage how the Indian commodity trading of gold and silver.
3. This study also determine the income determination in the Indian commodity trading
of gold and silver.

Significance of the study

 The study helps to know the commodity trading of gold and silver in the India, with
the reference to commodity trading sector.
  It helps to know the growth of Indian commodity trading of gold and silver. The study
also determined the strength and weakness of the Indian commodity trading of gold
and silver, and also brief about external factor affect to the Indian commodity trading
of gold and silver.

Objective of the study

 To study about the Indian commodity market.

 To study different price drivers affect the Gold and silver.
 To find out how price of Gold and silver fluctuate in Indian Commodity market
 To interpret about movement of future price of gold and silver in commodity market.
 To derive the relation of these commodities with other financial instruments such as money
supply.

Research design
Research design is the conceptual structure within which research is conducted; it constitutes
the blueprint for the collection, measurement and analysis of data. It is a plan for selecting of
type of information used to answer the research question. It is a framework for specifying the
relationship among the different influencing variables..
 Empirical research:-
This research is done by using the empirical research design to analyze the performance and
to study the impact of price drivers of gold and silver on commodity market, by using all
available data.
Source of data
Data is the fact or an event. This data or information is needed for every research work. The
data can be classified into two types: that is
1) Primary data

2) Secondary data
Primary data
Data originally collected for an investigation are known as primary data. Such data are
originally in character and are generated in large number of survey conducted by individual
researcher on research bodies. For example data collected by the researcher from the
interviewing investor.
 Collecting the opinion of investor about commodity market situation

 Interviewing the Acumen investment analyst.

Secondary data
Data which are actually collected for some earlier research work and are applicable or usable
in future research and which already have been passed through the satisfied process.
 The secondary data for this study was collected from the relevant journals,
newspapers, and textbooks
 The main source of secondary data for this Project is Internet source like MCX,
NCDEX.

Scope of the study

The scope of study shows the outer line or border of the research study.
 This study limited to only two commodities, i.e. Gold and Silver.
 This study is based on last one year performance of Gold and silver.
 This study relates to only Indian commodity market that is MCX, NCDX.
Limitation of study
 Commodity market prices can fluctuate wildly depending on the factors, which are
sometimes beyond human control.
 Forward / futures trading involve a passage of time between entering into a contract
and its performance making thereby the contracts susceptible to risks, uncertainties,
etc.
 The sources utilized for the study, which include: websites, information from
commodity market trackers and economists are subject to personal biases.

Chapter 3

Major players in commodity trading of gold and silver in India

Below are the three major national commodity exchanges: National Commodity and
Derivatives Exchange Limited (NCDEX), Mumbai Multi Commodity Exchange of India Ltd
(MCX), Mumbai National Multi Commodity Exchange of India Ltd (NMCE).

MULTI COMMODITY EXCHANGE

MCX, among the first exchanges to open in India, accounts for more than 80 percent of the
country’s commodity futures market. It ranked the world’s sixth largest commodity futures
exchange by number of contracts traded.

* MCX recorded a turnover of 63,933 billion rupees ($1.3 billion) in 2009/10, a share of
82.34 percent of the total value of commodity futures in India.

* Top listed contracts: Gold, crude oil, silver, copper, natural gas, nickel, zinc are the top
traded commodities.

* Most traded contracts: Gold, crude oil and silver

NATIONAL COMMODITY & DERIVATIVES EXCHANGE LTD

Launched in 2003, NCDEX is the second biggest exchange and is promoted by leading
financial institutions and state owned banks. Goldman Sachs holds a minority stake.

* NCDEX logged a turnover of 9,176 billion rupees ($185 billion) in 2009/10, accounting for
about 12 percent of the total value of commodities futures in the country.

* Top listed contracts: Soy oil, pulses, soybean and rapeseed.

* Most traded contracts: Guar seed, soy oil and pulses

NATIONAL MULTI COMMODITY EXCHANGE

Based in Ahmedabad, NMCE was the first exchange in India to be promoted after the Indian
government demutualized the platform for commodity futures. It started with futures in gold
and silver.

* NMCE’s turnover stood at 2,279 billion Indian rupees ($46 billion) in 2009/10.

Profile of commodity trading of gold and silver

Broking Insights
The Indian broking industry is one of the oldest trading industries that have been around even
before the establishment of the BSE in 1875. Despite passing through a number of changes in
the post liberalization period, the industry has found its way towards sustainable growth.
With the purpose of gaining a deeper understanding about the role of the Indian stock broking
industry in the country’s economy, we present in this section some of the industry insights
gleaned from analysis of data received through primary research.
For the broking industry, we started with an initial database of over 1,800 broking firms that
were contacted, from which 464 responses were received. The list was further short listed
based on the number of terminals and the top 210 were selected for profiling. 394 responses,
that provided more than 85% of the information sought have been included for this analysis
presented here as insights. All the data for the study was collected through responses received
directly from the broking firms. The insights have been arrived at through an analysis on
various parameters, pertinent to the equity broking industry, such as region, terminal, market,
branches, sub brokers, products and growth areas.
Some key characteristics of the sample 394 firms are:
 On the basis of geographical concentration, the West region has the maximum
representation of 52%. Around 24% firms are located in the North, 13% in the South
and 10% in the East

 3% firms started broking operations before 1950, 65% between 1950-1995 and 32%
post
1995

 On the basis of terminals, 40% are located at Mumbai, 12% in Delhi, 8% in

Ahmadabad, 7% in Kolkata, 4% in Chennai and 29% are from other cities

 From this study, we find that almost 36% firms trade in cash and derivatives and 27%
are into cash markets alone. Around 20% trade in cash, derivatives and commodities

 In the cash market, around 34% firms trade at NSE, 14% at BSE and 52% trade at
both exchanges. In the derivative segment, 48% trade at NSE, 7% at BSE and 45% at
both, whereas in the debt market, 31% trade at NSE, 26% at BSE and 43% at both
exchanges
  Majority of branches are located in the North, i.e. around 40%. West has 31%, 24%
are located in South and 5% in East

 In terms of sub-brokers, around 55% are located in the South, 29% in West, 11% in
North and 4% in East

 Trading, IPOs and Mutual Funds are the top three products offered with 90% firms
offering trading, 67% IPOs and 53% firms offering mutual fund transactions

 In terms of various areas of growth, 84% firms have expressed interest in expanding
their institutional clients, 66% firms intend to increase FII clients and 43% are
interested in setting up JV in India and abroad

 In terms of IT penetration, 62% firms have provided their website and around 94%
firms have email facility

Terminals
Almost 52% of the terminals in the sample are based in the Western region of India, followed
by 25% in the North, 13% in the South and 10% in the East. Mumbai has got the maximum
representation from the West, Chennai from the South, New Delhi from the North and
Kolkata from the East.
Mumbai also has got the maximum representation in having the highest number of terminals.
40% terminals are located in Mumbai while 12% are from Delhi, 8% from Ahmadabad, 7%
from Kolkata, 4% from Chennai and 29% are from other cities in India.

Branches & Sub-Brokers

The maximum concentration of branches is in the North, with as many as 40% of all branches
located there, followed by the Western region, with 31% branches. Around 24% branches are
located in the South and East constitutes for 5% of the total branches of the total sample.

In case of sub-brokers, almost 55% of them are based in the South. West and North follow,
with 30% and 11% sub-brokers respectively, whereas East has around 4% of total sub-
brokers.

 
Financial Markets
The financial markets have been classified as cash market, derivatives market, debt market
and commodities market. Cash market, also known as spot market, is the most sought after
amongst investors. Majority of the sample broking firms are dealing in the cash market,
followed by derivative and commodities. 27% firms are dealing only in the cash market,
whereas 35% are into cash and derivatives. Almost 20% firms trade in cash, derivatives and
commodities market. Firms that are into cash, derivatives and debt are 7%. On the other
hand, firms into cash and commodities are 3%, cash & debt market and commodities alone
are 2%. 4% firms trade in all the markets.
In the cash market, around 34% firm’s trade at NSE, 14% at BSE and 52% trade at both
exchanges. In the equity derivative market, 48% of the sampled broking houses are members
of NSE and 7% trade at BSE, while 45% of the sample operates in both stock exchanges.
Around

43% of the broking houses operating in the debt market, trade at both exchanges with 31%
and 26% firms uniquely at NSE and BSE respectively.

 
Of the brokers operating in the commodities market, 57% firms operate at NCDEX and
MCX. Around 20% and 21% firms are solely in NCDEX and MCX respectively, whereas 2%
firms trade in NCDEX, MCX and NMCE.

Products
The survey also revealed that in the past couple of years, apart from trading, the firms have
started offering various investment related value added services. The sustained growth of the
economy in the past couple of years has resulted in broking firms offering many diversified
services related to IPOs, mutual funds, company research etc. However, the core trading
activity is still the predominant form of business, forming 90% of the firms in the sample.
67% firms are engaged in offering IPO related services. The broking industry seems to have
capitalised on the
growth of the mutual fund industry, which was pegged at 40% in 2006. More than 50% of the
sample broking houses deal in mutual fund investment services. The average growth in assets
under management in the last two years is almost 48%. Company research is another
lucrative area where the broking firms offer their services; more than 33% of the firms are
engaged in providing company research services. Additionally, a host of other value added
services such as fundamental and technical analysis, investment banking, arbitrage etc are
offered by the firms at different levels.

Of the total sample of broking houses providing trading services, 52% are based in the West,
followed by 25% from North, 13% from South and 10% from the East. Around 50% of the
firms offering IPO related services are based in the West as compared to 27% in North, 13%
in South and 10% in East. In providing mutual funds services, the Western region was
dominant amounting to 49% followed by 27% from North; The South and the East are almost
at par with 13% and 11% respectively.
Future Plans
68% of the firms from the sample have envisaged strategies for future growth. With the
middle class Indian investor as well as foreign investor willing to invest in the stock market,
majority of the firms preferred expansion of institutional and the Foreign Institutional
Investor clients in their areas of growth. Around 84% have shown interest in expanding their
institutional client base. Nearly 51% of such firms are located in the West, 25% in North,
15% are from South and 9% from East. Since the past couple of years, India, along with
Korea and Taiwan, has been one of the preferred destinations for the FIIs. With corporate
restructuring, rising market capitalization and sectorial friendly policies helping the FIIs,
more than two thirds of the firms are interested in increasing their FII client base. Amongst
these firms, west again has maximum representation of 53%, followed by North with 22%.
South has 15% firms and East makes up for 9%.
 Chapter 4
Demand determinant of the industry segment

Global and domestic demand-supply dynamics

The demand for gold may be categorized under two heads - consumption demand and
investment demand. Consumption of gold differs according to type, namely industrial
applications and jewellery. The special feature of gold used in industrial and dental
applications is that some of it cannot be salvaged and thus is truly consumed. This is unlike
consumption in the form of jewellery, which remains as stock and can reappear at future
time in market in another form. Consumer demand accounts for almost 90% of total gold
demand and the demand for jewelry forms 89% of consumer demand.

In markets with poorly developed financial systems, inaccessible or insecure banks,

or where trust in the government is low, gold is attractive as a store of value. If gold is held
primarily as an investment asset, it does not need to be held in physical form. The investor
could hold gold-linked paper assets or could lend out the physical gold on the market
attaining a higher return in addition to savings on the storage costs. Japan has the highest
investment demand for gold followed closely by India. These two countries together account
for over 50% of total world demand of gold for retail investment. Investment demand can be
split broadly into two, private and public sector holdings.
There are several ways in which investors can invest in gold either directly or through a
variety of investment products, each of which lends it to specific investor preferences:
• Coins and small bars
• Gold accounts: allocated and unallocated
• Gold certificates and pool accounts
• Gold Accumulation Plan
 • Gold backed bonds and structured notes
• Gold futures and options
• Gold-oriented funds

Demand
The Consumer demand for gold is more than 3400 tonnes per year making it whopping
$40 billion worth. More than 80% of the gold consumed is in the form of jewellery, which is
generally pre-dominated by women. The Indian demand to the tune of 800 tonnes per year is
making it the largest market for gold followed by USA, Middle East and China. About 80%
of the Physical gold is consumed in the form of jewellery while bars and coins occupy not
higher than 10% of the gold consumed. If we include jewellery ownership, then India is the
largest repository of gold in terms of total gold within the national boundaries.
Regarding pattern of demand, there are no authentic estimates, the available evidence
shows that about 80% is for jewellery fabrication for domestic demand, and 15% is for
investor-demand (which is relatively elastic to gold-prices, real estate prices, financial
markets, tax-policies, etc.). Barely 5% is for industrial uses. The demand for gold jewellery is
rooted in societal preference for a variety of reasons - religious, ritualistic, a preferred form
of wealth for women, and as a hedge against inflation. It will be difficult to prioritize them
but it may be reasonable to conclude that it is a combined effect, and to treat any major part
as exclusively a store of value or hedging instrument would be unrealistic. It would not be
realistic to assume that it is only the affluent that creates demand for gold. There is reason to
believe that a part of investment demand for gold assets is out of black money.

Rural India continues to absorb more than 70% of the gold consumed in India and it
has its own role to fuel the barter economy of the agriculture community. The yellow metal
used to play an important role in marriage and religious festivals in India. In the Hindu, Jain
and Sikh community, where women did not inherit landed property whereas gold and silver
jewellery was, and still is, a major component of the gifts given to a woman at the time of
marriage. The changeover hands of gold at the time of marriage are from few grams to kgs.
The gold also occupies a significant position in the temple system where gold is used to
prepare idol and devotees offer gold in the temple. These temples are run in trust and gold
with the trust rarely comes into re-circulation. The existing social and cultural system
continues to cause net gold buyer market and the government policies have to take note of the
root cause of gold demand, which lies in the social and cultural system of India. The annual
consumption of gold, which was estimated at 65 tonnes in 1982, has increased to more than
700 tonnes in late 90s. Although it is likely that, with prosperity and enlightenment, there
may be deceleration in demand, particularly in urban areas, it would be made good by
growing demand on account of prosperity in rural areas. In the near future, therefore, the
annual demand will continue to be over 600 tonnes per year.

Supply
Indian gold holding, which are predominantly private, is estimated to be in the range of
10000-13000 tonnes. One fourth of world gold production is consumed in India and more
than 60% of Indian consumption is met through imports. The domestic production of the gold
is very limited which is around 9 tonnes in 2002 resulting in more dependence on imported
gold. The availability of recycled gold is price sensitive and as such the dominance of the
gold supply through import is in existence. The fabricated old gold scraps is price elastic and
was estimated to be near 450 tonnes in 2002. It rose almost more than 40% compared to the
previous year because of rise in gold price by more than 15%.
The demand-supply for gold in India can be summed up thus:
1. Demand for gold has an autonomous character. Supply follows demand.
2. Demand exhibits income elasticity, particularly in the rural and semi-urban areas.
3. Price differential creates import demand, particularly illegal import prior to the
commencement of liberalization in 1990.

Price trends and factors that influence prices

Indian gold prices follow more or less the international price trends. However, the
strong domestic demand for gold and the restrictive policy stance are reflected in the higher
price of gold in the domestic market compared to that in the international market at the
available exchange rate.
Since the demand for gold is closely tied to the production of jewelry, gold prices tend
to increase during the time of year when demand for jewellery is greatest. Christmas,
Mother’s Day and Valentine Day are all major shopping seasons and hence the demand for
metals tends to be strong a few months ahead of these holidays. Also, the summer wedding
season sees a large increase in the demand for metals, so price strength in March and April is
not uncommon. On the other hand in November, December, January and February prices
tend to decline and jewelers tend to have holiday inventory to unwind.

History of derivatives markets in Gold

Gold futures trading debuted at the Winnipeg Commodity Exchange (Comex) in

Canada in November 1972. Delivery was also available in gold certificates issued by Bank
of Nova Scotia and the Canadian Imperial Bank of Commerce. The gold contracts became
so popular that by 1974 there was as many as 10,00,000 contracts floating in the market.
The futures trading in gold started in other countries too. This included the following:
• The London gold futures exchange started operations in the early 1980s.
• The Sydney futures exchange in Australia began functioning with a contract in 1978.
This exchange had a relationship with the Comex where participants could take open
positions in one exchange and liquidate them in the other.
• The Singapore International Monetary Exchange (Simex) was set up in 1983 by way
of an alliance between the Gold Exchange of Singapore and the International
Monetary Market (TMM) of Chicago.
• The Tokyo Commodity Exchange (Tocom), which launched a contract in 1982, was
one of the few commodity exchanges to successfully launch gold futures. Trading
volume on the Tocom peaked with seven million contracts.
• On December 31, 1974, the Commodity Exchange, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the Mid-America Commodity Exchange
introduced gold futures contracts.
• The Chinese exchange, Shanghai Gold Exchange was officially opened on 30 October
2002.
 • Mumbai's first multi-commodity exchange, the National Commodities and
Derivatives Exchange, NCDEX launched in 2003 by a consortium of ICICI Bank
Limited, Life Insurance Corporation, National Bank for Agriculture and Rural
Development and National Stock Exchange of India Limited, introduces gold futures
contracts.
Gold has a very active derivative market compared with other commodities. Gold accounts
for 45 per cent of the world’s commercial banks commodity derivatives portfolio.

Historical gold rate trend in India

The below chart represents the historical movement of gold prices in India:

This chart contains the average annual price for gold from 1964 – present.
Year Price (24 karat per 10 grams) Year Price (24 karat per 10 grams)
1964 Rs. 63.25 1992 Rs. 4,334.00
1965 Rs. 71.75 1993 Rs. 4,140.00
1966 Rs. 83.75 1994 Rs. 4,598.00
1967 Rs. 102.50 1995 Rs. 4,680.00
1968 Rs. 162.00 1996 Rs. 5,160.00
1969 Rs. 176.00 1997 Rs. 4,725.00
1970 Rs. 184.00 1998 Rs. 4,045.00
1971 Rs. 193.00 1999 Rs. 4,234.00
1972 Rs. 202.00 2000 Rs. 4,400.00
1973 Rs. 278.50 2001 Rs. 4,300.00
1974 Rs. 506.00 2002 Rs. 4,990.00
1975 Rs. 540.00 2003 Rs. 5,600.00
1976 Rs. 432.00 2004 Rs. 5,850.00
1977 Rs. 486.00 2005 Rs. 7,000.00
1978 Rs. 685.00 2006 Rs. 8,400.00
1979 Rs. 937.00 2007 Rs. 10,800.00
1980 Rs. 1,330.00 2008 Rs. 12,500.00
1981 Rs. 1,800.00 2009 Rs. 14,500.00
1982 Rs. 1,645.00 2010 Rs. 18,500.00
1983 Rs. 1,800.00 2011 Rs. 26,400.00
1984 Rs. 1,970.00 2012 Rs. 31,050.00
1985 Rs. 2,130.00 2013 Rs. 29,600.00
1986 Rs. 2,140.00 2014 Rs.28,006.50
1987 Rs. 2,570.00 2015 Rs.26,343.50
1988 Rs. 3,130.00 2016 Rs.28,623.50
1989 Rs. 3,140.00 2017 Rs.29,667.50
1990 Rs. 3,200.00 2018 Rs.31,438.00
1991 Rs. 3,466.00
Silver
The dictionary describes it as a white metallic element, sonorous, ductile, very
malleable and capable of high degree of polish. It also has the highest thermal and electrical
conductivity of any substance. Silver is somewhat harder than gold and is second only to gold
in malleability and ductility. Silver remains one of the most prominent candidates in the
metals complex as far as futures' trading is concerned. Thanks to its unique volatility, silver
has remained a hot favorite speculative vehicle for the small time traders. Though futures
trading were banned in India since late sixties, parallel futures markets are still very active in
Delhi and Indore. Speculative interest in the white metal is so intense that it is believed that
combined volume of Indian punters represent almost 40 percent of volume traded at New
York Commodity Exchange. Delhi, Rajasthan, MP and UP are the active pockets for the
silver futures. Until recently, Rajkot and Mathura were conducting futures but now players
have diverted toward comex trade.
Most of the world's silver is mined in the US, Australia, Mexico, Peru, and Canada.
Cash markets remain highly unorganized in the silver and impurity and excessive speculation
remain key issue for the trade. Taking cue from gold, government of India is planning to
introduce hallmarking in silver which is likely to address quality and credibility of Indian
silverware and jeweler industry. The unique properties of silver restrict its substitution in
most applications.

Production
Silver ore is most often found in combination with other elements, and silver has been
mined and treasured longer than any of the other precious metals. Mexico is the world’s
leading producer of silver, followed by Peru, Canada, the United States, and Australia. The
main consumer countries for silver are the United States, which is the world’s largest
consumer of silver, followed by Canada, Mexico, the United Kingdom, France, Germany,
Italy, Japan and India. The main factors affecting these countries demand for silver are macro
economic factors such as GDP growth, industrial production, income levels, and a whole host
of other financial macro-economic indicators.

Demand

Demand for silver is built on three main pillars; industrial and decorative uses,
photography and jewelry & silverware. Together, these three categories represent more than
95 percent of annual silver consumption. In recent years, the main world demand for silver is
no longer monetary, but industrial. With the growing use of silver in photography and
electronics, industrial demand for silver accounts for roughly 85% of the total demand for
silver. Jewelry and silverware is the second largest component, with more demand from the
flatware industry than from the jewelry industry in recent years. India, the largest consumer
of silver, is gearing up to start hallmarking of the white precious metal by April. India
annually consumes around 4,000 tonnes of silver, with the rural areas accounting for the bulk
of the sales. India's demand for silver increased by 177 per cent over the past 10 years as
compared to 517 tonnes in 1991. According to GFMS, India has emerged as the third largest
industrial user of silver in the world after the US and Japan.

Supply
The supply of silver is based on two facts, mine production and recycled silver scraps.
Mine production is surprisingly the largest component of silver supply. It normally accounts
for a little less than 2/3 rd of the total (last year was slightly higher at 68%). Fifteen countries
produce roughly 94 percent of the world’s silver from mines. The most notable producers are
Mexico, Peru, the United States, Canada and Australia. Mexico, the largest producer of silver
from mines. Peru is the world’s second largest producer of silver. Silver is often mined as a
byproduct of other base metal operations, which accounts for roughly four-fifths of the mined
silver supply produced annually. Known reserves, or actual mine capacity, is evenly split
along the lines of production. The mine production is not the sole source - others being scrap,
disinvestments, government sales and producers hedging. Scrap is the silver that returns to
the market when recovered from existing manufactured goods or waste. Old scrap normally
makes up around a fifth of supply. Scrap supply increased marginally last year up by 1.2%.
The other major source of silver is from refining, or scraps recycling. Because silver is used
in the photography industry, as well as by the chemical industry, the silver used in solvents
and the like can be removed from the waste and recycled. The United States recycles the
most silver in the world, accounting for roughly 43.6 million ounces. Japan is the second
largest producer of silver from scrap and recycling, accounting for roughly 27.8 million troy
ounces in 1997. In the United States and Japan, three-quarters of all the recycled silver comes
from the photographic scrap, mainly in the form of spent fixer solutions and old X-ray films.

Factors influencing prices of the silver

The prices of silver, like that of other commodities, are dictated by forces of demand
and supply and consumption. Besides, a host of social, economic and political factors have
powerful bearing on silver prices. As in the case of gold prices, political tensions, the threat
affects the price of silver too. When trading and movement of silver is restricted, within or
outside national boundaries, prices move in accordance with demand and supply conditions
prevalent in mat environment Price of silver is also influenced by changes in factors such as
inflation (real or perceived), changing values of paper currencies, and fluctuations in deficits
and interest rates, etc. Although prices and incomes are important factors, they are also
influenced by factors such as tastes, technological change and market liberalization.
Approximately 70 percent of the silver mined in the western hemisphere is mined as a by-
product of other metal products, such as gold, copper, nickel, lead, and zinc. As such, the
price of these metals greatly affects the supply of silver mined in any year. As die price of die
omer metal products increases, die increased profit margin to mine operations stimulate
greater production of die omer metals, and as a result, die production of silver increases in
tandem. Because silver is a precious metal, its price is determined by die supply and demand
ratio at any given moment. As is the case with other precious metals, there is a limited
amount of silver in the world. It is not a product mat can be manufactured en masse, and,
mere fore is subject to issues such as weamer and politics mat may affect silver mining
operations.
Historical background of Silver markets
Major markets like the London market (London Bullion Market Association), which
started trading in the 17th century provide a vehicle for trade in silver on a spot basis, or on a
forward basis. The London market has a fix which offers the chance to buy or sell silver at a
single price. The fix begins at 12:15 p.m. and is a balancing exercise; the price is fixed at the
point at which all the members of the fixing can balance their own, plus clients, buying and
selling orders.
Trading in silver futures resumed at the Comex in New York in 1963, after a gap of 30
years. The London Metal Exchange and the Chicago Board of Trade introduced futures
trading in silver in 1968 and 1969, respectively. In the United States, the silver futures
market functions under the surveillance of an official body, the Commodity Futures Trading
Commission (CFTC). Although London remains the true center of the physical silver trade
for most of the world, the most significant paper contracts trading market for silver in the
United States is the COMEX division of the New York Mercantile Exchange. Spot prices
for silver are determined by levels prevailing at the COMEX. Although there is no
American equivalent to the London fix, Handy & Harman, a precious metals company,
publishes a price for 99.9% pure silver at noon each working day.

Silver rates in India

Year Silver Rates in Rs./Kg.

2016 36990
2015 37825
2014 43070
2013 54030
2012 56290
2011 56900
2010 27255
2009 22165
2008 23625
2007 19520
2006 17405
2005 10675
2004 11770
2003 7695
2002 7875
2001 7215
2000 7900
1999 7615
1998 8560
1997 7345
1996 7346
1995 6335
1994 7124
 1993 5489
1992 8040
1991 6646
1990 6463
1989 6755
1988 6066
1987 4794
1986 4015
1985 3955
1984 3570
1983 3105
1982 2720
1981 2715

Chapter 5

Key issue and current trend

Growth has not recovered to pre-financial crisis levels despite seven years of
emergency interest rate levels and central bank intervention.

There has been a slowdown in global trade. In recent decades, global trade has
grown by roughly double economic growth. The World Trade Organization
expects growth in trade to be slow and perhaps contract. It is not clear whether
this signals structural changes in trading patterns or presages slower growth.

There is the excessive dependence on the strong performance of China. The

Middle Kingdom has contributed between a third to half of total global growth
directly or indirectly in recent years. While China has 20% of the world’s
population and accounts for around 13% of global GDP, it consumes 60% of the
global production of concrete, 48% of copper, 49% of coal, 54% of aluminium,
46% of steel and 50% of nickel. Given the mounting problems of China, the
dangers of this dependence have been increasingly exposed.
 Asset markets are reliant on the continuation of existing unconventional
monetary policies. Increases in U.S. interest rates and reduced liquidity support
would destabilize the status quo. It would make high debt levels difficult to
maintain. It would also adversely impact already insipid levels of economic
activity. It might also result in the withdrawal of funds from risky investments,
forcing price adjustments.

Postal’S Five Forces ANALYSIS

Threates of
New Entry

Suplier Compatative Buyers

Power Rivalry Pwoer

Threates of
Subsitution

Porter’s five force is a frame work that explains five forces that influences an
industry. These different source shapes up the competition present in industry.

Threat of New Entrants: The main barrier to entry is financing. All precious
metal industry including the most prominent metal gold is highly capital
intensive. Even before the gold mine starts its first production, major investment
is required for exploration, mine construction, heavy mining equipment etc.
Therefore the threat of new entrants is relatively low.

Power of Suppliers:
The primary resource a gold mine needs is land which is available in large
amount in the world. So the only supply problem remains is the government’s
permit to mine the land. Issues like environmental risks posses difficult
challenges in securing government’s approval.

Power of Buyer:
Buyer’s power is high in the gold industry as the gold is a commodity based
product. Therefore gold mined by one company is not very different from the
gold mined by another. Hence buyers will always favour companies that
provide lower prices or favourable contract terms.

Availability of Substitute:
Currently the threat from substitutes is relatively low. Substitutes for gold
include other precious metals like silver, platinum, diamonds etc. Although their
acceptance level is lower than gold. Gold currently holds the advantage of
world currency as all over world it is used as investment. But as other precious
metals like diamond gain popularity they may become more threatening
substitutes.

Competition Rivalry:
The four Industry structures that were mentioned ultimately drives competition
and profitability not the evolution of the industry in terms of being it high tech
or low tech, emerging or mature, regulated or unregulated (Porter, 2008).
Gold companies do not compete on price as market forces determine the price.
But the main competition between them is for land. The long term survival of a
precious metal company depends upon its reserves amount. And the only way to
expand reserves is to continuously explore for economic feasible mining areas.
Therefore gold companies invest heavily in exploration as the first one to
discover is given first preference to mine by the governments.

Chapter 6

Data Analysis and Interpretation

PESTEL ANALYSIS OF GOLD & SILVER Industry

PEST or its extended form PESTLE analysis is examination of the external

macro environment in which an industry functions. These factors are generally
beyond the control or direct influence by a business in the industry. But they
have significant impact on any business running in the industry.

Political:

Government of a country has huge impact in the gold industry. Unlike other
industries government imposes royalty just to mine the gold. And the rate of this
royalty affects greatly the competitiveness of the industry especially the bottom-
line of numerous small-scale miners (Kerr, 2010). Also many policies of the
government always try to control both supply and price of the gold by hoarding
or dishoarding the gold. First of all, government pursues the policy of hoarding
gold in order to encourage miners to mine new gold (Montana River Action,
n.d.). And when the demand for gold pushes the prices, the government
dishoards it to keep the price down

Economic:
The state of the economy of the world has even greater impact on the gold
prices than any policies by government. In fact economic condition can easily
override any control by government to keep the gold price in check. Gold prices
have inverse relation with the economy (Cunha, 1999). When the economy is in
good conditions investors put their money on stocks and bonds. And when stock
market falls due to bad economy, panicked investors sell their stocks and invest
heavily in gold thereby causing price rise (Amadeo, 2009). Almost every
recession period had affected positively on gold price.

Sociological:
Social factors can be said as main driving factor for the popularity of the gold,
as the jewellery comprises the most major share in human consumption of the
gold.

Technological:
Gold apart from being only popular for social purposes is also one of the most
sought after material for technological purposes. It is most malleable, ductile
and highly bacteria resistant material known to man (Azomaterials, 2001). Gold
has very high uses in wide range of industries from Bio-Medical, Catalysis,
Dental, Environmental, Fuel Cells, Electronics, Nanotechnology, Photography,
Space etc. Every year new industrial uses are discovered which in future can
shift the consumption of gold more towards industry than social purposes.

Legal Analysis:

Before mining for gold, compliance with local governmental laws are necessary
in which a prospector wishes to mine. For example in U.S. all mining including
gold is controlled under General Mining Act of 1872. This act broadly states
that any person is US above 18 years of age can stake a mining claim in any
federal property.

Environmental:

Environment and gold mining does not go well with each other. Gold mining is
very toxic waste producing industry. It is responsible for more than 96% of
Arsenic and 78% of Lead toxic pollution in US alone. (Grinning Planet, 2005).

Environmental phenomenon like earthquake also pose high danger to mining

industry. According to geoscientists deep gold mines are most seismically
active regions of the world and can cause cave-ins (Richardson, 2004). Recent
5.2 magnitude earthquake caused an Australian gold mine to shut down and lose
millions of dollar in revenue (Valentine, 2010).

SWOT Analysis of commodity trading Of Gold & Silver

Strengths
The best performing metal this week was silver, up 6.40 percent on perhaps a
paradigm shift as the investors poured $133 million into silver bullion ETFs on
Wednesday, the single biggest inflow in six and a half years. The weekly
Bloomberg survey of gold traders and analysts shows that most are bullish on
the yellow metal as prices broke through a five-year high and touched $1,453
per ounce on Friday morning. Traders seem to be set on an interest rate cut from
the Federal Reserve this month, which is helping gold, even as some better-
than-expected economic data was released on Tuesday. Turkey, which often
sells its gold, saw its reserves rise by $71 million this week compared to last.

The Perth Mint left a $45 million gold coin on display in Manhattan on
Tuesday. The coin, which measures 32 inches in diameter and is almost five
inches thick, weighs 2,200 pounds. Perth Mint CEO Richard Hayes says that the
rise in U.S. sovereign debt has been a big and largely overlooked factor in
surging gold prices, reports the Financial Review.

After a long spat, Acacia Mining and Barrick Gold have reached a deal for
Barrick to buy the roughly 36 percent stake in Acacia that it didn’t already own,
reports Bloomberg. The offer is a 24 percent premium to the company’s closing
price on Thursday. Now that this dispute has been resolved, hopefully Acacia
and the Tanzanian government can mend their relationship.

Weaknesses

The worst performing metal this week was palladium, down 2.49 percent as
hedge funds cut their net bullish position, perhaps rolling some of the proceeds
to silver. Gold exports from Europe’s major refining hub, Switzerland, fell a
whopping 55 percent in June to the lowest since at least 2011. This is due to
smaller shipments to China and India, the world’s two largest consumers of
gold, on the back of higher gold prices.

Venezuela is defying sanctions once again and selling off its gold reserves. The
troubled South American nation sold $40 million in reserves last week, nearly
one ton, lowering its dollar reserves to a near three-decade low of $8.1 billion.
President Maduro has sold approximately 24 tons of gold to places such as the
United Arab Emirates and Turkey since April, according to Bloomberg.

Even as gold is soaring to multi-year highs, investments into gold-backed ETFs

don’t seem to be going anywhere. Looking at the SPDR Gold Shares ETF,
cumulative demand since the start of 2018 doesn’t show a big rush to own
bullion yet. Additionally, investors are selling out of gold miner ETFs which
have underperformed their rivals; mutual fund asset managers in the precious
metal miners sector have significantly outperformed the ETF products.

Opportunities

In an essay posted on LinkedIn this week, billionaire investor Ray Dalio writes
that he believes “it would be both risk-reducing and return-enhancing to
consider adding gold to one’s portfolio.” Dalio adds that he sees a “paradigm
shift” coming in the next few years as a huge amount of debt and non-debt
liabilities come due and can’t be funded with assets. SkyBridge Capital said it is
considering investing in gold for the first time since exiting in 2011 due to Fed
interest rate cuts. Bloomberg published a piece this week saying that sub-zero
real yields are boosting the rush into gold – since gold’s lack of yield doesn’t
matter when the pile of negative-yielding bonds continues to grow. Lastly,
Deutsche Bank says that should U.S. foreign exchange policy start a currency
conflict, the best option is to hold gold.

According to a survey of central banks conducted by the World Gold Council

(WGC) and YouGov, 54 percent of respondents expect global holdings of gold
to climb in the next 12 months due to concerns about risks in other reserve
assets. WGC said that “this year’s survey signals another healthy year of central
bank gold demand” after central banks bought the most gold in 2018 since
1971.

Silver finally got some attention from investors this week. Bloomberg’s Eddie
van der Walt writes that silver has been in gold’s shadow for eight years now
and that the price ratio between the two rose above 93 this month – a level not
seen since 1992. National Bank Financial analysts Don DeMarco said that when
the ratio falls below 90, which it did on Tuesday, the average one-year return
for silver is 22 percent and 10 percent for gold. The silver spot rose about 6.40
percent this week. Exploration stocks and silver miners also saw exceptionally
strong price performance throughout the week.
Threats

Venezuela continues to attempt to evade U.S. sanctions. According to sources

familiar with the matter, Venezuela is mulling over using a Russian-operated
international payments messaging systems as an alternative to SWIFT.

De Beers, the world’s largest diamond producer, continues to see demand fall
and is cutting production. Bloomberg reports that the company plans to mine 31
million carats in 2019 – at the bottom end of a previous forecast range.
Diamond sales from January to June have fallen for four consecutive years.

President Trump said this week that his administration will “take a look” at
Peter Thiel’s allegations that Google’s work with China is “seemingly
treasonous,” writes Bloomberg’s Terrance Dopp. Thiel is a board member of
Facebook. More investigations into the big tech companies could spell trouble
for the markets overall.

Key success factors

1) The deposit is located in an economic region with good governance and

consistent application of civil and tax law;
2) Infrastructure in the form of roads, rail, ports, electricity and
communications to support the mine should be available and functioning;
3) A well understood inbound and outbound supply chain supporting the
mine and points to market;
4) A competent and cohesive team which safely works together; and
Social licence to operate

Key driving forces

1) Supply and demand

The supply and demand equation for silver is one reason the metal is so
valuable: supply is limited but demand is constant. However, the basic
economic fact of markets is that any perceived or actual increase or decrease in
supply or demand will move prices, often disproportionate to the change itself.
For example, if a strike interrupts mining at a major producer, silver prices may
spike over the short term. Likewise, announcement of a new use of silver, such
as in solar panels, will generate more buying and create upward price pressure.

2) Silver Scrap
silver scrap film At one point, photography consumed massive amounts of
silver due to its light-sensitive characteristics. As non-silver photography has
come to dominate the field, there is less demand. Likewise, there has been a
very large stockpile of photographic film that has been recycled for its silver
content.

3) Technology

solar panel technology As noted with the change in film technology, silver
prices are directly and indirectly moved by existing and new technologies.
Many of these new uses for silver take advantage of physical characteristics
found only in this metal, making it virtually irreplaceable.

4) Inflation
Inflation Most analysts, economists, and investors understand the
insidious nature of inflation on portfolio value. This includes even nominal
inflation compounded over long periods of time. Silver, on the other hand, is
seen historically as a great hedge against that inflation. Inflation will erode the
value of paper currency, and silver can provide protection against such losses in
purchasing power.

5) Strength of the Dollar

US dollar as the leading global currency, the U.S. dollar
generally has an inverse relationship with the price of silver. Silver market
participants have seen a history of a strong dollar creating pressure on the price
of silver. At the same time, many savvy investors watch for times when the
dollar is strong to average down their holdings by finding bargain prices for
their purchases.
Future Trend Projection

This can be done by opening a trading account with any of the securities market brokers
registered with the Sebi. In the past, brokerages opened a subsidiary to offer CDS but months
ago Sebi allowed financial services companies to merge their equity and commodity broking
services businesses. Now, if your equity broker offers the CDS segment, you can trade with
your account.

Which exchange offers CDS?

MCX is the largest, and listed, metals and energy exchange. Participants can
trade agri commodity derivatives on NCDEX, and diamond futures and steel
derivatives on ICEX. Also, BSE and NSE recently started a CDS after Sebi
came out with the concept of universal exchange. After fulfilling certain
criteria, it will allow bourses like MCX to offer equity products.
MCX is the largest, and listed, metals and energy exchange. Participants can
trade agri commodity derivatives on NCDEX, and diamond futures and steel
derivatives on ICEX. Also, BSE and NSE recently started a CDS after Sebi
came out with the concept of universal exchange. After fulfilling certain
criteria, it will allow bourses like MCX to offer equity products.
Largely, retail and wholesale traders, a few corporate hedgers and speculators.
Sebi has facilitated the ground for institutional trading by allowing mutual fund
custodians to offer custodial services for CDS and this will deepen the market.
MFs can now trade on behalf of clients through their ETF schemes on gold
derivatives and also offer other schemes for CDS apart from gold
 FINDING AND SUGGESTIONS

 Commodity market is one of the budding markets especially in India. It has a wide
scope to develop because India is country which grows large number of commodity
and metal which can be traded in the commodity market.
 There is a lack of awareness and education about the commodity market in India as
compare to equity market.
 The forward market commission and SEBI is the present regulating body of
Commodity market but it requires a single focused governing body to control,
manage, and stimulate legal aspect of commodity trading.
 Devaluation of US dollar, Inflation, Demand and supply are the main price drivers of
bullion market. Because of change in these factors bullion market creates new history
in the market price of gold and silver.
 There is a close relationship between the price movement of gold and silver. If gold
price increase, silver price also moved in the same direction because both are affected
by same price drivers.
 Most of the commodity which is traded in the Indian commodity markets is based on
three to six month contract. If the commodity contracts become default, the loss will
be entered on the expiry date of contract itself.
 The gold price is in hike due to fear of future inflation and hedging strategy. As per
analyst it will further goes up, so this is a right time to invest in gold.
 As compare to Gold, Gold guinea and Gold mine has high volatility in price. Mainly
because of difference in investment pattern, in gold Govt. and institutional investor
play a major role but in the case of gold guinea and gold mini individual investor play
a major role that makes more volatility in these two.
 Silver is one of the new commodity added in the market, today market for silver is
hyped it’s only because of more demand for silver at the global level.
 Silver demand increased mainly due to finding the new uses of silver and new silver
consuming projects like solar energy, nuclear plant, medical and water purification.

Suggestions:

 Commodity market is a new concept to Indian investor, there should be a clear

education and awareness required to developing and guiding the investor about
 commodity market and concerned authority should take initiation to marketing this
investment instrument appropriately.
 Today if an investor want to enter in to a commodity market he should invest a
minimum amount which is proscribed by concern commodity exchange but this limit
create a barrier to entry. Especially in gold and silver they should invest a minimum
lump-sum amount which is not affordable to small investor so if minimum investment
is reduced to some extent that might help to more people invest in commodity.
 In India commodity market is growing at present so it is a better time to one should
trade in exchange traded market rather than the OTC market.
 “As compare to equity market, there is a volatility in commodity market”, this was
saying best suit during 19th century but today because of gold and silver commodity
market has equal volatility as equity market. So it’s better to follow hedging in
commodity market.
 It is not necessary that one must be educated to invest in commodity futures. So, it is
recommended that those who are not so informed can also invest in commodity
futures.
 It is recommended that now a day’s investor should invest in agriculture commodity
because within the few days some of agriculture commodity is coming up with huge
quantity.

Chapter 7
Future trend projection

After a negative closing in the year 2018, the global gold market has been witnessing a bull

run since the start of 2019. The year 2019 has been the year of bullion for the global

commodity market wherein gold and silver prices staged a strong rally.

Gold has received safe investment boost from a host of events that took across the globe such

as extension and intensification of Sino-US trade, geopolitical tension in the Middle East, the

US sanction of Iran, Nigeria and Venezuela, an extension of trade dispute of the US with

European, Mexico, and India.

Weakening of the global economic condition also attracted increased investment into the

bullion market in general and gold in particular. As a result, the CME gold prices surged by

22.24 percent since closing on Muhurat trading in 2018 i.e, on November 7, 2018, while

silver gained by 22.10 percent in the same period.

On the domestic market, MCX gold futures gave a return of 21.41 percent since the 2018

Muhurat trading day, and silver surged by 20.22 percent. Diwali 2019 is bringing cheers to

the global bullion market by giving more than 15 percent returns since start of the year 2019.

The International Monetary Fund has lowered the global economic outlook through its

quarterly reports. In its April World Economic Outlook report, IMF lowered the global

growth forecast to 3.3 percent for 2019 from 3.6 percent in 2018 and for the year 2020. The

projections were made at 3.6 percent.

These projections were further lowered by 0.1 percent to 3.2 percent for 2019 and 3.5 percent

for 2020 from April forecast. in the latest World Economic Outlook report released on

October 15, the growth projection for 2019 kept at 3.0 percent, and it is projected at 3.4

percent for 2020.

On trade-related activity, the US and China kept on retaliating on each other by imposing

additional tariffs on import of goods and services. There were several rounds of discussion

took place at different levels including the meeting between US President Donald Trump and

Chinese Premier Xi Jinping.

However, both the sides failed to end the more than one year and a half trade dispute. Though

there was temporary relief in the form of delay in imposition of additional tariff, the

agreement between both the countries to buying each other’s products and services did not

really have major impact on the market.

Since the economic condition was worsening, the central banks stepped into to bring the

economy back onto growth trajectory through easing monetary policies. At the beginning of

2019, the US Federal Reserve was on the course to keep its interest rates rising.

However, the stance was changed in the second half of the year wherein it slashed interest

rate by 25 basis points each in July and September. This has resulted in fall in the US

Treasury Yield of two-year and 10-year to multi-year lows thereby attracting investment flow

into the bullion market. Along with US FOMC, other central banks also adopted dovish

stance on their monetary policy and few of them slashed interest rates.

Since Indian gold market follows the trend of international market, the rally seen in global

market was reciprocated into Indian market. The gold in international exchange rose to six-

year high in the year 2019 while, on MCX, the prices rallied to all-time high thanks to the

depreciation of Indian Rupee against the US Dollar.

Apart from this, another factor that led to rally in Indian gold was the change of import duty

on gold. During her maiden budget speech for the Modi 2.0 government, Finance Minister

Nirmala Sitharaman raised the import duty on gold and silver import to 12.5 percent from

earlier 10 percent. This rise in import duty sent shocking signals to the Indian bullion market
wherein the market participants were expecting cut in the import duty.

As the economic outlook is still looking bleak for major countries, which is prompting the

central banks to step in to further ease the monetary policy. This will attract further buying in

the gold and silver in the days to come. The recovery in the global economic conditions, as

well as the end of the trade war between the US and China, will change trend in gold and

silver.

The positive trend in gold and silver will remain intact in the medium term. We are expecting

that the international gold is likely to trade in the range of $1,350 - $1,600 per troy ounce in

the next one year while silver is expected to trade in the range $16.20 - $20.00 per troy
ounce. On the Indian market, the MCX gold trading range is Rs 35,000-42,000 per 10 grams,

and silver is Rs 40,000-54,000 per kg.

Chapter-8

Conclusion

After almost two years that commodity trading is finding favor with Indian investors and is
been seen as a separate asset class with good growth opportunities. For diversification of
portfolio beyond shares, fixed deposits and mutual funds, -term investors and arbitrageurs
and speculators. And, now, with daily global volumes in commodity trading touching three
times that of equities, commodities cannot be ignored by Indian investors.

Online commodity exchanges need to revamp in commodities to make the markets more
attractive. These national multi- commodity exchanges have unitedly proposed to the
government that in view of the growth of the commodities market, foreign institutional
investors should be given the go-ahead to invest in commodity futures in India. Their entry
will deepen and broad base the commodity futures market. As a matter of fact, derivative
instruments, such as futures, can help India become a global trading
[Link]-off in India on the
back of factors like global economic recovery and increasing demand from China for
commodities. Considering the huge recently with the Rs21000 level commodities could
add the required zing to investors 'portfolio. Therefore, it won't be long before the market
sees the emergence of a completely redefined set of retail [Link] majority of Indian
investors are not aware of organized commodity market; their perception is of risky to very
risky investment. Many of them have wrong impression about commodity market in their
minds. It makes them specious towards commodity market. Concerned authorities have to
take initiative to make commodity trading process easy and simple. Along with
Government efforts NGO’s should come forward to educate the people about commodity
markets and to encourage them to invest in to it. There is no doubt that in near future
commodity market will become Hot spot for Indian farmers rather than spot market. And
producers, traders as well as consumers will be benefited from it. But for this to happen one
 has to take initiative to standardize and popularize the Commodity Market.

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