CHAPTER 1

INTRODUCTION
Gold is a yellow precious metal that allures people with its magnificent charm
and beauty. Over the years, the significance of gold has increased/ grown as it
symbolizes growth and prosperity due to which Indians are attracted to it. In India,
gold is not just a metal that helps people enhance their beauty, but is considered as
an emotional asset, having sentimental values associated with it. Indians consider
buying gold on auspicious occasions such as Dussehra, Diwali, Akshaya Tritiya and
many other festivals. Weddings in India too are incomplete without gold jewellery
and people simply can’t get enough of this precious metal. Due to this, India has
become one of the largest consumers of gold, accounting for almost a quarter of
gold’s global consumption.
Today, gold being the super metal that it is, can provide multiple solutions and act
as a knight in shining armour as it can be easily sold in case of a financial crunch.
Gold has not only attracted women but also investors who are dictated by the
everyday-changing gold rates.
Even when investments in the economy market do not seem to be a good idea, gold
serves as a safe haven for investors because as a commodity it never disappoints. To
buy gold in India, an investor has to be updated with the gold rates that are largely
affected by the demand and supply of it.

WHO DISCOVERED 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.

HISTORY OF GOLD:
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.
Gold is the easiest of the metals to work. It occurs in a virtually pure and workable
state, whereas most other metals tend to be found in ore-bodies that pose some
difficulty in smelting. Gold's early uses were no doubt ornamental, and its brilliance
and permanence linked it to deities and royalty in early civilizations.
Gold has always been powerful stuff. The earliest history of human interaction with
gold is long lost to us, but its association with the gods, with immortality, and with
wealth itself is common to many cultures throughout the world.
Early civilizations equated gold with gods and rulers, and gold was sought in their
name and dedicated to their glorification. Humans almost intuitively place a high
value on gold, equating it with power, beauty, and the cultural elite. And since gold
is widely distributed all over the globe, we find this same thinking about gold
throughout ancient and modern civilizations everywhere.
Gold, beauty, and power have always gone together. Gold in ancient times was
made into shrines and idols ("the Golden Calf"), plates, cups, vases and vessels of
all kinds, and of course, jewelry for personal adornment.
The "Gold of Troy" treasure hoard, excavated in Turkey and dating to the era 2450
-2600 B.C., show the range of gold-work from delicate jewelry to a gold gravy boat
weighing a full troy pound. This was a time when gold was highly valued, but had
not yet become money itself. Rather, it was owned by the powerful and well-
connected, or made into objects of worship, or used to decorate sacred locations.
Gold has always had value to humans, even before it was money. This is
demonstrated by the extraordinary efforts made to obtain it. Prospecting for gold
was a worldwide effort going back thousands of years, even before the first money
in the form of gold coins appeared about 700 B.C.
In the quest for gold by the Phoenicians, Egyptians, Indians, Hittites, Chinese, and
others, prisoners of war were sent to work the mines, as were slaves and criminals.
And this happened during a time when gold had no value as 'money,' but was just
considered a desirable commodity in and of itself.
The 'value' of gold was accepted all over the world. Today, as in ancient times, the
intrinsic appeal of gold itself has that universal appeal to humans. But how did gold
come to be a commodity, a measurable unit of value?
Gold, measured out, became money. Gold's beauty, scarcity, unique density, and the
ease by which it could be melted, formed, and measured made it a natural trading
medium. Gold gave rise to the concept of money itself: portable, private, and
permanent. Gold in standardized coins came to replace barter arrangements, and
made trade in the Classic period much easier.
Gold was money in ancient Greece. The Greeks mined for gold throughout the
Mediterranean and Middle East regions by 550 B.C., and both Plato and Aristotle
wrote about gold and had theories about its origins. Gold was associated with water,
and it was supposed that gold was a particularly dense combination of water and
sunlight.
Their science may have been primitive, but the Greeks learned much about the
practicalities of gold mining. By the time of the death of Alexander of Macedon
(323 B.C.), the Greeks had mined gold from the Pillars of Hercules (Gibraltar) all
the way eastward to Asia Minor and Egypt, and we find traces of their placer mines
today. Some of the mines were owned by the state, some were worked privately
with a royalty paid to the state. Also, nomads such as the Scythians and Cimmerians
worked placer mines all over the region. The surviving Greek gold coinage and
Scythian jewelry both show superb artistry.  
The Roman Empire furthered the quest for gold. The Romans mined gold
extensively throughout their empire, and advanced the science of gold-mining
considerably. They diverted streams of water to mine hydraulically, and built
sluices and the first 'long toms.' They mined underground, also, and introduced
water-wheels and the 'roasting' of gold-bearing ores to separate the gold from rock.
They were able to more efficiently exploit old mine-sites, and of course their chief
laborers were prisoners of war, slaves, and convicts.
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.

HOW IS GOLD RATE DETERMINED IN INDIA?

In India, a celebration without gold is considered dull and lackluster. Irrespective of
the gold rates, buying gold is considered a tradition due to which people are ready to
shell out more money to meet the commanding gold rates. While buying gold, one
needs to know that gold rates do not change due to an individual or an authority
who guides them. There are a few factors that dictate gold rate and determine the
ever-changing prices that an individual pays to buy it. Based on the fluctuations in
the market, the gold rates are subjected to change.
 Dollar dynamics: Gold rates are heavily dependent on currency factor as on the
basis of USD. Gold rates are inversely proportional to US dollar due to which
when the USD climbs up, gold rates are likely to go down. When US dollar
weakens, gold prices are likely to climb up. US dollar plays an imperative role in
determining gold price because the central banks that maintain US dollars tend to
hedge the risk of devaluation of the dollar due to increasing gold investments.
Any direct or indirect change in the US currency leads to a change in the Indian
gold rates. India purchases gold from US, so when US dollar strengthens against
the Indian rupees, the gold purchase is likely to get expensive.
 Supply: Supply of gold is not constant and witnesses a drastic change from
time-to-time due to which people have to manage with the available quantity.
More supply of gold makes gold a less dear metal in India. If the supply equation
changes, the prices can witness a huge change.
 Production costs: If the gold mining companies increase the production costs,
the gold rate is likely to go high in India.
 International relations: Bad geopolitical relations between nations can have a
huge impact on gold rates as the supply of gold can get affected which will
eventually lead to an increase in the price of the gold. Hence, healthy global
relations play an imperative role in determining the price of gold.
 Gold reserve measure: Central banks across the world reserve gold for future
use. The Reserve Bank of India does this too. Hence, when the central banks
acquire more gold for reserves, the gold prices are subject to rise.
 Increasing demand: Heavy imbalance in the demand and supply ratio leads to
an increase in the gold rate. In India, gold rates increase during the time of
festivals, wedding and other auspicious ceremonies as during such time, the
demand for gold is high.
 Inflation: Gold is mainly purchased to be used as a weapon against inflation.
However, when inflation witnesses an upward trend, the gold rates too witness an
all-time high.
 Economic instability: Gold prices usually go high during the times of economic
instability as gold can easily devalue other assets due to its liquidity factor that
holds value even during the times of distress. Due to economic instability, people
tend to invest money in gold investment rather than opting for other risky assets.
 Low-interest rates on FD: Bank FDs are considered as one of the go-to
investment options for Indians. However, when FD rates decline, gold becomes a
favorite mode of investment, thereby witnessing more demand and eventually a
price hike. However, no matter the price, gold continues to be a precious sought-
after metal irrespective of the above factors and oscillating prices.

WHO DETERMINES THE GOLD RATE IN INDIA?

There is no such kingmaker in India that determines the gold rate. The Indian
Bullion Association, widely known as IBJA plays a key role in determining the rate
of gold in India. The members of the IBJA take a collective decision in establishing
gold rates in India. International gold prices do play a prime role in determining the
Indian gold rate which may not be exactly the same as the international one. In
India, gold is supplied to banks, who, in turn supply the same to gold dealers at an
additional fee that increases the gold rate. The members of the IBJA speak to the top
dealers of gold in the country to obtain the ‘buy’ and ‘sell’ quotes of gold. Based on
the average of the buy and sell quotes provided by the dealers, the members of IBJA
determine the gold rate for that particular day. The average rate is adjusted for local
taxes and the gold rate is arrived on accordingly.
The gold dealers arrive at the buy and sell quote by accounting the international cost
of gold and adjusting it with the exchange value of the rupees in addition to the
import duties and taxes.
VARIOUS GOLD OPTIONS AVAILABLE IN INDIA:
As we know, gold is one of the most preferable investment options in India.
However, since there is a plethora of investment options available for investing in
gold, you should understand the available gold options that are likely to give you
high returns.
 Gold jewellery: Buying gold jewellery is one of the preferred and widely used
gold investment options since people usually invest in gold jewellery with an
urge to wear it or to celebrate some special occasion. However, the return cost of
gold jewellery is lower than the buying cost due to the making charges. At the
time of buying gold, the making charge is included in the buying charge and
hence while selling it off the making charge is not considered. There is also no
guarantee of the gold rate remaining the same as they are subject to change even
the next day.
 Gold coins and bars: Gold coins and bars promise high returns as there is no
making charge involved in it. However, one has to be careful while investing in
gold coins and bars as buying it from a jeweller can turn out to be bogus. One can
also buy gold coins and bars from a bank, but cannot sell them back to the bank.
Whereas, gold coins and bars purchased from a jeweller can be sold back to the
jeweller.
 Gold ETF: Gold ETF stands for Gold Exchange Trade Fund. It is a type of
individual stock which invests in gold as a commodity ETF and its units are
listed on the stock exchange. Gold ETFs can be purchased from the Stock
Exchange by simply opening a Demat and trading account. Brokerage fee will
have to be borne by the investor.
 Gold Mutual Fund: Gold Mutual Fund is a type of fund that invests in Gold
ETFs on the behalf of the investor. An individual opting for a gold mutual fund
does not require to open a Demat account or a trading account. Investing in a
gold mutual fund can be done just like any other mutual fund. However, the
 investor will have to bear the fund management charges of Gold Mutual Fund
scheme or Fund of Fund scheme.

WHY IS GOLD A GOOD INVESTMENT OPTION?

Due to its globally recognized value, gold continues to be a good investment option
attracting a large number of gold buyers on a daily basis. Anything made of gold is
considered precious and worthy of possession. However, gold is not just known for
charming the wearer, but also as a good investment option that adds value to the
financial portfolio of an individual.
Here are a few reasons that make gold a good investment option:
 Liquidity: Gold can be easily converted to cash anywhere, anytime. It hedges the
investor during the times of emergencies and distress.
 Value: The value of gold stays the same over time. Even though gold rates
change on a daily basis, the value of gold stays unaffected even in the long-run.
Due to this very reason, gold is considered to be a good investment option.
 Hedge against inflation: When the inflation rises upwards, there is also an
increase in the gold rate. Hence, during such a time, investment in gold is
preferable than in any other asset.
 Gold reserves: Gold reserves are maintained to back the paper currencies that
eventually attain value on the basis of the gold reserves backing them.
 Diversified portfolio: Adding gold to your investment portfolio lowers the
overall risks of your investment. Since the gold rate is inversely proportional to
the value of currency values and the stock market, it further qualifies to be one of
the best investment options.
 Tradition: In India, giving gold is mainly used as a way of financial transaction
providing financial stability to the person presented with it. The tradition of
giving gold is prevailing in India since ages now.
 Versatile metal: Gold is used in the production of various jewellery items, gift
items, bars, electronics, coins, fabrics, etc. During the time of increase in demand
of these valuables, gold rates are likely to go sky high.

PER-GRAM GOLD PRICE DETERMINATION IN INDIA:

Per gram gold price in India is determined on the basis of the following factors:
 Currency: When INR slips against the dollar, the gold rate rises in India.
 International factors: International factors such as global development, global
economic instability and dollar prices rising against currencies of other nations
lead to an increase in the gold rate.
 Demand for gold: If the demand for gold is on the rise, the gold rates are subject
to increase.
 Rate of interest: If the rate of interest increases in foreign countries, the current
gold rate in India falls due to which there is a high demand and an eventual
increase in the rise of the gold rate.

NEED FOR THE STUDY:

The study is made to make the customers aware of the volatility in gold prices. This
will help the customers have a clearer view on when to invest in gold. This will not
only be helpful to customers but also the shop owners who buy gold in bulk. The
suppliers will also have an idea on the demand for gold.

STATEMENT OF THE PROBLEM:

It is an empirical study to investigate the impact of volatility in gold price on the
customers. The customers are not in the know of the various trends and patterns in
gold prices. The study will guide the customers to know the suitable time to invest
in gold. Though the jewellers are aware of the demands of the customers in various
times of the year, the study will give them a clearer view. The present study is
undertaken to fill gap in this section.
OBJECTIVES OF THE STUDY:
The objectives of the study are as follows:
 To analyze the different factors which affect the price of gold.
 To study and analyze the impact of exchange rate of USD with INR on gold
prices.
 To study and analyze the impact of prices of crude oil on the gold prices.
 To study and analyze the impact of inflation on gold prices.
 To know the right time to invest in gold.

SCOPE OF THE STUDY:

This study is made on the foundation laid by the information provided by various
gold customers situated in Mangalore. By studying and investing the volatility of
gold prices we can figure out the reasons due to which there is so much fluctuations
in the prices plus what measures can be taken to maintain the price at a certain level.
The investigation would tell us how much volatility existed in gold prices during a
period.

SAMPLE AND SAMPLE SIZE:

The sample of the study involved 60 customers situated in Mangalore. The
respondents were selected through a random sampling though effort was made to
cover as many aspects of perception of gold customers. All the respondents were
personally conducted by the researcher to ensure reliability of data. The results of
the survey have been complied.

METHODOLOGY OF THE STUDY:

The study has been conducted on the basis of primary and secondary data.
Primary data: Primary data is the information collected in questionnaire method and
also by conducting personal interview with various gold customers.
Secondary data: Secondary data is one which already exists and is collected from
the published sources such as newspapers, magazines, internet and information
collected from other people.

SOCIAL RELEVANCE AND CONTRIBUTION OF THE STUDY:

The study will help the suppliers and gold merchants in being prepared for the
availability and supply of gold. It also tells us auspicious times during which people
buy gold. Example: People buy gold mostly during wedding season and festivals
and they refrain from buying from ashada months which is considered inauspicious.
Gold has not only attracted women but also investors who are dictated by the
everyday-changing gold rates.

LIMITATIONS OF THE STUDY:

 Details available are not very accurate as the respondents do not reveal all the
material facts required for the study for personal reasons.
 Due to busy schedule of jewellery shop owners it was hard to make a detailed
study and report.
 Due to time and cost constraint, the study is restricted to the gold customers of
Mangalore city and is conducted only in the selected areas of the city.
 The study was based only on available data.
 The study is limited by the research period.

CHAPTER SCHEME:
1. Introduction: It gives brief introduction to entire project work by providing
information on record of objectives, need for the study, research methodology,
 limitations of the study, social relevance of the study and also limitation of the
study.
2. Literature review: A literature review is a body of text that aims to review the
critical points of current knowledge including substantive findings as well as
theoretical and methodological contributions to a particular topic. Literature
review are secondary sources, and as such, do not report any new or original
experimental work.
3. Profile of the study area: This chapter covers history of Mangalore.
4. Analysis and interpretation of the data collected: This chapter deals with
tables, analysis and interpretation of the data. It is the comprehensive coverage of
forecasting concepts and techniques, which shows the analysis of data through
tabulation, computation and the graphical representation of data. It also provides
information on how and when customers should invest in gold.
5. Summary of findings, conclusion and suggestions: This chapter deals with the
findings, suggestions and conclusion part which is very important after the
analysis is made.

6. Bibliography: This chapter contains a detailed list of various books, magazines,

journals and websites referred for the preparation of the study.
7. Annexure: Questionnaire.