An Evaluation Criteria for Project Paper for BBA (HONS) FINANCE FACULTY OF BUSINESS MANAGEMENT Assessment of Final Proposal

(PI) EVALUATION CRITERIA FOR (Project Paper) Name of students Student ID Research Title : AZIANI BINTI YAAKOB : 2007236978 : THE IMPACT INFLATION AND DEFLATION OF GOLD INVESTMENT NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. CRITERIA Introduction and Background of Study Problem Statement Literature Review Objectives * Hypothesis / Research Question Research Methodology Limitations and scope of study Significance of Study Definitions of Terms RAW SCORE * Hypothesis Quantitative Papers * Research Question Qualitative Papers First Examiner : ________________________________ Second Examiner : ________________________________ Comment:________________________________________ ________________________________________ MAXIMUM MARKS 10 10 15 10 10 30 5 5 5 100 MARKS AWARDED

INTRODUCTION AND BACKGROUND OF STUDY

Gold is a foundation asset within any long term savings or investment portfolio. For centuries, particularly during times of financial stress and the resulting 'flight to quality', investors have sought to protect their capital in assets that offer safer stores of value. A potent wealth preserver, golds stability remains as compelling as ever for todays investor. As one of the few financial assets that do not rely on an issuer's promise to pay, gold offers refuge from widespread default risk. It offers investors insurance against extreme movements in the value of other asset classes. Gold is employed as a hedge against fluctuations in currencies, particularly the US dollar. If the worlds main trading currency appreciates, the dollar gold price generally falls. On the other hand, a fall in the dollar relative to the other main currencies produces a rise in the gold price. For this reason, gold has consistently proved to be one of the most effective assets in protecting against dollar weakness. The price of gold tracks the shifting balance of supply and demand. Long lead times in gold mining mean production of gold is relatively inelastic, regardless of increases in demand. Thats why the rally in the gold price since 2001 has not engendered a meaningful increase in gold production levels. Demand for gold has shown sustained growth recently, due at least in part to rising income levels in key markets. These supply and demand factors have laid foundations for golds most positive outlook in over a quarter of a century.

PROBLEM STATEMENT

The purpose of this study is to examine the details of gold as an assets and its likely performance relative to other assets in a variety of different economics scenarios. The purpose of the study is to answer the following question:

1. To provide investors around the world with key information about the dynamics of the gold market and about the investment properties of gold as an asset in the future

2. It is looking for the gold investment characteristics as a store of value and inflation 3. To test golds resilience as an asset in the face of possible shocks in including high inflation, financial crises and deflationary conditions and also seek to assess its proper place in a long-run investment portfolio under different economic conditions.

THE MAIN OBJECTIVES OF THIS STUDY ARE:

1. To examine the details of gold as an assets and performance relative to other assets in different economics By building on existing studies of the determinants of gold price and combining this with quantitative analysis is the framework of the study is to examined in details golds properties as an asset and its likely performance relative to other assets in a variety of different economics scenario.

2. To study the movement in historical of the gold price investigate the key drivers of the gold price and estimate an equation to explain movements in the gold price over the recent past.

3. To compare the performance with other financial assets (cash, equities, gilts and properties) in a variety of possible scenarios incorporating different inflation outlooks

LITERATURE REVIEW Theres a list of modern as well as relatively the sources dedicated to the problem impact of inflation and deflation the gold investment . These sources will be analyzed according to the following principle:

1. Graphs and research papers 2. Articles in journals 3. Internet articles and web-references

The report will be also analyzed according to their contribution to the research field, comprehensiveness of the utilized approach, qualitative or quantitative researches and strengths

RESEARCH DESIGN AND METHODOLOGY

The time series used in this study consisted of quarterly data from January 1975 to December 2001.8 The analysis was conducted using real data, obtained by deflating nominal series using the percentage (logarithmic) change in United States producer price index as a proxy for inflation, with the exception of the US GDP growth rate, which was based on constant GDP at 1990 prices. Quarterly returns have been annualized. Table 1 below describes the data used in more detail. The hypotheses listed in Section 2 are tested using two methods: firstly, by calculating simple pairwise correlations between the variables. The advantage of this approach is that it is widely used and the results are therefore easier to understand. The Pearson product moment correlation coefficients associated with each hypothesis are reported along with the relevant p-values, used to evaluate whether each coefficient is significantly different from zero.9 A short-coming of pair-wise correlation analysis is that it provides a static view of relationships, i.e. a snapshot in time. In this study, only contemporaneous correlation coefficients were calculated. However, changes in a given economic variable affect other economic variables over time, and these lags are long and variable. Therefore, to gain insight into the dynamics of the relationships between the variables, the four hypotheses are then tested using a Vector Auto Regressive (VAR) system.10 The advantage of the second approach, although it is more difficult to apprehend, is that it becomes possible to identify relationships between several variables across different time periods. For example, VAR analysis enables one to identify whether the change in the interest rate in the previous period affects returns on gold in the current period.

Having identified a research topic which is the impact of inflation and deflation on the case of gold investment and done the preliminary literature review the next logical step is to chalk out the route map for the research report.

Although choosing the research philosophy is dependent on the choice of strategic aims and hypotheses of the study, it would be misleading to prefer a single approach to the others.

Since it is perfectly alright to combine approaches, it can be deduced that it is perfectly alright to mix and match different research strategies with the different research approaches

A-1 The Gold Demand Trend A-2 Calculate as a moving average of the correlation between movement in gold price

Research Philosophy Positivism Realism

Interpretivism

Research Approach Deductive Inductive

Research Strategies

Comprehensive survey Analysis of case Study on dependant variables: Change Ln(Gold Price)

Time Horizon Cross-Sectional Longitudinal

Data Collection Method Secondary Data Evaluation of the results

Data Collection Method

Having decided upon the research strategies, the next step is to collect the data. Limited by the choice of time horizon, a lot of the data used in the research is likely to be secondary in nature. Typically secondary data are of the following types:
1.

Gold price: graphs and spreadsheets of daily, monthly and annual gold prices in different currencies.

2.

Investment statistics: quarterly commentary on golds performance along with monthly updates on performance, historical volatility, correlations, exchange rate effects on gold and many other financial assets in at least a dozen countries.

3.

Demand and supply: statistics detailing gold consumption and demand and supply flows.

This types of secondary information will be available in books, journal articles, reports, electronics database and internet. The literature reviews would typically constitute the majority requirement of secondary data. Such data are nowadays mostly available through the Internet. In the present research we will generally lean on secondary data.

Analysis of Data and Interpretation of Findings

The data obtained through the various methods discussed above would be either quantitative or qualitative. The study and its result are subject to some limitations. Although the methodology used in this study was quantitative rigorous, the approach taken to modelling the price of gold and constructing the scenarios was macroeconomics. In addition, the optimisation analysis utilises a relatively simple model, which does not include all possible financial assets, allow for all possible constraints investors may face and cover all possible motivations and characteristics of investors. As such, the results are intended to be largely illustrative, outlining golds special properties as an asset, examine golds likely relative performance against other assets in changing economic circumstances and indicating the course that investors allocations to gold might best take under different economics scenarios.

HYPOTHESIS / RESEARCH QUESTION

The main aim of this report is to explore the performance of the gold in various economics situation: and to examine gold role within an efficient investment portfolio also in economics situation and other alternative inflation scenario. To support this outline review, this framework is used to interpret the three sub-units of analysis. In doing so, three question are raised, which are to be the subject of research:

What are factors have led to a strong rise in gold price and it is might be expected that gold prices will tend to fall back in the years ahead?

How to we understand the gold perform especially strongly in more extreme economics scenario featuring inflation, deflation and levels of financial stress Why golds use as investment vehicles appears to be rising with investment?

The rest of the report is aimed at answering these questions. This study will consist of and interaction between theoretical foundations and empirical evidence from the data. On the other hand, the results of the empirical investigation contribute to the refinement of the research question methodology and theory. The empirical study is shape by the theoretical basis of the study.