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Group 7
Sonal Teotia (164) Sonam (165) Sudeshna Gupta (168) Suhaas Sharma (169)
Introduction
The case deals with the uncertain demand and price of gold in the Indian market which has been affected by price & non-price factors. There is a huge demand of gold for various festivals like Diwali & Akshay Tritiya.
Gold is a commodity which represents status symbol. India ranks as the largest consumer of Gold globally, accounting for 26% of Worlds Gold demand. Over the past three years, Gold investments have exceeded equity savings by a factor of 11.
Demand Theory
Dx = f ( Y , Px , Ps , Pc , T , Ep , Ey , N , D , U )
Dx = Demand of good Y = Income of individual Px = Price of good Ps = Price of substitute Pc = Price of complement goods T = Taste and preferences Ep = Expectation of future prices Ey = Expectation of income N = Number of consumers in the market D = Distribution of consumers in the market U = Uncertainty
Law of Demand
When other factors are constant, The law of demand states ; Dx = f ( Px ) i.e. when price decreases, demand for the commodity increases and vice versa, when other factors are constant
18% Backup for Bad and Rough Economic Times [ Say, your kid is in 12th and you need to pay hefty capitation fee for Professional course, Gold comes in handy if Equities etc. are all beaten down]
15% Gifting Ideas 6% Just fond of Gold and Impulsive BUYING
Gold as an Investment
Gold is used for hedging against risks, inflation, downturns. India has one of the highest saving rates in the world 30% out of which 10% invest in gold. Rural India does not have access to Banks. Gold is used to convert black money into white. Lack of equity culture in India- Mutual Funds, Bonds, Equity The trend is that in long term, gold generally gives return around 9-10%.
25000
20000
15000
10000
5000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
Diwali - 2008
Diwali 2011
Observations
During Diwali time of 2008, demand of gold increased with decrease in the price for gold. (Law of Demand applicable) In the year 2011, during Diwali, demand increased with the rise in price of gold. (Law of Demand is NOT applicable) Non-price factors plays an important role in determining demand and price of gold in Indian market.
Non-Price Determinants
Income of the customer
Analysis
1. The year 2004 saw a rapid growth in income of average
Indian which resulted in more spending on consumer good including gold. Thus there was a growth in demand for gold.
2.
3.
In year 2009, price of platinum has come down from Rs 35000 to Rs 22000, so many Indian buyers started to buy platinum over gold. Price Effect = Substitution Effect + Income Effect
Conclusion
It appears as a paradox that demand and price of Indian Gold market is NOT exactly following the law of demand. As the price of gold increased, the demand for it also increased.
But after careful analysis of the price and demand of gold by considering non price factors also, we can conclude that gold is following the law of demand.
References
http://www.jagoinvestor.com/2012/01/gold-price-movements-analysis.html http://freepress.in/26/why-when-indians-buy-gold-consumption-in-2011/ http://www.gold.org/investment/statistics/gold_price_chart/
http://goldpricenetwork.com/gold-price-history/?country_id=368&mm=10&yy=2008