“PRICE DRIVES OF GOLD AND SILVER”

INTRODUCTION

“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

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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), mineral and

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 gur, potatoes and

onions, coffee and tea, rubber and spices. Etc.

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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."

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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

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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 trough

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.

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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.

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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 by the size of

her market. 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 whole sellers 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 reasons.

In 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.

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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

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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 Adhat and Vayda Vyapar 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

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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

through out 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 share holders 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

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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 Shetkari Sanghatana. MCX deals wit 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, Kapas Khalli, 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-mutualised

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.

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STRUCTURE OF COMMODITY MARKET

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Ministry of consumer affairs

Forwards market commission

Commodity Exchange

National stock exchange Regional stock exchange

NCDEX MCX NMCE NBOT 20 other

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GOLD

Gold is a chemical element with the symbol Au (Latin aurum, “shining dawn”) and an atomic

number of 79. It has been a highly sought –after precious metal for coinage, jewelry, in rocks, in

veins and in alluvial deposits. Gold is dense, soft, shiny and the most malleable and 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 metal 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 form 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.

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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 pf

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

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silver.

In ancient Egypt, around the time of Seti 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.

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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

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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

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“PRICE DRIVES OF GOLD AND SILVER”

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 appearance 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 Lydians. 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,

18

“PRICE DRIVES OF GOLD AND SILVER”

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.

19

“PRICE DRIVES OF GOLD AND SILVER”

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

20

“PRICE DRIVES OF GOLD AND SILVER”

o Coinage

o Photography

o Silver Jewelry .

o Silverware and Table Settings

Industrial

o Batteries

o Bearings

o Brazing and Soldering

o Catalysts

o Electronics

Emerging

o Medical

Applications

o Mirrors &

Coatings

o Solar Energy

o Water

Purification

1

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

DISSERTATION TITLE

“COMMODITY MARKET - PRICE DRIVERS OF GOLD AND

SILVER”

Statement of the problem

The commodity market is still new and growing in India and it has a bright scope

to develop, on that view this research study is taken.

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.

Objective of the study

To learn 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.

Sampling design

Sampling is simply the process of learning about the population on basis of a

sample. Thus, sampling technique instead of every unit of the universe. Only a

part of the universe is studied and conclusion is drawn on that basis for the entire

universe. A sample is subset of population units. The researcher adopted the

simple random sampling technique for the study.

Simple random sampling

Simple random sampling refers to that sampling technique in which each and

every unit of the population has an equal opportunity of being selected in the

sample. The researcher has adopted simple random sampling because population

is known.

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 Angel 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.

Tool used

The live trading of last one year record system which is used in angel broking,

and Bloomberg, SAP software which is used in the angel broking are used in this

research to collect required data.

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

The following are some of the limitations of the study:

1) The project work was required to be completed within a short period of time.

So time constraint was one of the main limitations of the study.

2) Most of the information’s are collected from secondary data, so researcher

can’t say it 100% applicable.

3) There is no particular format for the study.

4) Cost Constraint.

INDUSTRY PROFILE

Indian markets have recently thrown open a new avenue for retail investors and

traders to participate in: commodity derivatives. For those who want to diversify

their portfolios beyond shares, bonds and real estate, commodities are the best

option. Till some months ago, this wouldn't have made sense. For retail

investors could have done very little to actually invest in commodities such as

gold and silver or oilseeds in the futures market. This was nearly impossible in

commodities except for gold and silver as there was practically no retail avenue

for punting in commodities. Whatever it may be , with the setting up of

three multi-commodity exchanges in the country, retail investors can now trade

in commodity futures without having any physical stocks

Commodities actually offer immense potential to become a separate asset class for

market-savvy investors, arbitrageurs and speculators. Retail investors, who claim

to understand the equity markets may find commodities an unfathomable market.

But commodities are easy to understand as far as fundamentals of demand and

supply are concerned. Retail investors should understand the risks and advantages

of trading in commodities futures before taking a leap. Historically, pricing in

commodities futures has been less volatile compared with equity and bonds, thus

providing an efficient portfolio diversification option.

Like any other market, the one for commodity futures plays a valuable role in

information pooling and risk sharing. The market mediates between buyers and

sellers of commodities, and facilitates decisions related to storage and

consumption of commodities. In the process, they make the underlying market

more liquid

The trading of commodities consists of direct physical trading and derivatives

trading. The commodities markets have seen an upturn in the volume of trading in

recent years. In the five year up to 2010, the value of global physical exports of

commodities increased by 17% while the notional value outstanding of

commodity OTC(over the counter) derivatives increased more than 500% and

commodity derivative trading on exchanges more than 200%.

The notional value outstanding of banks’ OTC commodities’ derivatives contacts

increased 27% in 2010 to $9.0 trillion. OTC trading accounts for the majority of

trading in gold and silver. Overall, precious metal accounted for 8% of OTC

commodities derivatives trading in 2010, down from their 55% share a decade

earlier as trading in energy derivatives rose.

Global physical and derivatives trading of commodities on exchanges increased

more than a third in 2010 to reach 1,684 million contacts. Agricultural contacts

trading grew by 32% in 2010, energy 29% and industrial metals by 30%. Precious

metals trading grew by 3% with higher volume in New York being partially offset

by declining volume in Tokyo. Over 40% of quarter in China. Trading on

exchanges in China and India has gained in importance in recent years due to their

emergence as significant commodities consumers and producers.

Present scenario

Today’s commodity market is a global market place not only for agricultural

products, but also currencies and financial instruments such as Treasury bonds and

securities futures. It’s a diverse marketplace of farmers, exporter, importers,

manufacturers and speculators. Modern technology has transformed commodities

into a global marketplace where a Kansas farmer can match a bid from a buyer in

Europe.

The 2008 global boom in commodity prices- for everything from coal to corn –

was fueled by heated demand from the likes of China and India, plus unbridled

speculation in forward markets.

The bubble popped in the closing months of 2008 across the board. As a result,

farmers are expected to face a sharp drop in crop prices, after years of record

revenue. Other commodities, such as steel, are also expected to tumble due to

lower demand. This will be a rare positive for manufacturing industries, which

will experience a drop in some input costs, partly offsetting the decline in

downstream demand.

COMPANY PROFILE

History & development

“Angel Broking” is the retail broking arm of SSKI, an organization with more

than eight decades of trust & credibility in the stock market. It is India's leading

retail financial Services Company with We have over 250 share shops across 115

cities in India. While our size and strong balance sheet allow us to provide you

with varied products and services at very attractive prices, our over 750 Client

Relationship Managers are dedicated to serving your unique needs. Angel Broking

is lead by a highly regarded management team that has invested crores of rupees

into a world class Infrastructure that provides our clients with real-time service &

24/7 access to all information and products.

Our flagship Angel Broking Professional Network offers real-time prices,

detailed data and news, intelligent analytics, and electronic trading capabilities,

right at your fingertips. This powerful technology complemented by our

knowledgeable and customer focused Relationship Managers. We are creating a

world of Smart Investor. Angel Broking offers a full range of financial services

and products ranging from Equities to Derivatives enhance your wealth and hence,

achieve your financial goals. Angel Broking' Client Relationship Managers are

available to you to help with your financial planning and investment needs. To

provide the highest possible quality of service, Angel Broking provides full access

to all our products and services through multi-channels.

In a shot span of 22 years since inception, the Angel Group has emerged as one of

the top five retail stock broking houses in India, having membership of BSE, NSE

and the two leading Commodity Exchanges in the country i.e. NCDEX & MCX.

Angel Broking is also registered as a Depository Participant with CDSL.

General information

Angel Broking's tryst with excellence in customer relations began in 1987. Today,

Angel has emerged as one of the most respected Stock-Broking and Wealth

Management Companies in India. With its unique retail-focused stock trading

business model, Angel is committed to providing ‘Real Value for Money’ to all its

clients.

The group is promoted by Mr. Dinesh Thakkar, who started this business as a sub-broker

in 1987 with a team of 3. Today the angel group is managed by a team of 1937 direct

employees and has a nationwide network comprising of 21 Regional hubs, 124 branches

and 6810 sub brokers & business associates. Angel is 100% focused on retail stock

broking business unlike any other larger national broking house. The group currently

services more than 5.9 thousand retail clients.

Angel Booking’s meeting with excellence in customer relations began more than 20 years

ago. Angel Group has emerged as one of the top 3 retail broking houses in India and

incorporated in 1987.

It has memberships on BSE, NSE and the leading commodity exchanges in India NCDEX

& MCX. Angel is also registered as a depository participant with CDSL.

Rashmi Investments

It is a channel partner of Angel broking, it was started in the year 2009 (Oct 1 st) as

a one men business, by three young and energetic persons but business was

register under the name of Ajith sing. Initially it has 10 clients with trading worth

of Rs 10 lakhs. but today Rashmi is grown as a part of angel with 510 clients with

the turnover of Rs 7 crores. The success of any business depend on the key

persons of the organization, here also the four people day and night work for the

development of Rashmi. They are

Mr Ajith sing: - Proprietor and authorized sub broker of Angel

Mr vivek: - Business development officer

Mr Ram: - commodity market analyst and specialist in future andoption

Miss Sunitha: - customer relationship officer

Today Rashmi investment has sufficient clients even though it focuses on

customer acquisition and building the good relationship with the present clients.

Rashmi is not preparing any trading tips for its client, but it circulates the tips to

its customer which is given by angel. One of the other strategy adopted by Rashmi

is giving education about the equity and commodity market to its customer. Every

week end it call a meeting with its clients and share all the new things which is

happening in market.

The Rashmi invest is a growing firm, now it work with Angel as a partner but it has its

own vision and mission. I hope it will reach its goal as soon as because all employees in

the organization work in coordinated manner and Rashmi is able to create it own

name in their field within a short span of time.

Angel’s presence

Nation- wide network of 21 regional hubs

Presence 124 cities

6800 + sub brokers & business associates

5.9 lakh + clients

Angel group companies

Angel Broking Ltd. Member on the BSE and Depository Participant with CDSL

Angel Capital & Debt Market Ltd. Membership on the NSE Cash and Futures & Options Segment

Angel Commodities Broking Ltd. Member on the NCDEX & MCX

Angel Securities Ltd. Member on the BSE

ANGEL’S BUSINESS

MANAGEMENT TEAM

SR. NO Name Designation & Department

1 Mr. Dinesh Thakkar Founder Chairman & Managing Director

2 Mr. Lalit Thakkar Director – Research

3 Mr. Amit Majumdar Executive Director – Strategy and Finance

4 Mr. Rajiv Phadke Executive Director – HR & Corp

5 Mr. Vinay Agrawal Executive Director – Equity Broking

6 Mr. Nikhil Daxini Executive Director - Sales and Marketing

7 Mr. Hitungshu Debnath

Executive Director - Distribution & Wealth

Management

8 Mr. Mudit Kulshreshtha Executive Director – Operations

MILESTONES

October, 2009 ‘Major Volume Driver’ Award by BSE for 2008-09

May, 2009 Wins Award for ‘Broking House with Largest Distribution Network’

& ‘Best Retail Broking House’

August, 2008 Crossed 500000 trading accounts

November, 2007 ‘Major Volume Driver’ for 2007

December, 2006 Created 2500 business associates

September, 2006 Launched Mutual Fund and IPO business

July, 2006 Launched the PMS function

October, 2006 ‘Major Volume Driver’ award for 2006

October, 2005 ‘Major Volume Driver’ award for 2005

September, 2004 Launched Online Trading Platform

April, 2004 Initiated Commodities Broking division

April, 2003 First published research report

November, 2002 Angel’s first investor seminar

March, 2002 Developed web-enabled back office software

November, 1998 Angel Capital and Debt Market Ltd. Incorporated

December, 1997 Angel Broking Ltd. Incorporated

ANGEL’S LOGO, VISION

ANGEL’S ORGANIZATIONAL STRUCTURE

Products of angel broking

Online- trading

Specially designed for the net know-how traders and investors who prefer operating from

their home or office through the internet. The investor can access state of the art

technology via trading on BSE, NSE, F & O, MCX and NCDEX through 3 unique e-

trading softwares.

Features of Online trading at Angel

Multiple exchange on a single screen

Investor use the latest technology to generate efficient uptime and greater stability to

gain high speed.

Competitive brokerage rates

Optimum margins

Online fund transfer

Personalized service

Off line services

Technology.

Back office infrastructure

E – contract notes cum bills

Commodities

A commodity is a basic good representing a monetary value. Commodities are most often

used as inputs in the production of other goods or services. With the advent of new online

exchange, commodities can now be traded in futures markets. When they are traded on an

exchange, Commodities must also meet specified minimum standards known as basic

grade.

Types of Commodities

Precious Metals : Gold and Silver

Base Metals : Copper, Zinc , Steel and Aluminum

Energy : Crude Oil, Brent Crude and Natural Gas

Pulses : Chana , Urad and Tur

Spices : Black Pepper, Jeera, Turmeric , Red Chili

Others : Guar Complex, Soy Complex, Wheat and Sugar

Benefits at Angel

Three different online products tailored for traders & investors.

Single Screen customized market-watch for MCX / NCDEX with BSE / NSE.

Streaming Quotes and real time Rates. Intra-day trading calls.

Research on 25 Agro Commodities, Precious and Base Metals, Energy products

and Polymers.

An array of daily, weekly and special research reports.

Highly skilled analysts with professional industry experience.

Active relationship management desk.

Seminars, workshops and investment camps for investors

commodities services

Agro Tech Speak : Mainly gives the investors insight into and a forecast for agro

commodities viz. pulses (urad, channa etc); reports on oil complex (soybeans castor etc.)

along with spices with reports on kapas guar seed.

Call Evaluation : A report designed for evaluating the calls given by the angel

research team where the reports are classified in 3 broad categories viz. achieved,

triumph, not achieved along with the trade recommendations.

Commodities Tech Speak : This report mainly equips the investors dealing in

MCX segment in commodities like gold, silver, crude oil, copper etc with the market

insight and expert recommendation on the trading strategies

Angel commodity advantages

Top Quality Research

Professionally qualified analysts with rich industry experience

Research on 25 agro commodities, precious metals, base metals, energy

products and polymers

E-Broking

Single screen customized market watch for MCX / NCDEX with BSE / NSE

Streaming quotes and intraday calls

DP Facilities in Commodities Trading on CDSL

24x7 Online Back-office

Efficient Risk Management

Competitive Brokerage Rates

Depositary participant services

Angel Broking Ltd. is a DP services provider though CDSL. They offer depository

services to create a seamless transaction platform to execute trades through Angel group

of companies and settle these transactions through Angel Depository services.

Portfolio management services

Successful investing in Capital Markets demands ever more time and expertise.

Investment Management is an art and a science in itself. Portfolio Management Services

(PMS) is one such service that is fast gaining eminence as an investment avenue of choice

for High Net worth Investors (HNI). PMS is a sophisticated investment vehicle that offers

a range of specialized investment strategies to capitalize on opportunities in

the market. The Portfolio Management Service combined with competent fund

management, dedicated research and technology, ensures a rewarding experience for its

clients.

Angel PMS brings with it years of experience, expertise, research and the backing of

India's leading stock broking house. At Angel, experienced portfolio management is the

difference. It will advise you on a suitable product based on factors such as your

investment horizon, return expectations and risk tolerance.

Investment Advisory Services

To derive optimum returns from equity as an asset class requires professional guidance

and advice. Professional assistance will always be beneficial in wealth creation.

Investment decisions without expert advice would be like treating ailment without the

help of a doctor.

DEPOSITARY PARTICIPANT SERVICES

Angel Broking Ltd. is a DP services provider though CDSL. They offer depository

services to create a seamless transaction platform to execute trades through Angel group

of companies and settle these transactions through Angel Depository services.

Fundamental research services

The Sunday Weekly Report

This weekly report is the ace of all reports. It offers a comprehensive market

overview and likely trends in the week ahead. It also presents few top picks

based on an in-depth analysis of technical and fundamental factors. It gives short

term and long term outlook on these scrip’s, their price targets and trading

strategies. Another unique feature of this report is that it provides an updated

view of about 70 prominent stocks on an ongoing basis.

The Industry Watch

This report provides an in-depth analysis of specific industries which are likely to

outperform others in the economy. It analyzes their strengths and weaknesses

and ascertains their future outlook. The final view is arrived at after thorough

interaction with industry experts. Also comparative performances of various

companies in the sector are evaluated and top picks are recommended.

Stock Analysis :

Angel’s stock research has performed very well over the past few years and the

Angel Model Portfolio has consistently outperformed the benchmark indices.

The fundamentals of select scrip are thoroughly analyzed and an actionable

advice is provided along with investment rationale for each scrip.

Flash News :

Key developments and significant news announcements that are likely to have an

impact on markets / scrip are flashed live on trading terminals. Flash news keeps

the market participants updated on an online basis and helps them to reshuffle on

their holdings.

Technical research service :

Nifty Tracker :

Nifty Futures is the most traded instrument with highest volumes in F & O and

excellent liquidity. The team tracks the Nifty Future and generates calls based

on unique trading system which is a result of their focused research over the

past few years. The objective is to generate positive returns for traders who are

looking for a high risk / high reward product.

Online Chart :

An online forum to help clients, specifically day trader is judging the directions

of the market and stocks which are in the limelight.

Intraday Calls :

For day traders, Angel provides intra-day calls with entry, exit and stop loss

levels during market hours. These calls are flashed on their terminals. Their

analysts continuously track the calls and provide recommendations according to

the market movements.

Position Calls :

Angel’s “Position Trading Calls” are based on thorough analysis of the price

movement in select scrip’s. These calls are for a 10-15 day time span with stop

loss and target levels. These calls are flashed on their terminals during market

hours.

Derivative Strategies :

Their analysts take view on the Nifty and select stocks based on the derivatives

data and technical tools. Suitable “Derivative Strategies” are devised, which are

flashed on their terminals and published in their reports.

Futures Calls :

A customized product for HNIs to help them trade with leveraged position;

wherein clients are advised on the stocks with entry, exit and stop loss level for

short term benefits. Over and above this, financial status of the calls is monitored

at all times.

SWOT Analysis of Angel Broking

A SWOT analysis focuses on the internal and external environments, examining

strengths and weaknesses in the internal environment and opportunities and

threats in the external environment.

STRENGTH

Service

Distribution network

Marketing

Products

WEAKNESS

Competition from Banks

Lack of specialist in commodity

market

OPPORTUNITIES

Ever increasing market

Improving technology

Unfulfilled needs of customers.

Education level

THREATS

New competitors

Technology based business

Heavy market volatility

Competitive analysis

Follower:

- The follower is just blindly following the other player, which is leader and

challenges.

- The players like 5 paisa, Motilal Oswal, HDFC Securities, Kotakstreet are the

followers.

Leader:

- ICICIdirect.com is a leader in the online account which is having 1,24,000

account in the country.

- While in offline account Sharekhan is leading with 64,000 offline accounts.

Challenger:

- Sharekhan, Kotakstreet and Indiabulls come under this head.

- Sharekhan challenges competitors by providing quality services and research

based advice.

- Indiabulls is also challenging with low brokerage rates and class one services.

ANALYSIS AND INTERPRETATION

Success of any research is based on the analysis part. It shows the core theme of

research and how it is done; any research is not completed without clear analysis

and interpretation. Convincing and understanding capacity of a research is laid in

this part. This research analyze the how gold and silver prices are fluctuate and

what make them to change, through interpretation researcher gives a tips to

overcome and predict future changes in gold and silver price

Gold performance during 2010

Gold prices are currently trading near their all time highs on global markets as

concern over t he ability of several European countries to finance their debt

burdens destabilized the euro and sharpened volatility across financial markets,

fuelling an investor flight into the perceived safe-haven asset. Gold’s gains were

mainly imparted by weak dollar and uncertain economic conditions which

prevailed during the 2010. Silver which is also known as poor man’s gold is also

trading near its 30 year high on international bourses tracking sharp moves in gold

and base metal price as it is also used has an industrial metal. Weaker dollar

spread billions alternative investment demand while concerns of faltering

economic recovery strengthened metals’ safe haven appeal. A part from the

lowering dollar index, strong investment demand was another major reason which

took the gold price to new highs in 2010. Japan and USA continued to make gold

an attractive investment. In particular, statements by federal reserve officials and

discussion in previous policy meetings regarding their willingness to provide a

more accommodative policy to spur economic growth and relating the labor

market have put pressure on the US dollar, which increased long term inflation

expectations and, consequently, due to its role has a hedging vehicle, pushed up

the price of gold. Secondly officials sector activity continued to be supportive of

the gold market has sales by European central banks remind negligible while in

several emerging markets, including Russia, Bangladesh and Thailand , central

bank continued to increase their gold reserves . Now has we are moving towards

2011, it would not be an easy task for us forecast or predicting the price of gold in

coming period . The entire economy is similar to a living breathing organism with

many complex parts. Isolating any one aspect is done with the risk of being

inaccurate. So the price of gold is a difficult number to determine in the overall

economic outlook. There is no definitive answer to where the price of gold will

be in 2011 are prices have

Already surged for ten consecutive years. But if we look at the overall global

scenario then we think that the current scenario is still very positive for bullions to

mark an eleventh year of gains in 2011 on international bourses and new highs on

local platform as investors seek refuge from an uncertain global economic outlook

and non reliability on paper currency. On global front, China is now the world’s

biggest producer of the gold and consumes all the gold its mines can dig up.

China’s miners produced 277.017 metric tones of gold so far in 2010, up to 8.8%

from the same period in 2009. In fact china imported 209.7 metric tonnes of gold

in the first 10 months of 2010 which is up fivefold compared with the same period

of 2009. Surging demand from china is already changing the seasonal pattern in

the gold price pursuing the annual gold price “peak” from November to February,

has gold buying centre around china’s New Year.

Data about last year Performance:-

COMMODITY EXCHANGE

LIFE TIME

HIGH

LIFE TIME

LOW2010 HIGH 2010 LOW

COMEX 1431.10 252.50 1431.10 1045.20

GOLD

MCX 20924.00 5600.00 20924.00

15950.00

The Present Gold performance (2011):-

The current performance of gold is very difficult to predict because it shows very

volatility in the market. from last few day gold price was increased continuously

due to food inflation and world crisis.

Last Month Performance Chart of Gold (Feb-march):- The present performance of gold is analyzed by the performance of gold contract which is trading in the Indian commodity market,

Contract Expiry Date:- 5th April 2011 Contract Expiry Date:- 4th June 2011

Contract Expiry Date:- 5th August 2011 Contract Expiry Date:- 5th October 2011

Analysis of Market moving factors of gold:-

The market movement of gold is affected by enormous factors, but in the last

month the price of gold increased from 20,150 to 21,750 “(Per 10 gm) this price

volatility is not equal to all four contract but by see the chart we can say all most

all contract is moved in the same manner. The some of assumed price drivers are

as follows.

Indian gold prices are highly correlated with international prices. However,

the fluctuation in the INR-US Dollar impact domestic gold prices and have

to be closely followed.

Last week when Jean-Claude Trichet announced a 0.25 pt raise in Key

interest rates, Gold and Silver prices dipped as the European Central Bank

Chief emphasized his inflation-fighting focus. But the 2 Key inflation

hedges were just temporarily tarnished by the tough talk as Friday Gold

rose to a new all-time high at Rs 22000.

Players have been joining in, and holdings of Gold to back exchange-

traded funds (ETFs), the popular way for retail investors to participate,

rose 19.9 tons Thursday, the biggest single inflow since late January.

After a week January, prices of the precious metals rose in February and

march when the unrest that toppled governments in Tunisia and then Egypt

sent players to havens.

Last month the Utah State Legislature passed a bill accepting US Gold and

Silver coins as legal tender and other States in the USA are considering

similar legislation in a direct rebuke to the Federal Reserve and its ultra-

loose monetary policy.

The Euro hit a 14-month high of 1.4443 vs. the USD Friday. That makes

gold market moves up.

Inflationary impact of soaring Crude Oil and food prices, which have

pushed real US interest rates, nominal rates minus inflation, to negative

levels.

Negative real rates are not just a US issue; the same is true in China, where

demand for Bullion is climbing too.

The cost of “Carry” (the difference between interest on deposits and non-

interest bearing Gold) is Zero now and that drives money to be invested in

assets.

Supply –demand is a major influencer, amid rising global investor demand

and almost stable supplies.

Shifts in official gold reserves, reports of sales/purchases by central banks

act as major price influencing factors, whenever such reports surface.

There is uncertainty in the economy - nobody really has a clear picture

about what will happen in the next 12 months. As a result, people tend to

invest in something defensive (a good hold) and that has traditionally been

gold.

The Currency exchange rate is one of the factors determining the gold

price. If currency of different country changes in a positive correlation the

price of gold will be same. If it is in negative correlation the gold price is

differ from country to country. Mainly it will adversely affect to

developing and under developed country gold price

Interpretation:

The price of gold is moving upward from last few months the slight volatility

in the gold price because of above all factors, some of the factors which

related to price drives of gold will affect after some time and some of them

shown immediate influence on gold market, So the bullion market movement

is not give exact cause to its volatility. Nearly Rs 500 was gone up in the

yellow metal market and also by seeing chart of present trading contract we

can predict the market was in bullish side rather than bearish.

A Year performance of present gold trading contract:

The gold performance is better as compare to 2010, The last year Average price is

Rs19640 but it was moved to 21000 Rs during 2011. The yearly performance of gold is

analyzed by taking consideration of present contract trading in the Bullion market.

-Contract Expiry Date:- 5th April2011 Contract Expiry Date:- 4th June2011

Contract Expiry Date:- 5th Agust2011 Contract Expiry Date:- 5th October 2011

Analysis of present trading contract yearly movement:-

The yearly movement of gold is influenced by various factors mainly core price

drivers of Gold, like inflation, interest rate, the dollar value or other. This core

price driver largely changes during 12 month gap period and also the number of

factors effecting on commodity market is varies. Some of important gold market

moving factors are as follows.

Tightening of gold supply

Gold mining is decreasing and the demand for gold is increasing. Gold supply has

decreased by almost 40 per cent as the cost of mining, legal formalities and

geographical problems have increased which has led to a fall in gold mining.

Economics have taught us that lesser the supply, greater the demand and in turn

greater the increase in price.

Interest rates

Gold has always been considered a good hedge against inflation. Rising inflation

rates typically appreciates gold prices. It has an inverse relationship with interest

rates. As gold is pegged to the US dollar, US interest rates affect gold prices.

Whenever interest rates fall, gold prices increase. Lowering interest rates increases

gold prices as gold becomes a better investment option vis-a-vis debt products that

earn lower interest. Gold loses its shine in a rising interest rate scenario.

Geo-political concerns

Whenever there is geo-political strife, investors around the world rush to prevent

erosion of their investments and gold as a safe haven attracts one and all. For

example after terror strike in the United States the demand for gold had increased.

With the recent events like tension between India-Pakistan, Israeli strikes over

Gaza, the ongoing war in Iraq, the tension between US and Iran coupled with

recession have investors scrambling for gold.

Central bank demand

With the dollar losing its value, central banks of most of the developed countries

have started to increase their share of gold. This explains the increasing market

demand for gold.

Weakness in financial markets

General rule of thumb in the market is that gold is always attractive when all other

investments are unattractive. Why is this? As gold is negatively co-related to

stocks, bonds, and real estate, gold is considered to be a safe haven and hence

during any crises, investors would like to sell off what they would term as risky

investments and be invest the funds in gold.

Huge purchasing habit by china

China is adding to their reserve of gold. It has been well known that China is

trying increase the amount of gold that they hold so for that reason alone the price

of gold has gone up. They are pushing for their citizens to invest or buy more gold

and they need to be sure that they have an excess amount of gold in stock to meet

their demands. They hold the title for the most populated area so their demand for

gold is much higher than any other area.

Positive response to Portugal PM words:-

The gold price reacted positively to the Portuguese auction, rising to its new

record high. Later in the day, Portugal’s Prime Minister, Jose Socrates, announced

that the nation requested financial assistance from the European Union. The price

of gold again responded favorably, rebounding from its intra-day low.

Interpretation:-

In the mid 2010 the price of gold is Rs 18,000 but at the end of 2010 the market

crosses Rs 21,000. The price movements of different trading contract are not

moved in the same manner mainly because of different maturity period. Each

contract is affected by different price drivers based on the expiry date of contract.

As compare to last year the movement of gold price is in positive way. The

economy is in the recovery stage of great 2007-2008 depression so it indicator to

development of the economy.

Gold guinea:-

Gold Guinea is a coin that was minted in the United Kingdom between 1663 and

1813, originally worth one English Pound sterling and weighing around 8.3-8.4

grams. The name was derived from Guinea in Africa, from where most of the gold

used to make these coins originated. In the India context, Gold Guinea refers to 8

gram gold coins of atleast 0.995 purity, which are mainly utilized as a retail

investment. The demand for gold coins for retail investment is estimated to be

around 35 tonnes in India and this is expected to grow at a rate of 40% in the

coming years.

Performance of Gold guinea:-

The last month (March) performance of gold guinea can be understand by

analyzing the gold guinea trading chart.

Contract Expiry Date:- 31st March 2011 Contract Expiry Date:- 30th April 2011

Contract Expiry Date: - 31st May 2011

Analysis of Gold Guinea Monthly trading chart:-

As compare to gold, the market performance of gold guinea is not so familiar even

though it has equal value of gold main. It has high volatility in the beginning of

the month, at the month mid nearly 15 to 18th of March gold guinea went down, on

the same time gold main was in bullish mood. This high volatility may be caused

by number of factors but some core pricing drivers are as follows.

An under supply of newly-mined gold.

Gordon Brown striking out on his IMF gold sales proposal, with the US

opposing it.

The Washington Agreement supporting gold by being generally against

excessive Central Bank gold sales.

The real possibility of Asian countries buying whatever gold the European

Central Banks dish up.

The never-ending story of the US trade deficit.

Gold is a "de facto currency" and therefore not subject to demand

deficiencies caused by world wide economic slowdowns.

Gold is an inflation fighter and they can see stagflation approaching.

Now-a-days dollar is weakening day by day against other major currencies

. India therefore purchased 200 metric tones of gold recently. Other

countries also likely to take similar decision.

Prices have moved sharper than it should have. It just because speculators

moved it up up and up. Hence prices are expected to come down at faster

space which happened in last few days just after Fed cut rate by 75 basis

points.

“The situation in Libya, it seems quite bad and we see the flow of funds

into safe-haven investment because of it,” In addition to oil prices, other

commodity that jumped due to crisis of Libya is gold. This precious metal

prices jumped to 1% became U.S. $ 1,400 per ounce. Investors are

competing to divert their investment to a safe place from inflation like

gold.

Every state in the world keeps its foreign reserves in the form of foreign

currency i.e. $, Euro and pond. Gold is also taken as an asset in foreign

reserve. Taking it as an asset was a tradition, very popular in the past that

declined after the surge in value of dollar. Similarly the decline in the

value of dollar gives rise to the demand of gold as a part of foreign

reserves.

Interpretation:-

As commonly, fluctuations in the guinea market show that trading turnover of

gold guinea. Gold main is probably show bearish only when international

news spread out but gold guinea is the one commodity which is quickly

response to both the national as well as international news. The most of the

investor in gold guinea are big institutional investor so slight movement of

gold guinea takes into deeper clash down of market.

A Year performance of gold guinea:-

The bullion market movement can analyze by throw understanding of drivers which make volatile commodity market

Contract Expiry Date:- 31st March 2011 Contract Expiry Date:- 30th April2011

Contract Expiry Date:- 31st May 2011

Analysis of yearly performance of gold guinea:-

The price movement of gold guinea was followed the price of gold main. In

the month January the price of gold guinea is 16,000 but within the two

month it was went up to Rs 17200.each gold guinea contract were moved in

different way but all movement of this is most similar movement of gold main,

as compare to gold main it is more volatile due to following factors.

Bank failures

When dollars were fully convertible into gold, both were regarded as money.

However, most people preferred to carry around paper banknotes rather than

the somewhat heavier and less divisible gold coins. If people feared their bank

would fail, a bank run might have been the result. This is what happened in the

USA during the Great Depression of the 1930s, leading Resident Roosevelt to

impose a national emergency and to outlaw the ownership of gold by US

citizens.

Low or negative real interest rates.

If the return on bonds, equities and real estate is not adequately compensating

for risk and inflation then the demand for gold and other alternative

investments such as commodities increases. An example of this is the period

of Stagflation that occurred during the 1970s and which led to an economic

bubble forming in precious metal.

Currency fluctuation

As gold is pegged to the US dollar, it has an inverse relationship with the

dollar. Right now with US being in great financial turmoil, the dollar has

weakened against many other currencies. Dollar is expected to weaken further

and prices of gold are expected to rise further. Dollar is a de-facto currency of

exchange around the world. But now with US on the brink of depression, gold

is substituted as a safe haven for investments. Though dollar seems to be

getting stronger, it may be a temporary effect and very soon it can head

southwards once again, in turn making gold an attractive and safe investment

Higher inflation expectation

Regulators have pumped in huge amount of liquidity to avert recessions.

During the political meeting held in London recently it was restated that G-

20 countries intend to maintain loose money policies unit economies recover

clearly. The rising inflation expectation benefits gold as gold is seen as a good

hedge against inflation.

War, invasion, looting, crisis

In times of national crisis people fear that their assets may be seized and that

the currency may become worthless. They see gold as a solid asset which will

always buy food or transportation. Thus in times of great uncertainty,

particularly when war is feared, the demand for gold rises.

Gloomy US dollar outlook – Gold is traded in US dollar term but major

consumption of gold is outside US. Hence weakening US dollars makes gold

cheaper for Non- US investors and thereby increases demand for gold.

Increase in investment demand –

Gold has limited statistical correlation with any of the assets classes as factors

driving gold prices are different from factors driving other markets. Hence gold

acts as an excellent portfolio diversifier. The average share of gold in global

portfolios is quite low and given the present fundamental setup it is

undoubtedly going to go up, leading to higher gold demand. Again gold prices

have exhibited astonishing performance during recent financial turmoil and that

has managed to attract lot of investor’s attention. Such investors are investing

in gold by way of exchange traded products and physical gold bars and coins.

Interpretation:-

Gold guinea is the mid way between the gold main and gold mini, so its

volatility is influenced by the enormous factors. The price of gold guinea will

go up suddenly due to national and international events and here sentiment of

investor play a major role .

Gold Mini:

Gold is the oldest precious metal known to man and for thousands of years it has

been valued as a global currency, a commodity, an investment and simply an

object of beauty.

Monthly trading chart of gold mini:-

Contract Expiry Date:- 5th april 2011 Contract Expiry Date:- 5th may 2011

Contract Expiry Date:- 4th June 2011

Analysis of monthly performance of Gold Mini:-

Investment in the Gold mini gives us a confidential return with high volatility,

from above chart we can clearly understand the price of gold mini is come down

(20950 to20000),as compare to gold and gold guinea ,gold mini is moving in

reverse manner, the reason for that is as follows.

World oil price hikes will trigger inflation, which is currently a major

concern of global investors.

Rising demand of gold jewellery.

The investments in gold are influenced by comparative returns from other

markets like stock markets real estate other commodities like crude oil.

Domestically, demand and consequently prices to some extent are

influenced by seasonal factors like marriages. The rural demand is

influenced by monsoon, agricultural output and health of the rural

economy.

price of gold is mainly affected by changes in sentiment, rather than

changes in annual production.

It's a natural hedge against the US dollar.

It traded predominantly between $420 and $435 this year, thus setting a

new price floor, which is considered a "strong buy signal.

There are signs of inflation in the coming year or so, and again gold has

been the commodity that people have tended use to act as a hedge against

gold

The primary factors include the value of your country's currency and other

currencies around the world. The lack of confidence in the Euro is one

reason why gold is going up now. Another factor is the overall confidence

in the world economy.

Interpretation:-

The last month performance of gold mini is not so satisfactory, gold mini was in

bearish movement. The main reason for difference in movement of gold, gold

guinea and gold mini is the pattern of investment by institution and individual.

The individual investors are invest more in gold mini and their sentiment play

vital role in market movement.

A year performance of gold mini:-

Contract Expiry Date:- 5th April 2011 yearly Contract Expiry Date:- 5th May 2011

Contract Expiry Date:- 30th jun2011

Analysis of yearly performance of gold mini:-

The present contract which is trading in bullion market shows a high volatility, In

January the price of gold mini is Rs 20,600 but after two month the price is same.

so we can say gold mini has high short term fluctuation. Some of reason for this

fluctuation is as follows

UK inflation has now out-run the Bank of England's official upper

tolerance of 3.0% per year for 13 months running on the Consumer Price Index.

India is a country of contrasts where lavish palaces are mixed with

shacks. Poorer layers of population prefer to keep their valuable assets in the form

of gold jewelry so it can be easily carried in times of distress, floods and social

unrest.

World’s overall economic situation is a very important factor influencing

gold prices in India. With many European countries being on the brink of

bankruptcy like Greece, for example, or facing huge state budget deficits, multiple

investors see gold as the only worthy commodity worth investing. If the world’s

gold price is on the rise, it automatically affects Indian price for gold.

India is also world’s largest importer of gold from other countries. Rising

or lowering import costs inadvertently affect gold price in India today.

Rising population in India triggers even higher demand for gold driving

gold price in India today even higher.

India is known to be a country of parallel economy, money laundering and

large scale tax evasions. Since this unaccounted money cannot be kept in banks and

the value of national currency is on the downfall, Indians prefer to buy gold

jewelry or gold bullions to protect them from devaluation.

Interpretation:-

From last 12 month performance of Gold mini is quit critical to analysis, even

though bullion market was in up word trend gold mini is not supporting to

movement especially from the last six moth it has same price with little volatility

so we can say the investor of gold mini are try to hold and they expect long term

profit.

Silver performance during 2010:-

When it comes to silver also, India is the world’s #1 consumer as well. And it can

be seen from imports figure which are up sharply in 2010, nearing 30-year peaks.

All such factors shows that in spite of such high prices from these countries will

continue to climb up, taking bullion prices to their new highs in 2011. While both

the gold and silver are set to rise further owing to continued currency devaluation

and enhancing physical demand, Silver is likely to out perform gold, in our

view.Silver prices is reasonably tracks gold and are more volatile than the yellow

metal.

COMMODITY EXCHANGE

LIFE TIME

HIGH

LIFE TIME

LOW2010 HIGH 2010 LOW

SILVER

MCX

COMEX

45735.00

5035.00

7551.00

194.50

45735.00

3069.00

23610.00

1482.30

However, silver is also dependent on industrial growth, and therefore, price

advance may be limited if the global economic recovery is perceived to have

stalled. Moreover, the nation has received abundant monsoon in 2010, which is

likely to result in abundant harvesting and rising agricultural income. Silver is

expected to see higher demand from rural India in medium term.

Silver is also likely to attract greater attention from the fund community;

particularly in the US. Owing to its out performance, the white metal is likely to

receive more importance than gold. The world’s largest silver-backed exchange

traded fund, ishares silver Trust said that its holdings hit record at 10,941.34 tones

by December 7, 2010. Such strong fundamentals clearly shows us that there is

still a long way to go for bullion in coming period as current economical

environment is igniting up the heat in this counter.

Present performance of silver (2011):-

The silver is famously called poor man’s gold, due to recovery of economy from

great depression of 2007-08 silver performed well. These days enormous use of

silver for different purposes from manufacturing to pharmaceutical industry made

to silver hit 32 year hike in their price.

Last month performance of silver:-

Performance of silver is affected by various price drivers , the presently silver hits

the 36 year records the reason for that level hike can be understand by analyzing

the present performance of silver.

Contract Expiry Date:- 5th May 2011 Contract Expiry Date:- 5th Jul2011

Contract Expiry Date:- 5th Sep 2011

Analysis of last month performance of silver:-

The silver is increasing continuously from last few months due to various reasons,

some of them are as follows

Market demand for silver and gold is good, particularly industrial demand

for Silver, but this is not enough to absorb all the supply, so that leaves the

rest down to investor demand.

Players have been joining in, and holdings of silver stock, the popular way

for retail investors to participate, rose 59.9 tons Thursday, the biggest

single inflow since late January. On the same day, holdings of Silver

jumped 42 ton to another record at 15,554 tons.

After a weak January, prices of the precious metals rose in February when

the unrest that toppled governments in Tunisia and then Egypt sent players

to havens.

Retail investors are showing particular interest in Silver coins in many

countries, including the US.

Last month the Utah State Legislature passed a bill accepting US Gold and

Silver coins as legal tender and other States in the USA are considering

similar legislation in a direct rebuke to the Federal Reserve and its ultra-

loose monetary policy.

Silver is more likely to follow gold higher, than base metals lower over the

next year.

Interpretation:-

The present contract of silver performing well in the market, mainly because of

increasing the silver use in various industries. The foreign market also in bullish

trend that influencing performance of silver directly in the India. last month silver

outperforming gold.

A year performance of silver:-

The current performance of silver is shown by below chart

Contract Expiry Date:- 5th may 2011 Contract Expiry Date:- 5th jul2011

Contract Expiry Date: - 5th Sep 2011

Analysis of last year performance of silver:-

In the beginning of the year silver has slow movement after first month of this

year silver start to show bullish trend continuously and now it is in Peak of market

even gold also not performing like silver.

Demand for silver from new sources like the solar energy, medical and

water purification sectors is likely to quadruple in the next 10 years

Part of the reason for this is that such an uptick in industrial demand,

which has waned significantly as the photographic industry has used less

and less of the metal, would result in a decrease in the current metal

surplus.

The Silver Book explains, "For years the silver market has been

characterized by falling demand in the photographic industry and tepid

jewellery offtake, while supply has seen rapid growth. The resulting

market surplus has thus risen from 1,800t in 2000 to an estimated 7,200t in

2010."

As the Silver Book says, "Investment demand has soared since the launch

of the first silver-backed ETF in 2009, and now accounts for more than

400 Moz (12,440t) of silver held in bullion bank vaults. Physical

investment in the form of coins and bars has also helped support prices in

the face of this explosive growth in supply".

The primary reason for our bullish outlook on silver is due to the

continuing & increasing global macroeconomics, currency & geopolitical

risks; silver historic role as money & a store of value; the declining & very

small supply of silver; significant industrial demand & perhaps most

importantly significant & increasing investment demand.

Interpretation:-

The current performance of the silver in the market is unpredictable; the

market is moving rapid bullish so the future trend of market will be bearish

because equity market is in upward but as compare to inflation rate the market

will continue in the same order as before so the prediction of silver movement

is quite difficult.

Silver Mini

Silver's unique properties make it a very useful 'Industrial Commodity', despite it

being classed as a precious metal. Demand for silver is built on three main pillars;

industrial uses, photography and Jewellery.

Last month performance of silver mini:-

Contract Expiry Date:- 30th April 2011 Contract Expiry Date:- 30th June2011

Contract Expiry Date:- 31st august 2011 Contract Expiry Date:- 30th Nov2011

Analysis of last month performance of silver Mini:-

As compare to silver main, silver mini has high volatility this is mainly

because of its volume traded and market fluctuation factors they are as

follows:-

The Rapid hike in the silver price due to the some of more new silver

consuming technologies would seek to substitute the metal with cheaper

products.

The unrest in the economy like continuous increasing the inflation rate, hike

of oil price, commodity market boom also make upward movement of

silver mini.

The situation in Libya, it seems quite bad and we see the flow of funds into

safe-haven investment because of it. So it automatically reflect in silver

market.

There are lot of scams happened in India like 2G scam, due this investor

moved from equity market to commodity market.

Silver is known as the 'healthy metal' and has many and increasing medical

applications. Research is ongoing on the use of silver and its compounds

for therapeutic uses and on its potential use as a disinfectant in hospitals

and other medical facilities.

The Supply/Demand dynamics for gold and silver are vastly different. The

practical demand for silver relative to the supply of silver is much greater

than that of gold.

Unlike gold, silver is like oil - as it is consumed in these many industrial

applications it is gone forever.

Net government sales of silver rose to 44.8 Moz, primarily the result of increased sales from Russia, with China and India in the beginning of 2011. That gave a leverage to silver market.

Interpretation:-

The last month (Feb-March) silver mini shows a positive sign of growth with

little volatility. Sudden shift of market from 53000 to 57000 during mid March

gave new history in the bullion market that is 36 year hike in the silver market.

So by considering the present silver market and future demand prospect we

can say silver mini will continue in bullish trend for some more months.

A year performance of Silver Mini

The last year market performance of silver mini can be analyzed by studying

performance chart of silver Mini

Contract Expiry Date:- 30th April 2011 Contract Expiry Date:- 30th June2011

Contract Expiry Date:- 31st August 2011 Contract Expiry Date:- 30th Nov 2011

Analysis of a year performance of silver Mini

There was a tremendous growth in the silver performance as compare to last

year, at end of 2010 the silver price was Rs 43,000 but in March 2011 it was

gone up to Rs 56500.this rapid increase of silver price is mainly due to

following reason.

There has been a marked increase in investment demand for silver in

recent years. Some of the reasons why this trend is likely to continue are -

the introduction of ETFs that track the price of silver, a new global

liquidity bubble, the significant growth in the global money supply, the

proliferation of millionaires, ultra high net worth individuals and

billionaires, the proliferation of hedge funds and the exponential growth in

derivatives.

The Bank for International Settlements has estimated that the total value of

derivatives contracts was $592 trillion at the end of 2009 (up exponentially

from $260 trillion in June 2008). Thus, dwarfing the GDP of the entire

world which was estimated at some $78 trillion at the end of 2010.

Silver is a hedge against macroeconomics, systematic & inflationary risk

with the attractive added potential for significant capital gains. Real asset

allocation & prudent diversification would be an important reason to have

an allocation to silver. Silver is highly correlated to the safe haven of gold

& is in effect a leveraged sister of the precious white metal. Thus,

informed investors use gold for wealth preservation & silver in order to

make a return.

Investors in silver bullion coins and bars are hedging themselves against

further deflation and falls in property and equity markets. They are further

protecting themselves against rising inflation, possible currency

devaluations and still very prevalent geopolitical and macroeconomic risks

such those posed by the humongous global derivatives market.

According to the Silver Book, supply is expected to increase at a CAGR of

around 2.4% over the next ten years, from more than 22,000t in 2009 to

more than 28,500t in 2020, so keeping supply running well ahead of

potential demand could be a very tall order."

Silver posted an average price of $20.19 in 2010, a level only surpassed in

1980, and a marked increase over the $14.67 average price in 2009. This

buoyancy is very much alive today, with the 2011 price averaging $31.86,

based on the London fix, through the end of the first quarter.

A significant boost in retail silver investment demand paved the way for

higher investment in both physical bullion bars and in coins and medals in

2010. Physical bullion bars accounted for 55.6 Moz of the world

investment total last year. Coins and medals fabrication rose by 28 percent

to post a new record of 101.3 Moz. In the United States, over 34.6 million

U.S. Silver Eagle coins were minted, smashing the previous record set in

2009 at almost 29 million. Other key silver bullion coins reaching

milestones include the Australian Kookaburra, the Austrian

Philharmoniker, and the Canadian Maple Leaf–all three posting record

highs in 2010.

Interpretation:-

By analyzing the present trading contract performance, we can say silver

market is in bullish but by comparing all contract each other we can

understand that contract which has expiry date on November has high

volatility that shows the future trend of silver will be unpredictable. Even

though the present movement will continue for some more months but the

end of year we can expect the price band of silver mini will be in Rs 55000

to 60000.

PRICE DRIVERS

Drivers are those things that could materially affect either a company's earnings or

the price of its stock. Every company will have its own unique drivers; although

some of the most common drivers similarly in commodity market we can find

some of core price drivers that lead the price of gold and silver in the market.

Price drivers of Gold:-

Assuming that the short-run price of gold is determined by supply and demand, it

will fluctuate on a period-by-period basis in response to variables that alter the

supply and/or demand for gold. We start by discussing factors that influence the

short-run supply of gold. Central banks have been willing to lease gold since the

early 1980’s. Gold producers (i.e. mines) can implicitly supply their customers by

leasing gold from central bank gold reserves, through a bullion bank intermediary,

as well as extracting it from their mines. The quantity of gold supplied from

extraction in any period is positively related to the gold price in an earlier period

because there may be a substantial time lag before mines react to a price change.

The quantity of gold supplied from extraction is also negatively related to the

amount of extracted gold that is diverted to repay central banks for the gold leased

in the previous period incremented by a physical interest rate in those cases where

the central bank opts for interest to be repaid in gold. Therefore the total supply of

gold to the market in each period from extraction is positively related to the

lagged gold price, negatively related to the amount of gold leased in the previous

period and negatively related to the gold lease rate in the previous period.

There are two components to the short-run demand for gold. The first category

consists of the “use” demand for jewellery, medals, electrical components etc. The

“use” demand for gold is a negative function of the price of gold. The demand for

jewellery is also affected by price volatility but the impact of this variable may be

too short-term to this analysis. The second category is the “asset” demand for gold

as an investment. This demand is based on a number of factors including dollar

exchange rate expectations, inflationary expectations, “fear”, the returns on other

assets and the lack of correlation with other assets.

Gold and Dollar rate

There is a strong relationship between the gold and US dollar, mainly we see the

inverse relationship between these two, AS per the analyst correlation between

gold and the US dollar index is minus 0.42 over the last two years, minus 0.44

over the last nine years and minus 0.28 over the last 17 years. As a matter of fact,

the two former periods and the last (current) one have something important in

common, they saw the lowest (inverse) correlations with the currency. That is,

they occurred when the U.S. dollar had reached some level of relative stability

following a two-three year collapse in its foreign exchange rate

Since we are still in the midst of the final period, I used the current gold and dollar

price for the table, while measuring all the other periods from trough to peak.But

if we take the high in gold prices last year as our peak, the gain in gold was

actually 70%, and the U.S. dollar lost just 2% in this period

Chart of Gold and US Dollar Relationship

By the above movement of gold we can clearly understand inverse relationship

between these two, when gold dollar value decrease automatically the gold price

increase because of devaluation of world currency. The current movement of gold

shows that US dollar value is declining.

Gold and money supply

We analyze the impact that money supply has on the performance of gold, in a

global context. There are two main reasons why there can be a surge in money

supply. First, it can increase as a consequence of economic growth which in turn

may not result in higher inflation. Conversely, if central banks increase the money

supply to induce growth – as they have done as result of the financial crisis that

started unfold in 2007 – and too much money in introduced into the economy for

too long, this may result in inflationary pressures, according to classic economic

theories of monetarism. Intuitively, a positive relationship between money supply

and gold can exist in either case. First, if money supply is accompanied by

economic growth, the increase in wealth an access to capital can increase demand

for luxury consumer goods, including gold. Second, as excess money enters the

system and the economy remains stagnant, inflation pressures may prompt

investors to safeguard their wealth by increasing their exposure to hard assets,

such as gold. The system, peace time deficits will soon hit new record highs as a

proportion of FDP and that alone is a strong enough argument for many to flock to

hard assets.

Gold demand and supply

Supply –demand is a major influencer, amid rising global investor demand,Gold

mining is decreasing and the demand for gold is increasing. Gold supply has

decreased by almost 40 per cent as the cost of mining, legal formalities and

geographical problems have increased which has led to a fall in gold mining.

Economics have taught us that lesser the supply, greater the demand and in turn

greater the increase in price.

Supply of gold from last 5 year

Demand of gold from last 5 year

Supply of Gold Tonnes Percentage

Mine production 2209 59%

Net official sector

sale

234 6%

Recycled gold 1323 35%

Total 3766 100%

Interest rates

Gold has always been considered a good hedge against inflation. Rising inflation

rates typically appreciates gold prices. It has an inverse relationship with interest

rates. As gold is pegged to the US dollar, US interest rates affect gold prices.

Whenever interest rates fall, gold prices increase. Lowering interest rates increases

gold prices as gold becomes a better investment option vis-a-vis debt products that

earn lower interest. Gold loses its shine in a rising interest rate scenario.

Currency fluctuation

As gold is pegged to the US dollar, it has an inverse relationship with the dollar.

Right now with US being in great financial turmoil, the dollar has weakened

Demand of

Gold

Tonnes Percentage

investment 1182 31.38%

Industry 433 11.49%

Jewelry 2151 57.11%

Total 3766 100%

against many other currencies. Dollar is expected to weaken further and prices of

gold are expected to rise further. Dollar is a de-facto currency of exchange around

the world. But now with US on the brink of depression, gold is substituted as a

safe haven for investments. Though dollar seems to be getting stronger, it may be

a temporary effect and very soon it can head southwards once again, in turn

making gold an attractive and safe investment.

Geo-political concerns

Whenever there is geo-political strife, investors around the world rush to prevent

erosion of their investments and gold as a safe haven attracts one and all. For

example after 9/11 terror strike in the United States the demand for gold had

increased. With the recent events like tension between India-Pakistan, Israeli

strikes over Gaza, the ongoing war in Iraq, the tension between US and Iran

coupled with recession have investors scrambling for gold.

Central bank demand

With the dollar losing its value, central banks of most of the developed countries

have started to increase their share of gold. This explains the increasing market

demand for gold.

Weakness in financial markets

General rule of thumb in the market is that gold is always attractive when all other

investments are unattractive. Why is this? As gold is negatively co-related to

stocks, bonds, and real estate, gold is considered to be a safe haven and hence

during any crises, investors would like to sell off what they would term as risky

investments and be invest the funds in gold.

Price drivers of silver

Silver has historically been a volatile choice for investing, but it is currently poised to

drastically increase in price in the near future.  It is not easy to understand everything that

affects silver prices, but you could get an idea with a quick look at price history and the

current uses for silver. By seeing where we’ve been and where we are now, you can get a

better idea of where we might be going.  Silver is one of the only precious metals that are

affected by the law of supply and demand. 

Gold to Silver ratio

Historically gold to silver ratio has been maintained between gold and silver where

a certain amount of silver could buy 1 oz of gold. In fact a long time ago, there

used to be a US law that fixed the gold silver ratio at 1:15, which then allowed 15

silver ounces to buy 1 ounce of gold. Since 1840, the gold to silver ratio has ranged

from 1:15 to as high as 1:97. Today’s gold to silver ratio sits at about 1:63. Many

analyst believe that this ratio is currently out of whack and will return to historical

levels which according Ted Butler and others has averaged 12-15 oz of silver to 1

oz of gold. If the ratio returns to historical levels it would require a substantial rise

in the price of silver. At $1150 gold, silver would need to be around $76/oz.

Inflation Past and Future

Just as gold is a great inflation hedge, so is silver. As you know silver has been

known as the poor man’s gold. The dollar has lost over 98% of its value, Gold vs

Dollar, What A Knock Out. This is just considering the inflation effect over the

past 100 years or so, but what about right now and the near future? The erosion of

dollar continues but at an accelerated pace not seen before in the history of this

country, and thus makes it imperative to take the necessary precautions to protect

the value of savings now. I have not seen anything more compelling than silver to

protect and dramatically increase my wealth at the same time.

The Federal Reserve is working overtime printing dollars and inflating the money

supply which means every new dollar they create is taking away value from every

one of the dollars in your pocket! This is where gold & silver really shine since this

type of monetary expansion has always driven up the price of gold and silver

historically. You can see just over the last year or two how the fed has really

kicked it into overdrive. The inflationary effect of the spike you see on the graph

has not yet hit, so it is still time to get positioned for the inflation tsunami and load

up on silver while you can and while it’s still cheap.

Increasing Silver Industrial & Investment Demand

Last year global silver demand hit 888 million ounces, while worldwide mining

production totaled only 680 million ounces, thus creating a 208 million ounce

deficit. Many people don’t know that silver is the most used commodity in industry

next to oil. Industrial demand continues to pick up with new applications for silver

coming to the market all the time, like silver zinc batteries. The silver zinc battery

market alone is forecasted to be a large driver going forward for silver. If you are

looking for more reasons, then how about Ten Thousand Reasons To Buy Silver,

which goes into more detail about the numerous industrial applications that require

silver.

Silver investment demand is on the rise as well and perhaps may soon surpass that

of industrial demand. Just like people are turning to gold in the great flight to

quality, silver is also starting to attract demand from investors. One of the biggest

wildcards in the mix is China. Until recently, the chinese government did not allow

its citizens to buy precious metals. They have done a complete reverse and now

highly encourage all of their 1.3 billion citizens to buy, buy, buy. Don’t forget

about their neighbors, you know, the other country that has a 1 billion plus people

in it, India. The Indians have a long history and tradition of buying both gold and

silver. I believe silver demand in India will increase as the price of gold rises

.

The Real Silver Advantages: Leverage & Availability

Since more people are waking up and running to gold for asset protection due to

the erosion of the dollar and other fiat currencies, gold will naturally not be as

affordable as silver. One could argue that we have already reached this point.

People will come to reason that they can get the same level of protection as

purchasing gold, but at a more affordable price by purchasing silver instead. The

late comers to the party, who missed out on the chance to buy gold when it was

only $250/oz will want the next best thing which is silver. Likewise, many

investors will also see that they can get a much higher leverage on purchasing

silver. So if gold is starting to get too expensive for your wallet, then why not get

some leverage by purchasing silver? The best times to buy is whenever the prices

are falling. Since you get way more ounces of silver for your money than gold, you

naturally get more leverage. Leverage coupled with a great investment, equals

great profits.

Dwindling Silver Stock Piles

Going back in history, governments around the world use to have huge silver stock

piles. Around the 1950’s, the US government alone had 3.5 billion ounces of silver,

the largest stock pile in history. Since then according to the CPM group, just about

all of these stock piles have been sold off/consumed. The CPM data shows that

world silver stock piles have gone from over 2 billion ounces in 1990 to under 300

million ounces in 2007. Furthermore, silver demand has outpaced silver production

by 156% annually for 19 consecutive years. According to Ted butler’s article, Why

Silver is More Valuable Than Gold, more silver has been consumed than produced

for over 60 years now. Available silver stockpiles have tanked to an estimated 140

million ounces or only a four-month supply of silver! No matter whose estimates

you believe, the real point to get from all of this is that the quantity of silver has

been disappearing at an alarming rate while demand is substantially increasing.

Conditions are ripe for a shortage

.

Silver Leasing

According to Ted Butler in his article, Silver Leasing or Silver Fleecing, there

are/were about 150 million ounces of gold and about 1 billion ounces of silver that

have been leased out. What doe this mean? It means that some gold & silver

producers at one time or another did not have enough gold or silver to sell to their

customers, so they leased (borrowed) the metals from others (like central banks)

that had ample supplies at the time. The producers then would sell these metals to

their customers.

The leasing created a phantom supply of gold and especially silver. The problem

here is, all of this leased gold and silver has to eventually be produced or paid back.

It is the equivalent of borrowing money and living off of it with the plan of paying

it back at some point in the future. The problem is, when pay back comes you have

to come up with the borrowed money and you still have to come up with additional

money to continue to live off of. So the 1 billion ounces of silver has to be

produced/repaid at the some point, all the while silver demand continues to

increase along with yearly silver deficits.

FINDING AND SUGGESTION

Findings from the study:

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 mini 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 lum-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.

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, commodity trading offers a good option for

long-term investors and arbitrageurs and speculators. And, now, with daily

global volumes in commodity trading touching three times that of equities,

trading in commodities cannot be ignored by Indian investors.

Online commodity exchanges need to revamp certain laws governing futures

in commodities to make the markets more attractive. The 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 hub for select commodities.

Commodity trading in India is poised for a big take-off in India on the back of

factors like global economic recovery and increasing demand from China for

commodities. Considering the huge volatility witnessed in the equity markets

recently with the Sensex touching Rs 21000 level commodities could add

the required zing to investors' portfolio. Therefore, it won't be long before

themarket sees the emergence of a completely redefined set of retail investors.

As 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.