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DECLINING DEMAND OF GOLD

Abstract

The Gold price is less sensitive to change in mine production and jewellery demand

than it is to currency exchange rates.There has been an almost sustained rise in the

international gold prices since 2002,with just one deep correction in 2008.As gold is an

integral part of savings of a large number of investors,this has raised apprehensions whether

any correction in gold prices will have destabilising implications on the financial

markets.Understanding the gold demand why it is? and when it is declined.The high and

volatile gold price and import duties continued to dampen demand in India.Inflation is also

main reason in declining demand of Gold.The supply of gold declined 6% year-on-

year,mainly due to lower levels of recycling.The gold market in India is predominantly a

market for buying and selling physical gold and gold in the form of ornaments.In the physical

gold front,in the wholesale segment,nominated agencies are the bulk importers.

List of Tables

1)Demand For Gold Vs Price of Gold

2)Country wise Gold Demand by how many percentage it decreased.

List of Figures

1)Demand Figures

Page 2

2)Indian Demand Vs Chinese Demand

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Chapter 1: Introduction

1)Statement of the problem:High and volatile gold prices,among other factors,continued to

hamper gold demand in India during the second quarter.As a result,jewellery demand was

47% below year-earlier levels and investment demand was 41% lower.Growth rates in

demand for the first haf year were of a similar magnitude.It is worth mentioning however,that

Q2 2007 was a record quarter for both components of consumer demand.

Demand for gold has been declining worldwide,but prices haven't.Gold demand declined 11

percent in the third quarter of 2012 compared to the third quarter of 2011,according to the

world Gold Council.Demand fell in every sector except for purchases by central banks.

2)Purpose of the Study:

Why did the gold price not respond to the supply deficit

Increasing price of Gold,it affects on Gold demand

Which are the other factors that affects on Gold Demand

Consumer buying behaviour while buying a Gold.

Above mentioned are the very important points that i am looking in this study,as we

have seen inflation.How exchange rate also affected on gold's demand? and how import

duty also affected on Gold's Demand?

3)Assumption of the Study:After reading secondary data and articles online,I must assume

that restoring faith in financial instruments will reduce the demand for Gold.As we have seen

that since last 5 years gold price has been increasing and high inflation is also affects on

gold prices,so i assume that gold price will have collapse.

4)Definition of Terms:

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Consumer Demand:The sum of jewellery and total bar and coin purchses for a

country i.e the amount of Gold acquired directly by individuals.

Jewellery:All newly-made carat jewellery and gold watches,whether plain gold or

combined with other materials.It excludes second-hand jewellery,other metals plated

with gold,coins and bars used as jewellery and purchases funded by the trading in of

existing jewellery.

Recycled gold:Gold Sourced from old fabricated products which has been

recovered and refined back into bars.

Inflation:Increase in general price level.

5)Methodology:In this we study the pricing of Gold using short run and long runmodels.New methodology will help in to find solution for existing also and new also

Chapter 2-Literature Review

Background:

This article is written in the form of a literature review for declining demand of

goldand rise in price.what are the factors that affecting gold prices?.Since 2007 the world

has seen a period of considerable economic and financial volatility,during which gold has

performed strongly with its price more than doubling.This performance has prompted some

reappraisal of gold's properties as an investment vehicle.There has been an almost

sustained rise in the international gold prices since 2002,with just one deep correction in

2008.As gold is an integral part of savings of a large number of a large number of

investors,this has raised apprehensions whether an.y correction in gold prices will have

destablilising implications on the financial markets.The impact of the rise in international gold

prices is reflected in its demestic prices as well.because of too much rise in price,demand for

gold has decreased in components of safe savings as well as social and cultural importance

also.

Literature:

Below are the list of articles and secondary data that i have used for this literature review.

RBI Website

www.gold.org(World Gold Council)

www.theminingweb.com

Articles in Economic Times

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Findings:

After reading articles,I analyse that,while the sense of economic or financial crisis

lasts,gold investment demand will continue to be robust,although high prices are likely to

generate a certain amount of profit taking.Under these circumstances,jewellery demand is

likely to remain subdued in most countries.Nevertheless,despite the adverse impact of risingfood and energy prices on household budgets,the potential for stronger jewellery demand

remains,once prices stabilise sufficiently to regenerate consumer purchasing in those

countries sensitive to price volatility.The central bank sector had a dampening impact on

supply-net purchases of 14 tonnes were recorded in Q2'09 compared to net sales of 69

tonnes in Q2'08,the figures indicating the first net purchase by central banks for a

considerable length of time.Gold fell the most in a week as physical demand from India,last

year's biggest buyer,remained slack and a rebounding dollar eroded the appeal of the metal

as an alternative investment.

Gold Futures for December delivery fell 0.4 percent to settle at $1,742.30 an ounce at

1.44pm.on the Comex in New York,the biggest decline since Nov.20 Prices dropped 0.1

Percent .

Conclusion:

The strong price increases seen for gold in recent years has been the result of a

complex of short-term factors including a week dollar,low real interest rates,high levels of

financial stress and central bank quantitative easing policies,which may have raised the 'tail

risk' of high inflation.These considerations may partly explain why gold's use as an

investment vehicle appears to be rising,with investment-driven demand up to around 40% of

the total in 2010 from less than 15% in 2002.with central banks becoming net buyers of gold

in 2010 for the first time since the late 1980s,three seems t be evidence of a reappraisal of

gold's value by various classes of investors.i must conclude that demand for gold is widely

dispersed around the world.East Asia,the Indian sub-continent and the Middle East

accounted for approximately 65% of consumer demand in 2011.Demand of Gold is mainly in

Jewellery,Technological,Investment.When price rises demand of Gold decreases in 3

sectors.Increase in Import duty by 2% also affected in Gold's demand in India and also

exchange rate also affects gold prices.

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Chapter 3-Methodology

Subject Selection and Description:

As this topic is about declining demand of Gold,which are the factors that affects on

Gold prices.So in this research subject dependent variable will be price,because all other

variables are dependent on price only.so price only will be dependent variable.because in

this subject if price of gold increases it will directly affect on other factors related to gold.if we

talk about in the jewellery sector,demand for gold amounted to 118.