Title: Mid Term Assignment for Project Report Groups Subject: Managerial Economics Batch: 2012-14 Group Members:

Sr.No. 1. Priya Bothra 2. Rahul Dev 3. Riya Prasad 4. Rochelle Pereira Section: D Group No: 1

Name

Roll. No. 2012219 2012227 2012246 2012247

Total Words in the assignment: 1246 words

Gold crosses Rs. 30,000 level, up Rs. 960

News Article Date : June 2, 2012 NEW DELHI: Gold prices breached the Rs 30,000 mark for the first time on Saturday on heavy buying by stockists and retailers amid strong overseas trend, triggered by global financial uncertainty which has increased the metal's appeal as a safe investment haven. Gold shot up by a hefty Rs 960 to touch a record high of Rs 30,300 per 10 grams in line with global rally where it jumped the most in ten months. Traders said gold, both of 99.9 and 99.5 per cent purity, recorded the biggest single day gain of Rs 960 each to Rs 30,300 and Rs 30,160 per 10 grams, respectively. Market men said signs of weakening job growth in the US and deepening euro-zone debt crisis has increased metal's appeal. Increased demand from investors further fuelled the trading sentiment, they added. In New York, gold jumped 4.24 per cent to $1,626.30 an ounce, biggest rise since August 8. Gold prices in global markets usually sets the trend in the domestic markets. Silver, in the bullion market here, also rose by Rs 650 to Rs 54,550 per kg in the local market. In New York, the metal rose by 3.5 per cent to $28.68 an ounce, the largest gain in two weeks. Silver ready surged by Rs 650 to Rs 54,550 and weekly-based delivery by Rs 880 to Rs 54,510 per kg. Silver coins spurted by Rs 1,000 to Rs 65,000 for buying and Rs 66,000 for selling of 100 pieces. Source : The Economic Times.

Introduction:
Gold is valued in India as a saving and Investment vehicle. India is the worlds largest consumer of gold jewelry as an investment dominating the market for buying and selling. India consumes about 800 MT of gold which accounts to about 20%consumption of gold globally. Gold has a unique status in the economic world: a precious medal with wide uses, a store of wealth, and for a long time, the measure of economic power of nations and the cornerstone of international monetary regimes. In recent years, the world witnessed an aggressive growth in gold price. The role of gold in investment has drawn more attention since this transformational economic crisis began to unfold in 2008.

Demand and Supply of Gold:

Demand :
Demand for gold is widely dispersed around the world. A different set of socio-economic and cultural incentives drives each market, creating a diverse range of factors influencing demand. Demand for gold decreases with a increase in price. QUANTITY COUNTRY CONSUMED (Tonnes) India 933.4 China 811.2 USA 194.9 Germany 159.3 Turkey 144.2 Switzerland 116.2 Thailand 108.9 Vietnam 100.3 Russia 75.1 Saudi Arabia 72.2 PRICE OF GOLD (INR) 30,235 26,400 18,500 14,500 12,500 QUANTITY OF GOLD DEMANDED (tonnes) 933.4 1006.3 2134 3659 GOLD 22 Carat 27,716 27,413 27,684 27,711 24 Carat 30,235 29,905 30,200 30,230

YEAR 2012 2011 2010 2009 2008 CITY CHENNAI MUMBAI DELHI KOLKATA

Percentage Consumption of Gold.

2

DEMAND CURVE ( when price changes everything else remains constant)

As shown in the above demand curve has a NEGATIVE SLOPE showing the LAW OF DEMAND i.e. as the price increases, demand decreases or vice-versa. By plotting price on the y- axis and quantity demanded on the x-axis. Shift along the curve. DEMAND CURVE ( when other factors affect the curve )

The demand for gold is also affected by other external factors 1. Income of the consumer 2. Price of substitute goods, complementary goods 3. Consumer preferences When other factors affect the demand there is shift of curve Conclusions: Gold follows the law demand, as price increases the quantity demanded decreases, except in certain cases when the demand is affected by other factors like increase in income, lower price of substitutes & complementary goods.

Supply :
The major suppliers of gold are Quantity Supplied 2010 (Tonnes) 345 261 231 192 189 164 91 82 120 90 Quantity Supplied 2011 (Tonnes) 355 270 237 200 190 150 110 100 100 90

Country China Australia USA Russia South Africa Peru Canada Ghana Indonesia Uzbekistan

The supply of gold is mainly form 1. Mine production 2. Recycled gold 3. Central banks Supply Curve:

The producer will produce more of the supply at a higher price because having a higher price means having a greater profit per unit. If the profit is greater per unit, then they will produce more supply to maximize their profit. When prices increase, quantity supplied is increased, because demand remains constant. The increase in quantity supplied is a rightward shift on the graph. And decrease in supply is a leftward shift in the curve.

Elasticity
Elasticity, Ed = percentage change in quantity/percentage change in price. Price Elasticity of Demand: Price elasticity of demand measures the percentage change in quantity demanded caused by a percent change in price. When the price of gold increases by 1 % the quantity demanded decreases by more than 1%, (2.6% ), thus we conclude that demand is highly elastic. Price elasticity of supply : The price elasticity of supply measures how the amount of a good firms wish to supply changes in response to a change in price. When the price rises by 1 % the quantity demanded falls by less than 1%, thus we conclude that demand is highly inelastic. Conclusions : After the price hike it was observed that there was a considerable decrease in the demand of gold thus it can be concluded that the price elasticity of gold was a highly elastic. Markets like India have strong demand for using gold in jewellery. Economic growth in India increases disposable income and therefore demand for gold. As gold is a luxury good (income elasticity of demand > 1) then a rise in income in India could lead to a bigger % demand for gold A change in supply could alter the price of gold. For example, if there was a sharp increase in production, the price is likely to fall. However, the supply of gold is relatively stable. The fluctuations in price tend to occur due to changes in demand. Determinants of price elasticity of demand Price elasticity of demand depends on many economic, social and physiological factors: 1. Substitute availability: There is a simple relationship here, greater the substitute greater is the elasticity. For Gold, a change in the price of substitutes like Silver, reduces the demand drastically since its substitutable. 2. Necessarily Vs Luxury: Necessities tend to have a constant demand curve while luxury goods tend to fluctuate. 3. Market definitions: Elasticity of demand also depends on how we define market boundaries. Narrowly defined markets are more elastic than broadly defined ones. 4. Income: Products requiring a larger portion of the consumers income tend to be more elastic. 5. Permanent or temporary price change: A one day sale would have different response than an individual price decrease of the same magnitude. 6. Time Factor: Goods and services tend to have a more elastic effect over a longer period of time. References : World Gold Council website : www.gold.org www.Wikipedia.com www.goldbullionpro.com www.investopedia.com Figures & Data : www.mcxindia.com www.gold.org