Impact Of Gold Price On Stock Market Movement Sub:- Foreign Exchange Management

SUBMITTED TO: Dr. Munira Habibullah SUBMITTED BY : Mistry Mehul (21) Mistry Nirav (22)

Sensex
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage of over 133 years of existence. BSE is the world's number 1 exchange in terms of the number of listed companies(10,000) and the world's 5th in handling of transactions through its electronic trading system. SENSEX, is India's first and most popular stock market benchmark index. It constitutes 30 stocks representing 12 major sectors.

Factor Affecting Stock market

Demand and Supply News Earning Per Share Price/Earning Ratio

Gold
Gold is the oldest precious metal and for thousands of years it has been valued as a global currency, a commodity, an investment and simply an object of beauty. India is the world's largest consumer of gold. Indians normally buy about 25 per cent of the world's gold, purchasing around 700 - 750 tonnes of gold every year. India's gold demand is firmly embedded in cultural and religious traditions. It is also valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits.

Major Characteristics of Gold

Gold is unique as it is both a commodity and a monetary asset. There is no true consumption of gold in the economic sense as the stock of gold remains essentially constant while ownership shifts from one party to another.

Measurement of gold purity

Pure gold alloys

Karat
24 22 18 14 10 9

fineness% Gold
100 91.67 75 58.3 41.67 37.5

RESEARCH METHODOLOGY
Research Statement:
To study the impact of Gold price on Stock market Movement.

Objective of Study: - To Study the relation between gold price and

movement of Indian stock market. - To study the volatility in Indian stock market and analyzing the factors or variables like gold price, and their impact on Sensex.

Research Method :- Causal research

 Variables :
- Dependent variable is Sensex

- Independent variables are gold price in US$ and Indian Rupee.

Methodology:1) Sampling:In order to does the research on movement of stock market (Sensex) with the movement of gold price. We have study the monthly prices from January 2001 to Auguest 2010. 2) Data Collection:- In the present study we have taken the monthly closing data of sensex. (2001-2010) - And the Monthly gold prices data (2001- 2010)

Analysis:

 Hypothesis testing:
Ho = Independent variable doesn t have any impact on stock market(sensex) H1 = Independent variable have impact on stock market(sensex)  we have run the regression and anova model with the help of excel and also we find the correlation between dependent variable and independent variable, coefficient of variation by using these statistical tools we will prove whether all the independent variable impact the dependent variable or not.

Conti
 Limitations of the Study: We can t conclude that the gold price is the only variable which impacts the stock market. There are many variables like inflation, FII, FDI, political issues; government monetary polices etc. which is also Influence the stock market.

Data Analysis

Summary Output
Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 0.956078623 0.914086333 0.912565737 1601.093274 116

 Here R=95.60% , which show that correlation coefficient which is highly positive correlation it means in this model all the independent variables have positive correlation collectively. Here, R=91.40%, means all the independent variable have impact on the dependent variable up to 91.40% and rest of 8.60% is not explained by our dependent variables, hence 8.60% and the other factor which influence the stock market. Here the adjusted R square = 91.25% means the explained by the independent variable with perfect, where no error means the real strength of the model.

Anova

df Regression Residual Total 2 113 115

SS

MS

Significance F

3.08E+09 1.54E+09 601.136925 5.95001E-61 2.9E+08 2563500 3.37E+09

if we refer the F table with degree of freedom=2 and degree of freedom of observation = 115 with predeterminant level of significant =0.05% = 95% level of confident. T.V=4.79 & C.V=601.136925 Hence, C.V> T.V =601.136925>4.79 Since, C.V>T.V Null hypothesis =Ho= is rejected Accept the alternative hypothesis =H1 Hence, all the independent variables have impact on the stock market

Regression model
Standard Error Upper 95% Lower 95.0% Upper 95.0%

Coefficients

t Stat

P-value

Lower 95%

Intercept X Variable 1

-746.3465673 59.17981479

347.0077 3.563627

-2.15081 16.60662

0.033621663 -1433.831332 4.24758E-32 52.11962669

-58.8618 66.24

-1433.83 -58.8618 52.11963 66.24

X Variable 2

-0.926859787

0.077903

-11.8977

1.17823E-21 -1.081199013

-0.77252

-1.0812 -0.77252

 Y1 = Sensex , X 1 = Gold price in US$ , X 2 = Gold price in Indian Rupees The model can be written as : Y1= a + b1*x1 + b2*x2 Sensex = -746.3465673 + 59.17981479(gold price in US$) + (- 0.926859787 )(in rupees) R square for the regression was 0.914086333 and ANOVA ( F= 601.136925 ) was also significant (5.95001E-61 ) indicating the regression is valid and the two factors are explaining 91.40 % of variance in dependent variable sensex.

Conclusion
The two factors are explaining 91.40% variance in dependent variable sensex .So we can predicted the sensex movement with the help of gold prices and we get 91.40%. accuracy means gold prices and sensex movement are in same direction, and only 8.60% error that we can t predict. Hence, we can conclude that there is positive relation between the movement of Gold price on the stock market.

Bibliography
http://www.bseindia.com/about/introbse.asp(24-9-2010) http://www.mcxindia.com/SitePages/ContractSpecification. aspx?ProductCode=GOLD(28-9-2010) http://www.bseindia.com/stockinfo/indices.aspx(28-92010) http://www.bseindia.com/stockinfo/indices_main.aspx?ind i=BSE30%20%20&fromDate=01/1/1991&toDate=01/10/20 10&DMY=M#(28-9-2010) http://www.research.gold.org/prices/(27-9-2010) http://www.research.gold.org/prices/monthly/(27-9-2010) http://www.gold.org/deliver.php?file=/value/stats/statistics /xls/monthly_prices.xls(27-9-2010)