TO ACCESS THE RELATIONSHIP AMONG GOLD, DOLLAR, CRUDE OIL & SENSEX

Abstract

Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and U.S. stocks, by currency-related crises, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities. The price of gold reacts to supply and demand changes and can be influenced by consumer spending and overall levels of affluence. Gold is bought and sold in U.S. dollars, so any decline in the value of the dollar causes the price of gold to rise. The U.S. dollar is the world's reserve currency - the primary medium for international transactions, the principal store of value for savings, the currency in which the worth of commodities and equities are calculated, and the currency primarily held as reserves by the world's central banks. However, now that it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper. Although the prices of gold and oil don't exactly mirror one another, there is no question that oil prices do affect gold prices. If oil prices rise or fall sharply, investors can expect a corresponding reaction in gold prices, often with a lag. From an Indian perspective, Gold which traditionally viewed as a safe haven in uncertain times, hit record highs in post-2000. The current bull-run in gold has lasted for more than a decade from Rs. 4473.60 per 10 gms in 2000-01 to record highs of over Rs. 30,000.00 per 10 gms during 2012-13. Before 2000, the demand for gold was elastic. However, now the gold market seems entirely inelastic, as the appetite for the metal is high even as the prices move higher. In this paper the efforts are made to analyze the reasons for rising gold demand and prices in Indian market and its relationship with the foreign exchange market, the fluctuations in the stock market and the soaring crude oil price in the international market.