Gold Vs Nifty & Crude 



The crude price directly affects the oil import bill of any country. Increase in Imports Bill will increase the Trade deficit ( Export  Imports) of countries. Higher Trade deficit would hit the value of currency of the country. This will affect the money circulation in the economy there by leading inflation. So, If Crude price rises, Gold will also move up.
So, there is some indirect relationship between these three things (i.e. Gold, Crude and Nifty). So, to assess the relationship between these three things, the following
study is carried out. For comparing the prices of gold, crude and nifty, the researcher has taken the price data for 5 years (from Apr'2005Apr'2010). The daily prices of these three things are considered to calculate the monthly average price. For this, historical price of gold has been collected through ncdex.com, the price of crude has been collected form mcxindia.com and nifty values are collected through nseindia.com. By using these data, the researcher tries to find out the following things: 1. Monthly average price movement and returns of Crude, Nifty and crude. 2. By using the monthly average prices, the researcher calculated the monthly average returns of gold, crude and nifty. 3. The researcher has used correlation method and cross price elasticity of demand concepts to assess the relationship between the gold & nifty and gold & crude. Chart No:1.Movement of monthly average gold price ,crude oil price and value of nifty(From April05 to Apr10) Chart No..2. Average monthly returns from Gold, Crude oil and Nifty from Apr'05Apr'10 In the year of 2009, Nifty has given good return followed by gold and crude. 2.1. PEARSON PRODUCTMOMENT CORRELATION COEFFICIENT In statistics, the Pearson productmoment correlation coefficient (sometimes referred to as the PMCC, and typically denoted by r) is a measure of the correlation (linear dependence) between two variables X and Y , giving a value between +1 and ¥1 inclusive. It is widely used in the sciences as a measure of the strength of linear dependence between two variables Pearson's correlation coefficient between two variables is defined as the covariance of the two variables divided by the product of their standard deviations. Correlation Coefficient Formula : Interpretation from Pearson Correlation Coefficient By applying the figures of Average monthly return from gold, crude and nifty in the correlation formula , we will get the result as follows: Table:1. Correlation of gold with crude and nifty:
2.2. CROSS ELASTICITY OF DEMAND In economics, the cross elasticity of demand or crossprice elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the price of fuel, the demand of new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be ¥20%/10% = ¥2. The formula used to calculate the coefficient cross elasticity of demand is Table No:2. Comparision of demand for gold and crude oil price(from 20042009)
Change in demand (from 200406 to 200709) =0.9301% Change in price of crude (from 200406 to 200709) = 22.2019% CPeOD=0.04. Here, CPeOD is greater than Zero. According to this Gold and crude are substitutes
Table:2. Comparision of demand for gold and value of nifty (from 20042009)
Change in demand (from 200406 to 200709) =0.9301% Change in value of nifty (from 200406 to 200709) =63.89%CPeOD =0.01 Here also, CPeOD is greater than zero.So, Gold and nifty are substitutes. 

Source: Email December 11, 2010 

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