A PROJECT REPORTON

“ANALYSIS OF GOLD HEDGING”

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE

AWARD OF DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION (BBA)

RAYAT BAHRA INSTITUTE OF MANAGEMENT,

HOSHIARPUR

SESSION (2010-2013)

SUBMITTED TO

PUNJAB TECHNICAL UNIVERSITY

JALANDHAR

PROJECT GUIDESUBMITTED BY

MS. NAMSI NARANGGURINDER KAUR

1

LECTURER IN MANAGEMENT105022465413

DECLARATION

This is to certify that I, Gurinder Kaur student of BBA-5th

semester has prepared the report titled “ANALYSIS OF GOLD

HEDGING” based on it. I have not copied from any report submitted

earlier this or any other university. This is purely original and

authentic work.

GURINDER KAUR

BBA-5th

ROLL NO.

105022465413

2

PREFACE

In this age of globalization marketers has to strive very hard

for survival and growth.

The perfect study of Management involves both the theoretical as

well as practical aspects. To survive in this highly competitive

market “Practical Knowledge” is as relevant as the Theoretical.

The significance of BBA Degree is that Theoretical aspects, which

a student learns throughout the year in the class sessions, can

be practically applied through different projects, which one

undertakes. Keeping in tune with doctrine, we have tried to apply

theoretical aspects throughout the project, which we learned

under the course of management.

In this project more emphasize given to the hedging of Gold that

is the betters way to recover from the losses and also helpful

for gaining the profits. Gold smiths are usually doing hedging to

recover the losses because gold price gradually groom up day by

day so for that point of it is necessary for the gold smiths that

they cover up from the financial risk.

From the analysis of survey it becomes clear that hedging is the

helpful tool for the Jewelers to reduce the price risk and also

hedge their position in commodity exchange.

3

ACKNOWLEDGEMENT

Every study requires a guidance of someone who is working in that

field. Firstly we would like to thank Director Sir Dr B.P. GUPTA

for providing an opportunity of preparing a Grand Project Report

and allowing us to use the resources of the institution during

this project.

We are extremely thankful to our Project Guide, MISS. NAMSI NARANG

of RBIM for their precious guidance regarding the preparation of

the Project Report. Their guidance has proved to be useful and

without them, the preparation of this report might not have been

possible.

We are also thankful to the other faculty members of RBIM for

extending their valuable support for this project.

We also extend our sincere thanks to the respondents, who helped

us during the course of our project and for their gracious

attitude.

We would like to take this opportunity to extend our warm thought

to those who helped me in making this project a wonderful

experience.

4

5

CHAPTER TOPICS PAGE No.

1. Introduction of the company products

6-21

2. Introduction to the topic Hedging Gold hedging

22-28

3. Review of Literature 29-31

4. Objectives of the Study 32-33

5. Research Methodology Limitation of the study

34-37

6. Data Analysis Gold smiths

38-50

7. Findings and suggestions 51-52

8. Conclusion 53-54

Bibliography 55

Annexure-Questionnaire Reference

56-58

6

CHAPTER 1INTRODUCTION OF THE

COMPANY

7

INTRODUCTION OF THE COMPANY

A financial powerhouse Bonanza is Established in the year 1994,

Bonanza developed into one of the largest financial services and

broking house in India within a short span of time. Today,

Bonanza is the fastest growing financial service with 5 mega

group companies under it. With diligent effort, acknowledged

industry leadership and experience, Bonanza has spread its

trustworthy expertise all over the country with pan-India

presence across more than 1632 outlets spread across 521 cities.

With a smorgasbord of services across all verticals in finance,

Bonanzas offers you the perfect blend of financial services right

from Equity Broking, Advisory Services that cover Portfolio

Management Services, Mutual Fund Investments, and Insurance to

exceptional Depository Services.

Bonanza believes in being technologically advanced so that we can

offer you – our tech-savvy customers - an integrated and

innovative platform to trade online as well as offline. Besides,

we also have one of the finest and most dedicated research teams

with experts who have in-depth, unsurpassed knowledge of the

market place. All this and more makes Bonanza the perfect place

for you to take your first step in the direction of financial

success.

8

Bonanza is affiliated with the best in the industry – right from

the NSE, BSE MCX, and MCX-SX to CDSL, NSDL, ICEX and USE etc.

These affiliations prove our worth in the market and make Bonanza

a name to reckon with. With various titles and achievements under

our belt, Bonanza looks forward to tougher challenges and

Newer milestones to conquer, so that customer can get nothing

less than the BEST!

Vision

To be one of the most trusted and globally reputed financial

distribution companies.

Values

Customer-centric approach

At Bonanza, customers come first. And their satisfaction is notjust a top priority but also the driving force.

Transparency

Bonanza believes in dealing on thoroughly ethical grounds, being

fair and transparent with their customers.

9

Meritocracy

Bonanza recognizes and appreciates efforts put in by the

employees. And as a matter of fact, reward and distinguish each

one of them, ceaselessly.

They believe in sharing a forthright and respectful relationship

with the business partners and employees. They consider them both

as the team associates, who work together. Succeed together.

Corporate social responsibility Other than being the masters of financial services, Bonanza also

believes in the power of giving. Bonanza is socially responsible

towards the community and contributes to the well-being of others

through various welfare initiatives and charities. Because like

they say “No act of kindness, no matter how small, is ever

wasted”

Milestones

5th largest in terms of no. of offices for the year 2010-2011*.

Top Equity Broking House in terms of branch expansion for 2008*.

4th in terms of trading terminals for the year 2010 - 2011*.

6th in terms of Sub Brokers for the year 2010-2011*.

10

Nominated among the Top 3 for the "Best Financial Advisor Awards

08" in the category of National Distributors – Retail instituted

by CNBC-TV18 and OptiMix.

Nominated among the Top 3 for the "Best Financial Advisor Awards

09" in the category of National Distributors – Retail instituted

by CNBC-TV18 and OptiMix.

Awarded by BSE Major Volume Driver 04-05, 06-07, 07-08.

Ranked 2nd by UTI MF & CNBC TV 18 Financial Awards 2009 in the

category Best Financial Advisor- Retail.

Top 4 in Commodity Segment in Bloomberg UTV.

India's No. 1 Valuable Financial Advisory & Stock Broking Company

- as per Business Leadership Award 2012 organized by the India

Leadership Conclave and Indian Affairs Magazines.

11

PRODUCTS

PMS

EQUITY SHARES

COMMODITY

CURRENCY

MUTUAL FUNDS

IPO

INSURANCE

INVESTMENT BANKING

DEPOSITORY SERVICES

E-BROKING

12

PMS

Bonanza provides highly professional fund management services

which are flexible to address varying investment preferences and

deliver maximum returns to clients. PMS is portfolio management

services offered typically to the inventors for customized

investments in Equity markets with an objective to earn higher

returns than the markets. It is recommend to the Individuals with

more than 5 lac investable corpus who wants an active management

of equities. This portfolio is managed by a qualified portfolio

manager who keeps track of the equity markets day in and out. The

investors provides authority to the portfolio manager to take

design portfolio and make entry and exit decisions on his behalf,

while the shares are held in the investors personal demat account

unlike a mutual fund where shares are held in a pool and units

are issued to the investors .This service has higher transparency

of information and unlike mutual fund manager, the portfolio

manager has higher flexibility to control the downside of

portfolio value.PMS includes:-

13

PMS EQUITY

PMS MUTUAL FUNDS

EQUITY SHARES

In today’s world, investment has carved out its place in the list

of our basic needs. With an endless gamut of investment options,

time and again, equity has always outperformed all the other

asset classes in India, with the returns from Sensex over the

years being more than 18% (CAGR – Compounded Annual Growth Rate).

Investing in stock can earn you returns in two ways, capital

gains and dividends.

Capital gains are the profits you earn while selling the stock.

Example, if you buy a share at Rs. 250 and sell it at Rs. 1000,

your capital gain will be of Rs. 750. Whereas, dividends are cash

payments that you receive from the company at regular intervals,

usually annually or quarterly. A good number of listed companies

pay dividends regularly.

Derivatives are vital for the financial system as they help to

hedge against the risk and also with an opportunity to profit

from the anomalies in the market.

Various derivative contracts constitute a significant share of

all the capital market transactions in the domestic as well as

global markets. In India, derivative contracts are traded on

National Stock Exchange (NSE) on a huge scale and their trade is

14

becoming increasingly prevalent even on Bombay Stock Exchange

(BSE).

Bonanza’s membership of the Derivative Segment on both the above

mentioned exchanges provides you with an opportunity to avail of

numerous benefits of trading in derivatives. This includes,

researched trading ideas, hedging and arbitrage strategies,

strong risk management of leveraged positions and countless

others.

Their Derivative Market segment has a composite understanding of

the equity and derivatives market that is vividly reflected in

unique and effective Trading/Hedging / Arbitrage strategies. At

Bonanza, They provide quality services whose functions span

beyond mere execution of buying and selling. Their extensive

research helps to assimilate massive amount of information

regarding trends in the economy, the markets, and trends of

specific industries and/or individual companies.

Bonanza can enhance investing experience with:

Excellent trade execution capabilities on BSE, NSE, MCX and NCDEX

Futures & Options / Derivatives trading for those with a higher

risk appetite

Online Trading Facility with integrated Depository and Bank

Gateway

Arbitrage trading strategies

15

Daily Market Analysis, Advisory reports & Special Situation

Research Reports

Online real-time back office, available 24/7

Online Depository Services with Auto Pay-in facility

Seamless transaction flow.

Bonanza helps to identify the opportunities in market and make

money out of them.

Trading with Bonanza is very simple. It’s important to open an

account with Bonanza and then trade in any of the following 3

ways:

Online – On your desktop through different trading platforms

Call-n-Trade (for online trading clients)

Contact or visit nearest Bonanza branch office to place the

orders.

COMMODITY

Commodities are more than what we think they are. Almost

everything we see around is made of what market considers

commodity. It could be any kind of movable property, except

actionable claims, money and securities. Commodity trade forms

are the backbone of world economy. Commodities offer immense

potential to become a separate asset class for market-savvy

investors, arbitrageurs and speculators and are easy to

16

understand as far as fundamentals of demand and supply are

concerned.

Historically, pricing in commodities futures have been less

volatile as compared to equity and bonds Thus, providing an

efficient portfolio diversification option. Like any other

market, the one for commodity futures plays a valuable role in

price discovery and price risk management.

Bonanza provides the perfect platform to trade in these highly

valuable commodities. With a perfect blend of philosophy,

knowledge and highly skilled and dedicated professionals Bonanza

strives to offer its client the best investment solutions across

the country. According to Bonanza each client is unique and

therefore they provide customized solutions to suit every unique

need of the client.

BENEFITS:

Free Online Trading Terminal

Online application based / Web based trading software

24 x 7 back office assistance / state-of-the-art infrastructure

and connectivity

Physical delivery desk 17

National reach

Brand and corporate parentage

Professional management

Commodity Research Desk

Free SMS alerts

Daily reports

Weekly reports

Monthly reports

Assist for commodity hedging

18

CURRENCY

Bonanza Portfolio Ltd. has always been the forerunner in

initiating any new financial product and have launched trading

facilities on the Currency Derivatives Segment for their clients

at all three Exchanges namely NSE, BSE & MCX-SX. Thus, they bring

to their client a new trading segment which brings them a Foreign

Currency & Interest Rate Futures Trading. These asset classes,

where the participation was earlier limited to Banks, Currency

brokers, Licensed Money Changers, Corporate and Multinational

Companies.

Exchange Traded Currency Derivates

In order to upgrade Indian Foreign Markets in line with

International standards, a well developed foreign exchange

derivative market place having strict governance and transparency

was inevitable.

With a view to enable entities to manage risk due to volatility

in the currency market, the internal working group of RBI

explored the advantages of introducing currency futures and

submitted the report of the internal working Group In April 2008,

which recommended the introduction of Exchange Traded Currency

Futures . Bonanza offers these services so that their clients can

trade in the latest market offerings at their comfort and

convenience.

19

Presently USD / INR Futures are available for trading on NSE /

MCX-SX / BSE.

Exchange Traded Interest Rate Derivatives

Interest Rate futures are contractual agreements to buy or sell

underlying interest bearing instruments on a specific future date

at a pre-determined price. Exchange Traded Interest Rate Futures

(ETIRF) is standardized interest rate contracts traded on the

exchange. The trading in Interest Rate Futures was launched on

the National Stock Exchange of India (NSE) on 31st August 2009 and

will be launched shortly on MCX stock Exchange (MCX-SX) and

Bombay Stock Exchange (BSE).

Salient Features of Currency Derivatives

Small orders can be executed up to 1 contract or 1000 USD without

any additional cost.

Complete Transparency of Quotes, Market Price and Price

Discovery.

Foreign Currency exposure not required to trade in the currency

futures.

Synchronization with International Market.

Less Fluctuation.

Low Margins.

Largest Market.

20

Interest Rate Futures benefit the investors in the

following ways:

Unlike Currency Derivatives FIIs and NRIs are permitted to trade

in ETIRF.

Provides flexibility of multiple securities deliveries for one

contract.

Provides flexibility of timing for securities deliveries.

Provides flexibility between square-up and delivery settlement of

position.

Can be traded from the existing Currency Derivative Facility.

Benefits with Bonanza

Daily Research Report – "Daily Forex Insight". (Three Reports in

a day)

Membership of all the stock exchanges.

Pan India Presence.

Regular updates of the market via SMS & Intraday technical &

fundamental updates.

21

MUTUAL FUNDS

Mutual funds are the most popular forms of investment in India

today! But not all Mutual Funds are the same and not everything

about them is that simple. Customers still wonder about the

nature of Mutual Funds if they are like shares in a company or

bonds or fixed deposits.

Bonanza makes it simple to understand the cycle and psychology of

Mutual Funds and their market. Mutual Funds are that alternative

which offers the ideal platform to participate in the Equity &

Debt market indirectly through professional management that being

Bonanza online!

Bonanza recognizes financial goals and provides comprehensive

solutions to all of the financial needs.

IPO

IPO or Initial Public Offering is the first sale of stock by a

company to the public. It is a way for the company to raise money

from investors for its future projects or the selling of

securities to the public in the primary stock market. IPOs are

often issued by small companies seeking capital to expand but can

also be done by large privately owned companies looking to become

publicly traded. It's basically a way through which a company can

raise its equity capital from the capital markets

22

Bonanza also serves those who are interested in divulging into

the IPO trade.

INSURANCE

Bonanza has taken a sincere effort to bring the best insurance

services. With one of the largest retail networks in the country,

Bonanza offers a complete range of insurance solutions covering

both Life and General Insurance to suit the customer’s needs.

Bonanza believes in performing for the best interests of the

customer and providing sound practical advice which is

independent. In today’s scenario, premium collections have become

the sole criteria for most of the advisors without realizing the

value of risk covers and the policy wordings. It is the constant

endeavor to educate our clients and provide them with the best

suitable product. The Insurance industry in India is undergoing

radical transformation and the challenges arising are vast. Their

combination of technical knowledge business, communication,

people and practical skills has helped to evolve into

23

professional players. Bonanza believes in handling each customer

as a ‘special customer’ and this has led to immense loyalty.

Life Insurance Life is full of unexpected surprises.

Unpredictable events can strike without warning and disrupt the

smooth rhythm of life at any time. Here are some of the plans

Bonanza offers:

Traditional Insurance Solutions

Investment Linked Plans (ULIPs)

Guaranteed Return Plans

Monthly Income Schemes

Bonanza offers some of the best plans available in General

Insurance segment:

Motor Insurance

Health Insurance Program

Fire Insurance & Burglary Insurance and Travel Insurance.

INVESTMENT BANKING

Bonanza Corporate Solutions Pvt. Ltd. (BCS) is a member of

Bonanza Group focused on providing financial & strategic business

advisory services for Indian small and Medium Enterprises (SMEs)

& middle market Corporate with the primary objective of enhancing

24

our client’s competitiveness & value. BCS specializes in

providing advisory services towards strategic Business Advisory

services towards strategic Business Advisory, venture capital /

Private Equity Fund Raising, Debt syndication, Strategic

Investments, and Mergers & Acquisitions.

BCS is also engaged in advisory for domestic as well as foreign

private equity / venture capital investors for deal flow

generation, pre-investment due diligence, valuation, post-

investment monitoring and exit strategy. It includes:-

1. Strategic Business Advisory

2. Fund Raising

3. Strategic Investors

4. Mergers & Acquisitions

DEPOSITORY SERVICES

Bonanza offering a multitude of services under one roof also

includes unparalleled Depository services. Bonanza Portfolio Ltd.

Is a registered member / Depository participant of both CDSL

(Central Depository services Ltd.) and NSDL (National Securities

Depository Ltd.) thus, giving the option to not only choose

depository services but also the opportunity of trading at one

place. It is our commitment to design the best investment

alternatives and products for the client! And as one of the top

Depository Participant’s, they offer the most secure, convenient

and hassle-free DEMAT Accounts at the most economical rates.

25

BENEFITS:

You will never have to worry about bad deliveries.

No risk of loss, mutilation or theft of share certificate.

You no longer have to pay stamp duty for transfer of shares.

Everything is in electronic form which reduces paper work and

saves time.

Fast settlement cycles. You can purchase, hold and sell shares in

electronic form.

Increase in liquidity of your securities because of faster

transfer and registration of securities in your account.

Instant disbursement of non-cash benefits such as bonus, right-

issues, etc.

Regular account status updates.

Economical and competitive DEMAT charges with attractive schemes

like lifetime free AMC (Annual account maintenance charges).

E-BROKING

Compared to nations overseas, Online Trading or E-broking is

still in its early life in India. Yet these days trading online

has evolved into a convenient and widely used feature for traders

and investors.

26

Bonanza believes in being up-to-date with the latest in markets

and technology. Keeping that in mind, they bring their customers

the Online Trading feature so that they can trade from anywhere,

anytime, anyplace at their own convenience. Clients can now keep

track of their trading accounts, receive advice during trading

hours and keep an eye on the market all through online broking.

It’s tremendously fast gives a freedom from paperwork and the

necessary statements are available all the time.

Bonanza offers several user-friendly services to customers so

that they can manage their portfolios online and make the most of

our seamless services.

Latest personalized software’s for online trading with real-time

streaming quotes.

Live margin, position, m2m profit / loss report and a wide host

of other related reports to help to keep track of trading.

Digital contract notes delivered automatically to mail box.

Round the clock access to various online reports including Demat

account details, m2m profit / loss, realized profit / loss, net

position etc.

Instant credit and transfer using integrated net banking with

HDFC, ICICI, UTI Bank and more.

Alternative means to place trade orders through Bonanza (Call &

trade facility available through our toll free numbers)

Fully secure transactions via the internet.

27

Friendly customer service desk at your service to cater and

resolve queries, if any!

Access to Bonanza’s highly professional research to make

investment decisions more informed and valuable.

Fundamental and technical research calls and tips on the mobile.

Place orders in Equity, Equity Derivatives, Commodity, Currency,

Mutual Funds and IPOs using our online trading platform.

28

CHAPTER 2INTRODUCTION TO THE

TOPIC

29

INTRODUCTION TO THE TOPIC

Gold is a precious metal that has been valued by people since

ancient times. People use gold for coins, jewelry, ornaments, and

many industrial purposes. Until recently, gold reserves formed

the basis of world monetary systems. Gold is a metallic element

with the atomic number 79 and the symbol Au.

While the name gold comes from an Old English word meaning yellow,

the symbol comes from the Latin aurum, which means “shining

dawn.” Gold is a very soft metal when it is pure (24 Kt. is pure

gold). Gold is the most malleable (hammer able) and ductile (able

to be made into wire) metal. Gold is usually alloyed (mixed with

other metals, often silver and copper) to make it less expensive

and harder

The purity of gold jewelry is measured in karats.

KARAT PERCENT GOLD24Kt. 100% Gold18Kt. 75% Gold14Kt. 58.3% Gold12Kt. 50% Gold10Kt. 41.7% Gold

Alloyed gold comes in many colors:

COLORED GOLD ALLOY METAL(s) ADDED TO THE GOLDYellow Gold 50% silver and 50% copper

30

White Gold Nickel, zinc, copper, tin,

manganesePink(rose) Gold 90% copper and 10% silver

Green Gold High proportion of silver or

cadmiumBlue Gold Some ironGrey Gold 15-20% iron

Gold has been prized by people since the earliest times for

making statues and icons and also for jewelry to adorn their

bodies. Significant buildings and religious temples and statues

have been covered with thinly beaten sheets of gold. Due to its

rarity, gold has long been considered a symbol of the wealth and

power of its possessor.

The following table gives recent demand for gold in tones.

YEAR JEWELRY COINS &

BARS

ETFs INDUSTRIAL

& DENTAL

TOTAL

2000 3204 166 - 451 3,8212001 3008 357 - 363 3,7282002 2660 340 3 358 3,3612003 2483 301 39 382 3,2052004 2617 349 133 414 3,5132005 2712 393 208 432 3,7452006 2288 416 260 460 3,4242007 2405 433 253 462 3,553

31

2008 2187 863 321 436 3,8072009 1814 777 617 410 3,6182010 2017 1149 338 466 3,9702011 1963 1487 154 463 4,067

GOLD COINS

An advantage of coins is that they are easy to sell anywhere in

the world. People will buy coins without assaying them which is

not the case with gold bars. Bonanza provides the gold coins that

are having the purity of 999.99.

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Gold coin with tamper-proof packing - that is ideal for gifting.

1. 24 Carat Assay Certified gold coins.

2. Available in 1, 4, 5, 8 and 10 grams.

3. Competitive rate.

4. Price depends on daily market value.

5. Advance booking facility.

JEWELRY

Many people buy jewelry as an investment. It is possible to buy

21K, 22K and 23K gold jewelry.

EXCHANGE TRADED FUNDS

It is possible to buy shares in gold ETF called GOLD, which has

the ticker symbol GLD. The shares are priced at the midpoint

between the buying and selling price of the spot price of gold.

There are several disadvantages to this way of owning gold.  

While the expenses of the gold ETF are low, the Trust will have

to sell part of its gold stores to pay these expenses.  Thus,

over time, the fractional amount of physical gold represented by

each share will decrease. Indeed it is not clear how much, if

any, gold GLD actually possesses as it is never audited.

HEDGING

33

Hedging means reducing or controlling risk. This is done by

taking a position in the futures market that is opposite to the

one in the physical market with the objective of reducing or

limiting risks associated with price changes.

Hedging is a two-step process. A gain or loss in the cash

position due to changes in price levels will be countered by

changes in the value of a futures position. For instance, a wheat

farmer can sell wheat futures to protect the value of his crop

prior to harvest. If there is a fall in price, the loss in the

cash market position will be countered by a gain in futures

position.

Another example is buying insurance. We buy insurance so that if

and when a negative medical event occurs in our lives, we are

safe against it. This does not necessarily stop the event from

happening, but it just ensures that the impact of that event on

our lives is minimal.

Investors use this strategy when they are unsure of what the

market will do. Portfolio managers and corporations use hedging

techniques to reduce their exposure to various risks. A perfect

hedge reduces your risk to nothing (except for the cost of the

hedge).

In simple words it is a transaction that is made by a particular

trader to protect an established position against an

unanticipated or unwanted movement in the market. Hedging is

34

about doing things that reduce exposure to bad events. It is not

about making money, it is rather about reducing risk. Hedgers use

the futures market to protect themselves against the risk of

fluctuating prices. It means taking a position in futures market

that is opposite to exposure in the physical market with

objective of reducing or limiting risks associated with price

changes.

Portfolio managers, individual investors and corporations use

hedging techniques to reduce their exposure to various risks. In

financial markets, however, hedging becomes more complicated than

simply paying an insurance company a fee every year. Hedging

against investment risk means strategically using instruments in

the market to offset the risk of any adverse price movements. In

other words, investors hedge one investment by making another

How Hedging Works?

In this type of transaction, the hedger tries to fix the price at

a certain level with the objective of ensuring certainty in the

cost of production or revenue of sale. A good hedging strategy

can be the difference between profitability and losing money a

lot of the time. The best hedging system typically doesn't have

to be very complicated, and it is most often based off of quality

information that a particular currency trader knows how to make

the right decisions from.

GOLD HEDGING

35

It is the most popular as an investment. Investors generally buy

gold as a hedge or harbor against economic, political, or social

fiat currency crises

Most of the jewelers buy gold at market prices whenever they need to

buy, irrespective of the prices. But, in today’s fast changing world

this mode of working involves 2 types of risks:

Foreign Exchange Rate Risk – Due to change in relative value of

currencies.

Gold Price Risk – Due to fluctuation in price of gold.

The gold futures market is used by jewelers to hedge their gold

against market price fluctuations.

The demand for gold can be divided into two categories. The first

is the “use demand”, where it is used directly in the production

of jewelry, medals, coins, electrical components, etc. The second

is the “asset demand” for gold, where it is used by governments,

fund managers and individuals as an investment. The asset demand

for gold is traditionally associated with the view that gold

provides an effective “hedge” against inflation and other forms

of uncertainty. However, the reality is somewhat different. Gold

may be an inflation hedge in the long-run but it is also

characterized by significant short-run price volatility.

Gold hedging locks the value of the gold. Gold hedging allows

gold to be hedged or locked in to a certain price today, then if

there is a decrease in its value in the future, a trader will

36

still be able to sell it for the agreed upon price. Hedging also

works the other way and helps gain more profit through buying at

a lower price if gold’s value has increased since the time of the

deal.

The long position holder (the party who will buy the gold)

attempts to lock in the lowest price that they can. The short

position holder (the party who will sell the gold) is tries to

secure the highest possible price. The advantage for both parties

is that the futures contract gives them both certainties relating

to the price.

Futures contracts can be purchased and sold in the market through

regular brokers. Contracts are created by the futures market.

37

CHAPTER 3REVIEW OF LITERATURE

38

REVIEW OF LITERATURE

Adibe and Fei (2009)

Adibe and Fei (2009) in their research work have discussed the

gold’s importance and its r e l e v a n c e i n e c o n o m y . Their

study disproved gold’s use as a hedge in the short-term. Adibe

and Fei further revealed that there is a significant

relationship between the price movements of gold.

Andy (2010)

According to him Gold can be both a normal commodity and

financial equipment. To hedge the fluctuation of gold price, the

gold futures came to the market. He research the four major

hedging model including OLS, B-VAR, B-VECM, Multi-GARCH.

Claude B. Erb and Campbell R. Harvey (2010)

According to the research is widely held belief about gold is

that it is an inflation hedge. It means that if inflation rises

by four per cent a year for the next 50 years then the price of

gold should also rise by four per cent a year.

Andrey Dashkov (2011)

According to him Hedging can be a good way to increase investor

confidence in a mining project, to insure their investments, or

to secure a bank loan. We do not see that positive net hedging in

39

the first quarter is alarming – the economic problems bubbling to

the surface now should provide a lot of reasons for the gold

price to continue rising for quite some time. A gold mining

company may hedge its production on expectations of falling gold

prices in order to lock in high prices and possibly avoid losses.

Michelle Smith (2012)

Gold is an investment metal, but it is also a commodity.

Investors put money into gold for a number of reasons, including

as a hedge against inflation. Gold can play a partial hedging

role in an investor’s personal portfolio, over the 112-year

period analyzed, the real return on gold was 1.07 percent (in

GBP).

Kimberly Amadeo (2012)

Hedging is an investment that's made, not so much to take

advantage of a situation, but to prevent or offset another

potentially risky or uncontrollable situation. Gold really

becomes popular as a hedge against a dollar collapse. That's

because the dollar is the world's global currency, and there's

really no other good alternative right now. If the dollar were to

collapse, then gold might become the new unit of world money.

This is unlikely, because there is such a finite supply of gold,

and the dollar's value is primarily based on credit, not cash.

However, it wasn't too long ago that the world was on the gold40

standard, and most major forms of currency were backed by their

value in gold. Gold's historical association as a form of money

is the reason it's a good hedge against hyperinflation or a

dollar collapse.

41

CHAPTER 4OBJECTIVE OF THE

STUDY

42

OBJECTIVE OF RESEARCH

To study the Gold market.

To understand the hedging of Gold in commodity exchange

market.

To get information about the Purity of Gold by providing

various Gold smiths and hedging system.

To know the price risk managed by Gold smiths on stock due

to sudden reason.

To know the awareness of Gold smiths about Hedging.

43

CHAPTER 5RESEARCH METHODOLOGY

44

RESEARCH METHODOLOGY

RESEARCH DESIGN:

A Research design is a framework or blueprint for conducting the research

project. It details the procedures necessary for obtaining the information

need to structure and/or solve research problems.

The research design lays the foundation for conducting the project. The

descriptive research design is being used to study the formulated problem.

Primary and secondary data has been collected according to the need of the

study. For collecting primary data, structured questionnaire has been

prepared considering objectives of the study. More over important factors has

been considered to measure the interested variable of the study.

Research design selected for this project is

Descriptive.

DATA COLLECTION:

Primary Data Collection Method:

Survey method was used for primary data collection.

We used questionnaire as an instrument for survey method.

45

Type of questionnaire: open ended and close ended.

Secondary Data Collection Method:

Internet.

SAMPLING DESIGN

Population:

The population for this research study consists of Panchkula

.

Sampling unit:

In this study the sampling unit is Gold smiths.

Sample size:

30 Gold smiths

Sampling method:

The sample is selected by using convenience-sampling

method.

DATA PROCESSING:

46

Data is basically processed and analyzed in accordance with the

outline laid down in research plan. The analysis has been done

with the help of tables and graphs.

LIMITATIONS OF THE STUDY:

The sample size was small and may not be sufficient to predict

the 100% accurate results.

The negative response by various Gold smiths in Pnchkula.

On the account of limitation of time and money factors, the

coverage of the research was limited to selected respondents.

Not fully information provided by Gold smiths about Hedging.

47

CHAPTER 6DATA ANALYSIS

48

DATA ANALYSIS

Gold smiths:

Q1. What are the denominations of Gold coins being sold by you?

Coins in (gm) Respondents1gm -4gm -5gm -8gm -10gm 1

All of the above 30

3%

97%

Series 11 gm 4 gm 5 gm8 gm 10 gm all of above

Interpretation:

The above question has been formed to know the gold coins sold by

jewelers in gm. It shows those jewelers used to sell all type of

49

coins that are of 1gm to 10 gm. From the above result 30 jewelers

used to sell gold coins.

50

Q2. What is the purity of Gold?

PURITY(karat) Respondents24 522 2both 23

17%7%

77%

Series 124 k 22 k both

Interpretation:

From the above result it is clear that out of 30 Gold smiths 23

are having the purity of 24 & 22 karat Gold. And 5 Gold smiths

respond on having 24 karat Gold purity, rest of 2 are having the

Gold purity of 22 karat.

51

Q3. Will you provide authentication proof of Gold purity?

Particulars Respondentsyes 19No 11

63%

37%

Series 1yes no

Interpretation:

Answer of this question will give about the information of

authentication proof provided by Gold smiths. 17 of the

respondents provide the certificates to ensure the purity of the

Gold.

52

Q4. Who will supply the Gold coins to you?

Particulars RespondentsBrokers 5Banks 16

Made by them 8Foreign trade 1

17%

53%

27%3%

Series 1Brokers Banks Made by them Foreign trade

Interpretation:

The objective behind this question is to know about the supply of

gold coin to the jewelers. In the graph it is clearly defined

about the supply of gold coins. Most of the Gold smiths contact

with banks for the Gold coins. Some of jewelers used to make the

Gold coins by themselves. Brokers and by export of Gold coin also

shows in the graph.

53

Q5. Who can buy the coins?

Particulars RespondentInvestors 4

Normal customers 19Both 7

13%

63%

23%

Series 1Investors Normal customers Both

Interpretation:

The answer of the respondents gives information about the

consumers of Gold coins that are investors, normal customers.

Most of the buyers of Gold coins are the normal customers that

are 19 out of 30.

54

Q6. Will you buy back the Gold?

Particulars Respondentyes 27No 3

90%

10%

Series 1yes no

Interpretation:

It shows the level of buy back of Gold by jewelers. Most of the

jewelers buy back the gold that is 27 out of 30. Rest of 3 of

jewelers is not using the Buyback method.

55

Q7. Is there any Discount on bulk purchases?

Particulars RespondentsYes 29No 1

97%

3%

Series 1Yes No

Interpretation:

The answer of respondent gives information about the discount on

bulk purchases. 29 of jewelers out of 30 are used to give

discount on bulk purchases of gold.

56

Q8. Are you doing online commodity exchange?

Particulars RespondentsYes 21No 9

70%

30%

Series 1Yes No

Interpretation:

In this graph it is shown that 21 of the Gold smiths are doing

online commodity exchange by using various exchanges.

57

Q9. Do you know about Hedging?

Particulars RespondentYes 26No 4

87%

13%

Series 1Yes No

Interpretation:

In above question it is clear that 26 of Gold smiths know about

the hedging.

58

Q10. Will you hedge your position on commodity exchange?

Particulars RespondentYes 16No 14

53%

47%

Series 1Yes No

Interpretation:

In above graph it is clearly defined that 16 of jewelers hedge

their position in commodity exchange. And 14 of jewelers are not

used to hedge their position in market.

59

Q11. If yes than from which exchange and broker you trade?

Particulars RespondentsMCX 7

NCDEX 5NMCE 3ICEX 1Broker 0

44%

31%

19%

6%

Series 1MCX NCDEX NMCE ICEX Broker

Interpretation:

From the above information it is clear that Multi Commodity

Exchange of India Limited (MCX) is used by 7 of jewelers to trade

in commodity exchange.5 in National Commodity & Derivatives

Exchange Limited (NCDEX). 3 In Indian National Multi-Commodity

Exchange (NMCE). 1 of the jeweler used to trade in Commodity

Exchange Limited ICEX.

60

Q12. Give views about hedging?

Ans. Mostly Gold smiths are not given full information about

hedging, but some of them are agree that it is the best way to

minimize the price risk and also best as an investment. It is

better way to cover up the losses and also helpful in to gain the

profits.

61

CHAPTER 7FINDINGS

AND SUGGESTIONS

62

FINDINGS AND SUGGESTIONS

FINDINGS:

In case of hedged position the investor was able to make a

profit and reduce loss.

It is not possible always the time of applying through

hedging minimize the risk.

The hedging system has an important role in determining

effectiveness.

Gold smiths do hedging to do investments because gold price

gradually groom up day by day so it is necessary that they

cover up from the financial risk.

SUGGESTIONS:

If a Gold smith wants to hedge, they are convenient and

represent the true nature of the security market as a whole.

Investors should read newspaper, business journals and

websites etc to get the awareness about the stock market

situation and factors which will affect the stock market.

Hedging is actually a tool to reduce the losses that may

arise from the market risk, its primary objective is loss

minimizing, not profit maximization.

The hedger or Gold smiths will have to think positively. He

should be able to comprehend market trend and fluctuations.

63

Otherwise the strategies adopted by him will earn him only

losses.

64

CHAPTER 8CONCLUSION

65

CONCLUSION OF THE SURVEY

The economics of gold hedging are relatively simple.

Nobody buys gold at the higher hedged price. That is simply

a price that was constructed by the bullion bank.

Asset quality, diversity and credit strength are the most

important elements to Mitigate termination risk.

Irresponsible hedging can cause problems:

– Experience

– Understanding

– Internal processes, tracking, controls.

Lack of awareness of hedging and hedging strategies has resulted

in losses for those in gold trade and gold related areas. World

gold council and other related agencies need to do more to spread

the awareness of the need for hedging.

66

BIBLIOGRAPHY

Websites:

www.Bonanzaprotfolio.com www.Bonanzagoldcoin.com www.Diamond-jewelry-pedia.com www.Goldyabz.com www.Bankbazaar.com http://Wisegeek.com http://Rediff.com http://Infobarrel.com http://Hubpages.com www.Tradegoldonline.com www.google.com

67

ANNEXURE

QUESTIONNAIRE:

NAME____________ ADDRESS_________

MOBILE NO___________

Q1. What are the denominations of Gold coins being sold by you?Ans. 1gm 4gm 5gm

8gm 10gm All of above.

Q2. What is the purity of Gold?

Ans. 24k 22k

Both.

Q3. Will you provide authentication proof of Gold purity?

Ans. Yes No.

Q4. Who will supply the Gold coins to you?

Ans. Broker______ (name) Made by them

Banks______ (name) Foreign trade.

Q5. Who buys the Gold coins?

Ans. Investors Normal customers

Both.

Q6. Will you buy back the Gold?

68

Ans. Yes No

Q7. Is there any Discount on bulk purchases?

Ans. Yes No

Q8. Are you doing online commodity exchange?

Ans. Yes No

Q9. Do you know about Hedging?

Ans. Yes No

Q10. Will you hedge your position on commodity exchange?

Ans. Yes No

Q11. If yes than from which exchange and broker you trade?

Ans. MCX ICEX

NCDEX Broker_______ (name)

NMCE

Q12. Give your views about gold hedging?

Ans. ____________________________________________________________________________________________________________________________________________

69

REFERENCE:

NAME OF THE GOLD SMITHS IN PANCHKULA

1. Guru nanak ji jewelers2. Rinku jewelers3. Vijay jewelers4. Verma jewelers5. Bhola jewelers6. Goyal jewelers7. Goyal diamond house8. Chandani jewelers9. Mohit jewelers10. Bhawani jewelers11. Bhagwati jewelers12. Sia jewelers13. Arora sons jewelers14. Front neck jewelers15. Verma jewelers16. Sangam jewelers17. Sethi jewelers18. Dwarka jewelers19. Tanishq jewelers20. Jain jewelers & diamonds21. P.C jewelers22. Radhey Krishna jewelers23. Vimal jewelers24. Jewelers malhotra25. Mayaji jewelers26. Ruby jewelers27. Chandan jewelers28. Rajat jewelers29. Vimal jewelers

70

30. Shri ram jewelers.

71