CHAPTER I

INTRODUCTION

A. GOLD THE PRECIOUS METAL

Going back to basics, gold is a chemical element metal that is

characterized with its yellow slightly reddish color and carries the atomic
number 79 and symbol “Au” in the periodic schedule which is derived
from the old Latin word “Aurum.” This “yellow metal” had its great
position within the different ancient and current cultures and civilizations
as a sacred metal and valuable possession. This former and continues
position that this metal yielded within all of those civilizations and
cultures can be attributed to the idea of it being seen as irreplaceable
element because of its unique properties.

B. GOLD WAS VALUED FROM ANCIENT TIMES

The gold had a great position during the ancient times and played an
important role in the human society. However, this great position wasn’t
only restricted to the idea of being sacred as its use moved to the
manufacturing of precious jewelries till it got introduced finally to the
economy as a value carrier as it started to be used in the barter system for
the purpose of efficient exchange.

C. ROLE IN THE ECONOMY

The next step for gold entry into the economy was its use in the new
money system that followed the barter system as a replacing system. In the
new money system gold took an important outstanding part as it started to
be used in the manufacturing of coinage around the world therefore taking
the state of money in that time period; this position got reinforced by the
change in preference that happened in European economies during the

1
13th and 14th centuries from silver to gold which caused a reestablishment
to the gold minting coinage.

D. AS A BASE TO DETERMINE MONEY VALUE – THE GOLD

STANDARD SYSTEM

The use of gold as a base and representative of money then moved to a

better state in the economy as its circulation increased in the economies
and countries as they started to use Bills and gold certificates (they mature
at the end into gold coins) in their systems during the 19th century which
helped emphasizing the gold standard money during that period of time.

During those former periods and till before the World War II the gold was
a somehow a base of money everywhere in what is called the gold
standard system; when the World War I started the warring nations started
to move from the gold standard system to the fractional gold standards in
order to be able to inflate their currencies to be able to finance their war
expense.

This was somehow fixed after the war in some countries however this
didn’t continue for a long time as World War II happened and sealed the
end of the gold standard system. After the World War II the world in
Britton wood conference decided to move the world money system to a
new system that was called Britton wood system that is similar to the gold
standard system as some people call it the “gold exchange standard”.

Under this system, the USA - and many other countries - nailed their
currency and fixed their exchange rates to a cretin amount of gold.
Therefore, central banks were able to exchange their USD holdings to gold
at the set official US exchange rate of $ 35 per ounce.

As a result of the change the USA did all the countries that had their
currencies pegged to the USD had to also change their system and fix their
currencies value to a fixed value of gold. During this system gold was

2
almost the synonym of money in the economy as everything that holds a
value of money was somehow backed up by an amount of gold within the
countries of the world; however, those “ golden times” for gold reached
their end when the USA- along with money other countries- decided to
ditch the Britton wood system and set their USD currency as a free
floating currency – pure fiat money –therefore introducing the new fiat
currency system

E. INVESTORS DELIGHT

Gold, a metallic element has always been considered to be one of the most
precious metals in the mankind’s history and also one of the most liquid
and widely accepted medium of exchange. Gold is measured as one of the
most preferred investment avenues since its discovery.

This glittering yellow metal has always fascinated all classes of investors
irrespective of their gender, geographical location etc. due to the
properties it offers such as liquidity, security & portfolio. One of the key
features of gold is its less susceptibility to fluctuations in exchange rate
and its ability to resist both internal and external changes in purchasing
power of the domestic currency.

F. DOLLAR PEGGED AGAINST THE GOLD

Even in the era of industrialization the importance of gold is also

evidenced from the fact that after the end of World War II, under the
Bretton woods system the US Dollar remained pegged to gold at $35 per
ounce till 1971 when US, on its own suspended direct exchange of US
Dollar and gold and thereby enabled switching to flat currency system.

Over the period of time various currencies dissociated with gold the last
currency was Swiss Franc in 2000. Investors consider gold to be a safe
haven especially during the period of economic downturn and/or political
turmoil. Away from being a safe investment, with the changing scenario
its role is also changing in the current paradigm.

3
G. GOLD NOW IS A TRADING COMMODITY

The Gold is now being traded and forecasted as a commodity. It is the

world’s oldest investment avenue used for hedging purposes. Gold has
always been considered as a commodity providing cushion against
declining purchasing power of money thus investment in gold is often
made to thwart the impact of inflation and currency depreciation due to
this ability gold has the property of preserving value.

H. ALTERNATIVE SOURCE OF INVESTMENT IN MODERN

ECONOMIES

It also serves as an alternative source of investment in the event of bearish

or volatile stock market. As both gold and stock are often substitutes to
each other, universally there exists a reverse relationship between gold and
stock prices because as the prices of gold rises the investors start investing
less in gold & tend to park their holdings in stock market consequently its
price falls and vice versa.

There are some empirical evidence the gold could be hedge even against
stocks, though only in short run. When an economy experiences slow
down with falling returns from stock market investors withdrew their
holdings from stocks and park their investments in gold until the economy
revives.

I. A SECURITY DURING BAD TIMES

The importance of this glittering yellow metal can also be recognized from
the fact that it shares substantial portion of foreign exchange reserves of
government and central banks all across the world. It is also evidenced
from the world economic history that countries including India (in 1990s)
had to park their gold holding as a security for loan to correct balance of
payment disequilibrium.

It has also been observed that the currencies having large backing of gold
are stronger than others. It is evidenced from the historical gold and stock

4
prices in India that whenever stock market falls or dollar weakens gold
prices rises as gold becomes safe investment avenue under such
circumstances. Similarly, gold also serves as an alternative source of
investment to other financial assets such as securities, currencies, reality
etc due to their volatility subjected to market conditions. Gold is now
being used as an alternative for dollar since its collapse.

J. HIGH LIQUIDITY

Another reason why gold is most preferred by an ordinary investor to

other investment avenues is that it attracts no credit risk and can be easily
liquidated at any time even in scenario of economic crisis, inflation and
political unrest. The sharp rise in the price of gold & weakening dollar (for
some time), tumbling stock market across the world aftermath of US
subprime crisis, justifies its significance as an alternative to stock. The
role of investment in gold has drawn more attention since this
transformational economic crisis began to unfold in 2008.

Being a developing country having huge demand for steel & oil for
maintaining its growth pace, India is also known for its gold chase. Over
the period of time, demand for gold in India has not only been consistent
but it registered sharp rise irrespective of fact that a large portion of gold
demand in India is met through imports. in wake of tumbling Indian
Rupee in the recent years, gold has emerged to be second largest imported
commodity after crude oil.

K. DEMAND IS SUSTAINED DESPITE PRICE INCREASE

Despite the sharp recent price rise in the international gold prices the
demand for gold has sustained, not only as a component of safe haven but
also its social and cultural importance. According to Assocham’s report,
India accounts for one third of the global demand for gold further demand
for gold in India is irrespective of the size of its GDP as compared to other
countries.

5
L. DEMAND FOR GOLD IN INDIA

Indian gold demand is 37.6 percent more than that of China & consumer
demand of gold for USA stood at 213.5 tonne whereas in terms of
percentage share India’s GDP is 27.7 percent of China and a meager 11.0
percent of USA. During the last few years, gold prices witnessed a
dramatic volatility. Aftermath economic slowdown triggered by US
Subprime crisis it came to emerge as an alternative source of investment to
falling stocks & then depreciating currencies.

Gold, in India witnessed boost in its prices with tumbling US Dollar &
stock market on the backdrop of US Subprime crisis & subsequent euro
zone crisis, but in the recent past with the signs of revival of US economy
coupled with slow down in emerging economies the prices of gold started
losing its glitter & experienced high volatility.

M. THE PANDEMIC AND THE RISE IN GOLD PRICES

After the outbreak of the coronavirus pandemeic and the lockdowns that
followed in countries across the world and the gradual shrinking of the
world economies gold prices going up, and the rise will rise continue for
long?
Why is the yellow metal continuing its dream run at a time when Covid-19
pandemic has pushed the global economy into a contraction mode? Will
the gold prices continue the upward momentum? Many gold analysts have
now revised their price targets saying that prices could go up to Rs 65,000
per 10 grams in the next 18-24 months. (Source: Bloomberg)

After over nine years, gold prices hit Rs 50,000 per 10 grams on
Wednesday in India – the world’s second-largest gold consumer after
China – as a host of factors like global uncertainties triggered by
Covid pandemic, weak dollar, low-interest rates and stimulus programmes
have increased the appetite for gold.

6
Why is the yellow metal continuing its dream run at a time when Covid-19
pandemic has pushed the global economy into a contraction mode? Will it
continue the upward momentum? Why is gold going up and up?

N. GOLD BECAME A SUPERSTAR DURING THE PANDEMIC

Gold had a remarkable performance in the first half of 2020, increasing by

around 25 per cent from its low in March and significantly outperforming
all other major asset classes.

Gold futures prices soared to a nine-year high of $ 1,856.60 per troy ounce
in London on Wednesday, inching closer to their record high of $1,920 an
ounce hit in September of 2011. One troy ounce is equivalent to
31.1034768 grams.

Though equity markets around the world rebounded sharply from their
March lows, the high level of uncertainty surrounding the Covid-
19 pandemic and the ultra-low interest rate environment supported strong
flight-to-quality flows.

Like money market and high-quality bond funds, gold benefited from
investors’ need to reduce risk, with the recognition of gold as a hedge
further underscored by the record inflows seen in gold-backed ETFs.

Gold prices in India are dictated by international prices. “International

gold prices have been on the rise in the last a few months. It has picked up
pace amid sharp losses in the dollar, additional stimulus measures and
robust investor inflows. Rising virus cases and US-China tensions have
also underpinned the gold price,” said Ravindra Rao, Head of Commodity
Research, Kotak Securities. Don’t miss from Explained | Can you get
COVID-19 again? It’s very unlikely, experts say

7
O. IT IS A SAFE HAVEN

Gold – an integral part of wedding ceremonies in India — is traditionally

used as a hedge against inflation and considered as a safe haven for
investors during periods of uncertainties. Whenever stock markets, real
estate and bonds fall across the world, investors turn to gold to park their
funds. The fall in the value of other asset classes and global uncertainties
in the wake of Covid-19 helped gold climb to a record high.

A key factor behind this robust performance is that the supply growth of
gold has changed little over time – increasing by approximately 1.6 per
cent per year over the past 20 years. In contrast, fiat money can be printed
in unlimited quantities to support monetary policy, as exemplified by the
Quantitative Easing (QE) measures in the aftermath of the global financial
crisis. Gold, established as an investment, a reserve asset and an
adornment, is highly liquid, no one’s liability, carries no credit risk and is
scarce, historically preserving its value over time.

P. GOLD PRICES WILL CONTINUE TO RISE

Many gold analysts have now revised their price targets saying that prices
could go up to Rs 65,000 per 10 grams in the next 18-24 months. Analysts
are bullish as the fundamental factors like lower interest rates, negative
rates in some economies, enormous amount of liquidity and expanded
fiscal balance sheets of governments which are trying to push growth
amidst Covid-19 are expected to dictate the price trend. “We expect
precious metals to trade firm until the number of global cases of Covid-19
is under control or a vaccine is introduced in the market which is still a
few months away,” said Nish Bhatt, Founder & CEO, Millwood Kane
International.

8
With prices on the rise, investors have embraced gold in 2020 as a key
portfolio hedging strategy. Regardless of the recovery type, the pandemic
will likely have a lasting effect on asset allocation. “It will also continue to
reinforce the role of gold as a strategic asset. And we believe that the
combination of high risk, low opportunity cost and positive price
momentum looks set to support gold investment and offset weakness in
consumption from an economic contraction,” says a World Gold Council
report.

Q. IT HAS GIVEN GOOD RETURNS

Historically, gold has generated long-term positive returns in both good

times and bad. Looking back almost half a century, the price of gold has
increased by an average 14.1 per cent per annum since 1973 after Bretton
Woods collapsed and the gold standard system of pegging the currency to
gold ended, WGC says. Gold has surged nearly 40 per cent in the last one
year while the Sensex showed a loss of 0.41 per cent at 37,871.52
(Wednesday closing) in the same period.

R. INDIA’S GOLD RESERVE

WGC has estimated that households in India may have piled up around
24,000-25,000 tonnes of gold. Various temples across the country also
hold sizeable gold holdings. The Reserve Bank of India bought 40.45
tonnes of gold in the financial year 2019-20, taking its total holdings of the
yellow metal to 653.01 tonnes.

While prices had shot up, economic slowdown and the lockdown triggered
by the Covid-19 pandemic hit the demand for the yellow metal. As a
result, demand for gold fell 36 per cent to 101.9 tonnes during the
January-March quarter of 2020 as compared to 159 tonnes in the same

9
period of last year. India’s gold demand for the full-year 2019 was 690.4
tonnes compared to 760.4 tonnes in 2018, down 9 per cent, according to
WGC data. However, around 120-200 tonnes of gold are estimated to be
smuggled into India every year. The government last year hiked the import
duty on gold to 12.5 per cent.

S. HOW COVID-19 IMPACTED GOLD PRICES

During periods of crisis, gold has proven to be a time-honored safe-haven

asset. Scarcity and built-in utility have made the yellow metal a sought
after commodity throughout recorded human history. Whether in physical
or paper form, gold bullion is the world's go to financial hedge against
uncertainty is the moot question.

Gold's validity as a financial safe-haven underwent a formidable test

during the novel coronavirus (COVID-19) pandemic of 2020. Traders,
investors, central banks and individuals took an active stance toward
bullion on a global scale. The results were consistent pricing volatility and
confirmation of gold's undeniable intrinsic value. As the international
economic system ground to a halt, gold experienced extreme market
turbulence on its way to near all-time high valuations.

T. ONSET OF COVID-19

The novel coronavirus contagion originated in late-2019 on mainland

China. Traced to a food market in the industrial city of Wuhan, the virus
demonstrated a remarkable ability to spread quickly throughout
heterogeneous populations. Upon the coronavirus becoming a global
concern, the World Health Organisation (WHO) officially named the
disease COVID-19 in mid-February.[1] Shortly thereafter, on 11 March
2020[2], the outbreak rose to pandemic status and spiked uncertainty
around the globe.

10
Immediate steps were taken to stop the spread of COVID-19, including
sweeping quarantines, travel bans and lockdowns. As a result, the world's
economy was essentially stopped and market participants began preparing
for the worst. Gold values were impacted greatly as the capital markets
violently reacted to the unprecedented situation.

Conventional wisdom states that during times of panic, gold appreciates in

value. This was not the case in March 2020, as traders and investors
clamored for a port in the storm. Below is a look at how spot
gold (XAU/USD) fared during the early stages of COVID-19.[3]

2-6 MARCH 2020

During the initial days of March, global markets began to show signs of
strain. In response to growing COVID-19 economic fears, the United
States Federal Reserve (FED) imposed a surprise 0.5% cut to the Federal
Funds Target Rate.[4] The move did little to stem the bearish market
sentiment, but it did spike participation in bullion. For the trading week of
2-6 March, the XAU/USD gained US$87.52 (+5.52%).

9-13 MARCH 2020

Monday, 9 March brought the biggest stock market crash since the 2008
global financial crisis. Leading U.S. equities indices the Dow Jones
Industrial Average (DJIA), Standard & Poor's 500 (S&P 500) and
NASDAQ Composite all fell by more than 7.25%. [5] Spot gold followed
suit, losingUS$144.57 (-8.64%) by Friday, 13 March's closing bell.

16-20 MARCH 2020

On Sunday, 15 March, the FED held an emergency meeting to address the

evolving market turmoil. At the meeting, interest rates were cut to near
zero and at least US$700 billion in liquidity injections were pledged.

11
[6]
The XAU/USD reacted negatively to the news, falling by US$30.39 per
ounce (-1.99%) for the week.

23-27 MARCH 2020

On 19 March, the U.S. Congress introduced the CARES Act, a massive

US$2.0 trillion stimulus package.[7] The leading American indices rallied
on the news, as illustrated by a 16.93% gain in the US30 (DJIA) CFD.
Gold bullion prices also reacted positively, posting a US$128.63 (+8.58%)
gain for the week.

U. MARCH 2020 VOLATILITY RECAP

Chaotic is the best way to describe gold's behaviour during the COVID-19
market panic of March 2020. Values frequently spiked and plunged as the
situation evolved, often in a counterintuitive fashion. A traditional view of
the market prompted most analysts to take a bullish short-term view of
gold; however, this idea proved incorrect.

For the month of March, spot gold closed at US$1577.10, modestly down
by US$9.44 (-0.60%). So, why did bullion perform so poorly as a safe-
haven during the initial stages of the COVID-19 panic? The answer is a
phenomenon known as capitulation.

In the capital markets, capitulation means to sell all assets and move
holdings exclusively to cash. Amid the COVID-19 panic of March 2020,
market participants liquidated assets and stockpiled U.S. dollars.

This led to periodic spikes in the USD Index, which closed the month of
March up by 0.60%.[8] However, given that gold held relatively strong
against the USD and mass capitulation, it remained a viable safe-haven
asset.

12
V. ECONOMIC DAMAGE, RESTART

When compared to March 2020, April 2020 was relatively tame for the
capital markets. Risk assets began a broad-based recovery, as equities
traders and investors regained a portion of their appetites. Aside from
unprecedented tumult hitting the global oil complex, April proved to be a
much better month than March.

Nonetheless, questions regarding a potential economic restart plagued

overall market sentiment. Citizen quarantines and business shutdowns had
been in place for extended periods of time, so how was life to resume
post-COVID-19? And, how bad was the economic damage stemming from
the lockdowns?

W. OMINOUS PROJECTIONS

On the economic front, most analysts predicted a steep recession with a

chance of depression following COVID-19. Experts from investment
banking giant Goldman Sachs issued mid-April projections for Q2 U.S.
GDP to decline 11% and American unemployment to hit 15%.[9] The
ominous tone wasn't relegated to the U.S., as the International Monetary
Fund (IMF) estimated that the global economy was to contract by 3% for
2020.[10]

Although a recovery in the financial markets appeared to be underway

with the passing of March, investor angst remained at epic levels. With the
initial COVID-19 panic still fresh in everyone's minds and the world still
largely on lockdown, bullion trended higher during April. For the month
of April, XAU/USD gained US$109.51 (+6.94%), establishing a robust
monthly close of US$1686.61.[3] As high unemployment and economic
strife dominated market sentiment, bullion became an extremely attractive
holding.

13
X. ECONOMIC RESTART

Although the COVID-19 pandemic proved to be a major humanitarian

crisis, the economic impacts were also severe. This fact was not lost on
institutional investors, as they hoarded physical bullion throughout Q1
2020. From January to March, European and U.S. gold-based exchange-
traded funds (ETFs) boosted stores by 298 tonnes, valued at upwards of
US$16 billion.

The attitude of gold bulls didn't appear to change as the global economy
began reopening for business. Safety challenges, government restrictions
and fears over a "second-wave" of COVID-19 infections posed many
questions to the markets. Was there to be a repeat of March's panic? Were
more lockdowns imminent? Could a second-wave bring on another Great
Depression?

As the world returned to business-as-usual, gold once again performed

well as a safe-haven asset. The XAU/USD rallied by US$42.99 (+2.55%)
for May, to a near-record monthly close of US$1729.61. Although
positive sentiment was creeping back into the world's financial markets,
both retail and institutional investors turned to gold as insulation against
the unknown.

Y. GOLD HITS $2,000 AN OUNCE

According to the Financial Times, whose article is produced below, by

Henry Sanderson in London, August 5, 2020
https://www.ft.com/content/566dd8f7-7efe-45b6-8a44-b20f7f0f283e

Gold hit $2,000 an ounce on Tuesday. Such high prices are a milestone
that caps a record-breaking rally driven by depressed bond yields and fears
over the impact of Covid-19 on the global economy. The 32 per cent rally
this year has made gold one of the world’s best-performing mainstream

14
assets, reflecting concerns among investors over the sustained number of
coronavirus cases, particularly in the US, and the impact of trillions of
dollars of stimulus from governments and central banks around the world.

“The root cause [behind the rally] is uncertainty,” said George Cheveley, a
fund manager at Ninety One. “It’s uncertainty about whether the world
plunges into recession next year or recovers, spurred on stimulus money.”
“When you think of both of those outcomes, gold has a place,” he said.

The surge in the price of the metal, often used as a haven in times of
stress, stems in part from investor demand for gold-backed exchange
traded funds, holdings of which have risen to record levels. Investors
stashed a net $7.4bn of cash into gold-backed ETFs last month, according
to data from the World Gold Council — adding to the record $40bn they
invested in the first half of the year.

Gold would benefit as bond yields continued to slide and inflation started
to materialise, said Jim Luke, a fund manager at Schroders. US 10-year
real yields, which take into account inflation, fell to an all-time low of
minus 1.02 per cent this month. “We’re in a world where inflation will
move above targets and real rates will be significantly lower than now,”
Mr Luke said. Typically, gold suffers a disadvantage relative to
government bonds — another classic haven for nervous investors —
because it does not offer dividends or interest payments.

But aggressive easing from central banks, including vast bond-buying

programmes from the US Federal Reserve, means that the returns
available to new buyers of bonds are slim. The benchmark 10-year US
government bond now yields close to 0.5 per cent. Many government
bonds carry negative yields, meaning buyers are guaranteed a loss if they
hold the debt to maturity. That boosts the relative allure of gold.
Governments globally have announced $20tn worth of stimulus to combat

15
the impact of coronavirus, according to Bank of America, a little over 20
per cent of global gross domestic product. The bank said the impact of
coronavirus and US-China tensions could push the gold price towards
$3,000 a troy ounce in the next 18 months.

Gold is still under-owned by global investors relative to global stocks,

according to the bank, with less than 3 per cent of their assets in the
precious metal. In 1980, allocations were as high as 6.2 per cent, the
bank’s analysts said. “We still see ample scope for traders to consider
increasing their gold holdings,” they added. Recommended The Long
View Tommy Stubbington Investors in gold and investors in bonds cannot
both be right The gold price is still not an all-time high after taking into
account inflation. Gold’s record high in January 1980 is worth $2,800
today after adjusted for inflation, according to the World Gold Council.

Mr Luke at Schroders said the gold rally could have further to run as
investors grappled with negative real rates and high stock market
valuations. “People who look at gold tend to get characterised as ‘gold
bugs’ and some do have that kind of blind-faith mentality,” he said. “But
what’s drawing investors to gold now is not faith in gold itself, it’s much
more a lack of faith in other things — central banks, governments and, in
particular, a lack of faith in the availability of real returns elsewhere. Gold
is the inverse of that.” Gold last traded up 2.1 per cent on the day at
$2,018 a troy ounce.

Z. THE PRICE OF GOLD HAS INCREASED 53% IN THE LAST

14 MONTHS.

 The price of gold has reached an all-time high following the

economic fallout of COVID-19.

 The rare metal has increased in value as central banks lower

interest rates and flood markets with cash.

16
 Financial investors have added a record 734 tonnes worth $39.5
billion to their stockpiles in first half of 2020, according to the
World Gold Council.

Gold’s record rally is moving tantalisingly close to the psychologically

key $2,000 (1,556 pounds) level, powered by investors seeking cover from
COVID-19’s global economic toll, as reflected in dollar weakness,
faltering stocks and U.S.-China trade tensions.

Spot gold prices have surged 53% in the last 14 months, blowing past
2011’s record high of $1,920.30 an ounce to an all-time peak of $1,943.

Analysts said the slide in the rival safe-haven dollar was the tipping point
for gold’s latest surge, with the greenback plunging to a two-year low.

“To some degree, gold replaces the USD,” said Hans Ritter, global head of
trading at Heraeus.

The drop in the dollar vs the rise of gold.

Image: US Dollar Index

17
Fuelling bullion’s upward path has been economic and political
uncertainty stemming from the coronavirus pandemic and the response by
central banks — to slash interest rates and flood markets with cash.

This has fuelled fears of inflation, which would typically devalue other
assets, and has also lowered returns on government bonds, making gold
more attractive.

Gold’s rise has also been mirrored by a slide in real yields on 10-year U.S.
bonds, which are at record lows.

“When we think about the gold market what we’re really thinking about is
what happens with real U.S. yields,” said Capital Economics analyst
Kieran Clancy, adding inflation expectations were likely to rise as the
global economy rebounds, pushing real yields even lower and gold higher.

“That means risk assets and gold go up together, which sounds crazy but
makes sense” and that momentum is likely to change only when central
banks begin to consider raising nominal interest rates.

Gold vs treasury yields.

Image: US Dollar Index

18
Financial investors, mainly in Europe and the United States, have been on
an unprecedented buying spree, with gold-backed exchange-traded funds
having added a record 734 tonnes worth $39.5 billion to their stockpiles in
first half of 2020, according to the World Gold Council.

This has offset a collapse in retail gold demand in major consumers China
and India.

While analysts believed the rally was on solid ground, they were mindful
of corrections given its pace.

“The speed of the upswing should sound a warning bell ... as this can often
precede a fall,” Commerzbank analyst Carsten Fritsch said in a note.

NEED FOR THE STUDY

Throughout the early stages of the COVID-19 pandemic, gold was a staple
of global finance. Prices ebbed and flowed, with economic and social
chaos spiking participation. Institutions around the world stockpiled
bullion as an insurance policy against the unknown. Accordingly, the
yellow metal performed well as a financial safe-haven.

Ultimately, conventional wisdom proved correct―gold's value

appreciated during a period of extreme uncertainty. From 1 March 2020 to
29 May 2020, XAU/USD prices rallied by US$143.07 (+9.0%),
outperforming many of the world's premier asset classes. If nothing else,
the COVID-19 pandemic sparked participation, market turbulence and
eventually solid gains in gold pricing.

In severe uncertain times, many families across the world have been
constrained economically due to closing down of many industries;
businesses and service set ups resulting in severe loss of jobs and income
making many families to fall on their gold to tide over their difficult times.
It becomes necessary to study what would happen to gold prices.

19
PRIMARY OBJECTIVES OF THE STUDY

1. As economic crisis raises the international price of gold the same is

taken up for study under the current pandemic situation.
2. Lead indicators that correlate with the gold prices are identified to
make an analysis on the price increase in international gold price.
3. A forecast of the international gold prices is made as to how high it
can increase in 2021.

SECONDARY OBJECTIVES OF THE STUDY

1. To find out what effects the increase in international gold prices would
have the middle class families in the face of severe economic crisis
due to the pandemic.
2. To suggest remedies that could save middle class families from an
economic crisis.

20