Gold a decisive role in the foundation of

Goldhas traditionally been considered an attractive investment in India and itsexcellent performance in recent years has substantially confirmed the wisdom ofthat tradition. When markets are volatile and investors panic they tend to moveout the risky assets such as stock and invest into assets such as gold. The mainobjective of the paper is to analyse the effect of Gold prices on Indian stockmarket represented by BSE-SENSEX. The study was based on the secondary datawhich has been taken from April 2007 to March 2016.

The monthly average datahas been considered for the study including 108 observations. Econometricregression analysis indicated that Gold prices had a significant influence on IndianStock Market represented by BSE-SENSEX. Furthermore,Karl Pearson’s correlation results showed the positive correlation between Goldprices and Sensex. It means that Sensex index lead to increase in gold priceand rise in gold price lead to increase in Sensex.

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Keywords: Gold,SENSEX, Descriptive Statistics, Unit Root Test, Econometric Regression Analysisand Karl Pearson’s Correlation.INTRODUCTIONFinancialmarkets play a decisive role in the foundation of a stable and efficientfinancial system of any economy. There are numerous domestic and internationalfactors which are seen to have a direct or indirect impact on the performanceof stock markets. The relationship between core macroeconomic variables,commodities and a developed stock market is well documented in literature.Moreover, as far as the financial returns are concerned, the investment in thecommodities has become a good spot for booking good returns in hedging againstthe inflation, since the returns in precious metals segments can be observedmore than that of the returns expected in the equity and debt markets, as theformer are negatively correlated (Jaiswal and Manoj, 2010).

In commoditymarket, gold has its unique relevance. It has become one of the most widelydiscussed metals due to its prominent role in both the investment and consumerworld. Even though gold is no longer used as a primary form of currency indeveloped nations, but it continued to have a strong impact on the value ofthose currencies. In addition to this, there is a strong correlation betweenits value and the strength of currencies trading on foreign exchanges. Moreover, many researchers have also identified thelong-run and short-run relationships between stock price index and gold pricein developed and developing nations. The research also explicates that the goldprices can influence the stock market to a great extent (Yahyazadehfar andBabaie, 2012). The investment in the gold mainly becomes appealing and radiant,when investors have to otherwise bear diminishing stock market returns in timesof upset stock market conditions.  Gold was one of the first metalsexcavated by humans.

Gold has traditionally been considered an attractiveinvestment in India and its excellent performance in recent years hassubstantially confirmed the wisdom of that tradition. When markets are volatileand investors panic they tend to move out the risky assets such as stock and investinto assets such as gold. Gold like virtually all commodities is traded on adollar dominated basis.Thedomestic gold price in India is continuously increasing due to its heavy demandin the country. There are several reasons gold has high demand in India. Thefirst reason is security; gold offers full security as long as it is retainedby central banks. There is no credit risk attached to gold. Secondly, gold isable to maintain its liquidity even at times of crisis situations like highglobal inflation or political turbulence.

The third reason for holding gold isto build a diversified portfolio (Narang and Singh, 2013).REVIEW OF LITERATUREWang(2010) investigated the effects of variations and long run &short runrelationships in crude oil prices, gold price and exchange rates of variouscurrencies on the stock market indices.Bhunia(2013) examined the relationship among crude price, gold price and financialvariables. The period of the study was taken from 1991 to 2012.

The studyenvisaged that there subsist a long term co integration and causality betweenthe financial variables taken for the study of both NSE and BSE.Narang and Singh (2013) aimed atinvestigating the dynamic relationship between gold prices and stock market returnsin India. In the study, an attempt hasbeen made to investigate the existence of unidirectional or bidirectionalrelationship between gold price and Sensex for the period of 10 years(2002-2012). The results of the analysis show that there is no causalitybetween the gold price and Sensex.

Gayathriand Dhanabhakyam (2014) made an attempt to test the co-integration andcausality between Gold price and NSE-Nifty for a period of ten years including2888 daily observations. The result of the study indicated that there is a longrun co-integration relationship between the variables. Furthermore, the studyshowed a unidirectional causality relationship between Gold prices andNSE-Nifty index. Bhuniaand Ganguly (2015)studied the influence of two commodity indicators,namely gold and crude oil, GDP growth rate and exchange rates on the stockmarket index in India. The period of the study was ranging from the year 1991and to the year 2013. It was found that there is significant long-term co-integrationand unwavering relationship between the respected variables. Further, it wasconcluded that the Indian stockmarket index is much dependable upon the prices of international crude oil,prices of gold, exchange rates and GDP growth rate.

   Rejeb and Arfaoui (2016) analysed the relationshipsbetween oil, gold, US dollar and stock prices from January 1995 to October2015. It has been discussed that when business cycles reflects downfall, andthe dollar and stock exchanges move downwards, then gold becomes more appealingand thus its value increases. In addition to this it has been found that goldprices are concerned by changes in oil prices, US dollars and changes in stockmarkets but somewhat also depends on the US oil gross imports and defaultpremium.OBJECTIVE OF THE STUDYThe mainobjective of the study is to investigate the influence of Gold prices on Indianstock market represented by BSE-SENSEXRESEARCH METHODOLOGYIn thestudy, a time span of 9 years has been chosen for this study from April, 2007to March, 2016 uses monthly data to portray a larger view of the relationshipincluding 108 observations.

BSE-SENSEX is the representative of Indian stockmarket. Here, descriptive statistics provide a historical account of variablesbehaviour and convey some future aspects of the distribution of data set. Forthe purpose, measures of central tendency (mean) and measures of variability(standard deviation, range, minimum & maximum, skewness, kurtosis andJarque-Bera statistics) to explain the dataset. The current study unravels thelinkage between Gold and Sensex in the Indian context using techniques like ADFtest & Unit root test, correlation and regression using Eview7 Software.RBI website has been referred for Gold prices. Lastly SEBI website has beenreferred for collecting the data of BSE-SENSEX.EMPIRICALANALYSIS AND FINDINGSDescriptive Statistics of Gold during the Sample PeriodFigure 1 highlights the average value of gold during the sample period21877.

12 with the standard deviation of 7283.09. The results indicate thepresence of negative skewness and moment of kurtosis of gold.  Fig 1 depicted that the distribution is notnormal as the probability value (0.004) of Jarque- Bera Test statistics (10.76)and this is due to the presence of negative skewness (-0.

38) and platykurticbehavior of broad money (1.65). The maximum price of gold was found to be31672.

83 during the period. The minimum gold price during the said period cameout to be 8707.42. Fig 1: Descriptive Statistics of Gold priceDescriptive Statistics of Sensex during the Sample PeriodFigure2 indicates that the mean value of Sensex during the sample periodis 7415.013 with the standard deviation of 1943.361. The high standarddeviation value indicates the high level of deviations in sensex values duringthe sample period.

The results also indicate the presence of positive skewness(0.291) and platykurtic behavior (2.86) (where kurtosis is less than 3) of Sensex.The distribution is also normal as indicated by probability value (0.

44) ofJarque- Bera Test statistics (1.611). The highest value of sensex is found tobe 11454.35 during the period.

The minimum value of sensex during the sampleperiod is found to be 3232.110. Fig 2: Descriptive Statistics of SensexUnit Root Test Results:The ADF test is conducted for gold prices to test the stationary of theseries where the mean and variance are constant.

The results of the ADF testare exhibited in Table1 below:Table1: Unit Root Test of Gold at firstdifferencing I (1) level Null Hypothesis: D(GOLD) has a unit root Exogenous: Constant             Augmented Dickey-Fuller test statistic t-Statistic   Prob. -9.193236  0.0000* Test critical values: 1% level   -3.493129     5% level   -2.888932     10% level   -2.581453   *MacKinnon (1996) one-sided p-values.

  Source:Compiled with E-views Software                                                                      *Significantat 5% levelD (GOLD) =logvalues of Gold    Here, as the test statistic value -9.193236 is less than the critical values at 1%(-3.493129), 5% (-2.888932) and 10% (-2.581453) respectively at the probabilityvalue less than 0.05 i.

e. 0.0000.

Hence, the null hypothesis that there is nounit root for log of gold price is rejected and the alternative hypothesis isaccepted. The rejection of null hypothesis supports the stationarity of Goldprices at first difference i.e. I (1) level.From the Table 2 that reflects theresult of ADF implies that, the ADF test statistic value (-5.370422) is less than the test critical values at 1%(-3.494378), 5% (-2.

889474) and 10% (-2.581741) respectively with theprobability value less than 5%. Hence, the null hypothesis is rejected. Therejection of null hypothesis supports the stationary of Sensex at I (1) level.Table2: Unit RootTest of Sensex at first differencing I (1) level Null Hypothesis: D(SENSEX) has a unit root   Exogenous: Constant     Augmented Dickey-Fuller test statistic t-Statistic Prob. -5.370422  0.0000* Test critical values: 1% level   -3.

494378     5% level   -2.889474     10% level   -2.581741   *MacKinnon (1996) one-sided p-values.   Source:Compiled with E-views Software                                                                      *Significantat 5% levelD (SENSEX) =logvalues of Sensex    Econometric RegressionResults:EconometricRegression analysis is a technique to check the effect of Gold on Indian StockMarket and found some interesting results for the relationship. Gold price hasa dependent relationship among BSE-SENSEX.

The null hypothesis has been testedon the basis of the p-value while the overall significance of model has beentested on the basis of F-sign. If the p-value and t-statistic is less than thecritical p-value and t-statistic at 5% of significance level, then the nullhypothesis is rejected and there will be a significant relation between thevariables. The following statement of hypotheses is as follows:H0: There is nosignificant impact of Gold prices on Indian Stock market represented byBSE-SENSEX. Ha: There is asignificant impact of Gold prices on Indian Stock market represented byBSE-SENSEX. The following variables which are stationary at the firstdifferencing, take the log of original values and make a new variable which canbe expressed as symbolically:SENSEX NEW= d log (SENSEX)                                        GOLD NEW = d log (GOLD)            The result ofregression model is represented in Table 3 which can be expressedmathematically as:                        Y= ?+?1 GOLDNEW+?Where Y= SENSEXNEW, ?= Intercept, ?1= Slope Independent variable = GOLD NEWTable 3: Econometric Regression Model by Equation between GOLD andBSE-SENSEX Dependent Variable: SENSEX NEW  Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob.

GOLD NEW -0.510546 0.191419 -2.

667166 0.0089* C 0.011467 0.007530 1.522910 0.1308 R-squared 0.

063451     Mean dependent var 0.006085 Adjusted R-squared 0.054532     S.D. dependent var 0.077174 S.E.

of regression 0.075040     Akaike info criterion -2.323080 Sum squared resid 0.591253     Schwarz criterion -2.

273120 Log likelihood 126.2848     Hannan-Quinn criter. -2.302827 F-statistic 7.113776     Durbin-Watson stat 1.

691401 Prob(F-statistic) 0.008861       Source: Compiled with E-views software      *Significant at 5% levelThetable above shows simple linear regression test for Gold price and Sensex. Itwas found through p-value and t-statistics that there is a significantrelationship between Gold and Sensex. BSE-SENSEX is considered as therepresentative of Indian stock market and used to obtain a measure of marketprice movement of Indian securities. Thus, Gold prices (t-value=-2.66, p-value=0.0089 respectively) had asignificant impact on BSE-SENSEX. It leads to the rejection of null hypothesis(H0) as p-value is less than 0.

05 at level of significance. Thus, H0is rejected from which it can be inferred that there is a significant impact ofGold price on Indian Stock market represented by BSE-SENSEX. R2shows the model fitness of a regression equation andalso explains the variation in dependent variable which is made by anindependent variable. Table 3 presented that Gold price explain approximately6.3 per cent of variation in BSE-SENSEX. Correlation test Results: Table4: Karl Pearson’s Correlation between Gold price and Sensex Results Sensex Gold Pearson Correlation Sensex 1.

000 .442 Gold .442 1.000 Sig. (1-tailed) Sensex . .000* Gold .000* .

 Table 4exhibited the KarlPearson’s Correlation (r) between Gold price and Sensex during the period oftime taken for the study. According to the results, there is a significant positivecorrelation subsist between the variables (r=.442, p-value=.000 respectively at5% significant level). It means that more the value of Gold, high will be thevalue of Sensex and vice versa.Source:Compiled with SPSS Software                                    *Significantat 5% level CONCLUSIONIn the study, the dynamic relationshiphas been examined between Sensex and gold price. The results of Augmented Dickey-Fuller test conclude that the series are stationary and integrated of orderone.

There is a positive correlation between Sensex and Gold price from 2007 to2016 even economic crisis breaks out in USA in 2008 and 2011. Hence, thecorrelation results reveal that Sensex index lead to increase in gold price andrise in gold price lead to increase in Sensex. The results of econometricregression reflected that gold prices had a significant impact on stock marketindicator BSE-SENSEX. It shows the dependency relationship among the variablestaken under study.

REFERENCESBhunia, A.and Ganguly, S. (2015). Cointegration Influence of Macroeconomic Indicators onStock Market Index in India. AmericanJournal of Theoretical and Applied Business, Vol.1(1), pp.1-5.

Bhunia, D.A. (2013).Cointegration and causal relationship among crude oil, Domestic Gold price andfinancial variables- An evidence of BSE and NSE. Journal of Contemporary Issues in Business Research.Gayathri, V.

andDhanabhakyam. (2014).Cointegration and Causal Relationship between Gold Priceand Nifty- An Empirical Study. AbhinavInternational Monthly Referred Journal of Research in Management and Technology.

Vol.3 (7), July, pp.14-21.Jaiswal, B. and Manoj,S. (2015). An Analysis of Gold Price Variation and Its Impact on CommodityMarket in India.

A Journal of Economicsand Management, Vol. 4(7), pp.59-79.

Narang, S.P. and Singh,R. (2013). Causal Relationship betweenGold Price and Sensex: A Study in Indian Context. Vivekananda Journal of Research, pp.

33-37.Rejeb, B. and Arfaoui,M. (2016).Oil, gold, US dollar and Stock market interdependencies: A globalanalytical insight. Retrieved from: https://mpra.ub.uni-muenchen.

de/70452/1/MPRA_paper_70452.pdf.Wang, M.W.C.

(2010).Relationships among Oil price, gold price and exchange rate and internationalstock markets. International ResearchJournal of Finance and Economics, 47, pp.80-89.

Yahyazadehfar, M. and Babaie, A. (2012). Macroeconomic variables andstock price: New evidence from Iran. MiddleEast Journal of Scientific Research, Vol. 11(4), pp- 408–415.


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