Behaviour of Gold Price in Indian Commodity Market: An Econometric Analysis

Commodities play a very important role in the macroeconomic environment of an economy. Shortage of commodities can lead to wide price fluctuations and higher level of volatility leading to higher risk benefit for investors. Excess availability of the same would lead to depressing price situation forcing producers out of business at times. Commodities are typically traded in various market layers starting with large wholesale trading between producers and investors and ending with retail small quantity trading between retailers and end users. A commodity market generally attracts large number of middlemen and financing agents who take possession of physical assets and store them at warehouses to sell them at appropriate time to make sufficient profits to stay in business. Depending on the layers of middlemen in the market structure, the end users' price deviates from the producers' price. The spot commodities market deals in physical form of commodities movement. Price of commodities which are perishable in nature (like agricultural products) behave little differently than non-perishable commodities like metals and energy commodities. However, commodities futures markets have been able to bring stability to the spot markets. The theory of storage and the normal backwardation theory explain the relationship between the spot and futures prices in commodity markets.