Commodity Prices: Relevance of Gold Globally and Its Relation to Oil Prices

This presentation discusses the importance of gold as a medium of exchange and hedge instrument against inflation and risk. It evaluates the changes in gold prices in the past 10 years and its relation to oil prices. It also discusses the factors affecting gold prices and its elasticity of demand and supply.

Notes
The current presentation will deal with relevance of gold globally along with statistical data and
changes in it for past 10 years. In addition to this, with help of statistical tool the changes of gold
and its relation to changes in oil price will also be highlighted within the presentation. In the end
the discussion will take place on other factors affecting the price of gold and elasticity of demand
and supply over gold will also be evaluated.

Notes
For any person or country or whole economy gold is very important to be purchased and used.
The reason pertaining to the fact is that this is also used in place of money and can also be treated
as money only. Gold is not only limited to making jewellery and precious artefacts but is also a
medium of exchange within the business transaction as well.
The gold is being treated as a hedge instrument against inflation and any other risk. For dealing
in gold, the easiest and much simplest method is through stock market that is money can be
invested in gold bullion or even in shares of gold mining companies. The major relevance of
gold for any of the company or country is that its value will not be depreciating like of other
commodities. Rather it will increase from time to time which will definitely result in increase in
profitability for the person or the economy holding gold. In addition to this, gold is also very
crucial for the person or country to have some portfolio diversification. This is particularly
because of the reason that when there will be variety within the portfolio then this will be more
beneficial. The reason underlying this fact is that when the gold will be included within the
portfolio of investment then this will improve the working and returns of the portfolio. Even
though in short term, the value of gold may be lower but for a longer period of time, the gold will
be much more beneficial as compared to the other stocks and securities.
Changes in prices of gold in past 10 years

As discussed above, the use of gold is very important for the effective working and earning profit
by the companies and countries. With the analysis of different sources, it was evaluated that gold
prices have been fluctuating to a great extent. This is particularly because of the reason that with
the data analysis it was analysed that there are many ups and downs within the prices of the gold.
Hence, in the year 2010 it was 1224.66 which raised to 178832 in the year 2020. But in between
these years the there were many ups and downs which affected the demand of gold which
affected the working of the company. this is particularly because of the reason that when the
changes in the product price are very high then this implies that product is not much liked by the
consumer. On the other hand, in case the prices are continuously rising then this implies that
there is increase in demand of the goods and services. in case of gold, the prices are fluctuating
and this implies that gold is not having stable demand.
Notes
In addition to this, oil is considered as the market leader and any change in the oil price will
affect the prices of other commodities as well including that of gold. This simply means that the
gold price change can be easily monitored by the trend or movement of the oil price.
With the analysis it is clear that oil prices are being defined with help of the supply of the
product within the market. There are many different factors which causes fluctuations within the
prices of oil which in turn affects gold price as well. the first and foremost aspect while

determining the oil prices is OPEC that is Organization of Petroleum Exporting Countries. This
is the main influencer resulting in fluctuations within the price of oil. This OPEC is a consortium
consisting 13 different countries. As per different secondary sources it was evaluated that OPEC
controls is almost responsible for 80 % of supply of oil reserves and this consortium set the
production level to meet global demand and influence price of oil and gas.
Moreover, in addition to this, the another factor which will be affecting the changes in oil prices
is the demand and supply of the products. This is particularly because of the reason that in case
the demand of oil will be high and supply is less then automatically the prices will increase. On
the other side in case demand is less and supply is more than prices of oil will be low. In addition
to this, the production cost and storage cost also affects the prices of oil. This is particularly
because of the reason that when the cost of producing and storing will be high then it will be
affecting the prices of oil. The reason underlying this fact is that when cost of producing the
goods is high then it will be added in price which will increase price of product.
Thus, due to all these factors, prices of oil will be affected and as a result of this gold prices will
also be hampered. The reason underlying this fact is that prices of gold is also dependent on
these factors that is demand and supply within the economy.
Notes

Notes
With the analysis of the correlation it can be outlined that to what extent there is a relationship
being present between the variables being used. In the present case, the variable is being used are
prices of gold and oil. Hence, with the help of correlation matrix it is clear that there is negative
correlation between both the variables. Hence, with the above data it is clear that the gold and
crude oil average is having negative correlation among both of them. This is simply because of
the reason that with the above table it is clear that there is -23 % of relation between both of
them. This simply means that in case price of one product will increase then in the other product
it will cause a negative impact over the working of the company or the economy.

Notes
With respect to gold, there are not any compliment or substitute good being present. This is
particularly because of the reason that gold is a product which cannot be substituted by any other
product and due to this the prices of gold are not affected due to change in price of any other
precious commodity. The reason pertaining to the fact is that gold is not used along with any
other product like complementary good. Also, the gold cannot be substituted by any other
product. The reason pertaining to the fact is that the requirement of gold cannot be fulfilled by
any of the other commodity.
Thus, both the complimentary and supplementary goods do not have any impact over the prices
of gold. In addition to this, change within the complementary and substitute goods also do not
have any impact over the demand of the gold. This is pertaining to the fact that when the demand
of either complimentary or supplementary goods will be changed then there will not be any
impact of gold. The reason underlying this fact is that there is no relation between all these
variables and hence, due to this there will not be any impact over the quantity demanded and
prices of the products and services.

Notes
Hence, for analysing the demand of gold it is necessary that price elasticity is managed and
maintained. This is particularly because of the reason that when price elasticity is unitary then
this will be beneficial for the company
Notes

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