Report on Gold and Oil Price Changes: A Commodity Market Analysis

This report provides an in-depth analysis of the relationship between gold and oil prices in the commodity market. It discusses the global relevance of gold, its price fluctuations over the last 10 years, and how these changes correlate with crude oil prices using correlation and regression analysis. The report also examines the factors affecting the demand and supply of gold, applying the concepts of elasticity of demand and supply to understand market dynamics. The findings indicate a positive correlation between gold and oil prices, with the price of commodities significantly influenced by crude oil price fluctuations. The report concludes that gold has an inelastic demand, emphasizing the importance of understanding these dynamics in the global market.

Individual Report

Contents
 Introduction
 Discuss the commodity and its relevance globally.
 Give a brief discussion on how the price of the commodity is changing for the last 10 years.
 Discuss the changes in the price of the world oil and how it is related to the change in the
price of the gold.
 Changes in the price of gold with relation to change in the price of Oil using correlation and
regression analysis.
 Discuss the factors affecting demand and supply of the commodity Gold.
 Describe the concept of demand and supply and give and analysis. Also apply the concept
of elasticity of Demand and Supply.
 Conclusion
 References

Introduction
Commodity Market is a place where the mechanisation of the service and the
products of the raw material is done. Commodity exchange is done all over the
world. Most of the products which are traded in the exchange market are
agricultural goods and raw material such as wheat, grains, cotton, sugar, metals,
oil, etc. Commodity prices are determined on the basis of the demand and supply
of it in the market (Eheliyagoda and et. al., 2019).

Discuss the commodity and its relevance
globally.
The commodity which is chosen is Gold. It is a precious product which comes under the
category of precious metals. It is the one of the most effective and precious commodity
in the portfolio and for the purpose of investment. It is considered to be a superior
product which has delivered absolute and risk – adjusted return over the time period. It
outperforms in the low inflation and also has ratio of low volatility.
Importance of gold in the world:
 Used to hedge inflation
 Effects the imports and exports

Give a brief discussion on how the price of the
commodity is changing for the last 10 years.
Price of Gold: It is a significant component which is popular in demand
even after it is a rare commodity. It is an important part for the purpose
of the investment portfolio.
Price of Gold
Year
Annual prices
(real)
Annual prices
(Nominal)
2010 1224.66425 1224.66425
2011 1413.757637 1569.210833
2012 1515.330288 1669.517667
2013 1286.720999 1411.462302
2014 1169.476277 1265.5775
2015 1186.069383 1160.663333
2016 1328.235473 1248.988333
2017 1292.172443 1257.559167
2018 1247.033262 1269.226667
2019 1399.805003 1392.498333
2020 1788.324734 1770.254167

Contd.
The price of gold in 2020 was 1788.324734 in the world market and it determine
by the world bank. From the above chart, it an be analysed that the price of gold is
fluctuating since 2010. It rises when the value of various currencies diminishes
and the demand of it in the market rises.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Price of Gold
Year

Discuss the changes in the price of the world oil
and how it is related to the change in the price of
the gold.
Price of Crude oil (WTI)
Year Price
2010 1224.66425
2011 1569.210833
2012 1669.517667
2013 1411.462302
2014 1265.5775
2015 1160.663333
2016 1248.988333
2017 1257.559167
2018 1269.226667
2019 1392.498333
2020 1770.254167
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Price of Crude oil

Contd.
The oil market differs from other commodity markets in certain distinctiveness. The oil market
exhibits significant deviations from the perfect market, where the price range is just above
marginal cost. There are many reasons, but mainly it is caused by the attempts of dominant
manufacturers to control sales prices. The quotation of the oil price influences the pricing of all
major oil producers and they regulate the oil supply in order to meet the price targets. This
market is also largely determined by political factors and internal situations in the most
important producing and consuming countries as well as international conflicts.
The above chart shows the increase and decrease in the prices of crude oil. In the year
2020, it has an annual price of 1770.254167 which is comparatively more from 2019. It can be
seen that the price of oil is continuously rising since 2015. It has a severe impact on the inflation
all over the world.

Changes in the price of gold with relation to change in the
price of Oil using correlation and regression analysis.
Correlation between the Price of Gold and Crude Oil
Gold Oil
Gold 1 0.091
Oil 0.091 1
1100 1200 1300 1400 1500 1600 1700 1800 1900
0
10
20
30
40
50
60
70
80
90
100
f(x) = 0.047458382431146 x
Relation between the Crude Oil and Gold
Prices

Contd.
From the above table, it can be determined that the correlation between the
gold and crude oil price is positive. The coefficient of correlation is 0.091 between
crude oil and gold price, it means it has a positive correlation from the year 2010 to
2020. Gold is one of the most traded commodity in the category of precious metals and
oil is used for the daily consumption and is very useful for the day to consumption. Oil
is the most traded raw material and both the determinants have a linear relationship.
Through regression analysis of the factors crude oil and Gold prices, the
intercept of these are Y = 0.0475x. It means that the average value of Gold is equal to
the 0.0475 value of crude oil price.

Discuss the factors affecting demand and supply
of the commodity Gold.
Demand is the willingness the individuals are
showing to purchase the goodson prices. It can be
affected through various factors (Schroeder, Tonsor
and Coffey, 2019) Supply of Gold means that the
quantity which is available in the country and are
read to be consumed by the people. The demand and
supply of the gold have an adverse relationship. It
means when the demand is more than the supply the
price of god increases.

Contd.
The factors which affects the demand and supply of
gold are as follows:
 Substitute Goods
 Income
 Economic Cycle
 Import Duty
 Currency Fluctuations

Describe the concept of demand and supply and give and
analysis. Also apply the concept of elasticity of Demand
and Supply.
 Demand of the product Gold is rare in case of
raw material and it occurs only in some of the
geographical areas. Demand for gold is
controlled by a blend of reasonableness and
magnetism, another important element is
development in expectations for the future
livelihood of the people and that the gold
addresses place of a good and high return
investment.

Contd.
Price Elasticity estimates the responsiveness of the
demanded or supplied quantity of a commodity to a change
in its price. It is calculated as the rate change in the quantity
suppled or demanded by the proportionate change in the
price. Both supply and demand curve show the connection
among cost and the quantity of units provided and
demanded. The elasticity of demand is the rate of change in
the demanded quantity of the by the rate of change in the
price.
The price elasticity of supply is the rate of change
in amount provided by the proportionate change in the cost.

Conclusion
It can be concluded from the above PPT that Crude Oil is the most important raw
material in the international market. The prices of Crude oil fluctuate and effects
the demand and supply of Gold in the positive and negative way. The price of the
commodities is also influenced by the price fluctuation of Crude Oil. It is essential
because it flows in the global market with a huge density. The price of gold and
crude oil is also correlated and has a positive correlation among the two. Further
the price elasticity of demand and supply is also analysed by it concept. It relates
that the gold has an inelastic demand.

REFERENCES
 Ananyin, O. and Melnik, D., 2019. “Commodity Sui Generis” The Discourses of
Soviet Political Economy of Socialism. History of Political Economy. 51(S1).
pp.75-99.
 Arunanondchai, P., Sukcharoen, K. and Leatham, D.J., 2020. Dealing with tail risk
in energy commodity markets: Futures contracts versus exchange-traded
funds. Journal of Commodity Markets. 20. p.100112.
 Eheliyagoda, D. and et. al., 2019. Examining the temporal demand and
sustainability of copper in China. Environmental science & technology. 53(23).
pp.13812-13821.
 Mochalova, L.A. and Podkorytov, V.N., 2019. Analysis of commodity prices
impact on the manageability of market capitalization of an oil and gas company.