Price Elasticity of Gold Sample Essay

The general opposite relationship between monetary value and demand is a cardinal fundamental in economic sciences. A rise in monetary value is known to shrivel demand and frailty versa. However. another of import factor in economic science is the monetary value snap of demand. which can be interpreted as the per centum alteration in demand relation to the per centum alteration in monetary value. Basic goods tend to be of low snap. therefore the alteration in monetary value has small consequence on demand. while luxury goods are normally of high snap where demand varies greatly opposing a little alteration in monetary values.

In our analysis of the world-wide demand for gold over the past 3 old ages. the tendency shows that a lessening in monetary value leads to a lessening in the demand for gilded and vice-versa. This shows that consumers are willing to pay a higher monetary value for gold than a lower one.

The below informations and graph depicts the price-demand relation of gold over the past 3 old ages: One-fourth – Year| Quantity demanded ( in thousand dozenss ) | Price ( $ US bn ) | Price Elasticity | Q1 – 08| 13. 4| 450| -|

Q2 – 08| 15| 521| 0. 76|
Q3 – 08| 18. 8| 672| 0. 87|
Q4 – 08| 14| 548| 1. 38|
Q1 – 09| 9. 6| 329| 0. 79|
Q2 – 09| 12. 8| 431| 1. 08|
Q3 – 09| 15. 1| 490| 1. 31|
Q4 – 09| 18. 1| 511| 4. 64|
Q1 – 10| 18. 6| 521| 1. 41|
Q2 – 10| 16. 3| 422| 0. 65|
Q3 – 10| 21. 3| 541| 1. 09|
Q4 – 10| 25. 3| 575| 2. 99|









Price Elasticity: ?Quantity Demanded?Price X Initial PriceInitial Quantity

Demand curve of gold from 2008 – 2010 per one-fourth

Price Elasticity of gold from 2008-2010
Gold. being a luxury merchandise wherein the monetary value snap is high i. e. an addition / lessening in monetary value leads to a high alteration in demand. A twosome of factors impacting the high snap of gold are: * The snob consequence: penchant for goods because they are different from those commonly preferred ; in other words. for consumers who want to utilize sole merchandises. monetary value is choice * The bandwagon consequence: penchant for a good additions as the figure of people purchasing them additions ; From our analysis. we arrived at two dealingss which affects the demand of gold. one direct and the other opposite.

The first relation is the direct relation
Dq = F ( PG. P S. Pp. Income. Taste. Seasonal )
PG – Price of gold
PS – Price of Ag
Pp- Price of Pt
The demand for gold is straight affected by the hiking in Ag and Pt. The ground being. gold is considered as the replacement for Pt. Besides we found that the personal disposable income and the gustatory sensation i. e. the design and quality of the gold affect the demand straight.




The 2nd relation is the reverse relation of the investing map ; Iq = F ( P G. P $ . PP. Instruments. Economic conditions ) PG – Price of gold
P $ – Price of Dollar rate at universe market
PP- Price of gasoline
The addition in the monetary value of the dollar at the universe market decreases the demand for gold. Besides the economic conditions. the monetary value of gasoline which is been used for the extraction and refinement intents and cost of machineries and production besides affects the demand for gold indirectly. Even though monetary value of gold has a direct relation on the demand. the other factors like P $ . PP et all negates the direct relation of gold on the investing map. Another interesting tendency we analyzed was the demand for gold during the 2nd half of the twelvemonth has ever been high. regardless of the monetary value. This is chiefly due to the nuptials and festival season in India ( being holding the highest ingestion – approx. 40 % 1 ) .


For illustration ; Q3 and Q4 of every twelvemonth from 2008-2010 shows a higher demand rate despite an addition in monetary value than when compared to the old two quarters. In India. the nuptials season starts from October and coincidentally most festivals besides fall during the same period. Hence the demand for gold shooting up during this clip of the twelvemonth. Another interesting tendency that can be observed from the above tabular array is the dramatic addition in the snap of gold in Q4 of 2009. Following the recession in 2008-‘09. investors and the consumers started trusting more on the gold as compared to other beginnings of investing such as stock and portions. which in bend pushed gold monetary values up. This led to an addition in the demand for gold and later the higher monetary value and for the first clip in three old ages the monetary value snap for gold touched the extremum of 4. 64. In decision. gold. being a luxury good has a positive price-demand relation and has a ‘greater than unitary elastic’ demand.

Mentions:

hypertext transfer protocol: //goldandsilverblog. com/gold-and-silver-etf-holdings-decline-on-week-while-europes-debt-crisis-expands-0279/ hypertext transfer protocol: //www. gold. org/media/press_releases/archive/2011/02/global_gold_demand_in_2010_reached_a_10_year_high_in_tonnage_and_all_time_high_in_value/ hypertext transfer protocol: //www1. goldtrades. info/index. php/weekly-analysis/gold-price-forecasts hypertext transfer protocol: //www. munknee. com/2010/06/12180/