Dr.P.Baba Gnanakumar
Gold & Gold Markets 2019
Predictive Analytics for Devising Gold Prices
A case study of Price prediction for Importing Gold from Thailand to India
Motivation of the Analytics
2018:
The ministries
are looking at
the industry’s
demand of cutting
import duty on
gold to 4 per cent
from the current
10 per cent
Final price of the jewellery =
Price of (22 KT or 18 KT) gold X (W
eight in grams) +
Making charges +
GST at 3% on (Price of jewellery +
making charges)
Phenomenon in Pricing the Imported Gold
Traditional
method
Can we integrate the Retail
brand values of individual firms
with National / Global values
while pricing the Gold ?
What are the variables that shows the
“brand” values of Gold in
Regional / National / Global level ?
How we can price 23 Carat Gold
imported from other countries?
Core Area of Discussion
02 Aim of the Research
• To create distributed networks in estimating the Gold price and
thus enable to create a new platform for trading gold between India
and Thailand
• To fix the price of the Gold based on the demand trends and
• To set the automotive price fixing mechanism.
-404444444 Relationship exists in trend of Exchange rates and gold prices;
but no price discovery among the variables.
Bukowski (2016)
Dependency between the Gold prices among the Thailand,
Indonesia, and the Philippine (TIP) stock markets
Pastpipatkul (2016)
There exists relationship among gold prices in five global gold
markets, namely London, New York, Japan, Hong Kong and
Taiwan.
Chang (2013)
There exits relationship between gold prices and selected
financial indicators .
Omag (2012
Examined the economic theory of gold price movements in
India.
Abke (1980)
01
02
03
04
05
Knowledge Gap in
Literature Identification of Factors
influencing the Price of Gold
Literature Review
MethodologyStages in Research
Stage II
Stage III
Stage IV
Stage V
Stage VI
Stage I
Factors that are
influencing the gold
supply chain from the
past empirical research
findings
Empirically test the
relationship between
variables and gold price
with econometric modeling.
Tools are established
to predict the future
price of Gold
Price prediction of
Import of Gold to
Bangalore
Integrate the data warehouse
providers who are supplying
the value-based data for gold
supply chain based on the
above steps.
Modelling the
System
Data - Inputs to
Research
Indices from 1992 to
2017.
Bombay Stock
Exchange
Gold price from 1992 to
2017
World Gold Council
Exchange rate of Bhatt
from RBI
Exchange Rates
03
Past Research Work Variables affecting the
Price of GoldKannan, R., & Dhal, S. (2008). India's demand for gold: some issues for economic
development and macroeconomic policy. Indian Journal of Economics and Busines
s, 7(1), 107.
Interest rate, Exchange rate,
Vaidyanathan, A. (1999). Consumption of gold in India: Trends and determinants
. Economic and Political Weekly, 471-476.
Kaufmann, T. D., & Winters, R. A. (1989). The price of gold: A simple model. Resourc
es Policy, 15(4), 309-313.
Sjaastad, L. A. (2008). The price of gold and the exchange rates: Once again
. Resources Policy, 33(2), 118-124.
Exchange Rate
Cai, J., Cheung, Y. L., & Wong, M. (2001). What moves the gold market?
. Journal of Futures Markets, 21(3), 257-278.
Consumer products ‘ Index
Diba, B., & Grossman, H. (1984). Rational bubbles in the price of gold. Interest rate
Stage I
Stage I
Past Research Work Variables affecting the
Price of GoldShafiee, S., & Topal, E. (2010). An overview of global gold market and gold price for
ecasting. Resources Policy, 35(3), 178-189.
Inflation
Parisi, A., Parisi, F., & Díaz, D. (2008). Forecasting gold price changes: Rolling and
recursive neural network models. Journal of Multinational financial management
, 18(5), 477-487.
Historical Prices, (WGC)
Diba, B., & Grossman, H. (1984). Rational bubbles in the price of gold. Interest rate
Bhunia, A., & Mukhuti, S. (2013). The impact of domestic gold price on stock price
indices-An empirical study of Indian stock exchanges. Universal Journal of
Marketing and Business Research, 2(2), 35-43.
Patel, S. A. (2013). Causal relationship between stock market indices and gold
price: Evidence from India. IUP Journal of Applied Finance, 19(1), 99.
Capital Market’s Index
Stage I
Indian Gold Prices - Co-integration between Gold Price
in India Vs Prices in Thailand – Source : WGC (Price per troy ounce
of gold)
Country Specific Gold Price (Per Troy Ounce)
in Respective Currencies
Trace -Test Max- Eigen Test Significance based on tests
(out of two tests)
Indian Rupee & Thai baht 21.26 21.24 There is a co-integration
oy ounce
Correlation and Cointegration of Gold Price in India with BSE Indices
Index Correlation with
Gold Price
Co-integration with
Gold prices (Lag 2)
BSE - Sensex 0.917 No
BSE Consumer Durables Index 0.955 No
BSE Metal Index 0.729 No
BSE Capital Goods Index 0.929 No
BSE Consumer Discretionary Goods and Services Index 0.927 Yes
BSE FMCG Index 0.933 No
BSE Oil and Gas Index 0.923 No
BSE Realty Index -0.365 No
Variables influencing the Gold PricesData Base Requirement
Regional
Data base
World Gold
Council
Banks’
Data base BSE
Exchange Rate of
countries * (Having
predictable relationship)
----------------
BSE Consumer
Discretionary Goods.
-------------------
Gold Price in National
level.
--------------
Regional Price of the
Gold.
----------------------
Price Prediction
1. Import the libraries
and read the Gold
data
2. Define explanatory
variables
3. Define dependent
variable
4. Split the data to test
dataset
5. Create a regression
model
6. Predict the Gold
prices
Steps
Supervised
learning GARCH Modeling –
..Using R
Rate of change (ROC)
Regression Trend
Case Study :
Pricing for Gold Supply from Thailand
Transaction – Import of Gold from Thailand to Bangalore – Price Estimation
Gold Price in
India
5 yrs
World Gold Council
/ MCX (India)
Gold price derives
from National level
Gold Price in
Thailand
5 yrs
World Gold Council
The seller is from
Thailand
Exchange price
of Thai Bhat
5 yrs
RBI – Exchange
value between
India and Tahi bhatt
Exchange rate is
one of the
influencing factor
BSE Consumer
Discretionary
Goods
5 yrs
BSE
Values of stock
market affects the
Gold price
Gold Price in
Bangalore
5 yrs
Jewellers’ Association
of Bangalore
http://www.jab.org.in
The buyer of Gold
is from Bangalore
Exogenous
VariablesExogenous
Variables
Exogenous
Variables
Exogenous
Variables
Dependent
Variable
37
21.2 24.4
14.2
0
5
10
15
20
25
30
35
40
A1 A2 A3 A4
Gold Price in Bangalore
Gold Price in India
Exchange price of Thai Bhat
Gold Price in Thailand
BSE Consumer Discretionary Goods
Gold Price in Bangalore
Gold Price in India
Gold Price in Thailand
BSE Consumer Discretionary Goods
Gold Price in Indian Market (National)
Consumer Discretionary Goods Index
Weighted Exchange Rate of Thailand
Bhat on Gold Price
21.22
i in n BaBangngalalorore
22
1
Mean Absolute Percentage Error
Data Input – Validation of Different Alternatives
Output of -Case study
GARCH Equation
Co-efficient
0.931647.
Consumer Discretionary
Goods Index
Co-efficient
0.045742.
Gold Price in Indian
Market (National)
Co-efficient
-0.039368
Weighted Exchange Rate
of Thailand Bhat on Gold
Price
.
Coefficient Std. Error z-Statistic Prob.
C 3088.075 290.4721 10.63123 0.0000
RESID(-1)^2 0.623147 0.097879 6.366490 0.0000
GARCH(-1) -0.149531 0.051380 -2.910273 0.0036
MAE
=
66.11
MAPE
=
2.3%
R2
=
0.69
04Model
Estimation of Gold Price
95%
The results of the case study
predict the price to be quoted by
the exporter from Thailand with the
accuracy of 95 percent in the
particular transaction. .
Results
-600
-400
-200
0
200
400
2,200
2,400
2,600
2,800
3,000
3,200
3,400
II III IV I II III IV I II III IV I II III IV I II III IV I
2012 2013 2014 2015 2016
Residual Actual Fitted
The results of the case
prprprprededededicicict t t thththe e e prprpricicice e e tototo b b be e e ququququot
the exportrtrtererer f f f frorororom m m m ThThThaiaiailalalandndnd w
accuracycy of 95 p percent
95%
Model
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Model
Distributed
Databases
Transaction is committed to
Block chain and miners are
rewarded
Transaction is distrib
uted and validated
via cryptographic
hashing
Buyer creates a
transaction or a
block
Seller receives the transaction
Buyer
SellerCrypto-HashingBlock (Transaction)
+ Customs
Duty + Cost
of Carrying
Sl.No Variables Impact on Total MRP
(Variations on MRP)
1 Gold Price in Thailand 60.5 %
2 Demand Trends – Based on Currency variations
(Inverse Relation)
(+ or - ) 4.5%
3 Demand Trends – based on Capital Market Index (+ or -) 2%
4 Demand Trends – Regional / Festival variations (+ or -) 4%
5 Duty (GST +Import Duty, CVD, Customs etc)
(Tariff adjusted fortnightly)
+ 23 ( Max. 31%)
6 Brand Values + 3 %
7 Cost of Carrying & others + 2.5 %
Price Elasticity Components
Situations Price (on 26/1/2019) (INR)
Price of 24 Carat Gold of Thailand in Indian Rupee
(Open market)
29156 Per 10
grams
Importing Gold from Thailand (Whole Sale) 33928 ( Max.34346)
Buying through NRI & bringing less than 1kg Gold from
Bangkok
32071
Retail Price in India (24 carat in Bangalore) 32428
Customer based Price - Variations
Policy Changes – Customer Experience
Flexible Pricing can be
possible with
Real Time Pricing
Mechanism
Elasticity of Demand.
Changes in Prices
Cha
nge
s in D
em
an
d
Based on Price and Demand
changes during August, 2018
Challenges in Research Overcoming the Challenges
Cascading Effect
Large Volume data
Cross data
Time constraint in estimation
Mismatch of Variables
Streaming and Mapping of Data
Challenges in Pricing
Automation
Integration
Automated machine algorithms must link the
regionally distributed ledger for identifying price at
the regional level. The semantic web ontology that
integrates the buyer and seller will address the
predictive pricing using Supervised learning
algorithm.
The way of integrating the variables with data
warehousing will create a transparent system of
price determination of gold in India.
Wrap Up
PricingThe Gold pricing will have multiple pricing based
on transaction values. The brand values are
considered in each stage of pricing.