The importance of gold in India cannot be overemphasized to an economist or to a layman. Traditionally gold has been deeply entrenched in the Indian social psyche. The economic importance is also not less as has been elaborated in the paper. But there have been few empirical studies. This paper tries to make an attempt at explaining the importance through a study of gold price determination. The study reveals that exchange rate, interest rates, and silver prices. The study also shows that the gold market in India exhibits a weak form of efficiency (EMH) as lagged gold prices have been found to be significant. The model also finds that gold prices are sensitive to political and apolitical events.
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