An Empirical Study on Relationship between Future and Spot Price

Abstract

Gold is a chemical element with symbol Au (from Latin: aurum) and atomic number 79. In its purest form, it is a bright, slightly reddish yellow, been a valuable and highly sought long before the beginning of recorded history. The world consumption of new gold produced is about 50% in jewellery, 40% in investments, and 10% in industry. The primary purpose of the study is to examine the relationship between the Gold futures prices and Gold spot prices traded in India. The data has been collected from National Commodity & Derivativ period from May 2015 to Jan. 2016. The results from unit root test (ADF) indicate stationarity at 1st difference. Hence, Johansen’s cointegration test is examined to know the relationship between Gold futures prices and series are cointegrated, then there must be Granger causality between them directions. It is concluded that there is long prices price traded in India on testifying Unit Root Test, Cointegration Test and Pair Causality Test. prices of Gold are ca investors and portfolio managers to develop effective trading and hedging strategies in the Indian gold market.