fundamental & technical analysis of selected commodities

A
PROJECT REPORT
ON

“Fundamental & Technical Analysis of Selected
Commodities”
at
NIRMAL BANG SECURITIES PVT., LTD.
NASHIK-422002
A project report submitted in partial fulfilment of the requirement for the
Degree of Master of Business Administration
By
Mr NILESH PRAMOD SANDHANSHIV
MBA-II (Finance)
K.R Sapkal College of Management Studies,

Project Guide
Prof. Parikshit Pachokar (KRSCMS)
To
University of Pune, Pune-411007
Year 2012-2014

Objective of the study

1. To Study the Commodity Market of India with the help of MCX & NCDEX
exchanges.

2. To Analyze Commodity of Gold using Fundamental and Technical Analysis.
I.

Fundamental Analysis with the help of Production, Demand/Supply,
Average Volatility of Gold.

II.

Technical Analysis using Charts & Indicators.

3. To Analyze Commodity of Silver using Fundamental and Technical Analysis.
I.

Average Volatility of Silver.

II.


4. To Analyze Commodity of Copper using Fundamental and Technical Analysis.
I.

Average Volatility of Copper.

II.


Scope of the study
Scope of the commodity market is very large. Thus there is the study about the
commodity market and investment in the commodity market. Every one can’t know to about
the commodities, commodity market and the investment opportunities in the commodity
market. Here we can apply the tools for the fundamental and technical analysis of the selected
commodities in the commodity market and to understand the price movement of commodity
in specific period, so it helps to take decision of buying and selling the commodities in the
market.

o The scope of this project is limited to only Commodity Market with respect to
Metal Indices.
o The Project does not extend to any other sector.

o This study provide a chance to know about fundamental & Technical analysis
and various tools that are used in the analysis.
o This study covers Price Movement & Average volatility of Commodities.
o The study covers various investment tools on the basis of that investment is
done.

Limitations of the study

There is possibility for some discrepancies to come in between due to following
limitations.
 Time interval for conducting the project is just 60 days; hence an exhaustive data
cannot be collected due to time constraint.
 The suggestion of derived from fundamental analysis is valid for the long period only.
 Technical analysis is done for the short run basis i.e. daily trading into the market due
to the prices and volume changes with every second.
 No technical Analysis tool is perfect, but it should be remembered that the indices are
measuring what has already taken place; it is up to the interpreter to provide a
meaningful forecast.
 A chart does not provide with the means to predict future price action with certainty.

CHAPTER-2
Research Methodology

Meaning of ResearchResearch in common parlance refers to a search for knowledge. One can also define research
as a scientific & systematic search for pertinent information on a specific topic. In fact
research is an art of scientific investigation. Research as a “systematized effort to gain new
knowledge”. Some people consider research a movement from the known to the unknown.

Area of the Research: - Finance
Topic of the Research: -

Fundamental & Technical Analysis.

Period of the Research: - 55 days
Type of Research

: - Descriptive vs Analytical Research

Methodology of study:
Research methodology is careful, patient, systematic, diligent enquiry or
examination in some field of knowledge undertaken to establish facts or principle. From
the above definition I can summaries the following nature of research







It is a systematic, intellectual, creative thinking process.
It adopts the systematic methodology.
There is objective enquire based on factual observation that can be quantified.
The objective is to establish a theory or principle.
To make theory as generalization.
To explain the existing knowledge is the objective of research.

Methodology refers as to the method, means of collection of various data related to
the study of welfare facilities the data was collected in two ways.

Method of Data collection


Primary data:
This is the original source of the information 1st hand in nature where the researcher goes
to different people or by using observation method collects the data himself.

Sources of primary data:1. Observation
2.



Interview

Secondary data:
It is the data which is already present in the secondary form like press releases,
magazines, newspaper, journals, newsletters which are derived by any other person or
institute. It was already exists and it is in processed form. The researcher has only to
decide that how it will be handled to appraise the project
.
Sources of secondary data:1. Books
2. Internet & Websites
3. Business Magazines.

Research Design:
It includes following steps
 Collection of data
 Analysing & Interpretation of Data.
 Research findings.
 Suggestion

Presentation of data:
Deliberate sampling method used for the sampling is also called as
purposive sampling. Before the presentation of data first all data is sorted out and
take only data which is required for the study, is Organised as per study.
The Presentation of data is done by the help of various charts and tables: For Fundamental analysis there are used Tables, Doughnut charts, and
Column charts. The data is described by statistical way.
 For the Technical analysis there are used Technical chart of Particular
commodity for the presentation and chart is explained by Analytical
approach.

Fundamental & Technical Analysis of
Gold

5. 1. Fundamental analysis of Gold:
Introduction






Gold (Chemical Symbol-Au) is primarily a monetary asset and partly a commodity.
Gold is the world's oldest international currency.
Gold is an important element of global monetary reserves.
With regard to the investment value, more than two-thirds of gold total accumulated
holdings is with central banks' reserves, private players, and held in the form of jewellery.
Less than one-third of gold's total accumulated holdings are used as “commodity” for
jewellery in the western markets and industry.

Global Scenario & Facts:

London is the world’s biggest clearing house.

Mumbai is under India's liberalised gold regime.

New York is the home of gold futures trading.

Zurich is a physical turntable.

Istanbul, Dubai, Singapore, and Hong Kong are doorways to important consuming regions.

Tokyo, where TOCOM sets the mood of Japan.

Indian Scenario

India, world’s largest market for gold jewellery and a key driver of the global gold demand.

The domestic drivers of gold demand are largely independent of outside forces. Indian
households hold the largest stock of gold in the world.

Two thirds of the Indian demand for gold comes from the rural parts of the country.

In 2012, gold's role as an inflation hedge bolstered its appeal in India. India imported
around 850 metric tonne (MT) of gold in 2012.






Above ground supply of gold from central bank's sale, reclaimed scrap, and official gold
loans.
Hedging interest of producers/miners.
World macroeconomic factors such as the US Dollar, interest rate and economic events.
Commodity-specific events such as the construction of new production facilities or
processes, unexpected mine or plant closures, or industry restructuring.
In India, gold demand is also determined to a large extent by its price level and volatility.

.1.2. Uses & Applications of gold:
1) Jewellery: India & China which contributes more than 50% of the world jewellery
demand.
2) Technology: Gold is widely used as connectors & wires in various electronic items
and reliability is high on the yellow metal.
3) Medicine: In the US, gold had been known for the heart and improved blood
circulation. Gold has been used to cure cancers.
4) Nanotechnology: Gold now-days used as catalysts and the gold Nano particles has
been efficient absorbers of mercury from the water and act as purifiers.
5) Space & engineering: Gold coating is work as reflector of heat & infrared radiation.
6) Dental Industry: Golden tooth is one of the major uses in the dental industry &
Seen as Status Symbol.

5.1.3 Factors Affecting Gold Prices
1. Decline of mine production:
2. Inflation and interest rates:
3. Currency Fluctuation:
4. Geo political concerns:
5. Central bank Demand:
6. Hedging interest of producers or miners.
7. Demand for jewellery from the Asian markets especially India & China: .

5.1.6. Inventory Analysis of Gold ( In Tonnes) :(Table No:-5.1.6 )

Particular

Net
Change
2010-11

Net
Change
2011-12

9.91%

-1.37%

11.48%
-2.09%
0.00%

0.42%
-1.68%
9.06%

4405.6

11.35%

-3.86%

1894.40
528.67
264.33
132.16
220.28
925.17
44.05
88.11
308.39

-4.12%
-4.09%
31.02%
24.88%
-41.79%
42.80%
57.33%
8.81%
19.84%
-10.16%
65.51%
-21.62%
-13.86%
2.68%
7.37%
-0.89%
11.46%
-3.60%
(Secondary Source)

2010

2011

2012

4108
2543
1341
342

4515
2835
1313
342

4453
2847
1291
373

Global Total demand

4115.12

4582.3

Jewellery
Central bank Purchase
E.T.F.
Medical
Official Coin
Physical Bar
Dentistry
Other Industry
Electronics

2060
323.12
318
77.2
204.6
713.2
49.8
82.8
287

1975.1
423.34
185.1
121.46
245.2
1180.4
42.9
88.9
319.9

Global Total supply
Mine supply
Secondary economy sales
Transitional economy sales

Analysis:







From the above chart we get the information of Global Total Supply & Global Total
Demand of Gold. Which is 4108, 4515, 4453 tonnes and 4115.12, 4582.3, 4405.6
tonnes, respectively.
Central bank investment is 528.67 tonnes in 2012, broadly flat year-on-year, but the
approximate value of this demand reached a new record of almost $3.2 billion.
Major drivers of this strong investment included further monetary loosening in the
developed world, continued sovereign debt crisis, rising longer-term inflation fears
and in key markets, negative real interest rates coupled with limited attractive riskfree investment alternatives to gold.
In 2012, the gold mine production increased by 12 T to 2848 T and the combined
demand for bars & coins dropped from 1425.6 T to 1146 T.

5.1.4. Global Demand and Supply Outlook Gold:Shifting dynamics have driven the gold market’s evolution from
concentration to dispersion, across both borders and sources of demand and supply. The
demand and supply dynamics of the gold market underpin the precious metal’s extensive
appeal and functionality, including its characteristics as an investment vehicle.

Demand :(Chart no: - 5.1.1)

Demand Flow as per Applications
4%

36%

Investment
Technology
Jewellery

49%

Central Bank Net Purchases

11%

(Secondary Source)

Supply:(Chart no: - 5.1.2)

Supply Flow as per Production :-

39%
Mine Production
Recyclied Gold
61%

(Secondary Source)

5.1.5.1. Countrywide production and consumption:
(Table No: - 5.1.5)
Country
name
China
Australia
USA
Russia
S.Africa
Canada
Indonesia
India

Production
(Tonnes)
2011-12 2012-13
361
396
258
248
232
231
210
216
187
172
100
98
74
53
-

Consumption
(Tonnes)
2011-12
2012-13
545
516
50
65
115
97
75
81
67
100
56
61
30
31
567
533

Net change

Net change

(Production) (Consumption)
10%
-5.32%
-4%
30%
0%
-15.65%
3%
8%
-8%
49.25%
-2%
8.93%
-28%
3.33%
0
-6%
(Secondary Source)

5.1.5.2. Country comparison chart:
(Chart no: - 5.1.5)

Yearwise Gold consumption,Production
600
500
400

300
200
100
0
China

Australia

production 2011-12

U.S.A.

Russia

Production 2012-13

S. Africa

Canada

Consumption 2011-12

Indonasia

India

Consumption 2012-13

5.1.8. Calculation of Average volatility of Gold Prices:
(Table No: - 5.1.8)

01-Apr-13

Closing
Prices
30530

-0.014478

02-Apr-13

30088

-0.012696

03-Apr-13

29706

0.0045782

04-Apr-13

29842

0.0105221

05-Apr-13

30156

0.0021223

06-Apr-13

30220

-0.007214

0.010098

08-Apr-13

30002

0.0033331

0.00849

13.47834

09-Apr-13

30102

-0.013288

0.00867

13.76423

10-Apr-13

29702

-0.00202

0.008389

13.31726

11-Apr-13

29642

-0.033972

0.013915

22.0907

12-Apr-13

28635

-0.010197

0.012906

20.4879

13-Apr-13

28343

-0.079102

0.030523

48.45457

15-Apr-13

26101

0.0032566

0.03051

48.434

16-Apr-13

26186

-0.003017

0.031409

49.86075

17-Apr-13

26107

0.0006512

0.031746

50.39614

18-Apr-13

26124

0.0042107

0.032302

51.27974

19-Apr-13

26234

0.0085004

0.033622

53.37358

20-Apr-13

26457

0.0116415

0.00528

8.383105

22-Apr-13

26765

-0.007323

0.00711

11.28823

23-Apr-13

26569

0.008318

0.006876

10.90834

24-Apr-13

26790

0.0247107

0.010404

16.51723

25-Apr-13

27452

-0.000401

0.010928

17.34815

26-Apr-13

27441

0.0049561

0.010964

17.40479

27-Apr-13

27577

-0.001414

0.011148

17.69801

29-Apr-13

27538

-0.00886

0.011495

18.24863

30-Apr-13

27294

-0.014069

0.013488

21.41294

Date

Returns

STDEV

Volatility in %

6 days

16.03093

(Secondary Source)

16% for 6 days

5.2.1.. Technical Analysis of Gold :-

What Could you Have
Known, and When
Could you Have
Known It.?

FALLING WEDGE
(Reversal)

Gap, Should Get filled

Support & Resistance
Continuation

UPTREND

Occurred good buying

Oversold
Oversold

Signal of Buy

Fundamental &Technical Analysis of
Silver

6.1. Fundamental Analysis :Introduction
 Silver (Chemical symbol-Ag) is a brilliant grey-white metal that is soft and
malleable.





Silver’s unique properties include its strength, malleability, ductility, electrical
and thermal conductivity, sensitivity, high reflectance of light, and reactivity.
The main source of silver is lead ore, although it can also be found associated
with copper, zinc and gold and produced as a by-product of base metal mining
activities.
Secondary silver sources include coin melt, scrap recovery, and dis-hoarding
from countries where export is restricted. Secondary sources are price sensitive.

Global Scenario
 Silver is predominantly traded on the London Bullion Market Association
(LBMA) and COMEX in New York.
 LBMA, the global hub of over-the-counter (OTC) trading in silver, is the metal’s
main physical market. Comex is a futures and options exchange, where most
funds’ activities are focused.
 Silver is invariably quoted in US Dollars per troy ounce.
Indian Scenario:


The average annual demand for silver in India is about 2500 Metric tonnes (MT)
per year. In 2011, the country’s production was around 342.13 MT.
Nearly 60% of India's silver demand comes from farmers and rural India, who
store their savings in the form of silver bangles and coins.

World Markets



London Bullion Market is the global hub of OTC (Over-The-Counter) trading in
silver.
Comdex futures in New York is where most fund activity is focused

6.1.2 Uses & Application of Silver :1. Jewellery & Silverware: Jewellery is yet another main source of demand for silver,
as silver is the least expensive precious metal.

2. Industrial Use: Industrial uses remain the largest demand for silver because silver is a
excellent conductor of electricity

3. Photography: Another large use of silver is photographic paper and film. Around one
ounce of silver is able to produce approximately 5,000 colour photographs.

4. Implied Investment: The implied net investment of silver rose by almost 400% to a
substantial level of 42.5 million ounces.

5. Coins & Medals: Coins are classified under the jewelry category, and silver was one
of the earliest metals used to make coins. The usage of coins and medals increased 15% in
2004 to a ten year high of 41.1 million ounces.

6.1.3 Factors Affecting Silver Prices
1. Decline of mine production:
2. Government Policies.
3. Inflation and Recession:
4. Currency Fluctuation:
5. Geo political concerns:
6. Demand for jewellery from the Asian markets especially India & China:

6.1.5. Inventory Analysis of Silver(in MOZ) :(Table No:- 7.1.1)

Particular
Global Total Supply :Mine Supply
Net Govt. Sale
Old Silver Scrap
Producer Hedging
Global Total Demand :Industrial Application
Photography
Jewellery
Silverware
Coins & Medals
Producer De-Hedging
Implied Net Investment

2010
1076.2
752.7
44.2
228.8
50.4

2011
1039
757
12
258.1
12.2

2012
1048
787
7.4
253.9

1076
500.7
72.1
192.8
52.8
99.4

1039
487.8
66.1
186.5
48.3
118.3

158.3

132.3

1048
465.9
57.8
185.6
44.9
92.7
41.5
160

Net
Change
2010-11

Net
Change
2011-12

-3.46%
0.57%
-72.85%
12.81%
-75.79%

0.87%
3.96%
-38.33%
-1.63%
-100.00%

-3.44%
-2.58%
-8.32%
-3.27%
-8.52%
19.01%

0.87%
-4.49%
-12.56%
-0.48%
-7.04%
-21.64%

-16.42%

20.94%

(Secondary Source)

6.1.4. Global Demand and Supply Outlook Silver:-

Silver's unique properties include its strength, malleability, ductility, electrical
and thermal conductivity, sensitivity to high reflectance of light and despite it being classified
as a precious metal, its reactivity which is the basis for its use in catalysts and photograph

.Demand :(Chart No:- 7.1.1)

Demand Flow as per Applications
2% 4%
18%

32%

Jewellery and Silverware
Industrial Use
Photography
Implied Investment
Coins and Medals

44%

Supply:(Chart No:- 7.1.2)

Supply Flow as per Production :-

24%

Mine Production
1%

Net Govt. Sale
Old Silver Scrap

75%

(Primary Source)

6.1.7.1 Countrywide Production and Consumption
Production
Country
name

Consumption

(Tonnes)

(Tonnes)

Net Change

Net Change

2011-12

2012-13

2011-12

2012-13

2011-12

2012-13

China

3700

3840

9200

7700

3.78%

-16.30%

Australia

1730

1900

1500

1575

9.83%

5.00%

USA

1120

1050

1852

1898

-6.25%

2.48%

Mexico

4150

4250

2086

2062

2.41%

-1.15%

Peru

3410

3450

1988

2017

1.17%

1.46%

Poland

1170

1170

760

772

0.00%

1.58%

India

0

0

6870

5120

0
-25.47%
(Secondary Source)

6.1.7.2 Country comparison chart:

Year wise Silver Production & Consumption
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
China

Australia

Production 2011-12

U.S.A

Production 2012-13

Mexico

Peru

Poland

Consumption 2011-12

India

Consumption 2012-13

(Secondary Source)

6.1.8. Calculation of Average Volatility in Silver:

01-Apr-13

Closing
Prices
54997

02-Apr-13

53591

-0.0130806

03-Apr-13

52890

0.00160711

04-Apr-13

52975

0.01081642

05-Apr-13

53548

0.00240905

06-Apr-13

53677

-0.0058312

0.012942896

07-Apr-13

53364

0.01755865

0.011031848

17.5125153

08-Apr-13

54301

-0.0114547

0.010591231

16.8130584

09-Apr-13

53679

0.00264535

0.010581858

16.7981794

10-Apr-13

53821

-0.0418424

0.020074263

31.8669039

11-Apr-13

51569

-0.0120227

0.019714208

31.2953357

12-Apr-13

50949

-0.0956643

0.040473031

64.2489446

13-Apr-13

46075

-0.0003039

0.037391739

59.3575448

14-Apr-13

46061

-0.0160874

0.037066822

58.8417562

15-Apr-13

45320

-0.0100838

0.035340173

56.1007855

16-Apr-13

44863

-0.0004681

0.036431088

57.8325588

17-Apr-13

44842

0.00390259

0.037892511

60.1524959

18-Apr-13

45017

0.00493147

0.008314947

13.1995695

19-Apr-13

45239

-0.021928

0.011117292

17.6481533

20-Apr-13

44247

0.00449748

0.01078338

17.1180845

21-Apr-13

44446

0.04511092

0.021722204

34.4829292

22-Apr-13

46451

-0.0059202

0.022156967

35.1730955

23-Apr-13

46176

0.00753638

0.022167383

35.1896302

24-Apr-13

46524

0.00105322

0.022250824

35.3220879

25-Apr-13

46573

-0.0123247

0.020169462

32.0180282

26-Apr-13

45999

-0.0233701

0.023671362

37.5771215

27-Apr-13

44924

0.01262132

0.013273466

21.0709735

28-Apr-13

45491

0.00584731

0.013689578

21.7315312

29-Apr-13

45757

0.00544179

0.013439326

21.3342693

30-Apr-13

46006

-0.001652

0.013370123

21.224412

Date

Returns

St. Dev.

Volatility

in %

-0.025565

6 Days

20.5462107

20% for 6 Days

What could you have known,
and when could you have known it?

Falling wedge
(reversal)
Gap should get
be filled

Rounding Top

Double
Bottom

Occurred Good Buying
Over Sold
Occurred Good Buying

Oversold

Fundamental &Technical Analysis of
Copper

7.1. Fundamental Analysis:Introduction:






Copper (chemical symbol - Cu) is a malleable and ductile metallic element that is an
excellent conductor of heat and electricity. It is also corrosion resistant and
antimicrobial.
It stands at the third place after steel and aluminium, in the context of consumption.
Copper is an important contributor to the national economies of mature, newly
developed and developing countries.
Copper is one of the most recycled of all metals. It is our ability to recycle metals over
and over again that makes them a material of choice.

Global Scenario:



Growth in refined copper usage has been especially strong in Asia, where demand has
expanded more than five-fold in less than 30 years.
Major refined copper exporting countries are Chile, Zambia, Japan, Russia and Peru,
while major refined copper importing countries are China, USA, Germany, Italy and
Taiwan.

Indian Scenario:





In 2012, India's production of refined copper is 689,312 MT, which is around 4% of the
total world production.
Sterlite Industries, Hindalco, and Hindustan Copper are three major producers of copper
in India. From the status of a net importer, India is emerging as a net exporter of copper
on account of a rise in the production of copper.
Electric and electronic products industry has become India's largest copper consuming
sector, accounting for 36% of the total Indian copper consumption. Telecom is still
India's second largest copper consuming sector, accounting for 20% of the total Indian
copper consumption.

7.1.2 Uses & Applications of Copper:


Building Construction: Building Wire, Plumbing and Heating, Air Conditioning and
Commercial Refrigeration, Builders Hardware: Architecture.



Electric & Electronic Product: Power utilities; Telecommunication; Business
Electronics; Lighting and Wire devices.



Industrial machinery & Equipment: In-Plant Equipment; Industrial valves &
Fitting; Non-Electrical Instruments; off Highways Vehicles; Heat Exchangers.



Consumer & General Product: Appliances; Cord Sets; Military & Commercial
Ordnance; Consumer Electronics: Fasteners & Closures; Coinage; Utensils & Cutlery;
Miscellaneous.



Transportation & Equipment: Automobile; Truck & Bus; Railroad; Marine;
Aircraft & Aerospace.

7.1.3 Factors Affecting Copper Prices:
a. Decline Production of Mine
b. Industrial Demand Of Copper
c. Fluctuation in Currency
d. Economy
e. Inflation & Deflation Rate of Country
f.

Political Influence

.1.6. Inventory Analysis of Silver(In Thousand Tonnes) :(Table No: - 6.1.1)
Net
Change
2010-11
1.85%
0.02%
3.40%
1.13%

Net
Change
2011-12
3.36%
4.47%
2.46%
-1.99%

2.68%
19346
19865
20472
7738.4 8939.25 10031.3
15.52%
2901
3377.05 4094.4
16.41%
1547.68 1589.2 1842.48
2.68%
2901.9 2582.45 2047.2
-11.01%
4256.12 3377.05 2456.64 -20.65%
(Secondary Source)

3.06%
12.22%
21.24%
15.94%
-20.73%
-27.25%

Particular
Global Total Supply
Mine Production
Refined Production
Refined Capacity Utilisation
Global Total Demand
Building & Construction
Electric & Electronic Product
Industrial Machinery & Equipment
Consumer & General Product
Transportation & Equipment

2010
35023
16020
19003
79.70%

2011
35672
16023
19649
80.60%

2012
36872
16740
20132
79%

fundamental & technical analysis of selected commodities

fundamental & technical analysis of selected commodities

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