Gold Prices and Nifty – Unraveling of an Intricately Interwoven Nexus

Abstract

With the ever changing financial architecture prevalent in the economy and opening up of new vistas of financial engineering highlighting the financial inclusion and education schemes coupled with introduction of new financial instruments, India has been able to widen the net of investments either domestic or foreign direct. The scope of investment by individuals though hovers around safe avenues such as gold, the increasing trend of investment in stock markets cannot be ruled out. However the euphoria and dysphoria associated with up rises and down falls in stock market prices, whether it is consequent to global recessionary factors or domestic political and economic scenario, often pulls or drives away investors to or from the stock markets, especially in the short run. Besides the influence of macroeconomic factors on stock prices, the influence of gold prices on stock prices has spurred the inquisitiveness of researchers all over the world. This paper presents the intricately interwoven nexus that can be established between gold prices in India and the vibrant National Stock Exchange index Nifty 50. Published historical stock index data and historical movements in the gold price per gram in Indian Rupees obtained from official websites of National Stock Exchange (NSE), India and World gold Council are used to build and develop econometric models. The experiments to identify the dynamics and intricacies of nexus between the variables establishes the impact of gold price on stock market index Nifty vis-à-vis their short-run and long-run causal relationship.