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

Average Volatility of Silver.

II. Technical Analysis using Charts & Indicators.

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

I. Fundamental Analysis with the help of Production, Demand/Supply,

Average Volatility of Copper.

II. Technical Analysis using Charts & Indicators.

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 Research-

Research 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 2010 2011 2012 Net Change

Net Change

2010-11 2011-12

Global Total supply 4108 4515 4453 9.91% -1.37% Mine supply 2543 2835 2847 11.48% 0.42% Secondary economy sales 1341 1313 1291 -2.09% -1.68% Transitional economy sales 342 342 373 0.00% 9.06%

Global Total demand 4115.12 4582.3 4405.6 11.35% -3.86%

Jewellery 2060 1975.1 1894.40 -4.12% -4.09% Central bank Purchase 323.12 423.34 528.67 31.02% 24.88% E.T.F. 318 185.1 264.33 -41.79% 42.80% Medical 77.2 121.46 132.16 57.33% 8.81% Official Coin 204.6 245.2 220.28 19.84% -10.16% Physical Bar 713.2 1180.4 925.17 65.51% -21.62% Dentistry 49.8 42.9 44.05 -13.86% 2.68% Other Industry 82.8 88.9 88.11 7.37% -0.89% Electronics 287 319.9 308.39 11.46% -3.60%

(Secondary Source) 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 risk-free 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)

(Secondary Source)

36%

11%

49%

4%

Demand Flow as per Applications

Investment

Technology

Jewellery

Central Bank Net Purchases

Supply:-

(Chart no: - 5.1.2)

(Secondary Source)

61%

39%

Supply Flow as per Production :-

Mine Production

Recyclied Gold

5.1.5.1. Countrywide production and consumption:

(Table No: - 5.1.5)

(Secondary Source) 5.1.5.2. Country comparison chart:

(Chart no: - 5.1.5)

(Secondary Source)

0

100

200

300

400

500

600

China Australia U.S.A. Russia S. Africa Canada Indonasia India

Yearwise Gold consumption,Production

production 2011-12 Production 2012-13 Consumption 2011-12 Consumption 2012-13

Country name

Production Consumption Net change Net change

(Tonnes) (Tonnes) 2011-12 2012-13 2011-12 2012-13 (Production) (Consumption)

China 361 396 545 516 10% -5.32% Australia 258 248 50 65 -4% 30%

USA 232 231 115 97 0% -15.65% Russia 210 216 75 81 3% 8%

S.Africa 187 172 67 100 -8% 49.25% Canada 100 98 56 61 -2% 8.93%

Indonesia 74 53 30 31 -28% 3.33% India - - 567 533 0 -6%

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

Date Closing Prices Returns STDEV Volatility in %

01-Apr-13 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 6 days 16.03093 16% for 6 days

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

(Secondary Source)

5.2.1.. Technical Analysis of Gold :-

What Could you Have Known, and When

Could you Have Known It.?

Support & Resistance Continuation

FALLING WEDGE

(Reversal)

UPTREND

Gap, Should Get filled

Oversold

Occurred good buying

Oversold

Signal of Buy

Fundamental &Technical Analysis of

Silver

6.1. Fundamental Analysis :-

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

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.

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 Net Change

Net Change

2010 2011 2012 2010-11 2011-12 Global Total Supply :- 1076.2 1039 1048 -3.46% 0.87% Mine Supply 752.7 757 787 0.57% 3.96% Net Govt. Sale 44.2 12 7.4 -72.85% -38.33% Old Silver Scrap 228.8 258.1 253.9 12.81% -1.63% Producer Hedging 50.4 12.2 -75.79% -100.00% Global Total Demand :- 1076 1039 1048 -3.44% 0.87% Industrial Application 500.7 487.8 465.9 -2.58% -4.49% Photography 72.1 66.1 57.8 -8.32% -12.56% Jewellery 192.8 186.5 185.6 -3.27% -0.48% Silverware 52.8 48.3 44.9 -8.52% -7.04% Coins & Medals 99.4 118.3 92.7 19.01% -21.64% Producer De-Hedging 41.5 Implied Net Investment 158.3 132.3 160 -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)

32%

44%

18%

2% 4%

Demand Flow as per Applications

Jewellery and Silverware

Industrial Use

Photography

Implied Investment

Coins and Medals

Supply:- (Chart No:- 7.1.2)

(Primary Source)

75%

1%

24%

Supply Flow as per Production :-

Mine Production

Net Govt. Sale

Old Silver Scrap

6.1.7.1 Countrywide Production and Consumption

Country name

Production Consumption Net Change Net Change

(Tonnes) (Tonnes)

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:

(Secondary Source)

0100020003000400050006000700080009000

10000

China Australia U.S.A Mexico Peru Poland India

Year wise Silver Production & Consumption

Production 2011-12 Production 2012-13 Consumption 2011-12 Consumption 2012-13

6.1.8. Calculation of Average Volatility in Silver:

Date Closing Prices Returns St. Dev. Volatility in %

01-Apr-13 54997 -0.025565

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 6 Days 20.5462107 20% for 6 Days

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

What could you have known,

and when could you have known it?

Double Bottom

Gap should get be filled

Falling wedge (reversal)

Rounding Top

Occurred Good Buying Oversold

Over Sold Occurred Good Buying

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)

Particular Net Change

Net Change

2010 2011 2012 2010-11 2011-12 Global Total Supply 35023 35672 36872 1.85% 3.36%

Mine Production 16020 16023 16740 0.02% 4.47% Refined Production 19003 19649 20132 3.40% 2.46% Refined Capacity Utilisation 79.70% 80.60% 79% 1.13% -1.99%

Global Total Demand 19346 19865 20472 2.68% 3.06%

Building & Construction 7738.4 8939.25 10031.3 15.52% 12.22% Electric & Electronic Product 2901 3377.05 4094.4 16.41% 21.24% Industrial Machinery & Equipment 1547.68 1589.2 1842.48 2.68% 15.94% Consumer & General Product 2901.9 2582.45 2047.2 -11.01% -20.73% Transportation & Equipment 4256.12 3377.05 2456.64 -20.65% -27.25%

(Secondary Source)