This study investigates the relationship between the Indian gold price and the real exchangerates of major international currency and how does Indian gold price reacts to the exchange rates of thesecurrencies. The data set consists of monthly gold prices from Indian market and the real exchange rates ofmajor currencies like USD, Euro, Yen and INR for the period from 1994:01 to 2011:12. The relationship andreaction is tested through the Johansen cointegration test, Granger causality test and VAR models like Impulseresponse function and Variance Decomposition. It is found that the Indian gold prices have long runrelationship with the real exchange rates of major currencies and it is also found that the Indian gold prices arecaused by the real exchange rate of Yen but the vice versa does not exist. The Indian gold prices reactpositively to the shocks from Yen and negatively to the INR.

Gold is a universal commodity traded across the world. The London Bullion Market Association (LBMA) fixes prices twice a day, known as AM and PM fix prices. This study is an attempt to find out whether the volume of gold consumption shows any significant impact on the world gold prices, known as LBMA fix prices. The sample includes major gold-consuming countries, such as India, the USA, China, Japan, and countries in Europe and the Middle East grouped together under Europe and the Middle East, respectively. The results conclude that there exists a long-run relationship between LBMA fix prices and the gold demand of all the countries. Furthermore, the volume of gold demand significantly influences LBMA AM fix and PM fix prices. It is found out that the demand of all the countries together, and India and China individually, affect the world gold prices significantly. India consistently stands as the largest consumer of gold in the world gold market. In spite of this, India is a price taker. Bullion associations and commodity exchanges that allow bullion trade in India may take initiatives to make India a price maker in the world gold markets.