[The Asset Price Bubbles: a Case of Gold]

By

ACKNOWLEDGEMENT

I would first like to express my gratitude for my research coordinator, colleagues, and peers and family whose immense and constant support has been a source of continuous guidance and inspiration.

DECLARATION

I [type your full first names & surname here], declare that the following dissertation/thesis and its entire content has been an individual, unaided effort and has not been submitted or published before. Furthermore, it reflects my opinion and take on the topic and is does not represent the opinion of the University.

Signature:

Dated:

ABSTRACT

The research addresses the three topics: Firstly describing what actually the economists mean when they talk about the term asset price bubbles, what actually it means and understand the reasons behind the persistence of these bubbles. Secondly, the research highlights the chronicle examples and events of asset price bubbles that have existed in the past and examination of the changes occurring in the economic activities that are followed when the bubbles are burst. Finally the research addresses the issues of gold as commodity and the interest of investors and financers in gold for the portfolio diversification. A mixed research methodology has been chosen as the published data for the history of asset price bubbles has been used and utilised from the secondary sources and on the other hand different patterns of gold prices and its buying has been analysed based over the figures produced by different sources and has been analysed.

TABLE OF CONTENT

ACKNOWLEDGEMENTii

DECLARATIONiii

ABSTRACTiv

CHAPTER 01: INTRODUCTION1

Background1

Research Question2

Aims & Objectives2

Rationale3

Generalizability4

Ethical Considerations4

CHAPTER 02: LITERATURE REVIEW6

Efficient Markets6

Financial Markets7

Asset Price Bubbles8

Steady Increase in Investment Flows8

Lessons from Prior Asset Bubbles9

A Statistical Approach10

Gold10

US Housing Bubble11

US Technology Bubble11

Japanese Bubble Economy11

Comparing Gold with Global Asset Prices12

The Outlook for Gold Demand13

There is Vast Scope for Growth in Gold Demand in China13

Gold's Increasing role in Emerging Market & Developing Countries' Foreign Reserves14

Industrial Demand for Gold to Remain Supportive16

Some bubbles Putative16

The fever of tulip bulbs16

The South Sea Bubble17

Japanese Real Estate & Stock market bubble of the 198021

Internet Bubble22

The Great Bubble & Real Estate Leverage, 200723

CHAPTER 03: METHODOLOGY27

Research Design27

Literature Search27

Inclusion & exclusion criteria28

Limitation of the Study28

Timescale for the completion of Dissertation29

Research Questions29

Justifying the Research Question30

CHAPTER 04: ANALYSIS & DISCUSSION32

Overview of the Gold Market32

The Price of Gold33

The Investment Case for Gold34

Portfolio Diversification35

Potential Hedge against Rising Inflation35

Potential Hedge against Devaluing Dollar36

Summary of Analysis of Appendix - B figures36

Effect of Exchange Rate Volatility in the Dollar Price of Gold37

CHAPTER 05: CONCLUSION42

Conclusions43

Gold & the Interest Rate Cycle44

References46

Bibliography54

Appendices57

Appendix - A57

Appendix - B65

CHAPTER 01: INTRODUCTION

Background

The reason behind the attainment of the significant position in the economy of world by gold is that economies consider the gold to last forever. With regard to the statistics collected with the help of surveys gold price is an important factor in regulating the world business. During the time of financial crisis it is administered that gold price rises. In some cases the rise in the gold price could be erroneous & illusionary.

The rise & fall in gold prices are conventionally looked upon as a mirror of the current inflationary ...