DEMONETISATION AND GOLD: A STUDY OF INDIA

On November 8, 2016, Prime Minister Narendra Modi announced demonetization of Rs. 500 and Rs.1000 banknotes of the Mahatma Gandhi Series. This is required to tackle counterfeiting Indian banknotes, to effectively nullify black money hoarded in cash and curb funding of terrorism with fake notes. The present study examines the impact of demonetization decision on gold prices in India. It is studied by comparing the data of gold prices for 30 days, 15 days and 7 days before and after November 8, 2016. The data consists of daily prices of gold obtained from World Gold Council database. Paired t-test and wilcoxon signed ranks test are used to study the statistical significance of the results. It has been found that demonetization decision has significantly reduced the price of gold in India. It may be due to the reason that after demonetization announcement, income tax department tightened the noose around the jewellers as people rushed to convert their old currency notes (Rs. 500 and Rs. 1000) into precious metal gold. It resulted in dropping the price of gold in India in short run.