Mumbai: Indian gold traders are increasingly turning to hedges on local bourses to fight price volatility as they seek to revive from weak consumption seen last year, exchange officials and analysts said.
Physical delivery of gold in settlement of contracts, a key indicator of genuine hedging, rose to 2.7 tonnes in February, compared with 0.348 tonnes a year ago, data from the MCX, India’s largest commodity exchange for bullion, showed.
“Large volatility is there and we need to be protected by it, this also shows the maturity of exchanges as delivery base centre,” said Daman Prakash Rathod, director of the Chennai-based MNC Bullion, one of the country’s biggest gold traders.
Gold futures, which struck a record high in December last year, has been on a downtrend this year on a strong dollar overseas, which dims the yellow metal’s appeal as an alternative investments.
Indian gold futures have fallen by about 8% since the start of the year, after hitting a record high of Rs18,294 in December.
“The recent decline in prices made most of the traders accumulate at lower levels and take delivery, and also members have been aggressively promoting small-sized gold products,” said Harish Galipelli, vice-president research with JRG Wealth Management, a commodity broker in Kochi.
The price fall has led to expectation of a revival in gold sales after imports slumped last year on record high prices.
“Traders are using our platform actively to buy gold. We see this trend increasing,” said Anjani Sinha, director, MCX.
Lower price and standardisation will attract actual wholesalers and refiners to source their raw material needs through electronic platforms.
The formation of an active spot market for the commodity has also helped boost hedging interest, traders said.
The Indian Bullion Market Association (IBMA), an association of 10,000 jewellers across India, along with Riddhi Siddhi Bullions has been actively involved in promoting spot electronic trade, bringing transparency in the largely fragmented Indian bullion markets.
Industry watchers say MMTC, which is a promoter of ICEX and also the biggest bullion importer, has been instrumental in attracting existing traders to deal in futures.
MMTC had bought 77.6 tonnes in April-September, the first half of the 2009/10 fiscal year, compared with 101 tonnes in the same period last year.
“We have rising interest from wholesalers to take delivery, about 90% of our open interest in gold are from hedgers,” said Ajit Mittal, chief executive officer of the newly-created Indian Commodity Exchange (ICEX), the country’s third-biggest.
Its first physical gold delivery stood at 168 lots of 1 kg and 170 lots of 100 grams.
India is the largest consumer of the yellow metal, followed by China. Development of the seven-year-old bullion futures trade in the country is keenly watched by the industry.