Mumbai: Once the cash cow in the portfolio of India’s top commodity bourse by turnover, gold futures have lost sheen to copper as higher margin money on surging prices drags volumes.
Volumes have declined by 20% to a daily average of 32,371.97 kgs on a year-to-date basis on the Multi Commodity Exchange (MCX), while copper registered a 125 percent increase to 92,166.94 kgs.
“Retail participation has come down due to higher prices and incremental effect on margins,” said Harish Galipelli, vice-president research, JRG Wealth Management in Kochi.
As budget of traders are fixed, they are opting for lower-priced contracts like copper, he said.
“While traders are getting tired of the volatile rupee movement, any spike up or spike down (in gold prices) is countered by a weaker or stronger rupee,” said Gnanashekar Thiagarajan, director with Mumbai-based Commtrendz Research.
The Indian rupee is up about 4.7% on year and has risen 12.3% from a record low of 52.2 hit in early March.
“Gold and silver is more of a proxy to the currency than copper, which does not have such significant impact,” said Thiagarajan.
“Physical players who used to hedge on MCX are hedging less gold because of poor demand due to high prices,” said Thiagarajan.
Domestic gold prices have surged 28% to about 17,500 rupees per 10 grams since January 2009 on a weaker dollar.
While, copper has more than doubled since the start of the year to about 318 rupees per kg, it is still cheaper and hence margin money is lesser.
To take a position on MCX for a lot of gold of one kg requires about 70,000 rupees as margin money. For copper of a lot of 1 tonne, margin money is just about 16,000 rupees.
Analysts said increased participation of hedgers also improved the volumes in the red metal.
“Interest level in copper at 300 (rupees) is much higher due to heightened volatility,” said Ashok Mittal, country head of Hyderabad-based Karvy Comtrade.
“Volatile copper prices have resulted in large as well as small corporate participation to hedge themselves on price risk,” said JRG’s Galipelli.
OUTLOOK Volumes in gold trade could pick-up in case prices fall and as traders seek ways to distribute their leverage in other cheaper commodities.
“If there is a reversal in price trend we would see gold volumes picking up again,” said Commtrendz’s Gnanashekar.
MCX copper based on number of contracts traded grew 128% during the first-half of 2009 calender year, compared with 11% growth for gold, according to the data published by the Futures Industry Association (FIA) in November.
FIA is a global association of players involved in the exchange-traded derivatives business.
MCX corners about 99% of the non-agricultural commodity futures trade in India.