MCX gold open interest spikes to 25 tonne as volatility spirals


Kolkata: The rising volatility in gold prices has prompted hedgers to use MCXNSE -0.16 % futures platform, so much so that the open interest in gold on MCX breached 25 metric tonnes (MT) and was at 25.4 metric tonnes on June 25 when gold prices hit a 6-year high. This is the highest since July 29, 2013, when commodity transaction tax was imposed.

Turnover in MCX Gold (all variants) stood at Rs 11,447 crore which was at a three-year high — the previous high was at Rs 17,142 crore on June 24, 2016. The turnover in MCX gold (1 kg) of Rs 9,799.9 crore was also near three-year high, while the previous high was at Rs 10,099 crore on July 29, 2016.

MCX bullion prices are seen as domestic price benchmarks and are used by the entire value-chain for pricing of their transactions. The list of hedgers on MCX includes importers, nominated agencies, bullion traders, small and large jewelers, including listed entities.

Organised jewellery segment is said to be witnessing a growth and this requires best hedging practices to keep the books of accounts in proper shape. As prescribed in the Listing Obligations and Disclosure Requirements (LODR), listed entities need to disclose their risk management and mitigation methods in their annual reports. This helps in building hedging awareness and consciousness around the issue. The average daily turnover (ADT) in the bullion segment at MCX is seen up 28 per cent quarteron-quarter. The average daily turnover in June 2019 month-to-date is higher than June (FY18-19) by 60 per cent.

While gold had hit six-year high on Tuesday, its prices slipped more than 1 per cent on Wednesday as the US Federal Reserve officials played down expectations of aggressive rate cuts, while investors locked in profits following a strong rally. “When the price is volatile, hedging helps,” said a gold trader. Prithviraj Kothari, managing director of bullion firm RSBL, said, “MCX prices are seen as domestic benchmark. Due to increased volatility in gold and silver arising out of fluctuations in currency and geo-political tension, jewellers are increasingly using MCX futures and options to hedge their positions.”

“Since spot markets are at a discount and coupled with the fact that higher volatility is reflecting in higher options premiums, hedgers are writing MCX Gold options to create efficient hedges,” said Jigar N Sanghvi, partner, Raksha Bullion.

Surendra Mehta, national secretary, India Bullion & Jewellers Association, said, “IBJA has conducted about 50 joint awareness programmes over the past years across India along with MCX for bringing smaller jewellers into mainstream such that they benefit from exchange eco-system based risk management and protect their margins. This also then helps to wean away from unorganised practices such as ‘dabba trading’. We have agreed to scaleup this further”