 "Open interest in non-agri commodities declines on uncertainty over govt policy move")
Open interest in non-agricultural commodities on the Multi Commodity Exchange (MCX) has declined sharply in the last three weeks following uncertainty over global economic indicators. Traders of domestic futures markets have started squaring off their position and churning portfolio for better profit.
Accumulative open interest for all gold contracts declined to 8,160 lots on Wednesday as compared to 9267 lots on November 8. Open interest for all silver contracts has fallen to 15,389 lots on Nov 23 from 16,163 lots on Nov 8.
On November 8, the world witnessed two major unexpected changes affecting thereby the global economy. Donald Trump surprised the world by winning the US presidential election which the global think tank never expected earlier. Back home, India's Prime Minister Narendra Modi announced demonetization of Rs 500 and Rs 1,000 notes affecting thereby 86 per cent of currency in circulation.
"More than the global factor, Indian government's surprising decision to demonetise large denomination currency notes affected trading sentiment in India. The decision has also created an uncertainty in the market over next move of the government. Those with cash balance are busy adjusting that. But, those who do not have cash, are abstaining from a fresh position," said Navneet Damani, Assistant Vice President, Motilal Oswal Commodities.
Trading volume, however, has increased in non-agri commodities due to high volatility in prices.
Analysts believe that Trump's proposed $1 trillion infrastructure spend supported base metals in the world market on expectations of their increased demand for use in the construction sector. Consequently, base metals led by copper jumped by 10.31 per cent to trade currently at $5564 a tonne. Other metals in this basket also moved up but, relatively slower than copper.
While zinc jumped by 5.26% to trade at $2572 a tonne, lead and aluminium firmed by 4.92% and 3.49% to trade currently at $2175 a tonne and $1765.5 a tonne, respectively.
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Trump in his presidential campaign said that he would rebuild America's infrastructure with $1 trillion investment over a 10-year period. The president-elect desired to fix America's airport, highways, bridges and pipelines of which the blueprint is yet to be made public.
"The demonetization has squeezed liquidity into the system resulting in a complete stop of 'dabba trading'," said Damani.
In fact, base metals were oversold till the US election result as global economists received Trump's victory as big negative for the US economic growth. But, the sentiment turned positive following Trump's statements on massive infrastructure spend and working to suit the requirement of the US economy.
"Base metals led by copper have gained by a quarter since then. But, Chinese traders continue to remain intermittently present into the market. Normally, Chinese traders proceed on Christmas leave in the second fortnight of December after building their book. A lot of traders are churning their portfolio for better profitability," said Ajay Kedia, Managing Director, Kedia Commodity.
Meanwhile, Trump's support to the US Federal Reserves for a hike in interest rates in December, however, worked as a deterrent for precious metals. Both gold and silver prices declined sharply amid expectations of a hike in the US interest rates which would probably support investment in the US treasury resulting into a pullback from bullion.
Gold price declined by 6.85% to trade currently at $1188.21 an oz and silver by 10.92 per cent to $16.37 an oz. But, the correction in bullion prices was relatively low in the rupee term due to 2.83% depreciation in the Indian currency. Standard gold traded on Thursday at Rs 28980 per 10g in the popular Zaveri Bazaar here and silver fell to close at Rs 41340 a kg.