Aggregate open interest declines on MCX.
Bullion traders are taking divergent paths in local and global markets when it comes to holding positions in the futures market. Local traders have been booking profits and covering short sales since last three weeks.
Gold positions fell over 14 per cent, while silver positions declined over 23 per cent. A falling dollar leads to higher bullion prices in overseas markets, while a rising rupee caps returns from higher bullion prices, which leads to profit-booking by Indian traders. Retail investors, however, have increased their open interest in futures.
In the last three weeks, open interest, the number of open or unsettled futures positions and an indicator of price movement in the coming months, in precious metals declined significantly on the Multi Commodity Exchange (MCX) due to active profit-booking by traders.
In case of gold, the aggregate open interest for all live contracts declined 14.13 per cent from its recent high on September 10. Although the open position continued to rise in the Comex division of NYSE, it declined in Indian commodity bourses, which indicates that local traders turned more cautious than their global peers. On MCX, gold’s aggregate open interest plunged to 23,982 lots on October 14 from its recent high of 27,927 on September 10. During the period, gold prices were up by a mere 5.75 per cent on MCX. Similarly, open interest in the silver segment nosedived a staggering 23.52 per cent from its lifetime high on September 16. Silver prices went up 12.73 per cent during the period. Big traders trade in gold contracts, while retail investors trade in mini gold contracts (of 100 gram), where open interest has been consistently rising. In the last one month, it has increased 7.06 per cent to 50,960 contracts.
| LOSING SHEEN | ||
| Close | Aggregate OI* | |
| Gold (Rs /10 gm) | ||
| 10-Sep | 18,864 | |
Source: Bloomberg
Compiled by BS Research Bureau
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“The decline in open interest reflects that bullion prices have achieved their target and any further upward movement is minimal. Therefore, traders prefer to book profit on highs before any price correction begins,” an analyst said. Similarly, the selling spree pulled down traders’ sentiment in bullion street in the silver quarter also. A trader from Kedia commodities said since silver prices were very volatile, in many cases of short selling, stop loss was triggered, resulting in a decline in open interest. In gold, the price movement was less volatile compared to gold. Hence, there was some short-covering with profit-booking.
Traders were lured to an extent by higher global prices of precious metals. Gold for near-month delivery on MCX jumped to Rs 19,948 per 10 gram on October 14. Silver followed suit to trade at Rs 36,460 per kg for near-month delivery on India’s largest future exchange, compared to Rs 33,199 about three weeks ago.
Amid fears that a further appreciation of the rupee against the dollar might yield lower return, many bullion traders sold some holdings, said a Mumbai-based trader. If rupee strengthens while global bullion prices also correct, then the fall in the Indian market could be steeper, traders fear.
In contrast, global traders remained bullish on gold. Analysts said higher open interest indicated increasing public appetite for gold. It is a bullish sign, although a large number of speculative positions also mean the potential for a correction is low if some traders sell to capture profits.
They continued fresh booking on forward contracts on the Comex. As a consequence, the aggregate open position in gold hit an all-time high of 638,283 contracts on October 14, compared to its previous high of 617,188 contracts on September 29. During the period, gold for near-month delivery in Comex surged to $1377.6 per oz from $1310.3 per oz. Gold benefited as an alternate reserve currency, as countries tried to adopt easier monetary policy and depreciate their own currencies to boost growth. But all traders were not bullish on silver, as the gray precious metal achieved analysts’ next year’s target of $24 an oz in October only. Experts, at a recently-held precious metals seminar in London, had forecast that gold and silver would hit $1450 an oz and $24 an oz, respectively, next year.