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| Futures contracts are traded on regulated commodity exchanges, the largest of which are the New York Mercantile Exchange Comex Division (www.nymex.com) and the Tokyo Commodity Exchange (www.tocom.or.jp).
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| India recently joined the bandwagon of countries running futures trading in gold. October marked a new beginning for about five lakh goldsmiths in the country armed with an opportunity to hedge their gold requirement at forseeable cost and shun the volatility in international prices.
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| Futures trading in gold, after a 41-year ban, was kicked off in the country at the Ahmedabad-based National Multi Commodity Exchange (www.nmce.com) in October.
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| India, the single largest gold consuming country, ironically used to meet its more than 60 per cent of demand through imports without a way to hedge the price risk the goldsmiths took in absence of any formal demand supply estimate.
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| The only estimate is provided by the World Gold Council. India consumes around 800 tonne of gold annually. However, with recent fluctuations in prices overseas, the recycling of domestic household gold is estimated to take gain momentum leading to possible decline in the gold imports. The vagaries of price fluctuations has direct inverse relationship with import of gold in the country.
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| This fact is strong enough for domestic goldsmiths to plan their requirement and hedge the price risk through the newly launched gold futures trading.
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| While NMCE was the first to kick off futures trading in the country, the other two in the pipeline National Commodities and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) of India, have commenced mock trading sessions. Both are expected to go live soon.
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| Though, it will take some time before the Indian gold futures contracts mature enough to provide the desired liquidity and depth, India has geared up to join the ranks of New york Commodity Exchange (COMEX), division of NewYork Mercantile Excahnge, Tokyo Commodity Exchange (TOCOM) and the one-year-old Shanghai Gold Exchange.
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| Interestingly, despite India being the largest consumer of gold, it has minor influence on the pricing behaviour of the global markets, but if domestic futures trading matures and reflects the Indian situation, it may well be a noticeable influence in the long term.
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| While banks can hedge their gold import risks on global exchanges, individual goldsmiths were unable to do so because of the laws of the land. However, major bullion players managed to hedge their risks through shell companies incorporated outside India.
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| With the availability of domestic platform, hedgers may well take advantage of the arbitrage in the long run as futures contracts gain substantial depth and volume. The beginning is small but very significant and this will definitely mark the country on the map of major gold trading countries in forseeable future. |
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