The Hindu Business Line : `Launch of gold ETF may affect futures trading'

The launch of gold exchange traded funds (ETF) by mutual funds may affect futures trading in gold, apprehended commodity exchange officials. Currently, apart from buying physical gold, commodity futures market is the only avenue in the country for investment in gold.

"We understand that gold ETF will be launched on the stock exchange platform which will definitely have an impact on gold futures. Policymakers should build adequate checks and balances to see that gold futures trading is not affected," said Mr Jignesh Shah, Managing Director and CEO, MCX.

Guidelines

Agrees Mr Ravi Kumar, Managing Director, NCDEX: "Though it is not yet clear where the ETF will be launched, I'm sure the regulators will take the futures market's interest into consideration while framing the guidelines for ETF". In December, out of the MCX turnover of Rs 1,67,102 crore, gold contributed around Rs 46,805 crore (28 per cent) while of NCDEX turnover of Rs 70,490 crore, gold accounted for Rs 5,383 crore (8 per cent).

Investors in gold have shown a preference for commodity futures for the kind of leverage they get for a relatively small margin. For instance, if gold prices are at Rs 8,900 per 10 gm, an investor in MCX can take position for a kg of gold (worth Rs 8.9 lakh) by setting aside 4 per cent margin money of Rs 35,000. In other words, by spending Rs 35,000, an investor can buy gold worth Rs 8.9 lakhs, giving him a leverage of about 25 times.

Moreover, if investors don't want to take delivery of physical gold, they have an option of converting the same into demat form (paper gold).

Though talks of launching gold ETF have been doing the rounds in the market for some time now, Kotak Mutual Fund move to file offer document with SEBI for launching gold ETF has revived the futures market concerns. UTI Mutual Fund is also considering launching gold ETF once the policies are laid down. Benchmark Asset Management Company was the first company to apply for clearance for GETF.

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