This is something that has always been on cards. And it has begun to happen after 12 years.

Hedging in gold

Hedging in gold is back and it does not spell good for the bulls. A Bloomberg report has said that two gold producing firms and Societe Generale SA have begun to hedge gold again.

Until the bull run in gold began in 2000, gold producers, in particular, used to sell gold by taking it as loans from banks. They did this since gold, according to them, would head lower. The companies would then repay the banks with gold along with the interest that the banks charge for lending the yellow metal.

Once gold began its bull run, the producer companies stopped such hedging. That has now reared its head again, portending ills for investor.

Bernake’s testimony

You may argue that gold is near $1,300 and has recovered since last week. It may take cues from US Federal Reserve Chairman Ben Bernanke later in the evening, you could argue.

But wait. Yes, gold has recovered but has it gone past $1,300? Gold may wait for Ben Bernanke’s statement on the stimulus programme for the US but the trade is definitely looking for signs only to batter the market and not lift it.

If the Fed Chairman says the programme is continuing, gold may rise but just. If the signal is to the contrary, expect the bears to run amok.

Support for the bears has revived with investors resuming to cash out of gold holdings in electronic formats through exchange-traded funds after a three-day hiatus.

Spot, gold futures

Gold, though, edged higher initially in early Asian trade. Spot gold in Singapore was quoted at $1,291.50 an ounce, while gold futures maturing next month ruled at $1,290.20.

Expect the domestic spot and futures market to be range-bound on Wednesday with an upside bias.

Currency movement could have some impact as further gain in the rupee against the dollar will make imports of gold, crude oil and vegetable oils cheaper.

In Mumbai on Tuesday, gold for jewellery (99.5 per cent purity) fell to Rs 26,640 for 10 gm and pure gold (99.9 per cent purity) to Rs 26,780.

On MCX, August contracts could rise up to Rs 26,500, while on the lower side it could drop to Rs 26,350.

Crude oil

The crude oil market could cool on views that the recent gains with the Brent running to $110 a barrel may have been overdone.

Brent crude futures maturing in September dropped to $109.40 a barrel and West Texas Intermediate crude for the same month to $105.75.

Profit-buying

The oils and oilseeds market could perhaps see some profit-buying on Wednesday after being hammered in the last two sessions.

Other factors that come into play for a rise are Oil World’s projection of China importing seven million tonnes soyabean this month to build inventories and the US Department of Agriculture estimates of fall in yield per acre.

Soyabean, crude palm oil

Chicago Board of Trade soyabean contracts that will be delivered in November were up at $12.90 a bushel. On Bursa Malaysia Derivatives Exchange, crude palm oil futures maturing in October opened higher at 2,261 ringgit or $708 a tonne.

However, in the long-term the complex is seen to be bearish.

Wheat, corn futures

Projections by the USDA of lower productivity in corn is likely to drive the counter, while wheat may gain marginally in sympathy.

CBOT corn futures maturing in December rose to $5.14 a bushel, while wheat contracts for November delivery improved to $6.72 a bushel.

Natural rubber is likely to gain after falling early part of this week. Talks of China coming up with policies to spur growth and improve demand could help the rebound.

In early trade on Tokyo Commodity Exchange, the December contracts were up at 239.6 yen or Rs 142.75 a kg.

(This article was published on July 17, 2013)
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