Now, gold futures at global prices

RAJALAKSHMI NIRMAL | Updated on February 10, 2014



NCDEX has launched GoldHedge, which lets traders buy or sell gold at international prices

How is the gold hedge contract different from the gold futures contract on MCX?

The existing gold futures contracts in the market have delivery-based settlement. GoldHedge is designed as an intention-matching contract where delivery occurs only when both the buyer and the seller agree in advance on the quantity and the location.

With no compulsion to give or take delivery of gold bars, an investor can ignore the landed cost of the precious metal, local taxes, as well as the premium being charged by sellers due to short supply in the domestic market.

Instead, he can focus on hedging the most accurate gauge of gold vis-à-vis the international market. He is free from the inconvenience of handling gold bars.

And there is substantial saving in initial outgo resulting from this method of price discovery.

Whom does this contract target? Do you think gold hedgers will come to you? Why?

This contract is meant for all customer segments — from the physical traders and jewellers, to retail investors. While the physical traders and jewellers can use it as a risk management tool, retail investors can use it to add gold to their investment portfolio.

It is a new way to discover the price of gold in India. Gold traded in the country can now use our new reference price that is free of distortion and ambiguity.

Government restrictions on gold imports and the prevailing anomalies in the physical markets reinforce the need for a hedging instrument.

The NCDEX GoldHedge presents transparent, cost-effective hedging. Also, the expiry of the contract being aligned with the currency futures expiry improves the efficiency of hedging for the physical gold community.

Why have you launched this contract now?

Currently, the market is looking for a reference price that denotes the true value of gold.

Recent changes in Government and RBI policies have shifted the demand-supply dynamics in the domestic market, which has led to distortions and ambiguity.

Sellers of gold are charging a premium because of the short supply and there has been escalating customs duty.

As a result, the correlation between domestic and international gold prices has reduced significantly. With the new NCDEX GoldHedge contract, jewellers, traders, banks, consumers and gold refiners will be able to get maximum correlation between Indian and international gold prices as this contract is designed to remain unaffected by domestic demand-supply factors.

In terms of charges, does a retail investor make a saving here? How much and under what heads?

The NCDEX GoldHedge contract, being an intention-matching contract, excludes customs duty, local sales tax/VAT/octroi and any other charges or levies.

Hence, the value of this contract is lower compared with contracts traded on other exchanges. Consequently, CTT and transaction overheads are levied only on this contract value (gold price is equivalent to international closing price of 0.995 per cent purity x rupee value) vis-à-vis other contracts wherein CTT and transaction overheads are levied on price equivalent to (International closing price of 0.995 per cent purity x rupee value + customs duty + premium).

So, what are all the charges on this contract?

The exchange charges include margins, CTT, transaction charges and service tax. Additionally, if there is delivery involved, all other applicable charges, including customs duty, local sales tax/VAT/octroi and any other charges or levies will be incurred.

Can an investor take delivery of gold? What happens if the buyer intends to take delivery but the seller doesn’t want to give delivery?

The NCDEX GoldHedge contract is an intention matching contract, wherein the buyer and the seller need to mark the intention for delivery three delivery days prior to expiry of the contract, including the date of expiry.

The intention from both the parties should match for quantity and location.

Only the minimum quantity of the request will be matched. If the intentions do not match, the trades are cash settled at the final settlement price.

Will you soon launch smaller size contracts- 10 gm, 8 gm..?

At present, we have launched the GOLDHEDGE – 1 kg contract and a smaller GOLDH100 which is a 100 gm contract for market participants who prefer to trade in contracts of smaller denominations.

Going forward, we hope to expand the NCDEX basket with smaller contracts.

Published on February 09, 2014

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