QAre the Gold ETFs liquid enough?
Yes, since Gold ETFs are actively traded on exchange, one can easily liquidate ones position whenever needed. Authorized participants appointed by the AMC companies also help in providing liquidity by creating or redeeming ETFs based on demand and supply.
QHow can one trade in gold futures in India?
In India one can do electronic trading in gold through exchanges like the National Commodity and Derivative Exchange & the Multi Commodity Exchange of India Ltd. These Exchanges have electronic trading and settlement systems and a national presence.
QHow much margin is applicable & what is the daily price limit on Gold trading in the exchanges?
On MCX in India, initial margin of 4% is charged. In case of additional volatility, a special margin at such percentage(as deemed fit) will be imposed immediately on both the buy side and the sell –side in respect of all outstanding positions, which will remain in force for next two days. After which, the special margin will be relaxed. On MCX, the daily price limit is 3%.In case if base price daily limit is cracked the relaxation will be allowed upto 6% .In case of daily price limit of 6% is also crossed then it will be relaxed upto 9%.
QWhat are Gold ETFs?
Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the exchange like a single stock of any company.
To keep gold as part of your portfolio, invest in Gold ETFs
To accumulate Gold for social obligations, buy a Gold ETF and you can sell them to purchase jewellery or other forms of gold when you desire.
Price approximately equal to one gram of Gold
Backed by physical Gold holdings of 0.995 purity
No wealth Tax
Long term capital gains for one year
No storage issue and fear of threat
Near wholesale price for buying and selling even one unit compared to huge premium for buying small amounts and physical gold.
Listed and traded on the NSE with a minimum lot size of 1
QWhat are the costs involved in trading Gold ETF?
One of the big advantages in investing in Gold ETFs is that it does not attract Securities Transaction Tax (STT). Since the ETFs are traded on exchange, all other costs involved are similar trading to equities.
QWhat are the factors that can influence gold prices?
Gold prices can be influenced by factors like investor demand, jewellery offtake, Geo Political Concerns, US Dollar movement against other currencies, Indian rupee movement against the US Dollar, Central banks diversifying into bullion or sale by central Bank & Gold Mine Production.
QWhat are the risks involved in investment of gold?
1. It is not an essential commodity. You cannot eat gold. If prices go beyond a point, people will just not consume it. It is not air or water.
2. Remember in the year 2008 gold lost MORE THAN 30% of value - clearly the hedge theory goes. A hedge asset SHOULD move in the other direction, not in sympathy.
3. In the 1980s gold lost about 65% of its value in about 2 years time! Remember both these events happened against a not very strong currency - the US dollar!
4. When fear subsides, and things return to normal, the law of demand and supply will apply to all assets - including gold.
5. No income generating capability: If you go wrong in a portfolio of good shares (i.e. prices have fallen!) at least you are sure of getting a 2% to 4%p.a. return in dividends. This is not great, but will force lenders / investors to discount the cashflow and arrive at a new price. If the company does well, dividends will increase, forcing the value to go up. Sadly in case of gold, I have to hope that there is a GREATER FOOL THEORY and I will be able to find him, so that I can sell. This is not easy.
QWhat kind of economic indicators do traders watch while trading in Gold?
Various economic data like GDP growth rates, inflation, interest rates, productivity and energy prices have considerable effect on Gold Price movement. Hence one should closely watch them in order to determine gold price movement.
QWho are the players in market?
The market has three broad categories of participants apart from brokers and the exchange administration - hedgers, speculators and arbitrageurs. Brokers will intermediate, facilitating hedgers and speculators. Hedgers are essentially players with an underlying risk in a commodity - they may be either producers or consumers who want to transfer the price-risk onto the market. Speculators are players who wish to bet on the future movement in the price of an asset. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity. Arbitrageurs are in the business to take advantage of a discrepancy between prices in two different markets.
QWho can use Gold ETFs?
Due to unique structure of ETFs, all types of investors whether retail or institutional, long term or short term can use to their advantage.