Spread between near and far month contracts have widened reflecting lack of buying interest in physical market as well as disparity in international market.
Gold witnessed a sharp rise in the last few sessions, however, failure to break past the $1,700 per troy ounce level has led to an equally quick correction and the price is currently near $1,625 per troy ounce.
Gold rallied sharply in the last few days as Federal Reserve's aggressive monetary easing measures led to a correction in the US dollar index. Gold also benefitted from ETF inflows and supply concerns as virus-related restrictions began to hurt mining operations in some countries.
While US dollar index remains weak, mine operations are getting affected and more and more stimulus measures are taken by central banks and governments, gold has shed some of the gains.
The fast spread of the virus has increased uncertainty forcing market players to seek the safety of cash. The virus is spreading fast with more than 4,72,000 cases worldwide. With the fast spread in the virus, more and more countries are imposing travel and other restrictions dampening economic activity severely.
Virus-related restrictions are also affecting trading activity. COMEX gold price traded at a sharp premium over London spot gold as travel restrictions and closure of refineries fuelled worries that traders would be unable to move gold from London to New York to meet contractual requirements.
London, a leading gold storage hub, runs on 400-ounce gold bars while the CME’s COMEX exchange uses 100-ounce bars. As reported by Reuters, major gold trading banks and the London Bullion Market Association asked the CME to change its rules to accept 400-ounce bars in London against its contracts, removing the need to reshape and transport metal and allowing prices to normalise.
CME instead said it would launch new gold futures that could be settled using 400-ounce, 100-ounce and 1-kilogram gold bars. CME said it would announce the launch date for the new contracts this week and the first would mature in April. CME also raised the margin for the existing gold contract from $7,000 to $8,350 per contract to limit volatility.
Domestic markets are also getting affected. Spread between near and far month contracts have widened reflecting lack of buying interest in the physical market as well as the disparity in the international market. The average daily traded volume for MCX gold futures in the first half of March was about 1,100 crore which has dropped to about 915 crore.
MCX has now announced that commodities will trade from 9 am to 5 pm from March 30 to April 14, as compared to 11.30 pm due to virus-related restrictions.
The author is VP- Head Commodity Research at Kotak Securities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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