Commodity bourse MCX set to launch an international gold contract denominated in rupees

Punters who run illegal, leveraged gold trades on overseas bourses will now be disincentivised to do so with the country’s largest commodity bourse MCX set to launch an international gold contract denominated in rupees, obviating the need to hedge even rupee risk, said a person aware of the development.
“Aside from being hugely beneficial to hedgers, importers and exporters of gold, the new contract could potentially wean away certain entities from illegally trading gold futures and options through internet access to commodity exchange platforms in New York, Dubai and Europe,” said the person.
Some brokers expressed doubts on the success of the new contract by drawing a parallel with stock exchange NSE having been unable to get the desired level of residents’ interest to trade on derivatives of US indices Dow Jones and S&P 500 denominated in rupees even after four years. However, others said since India is the world’s largest importer of gold, interest in this contract cannot be compared with that of trading Dow denominated in rupees, which might suffer from lack of market makers.
Unlike the existing gold contract, which derives its value from the landed price at Ahmedabad, adjusted for currency and including 10% import duty, the new contract is likely to be the product of Comex-based international price multiplied by rupee rate, and exclude import duty and other local charges. Comex is a designated marketplace of US based CME group, the world’s largest derivatives bourse.
That apart, at 200 gm, it will be much smaller than the existing kilo gold contract on MCX. The base quote will be the same at 10 gms. The tick size will be either ` 1 or ` 2, translating into a ` 20-40 change in the contract level for each tick. The existing contract on MCX has a tick size of ` 1, translating into a ` 100 change at contract level. Also, unlike the MCX contract, the new one will be cash settled. MCX joint MD Parveen Singhal declined comment. Forward Markets Commission (FMC) has approved the new MCX contract.
Officially, a resident can freely remit $250,000 per fiscal for any current or capital account transaction, excluding any futures and options contracts, owing to inherent risk in these instruments. However, certain entities keen on arbitraging between local and international gold rates or simply to trade on platforms like Comex where transaction prices are lower, misuse LRS or even transfer cash through the hawala route, said gold industry sources.
“This practice could now stop as residents in India can trade pure international gold rate adjusted for rupee, excluding import duty and charges like transport, VAT, etc,” said a gold jeweller. “It could result in saving outflow of valuable forex as India’s gold import bill is second only to that of crude and petroleum products.”
“The new contract, like the one on agri bourse NCDEX, will be like a proxy Comex contract with the added benefit of allowing hedging of the international gold rate as well as rupee,” said DK Aggarwal, CMD, SMC Comtrade.

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