A few top clients who’ve mounted bearish bets in gold on commodity bourse MCX, especially without underlying stock, could be hit hard after Greece turned in a ‘No’ vote at Sunday’s referendum on whether to accept the bailout proposal by its European creditors. The vote is expected to increase the safe haven appeal of gold and raise the price of gold, hitting the punters who short the metal.

Outstanding positions, or open interest, of the top 20 clients – 10 buyers and 10 sellers -became net bearish since June 30 after being net bullish in eight straight trading sessions from June 18 to June 29 on the premise that the Greeks would vote in favour of a bailout, shows ET Intelligence Group data for the period. That would have removed the uncertainty surrounding the euro and be bearish for gold. But since the naysayers prevailed, their bets could turn awry on Monday forcing them to reverse these at a loss.
The net bullish positions on MCX were 1,640 lots (1 lot = 1 kilo) on June 18, which reduced steadily to 250 lots on June 29. On June 30, the net positions of the 20 clients became bearish at 261 lots and rose to 312 lots on July 2. Between June 30 and July 2, MCX active contract fell over a percent to Rs 26,195 per 10 gm, reinforcing the bearish trend. However, these bets could now turn awry because of the ‘No’ vote. Brokers, like Angel, earlier advised their clients to short the metal but to trade with strict stop losses. “We have advised shorts atRs 26,320, for a target of Rs 25,800-25,900 per 10 gm. But the stop loss is Rs 26,600 to protect against an up-move,” said Anuj Gupta, an analyst at Angel Broking.
However, since Greece voted against the bailout, Gupta said Monday could witness a jump in bullish bets and gold on MCX could jump up to Rs 26,600 from Thursday’s closing of Rs 26,195 in the August series, expiring on the 5th of next month. In that case, those who short the metal, especially without underlying gold stock, could face huge losses.
Earlier, Suresh Nair, director, Admisi Commodities, said Comex options data indicates a trading range between $1150 and $1200, corresponding roughly to Rs 25800 to Rs 26700 on MCX, depending on how the votes go. “The MCX price tracks that on Comex,” he added.
Data on Comex division of Nymex, part of the US-based CME group, shows that traders in the August gold options have created the highest outstanding positions in the $1150 strike put option. The outstanding positions of the $1150 put were 7,406 contracts on Friday. Put buyers will profit if gold falls below $1150 plus the premium, or price they’ve paid for the option; but forfeit the premium in case gold settles at or above $1150 at expiry on July 28.
Some traders in anticipation of a vote against the bailout have created positions in the $1200 call option expiring on July 28.
Source: http://economictimes.indiatimes.com/