ACE launches gold hedge contract

Exchanges are beginning to use gold hedge contracts to penetrate in what has been a territory of Multi Commodity Exchange. The agri-centric National Commodities and Derivatives Exchange (NCDEX) was the first. ACE Derivatives and Commodity Exchange, a Kotak Mahindra Group-anchored bourse, announced on Tuesday that it had commenced trading in gold hedge futures contracts.

ACE’s contract is a slightly modified version, with import duty being considered for calculating the local gold price, not there in the NCDEX contract.

Commodity exchange volumes had begun to to take a hit after a commodity transaction tax was introduced and also as gold prices crashed, with the government imposing severe curbs on imports, leading to lower volumes on gold derivatives. These exchanges expect the gold hedge contracts would help gain more participation, as these are pure price contracts and some of the uncertain elements such as duty and spot premiums were not considered for gold hedge contracts on NCDEX.

An ACE spokesperson said volumes and liquidity in commodity derivatives will get a boost if the contract had some features refecting the uncertainties, which is why they’ve added import duty.

ACE has launched three contracts, expiring in the months of May, July and September. The trading unit for the contract is  one kg. It is an intention matching contract and the basis centre is ex-Ahmedabad. The price is inclusive of taxes and import duty but excluding value added tax.

Dilip Bhatia, chief executive at ACE, said: “Gold hedge futures contracts would mirror the prices of gold prevalent in the international market and inclusion of customs duty would provide an efficient price risk hedging mechanism for all market participants. The expiry is aligned with currency futures expiry, which mitigates the currency volatity risk as well.”