Bullion bears hold on to short positions

Gold prices rise 4% this month but physical demand moderates

Gold prices are the highest since November in the international market and in India, too, the year has begun with prices still in a positive territory. 

However, punters in the market are not so optimistic in India, with most having bearish positions on the Multi Commodity Exchange (MCX) holding on their short sales by paying a margin. Globally, too, except some Chinese buying, follow-up demand from physical buyers is moderate.

Data on the MCX, the leading exchange for trading in gold derivatives, show that bearish open positions have not come down in the past two weeks, despite prices strengthening. Open interest (OI, unsquared contracts) in the top 10 long and top 10 short positions have remained much the same in two weeks. 

On Monday's first half of trading on the MCX, the OI was 10,400 lots. By the time the day session closed, this had risen to 11,000 lots, while prices moderated by $8 abroad.

 

In the domestic market, standard gold opened Rs 175 higher from Friday to Rs 29,225 per 10g at Zaveri Bazar here. At the time of closing, it had risen to Rs 29,285 despite the fall in the international market. A banker actively importing gold said the discount was $2-3 an ounce and had largely corrected. 

However, the demand is by organised entities. The others are waiting to see if the Union Budget cuts import duties or not.

A Zaveri Bazar trader said, “Demand in the physical market in India is moderate, with only need-based buying for the marriage season. People and jewellers are getting used to non-cash transactions for jewellery. Investors are also waiting for the Budget presentation on February 1.” 

Gold prices are up on the MCX but the February near-month contract prices remain discounted by over two per cent, meaning the market has factored in that much of duty cut. 

T Gnanasekar, Director of CommTrendz Research, said: “Globally, Chinese demand was seen recently. The new US president has raised uncertainties, which has supported the gold price.

“The US Federal Reserve’s indication that rate hikes might be a bit slower than earlier envisaged has also supported gold,” Gnanasekar added. He is optimistic about gold moving up in the short term. 

Reflecting the fact that China demand has emerged, the premium in Shanghai last week had come down by $12 an ounce to $18-22. A month before, it was above $40 on reports of restrictions on import. However, last week's fall is was due to some inflow of gold on renewed demand. 

Hedge funds and money managers had raised their net long position in COMEX gold contracts for a second straight week, in the week to January 17. Gold's net long positions increased by 5,537 contracts to 59,936, the highest in five weeks as prices rose to two-month highs on support from a weaker dollar.