Bullion traders get margin call as prices crash

Silver and gold prices have dipped sharply over the last two days, mirroring the trend in the international markets. The fall triggered margin calls today and unwinding of open interest positions of traders on the commodity exchanges.

Silver hit two lower circuits and fell more than 10 per cent, soon after opening on MCX today morning. Increase in margins and buying at lower levels resulted in MCX’s near-month contract to close at Rs 19,398 or 6.61 per cent low. The spot prices of silver was down 6.77 per cent to Rs 19, 358 at close. Gold October futures closed at Rs 11,270, down 1.81 per cent. In the spot market, gold was down 1.71 per cent to Rs 11, 270.

MCX and NCDEX increased their margins on silver from 5 per cent to 10 per cent on all transactions. This meant an additional requirement of over Rs 60-70 crore for traders, leading to unwinding of positions. This fall in the precious and other metals segment was mainly due to the strengthening of the US dollar and falling crude oil prices.

In early trades, the spot prices of gold were being quoted at a premium to futures prices. Bhargav Vaidya, bullion analyst, said that the premium in the spot market also included the currency risk, as the forex market was closed today. In Mumbai’s grey market yesterday, gold deals were being struck at a premium of Rs 600-700, compared to the futures.

Futures prices were also under pressure from brokers, who were unwinding open positions to avoid any payment crisis. Today, being Saturday, most brokers were under stress to fork out the margin payments. Though most margin calls were triggered for silver but to cover mark- to-market losses, gold positions were also unwound, said a broker.

This left jewellers high and dry compelling them to book heavy losses. Said Ajay Kedia, director, Kedia commodities, “On Friday, international bullion prices have come down sharply and traders who did not get the opportunity to pay margins or reduce their positions have incurred heavy losses.”

This is not the first time that a holiday in India has upset the calculations of the Indian traders. Biren Vakil, director, Paradigm Commodities said even international traders take this advantage by selling abroad when the market is closed in

India. This leads to a sharp fall in Indian futures, when markets open the next day in India, leading to a unwinding by Indian players.

In the last one month, gold and crude oil has lost 20.23 per cent and 23.16 per cent respectively on LME, while silver has fallen 33.58 per cent.