Coronavirus outbreak: Gold selling at huge discount over weak demand

Bullion market is experiencing unusual situation amidst sharp jump in prices of both the precious metals. In international market, gold futures was trading at $1,653 per ounce on Tuesday afternoon, $107 per ounce or over 6 per cent higher than yesterday. However, in India both on MCX and spot markets in Mumbai (very thin deals), it was trading at a huge discount to its landed cost. However, silver was still quoting at a premium to its cost.

Issues in both the precious metals are in some way common with different market fundamentals. Silver demand has seen traction but gold buyers have disappeared. When 999 purity gold was costing at Rs 43,380 per 10 gram considering import duty, MCX price was trading at Rs 41,940 per 10 gram. Later, gold price corrected marginally on MCX to Rs 41,830 per 10 gram. MCX futures was 3.3 per cent discount to cost of import and spot was trading at much higher discount.

Because of increased concentration in futures, there was big price variations. In international market as well, spot price was 4 per cent lower than futures at 5 pm India time.

Spot gold 999 purity closed Rs 41,206 per 10 gram as per IBJA or 1.2 per cent higher.

MCX futures was quoting at huge discount because sellers were trapped and not in a position to deliver as gold deliverable at MCX standard is not available. MCX April gold contract enters in delivery period after the month ends.

“From the last few days, huge premiums were witnessed in Canadian markets on Gold and Silver and a lot of traders were seen taking the opportunity of arbitrage between MCX and COMEX where the traders were selling on the COMEX (in US) and buying on the MCX, in a disparity of 1000 Rupees. But due to liquidity issues lot of them had to square off their positions yesterday due to which we saw disparity increasing to as high as to Rs.2000-2200 per 10 gram also," said Ajay Kedia, Director, Kedia Advisory.

Sources said that if the sellers on the exchange have to deliver the gold on settlement, closed spot markets will make that difficult. On MCX also physical lifting of gold may be difficult but ownership title will be transferred in buyers’ name.

Only imported or LBMA gold can be delivered on the exchange platform and imports have halted after international flights not landing. Market was discussing possibilities of sellers facing financial problems in case they are forced to give delivery.

Silver was quoting at around 2 per cent premium to its cost as silver stock has vanished. Spot markets are largely closed in the country but traders were quoting rates amidst thin trading. Silver is in demand in India. Some players who were trading in gold to silver price ration were also selling gold and buying silver after the ratio hit 123 on Friday. Later the ration fell to 114 yesterday but increased today to 120 after sudden spurt in international gold price. When the view is that ratio will fall, silver is bought and gold is sold.

Even top 10 buyers and sellers position in gold as of yesterday end of the day in MCX, was suggesting much higher sellers who were actually hedgers. Top 10 gold sale open interest was 17936 lots and top 10 buy 10940 lots. Open interest in gold was continuously coming down. Today afternoon gold futures open interest was 19145 lots down over a fifth in a fortnight. In silver highest monthly open interest was on 13th from where it has fallen over 40 per cent to 5879 lots.

Silver futures on MCX at 5 pm was Rs 39,858 and in spot market, the metal closed 5.8 per cent higher at Rs 39,000 per kg. Crude oil increased over 7 per cent while metals were also up between 1-3 per cent on MCX.

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