Gold futures lose lustre

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Mumbai: Once the cash cow in the portfolio of India's top commodity bourse by turnover, gold futures have lost sheen to copper as higher margin money on surging prices drags volumes.

Volumes have declined by 20% to a daily average of 32,371.97 kgs on a year-to-date basis on the MCX, while copper registered a 125% increase to 92,166.94 kgs.

Retail participation has come down due to higher prices and incremental effect on margins, said Harish Galipelli, vice-president research, JRG Wealth Management in Kochi.

As budget of traders are fixed, they are opting for lower-priced contracts like copper, he said.

While traders are getting tired of the volatile rupee movement, any spike up or spike down (in gold prices) is countered by a weaker or stronger rupee, said Gnanashekar Thiagarajan, director with Mumbai-based Commtrendz Research.

The Indian rupee is up about 4.7% on year and has risen 12.3% from a record low of 52.2 hit in early March.

Gold and silver is more of a proxy to the currency than copper, which does not have such significant impact, said Thiagarajan. Physical players who used to hedge on MCX are hedging less gold because of poor demand due to high prices, said Thiagarajan.

Domestic gold prices have surged 28% to about Rs 17,500 per 10 grams since January 2009 on a weaker dollar. While, copper has more than doubled since the start of the year to about Rs 318 per kg, it is still cheaper and hence margin money is lesser.

To take a position on MCX for a lot of gold of one kg requires about Rs 70,000 as margin money. For copper of a lot of 1 tonne, margin money is just about Rs 16,000. Analysts said increased participation of hedgers also improved the volumes in the red metal.