In India,gold spot prices appreciated by about 23% in the last one year (June 2010 to May 2011). In fact, on a yearly basis, spot prices of gold have witnessed a secular bull run since 1996. And this continues to add value to over 18,000 tonne of above-the-ground gold stocks held by our country, which is at least 11% of global gold holdings according to World Gold Council estimates. However, gold worth 18,000 tonne is equivalent to only about half-an-ounce of gold ownership per capita in India, which is significantly below the consumption level in western markets.

This stands for the enormous potential that yellow metal has for its growth in India. And the growth prospect seems realistic given its attributes such as being a safe-haven asset, a hedger against inflation, a portfolio diversifier, a prestigious ornamentation-enabler and, above all, the traditional attachment (including that related to religious implications) Indians have for gold.

In order that the huge growth potential of the Indian gold economy is realized, markets trading in gold need to be dynamic ? evolving ? satiate varied consumer requirements. The Indian commodity futures market and the exchanges within it, has always risen to the occasion. The Multi Commodity Exchange of India (MCX) launched the world?s first small-size (8 grams) gold contract (gold guinea) in May 2008.

It has recently launched the Gold Petal futures contract at a time when gold prices are taking away gold as an investment avenue, beyond the reach of a majority of population. This first of its kind futures contract, whose underlying gold is be a mere 1 gram, was rolled out on April 18, 2011, joining the existing basket of gold contracts at the exchange.

Over the past few years, the exchange traded gold futures contracts such as 1 kg, 100 gm and 8 gm contracts have been catering to varied requirements of gold market participants with remarkable success, providing them with a platform for democratic discovery of futures prices and to provide a cost-effective price risk management avenue.

With the launch of MCX Gold Petal futures contract, it had enabled those at the bottom of the economic pyramid to buy or sell a lot of the contract by depositing a margin of just about R100 (at 5% margin for gold price at, say, R2,000 per 1 gm).

As long as their buy or sell orders are multiples of gold guinea contract size (8 grams), the contract would also enable participants to provide or take delivery. While it offers opportunity to small investors it also provides an opportunity to others to fine-tune their gold investment to the level of 1 gram.

This means that now all levels of gold investors have a new-age investment avenue with them.

While it offers an opportunity to all classes of investors, it also helps jewellers and others with exposure to physical gold an avenue to hedge their risk up to their last gram exposure given that gold prices fluctuated on an annualised basis to the extent of 11% during June 2010- May 2011. In this era of high competition, a long run of unmitigated risk due to this high volatility can pose serious threat to businesses and their survival.

The proof of the pudding is in the eating. That MCX Gold Petal futures contract has been fulfilling an unmet demand in the gold economy and can be gauged by its performance since its launch.

In the two months of its existence, volume of trade in this contract has increased by 122% month-on-month. With Due Date Rate at R2,262 per gram, the total delivery in the first expired MCX Gold Petal futures contract estimated at 3920 grams/lots stands for its popularity among the retail market.

Since 2003, the Indian commodity futures exchanges, through their robust, innovative and highly successful gold futures trading have been pursuing to push India (being the world?s biggest consumer) as a price-setter for the yellow metal from being a price-taker in the global markets. With the democratization of the price discovery process, as it has been enabled by MCX petal futures, it would further take Indian gold pricing to the global stage.

With rising prices of gold, the Indian jewellery industry be it small or big has an ally in the petal futures to manage its risks most cost-effectively to arrive at the global scene and give its competitors a run for their money with its unique creativity.

The author is Chief Economist with the Multi Commodity Exchange of India. The views expressed are personal