Gold may Strug­gle to Breach $1,300 an Ounce, For Now

The slow­down in global econ­omy is hit­ting the ex­port of gems and jew­ellery, which ac­counted for around 15% of In­dia’s to­tal mer­chan­dise ex­ports in 2015-16 Jew­ellery Ex­ports Down 3.5% in 2015-16

The Economic Times - - Commodities Plus - Ram.Sah­gal@ times­

Mum­bai: Gold could pos­si­bly test .₹ 30,750 per10 gm over a month –– the near month lo­cal fu­tures con­tract traded at .₹ 29,516 (exVAT) in­tra­day on Thurs­day –– but is un­likely to break that level con­vinc­ingly, op­tions data for June on US-based Comex shows, pro­vid­ing some so­lace to those who need to buy for a wed­ding or other oc­ca­sional de­mand.

That’s be­cause traders have sold max­i­mum call op­tions on gold at $1,300 an ounce, cor­re­spond­ing roughly to .₹ 30,750 at the rel­e­vant cur­rency rate. Traders’ out­stand­ing po­si­tions or open in­ter­est at $1,300 strike was 7,697 con­tracts.

Those who sell call op­tions face huge risk if that op­tion rises above the strike level sold plus pre­mium paid. In that case, those who’ve bought the op­tions rake it in. But, in the op­tions uni­verse the sell­ers are nor­mally the stronger hands. The $1,300 call traded at $9.4 in­tra­day on Thurs­day, sig­nif­i­cantly be­low its av­er­age life price of $19.32. That sim­ply means sell­ers have been at an ad­van­tage as they’ve pock­eted a large part of the pre­mium (op­tion price) paid by buy­ers who’ve been ac­cu­mu­lat­ing the $1,300 call, ex­pir­ing 26 days from now. Sell­ers will de­fend the $1,300 tag in case prices rise fur­ther from cur­rent lev­els ($1,250s), which makes a vault above $1,300 dif­fi­cult. The max­i­mum out­stand­ing po­si­tions on puts show $1,200 to be a ma­jor sup­port over the next month. OI of the strike is at 5,739 con­tracts, while its price hit a life low of $3.7 in­tra­day on Thurs­day. Sell­ers of puts have pock­eted huge money from buy­ers who on an av­er­age paid $87.57 for the op­tion over its life to date.

Ba­sis the op­tions, the price range in ru­pees works out to roughly .₹ 28,389-30,750 per 10 gm. ted for 14.78% of In­dia’s to­tal mer­chan­dise ex­ports in 201516. “For the first time ever, the ex­port of cut and pol­ished di­a­mond showed de­cline of 13.66% in FY16 in com­par­i­son to FY15,” GJEPC chair­man Praveen Shankar Pandya said. “Slow de­mand led to the fall in rough di­a­mond im­ports by 16.17% in FY16 for the first time,” he said. In­dia im­ported rough di­a­monds worth $14.04 bil­lion dur­ing the fis­cal, down from $16.75 bil­lion the pre­vi­ous year. Ex­ports to the US went up 1% and to UAE 3%. Pandya said weak in­ter­na­tional mar­ket, high rough di­a­mond prices and ab­sence of prof­itabil­ity were the ma­jor chal­lenges faced by the in­dus­try. He said di­a­monds or di­a­mond jew­ellery do not com­mand top of the mind re­call among con­sumers glob­ally.

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