India Doubles Gold Futures Margins as Prices Rally to RecordSwansy Afonso
India’s commodity markets regulator ordered exchanges to double margins on gold futures after a record plunge in the nation’s currency fueled a rally in bullion priced in rupees to an all-time high.
Initial margins on all contracts will rise to 5 percent of the value from Sept. 2, from 4 percent, the Forward Markets Commission said on website. An additional margin of 5 percent will be levied on gold, silver, Brent crude, crude oil, and natural gas contracts due to high volatility in prices and it will be effective until further orders, it said.
Futures on the Multi Commodity Exchange of India Ltd. in Mumbai advanced to a record this week, rebounding 32 percent from a two-year low in June, threatening jewelry demand during the main festival season. Consumption in the country, which imports almost all the bullion it needs, accounted for about 20 percent of global demand in 2012, according to data from the World Gold Council.
“When the market is moving so sharply, the regulator will have to take some measures,” said Madhavi Mehta, an analyst at Kotak Commodity Services Ltd. in Mumbai. “But for internationally traded commodities it is difficult to curb volatility. It is a derived volatility in the domestic market because of the movement in global markets and the rupee.”
The contract for delivery in October surged to a record of 35,074 rupees per 10 grams ($529) on the Multi Commodity Exchange on Aug. 28 and was at 32,791 rupees at 3:56 p.m. in Mumbai. Futures have gained 6.3 percent this year, compared with a 17 percent drop in the metal priced in dollars.
India’s rupee is headed for its biggest monthly loss since 1992, the world’s worst currency performance, on concern a deepening economic slowdown will deter investors at a time when the U.S. prepares to pare stimulus. It fell to a record low of 68.8450 on Aug. 28 and has lost 17 percent this year.
The government raised import taxes on gold three times this year to 10 percent to moderate consumption that has contributed to the slide in the rupee and a record current account deficit. Banks and traders have halted imports since the end of July after the central bank linked inbound shipments to re-exports.
Higher tariffs and central-bank rules linking overseas purchases to re-exports may cut India’s imports in the second half to not more than 150 metric tons from 478 tons in 2012 and spur smuggling, according to Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation.
Value of trade on all commodity exchanges in India fell 14 percent to 53.82 trillion rupees during between April 1 and Aug. 15, data from the regulator showed.