Gold futures reflect hopes of import duty cut in Budget

MUMBAI: The February gold contract on commodity bourse MCX has been trading at a premium to the April contract ahead of its expiry on Thursday. This is because traders are rolling over bearish bets from February to April, expecting an import duty cut in the upcoming Union Budget, which will reduce the price of gold, said Ketan Shroff, MD of billion dealer Penta Gold.

But to roll over the bets, traders have to buy back the February contract (they sold earlier) and simultaneously take sell position on the April contract. The short covering in the February contract makes it pricier than the April contract and reduces the outstanding buysell positions, or open interest (OI), in February while increasing it in the April contract.

The February contract at around 4 PM on Monday was trading at Rs 27,867 per 10 gm, a Rs 171 premium to the April one at Rs 27,696. Gold’s February OI declined from 952 units on Friday to 602 units at Monday noon and quoted down Rs 28 from Friday’s close. The April contract’s OI rose from 7,598 units on Friday to 8,126 units on Monday as its price declined by a higher Rs 76. Rising OI accompanied by falling price indicates creation of bearish bets.

Traders and buyers hope the government will cut import duty from 10% to 2-4% in the Budget to curb smuggling, which increased after the duty was raised from 2% to 10% in 2013.