Traders go for intra-day bets in gold, silver and crude futures ahead of Budget 2015

MUMBAI: Traders in highly liquid commodities like gold, silver and crude futures contracts are cutting more intraday bets nowadays rather than initiating fresh positional trades because of rangebound movement of these products on the international markets, from which domestic contracts take cues, and expectations ahead of the Union Budget, which could impact the commodity price.

This is borne out by the decrease in daily average open interest (OI) to volume ratio in most active gold and silver contracts and the rather high incidence of speculative trades in crude oil this year, where the OI to volume ratio this year is similar to that in 2014. A low OI to volumes ratio indicates more of intraday or speculative bets rather than trades by actual users who tend to hedge themselves by taking longer-term positions.

Normally, in these commodities, OI tends to lag volumes, but this has widened in the current year in gold and silver. For instance, in the active gold contract, daily average OI to volume ratio was 48% so far this year compared with 60% last year. The corresponding figures for silver and crude contracts, respectively are 39.5% (54%— 2014) and a more or less flat 16% in crude, according to data collated by Inditrade Derivatives & Commodities.

According to Harish Galipelli, research head of commodities at Inditrade, gold has traded in $1,180- 1,250 an ounce range and silver in a $15-18 an ounce range in recent months.

Gold, according to Ram Pitre, head of commodities and currencies, at Anand Rathi, has struggled to trade above $1,200 while US crude briefly breached $50 on expectations of idled rigs in the US reducing the supply glut.

However, crude has fallen below $50 again as evidence of a huge supply glut has emerged, which are bearish for prices in the long run.

High level of volatility in these commodities has confused traders who prefer to close out their positions by the end of day rather than keeping them open, which increases OI to volumes ratio.

Then again, most commodity brokerages expect the government to announce a reduction of commodity transaction tax, levied at about Rs 10 per lakh on sellers of items like gold and crude futures, in the Union Budget on Saturday.

If this happens, more of traders would hit the domestic platform to punt or hedge underlying exposure. Furthermore, expectations of a reduction in gold import duty by 200-400 basis points to 8% or 6% from the current level of 10% means that price of gold could fall if these materialise, upsetting the trades. “The rise in intra-day trades and concomitantly lower incidence of fresh positions is what we are seeing in the runup to the Budget,” Pitre added.