Average daily volumes of commodities take a dive

Average daily volumes, across all commodities, on Dubai Gold and Commodities Exchange (DGCX) have dropped drastically as the market started discounting euro zone factor prompting traders to square off their hedging positions.

When the euro zone tremors were at peak level, DGCX saw brisk trading in futures in commodities and currencies as foreign traders and investors preferred to hedge their positions.

The average daily volume (ADV) across all commodities fell 43.24 per cent during the previous week from the highest level of 9086 lots during May 3-7 week.

The weekly ADV figures on DGCX showed volatile movement during the past six weeks as it touched the highest at 9086 lots during May 3-7 week and lowest of 5,157 lots during the previous week. The main contributors to the volume are euro (DEUR) and Sterling pound (DGBP) against the US dollar, and Dubai gold (DG) futures as the three contracts accounted for 67.44 per cent of the total volume on DGCX during the week. Recent volatility in Indian currency against the US dollar attracted brisk hedging activity on DGCX. The INR futures contract is quoted in cents for Rs100 and contract size is Rs2 million.

The INR futures declined for most of last week before recovering sharply on last Friday to $2.134 showing a weekly rise of 0.25 per cent.

The average daily volume in INR futures surged to 530 lots on Friday from 142 a day before. INR futures contract witnessed total trading of 1439 lots during the previous week. "The rupee may try to move firmly above 216 cents this week. This may depend largely on investor sentiment towards Europe's sovereign debt problems and developing markets.

The currency had fallen towards 209 cents, but bargain hunting and weekend rise on stock markets provided the impetus for an increase in investor buying. The rupee surged to trade slightly above 215 cents before easing. The Sensex gained 2.5 per cent last week," said CPM Group.

Sajith Kumar PK, Chief Executive Officer of JRG International Brokerage, DMCC, told Emirates Business: "The main reason for the drop in volumes was the expiry of June contracts are coming to an end this month for euro and pound. Concerns about more than seven per cent fall of euro against the US dollar coupled with Fitch downgrading of Spain's credit pushed the investors back from trading in the European currencies."

Pradeep Unni, Senior Financial Analyst at Richcomm Global Services, DMCC, said: "Volumes were dropping as the market turned range bound and another reason could be summer, during which volumes tend to be under pressure. Moreover, investors are thinking that let's wait until clarity emerges."

As the ongoing euro zone saga for more than six weeks started easing its influence on the markets gradually, investors are discounting the impact resulting in drop in ADV.

"Euro zone sovereign debt problems remain, but the level of investor anxiety seen in previous weeks eased a bit. Relatively low commodities prices compared to previous weeks also attracted investor buying along with increased purchases from industrial users.

"It should not be expected that commodity prices rise in a linear fashion going forward, however.

Just as investor sentiment turned less pessimistic last week, helping reverse rapidly declining equity values around the world, it could just as easily reverse course," said CPM Group Group in its weekly review.