Speculation and hedging boost DGCX

Euro (DEUR) and Sterling pound (DGBP) against the US dollar, and Dubai Gold (DG) continued to hog the limelight on the Dubai Gold and Commodities Exchange (DGCX) as uncertainty in the global economy shows no signs of receding.

DEUR on Tuesday recorded a volume of 2,908 lots, higher than any futures contract, followed by DG futures with 1,197 lots, DGBP with 751, DWTI with 672 and DINR with 587 lots.

Binny C Thomas, Managing Director, DBFS Commodities, DMCC, told Emirates Business: "It's hedging that adds volume to gold futures on the DGCX. We see our clients placing orders mostly for hedging in gold. But euro and pound pairs are witnessing good volumes because of speculative trading. When there's volatility in currencies, naturally investors turn to safe haven investment in gold."

Gold, the euro and the pound have emerged as star performers on the DGCX as the ongoing euro zone crisis results in high volatility in commodity and currencies.

With a combined volume of 108,215 contracts, gold, DEUR and DGBP accounted for 77.37 per cent of the trading on the DGCX. Volume on the DGCX saw a 30 per cent month-on-month growth in May with 139,565 contracts traded, valued at $7.6 billion (Dh27.8bn).

The high open interest position in DG and DEUR indicates that these two contracts are likely to rule the trading. The open interest position in DEUR stood at 959 lots and in DG at 1090 lots on Tuesday.

"As long as gold doesn't close below $1,200, the uptrend is likely to continue. "Market players are indecisive about the further weakness in euro and pound, which will decide the next level for gold. Open interest is high on the DGCX as people think that those pairs will not fall below the previous levels. They will not come out unless the contract expires," said Thomas.

Barring DGBP and INR, pairs on the bourse were trading marginally lower at the 3.45pm UAE time yesterday. DGBP was trading higher 0.06 cents at 146.56 cents per US dollar, DEUR trading lower 0.44 cents at 122.06 cents per the US dollar, while DG was trading at $1221.20 per ounce.

"On the lower side, 1.4250 acts as a major support for the pound. The market will be moving within this range. The DEUR has broken a major support of 1.2140, but [without] momentum.

"If there had been momentum, the euro might have entered a completely new bearish scenario, testing 1.1800 levels. If the market recovers on the upside and gives a closing on any of the days above 1.2200, it will tend to move towards the resistance of 1.2600," said Mitendra Nathani, Business Development Manager, CFB Global.

The DGCX, the region's only bourse that offers commodity and currency futures trading, is poised to introduce three new currency pairs on June 15. It will have futures contracts in Australian dollar, Canadian dollar and Swiss franc against the US dollar in addition to the present euro, pound, rupee and yen.

Of the total volume, 79,889 contracts were traded in the DGCX currency futures, an increase of 128 per cent on last year. The exchange recorded a growth of 58 per cent in year-to-date volumes at 742,265 contracts, driven by the YTD rise of 132 per cent in currency futures trading.

May volumes grew in comparison to the previous month. Gold, silver and WTI crude oil futures traded 43,525, 5,446 and 10,705 contracts, a rise of 40, 119 and 63 per cent, respectively. DEUR and DGBP futures also saw month-on-month rise of 68 per cent and seven per cent respectively, with 39,787 and 24,903 contracts traded.

Eric Hasham, CEO, DGCX, said: "The higher volume in May compared with the previous month demonstrates the momentum that we have achieved to date this year in attracting more trading activity and participants to the exchange."

Follow Emirates 24|7 on Google News.