Year-end allocations push up gold

Companies, fund managers and financial institutions wanting to show a greater proportion of their holdings in gold before March 31 have raised contract volumes and the number of open interests in gold futures contract expiring on April 8 at the Dubai Gold and Commodities Exchange (DGCX), says the CEO of a commodities company that trades at the exchange. The fiscal year comes to a close on March 31 in India, Canada, Hong Kong and Japan and in the UK, from April 6 to April 5.

Interesting as it may seem, the volume of contracts, both in terms of open interests and actual volumes expiring in another gold contract at the exchange three months later, is manifold lower. "You have a larger interest in contracts expiring closer to April 1 at the exchange. That's because these companies would like to beef up their balance sheets that get converted into a tangible asset on a date close to April 1," said Sajith Kumar P K, CEO, JRG International Brokerage.

Yesterday afternoon, the volume of gold futures contract at the DGCX expiring on April 8 outnumbered the volume of gold contract expiring on June 7 by a multiple of five. On March 11, the gold futures contract expiring on April 8 at the exchange recorded a volume of 857 and total open interests of 1191. On March 12, the contract saw a volume of 1579 and the total number of open interests of 1328.

The gold contract with an expiry on April 8 has not only been the favourite contract among available products at the exchange for most of March, but the volume of gold contract expiring three weeks from now exceeds the volume for the gold contract expiring three months later by a multiple of four to five for most of the month.

Gold, the price of which is expected to average $1,100 (Dh4,039) this year (according to Bank of America Merrill Lynch), has been termed the favourite hedging resort of investors. Bullion stood at $1105.78 an ounce yesterday having risen 4.19 per cent from the previous day's close. Bullion began exhuming confidence on DGCX trading charts as the price of gold rebounded to levels above $1,100 an ounce. Gold was the only futures contract whose price rose yesterday at the exchange.

Gold prices fell below $1,100 per ounce on Friday to their lowest level since February 25, as investors unwound positions on speculation of further monetary tightening by China. Besides, dilemma over Europe's sovereign debt worries spurred heavy futures liquidation.

Jeffrey Rhodes, CEO, INTL Commodities, said retail gold buyers in a country like India would buy into dips thus raising gold prices. "On the charts, the Moving Average Convergence/Divergence has flagged a sell signal with a target of $1,080. However, the lack of any real momentum will be a concern for technical bears but we can expect good physical demand from India on forays below $1,100."