Gold Trading in MCX

Gold Trading in MCX

Trading in gold and silver are getting higher in day by day. We Indian are much obsessed for gold. In India, MCX facilitates for gold trading. Short term trader do trade with very low margin and get the gain from momentum in the respective prices.

In the open gold market, gold trading happens in per 10 gram rate. It means if gold rate says Rs 25,000 then it means 10 gram gold’s price Rs 25,000. In MCX the gold trading rule of trading is different. First you have to open account with MCX through any registered broker. After opening the account, you have to kept some margin with exchange for trade in gold. Commodity exchange fixes the margin amount on the basis of the momentum of the commodity rate.

In India, commodity exchange MCX provides 3 types of gold lot – 1 Kg (Gold Bada), 100 gm (Gold Mini) and 8 gm (Gold Gunia). For example if gold is trading at Rs 25,000 per 10 gm then the total value of 1 kg gold would be Rs 25 lakh. If you want to buy 1 Kg gold in commodity exchange then you will have need only Rs 1.25 lakh and if you buy it physical market then you will have to pay Rs 25 lakh full payment.

So you can purchase 1 kg gold worth Rs 25 lakh only paying Rs 1.25 lakh margin amount approx at present. The margin amount may be change it subject to MCX guideline. If you purchase Gold Bada (1 kg lot) then for Rs1 movement in gold price incurred you Rs 100 profit or loss. If the rate increase by Rs 1 then you will get Rs 100 and if it the rate goes down then you will have to loss Rs 100.

For gold mini (100 gm lot) the margin requirement is Rs 12,500 and for Gold Gunia (8 gm lot) the margin requirement is only Rs 1,000. By Rs 1 movement in gold prices, the mini gold gives you Rs 10 profit or loss and gold gunia gives you Rs 1 profit or loss.

Many traders are very active in gold trading through the MCX. However, it would be good if you have some extra margin kept with your broker in case of price goes against your trade. As I always say that trading have more risk than investment. You can also take delivery of physical gold. For this you will have to inform exchange before 5 days of gold contract expiry date.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Declining Gold Prices

Biggest Fall in Gold Price

Yesterday, India has witnessed a biggest single-day fall in gold prices in 2014. The gold price has gone down up to Rs 800. The price has fallen after RBI eased import restrictions of gold. RBI had imposed severe restrictions on gold imports to reduce current account deficit (CAD) and control the sliding rupee in July last year.

In Mumbai, the gold price has dipped to Rs 27,840 per 10 gram. In world market, since last year the gold prices also has declined around 35% from 2000$ to 1300$. In India, due to weak rupee and import restriction the falling effect was not so intense. It may further go down till Rs 25,000 – Rs 26,000 level in near term if rupee get strong in next couple of months.

I have always written in my past articles that never over invest in this asset class. I still advise that do not invest more than 15% of your saving in the gold. In our Indian tradition, the gold needed in various auspicious occasion like birth, marriage etc. Only purchase as much gold as you required for those occasions and the rest of saving invest in equity and debt according to your financial requirement. My final word is on gold investment to stay away from it and keep investing in other asset classes.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Declining Gold and Rupee

Current state of gold and Indian Rupee

From last few days, Indian rupee and gold prices are in limelight. Yesterday, the rupee had made record low of 59.9850 to the dollar. The sliding of rupee reflects the stress state of Indian domestic economy. The currency has lost 11% since May. Our economy is facing challenges like high current account deficit and lower capital flows. The major impact of this sliding of rupee to dollar can affect the credit rating of India. At present, S&P has already maintains negative outlook whereas Fitch and Moody has maintain stable outlook for India.

Sliding rupee will impact on our industry significantly. Software and pharma industries will boost their profit as their major revenue depend on export. Automobile, capital goods and telecom sectors will feel some pinch on their profit margin.

Gold has also gone low 5 % yesterday after US Federal Reserve signalling of possible scale back in stimulus. I always consider gold as a hedge instrument against inflation. It is non yield bearing asset.  In US 10 year treasuries bond is in 2 year’s high so investor have attractive option of invest in bond. With bond yield rising we are beginning to see liquidation out of gold. Spot gold has also touched the lower level since October 2010.

Demand of gold in India has slowed in this week due to government’s curb on import of gold. According to many technical analyst it may be fall below 1200$ an ounce. In this year, it has already come down 23%. We will witness the huge volatility due to trading community in gold. Today morning, many of buyers of gold is attracting for purchase due to its fallen price. This sentiment may give some support to its price.

The overall impact of weak rupee will be seen as hike in fuel prices, expensive foreign education, costly vehicles and electronic items. The attraction for gold of Indians will be continued as it is well known fact.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Physical gold or Paper gold......which one is good ?

From old days this yellow precious metal gold has been lured to the human being. Our country has been largest consumer of the gold. People buy it for festivals, religious sentiment or asset allocation in our country. Since last 12 year gold has witnessed straight gain in its price. According to IMF data in the month of march shows at least 12 countries boosted their gold reserves.

This year Akshay Tritiya sentiment, media hype, promotions and gift schemes could not boost the sales figure of physical gold and gold jewellery. However ETF gold, E-Gold and gold funds saw remarkable interest from various categories of investors. The ETF gold has saw increase in volume  compare with last year Akshya Tritiya figure. The exchanges were remained open till 8’o clock in night and done the Rs 600 crore plus volume.

Gold has proven to be a safe investment option because of it being a hedge against inflation. It has also low correlation with other asset classes, such as equity and debt. Gold has provided annualised returns of 19% over the past 10 years. There are two ways invest in gold, one is in physical form like jewellery, bar and other one is in paper form (dematerialised form) like ETFs, E-Gold etc. The main benefit of paper gold investment is that it is risk free from theft and storage. At present few paper gold options available in India:

Gold ETFs

These are passively managed exchange traded mutual funds that invest money in standard gold bullion. At present in India, assets managed under gold ETFs around  9,900 crore according to March 2012 data (this includes mark-to-market gains of 76% during the period). Due to traded on exchanges, gold ETFs provide high liquidity and transparency in prices. For investment in gold ETFs requires opening a demat account with a broker registered with exchange. You can easily view your gold ETF’s holding with the other stocks in demat account. You can purchase as little 1 unit (at 1 gram gold mkt price approx.) of gold ETF’s by instruct to you broker.

Gold Mutual Funds

These are fund of funds (FoFs) that invest the corpus in either their own gold ETFs or a foreign gold fund. Gold mutual funds provide investors the facility of systematic investment plans (SIPs), wherein they may invest in gold regularly and avail benefits of rupee cost averaging, i.e. buying more units when prices are low and less units when prices are high. At present indian fund houses offer 11 gold FoFs (including two foreign FoFs), managing average assets of . 4,700 crore as of March 2012. It also gives retail investors an opportunity to invest in paper gold in amounts as small as Rs. 500 via SIPs and without having to open a demat account .

E-GOLD

In our country investors can purchase gold in electronic form the National Spot Exchange (NSEL).Investors can buy and sell gold in denominations as small as one gram in e-gold form. A major advantage of e-gold is the investor gets an option to convert paper gold into physical gold with all the advantage of investing in gold in the dematerialised form. The operating expenses to run e-gold is very low compare with other options like E-Gold and ETFs.

Tax liability

Gold ETFs and gold FoFs are subject to long-term capital gains (LTCG) tax of 10% without indexation and 20% with indexation if held for more than a year and taxed as per individual income tax slabs for short-term capital gains (STCG) if held for less than one year. LTCG is taxed at 20% in case of physical gold and E-gold and investors need to hold them for more than three years to qualify for the same. STCG is taxed as per the individual tax slabs if sold within three years. In addition to this, wealth tax of 1% of the market value of the assets exceeding 30 lakh is charged on investment of physical gold and e-gold.

Gold as an asset class provides strong hedge against inflation and also gives an opportunity to maximise wealth over a longer timeframe. It is less voletile compare with other asset class. In the short-term, gold prices can be volatile due to demand-supply concerns and economic conditions. The percentage allocation to gold would be depend on an investor’s risk appetites and return objectives. So investment in paper gold more good option compare than physical gold

(Dear readers if you have some query about any financial product please feel free to ask. You are most welcome for your feedback and question.)

Regards,

Arvind Trivedi

Certified Financial Planner