White metal pips gold in investors' trading preference in September quarter

Last Updated: Sun, Oct 07, 2012 06:39 hrs

Silver left gold behind in investors' trading preference in the July-September quarter in both spot and futures exchanges due to huge arbitrage opportunity in the white metal between the two markets.

While the total turnover in gold jumped a marginal 2.44 per cent in the first quarter of the current financial year from Rs 3.28 lakh crore in July to Rs 3.36 lakh crore in September, the traded value rose a staggering 54.35 per cent in silver from Rs 2.73 lakh crore to Rs 4.21 lakh crore during the period under consideration.

Similar trend was noticed in the spot electronic market (National Spot Exchange Ltd or NSEL) also, where turnover in gold recorded a jump of six times from Rs 14.61 crore in July to Rs 87.94 crore in September. The increase in value of gold trade was partly attributed to the spurt in its prices over the period. While in silver, however, the traded value recorded a jump of 15 times from Rs 5.33 crore in July to Rs 79.33 crore in September.

"Traders found a massive arbitrage opportunity between spot and futures markets, where price of silver in physical market was between Rs 1,300-1,600 a kg lower than the commodity traded on the Multi Commodity Exchange (MCX) for delivery in December. Consequently, traders booked in spot and took delivery and sold in futures for earning a profit of differential," said Anjani Sinha, managing director of NSEL.

Such arbitrage opportunity was not available for gold as the price of the yellow metal in the physical market moved closer to the prevailing price in the futures market. Hence, traders found silver as a trading haven for earning profits.

For example, silver price was quoted at Rs 54,573 a kg in the futures market, compared to Rs 52,495 a kg in spot, offering thereby a massive Rs 2,078 a kg of arbitrage opportunity on July 20. On the same day, however, the price differential was much lower at Rs 833 in gold as the metal remained traded at Rs 29,993 per 10 grams in futures and Rs 29,160 in spot. Similarly, arbitrage opportunity for silver was Rs 2,224 a kg on August 31 against a mere Rs 864 in gold. On September 9 and 13, traders found the price differential of Rs 2,955 a kg and Rs 2,957 a kg in silver, compared to Rs 989 per 10 grams and Rs 695 per 10 grams in gold, respectively.

"Traders got this trigger to get delivery of silver as much as they booked on the NSEL. They are holding the physical silver for delivery in the expiry of December contract," Sinha added.

Meanwhile, data compiled by NSEL showed traders booked 1,020 kgs of silver in July and obtained the delivery. Similarly, traded and delivered quantity of silver in September remained at 12,930 kg. Out of 49.12 kg of traded quantity, only 45.12 kg gold was delivered on NSEL in July. In September, however, the scenario remained skewed towards trading, where traders and individual investors booked 273 kg of gold and got delivery of only 86 kg.

Naveen Mathur, associate director, Angel Broking, said: "Traders always notice arbitrage opportunity between spot and futures. Whichever commodity gives them earning potential, traders jump to that."

Meanwhile, both gold and silver prices are likely to stabilise around the current level. Mathur forecast no upside from the current levels with gold to trade between Rs 30,500 and Rs 31,000 per 10 grams and silver to range between Rs 60,000 and Rs 62,000 a kg.

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