By Rutam Vora (Commodity Online)
Indian commodity exchanges and gold trading entities have started recognizing the real strength of retail investors with most of the commodity exchanges in the country coming up with lucrative retail investment options for gold trading.
Gold has been considered as one of the important instruments of investment across the country, especially in retail households. Small household units in India are now turning up as potential investors for gold. It's not just the demand for consumption purpose that is the main driver for rising demand for the yellow metal, but the systematic investments in retail gold futures is the latest crush among the small investors in the country.
In India, gold has been a traded commodity on the exchanges over several years, but the volumes of lots are simply out of the reach of a retail investor who would hardly be able to invest a small portion of his limited income. A recent trend in the retail investment is seen because the limited income group or the employees have started realizing the potential of return on gold with not-so-high risk. But the constraint was the convenient lot size that the small investors can afford to invest into.
Considering the fact, some of the leading commodity exchanges like, National Multi Commodity Exchange (NMCE), National Spot Exchange Ltd (NSEL) and some of the organized players in the gold trading have started launching retail investment products for potential retail gold investors in the country.
The international gold prices have yielded over 15.5% return on the investments over past one year. Prices have risen from USD 950 per ounce in the early April in 2009 to around USD 1107 per ounce in recent trades. The prices have touched a bottom of USD 867.40 and a high of USD 1217.40 so far during the given period.
The return has been attractive over previous year, when the gold prices had remained almost range bound at USD 850 to USD 980 per ounce with high volatility during 2008-2009. The current year has created ample opportunity for the investors to cash on their gold investments. As the prices have shot up to its lifetime high of over USD 1200 per ounce by giving maximum return for the traders, it has become once again a favourite investment option for investors.
In India, leading gold trading exchanges like multi-commodity exchange (MCX) have pioneered in the gold guinea (8 gms) contract that was launched in May, 2008. MCX had launched its first-ever gold guinea futures contract on the festive occassion of Akshaya Tritiya in May 2008 and had received thumping response from the retail investors. The thumping response from the retail investors was also attributed to the weakness in the equity markets, which were grappling with the global meltdown.
Gold investment created a sense of trust and safety among the retail investors. Looking at the success of the retail product launched by MCX, others came into fray with different USPs.
The guinea contract launched by NMCE has created a potential for innovation in storage and delivery module of gold guinea. Historically, the delivery mechanism in gold coins has been a matter of concern for the investors owing to the logistical constraints and limitations of delivery stations. To address this issue, NMCE had tied-up with south-based Muthoot Group for the delivery channel. The investors would be issued a vault receipt by the Mothoot Group in lieu of their promised investments that can be either en-cashed at the exchange or be used against physical delivery at the Muthoot centers.
Recently, National Spot Exchange Ltd (NSEL) is also targeting retail investors by offering electronic facility in spot gold trading. The latest segment is similar in functions to the cash segment in equities. It offers gold in the demat form in smaller denominations like 1 gm, 2 gms, 3 gms etc. The exchange expects it to be a big hit with the retail investors awaiting for such investment product in spot commodities trading.
Other organized gold traders have also joined the party with altogether different retail products for the investors. Mumbai-based leading jewellery maker, RiddiSiddhi Bullions Ltd (RSBL) has come with a different model to attract retail class of investors. The company has been launching its Spot trading platform for the jewelers and retailers. The platform, which has systematic, transparent and efficient buy-sell mechanism, is believed to serve the trading partners to attract retail investors. However, this platform is also targeted at investors & hedgers who can use this platform to hedge their risks.
The fast growing retail segment of gold traders has created huge opportunities for commexes as well as those dealing in gold investments. The boom in retail gold investments has just begun and more participants are expected to join the party very soon. With increased availability of retail gold investment products in the market, Indian households, popularly known for largest gold consumption in the world, are now becoming a potential class of retail investors.