India, the world’s biggest buyer of gold, doubled margins on trading in gold futures effective Monday in a bid to tackle volatility after local prices of the metal rose by nearly a fifth this month to hit a record high.
The move is not related to India’s numerous other measures to dampen buying of physical gold as the nation grapples with a widening current-account deficit and a tumbling rupee currency.
India imports almost all of its gold. But it is seen denting participation in futures trade and hurting the Multi Commodity Exchange (MCX), the country’s biggest commodities trading bourse, which garners significant revenue from precious metals.
The Forward Markets Commission (FMC), which regulates the commodity futures market in India, hiked initial margin to 5% from 4% earlier, and also imposed an additional 5% margin on gold, silver and crude oil futures contracts from Monday.
“It will have an impact on volumes and participation. Due to high cost or margins, a trader would take only one lot compared to two lots earlier,” said Haresh Galipelli, vice-president with Inditrade Derivatives and Commodities.
A trader would now have to pay Rs. 330,000 ($4,900) as margin to buy or sell a lot of gold of 1 kg from Monday as against Rs. 130,000 earlier.
The MCX recorded a daily volume of 28.8 tonnes on an average in August, with most the volumes coming from speculators.