Future in Gold, Silver
02, Sep 2018
Prelims level : Indian Polity – Elections & Electoral reforms Mains level : Salient Features of the Representation of people Act.
- BSE Ltd. has received the Securities and Exchange Board of India’s (Sebi) approval to launch delivery-based futures contract in gold for 1 kg and silver for 30 kg.
- Trading of these contracts will be launched on 1 October, and contract start day will be sixth day of contract launch month and last trading day will be fifth day of contract expiry month.
- The commodity trading session will be from Monday to Friday 10.00am to 11.30/11:55pm. Delivery centre of gold and silver futures contract will be exchange-designated vaults at Ahmedabad initially and then expanding it pan India in the second phase.
- The futures markets are really designed to be a hedging vehicle for those looking to try and mitigate price risk.
- Futures contracts were first traded in the mid-19th century with the establishment of a central grain market. This central grain market gave farmers the ability to sell their grain for immediate delivery in what is known as the spot market, or they had the option to sell their grain for a certain price for a future delivery date.
- A futures contract is a legal agreement between the buyer and the seller for the purchase or sale of an asset on a specific date during a specific month.
- The price of a futures contract is not fixed, however, and is constantly in a state of discovery through an auction-like process on exchange trading floors and/or electronic trading platforms. In the case of gold or silver, a futures contract outlines a specific delivery time and place for “good delivery” gold or silver bullion.
- The use of futures contracts generally falls into two broad categories: hedging and speculative purposes.
- A hedger uses futures contracts to try and mitigate their price risk in an asset, while a speculator accepts this price risk in order to try and profit from favourable movement in prices. The market needs participation from both hedgers and speculators to function properly.
- By doing this seller has insulated himself from a large drop in the price of, that could adversely affect his potential income.