Trade with Commodities: Runaway equities and rupee put gold in the shade

Monday, May 18, 2009

Runaway equities and rupee put gold in the shade

Gold Tanks By Nearly Rs 400 Per 10 Gram To Rs 14,338; Brokers Advise Clients To Hedge Positions

THE spectacular rise in stocks and the rupee's 3.2% intra-day gain against the dollar, took the sheen off gold and saw it tanking by nearly Rs 400 per 10 gm to an intra-day low of Rs 14,338 in evening trades.
    Monday's rise in stock markets reinforces the increasing bias of investors towards equities, which, brokers say, started around a month ago. They, however, do not believe that clients would pull out of commodities to take equities exposure. Rather, they expect investors, who were risk averse until recently, to hold on to their positions in gold even as they initiate fresh positions in equities.
    Till the time of going to the press, however, the steep fall did not lead to commodity bourses, where gold futures are traded, calling on brokers to increase their margins intra-day and neither was there a widespread trend of margin calls from brokers to their clients. While some brokers said they had advised clients to liquidate long positions in gold and initiate short positions in anticipation of the rise in equities on Saturday itself, others said they had already taken sufficient cushion money from clients in the light of high volatility in gold. Therefore, there were no margin pressures.
    "We did not make intra-day margin calls on our clients as we ensure that investors into gold, silver and crude oil put up cash over and above the margins required to take positions in these commodities which are highly volatile," said Ravikant Sharma, MD of Kolkata-based Microsec Capital.
    "Our clients were advised to take short positions on Saturday, so there were no margin pressures," said Admisi Commodities director Suresh Nair.
    Mr Nair's voice was echoed by Geojit Comtrade's Anand James, an equity analyst, who said his clients were advised to be on the "selling side" in anticipation of Monday's uptrend in stocks and so there were no margin calls this time around. He added that at the end of the day while some of his clients could be hit, others would have gained. "Margin calls are issued upon a unidirectional trend being observed among clients. If most of my clients were long gold, it could be a problem. But, as the case stands, for every client that has lost, there is one who has gained," said Mr James.
    Brokers believe that in the light of the global economic scenario, investors would continue to allocate some portion of their portfolios in gold.