In a move towards making gold and silver futures contracts more transparent and convenient, the National Commodity Derivatives Exchange, or NCDEX, has introduced special gold and silver hedge contracts.
Now, jewellers, traders, banks, consumers and gold refiners will be able to track the exact co-relation between Indian and international gold prices. The contract is designed to remain unclouded by domestic demand-supply factors.
Market experts say that these instruments are for those who want direct exposure to international gold prices in the Indian currency without impact of taxation.
The exchange launched the gold hedge contract in January and the silver hedge contract in February. The expiry of these contracts has been aligned with that of currency futures.
All existing gold and silver futures contracts in the market are delivery-based. Gold hedge and silver hedge contracts have been designed as intention-matching contracts where delivery occurs only when both buyer and seller agree in advance on the quantity and location.
Samir Shah, managing director and chief executive officer, NCDEX, says, "The NCDEX gold hedge is an innovative contract that is the most transparent and straightforward price benchmark of the precious metal to the consumer. Domestic gold prices have a high correlation with international prices. Silver hedge, too, will ensure efficient price discovery."
Due to exclusion of customs duty, local sales tax, VAT, octroi and other charges or levies, the value of these contracts is lower compared to those traded on other exchanges. Consequently, commodity transaction tax, or CTT, and transaction overheads are levied only on this contract value.
Suresh Nair, executive director, ADMISI Commodities, says, "Investors will get the benefit of international price movements along with Indian currency movements minus any interference from changes in local taxes and duties."
Naveen Mathur, associate director, commodities and currencies, Angel Commodity Broking, says, "The contract has created a differentiating factor when compared with the gold futures contract on the MCX. NCDEX gold hedge and silver hedge contracts accurately reflect the true value of gold in India market as they negate charges like custom duty and local taxes."