Rare Occurence
Gold market shifts to backwardation from contango, says Augmont's Chainani
This story was originally published at 13:55 IST on 21 January 2025
Register to read our real-time news.Informist, Tuesday, Jan. 21, 2025
By Sandeep Sinha
MUMBAI – Gold derivatives that trade most of the time in contango have suddenly shifted to backwardation, a condition in which prices for cash delivery are higher than futures, indicating a short-term imbalance between supply and demand, according to Renisha Chainani, research head at Augmont Goldtech Pvt. Ltd. This is a rare occurrence in the gold market where traders can profit by holding futures positions until contract expiry.
"The gold market is generally in a contango of INR 600-INR 700, where future prices are higher than gold spot prices. However, due to tariff uncertainty by the Trump administration, the market has gradually regressed to backwardation of INR 150 today," Chainani said. Gold futures generally trade higher than spot prices as they include carry costs such as insurance, storage, interest payment, and funding charges.
Chainani said that due to disruption in the global supply chain caused by the movement of precious metals from London to New York, spot gold prices have increased more than futures contracts in the past month. Bullion banks have been relocating their holdings to the US ahead of any potential tariffs by US President Donald Trump. Trump's tariff threats have also caused a great deal of volatility in the exchange futures for physical markets.
"Market liquidity has been decreasing as banks have been closing out their borrowed Exchange Futures for Physical markets positions by selling spot and buying back February CME futures," Chainani said. Lease rates have reached all-time highs as a result of the need for bullion banks to borrow the gold they sold on the spot. This disruption was comparable to the worldwide supply chain that was disrupted by COVID-19 in 2020.
Gold has given a breakout from its symmetrical triangle, if prices stay above $2,750 an ounce or INR 79,000 per 10 grams, we can see further momentum towards $2,800 an ounce or INR 80,500 per gram, this week, she added.
At 1227 IST, the February gold futures on Multi Commodity Exchange of India was at INR 78,939 per 10 grams and spot price of 24-carat gold in the Mumbai bullion market was at INR 79,449 per 10 grams. End
US$1 = INR 86.52
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Subhojit Sarkar
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