The bustling markets in India, known to be the world’s largest jewelry hub, are shifting the way gold is traded, and it’s sparking buzzing conversations among traders and investors alike. With gold prices consistently reaching new heights this year, jewelers and retail traders are opting for a different approach. They’re diving into options on gold futures not just to speculate on price movements but also to protect their investments in physical gold. As Sugandha Sachdeva, the founder of finance research firm SS WealthStreet, explains, these options are becoming increasingly attractive because they’re often more cost-effective than futures contracts.
This uptick in interest is quantifiable on the Multi Commodity Exchange of India Ltd., which serves as the country’s primary marketplace for commodities. In February alone, the average daily turnover for options on gold futures soared to an impressive 605 billion rupees, which is roughly $7 billion. Just to put that in perspective, this amount accounted for 26% of the total options volume exchanged, marking the largest share since October 2021. While trading in crude contracts still held the lead, their dominance has slipped, falling from over 70% last year to just 52% this February.
So what’s behind this burgeoning interest? Recent political turbulence, particularly the uncertainties stemming from US President Trump’s tariff policies, has sent oil prices plummeting, ultimately pushing investors toward safer assets like gold. Since Trump’s inauguration in January, gold has seen a remarkable increase of more than 7%. Gnanasekar Thiagarajan, the director of Commtrendz Research, captures the mood perfectly: “Trump uses shock value — 20%-30% tariff — and then negotiates. All of this uncertainty is bullish gold.”
In India, gold isn’t merely a metal; it holds an esteemed position in the culture, symbolizing wealth and serving as a sacred asset believed to bring good fortune. While the global demand for gold jewelry has waned in many countries, India actually witnessed a minimal decline of only 2% in gold jewelry sales last year, thanks in part to a reduction in import duties that reignited demand. This resurgence has allowed India to reclaim its status as the largest jewelry market in the world.
In a landscape where gold price benchmarks are significantly affected by geopolitical events, trading in gold options skyrocketed in February, exploding to nearly three times the average trading volume recorded in 2024. Meanwhile, the daily turnover for options on oil futures plummeted to the lowest figure since June, clocking in at a mere 1.2 trillion rupees. The trend isn’t limited to India; across the globe, trading volumes for gold options in the US almost doubled from February 2024 figures, according to data from CME Group Inc.
The vice president for commodities at Mehta Equities Ltd., Rahul Kalantri, explains, “Traders shifted away from crude oil options as they found better opportunities in gold.” As you might expect, this shift raises questions about sustainability; while turnover for oil futures rebounded recently, gold’s trading experienced a decline. Still, with the ongoing concerns over India’s economic growth and stock market performance, it’s likely that gold will continue to attract investors seeking refuge in the face of uncertainty.
Gnanasekar Thiagarajan summarizes this dynamic succinctly: “Interest in gold and oil is generally inverse. What is good for the economy is good for oil. And when the outlook is murky, people inevitably turn to gold.” In a time where financial landscapes are shifting, connecting with this familiar narrative of seeking safety and reassurance through gold holds evident relevance for many investors navigating today’s complex market.
In essence, as the allure of gold continues to shine brightly amidst global uncertainties, it resonates deeply with those looking for stability in their investments—reminding us all that in this tumultuous world, some traditions, like the love for gold, endure and thrive.
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