Gold News: After Thursday’s meeting, RBI has taken a big decision and for the first time has given permission regarding gold. Let us tell you in detail.
RBI has announced to provide hedging facility in the international market. First of all let us tell you about hedging. It is used to avoid losses due to fluctuations in the prices of a commodity. Be it commodity market or share market, returns from security or commodity are not guaranteed. Therefore, investors or businessmen resort to ‘hedging’ to reduce the risk. Understand it this way, suppose you are a jeweller.
- You receive a jewelery order from a customer. You have to complete it by the end of March. You buy gold bricks from a bank or bullion dealer to fulfill the order. After making the jewellery, it is sold to the customers by the end of May.
- But suppose gold prices fall from the current level by the end of March. If you buy gold today you have to suffer loss.
- To avoid loss in such a situation, at the same time you buy gold from the spot market, you should sell the same lot (quantity) of gold on the commodity derivatives exchange.
- If you have hedged, then the loss of Rs 1,000 in the spot market will be compensated from the futures market (where you sold). When you sell jewelery weighing one kilo, you will buy the same amount of gold that you have sold in the futures market. This way, even if gold prices fall later, you will not suffer any loss.
- Gold is hedged on commodity exchanges like MCX. At the same time, after the decision of RBI, now hedging of gold can be done in the international market.
What will happen from this- Rajiv Pople of Pople Group says that the industry will benefit from RBI’s decision.
- This step regarding hedging in the international market is like a decision to open the international market for traders.
- Earlier there was no facility of hedging in the international market. RBI’s decision will make it easier to determine prices. Not much rise in gold prices is expected. RBI’s decision will make a difference to gold exports.