Gold: Blame the Speculators?

The Indian government banned futures trading in 8 key commodities. Will it now ban trading in Gold Market futures...?

BARELY ONE WEEK after the Indian government banned futures trading in key commodities like rubber, chana, soya oil and potato, a section of Gold Bullion traders are pressing for a similar ban on gold futures, reports CommodityOnline.

   On Sunday, the All India Sarafa Association – an umbrella body for bullion traders – sent a memorandum to India's Prime Minister Manmohan Singh and Finance Minister P. Chidambaram asking for an immediate ban on futures trading in Gold and silver.

  
According to the Association President Sheel Chand Jain, Gold Prices are going up and up these days because of futures trading, and the speculative trading undertaken by commodity players.

  
"The Gold Market in India has become unstable thanks to sudden rise and fall in the prices of the yellow metal. In fact, the price fluctuation in Gold Bullion prices, many times in a day, has created instability in the minds of consumers and adversely affected the bullion trade in India," Jain said.

  
Therefore, he said, just as the government banned futures trading in agricultural commodities like rubber and soya oil, it is high time the government acted fast to ban forward trading in gold and silver.

  
Jain pointed out that India is the largest consumer of gold in the world, and futures trading has not helped the common man. "Gold Prices have been volatile because of futures trading. People in India are genuine buyers of gold. But they are left high and dry these days because of the high prices of gold."

  
Jain said the Association will meet Finance Minister Chidambaram to request him to ban futures trading in Gold. Meantime, after banning futures trading in as many as eight items including rice and wheat, the Government has now ruled out any plans to ban futures trading in more agri products.

  
Last week, the government banned futures trading in four new commodities: chana (gram), soy oil, potato and rubber for four months. Wheat, rice, urad and tur were banned last year and are likely to remain so.

  
Yet the government, led by Manmohan Singh, is set to not import any wheat this year. The government’s confidence comes hot on the heels of officials estimates that the local procurement of the grain will reach 20 million tonnes against the target of 15 million tonnes, according to the agriculture minister, Sharad Pawar.

   "There’s no question...We had a target of 15 million tonnes, and we will achieve local purchases [without imports] at 20 million tonnes. If we reach that level, imports will not be required," Pawar told reporters on the sidelines of a function organized by the chamber CII.

   Addressing the gathering, the Minister said that wheat procurement had reached 18.5 million tonnes by 10 May, 2008.

   Ruling out any further extension in the list for banning in futures trade, Pawar sought to justify the government move saying while this will help bring down inflation giving relief to common people, the decision was not entirely the government’s. Its key partners in parliament, the leftist parties categorically blame futures trading for soaring food prices, which have pushed inflation to a new 42-month high of 7.61%.

   "I think the decision to ban four commodities was taken by the Forward Markets Commission. I think the situation will not be there to extend it beyond four months," Pawar said.

   Deputy chairman of the Planning Commission, Dr. Montek Singh Ahluwalia has spoken against banning futures trading, saying this cannot help curb inflation.

   Last month, Abhijit Sen submitted a report on the impact of futures trading on commodity prices. Pawar said the government is still examining the report.

   "We are studying the report of the Abhijit Sen committee and the government has not come to a final view," he remarked.