Indians always have an affinity for gold. Investing in gold is often linked to social status, which is why Indians invest heavily on the yellow metal. Moreover, gold is believed to be a safer investment option against market volatility. So, naturally, anything associated with gold enjoys a high demand in the country, like the sovereign gold bonds issued by the government that are lapped up by the investors.
But till date, India didn’t have a bullion index of its own. Well, the wait is finally going to get over. MCX or the Multi Commodity Exchange of India, has decided to gift India its very first bullion index, Bulldex.
This bullion index is the sixth product launched by MCX in the bullion segment, but the first index in bullion complex with 1-kg gold, 100-gram goldmini, 1-gram gold peta, and 8-gram gold guinea. Future and options contracts on 1-kg gold are already trading in the market.
Bulldex will launch on August 24 with future contracts expiring on September, October, and November with gold and silver as underlying. The index will trade in the lot size of 50 and will be cash-settled – an attractive option for hedger and institutional players, as they don’t like to take physical delivery of the asset.
Since mid-March, gold and silver prices have risen significantly due to market volatility. MCX has also reported an increase in trade volume during this period. Due to favourable market condition, MCX is hoping to see strong participation from traders when Bulldex will launch. Recently, the exchanged launched options in 100-gram goldmini contract, which MCX will also include in the index.
The role of an index
An index is a popular concept in the stock market. It functions as a market benchmark and gives indications on market movement. It contains a basket of assets and tracks the performance of these assets to gauge market performance. A stock price performance is often tallied against such indices to decide its value.
The bullion index will track the performance of its underlying and serve as the benchmark for investors to check the performance of other traded instruments in the market against the index.
The Bottom Line
Bullion index launch is undoubtedly big news for the market participants. MCX has already tested it in July during a mock trading exercise. Before Bulldex, MCX has launched an index for agricultural commodities called, Agridex. It is the first index on agricultural products comprising a basket of ten farm commodities to help market players with year-round price discovery. The exchange also has plans to launch indices in base metal and energy after receiving necessary regulatory approvals.