The world's largest jewelry market bets big on gold options

Recently, as gold prices continue to reach new highs, India, as the world's largest jewelry market, is increasing its gold bets, with jewelers and retail traders turning to gold futures options for both speculation and hedging physical gold positions.

According to data from the Multi Commodity Exchange of India (MCX), in February this year, the average daily trading volume of gold futures options surged to 605 billion rupees (approximately 7 billion USD), accounting for 26% of the total options trading volume on the exchange, the highest proportion since October 2021—although crude oil options trading still dominates, its market share has decreased from over 70% last year to 52%.

Sugandha Sachdeva, founder of financial research firm SS WealthStreet, stated that options are cheaper compared to futures, and the recent surge in gold prices has further enhanced their attractiveness.

Gold holds a prestigious position in India, not only seen as a symbol of wealth and a store of value but also imbued with sacred and auspicious meanings. Despite a decline in gold jewelry demand in most countries globally last year, India's drop was only 2%. This is mainly attributed to India's reduction of gold import duties in July last year, which stimulated demand and allowed India to reclaim its position as the world's largest jewelry market.

Investor Interest Shifts from Crude Oil to Gold

Last week, due to concerns over Trump's tariff policies, international oil prices fell to a six-month low, prompting investors to turn to safer assets like gold.

MCX data shows that while gold prices hit new highs in February, the trading volume of gold futures options approached three times the average level for 2024, while the average daily trading volume of crude oil futures options dropped to 1.2 trillion rupees, the lowest level since June last year.

Gnanasekar Thiagarajan, director of commodity research firm Commtrendz Research, stated:

“Trump's strategy is to first throw out a 'shock bomb'—such as a 20%-30% tariff—then negotiate; this uncertainty is favorable for gold.”

Rahul Kalantri, vice president of commodities at Mehta Equities Ltd., also stated:

“Traders are moving away from crude oil options because they see better opportunities in the gold market... The investment interest in gold and crude oil typically shifts inversely; a strong economy favors crude oil, while economic downturns or uncertainties drive people towards gold.”

However, it remains to be seen whether this trend will continue—last week, the trading volume of crude oil options rebounded, while the trading volume of gold options declined. Nevertheless, given the uncertainty of India's economic growth and the unclear stock market trends, Thiagarajan believes that gold will still be a favorite among investors