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Technical Analysis on Bullion Futures Essay Sample

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Technical Analysis on Bullion Futures Essay Sample

Commodity futures’ trading has been first recorded in the 17thcentury in Japan. The futures’ trading was basically done with the seasonal agricultural products so as to ensure their continuous supply all the year around. Japanese merchants used to store rice in the warehouses for their future use and used to sell receipts against such stored rice. These receipts were called as ‘rice tickets ‘which then eventually became the basis for their commercial currency.
The rules which were established during this time for trading these rice tickets are similar to the rules set for American futures trading.

In the United States, the commodity futures trading first started in the middle of the 19thcentury with the help of the Chicago Board Of Trade set up in the year 1848.Gradually then about 10commodity exchanges were set up with a wide variety of agricultural products being traded. Commodity derivative market first started in India in cotton in the 1875 and in the oilseeds in 1900 at Bombay. Forward trading in raw jute and jute goods started at Calcutta in the year 1912. But however, within few years of their establishment, the forwards trading in these commodities was banned in the year 1960. Recently, in the year 2003, such ban on trading was lifted and the trading in commodity futures was started.

Permission was given to establish online multi-commodity exchange in order to facilitate trading. The long period of prohibition of forward trading in major commodities like cotton and oilseeds complex has an enduring impact on the development of the commodity derivative markets in India and the futures market in commodities find themselves left far behind the derivative markets in the developed countries, Thus, today the challenge before the commodity markets is to make up for the loss of growth and development during the three decades Commodity trading in India has a long history. In fact, commodity trading in India started much before it started in many other countries.
However, years of rule, droughts and periods of scarcity and Government policies caused the commodity trading in India to diminish. Commodity trading was, however, restarted in India recently.

Today, apart from numerous regional exchanges, India has six national commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), National Multi-Commodity Exchange (NMCE) and Indian Commodity Exchange (ICEX), the ACE Derivatives exchange ( ACE )and the Universal commodity exchange (UCX). The regulatory body is Forward Markets Commission (FMC) which was set up in 1953. As of September 2015 FMC is merged with the Securities and Exchange Board of India, SEBI.


Future Contract:

A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. The futures contracts are standardized and exchange raded. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered, (or which can be used for reference purposes in settlement) and a standard timing of such settlement. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price.

A futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of futures transactions are offset this way. The both parties of a “futures contract” must fulfill the contract on the settlement date. Futures can be thought of as forwards that are transferable, standardized, and designed to reduce the probability of, and costs of, a default. The futures market was developed to solve the problems existing in the forwards market.

Bullion Futures:

Bullion is defined as a bulk quantity of precious metals consisting of gold , silver and others that can be assessed by weight and cast as a lump . the byllion reserve of a country is the indicator of the amout of wealth a country possesses. bullion is valued by its purity and mass rather than its face value which is applicable in the case of money. India bullion market is a recognizable index that high lights the economic growth of the nation.


Private individual or investor use bullion primarily as an investment or potential store of value. Gold bullion and silver bullion are the most important forms of physical precious metals investments. Here using technical analysis we can say which time investors invest money and make profit. And this study of bullion trading and technical analysis helping investor understanding the bullion contract trading and make better profit through using technical analysis.


To Analyze the Return of Selected Bullion Future Contracts
To Analyze the Risk of Selected Bullion Futures Contracts
To Make the Comparison of Risk & Return of Selected Bullion Futures Contracts


The paper was carried out with the commodity market with special reference to bullion futures. For this study, Secondary data were collected from mcx index, India for 5 years from 2011 to 2015 of eight contracts of gold and silver contracts traded in the market. Technical analysis was made with the closing price of each contract every day. The return was calculated on year basis and standard deviation was used as a measure of risk of selected contracts for the study.


The investors may invest in gold contracts in June – Aug & July – Sep continues to earn high return as per the study.
The investors may invest in gold contracts in January – April and September – April continues to minimize risk as per the study.
The investors may invest in silver contracts in July- September & July – April continues to earn high return as per the study
The investors may invest in gold contracts in November – January continues to minimize risk as per the study.
The share broker has to educate investors invest more than 4 or 5 contracts, since most of the investors are interested to invest single contracts. Because if one contract given high return and another contracts given low return. Than the investor can manage the risk.
Most of the investor only invest equity market because investor don’t know about commodity market .so the share brokers or any other financial institution manager educate about derivative market to investor.


This study was carried out to find the risk and return analysis of selected bullion futures contracts of gold and silver. It is found from the study that, the period of high return and low risk for their investment on different derivative contracts. Thus, the investors may use these finding to make better investment decisions.


S. Kevin Securities (2003) Analysis and portfolio Management”, Prentice – Hall of India Private Limited.
V.K BHALL (16TH Edison 2010) Investment management

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