Gold Shines Bright As Biggest Jewelry Market Boosts Options Bets

The world's biggest jewelry market is boosting its gold bets.

With the precious metal setting successive records this year, jewelers and retail traders in India are turning to options on gold futures both for speculation and to hedge physical holdings. Cheaper than futures, the bets have gained new appeal with the recent surge in bullion, according to Sugandha Sachdeva, founder of financial research firm SS WealthStreet.

The increase in investor interest has become apparent on the Multi Commodity Exchange of India Ltd., India's leading commodities bourse: The average daily turnover of options on gold futures surged to 605 billion rupees ($7 billion) in February, representing 26% of the total options volume on the exchange — the biggest proportion since October 2021. Options on crude contracts still led the trading, but their share fell to 52% from more than 70% overall last year.

Concerns over US President Trump's tariffs policy sent oil to a six-month low last week, pushing investors toward assets deemed safer, like bullion — up more than 7% since his inauguration in January. While the trading of options will keep evolving, market players are generally bullish on gold, said Gnanasekar Thiagarajan, director of commodity research firm Commtrendz Research.

“Trump uses shock value — 20%-30% tariff — and then negotiates. All of this uncertainty is bullish gold,” he said.

The precious metal occupies a revered position in India, where it's seen not only as a store of value and symbol of wealth, but also as a sacred asset imbued with auspicious significance. Gold jewelry, which fell in almost all the countries last year, slipped only 2% for India after a July cut in import duties spurred demand, allowing the nation to retake its spot as the largest jewelry market.

As the metal hit record levels in February, trading of options on its futures for the month was nearly triple the 2024 average, MCX data show. Meanwhile, the average daily turnover for options on oil futures dropped to 1.2 trillion rupees, the least since June.

In the US, trading of gold options almost doubled last month from February 2024, according to CME Group Inc.

“Traders shifted away from crude oil options as they found better opportunities in gold,” said Rahul Kalantri, vice president for commodities at Mehta Equities Ltd.

It remains to be seen whether the trend will continue — turnover of options on oil futures rebounded last week and fell for gold. But with the current concerns surrounding the pace of economic growth in India and the trajectory of the stock market, bullion will remain a favorite among investors, according to Thiagarajan.

“Interest in gold and oil is generally inverse,” he said. “What is good for the economy is good for oil. And when it's not good for the economy or there is uncertainty, people rush to gold.”