On October 3, 2003, Sharad Yadav, India's Union Minister for Consumer Affairs, Food and Public Distribution, presided over a small inaugural function that went largely unnoticed. With a flick of a few keys on a Geojit Securities trading terminal, he kicked off derivatives trading in gold-after a gap of four decades in the country.

At the moment, the trade is only in pure futures. Contracts, that is, to either buy or sell gold on a future date at a pre-specified price. But according to Satish Menon, Chief Operating Officer, Geojit Securities, "It is only a question of time before options are also allowed." Options are a specialised kind of futures that confer the contractual right to buy or sell gold on a future date at a pre-specified price, but without any obligation to do so.

It's nice to hear that gold futures are back. But who is expected to be the biggest beneficiaries of this? "The main beneficiaries are the people who have to sit on gold as part of their regular business. These include banks (channelling agents), stockists and jewellers. Now they can use the gold futures to hedge their positions and reduce their risk," says Vineet Bhatnagar, Managing Director, Refco-Sify Securities. Take the case of a retail jeweller who takes customer orders for gold ornaments on the expectation of payment upon delivery. The deal's price (gold price plus craftsmanship) is struck right at the time the order is placed, which could be weeks before delivery. "As there is heavy fluctuation in gold prices nowadays, this can result in huge losses to the jeweller. Now he can use this new platform to hedge his position," says Harmesh Arora, Vice-President, Bombay Bullion Association. "It is also helpful to the people who are planning to buy gold on a future date (say, for a marriage), but don't have money right now. They can do it now with just 10 per cent margin," says Menon.

What about speculators? They're welcome too. India's Forward Markets Commission (FMC), the regulator for commodity derivatives, is the regulatory agency for gold as well. Once trading picks up, the concept of futures is expected to establish a common domestic gold price, as against the current existence of different prices for different parts of India. Not only that, the start of online deals at these new exchanges will help give gold trading the edge of transparency, lacked sorely in India so far.

Though futures for other commodities have been around, gold is expected to generate special interest. This is because gold is an incomparable commodity. India is a huge gold consumer, to begin with, importing around 800 tonnes of gold every year (valued around Rs 40,000 crore). Beyond that, gold will always have raw appeal so long as it is seen as a store-of-value of last resort-if, say, you were to wake up and find yourself in the stone age. This, despite the fact that the Gold Standard for world trade was called off a few decades ago by the US, replaced since by what is effectively the Dollar Standard.

That lends credence to reports that a dialogue has been initiated between the RBI and FMC on whether gold should be treated as a commodity or currency equivalent. Given the number of NSE brokers-the sort who presumably watch the world-who have taken membership at the futures exchange, speculative trading is bound to be high. This is not something to worry about. Market prices, after all, serve a vital purpose-of giving observers the anonymously-constituted collective balance of the participants' opinion.

Juggling Cards
How to make multiple credit and debit cards work best for you? Try this.

By Shilpa Nayak

Parth Singhal is an ad executive. At 29, he is also plastic-happy. "My bank has given this debit card free," he beams, "it also acts as an ATM card, which is what I use it as at most times." A debit card is a conservative instrument that draws money out of a bank account via a simple swipe-and-number-punch operation at a remote location. Now, Singhal also has a credit card, which looks much the same, but is actually an instrument that allows him to take automatic loans upto a limit in exchange for an interest payment. And since he's reckoned to be something of a risk-taker, another bank is offering him a credit card.

Is there a smart way for him to optimise his card usage? What do the issuers say? According to Nitin Gupta, Vice President & General Manager (South Asia), MasterCard International, "Debit cards and credit cards address different mindsets of the consumer. Even though people might own both, they should use the cards as per the mindset at the point of time, as per the category that they are using it for." Adds Neeraj Swaroop Country Head (Marketing & Retail Assets), HDFC Bank, "We advise segregation of monthly expenses into small, regular, routine expenses like groceries, telephone bills and so on, and large ones like consumer durables purchases or outstation travel etcetera. For smaller transactions, a debit card is better because it saves you the trouble of withdrawing cash each time you want to make a small payment. For bigger expenses, the credit card is a better bet."

Still, that doesn't say anything about what's best for Singhal. What's best, often, is to defy the segmentation. Instead of picking cards on the basis of conservatism or credit-happiness, adopt the mindset of a banker.

How so? Simple. The first thing a banker looks at is not so much the size of funds, but the 'cost of funds'. Credit cards typically charge an incredible 2.5 per cent per month, compounded monthly. That's crazy in an era of low interest rates, but small-amount consumers-grateful just for the facility-rarely complain.

Singhal, however, ought to worry about that cost as much as any banker does. Also, if it's a consumer durable he's been eyeing, he must not assume that his credit card issuer is offering the best terms for a loan. Keen to sell, hawkers often offer more attractive terms.

Anyhow, back to cards, which are quite useful in themselves. The good news is that there is a grace period after a credit card purchase during which no interest accrues. A smart strategy would be to not worry about the big bill-small bill dichotomy (unless, like on petrol, a credit card payment attracts an extra charge), but to understand the billing cycles of different cards, plot the respective grace periods on a time-line.

After that? Yes, Singhal can use his first credit card at the start of its grace cycle, and switch to the other one when the other's starts. As the end of the grace cycles near, he can start using his debit card. That's essentially his bank account, which would get replenished by his salary. If it's a savings account, he should ensure that his balance peaks on the date of the month that the bank takes its 'balance reading' for its calculations. That done, he can use his chequebook to pay the credit card issuers back before the interest charges go into operation-of course, he might need to keep some outstanding amount as a loan, too, which is what 'credit' is all about.

There are other variants to this strategy. But the point is common: to maximise cash balances and minimise interest. Once Singhal is in rhythm, he will save lots of money over an extended period. He could, of course, ignore all this advice and continue letting his plastic mould him, rather than the other way round.