I am about to take a position in Silver by buying silver bars… just wanted to know few things 1) Since it is quoted in it effectively means i am long short INR (since i reside in India) I get exposure to the Silver price movements as well as the currency fluctuations. Now, I want to hedge my long position there I think I have few options 1) I can go to Commodity Exchange and Short an contract but then i would be giving up my potential upside. 2) I can effectively hedge my currency exposure by taking a short position in and only enjoy the silver price volatility. Unfortunately I am not allowed to take currency positions my 2)option is closed but I was thinking about this and have come up with an third option. 3) Since Indian IT are net long on I would be able to take a hedge on them by going short on IT futures but the problem will be how to create a perfect hedge , how do i break up the returns on silver into currency component and pure silver price movement.and even if i am successful at it then how do i decide how much stock futures i should short? Need your advise guys… thanks in Advance
With a bond you can hedge with a currency forward or future (are there currency futures?) because you know exactly how much money is going to arrive on a certain date, assuming no defaults and funky bond terms. If you don’t know what the end price is going to be, that will be harder. You can make an estimate and go for a forward contract of the estimated amount, which would reduce the degree of currency risk, but only to the extent that your estimate of silver’s rate of return over the period of the forward contract is correct (which is asking a lot, I think). On the other hand, silver is a global commodity, and even if it’s quoted in dollars, the figure should rise as the dollar falls anyway, so I don’t see a real need to hedge. I think you’re safe with a silver bet on its own merits, and if you want to bet against the dollar too, just do that with a separate contract. If you really wanted to, you could do something like regress the dollar-rupee exchange rate on the price of silver in rupees and see to what extent the currency fluctuation affects the price, and then try to keep a hedge ratio that’s appropriate, but it seems like a lot of work and transaction costs. I’d be interested in other people’s answers.
there are no currency futures in India only rupee forwards are available that too only if u have an account receivable u can speculate on currency as we do not have full Capital Account Convertibility
arg. You don’t hedge commodity exposure using equity futures.
Joey I am trying to hedge currency not commodity
I agree with Chad. The value of silver should go up in all currencies if the demand for the commodity goes up.
so from what i guess from above posts…is tht investing in commodities is just a pure play bet on currency tht is it…without any fundamentals?
bchadwick - “(are there currency futures?)” Of course - very liquid and arbd with the forwards Hmmm…Okay after writing a few responses I think it is best for you to examine the whole plan. Frankly "Since Indian IT are net long on $ I would be able to take a hedge on them by going short on IT futures but the problem will be how to create a perfect hedge " is so misguided that you really shouldn’t be doing this plan at all. Why do you want to buy silver bars? How many silver bars are you going to buy and why are you worried about currency risk when you are buying physical precious metals? It seems that you don’t have a good feel of relative risks.
equity_research_nds Wrote: ------------------------------------------------------- > so from what i guess from above posts…is tht > investing in commodities is just a pure play bet > on currency tht is it…without any fundamentals? In a nutshell, if you were to hedge 100% of what you think is your USD exposure, you would be taking an active USD short position. As other have stated, there is already a natural hedge in place. Simplistically, a weak dollar encourages investors to switch into real assets like precious metals. Just out of curiosity, when you buy precious metals, do you physically take delivery? Or is it stored in a vault somewhere? I know the latter would be (much, much) more common, but I was actually thinking it would be cool to have 200g gold/silver bar on the mantlepiece or whatever.
Yuo can either take physical delivery or have someone else store it (and possibly lease it)
i m interested in buying spot silver 1kg bar…
> i m interested in buying spot silver 1kg bar… and taking it home or depositing it somewhere? What’s common in India? Also, let me know your house address, if you decide to take it home.
I know of a hedge fund manager in London that uses a gold bar as a door-stop at home. That’s the level you want to be operating at…
In London a tradable gold bar is 350-430 oz. That’s a pretty classless and expensive door stop.
ok guys u r in joking mood… i feel we are entering into silver bull phase so how do i take a position? in India there are gold ETF’s but no silver ETF’s and silver prices fluctuate in short term so taking long position in futures in not a good india considering i will have to pay margin money now and then… so any other way? no pure silver producing companies listed on any of the Indian Stock Exchange
If you don’t have access to a silver ETF, a silver miner, or physical silver in the indian market, it’s going to be pretty hard to get exposure to it! Buy a US/UK/French/German ETF - if you can’t then you can’t get the exposure. I know it’s possible to spread bet on various commodity spots in the UK as well, with or without USD exposure. I’d listen to JDV and Etienne - I’m not sure you understand what you are doing if you are talking about buying physical silver then needing a USD hedge - You are long silver/short INR. Reexamine your reasons for investment.
Entering into a bull phase? You mean since silver has quintupled or something over the last few years and now we are “entering a bull phase”? Honestly, you buy $100 in silver bars or you put down $20 on a silver future with $80 in a bank account is about the same. Your broker will be happy to hold the 80 in yur margin account if moving it is too much work. Unless you are catastrophically wrong you will never have to add to that (or silver margin goes way up which is possible). I don't know what is going to happen to silver, except that I think this run is a little silly as there is a huge mountain of silver in the world, but a bet on silver is pure zero-sum speculation. You shouldn't expect to get rewarded for such a bet. There are so many other things you can do with your money that puts it to productive use and doesn't just buy some ugly thing to put in the basement (the story goes that at EF Hutton when they unwound the Hunt silver squeeze, they had silver bars stacked everywhere in the Manhattan offices. People were coming into work and saying "get this crap out of my office"). I also think that if you don't have enough to invest in futures, you don’t have enough money to play the game.
JoeyDVivre Wrote: ------------------------------------------------------- > In London a tradable gold bar is 350-430 oz. > That’s a pretty classless and expensive door stop. I agree. 2 things: i) this guy is a big name (not really just within the cottage industry that is hedge fund management) - if I was that wealthy, I would keep something like that around (not as my door-stop, admittedly). ii) I gather he’s the sort of guy that finds the classless aspect of something like that amusing.
Two thoughts: Gold is pretty soft, I would think that as a door stop, it would get dented and scuffed up substantially. Even at $500 / oz, the guy must really trust his cleaning staff.
Not sure about how much dents/scuff matter, but certainly would agree on the other point. To be fair, he was hosting a soirée for some colleagues, so there may have been some showmanship involved!