Economic uncertainty unleashed by the Covid-19 pandemic is still not persuading India’s gold hoarding lot to sell their household gold even in the midst of a surge in the price of the yellow metal, said gold traders in Zaveri Bazaar, the hub of gold trade in Mumbai, and South India, where gold is treasured.
Instead, most are going to gold loan companies to pledge their gold jewellery as the interest they pay against the loan is lesser than the loss in making charges they will have to bear if they sell it.
“We had expected that the price rise will compel the Indians to sell off household gold in this time of uncertainty. We had expected a sharp increase in old gold sales. But that is not happening. Reports trickling in from different parts of the country indicate that people are pledging gold with NBFCs for short term periods in anticipation that the scenario will change closer to Diwali. Also, they do not want to part away with their jewellery,” said Surendra Mehta, national secretary, India Bullion & Jewellers Association.
Gold loans attract an interest of 11.9% to 16% depending on the tenure of the loan. Whereas making charge for jewellery varies between 20%-25%. “That is also a reason why people are not selling old gold as they will lose out on the making charges,” said Mehta.
Anantha Padmanabhan, chairman, All India Gem & Jewellery Domestic Council, based in South India, said that old gold sales have not picked up in southern part of the country. Gold price crossed Rs 50,000 per 10 gm mark on Wednesday, though it corrected a bit on Thursday. Spot gold price on Thursday was hovering at Rs 49,944 per 10 gm with 3% GST.
George Alexander Muthoot, managing director, Muthoot Finance, said the gold loan business will pick up not only because of price increase but because of the fact that the stake of the owner of the ornaments is much more than the value of the gold content.
“What we finance is against Household Used Gold Ornaments (HUGO). The fact that there is 20 to 25 percentage making charge for the ornaments and it is household gold used by mothers and daughters of the borrower prompt him not to sell the ornaments but to get finance from us,” he said.
The Muthoot Finance chief said that when gold prices are high, people get more money per gram of gold, and that has an impact on our asset under management (AUM).
“There are new borrowers coming up for gold loan business due to the restart of SME and retail business across the country and because of the emergency financial needs due to the Covid-19 crisis,” he added.
Thomas George Muthoot, director, Muthoot Fincorp said that his firm is expecting an increase of 20% in its AUM due to rising gold prices and the interest among people to get short-term loan by pledging their household gold.
“Even the banks are aggressively pushing gold loans,” he added.