Investment in Gold opens a new way

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The price of gold is making records day by day. Due to the spread of the pandemic followed by the shutdowns have affected every link in the gold supply chain, from producers to end-users. The Increased investor’s demand for gold coupled with a constrained supply has led to high prices and a bullish market, which has been operating despite these pressures on the supply chain. Some gold mines have affected their production due to the high-risk to COVID-19 exposure, reducing the supply of gold. In many nations, operations had to shut down as a result of COVID-19 based legal restrictions and also Strict travel regulations restricted the shipment of gold and increased the costs of delivery as fewer air routes were available and medical supplies were prioritized. Even the virus spread around the world threatening populations and economies, investors turned to safe-haven investments such as gold to hedge against an economic lockdown.

 The higher demand, lower supply, and increased costs are the main factors that have resulted in higher prices for buyers of gold. As the price of gold increases, some people treat it as a valuable opportunity to settle their loans. The record price allows the gold loan borrowers to sell off their pledged gold and settle the loan or opt for foreclosure and borrow more for the same gram of gold. As per the regulations of Reserve Bank of India up to 75% of the value of the gold can be lent. The rising gold prices have depicted that loan-to-value (LTV) is higher by Rs 500 per gram on the same jewellery. Mr. V P Nandakumar M.D & CEO of Manappuram Finance said that “ It is true that they have been seeing a new trend of gold loan among the customers, settling their pledges  to sell the gold in the scrap market and take advantage from the prevailing rising gold price. This trend was at its peak during May, when the lockdown was lifted and branches reopened, and it’s gradually low as compared to the past two months.” Before the lockdown starts, the Loan-to-Value (LTV) stood at Rs 2,850 per gram and now it is at Rs 3,350 per gram of 22-carat gold.

Due to the non-functioning of the public transport system during the lockdown period, the direct interaction with the customers was very law. So, the growth came mostly from existing customers who benefited from the increased LTV driven by increased gold prices. An official from City Union Bank revealed that “With the gold price skyrocketing, they see their customers are rushing to close their existing gold loans, by which they could borrow at higher against the same gold (jewellery). After deducting the interest, the customers will get Rs 5,000 more for every one sovereign of gold (8 gram).” The Karur Vysya Bank has seen the gold loan borrowings against the already pledged jewellery go up by 15% to 20.

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