Cash-strapped Indians are selling gold jewellery
After losing his job on a cruise ship, Paul Fernandes, a 50-year-old Indian waiter, took out a loan using his assets as security to pay for his children’s education. He’s selling his gold jewellery to cover bills this year after failing to launch a home company and find another work. He remarked from his hometown in the coastal state of Goa.
With millions of Indians forced into poverty or bankruptcy as a result of the pandemic, many are resorting to their final resort: selling their gold jewellery to make ends meet. A vicious new wave of the virus has had a catastrophic impact on the economy and revenues in rural India, the world’s largest bullion importer. Because there are fewer banks in rural areas, individuals rely on gold in times of need because it is quickly liquidated.
According to Chirag Sheth, a consultant at London-based Metals Focus Ltd, the risk of financial trouble caused by the second wave is significantly higher, and it could lead to more outright sales of gold, unlike in 2020, when individuals preferred to take out loans against their cache.
If a fresh wave occurs, gross scrap supplies, which include old gold melted to build new designs, might reach 215 tonnes, the most in nine years, he said. Higher local supply will also reduce foreign inflows for a country that imports almost all of its gold from Switzerland.
“You had a financial crisis last year, and you were able to get out of it by taking out gold loans. You’re having financial troubles again this year, with a third wave on the way, which might bring lockdowns and job losses,” Sheth added. “We can expect a surge in distressed sales in August and September, when the third wave may arrive.”
As the economy has been ravaged by lockdowns, many Indians who had clawed their way out of poverty confront bleak career prospects. More than 200 million people have returned to work for less than the minimum wage, or $5 per day.
In an early hint of consumer anxiety, Manappuram Finance NSE -0.14 per cent Ltd., one of the country’s largest gold loan providers, auctioned Rs 400 crore in gold from loans that went bad due to a steep decline in prices in the three months through March.
In comparison, only Rs 8 crore was auctioned in the previous nine months. The jewellery was auctioned because Manappuram’s debtors, who were mostly daily wage labourers, small business owners, and farmers, couldn’t afford to repay the loan.
According to James Jose, general director of Kochi-based refiner CGR Metalloys Pvt, roughly 25% more old gold than usual has been sold to jewellers in southern India, the country’s largest per capita consumer.
“After the lockdown, the shops are open, and you can notice a lot of foot traffic in the shops for two reasons: one, wedding season purchases, and some liquidation. Indians have been reducing their gold purchases in recent years due to a sluggish economy and a virus outbreak that has limited their buying power. According to the World Gold Council, gold sales in 2020 will be at their lowest level in more than two decades.
Despite this, demand should rise this year, climbing as much as 40% from a year ago, thanks to lower pricing and around 50 tonnes of latent wedding demand. “The third wave continues to pose the greatest threat to our forecast,” he said