Paul Fernandes, a 50-year-old waiter in India, took out a loan last year using his gold as collateral to pay for his children’s education after losing his job on a cruise liner. This year, he is selling his gold jewelry to cover his expenses, after unsuccessful attempts to start a home business and find another job.
“A gold loan is after all a debt that I assume,” he said from his hometown of Goa. “Selling my jewelry means I don’t have to pay anyone back with additional interest on it.”
With the pandemic pushing millions into poverty or bankruptcy, many Indians are now turning to their last resort: selling their gold jewelry to make ends meet. In rural India, the biggest buyer of bullion, a brutal new wave of the virus has had a catastrophic impact on the economy and incomes. With fewer banks, people in rural areas depend on gold when needed because it can be easily liquidated.
The likelihood of financial distress caused by the second wave is much higher and could lead to more gold sales, unlike in 2020, when consumers opted to take loans against their metal reserve, according to Chirag Sheth, a consultant at Based in London, Metals Focus Ltd.
Raw scrap supplies – which include old gold melted to make new models – could exceed 215 tonnes and reach their highest level in nine years if a new wave emerges, he said. For a country that imports almost all of its gold mainly from Switzerland, a higher local supply will also limit inflows from overseas.
“You already had a financial problem last year and got away with gold loans. Now again you’re having financial trouble this year with a third wave potentially on the way, which again can mean lockdowns and job losses, ”Sheth said. “We can expect significant distress sales in August and September, when the third wave could actually take hold.”
Many Indians who had escaped poverty face grim employment prospects as lockdowns crippled the economy. Over 200 million people have returned to earning less than the minimum wage of $ 5 a day.
Signs of distress
First sign of consumer stress, Manappuram Finance Ltd., one of the largest providers of gold loans, auctioned off 400 crore yen ($ 54 million) of gold in the three months to March. from loans that turned sour following a sharp drop in prices.
This compares to just ₹ 8 crore auctioned in the previous nine months. The jewelry was sold because Manappuram’s borrowers – usually day laborers, small entrepreneurs and farmers – could not afford to repay the money.
In southern India, the country’s largest per capita consumer, around 25% more old gold than usual has been sold to jewelers, according to James Jose, general manager of Kochi-based CGR Metalloys Pvt refinery. .
“After the lockdown, the stores are open and you can see very good footfall in the stores for two reasons: one is the shopping related to the wedding season and a certain amount of liquidation in cash,” said Jose by phone.
Indians have reduced their purchases of gold over the past two years due to the weak economy and the virus outbreak reducing their purchasing power. In 2020, gold sales fell to the lowest in more than two decades, according to the World Gold Council.
Still, demand could rebound this year, increasing by up to 40% from a year ago, driven by lower prices and around 50 tons of latent wedding purchases pushed back to this year from 2020, according to Sheth from Metals Focus.
“The third wave remains the biggest risk for our estimate,” he said.