Indians Recycled The Most Gold In At Least Eight Years In July-September Quarter
A loan collection agent holds up a gold necklace for a photograph while processing a customer’s gold loan application. Photographer: Dhiraj Singh/Bloomberg

Indians Recycled The Most Gold In At Least Eight Years In July-September Quarter

Indian consumers recycled the most gold in at least eight years in the July-September quarter, with sales likely driven by a combination of distress on household balance sheets and higher prices for the yellow metal.

Total gold recycled in India in the July- September quarter spiked to 41.5 tonnes, compared to 36.5 tonnes in the same quarter a year ago, according to data from the World Gold Council. Gold recycled rose by 13.6% over a year ago.

There were a combination of reasons for the rise in recycling in the July-September 2020 quarter, said Somasundaram PR, managing director of the World Gold Council in India.

Somasundaram explained that there are typically three reasons for people to sell gold. First, to make money when the price of gold is attractive. Second, a distress situation where a household needs funds and can’t or doesn’t want to avail a loan. And third, in order to buy another asset.

Recycling gold only because of a price rise doesn’t always make sense as customers will lose some value because of making charges or impurities in the gold.

As such, it is reasonable to deduce that recycled gold is a small indicator of financial pressure on households, Somasundaram said. India had last year too seen an increase in recycling when the economy was sluggish and gold prices were high, he added.

India isn’t the only country where recycling of gold rose.

Globally, the supply of recycled gold rose by 6% over a year ago to 376.1 tonnes in the July-September quarter this year. On a quarter-on-quarter basis, recycling of gold rose 31%.

Gold Financing Sees A Spike

Along with sales of household gold holdings, financing against gold has also been on the rise.

Muthoot Finance Ltd., the country’s largest gold financing company, saw an increase in gold loan assets under management to Rs 46,200 crore in the quarter ended September 2020 from Rs 40,500 crore in the quarter ended June.

George Alexander Muthoot, managing director at Muthoot Finance, said that there has been strong offtake of gold loans as they are the quickest and easiest form of a credit to avail.

“While a lot of demand has been from small businesses that needed working capital, gold loans have also served as bridge loans for personal needs like medical expenses and education fees. In fact, gold loans are now also being availed by customers for debt consolidation to help pay off higher-cost credit card debt,” he said.

Strong demand at branches as well as digital channels helped the company register the highest ever quarterly growth in its gold loan portfolio of Rs 5739 crore for the three months ended September, Muthoot said.

VP Nandakumar, chief executive officer of Manappuram Finance Ltd., expects their gold loan portfolio to grow 15-20% this year compared to the 10-12% estimated at the start of the year. Demand for gold loans has risen as availability of credit from banks and non-bank lenders have dropped due to heightened risk aversion, Nandakumar said.

Earlier this year, the Reserve Bank of India eased rules for gold loans by allowing banks to lend up to 90% of the value of the gold.

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