Hit hard by pandemic, people offload their gold heirlooms
The brutal second wave has had a catastrophic impact on income, economy
Paul Fernandes, a 50-year-old waiter in Goa, last year took out a loan 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 jewellery to meet expenses, after failed attempts at starting a home business.
“A gold loan is after all a debt that I am taking on. Selling my jewellery means I am not obligated to pay someone back along with an additional interest on that,” he says.
With the pandemic pushing millions into poverty or bankruptcy, many are now turning to their last resort: selling their gold jewellery to make ends meet. In rural areas, the biggest bullion buyer, a brutal new wave of the virus has had a catastrophic impact on the economy and incomes. With fewer banks around, people rely on gold in times of need as it can be easily liquidated.
The likelihood of financial distress caused by the second wave is much higher and
could lead to more outright sales of gold, unlike in 2020, when consumers chose to take out loans against their stash of the metal, according to Chirag Sheth, a consultant at London-based Metals Focus Ltd.
Gross scrap supplies, which include old gold melted to make new designs, may exceed 215 tons and surge to the highest in nine years if a new
wave emerges, he said. For a nation that imports almost all its gold mainly from Switzerland, higher local supply will also limit overseas inflows.
“We can expect distress sales in a big way in August and September when the third wave could actually set in,” said Sheth. Many who had clawed their way out of poverty face grim job prospects as lockdowns crippled the economy. More than 200 million have gone back to earning less than minimum wage, or $5, a day.
In an initial sign of stress among consumers, Manappuram Finance Ltd., one of India’s biggest gold loan providers, auctioned 4.04 billion rupees (Dh19.9 million) of gold in the three months through March from loans that turned sour. That compares with just 80 million rupees auctioned in the prior nine-month period. The jewellery was sold as Manappuram’s borrowers — daily wage earners and farmers — couldn’t afford to repay the money.
Unlike in 2020, when consumers chose to take out loans against gold, we can expect distress sales in a big way in August and September when the third wave could actually set in.”
South overtakes North
In southern India about 25 per cent more of old gold than usual has been sold to jewellers, according to James Jose, managing director of Kochibased refiner CGR Metalloys Pvt. “After the lockdown, the shops are open and you can see very good footfalls in the shops for two reasons: one is purchases in relation to the wedding season and some amount of liquidation for cash,” Jose said by phone. In 2020, gold sales fell to the lowest in more than two decades, according to the World Gold Council.
Chirag Sheth | Consultant