With fewer banks around, people in rural areas rely on gold in times of need as it can be easily liquidated
Paul Fernandes, a 50-year-old waiter in India, 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
jewelry to meet expenses, after failed attempts at starting a home business
and finding another job.
“A gold loan is after all a debt that I am taking on,”
he said from his hometown in the coastal state of Goa. “Selling my jewelry
means I am not obligated to pay someone back along with an additional interest
on that.”
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 bullion buyer, a
brutal new wave of the virus has had a catastrophic impact on the economy and
incomes. With fewer banks around, people in rural areas 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 it 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.
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