With millions of Indians forced into poverty or bankruptcy as a result of the pandemic, many are falling to their final resort: selling their gold jewelry to make ends meet, reported Bloomberg.
As per the report, the terrible new wave of the virus has had a disastrous impact on the economy and earnings in rural India. Because there are fewer banks in rural regions, individuals rely on gold in times of need because it is readily liquidated.
Quoting a 50-year-old waiter, Paul Fernandes Bloomberg reported that the waiter, last year, after losing his job on a cruise liner took out a loan using his gold as security to pay for his children’s education. He’s selling his gold jewelry to cover expenses this year after failing to start a home business and find another employment.
“A gold loan is after all a debt that I am taking on,” he told Bloomberg. “Selling my jewelry means I am not obligated to pay someone back along with an additional interest on that.”
Quoting Chirag Sheth,a consultant at London-based Metals Focus Ltd, Bloomberg reported that the possibility of financial difficulty induced by the second wave is significantly larger, and it may result in more outright gold sales, as compared to 2020, when customers decided to take out loans against their gold holdings.
“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 told Bloomberg. For a nation that imports almost all its gold mainly from Switzerland, higher local supply will also limit overseas inflows.
“You already had a financial problem last year and you got out of that problem through gold loans. Now again, you are having financial problems this year with a potentially third wave on the way, which can again mean lockdowns and job losses,” said Sheth. “We can expect distress sales in a big way in August and September when the third wave could actually set in.”
As per the report, many Indians 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,” read the report.
Indians have been cutting down on their gold purchases, according to the report, in the past couple of years as a weak economy and the virus outbreak trims their spending power. According to the World Gold Council, in 2020, gold sales fell to the lowest in more than two decades.
“Still, demand may rebound this year, rising as much as 40% from a year ago, driven by a fall in prices and about 50 tons of latent wedding purchases being pushed to this year from 2020,” Metals Focus’ Sheth told Bloomberg.
“The third wave remains the biggest risk to our estimate,” he said.