16 July 2014

Indian monsoon & 12.5% interest gold loans

I have a short post up on the corporate blog on the current state of the Indian monsoon, which matters because poor agrarian Indian farmers are purported to buy over 60% of Indian gold. If monsoon rains are good they buy gold, if not they sell some to buy next year’s crop.

While writing this article came up which is mildly negative for Indian gold demand (as it is only talking 80 tonnes) as it seems the jewellery industry is going to be further crimped by a new rule limiting their gold deposit schemes (ie people lend gold to jewellers to fund their business) to 25% of their assets. The really interesting thing is that the new law also prevents the jewellers from paying more than 12.5 per cent annual returns on those gold loans! Talk about using gold as money. I suppose they have to pay those rates due to the risk of them running off with the gold or going bankrupt.

Just wait to Wall Street finds out about these yields - beats current junk bond rates. With investors desperate for yields in ZIRP environment will we see Wall Street selling Indian Jeweller bonds at 10% (yep 10%, where do you think those bankers bonus come from)?


  1. Loans on gold are a win-win situation for both customers as well as banks and finance companies as the rate of default is almost zero. In most cases, people take loans on gold to meet immediate requirements - for instance, hospital charges or weddings.

  2. Are these indian gold loans denominated and settled (principal and interest) in gold, US dollar or Indian rupees?

  3. Don't know, usually Indian loans are more about people using gold as collateral against cash loans, this is more a case of actually lending gold to someone for them to use.

  4. Yes, lending gold to a jeweler for production is a type of gold loan of which the principal is in physical gold for a fact. Now we need to know if the interest is settled in physical gold as well. I'll ask my source in India.

    I also asked him about the rainfall, he replied:

    Based on my conversation with a couple of people... Rainfall has been good so far, although a bit delayed. This is not expected to negatively affect agricultural production. So, I don't think this should be the reason for worry about the gold market in India.

    However, not much gold is being traded in India right now. This is for two reasons in my view... The wedding season is over, so this demand is gone. Add to that the fact that by this time, farmers have run out of cash, having just sown their fields.

  5. Hello everybody, I am Mrs Marcia,currently living in phoenix,USA.I am a widow at the moment with three kids and i was stuck in a financial situation by march 2014 and i needed to refinance and pay my bills. I tried seeking loans from various loan firms both private and corporate but never with success,and most banks declined my credit. But as God would have it,i was introduced to a private loan lender by a friend named Mr Malcolm and i got a loan sum of $10,000USD and today am a business owner and my kids are doing well at the moment. So dear,if you must contact any firm with reference to securing a loan with low interest rate of 3% and better repayment plans and schedule anywhere in the world,please contact Mr Mohammed. He doesn’t know that am doing this but am so happy now and i decided to let people know more about him,He offers all kinds of loans to both individuals and companies and also i want God to bless him more. You can contact him through his email via: mohammedfinancials@hotmail.com