A sharp increase in gold prices has also deterred investors this Akshaya Tritiya. Gold has offered 44.6 per cent returns in the last one year as the price of the yellow metal rose to Rs 45,550 per 10 gram on Monday, compared to Rs 31,500 per 10 gram quoted on the same auspicious day last year on May 7, 2019.
This could lead to another problem for jewellers. While the demand has been washed out, customers may queue up to sell gold holdings.
Aditya Pethe, director, Waman Hari Pethe Jewellers, said: “Customers in need of money may decide to sell gold or jewellery as prices are significantly higher than their purchase price. We will have to wait and see how that turns out when jewellery shops open.”
He, however, was more worried about the rising gold prices causing margin pressure during the lockdown.
Many jewellers take gold as loan from banks and return the loan in the form of gold when the jewellery made from that gold is sold. Even if gold prices rise, the higher price they get for jewellery covers the price risk.
According to industry estimates, on an average, 100 tonnes of gold is outstanding as gold metal loan at any day. However, banks charge margins as collateral from the borrowers of gold metal loan. Since this is determined on the price of the gold, with the prices rising, banks keep on asking additional margins. This demand for margins in the time of closure has started worrying all jewellers who have gold metal loan outstanding.
India Bullion and Jewellers Association has sought several concessions from the government. Surendra Mehta, national secretary of the association, said: “The government should ask banks to stop asking for margins on gold metal loans, and all such loans shall be sanctioned in weight of gold.”
This was also recommended by the NITI Aayog panel.
IBJA’s other demands include moratorium of cash margin and charges and non-fund based limits and permitting rollover of all gold metal loans without necessitating physical import of gold. When gold is returned for gold metal loan in some or the other way, it requires additional import which, Mehta said, is not required.