There is also a possibility of default on loan against gold pledged by poor and middle class people in the time of crisis like this.
So far as gold loans are concerned, companies providing these loans and the banks are thinking of recovering default amounts by selling the gold pledged to them as collateral, but under the present circumstances, the recovery is looking impossible.
Ahammed MP, Chairman, Malabar Gold and Diamonds said, “It is a fact that the per capita expenditure on gold jewellery in Kerala is the highest in the country. But that kind of robust demand has been affected by the recent floods. The market sentiment in Kerala is extremely low at the moment as people are struggling to deal with the aftermath of the devastating flood.
As a result of the prevailing situation, the retail trade across industries during Onam will remain muted."
He said, "The demand for gold jewellery at the consumer-end will be sluggish during Onam. We have posted a modest 6% growth in jewellery sales in Kerala in August, as against the usual growth rate of 12-15 per cent.”
According to industry sources dealing with the Kerala market and analysts tracking the gold, given the fact that the state is a big market for gold, several people use the yellow metal as collateral for getting finances. There is possibility of large-scale defaults in repayment and pledged stock could come for auction augmenting the supply of gold.
An industry official from Kerala said, "Some parts of the state, which has not been affected much by the floods, has started buying jewellery for festivals and marriage."
An analyst tracking gold movement said, “We see a huge number of flood-affected people selling gold and jewellery to generate cash to meet rehabilitation fund requirement.” He also said the selling would augment supplies.