The Relationship Between Gold Price and Demand for Gold Loans
Since the COVID-19 years, the demand for almost everything has drastically changed, and that too in an erratic manner. However, our beloved yellow metal has managed to survive the journey with an increasing demand throughout. Wondering why and how? Today, Bhumi Finance which provides the best gold loan in Ghazipur, is here with yet another blog on the relationship between gold prices and the demand for gold loans.
Gold is Always in High Demand
During the COVID-19 years, a plethora of borrowers was seen buying gold to increase their cash reserves in the near “uncertain” future. A gradual yet constant increase in the demand for gold has helped the borrowers to receive better gold loan services in Ghazipur for the same quantity and quality of gold. However, there’s more to this. Gold has always been in demand because:
- It’s a safer investment instrument.
With the injection of more liquidity in the market along with a norm of a moratorium on loan repayments. So, several investors t it was better to invest in gold with the falling interest rates on other investments. Also, the stock markets were volatile.
- The spike in gold prices in the international market.
The gold price in India sees heavy influence by the gold’s international price. Due to the rising number of Covid-19 cases around the world, the global economic slump, and an increase in US-China tensions, the price of the yellow metal saw a hike in the international market. This trend has continued since then.
- A fluctuating currency exchange rate
Since the lockdown, there has been a sharp decline in the Indian Rupee, and has been undergoing major fluctuations. Thus, the fluctuation in the exchange rate impacts the gold price. With high gold imports on a high exchange rate, the price of the precious metal also increases.
- The new LTV norm by RBI.
Loan-to-Value ratio (LTV) is the percentage of the loan amount that the lender can offer borrowers. This amount is based on the gold value that the person provides as security. For NBFCs (non-banking financial companies), the LTV on the yellow metal is up to 75%. The lender can allow prepayment if the LTV goes beyond this limit. Together with the price hike and an increase in LTV, the demand for a loan on gold has seen a rise as well.
- Hedge against inflation.
The value of currency decreases with an increase in inflation. Gold price is usually not affected by inflation. Rather, many people invest in this asset as other investment options may not provide high returns during inflation. The yellow metal is thus a hedge against inflation. This also tends to impact the interest rate of any and every business loan in Basti.
- The curious case of import duty
India is one of the top consumers of gold. It however contributes less than 1% of the total global production of this precious metal. Thus, the country imports a majority of the gold it requires to meet the demand of citizens. Thus, a change in the import duty of India for gold will play a role in the selling price of this metal.
- The melee of the jewelry market
We Indians, love gold. As a result, during weddings, festivals, and religious functions, the demand for gold is at its peak. During this period, the price of yellow metal also sees a significant boost.
- Shout out to government reserves
The Indian government has gold reserves. And as per the government’s policies, it can sell or buy the precious metal through the RBI. The gold price is thus influenced by whether the government sells or buys more. Subsequently, opting for a loan against gold in Ghazipur has been in great demand.
- The interest rates of other investment instruments
When the interest rates on other investments fall, people may rather invest in gold if the offered returns are greater than the said alternatives. The price of yellow metal moves as per the fall and increases in the other investments’ rates. When people purchase more gold, the price and demand of the precious metal also rises, and vice-versa. Thus, the asset shares an inverse relationship with the interest rates.
So, this was everything you needed to know about the existing relationship between the gold price and the demand for a gold loan Varanasi. To get the best interest rate on your gold loan, visit us at https://bhumifinance.com/. Reach out to the best loan providers - Bhumi Finance for a lucrative business loan in Ballia and a home loan in Basti.