As safe-haven gold surges again, loan demand to also shoot up

As gold prices reach record highs, spurred by escalating geopolitical tensions, gold loan companies in India are anticipating a significant uptick in demand for gold-backed loans. With gold prices soaring to approximately ₹1,70,000 per 10 grams, industry experts assert that the current climate will particularly benefit Micro, Small and Medium Enterprises (MSMEs) seeking quick, collateral-backed financing to manage their operations. John Muthoot, chairman of Muthoot FinCorp, noted that a substantial portion of their clientele consists of small business owners who can leverage rising gold values to enhance working capital without needing further collateral. Over the past year, gold prices have surged more than 80%, driven by global uncertainties, particularly following recent geopolitical developments in the Middle East. This surge has resulted in a compound annual growth rate (CAGR) of over 30% for gold loans, making them the second-largest retail loan category after housing. With public sector banks and non-banking financial companies (NBFCs) equally contributing to the gold loan market, financial experts predict sustained demand from business owners and households who prefer utilizing their gold assets for liquidity rather than resorting to unsecured credit. The historical trend of gold as a safe-haven asset positions it as a crucial financial instrument in these turbulent times, enhancing borrowing capacity and customer sentiment alike.