The Finance Minister’s decision to slash import duty on gold to 6% from 15% in the Union Budget 2024-25 will boost the business of gold loan companies going forward. In my view, the decision will set off an uptick in gold buying cycle in the short-to-medium term and will be mirrored in the retail sales of gold in the upcoming festive season. Consumers will use this window to buy ornaments to meet their pent-up demand. Demand for gold loans from households is more a function of their requirement for money to meet contingencies than just prices. Secondly, reduction in gold prices at the retail end is not significant to impact LTV offered by gold loan companies. This means that lower prices will neither trigger margin calls nor will it lead to repricing or restructuring of existing loans. Finally, it is geo-political factors that exert a predominant influence on gold prices.
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