Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Gold Is a Lifeline During India Credit Crunch

  by    0   0

Gold is serving as a lifeline for beleaguered Indians in the midst of severe credit crunch.

The government response to the coronavirus pandemic has ravaged the Indian economy. As a result, many banks are reluctant to extend credit due to fear of defaults. In this tight lending environment, many Indians are using their stashes of gold to secure loans.

For instance, Umesh Patil used 40 grams of gold toe raise 130,000 rupees ($1,723.11) in order to purchase seed and supplies to plant his next crop. He told Reuters it was next to impossible for him to secure a loan from a big bank.

State-run banks were seeking lots of documents for crop loans and furnishing them all wasn’t possible quickly. So I decided to pawn jewelry. I got a loan from a local co-operative bank in just an hour.”

According to Reuters, loan growth in India is decelerating rapidly, and analysts project it will hit a multi-decade low of 0 to 1% in the current financial year due to fallout from the pandemic. Somasundaram P.R., head of the World Gold Council’s Indian operations, said gold will continue to serve as a vital lifeline as credit shrinks.

As banks could exhibit greater risk aversion in the current context, gold loans would be a convenient route for many customers to raise liquidity and working capital.”

For many Indians, holding gold provides liquidity that they otherwise wouldn’t have.

Indians traditionally buy and hold gold. Collectively, Indian households own an estimated 25,000 tons of gold. The yellow metal is interwoven into the country’s marriage ceremonies and cultural rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these areas, where the vast majority of people live outside the official tax system.

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey in 2018, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Gold was also a major source of liquidity in 2016 when the Indian government launched a demonetization scheme. In November of that year, the Indian government declared that 1,000 and 500 rupee notes would no longer be valid. They gave the public just four hours notice. The 1,000 and 500 rupee notes made up 86 % of the currency in circulation in the country. With a single pronouncement, the Indian government made virtually all of the cash in India valueless. Many Indians have thwarted a government policy to bring the underground economy out of the shadows by converting their “black money” into gold.

Indians understand that gold tends to store value, and that in the end, gold is money. If they have gold, they know they will be able to get the goods and services they need – even in the event of an economic meltdown. And while westerners may not embrace the cultural and religious aspects of the Indian love affair with gold, the economic reasons for their devotion to the yellow metal are every bit as applicable in places like the US.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Silver Breaks Above $28 an Ounce

The price of silver broke above $28 an ounce Thursday morning. In the last 30 days, silver has gone up by nearly 54%. On the year, the white metal is up over 71%. Even with these big gains, silver remains historically undervalued compared to gold.

READ MORE →

Fed Commitment to Let Inflation Run Isn’t a Promise; It’s a Threat

According to a recent CNBC report, the Federal Reserve is set to make a major commitment to “ramping up inflation.” According to the report, the Fed will pivot to “average inflation targeting.” With this strategy “inflation above the central bank’s usual 2% target would be tolerated and even desired.”

READ MORE →

Americans Currently Owe More Than $21 Billion in Back Rent

Most people remain blissfully ignorant of the economic wounds inflicted on the US economy by the government-imposed economic shutdowns in response to the coronavirus. But every once in a while, the curtain blows back and we catch a glimpse of the damage. For example, a report released last week by global advisory firm Stout, Risius […]

READ MORE →

$2,000 Gold!

Gold pushed above $2,000 an ounce for the first time ever on Tuesday. The spot price broke through $2,000 a little after noon and then immediately sold off over the next 10 or 15 minutes. In a tweet, Peter Schiff said, “You know the gold bull has a long way to run when the first […]

READ MORE →

Despite Big July Gains Silver Still Historically Undervalued

Silver futures were up 25% in July, the second-biggest monthly gain for the white metal on record. And silver is still significantly undervalued compared to gold.

READ MORE →

Comments are closed.

Call Now