Blasé Capital OLD IS GOLD

Forget gold prices, although they are important in this story. Forget buying gold, but that too is crucial. Remember selling gold, especially old gold that is lying with Indian households for years, decades, even a century or more. Over the past two years, and particularly in the past few months, Indians have begun to dust old gold, lying at home or in bank vaults, shining them up, and either selling it, or pawning it for loans. According to Experian India, as unsecured borrowing becomes expensive, as personal loans and credit become costlier, gold loans have made, and are making, a comeback, and with a vengeance. Today, gold is more of a “practical financial safety valve,” and gold loans are among the “fastest-growing secured credit products.” Apart from households, young professionals, and small businesses have joined the queue. Old, and new gold does not matter, as long as it shines and is yellow.

Apart from genuine gold, or gold that is backed by proper paperwork or provenance, ‘black’ gold is on an ascendant. Since raw-cut gold, which is cut from raw bricks, unlike the bars sold by the premium firms, is sold at discounts in the narrow lanes of Chandini Chowk in New Delhi, and similar bazaars in other cities, the demand has gone up. There is no paperwork to buy this gold, which is cut from a rough brick, much like the butcher cuts slices of meat from a hanging animal. Resale is on trust, and largely to the same seller since he or she knows the value, and has made a promise to buy it back, albeit at a discount. Such gold is kept in the vaults in the steel almirahs at home, rather in banks, and the expected price escalation is almost the same as genuine gold. People who earn a part of their incomes in cash, or have cash, prefer this mode.

At the same time, imports have zoomed, despite a nine per cent cut in import duties in 2024. Earlier, the differential between global and Indian prices was as high as 20 per cent, 15 per cent duty, plus sales tax. Despite the cut, it is still 8-9 per cent, which is enough to leave a minimum profit of five per cent for the smuggler, after adjusting for other costs, including bribes, if required. This implies a minimum margin of more than INR 8,000 per 10 grams, or INR 8,00,000 per kg. Imports of 100 kgs a year is about INR 8,00,00,000. If one talks in terms of tonnes, with India being the largest importer, the smuggling cartel can earn hundreds of crores of rupees. Recently, Customs and Enforcement Directorate have caught hundreds of Indian and foreign ‘human mules’, who ferret gold for the smugglers. There was a case of illegal imports of tens of tonnes from China across Tibet.

Before this year’s budget, experts expected Finance Minister Nirmala Sitharaman to reduce the import tariff on gold by three per cent to reduce the smuggler’s margins, and reduce the illegal inflow. However, she took another path, the one that was least expected, and was of least resistance, and favoured the consumers. Under the baggage rules, Indias could earlier import gold (20 grams for non-female, and 40 grams for female), with a cap on value. Since gold prices rose, and continued to rise over the years, the value caps became a squeeze. They were unable to cover the weight caps, which forced genuine buyers to bring in less quantities. Now, the value cap is gone. So, genuine imports under the baggage rules will rise. This is the finance minister’s way to dissuade people from buying smuggled gold, and bring it officially. The flip side is evident. Smuggled gold is sold at a discount, just like the illegal raw-cut gold. In a price-sensitive economy, where papers do not matter, and corruption is rampant, people may prefer illegal gold. In essence, gold demand will go up, as Indias bring in more genuine gold, and buy more of the smuggled gold. In India, the appetite is unending.

In the recent past, gold futures have tumbled by 10 per cent, which may indicate some turbulence in the future. The same is true for silver. Investors are now caught between the devil and angel, as some feel the upward trend will continue after a break, and others worry if this is the beginning of the end of the gold cycle this time. The dollar and US economy hold the key. If the decline of the

dollar reverses, as it did in the recent past, gold will stumble. If the US economy does better than expected, as it has done by not being as worse as estimated, gold will tumble. But if the geopolitical disruptions and tensions continue, investors will seek safety in the yellow metal. The signing of two big bilateral trade deals, India with the European Union and America, will be bad news for gold. But if the agreements hit India due to higher

imports, gold will gain. There are too many ifs and buts, as is usual in a fast-changing world. The stock markets are spooked, as they rumble and tumble, 1,000 points here, 2,000 points there, with each day bringing fresh stories and narratives of why what happened.