Gold Prices Have On Your Gold Loan: A gold loan can be affected by fluctuations in gold prices, so you should know what to expect. Here’s more information.
A gold loan is a hassle-free solution for individuals in need of a loan. Gold jewelry pledged by the borrower secures the loan. A lender returns gold jewelry pledged by a borrower after fully repaid. There is a common trend of gold rates fluctuating almost daily across the globe. Gold rates can often reach extremes, causing emotions ranging from joy and happiness to sorrow and despair. Gold rates have been on a rollercoaster ride in the last few months, reaching great heights and plunging to extreme depths.
Even though most borrowers are concerned about gold loan interest rates, processing fees, and repayment tenure, not as many are aware of the impact of gold prices on the loan. What your gold loan can be affected by the yellow metal’s price is explained in detail below:
What causes gold prices to fluctuate? Below are a few factors that could shed some light on the subject.
The Central Bank takes action
Every country has a gold reserve managed by its central bank, as gold is perhaps the most stable investment (in terms of survival). The gold rate can be affected by any decision made by a central bank regarding its gold reserves. Due to China’s decision to sell some of its gold reserves on the market, gold rates plummeted. In an equatorial forest, gold rates can fluctuate due to similar actions by other central banks.
There can be direct or indirect effects of government policies on gold rates in a particular country. Economic policies of significant countries can also affect global gold rates. As an example, a tentative decision by the United States Government to cut interest rates caused a surge in gold prices across the globe, sending rates tumbling even though the decision was just a suggestion. Across continents, the actions of major gold producers can influence gold prices.
A Demand-Supply Relationship
We live in an economic environment that relies heavily on demand and supply chains. Because gold is a natural resource, it is only available in a few places, and its production depends on its availability. Limited supply makes gold rates play hide and seek, as there is a massive demand for gold across the board. The recent gold offloading by China into global markets resulted in a surplus supply and low demand, which pushed gold prices down.
With new investment opportunities opening up, gold is no longer considered the safest option. Gold does not offer highly high results, and the lure of high returns has consequences, and investors have turned away from it for the interest of high returns. Due to the decline in investment, demand and supply have fluctuated, affecting prices. Gold prices can fluctuate weekly due to changing investment needs.
Changes in the exchange rate
US Dollars are most commonly used for trade in the gold market, generally traded in global currencies. Currency changes in these local nations can impact gold loan interest rates, either pushing it up or burying it. Gold prices are historically inversely proportional to the strength of the US Dollar, with prices rising when the dollar falls and vice versa. There can also impact gold rates from changes in other currencies, though these changes might not always be noticeable.
Relationships with other countries
International relations can influence fluctuations in gold rates. Gold is often referred to as a crisis metal, maintaining its relevance during wars and geopolitical crises. Gold prices could rise if gold producers had troubled relations with other influential nations, but prices could fall if they had good relations.
Amount of Gold Loans
Based on the total value of gold pledged by the borrower, Loan-to-Value is the maximum amount a lender will approve. Banks and non-banking financial institutions have been limited to 75% LTV for gold loans by the Reserve Bank of India. Accordingly, if you pledge gold worth Rs. 1 lakh, you can get up to Rs. 75,000 as a loan.
What are Gold Prices and LTV?
Based on the same scenario, if the gold price rises by 10%, the gold worth Rs. 1 lakh will have an increased value of Rs. 1.10 lakhs. 75% LTV now equals Rs. 82,500. Therefore, borrowers may borrow a larger amount if the gold value increases.
Therefore, if you are also interested in taking a gold loan for any of your purposes, you can consider Rupeek, one of the latest companies that can help you get an easy gold loan at very affordable interest rates. There are already many people who have a gold loan from Rupeek. With a few simple steps, you can get your gold loan approved.