Jun 8, 2023

Gold has always been regarded as a secure and reliable investment. It is one of the most favoured investment options in India, particularly among risk-averse investors. Gold is not just a precious metal; it is also used as collateral for loans. Gold loans are becoming increasingly popular in India as they are quick and easy to obtain. However, the value of gold is not static and can fluctuate over time. How are gold prices determined? Gold prices are determined by various factors such as global economic conditions, inflation, currency fluctuations, geopolitical tensions, and demand and supply. Gold prices are also affected by the demand for gold jewellery, coins, and bars. The price of gold is usually quoted in ounces, grams, or kilograms. How do gold price fluctuations affect your gold loan? Gold price fluctuations can have a significant impact on your gold loan. When the price of gold increases, the value of the collateral also increases, and the loan amount that can be availed against it also increases. On the other hand, if the price of gold decreases, the value of the collateral decreases, and the loan amount that can be availed against it also decreases. To understand this better, let us look at an example. Suppose you have pledged 100 grams of gold to a lender, and the market value of gold is Rs. 4,500 per gram. In this case, the total value of the gold is Rs. 4,50,000. If the lender offers you a loan at 75% of the market value of the gold, you can avail of a loan of up to Rs. 3,37,500. If the price of gold increases to Rs. 5,000 per gram, the value of the gold increases to Rs. 5,00,000. In this case, you can avail of a loan of up to Rs. 3,75,000 at 75% of the market value of the gold. On the other hand, if the price of gold decreases to Rs. 4,000 per gram, the value of the gold decreases to Rs. 4,00,000. In this case, you can only avail of a loan of up to Rs. 3,00,000 at 75% of the market value of the gold. Thus, the fluctuations in the price of gold can affect the loan amount that you can avail of. Gold loans are an attractive option for borrowers as they are quick and easy to obtain. However, the value of the gold pledged as collateral can fluctuate over time, which can have an impact on the loan amount that can be availed of. It is important to keep track of the market value of gold and plan accordingly when availing of a gold loan. In case of a significant increase in the price of gold, it may be beneficial to avail of a loan against the increased value of the collateral. On the other hand, in case of a significant decrease in the price of gold, it may be advisable to repay the loan or top up the collateral to maintain the loan amount.