Gold leasing rates in India reached a record high, having doubled within the past month. This surge follows a similar trend in the overseas market, where rates have spiked due to a supply shortage.
Global banks are redirecting gold to the United States, leading to increased production costs for Indian jewellers like Titan (BSE:TITN), Kalyan Jewellers (BSE:KALN), and Tribhovandas Bhimji Zaveri (BSE:TBZL).
The traditional range for gold leasing rates of 1.5% to 3% has been surpassed, with expectations of further increases. Shekhar Bhandari, president and business head of Kotak Mahindra Bank (BSE:NSE:KTKM), attributes the elevated rates to geopolitical uncertainty, trade tensions, and the advantages of higher futures prices on the CME compared to spot prices. He anticipates that leasing rates will remain high for the coming months.
The shift of gold to the U.S. from London, Switzerland, and Asian hubs like Dubai and Hong Kong is in response to the high premium of U.S. gold futures over spot prices. This movement has significantly impacted gold leasing rates in London, the central OTC market, and consequently in India, where banks borrow gold from international banks and lend it to local jewellers.
According to Reuters, jewellers in India were unprepared for the sudden hike in leasing rates, according to Amit Modak, CEO of PN Gadgil and Sons. The unexpected increase has left many unsure about managing the situation. The premium on COMEX futures over spot prices widened to about $28 per ounce on Monday, while India saw discounts as high as $24 per ounce.
In India, gold vaults are nearly empty as banks have prioritized moving gold to the U.S., where it fetches a premium, rather than bringing it to India, where the market is at a discount.
A Mumbai-based dealer with a bullion importing bank noted that despite low demand in India, which could have driven discounts above $100, the supply crunch has prevented prices from skyrocketing.
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