As safe-haven gold surges again, loan demand to also shoot up

Mumbai: Gold loan companies are bracing for a fresh surge in demand as the yellow metal rallies to record highs amid escalating geopolitical tensions. Industry players believe that elevated gold prices could significantly accelerate demand for gold-backed credit, particularly among MSMEs and especially from customers seeking quick, collateral-backed financing to manage inventory cycles, meet operational expenses, or navigate cash-flow volatility. Gold prices in India climbed sharply, with rates jumping to around ₹1,70,000 per 10 grams.

“From a gold loan perspective, higher gold prices have a constructive impact, particularly for MSME customers,” said John Muthoot, chairman & managing director, Muthoot FinCorp – part of The Muthoot Pappachan Group. “Nearly 67% of our customer base comprises small business owners and self-employed individuals. Rise in gold prices enhances working capital availability without requiring additional collateral. This can support inventory purchases, manage receivables cycles, and provide short-term cash flow stability during periods of uncertainty.”

Shares of Muthoot Finance gained 3.5% on Tuesday climbing to ₹3,470 a share.

Gold prices, which typically escalate during periods of geopolitical uncertainty, have already surged more than 80% over the past one year and are ruling near $5,400 a troy ounce. Over the weekend, Iran’s top leadership was killed in US-Israel attacks, plunging the already volatile Middle East into another bout of chaos.

Gold loans have recorded a CAGR of over 30% in the past couple of years across the system – more than twice the growth rate of personal loans. They are now the largest retail loan category after housing, accounting for 14-15% of the portfolio. A significant portion of this growth has been driven by rising gold prices, which have doubled over the past few years.

While PSU banks account for 45-50% of total gold loan originations by value, NBFCs contribute 45-50% by volume.”While earlier expectations suggested that gold prices may have plateaued, the renewed geopolitical developments and global macro uncertainties are likely to keep prices firm,” said Manish Mayank, business head, gold loan, IIFL Finance. “In such an environment, we generally see a pick-up in gold loan demand, especially from small business owners, traders, and households who prefer leveraging their existing gold assets for short-term liquidity rather than liquidating investments or taking unsecured credit.”

Gold has historically served as a safe-haven asset during periods of geopolitical uncertainty, and the tensions in the Middle East have once again reinforced that trend. Rising gold prices improve customer sentiment and enhance borrowing capacity, as the value of the collateral increases.