Falling gold prices take shine off gold loan companies
A high loan value and delayed auctions owing to regulatory restrictions suggest a crisis in earnings is around the corner
Lending against gold is not a low-default business. Rather, it reports lower losses when defaults happen simply because the loans are secured by the precious metal. Even when gold prices are falling, risks increase, but only a bit as non-performing assets are auctioned and the money is recovered. But, when the loan value is a high portion of the gold taken as security, auctions are delayed owing to regulatory restrictions or otherwise and gold prices fall, a crisis in earnings is around the corner.