Gold leasing rates in India have reached record levels, doubling within a month due to a tightening global supply.
Banks are diverting gold to the United States to take advantage of higher futures premiums, reducing availability in India. This shift is increasing jewellery production costs in the world’s second-largest gold-consuming market.
Impact on Indian Jewellers
Jewellers in India source gold through leasing arrangements, where banks import gold and lend it to manufacturers. Leasing rates, which typically range between 1.5% and 3%, have now exceeded this level, with further increases expected. Shekhar Bhandari, president and business head at Kotak Mahindra Bank, attributed the rise to multiple factors, including “geopolitical uncertainty, trade war, and benefit arising out of higher futures prices on CME as compared to spot.”
The sudden increase in costs has created uncertainty among jewellers. “Jewellers were caught off-guard by the leasing rate shooting up to a record high,” said Amit Modak, CEO of PN Gadgil and Sons. “Now they’re clueless about how to handle it.”
Global Market Factors
International bullion banks are moving gold from trading hubs such as London, Switzerland, Dubai, and Hong Kong to the U.S., where futures prices offer higher returns. This has contributed to a rise in leasing rates in London, a key over-the-counter (OTC) market, which in turn has influenced Indian rates.
Meanwhile, Indian bullion banks have slowed gold imports as the domestic market is trading at a discount, making it less attractive for suppliers. The premium on COMEX futures recently widened to about $28 per ounce, while gold in India has been selling at a discount of up to $24 per ounce.
Challenges for the Jewellery Sector
With reduced imports and vaults in key Indian cities running low on stock, jewellers are facing higher costs and tighter supply conditions. A Mumbai-based bullion dealer noted that “Indian discounts could have risen above $100 due to negligible demand. But a supply crunch is keeping them from sky-rocketing.”
If leasing rates remain elevated, jewellers such as Titan, Kalyan Jewellers, and Tribhovandas Bhimji Zaveri could see increased production costs, potentially affecting profit margins. The current market conditions highlight the impact of global gold movements on India’s jewellery sector, with ongoing challenges in securing supply at stable prices.
