Indians increasingly monetize gold as collateral for loans


Everyone Gains as Gold Loans Soar to Rs 55,000 Crore

By Smriti Seth
The Economic Times, New Delhi
Monday, December 12, 2011

More than Rs 50,000 crore worth of gold is likely to be pleged this year to procure loans in a rapidly expanding gold loan market, allowing India's favourite hoarded asset to re-enter financial markets and provide a boost to the economy.

According to industry estimates, around 200 tonnes of gold have been used as collateral to raise loans by end November in 2011-12 fiscal.

A back-of-the-envelope calculation shows nearly Rs 55,000 crore worth of the yellow metal has been pledged to raise loans to buy goods, real estate or fund short-term farm credit, providing some momentum to slowing economy.

That stacks up well with about Rs 2.5 lakh increase in commercial bank credit in credit over April-November. "Gold loans help unlock value that is normally lying idle," said Siddhartha Sanyal, chief India economist at Barclays Capital.

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Prophecy Drills 384.9 Meters Grading 0.623 g/t PGM+Au,
0.3% Ni, 0.15% Cu (0.45% NiEq) From Surface At Yukon Wellgreen Project

Company Press Release
Thursday, December 8, 2011

VANCOUVER, British Columbia -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) has announced the final drill results from 2011 drilling at the company's fully owned Wellgreen platinum group metals, nickel, and copper project in the Yukon Territory.

Borehole WS11-192 intercepted 384.9 meters of 0.45 percent nickel equivalent starting from 9.45 meters depth. Included in this greater interval of continuous mineralization is a platinum group metals-rich zone with a combined platinum-palladium-gold grade of 1.358 grams per ton over 19.23 meters (nickel equivalent 0.74%).

The final drilling results for 2011 have shown the Wellgreen Central-East and Central-West deposits to be one contiguous body, whereby there is good potential to broaden significantly the Central-West resource base, which currently contributes only about a quarter of the current 43-101 compliant resource at Wellgreen. Overall the drilling program met with good success in expanding the resource to the east and south. The long drill intercepts suggest the deposit remains very much open in those directions.

For the complete drilling results and the full company statement, please visit:

"The organised gold loan market is just developing in India and can potentially be a source of liquidity, particularly for the middle- and upper-middle-class category," he added.

A recent report published by Citibank estimates that the organized gold loan market was worth Rs 50,000-Rs 53,000 crore during 2010-11 and had been growing at a compounded annual growth rate of 35 percent over the previous 5 years.

Gold has traditionally been used as a store of value, making it a dead asset that has no productive use in the economy, more so as it is mostly imported.

From a lenders perspective, gold is a very secure asset and the value of the loan as a percentage of the collateral is constantly falling due to rising gold prices.

"Propensity of default is also very low because the borrowers are emotionally attached to their gold," said V. Sriram, CEO of ICRA Management Consulting Services.

The loans work out as very attractive for the borrowers as well, as the rates charged are much lower than that that on unsecured personal loans.

The average rate of interest on loans issued against gold is 12-24 percent and time taken to process an application is at most 24 hours, whereas the rates on personal loans go up to 36 percent and processing takes much longer.

The rising trend of gold loans helps monetize this asset, which John Maynard Keynes once famously called a "barbarous relic."

Organized gold loans "could further support consumption since gold is no longer considered an asset to buy and hold -- that is, a 'dead' asset -- and is now being used as a collateral across income groups," said Rohini Malkani and Anushka Shah.

According to industry studies, since gold loans provide essential funds for investment or consumption purposes, they help generate additional aggregate demand in the economy.

"Gold loans are mostly raised for personal uses. For instance, in rural areas gold loans are used for agricultural purposes or to finance consumption. In urban areas, loans are being raised for either by entrepreneurs or for real estate purposes," said Sreejesh, assistant marketing manager at Manappuram finance, one of India's leading gold finance companies.

By the end of November this fiscal, according to industry estimates, total credit issued by banks grew at around 20 percent, organised gold loans grew at near 50 percent, making it an increasingly important source of liquidity.

Economists, however, believe that although gold loans help liquidate a "dead" asset, its effect on the economy is still limited because it is only a small segment of the loanable funds.

"India is a consumption-based economy, and if money is stuck in gold, it can't circulate in the markets. Gold loans help overcome this but will have a limited impact on the economy because its share is very small", said Rajesh Shukla, director of the NCAER Centre for Macro Consumer Research.

The total incremental credit bank credit in the current financial year so far was about Rs 2.5 lakh crore against near Rs 55,000 crore lent by finance companies against gold. But the potential is phenomenal considering the 18,000 tonnes of gold Indians hold.

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Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit: