Gold leasing rates in India have doubled within a month to a record high, following the overseas market, where rates jumped due to a supply crunch as global banks divert the precious metal to the United States, industry officials told.

Higher leasing rates are driving up jewellery production costs in the world's second-largest gold consumer and could squeeze margins of jewellers such as Titan (TITN.NS), opens new tab, Kalyan Jewellers (KALN.NS), opens new tab, and Tribhovandas Bhimji Zaveri (TBZL.NS), opens new tab.

Gold leasing rates, which traditionally hover around 1.5% to 3%, have more than doubled in a month and could rise further, Shekhar Bhandari, president and business head of Kotak Mahindra Bank (KTKM.NS), opens new tab told Reuters.

"Given the geopolitical uncertainty, trade war, and benefit arising out of higher futures prices on CME as compared to spot, it seems leasing rates will remain elevated for the next few months," he said.

Global bullion banks are flying gold into the United States from London, Switzerland, and Asian hubs such as Dubai and Hong Kong to capitalise on the unusually high premium of U.S. gold futures over spot prices , Reuters has reported.

The rush to move gold to the United States has lifted gold leasing rates in London, the world's key over-the-counter (OTC) market.

Banks in import-dependent India borrow gold from overseas banks and lend to jewellers. Rising borrowing costs have proportionally increased leasing rates in India, Bhandari said.
"Jewellers were caught off-guard by the leasing rate shooting up to a record high," said Amit Modak, chief executive of PN Gadgil and Sons, a jeweller based in the western city of Pune.

"Now they're clueless about how to handle it."
Bullion-supplying banks were not bringing gold into India in recent weeks since the market is in discount, while deliveries on COMEX fetch premium, a Mumbai-based dealer with a bullion importing bank said.

The premium on COMEX futures over spot prices widened again to about $28 per ounce on Monday, compared with discounts as high as $24 in India.

Vaults in key Indian cities storing gold imported by bullion banks are nearly empty, as banks have moved gold to the United States and are not interested in bringing it to India given the discounts, said another Mumbai-based dealer with a bank.

"Indian discounts could have risen above $100 due to negligible demand. But a supply crunch is keeping them from sky-rocketing," he said.

Courtesy: Reuters