Shares of gold loan providers, including Muthoot Finance, Manappuram Finance and IIFL Finance, extended their gains on Friday as gold prices continued to climb, supported by a weaker dollar and the US Treasury’s bond-buyback move.
Gold prices have been recording sharp gains since Thursday after a surprise liquidity support announcement by the US Treasury pushed yields and the dollar lower.
Gold futures on the MCX with an October expiry crossed Rs 1.6 lakh per 10 grams, while the December and February contracts traded above Rs 1.62 lakh and Rs 1.64 lakh per 10 grams, respectively.
Muthoot Finance, Manappuram Finance and IIFL Finance provide loans with gold as collateral.
Rising gold prices will increase the value of the pledged collateral. Since gold loans are sanctioned based on the per-gram valuation of gold, higher prices will require borrowers to pledge less jewellery to access the same loan amount, which in turn can make such loans more attractive.
Muthoot Finance shares jumped 3% on Friday to trade at Rs 3,047 apiece, while Manappuram Finance gained over 2%. IIFL Finance shares rallied around 6%. The three stocks have gained 5-7% over the past two sessions.
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What’s boosting gold prices?
The US Treasury Department earlier this week announced that it would double the size of liquidity support buyback operations for longer-dated notes and bonds. The US dollar, meanwhile, remained muted, making the American greenback-priced metals cheaper for buyers holding other currencies.
Markets are now pricing in a 64% probability that the Fed will leave interest rates unchanged in September, while the probability of a rate hike stands at 36%, according to the CME FedWatch Tool. Gold is traditionally viewed as a hedge against economic turmoil and inflation, but higher interest rates can weigh on demand for the non-yielding asset.
Meanwhile, the geopolitical turmoil continues to boil in the Middle East. US Treasury chief Scott Bessent said the United States will impose “the toughest sanctions in history” on Iran, dding that the move could reduce the need for new major military operations.
This comes after US President Donald Trump has warned of economic consequences against any country that provided “any type of lifeline to Iran”. In a message posted on social media on Wednesday evening, Trump promised “Economic Warfare and Isolation on an unprecedented scale,” although details were scant. Iran has faced continuous punitive economic sanctions for nearly 50 years, since the Islamic Revolution of 1979.
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“ANY country that allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran will itself face TREMENDOUS Economic Consequences,” Trump wrote.
(With inputs from agencies)
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