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AUGMONT WEEKLY BLOG:Gold on beast mode as Liberation Day approaches

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Gold has continued its terrific run, on beast mode, hitting $3177 (Rs 91400) to set another milestone, as uncertainty about tariffs that would drive inflation and deteriorate economic development boosted safe-haven demand and maintained gold on track for its best quarter since 1986. The buying demand in gold continues unabated, with markets scrambling for shelter in the traditional store of wealth amid concerns over US President Donald Trump’s tariff plans on ‘Liberation Day’, April 2.

What is Liberation Day?

As per Wikipedia, “Liberation Day is a day, often a public holiday, that marks the liberation of a place, similar to an Independence Day. Liberation marks the date of either a revolution, as in Cuba, the fall of a dictatorship, as in Syria, or the end of the occupation by another state, as in the Netherlands, thereby differing from the original independence day or creation of statehood, while in Italy commemorates the victory of the Italian resistance movement against Nazi Germany and the Italian Social Republic, a puppet state of the Nazis and rump state of the fascists, the culmination of the liberation of Italy from German occupation and the Italian civil war in the latter phase of World War II”.

US Liberation Day on April 2

Donald Trump has threatened a “Liberation Day” with tariffs on countries having persistent trade deficits with the US. On Wednesday, April 2, the world will learn about Donald Trump’s new style of doing business with almost everyone. That is when the White House will unveil its tariff plan, which includes duty increases for all countries that trade products and services with the United States. Trump has not hinted at imposing a levy on gold, but the prospect of such a move has pushed prices to their current levels. Is gold taxed on imports? We find out on Wednesday. Until then, speculation is likely to continue in full swing.

Trump rattling the markets

Furthermore, US President Donald Trump shook markets last week by placing 25% tariffs on all non-American vehicles and light trucks ahead of the so-called reciprocal tariffs, which are scheduled to take effect on April 2. On Sunday, Trump expressed his rage and frustration with Russian President Vladimir Putin, threatening large tariffs on Russian energy and even bombings in Iran. He also stated that if he believes Moscow is impeding his efforts to end the Ukraine conflict, he will slap secondary tariffs ranging from 25% to 50% on Russian oil customers. Trump also slammed Ukrainian President Volodymyr Zelenskiy, warning that he would suffer serious consequences if he pulled out of the important rare earth minerals deal. This further weighs on investors’ sentiment and contributes to the global flight to safety.

What next?

Bullion is up around 18% this year after climbing more than 27% in 2024, owing to a favorable monetary policy background, significant central bank buying, and demand for exchange-traded funds, among other things. This comes on top of continuing concerns over slowing US economic growth, which drives stagflation fears, pulling the US Dollar down and providing more support to gold.

The next resistance for gold is $3210(~Rs 92000) while Silver is stuck in the range of $33 to $35, prices need to sustain above its $35 resistance to head higher towards $38.

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National News

Will RBI Rate Hikes Make Gold Loans Costlier?

With Bullion rIces Sliding From Recent Peaks, Borrowers Face A Dual Squeeze: Potential Upward Adjustments On Floating Borrowing Costs and Lower Loan Amounts Against Pledged jJewellery.

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Potential rate hikes by the Reserve Bank of India (RBI) could push borrowing costs higher across the financial system, but the transmission to gold loans will not be immediate or uniform across all lenders, analysts and industry executives said.  With bullion prices sliding from recent peaks, borrowers face a dual squeeze: potential upward adjustments on floating borrowing costs and lower loan amounts against pledged jewellery.

Key Takeaways for Borrowers & Lenders

Non-Uniform Transmission: A repo rate hike does not guarantee a 1:1 surge in gold loan rates. Lenders pricing credit via non-bank finance company (NBFC) cost-of-funds channels may adjust rates on a different timeline compared to banks operating direct floating-rate transmission models.

Loan Structure Matters: Existing fixed-rate borrowers remain protected for their contract term, while floating-rate borrowers face higher interest costs upon contract reset dates.

Collateral & LTV Risk: A fall in gold prices reduces the value of pledged collateral relative to total debt. Lenders are required under RBI regulations to enforce a strict loan-to-value (LTV) ceiling of 75%, leaving borrowers vulnerable to margin calls or mandatory partial pay-downs if market prices breach regulatory margins.

Commercial banks experience a high and direct immediate impact from a central bank rate hike, as their benchmark-linked External Benchmark Lending Rates (EBLR) force floating borrowing costs to reset quickly.

In contrast, gold loan NBFCs face a moderate or delayed impact, with interest rate adjustments depending on their broader liability structure, wholesale borrowing costs, and competitive market positioning.

For fixed-rate contracts, a rate hike has no immediate impact, keeping borrowing costs steady until the specified term ends. Conversely, floating-rate contracts carry a high impact, with interest charges stepping upward automatically on the loan’s next periodic reset date.

Strategic Considerations

Borrowers considering a gold loan amidst rate uncertainty and volatile commodity prices should evaluate the following structural factors:

Calculate Servicing Capacity: Assess whether monthly cash outflows can accommodate potential interest rate resets on floating-rate agreements.

Review LTV Margins: Evaluate pledged jewellery value at current spot rates to maintain a safety cushion above the mandatory 75% LTV regulatory threshold, mitigating auction risk during sharp gold pullbacks.

Compare Fine Print: Look past headline interest rates to evaluate reset frequencies, processing charges, prepayment penalties, and default auction clauses across competing bank and NBFC offerings.

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