Interest on Gold Deposit with Bank

Alchemist

Administrator
Staff member
#2
#5
Why do you feel so?

I couldn't find information on how exactly the scheme works for the bank. You got any idea?

Not really. But considering huge jumps in gold price in the recent years, someone would have made losses on this - either the bank or the jeweller they are lending it to.

It would depending on who is responsible for the difference in the price of gold between the time the gold was procured from the depositor and the time it was given back to him.
 

Alchemist

Administrator
Staff member
#6
someone would have made losses on this - either the bank or the jeweller they are lending it to.
If the positions were hedged in the futures market, no one would have suffered losses except the futures sellers.

I don't the bank or jewellers borrow are adventurous enough to borrow gold without a proper hedge.
 
#7
If the positions were hedged in the futures market, no one would have suffered losses except the futures sellers.

I don't the bank or jewellers borrow are adventurous enough to borrow gold without a proper hedge.
You are probably right. I didn't think about hedging.
 
#9
I still don't get it. how do the different entities make money after paying the depositor?
Very simplistic example:

Bank takes gold worth say Rs 100 from me and sells it in the open market/jeweller. The bank then gives you a car loan of Rs. 100 and charges 12% interest on it. Bank also buys gold futures for the same weight of gold. At the end of the year, you give Rs 112 to the bank for your car loan.

Now if in the 1 year, gold price has gone up or gone down - it does not make a difference to the bank.

They have gold futures for delivery. They take delivery and return to customer.

So their profit = 12 (loan profit) - 3 (3% interest paid on gold deposit) - (margin money/premium paid for futures)

Alchemist probably can explain it better.
 

Alchemist

Administrator
Staff member
#10
Very simplistic example:

Bank takes gold worth say Rs 100 from me and sells it in the open market/jeweller. The bank then gives you a car loan of Rs. 100 and charges 12% interest on it. Bank also buys gold futures for the same weight of gold. At the end of the year, you give Rs 112 to the bank for your car loan.

Now if in the 1 year, gold price has gone up or gone down - it does not make a difference to the bank.

They have gold futures for delivery. They take delivery and return to customer.

So their profit = 12 (loan profit) - 3 (3% interest paid on gold deposit) - (margin money/premium paid for futures)

Alchemist probably can explain it better.
I am not sure, but I guess it's something similar to what you have said.
 
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