The gold market is witnessing an extraordinary surge driven by a peculiar set of circumstances. US President Trump’s tariff threats against Europe have ignited a rush for physical gold, causing a significant shift from UK vaults to the US. The Bank of England is reportedly struggling to keep up with gold bar withdrawals, and delivery times have stretched dramatically. This has created a premium for gold in the US market compared to London, prompting arbitrageurs to opt for physical delivery, fearing a supply crunch if tariffs are imposed.

The numbers are stark. COMEX gold inventories have nearly doubled since late October, jumping from 17.5 million troy ounces to 33.38 million troy ounces. This gold migration isn’t limited to London; Asian hubs like Dubai and Hong Kong are also redirecting gold to the US. Indian jewellers, like Titan Company, are already feeling the pinch, anticipating higher gold lease rates as supply tightens.

Rate Cut Ripples Through Banking

Meanwhile, closer home, the Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6.25%. This reduction has varying impacts across the banking sector. Banks with a high proportion of fixed-rate loans, such as Bandhan Bank and AU Small Finance Bank, stand to gain immediately as they can refinance at lower costs, boosting their Net Interest Margins (NIM). Similarly, banks with high Loan-to-Deposit Ratios (LDRs) like HDFC Bank and IDFC First Bank will benefit from reduced funding costs, enabling more aggressive lending.

Liquidity-rich banks like SBI and Indian Bank are also well-positioned. The rate cut provides them with greater flexibility to expand lending and potentially increase their market share. Overall, while the rate cut is expected to spur loan growth, the benefits will be unevenly distributed, favouring banks with specific portfolio structures and liquidity positions.

Navigating Market Uncertainties

The global gold frenzy, fuelled by geopolitical tensions and potential trade wars, presents a sharp contrast to the domestic monetary policy easing. While the gold market’s surge may be transient and stabilise once there is clarity on US tariffs, it underscores the enduring appeal of gold as a safe-haven asset in uncertain times. The RBI’s rate cut, on the other hand, is a strategic move to stimulate domestic credit growth and economic activity. However, the interplay of these global and local factors creates a complex market environment.

Will the gold rush continue, or is it a temporary blip? Much hinges on President Trump’s next move on tariffs. For the Indian banking sector, the rate cut provides a welcome boost, but sustainable growth will depend on broader economic recovery and prudent lending practices.