As the quest for additional returns on gold holdings beckons, fintech platforms like Gullak and SafeGold are proposing attractive avenues through gold leasing to amplify yields by 3.25-5%. Promising annual returns of up to 16%, Gullak’s Gold+ scheme hinges on an assumed 11% annual appreciation in gold value. However, it’s crucial to note that the anticipated returns are contingent upon the projected growth rate of gold. Any deviation from this projection can impact the actual returns.
The mechanism of gold leasing entails users offering their digital gold holdings to partnered jewellers through these platforms, distinct from physical metal holdings. This arrangement involves granting gold to a lessee (the jeweller) for a specified term in exchange for periodic payments.
The process is relatively straightforward: users can pledge digital gold ranging from 0.5gm to 250gm to partnering jewellers showcased on the platform. These jewellers, predominantly small and medium-sized entities verified by gold refinery and bullion company Augmont, offer varying lease terms (45 days to six months) and associated yields.
Interest accrued from the lease is calculated daily and credited monthly to the user’s account in gold grams. Typically, there’s no stringent lock-in period, and terminating a lease prematurely entitles the user to interest until the lease ends.
However, engaging in gold leasing comes with inherent risks, primarily due to the lack of regulatory oversight. In the absence of regulation, there’s a notable absence of grievance redressal mechanisms in case of losses. Although platforms claim to mitigate default risks by obtaining bank or corporate guarantees from jewellers, these safeguards might fall short in ensuring complete and timely recovery of potential losses.
SafeGold, for instance, secures 100-109% of the gold value as collateral, with a commitment from jewellers to regularly top up the collateral in response to fluctuations in gold prices. Nevertheless, if gold prices surge unexpectedly, there’s a possibility of default by the jeweller, limiting recovery to the guaranteed amount. The platform admits that enforcing a bank guarantee could be time-consuming and may not align with the initially contracted time frame, offering no capital or return guarantees to users.
Contrarily, Gullak’s platform doesn’t explicitly outline such risk declarations upfront.
While these platforms offer enticing prospects for augmenting gold holdings, it’s imperative for investors to understand the inherent uncertainties and risks associated with unregulated gold leasing schemes before opting in.
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