Gold Prices Surge to ₹1.48 Lakh: Why Muthoot and Manappuram Stocks Are Rallying

Gold prices have experienced a massive surge, crossing the ₹1.48 lakh per 10 grams mark, triggering a significant rally in the shares of major gold financing companies. Investors are flocking to NBFCs like Muthoot Finance and Manappuram Finance as the appreciating value of collateral strengthens their balance sheets.

Gold Prices Hit Multi-Month Highs on MCX

Gold futures on the Multi Commodity Exchange (MCX) witnessed a sharp spike, with the August expiry gaining approximately ₹2,288 per 10 grams, or nearly 2%. This sent the day's high to ₹1,48,046 per 10 grams, while October expiry contracts surged past the psychological level of ₹1.5 lakh per 10 grams.

This rally is mirrored in the international markets, where spot gold rose by more than 1%. The surge follows a period of volatility and marks the highest level since June 23, driven largely by shifting macroeconomic indicators in the United States.

US Jobs Data Triggers Gold Rally

The primary catalyst for this upward movement is the recent US employment data. Weaker-than-expected nonfarm payrolls and private payrolls data released on Thursday suggested a cooling labour market. While the unemployment rate dropped slightly to 4.2% from 4.3% in May, payroll gains for the preceding two months were revised lower.

This cooling data has tempered fears of persistent inflation and higher-for-longer interest rates. According to the CME Group's FedWatch tool, traders have increased the probability of the US Federal Reserve keeping rates steady at its September meeting to 46.8%, up from 35.8% just a day prior. Since higher interest rates typically make interest-bearing assets more attractive than non-yielding gold, the prospect of a rate hold acts as a significant tailwind for the yellow metal.

Impact on Gold Financiers: Muthoot and Manappuram Lead

The surge in gold prices has had a direct positive impact on the stock prices of gold loan providers. Shares of Muthoot Finance, Manappuram Finance, and IIFL Finance jumped up to 5% on Friday.

The logic behind this rally is fundamental to the business model of these Non-Banking Financial Companies (NBFCs). These firms offer loans using gold as collateral. As gold prices rise, the value of the pledged collateral increases. Furthermore, since gold loans are sanctioned based on the per-gram valuation, higher prices allow borrowers to access higher loan amounts with less physical jewellery, potentially driving higher loan volumes and improving the quality of the collateral held by these lenders.

Market Outlook and Resistance Levels

Despite the current rally, experts suggest caution due to potential volatility. Manoj Kumar Jain of Prithvi Finmart noted that gold and silver prices remain sensitive to fluctuations in crude oil prices, the dollar index, and US bond yields. On the MCX, gold has established support levels between ₹1,44,400 and ₹1,43,350, while facing immediate resistance in the ₹1,47,100 to ₹1,48,800 range.

Key Takeaways

  • Gold Price Surge: Gold futures on the MCX hit a high of ₹1,48,046 per 10 grams, driven by cooling US labour market data.
  • Stock Market Reaction: Gold NBFCs like Muthoot Finance and Manappuram Finance saw share prices climb by up to 5% due to increased collateral value.
  • Macroeconomic Drivers: Reduced expectations for US Fed rate hikes have boosted gold's attractiveness compared to interest-bearing assets.