Gold valuation methodologies for a Gold Loan refer to methods for determining the true intrinsic value of pledged gold as per prevailing market conditions. Lenders consider factors such as gold's purity, weight, and current market value to determine its true value.
The true intrinsic value of the pledged gold does not include the value of any precious gems/stones or making charges. Based on the true value of the gold, Poonawalla Fincorp provides a Gold Loan.
Gold Valuation Methodology for a Gold Loan
Gold purity testing involves several traditional and practical methods to ensure authenticity and quality. Below are some commonly used techniques:
- Rubbing on Soft Stone: This method involves gently rubbing a gold item against a special stone (usually a touchstone) to create a streak. The streak is then tested with acids of known concentration to determine the gold purity or karat.
- Acid Test: The Nitric Acid Test is a quick and traditional technique used to verify gold purity and confirm if it meets the required standards.
- Weight Test: If the jewellery’s weight appears unusual for its size, either too light or too heavy, extra caution is needed, as pieces made with other metals often have inconsistent weight compared to genuine gold.
- Sound Test: In this method, the jewellery is dropped onto a glass surface, and the sound it produces helps indicate the quality and purity of the gold.
- Finishing Test: Gold jewellery typically exhibits flawless finishing, unlike pieces made from other metals.
- Pointed Scratching: Repeatedly scratching a specific spot for an extended time can provide more accurate results regarding purity.
- Flexibility: Gold jewellery is naturally soft and flexible. This can be tested by gently pressing the piece.
- Magnifying Glass: A magnifying glass can be used to inspect the stamped seal on the jewellery and to compare the colour or quality of different rubbed samples.
- Magnetic Test: This simple test checks if iron has been added to increase the jewellery’s weight. Since gold is non-magnetic, any attraction to a magnet indicates the presence of iron or steel.
Gold Valuation Process at Poonawalla Fincorp
When you apply for a Gold Loan from Poonawalla Fincorp, the true value of the pledged gold is determined through a series of assessments and referencing current gold prices. The valuation is bifurcated into two categories.ie, mandatory tests and optional tests. Let’s understand them in detail:
- Mandatory Tests
| Methodology | Details of Test Methods |
|---|---|
| Weight Test | The Valuer and Authorizer verifies the jewellery weight using a weighing scale. If the jewellery shows an abnormal weight compared to its size or is lighter, extra caution is exercised, as jewellery made from other metals may not have a weight proportionate to its size. |
| Color Test/Rub Stone, Acid & Salt Test | The acid test is a traditional method for verifying the purity of gold. The Branch staff rubs the gold jewellery on the soft stone. According to the variation in the colour of the gold, the Valuer decides the purity and fineness of the gold in terms of 22k, 18k, etc. |
| Magnetic test | The appraiser uses a magnet and moves it over the gold jewellery to check whether it attracts it. |
- Optional Tests
| Methodology | Details of Test Methods |
|---|---|
| Smell Test | This test helps to understand the purity of gold. |
| Sound Test | A sound test is required to confirm the purity of solid gold jewellery. |
| Usability Test (Finishing of the Gold) | This test is conducted to determine whether the finishing is perfect or if any patchwork has been done on the ornaments. If found unfinished or joint made, then the joint portion needs to be tested with acid for its originality. |
| Weight Test through Hand | Very old jewellery (traditional jewellery) is made by using wax inside them to boost their weight and can be identified through a weight test. |
| Destructive Test | To verify the purity of heavy/solid jewellery types. |
Determination of Final Gold Valuation for Gold Loan
Once the weight and purity of the pledged gold for a Gold Loan have been established, its true value, as per current gold rates, is determined.
Gold valuation shall be based on the lower of (a) the average closing price for gold of that specific purity over the preceding 30 days, or (b) the closing price for gold of that specific purity on the preceding day, as published either by the India Bullion and Jewellers Association Ltd. (IBJA) or by a commodity exchange regulated by the Securities and Exchange Board of India (SEBI) shall be used.
The final value of gold is determined using the following formula:
Gold Value = Net Weight (in grams) × Current Gold Rate (Carat wise per gram rate)
Note: The final eligible loan amount is determined based on the applicable LTV ratio and other factors, such as the borrower’s credit profile and the lender’s internal policies.