Gold scrap supply likely to drop up to 25%

Gold supply from recycled materials could fall as much as 25 per cent this year, as lower prices deter holders from selling the metal at a time when physical demand is strengthening, according to the World Gold Council.

Scrap bullion supply could fall by 300 to 400 tonnes in 2013 from about 1,600 tonnes last year, according to Marcus Grubb, managing director of investment research at the Council here.

Recycling accounted for 37 per cent of total supply last year, according to Barclays Plc, which forecasts recycled sales to fall by 174 tonnes this year.

Gold is heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value, cutting bullion-backed fund holdings to the lowest since May 2010.

Prices rebounded 13 per cent from an almost three-year low last month as demand for jewellery and coins rose. Many gold holders sold metal when prices were higher and others are probably waiting for a rebound, Grubb said.

"They think it's a bad time to sell their gold," Grubb said in an interview two days ago in London. Gold for immediate delivery fell 20 per cent this year to $1,338.95 an ounce, and reached a 34-month low of $1,180.50 on June 28. Standard & Poor's GSCI gauge of 24 commodities have risen 0.2 per cent since January and the MSCI All-Country World Index of equities gained 11 per cent. Treasuries lost 2.4 per cent, a Bank of America Corp. index shows.

Bullion dropped a record 23 per cent in the second quarter as the US Federal Reserve indicated it might slow its monthly debt buying if the economy improved. While Fed Chairman Ben S Bernanke said last week it was too early to decide whether to begin scaling back bond purchases in September, half the economists in a July 18-22 Bloomberg survey said the central bank would do so.

Rising demand helped push July futures on the Comex in New York above the August contract this month. Backwardation, when nearby contracts are more expensive than longer-dated futures, can signal concern about near-term supply. One-month gold forward offered rates, which show the interest rate at which dealers will lend gold for dollars, were the most negative since 2008 earlier this month, driving the cost of borrowing the metal to a four- and-half-year high here.