Scrap gold inflows surpass fresh sales

Scrap gold sales have surpassed yellow metal sales since the monsoon reached India’s major agriculture region last week. Used gold-jewellery inflows were 5-10 per cent more than fresh gold sales in Mumbai’s Zaveri bazar last week.

Traders, however, say the trend has spread across the country. Farmers sell old jewellery in the beginning of the monsoon every year. Old jewellery sales gave surpassed sales of new gold as prices are at a record high at over Rs.18,000 per kg.

“Usually, farmers sell their gold to buy high-yielding seeds, fertilisers and equipment. Hence, depending on their financial position, many sell their holding during the sowing season between July and August and buy fresh gold if the harvest is good and remunerative. This is a normal trend with gold sales in India,” said Bhargav Vaidya, an analyst with B N Vaidya & Associates, a Mumbai-based research firm.

During monsoon, the sale of fresh gold commonly declines because this is not the time for weddings or other festivities.

Mumbai-based gold traders like Jugraj Kantilal are buying two-2.2 kg used gold as against their normal purchase of one to 1.5 kg during the wedding season. Fresh gold sales have also fallen to an average of two kg from the usual four to 4.5 kg daily during the peak buying season.

Normally, 30 per cent gold is made available through recycling in India, the world’s largest consumer. But, sky-rocketing prices has increased old gold’s availability. Global consultancy firm GFMS Ltd estimated India’s total gold demand at 432 tonnes in 2009.

The World Gold Council (WGC), in its latest report, estimated that India’s gold availability through used jewellery rose sharply to 200 tones in 2009, which is perhaps the highest.

“Monsoon is a healthy season for retailers as used gold is purchased at a discount of 1-1.5 per cent. Also, the making charge (which usually stands at 10 per cent) is not paid while buying such jewellery,” said Ketan Shroff of Pushpak Bullions Pvt Ltd, a Mumbai-based bullion dealer.

Hence, every gram of used gold being resold after recycling fetches a retailer 11-11.5 per cent of the gold price, which is a good business.

Gold prices are likely to move in a narrow range of Rs 18,300- 18,600 per 10 gram. They may surpass the range in case overseas funds move in a specific direction. However, much will depend on how the yellow metal moves in the overseas markets and the Indian rupee behaves against the dollar.

Last week, standard gold declined by a marginal 0.57 per cent to close at Rs 18,390 per 10 gram on Saturday while pure gold ended at 18,480 per 10 gram — a decline of 0.54 per cent.

Silver gained 0.39 per cent in rupee terms to end the week at Rs 29,430 per kg, taking cues from overseas markets. In the international market, the white precious metal closed with a gain of 1.67 per cent at $18.14 an oz.

Gold in London closed with an increase of 1.59 per cent last week at $1,211.60 an oz.