Scrap gold sales dip despite higher price

Sales have fallen 50 per cent as buyers are holding gold anticipating better returns.

The sales of used gold, known as scrap gold in commodity parlance, have declined by almost 50 per cent despite prices of the yellow metal hitting a record high in the local market.

“Normally, jewellery retailers collect 25-30 gm of used gold against the sale of every 100 gm. However, the recovery of scrap intensifies in case the prices of the precious metal head north. But this time, in spite of gold hitting a record high, scrap recovery by jewellers has declined to 12-15 gm. This indicates that consumers are holding on to the precious metal in anticipation of much more higher prices in the future,” said Ashok Minawala, an industry veteran.

According to the latest data by London-based independent precious metal consultancy Gold Fields Mineral Services (now GFMS), global scrap recovery surged to a record high of 900 tonnes during the first half of the current calendar year. The rise in scrap sales was mainly a first-quarter phenomenon, wherein it rose by 58 per cent year-on-year. However, in the second quarter, scrap availability went up only by 13 per cent.

The consultancy said that volumes in the second quarter were low due to the lack of further upside momentum in gold prices, and the fact that much of the near-market supplies were sold in the first quarter.

India accounts for about 25 per cent of global scrap sales. “There is not much gold left for sale with consumers preferring to hold the yellow metal,” said Ajay Mitra, MD - Indian sub-continent, World Gold Council (WGC).

The consumer sentiment works on hearsay and any hint of a price rise in the future prevents them from offloading.

“We have a number of illustrations where customers have inquired about the position and, after discussion, they have changed their decision. Most importantly, updates on supply-side constraints, especially lower imports, have restrained them from selling their gold-holding,” said Vinod Hayagriv, chairman of All India Gems & Jewellery Trade Federation.

“The huge decline in scrap gold recovery has resulted in the domestic refinery remaining under-utilised. Today, refineries are operating at 25-30 per cent of their installed capacity as against the normal level of 40-45 per cent.

Consumers continue to buy fresh gold as they feel prices will keep rising in future also. But at the same time, lesser amount of gold is coming for recycling,” said James Jose, managing director of Chemmanur Gold Refinery, a Cochi-based gold refining, and chairman of Indian Association of Hallmarking.

According to an estimate, 20,000-25,000 tonnes of gold still lies with Indian consumers. But, all of it is not for selling in the market. However, need-based and profit-linked consumers sell even at this price level.

India produces only about 1 tonne of gold, while it consumes 750 tonnes annually. The country meets the difference through imports.

According to the Director of Bombay Bullion Association, Suresh Hundia, India’s gold imports in September may decline to 20 tonnes as against 21.8 tonnes in August and a paltry 7.8 tonnes in July this year. However, in August 2008, the imports were much higher at 98 tonnes.

Gold imports have been sluggish so far this year and were at 81.2 tonnes between January and August 2009, compared to 261 tonnes in the same period last year.