Commodity Online
MUMBAI: Old is gold but old gold may not be that good for the bullion market. That is the situation gold markets across the world is witnessing now.
According to experts, scrap gold is ruling the roost in bullion markets now. Scrap gold flooding the commodities market still far outweighs gold holdings by exchange traded funds.
Countries like India is witnessing a surge in arrival of old gold jewellery in the bullion markets. This has resulted in a slump in import of gold in India. In fact, India has not seen any import of gold in February month.
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Investor demand has failed to offset scrap gold inflows. As a result, gold declined sharply this week, dropping below $940 and even testing the $931 support level in NY.
Large volumes of scrap gold sales have poured into global markets as the peaking price in local currencies is encouraging hard-up consumers to sell their jewellery.
According to an analysis from Standard Bank, scrap gold flooding the commodities market still far outweighs gold holdings by exchange traded funds (ETFs).
"Investor demand has failed to offset scrap gold inflows. As a result, gold declined sharply yesterday, dropping below $940 and even testing the $931 support level in NY. Risk appetite in financial markets has improved, which supported equities in Europe and the US," said the commodities research report from Standard Bank.
Since gold prices have soared to unimaginable levels during the past few months, people have started cashing in on the rise and are selling their old jewellery to book profits.
Take the case of India, the country that consumes and imports the largest quantity of gold in the world. According to traders, around 20-25 tonnes of old gold jewellery have been sold in February 2009 alone. In contrast, imports have come to a total halt with no shipments into the country taking place in February. During the same period a year ago, 23 tonnes of gold were imported.
The physical gold supply has capped recent price gains. According to precious metals researchers, the continuing weakness of the Indian rupee means that since 2005 the local price of gold in India has trebled, recently touching a record high of Rs 16,000 per 10 gm.
This not only spurs scrap sales but also deters purchases of gold. Last year India imported 47% less gold than in 2007.
Record high prices in local currencies around the world — with a little help from falling incomes and rising unemployment — have prompted millions of people to cash in on their old gold jewellery.
There was also chart-based selling of gold once it failed to hold above $1000/oz. At the same time, a strengthening dollar, reflecting expectations of lower interest rates in Europe and a perception that the Obama administration was taking decisive action, was attracting investment back to currency markets.
Whether the easing of monetary policy resulted in stable economies and rising inflation, or whether it failed to work and prices continued to fall, both scenarios were positive for gold in the longer term.
