NEW DELHI (Commodity Online): Gold at $1,200 per ounce in the international market has left jewellery buyers in a soup with most of them selling old jewellery to make some profits from the record gold prices.

And, according to World Gold Council, consumer demand for the yellow metal in countries like India, the world’s biggest consumer, has slipped hugely and many of them are now selling their old scrap gold.

Even though the investors are still banking on gold, with the US dollar weakening further, jewellery buyers and normal consumers are staying away from gold thinking that the gold prices will come down.

One of the reasons for gold’s surge to $1200 level was Reserve Bank of India’s decision to buy 200 tonnes of gold from the International Monetary Fund, which has triggered a hunt for gold among central banks, which wanted to dump dollar for gold as reserves.

India witnessed a 33 per cent decline in gold demand in the 12 months ended September 2009 and purchases are about half the levels at the beginning of the decade when gold was around $300 an ounce.

In the meantime, the supply of recycled scrap gold from India at 227 tonnes is the highest in the world and is 50 per cent to 100 per cent higher than previous years.

The slide in jewellery, hoarding and industrial demand is also prevalent in Asian countries which are traditional buyers of gold.

In the 12 months ended September 2009, jewellery and net retail investment in Hong Kong, Taiwan, Indonesia, South Korea, Thailand and Vietnam fell by 27 per cent to 200 tonnes. Recycled scrap supplies have also surged in these nations.

Japan’s purchases are minimal compared with previous years and it was negative in 2008. The exception is China, which has experienced an 8 per cent rise in demand to 423 tonnes, but recycled gold there has also soared.

Singapore’s demand figures were not published, but recycled supplies are around 14 tonnes, estimates Virtual Metals. Mines in China and the rest of Asia are taking advantage of the gold boom. China is now the world’s largest producer with an estimated production of 296 tonnes a year, up from 220 tonnes in 2004.

Global recycled gold that has been sent to the refiners to be melted into bars has soared by 37 per cent to 1,166 tonnes in the nine months ended September. The last time there was such intensive sales of jewellery items for remelting was in 1980 when gold reached record heights at the time. Such was the flood that supplies from refiners, working at full capacity, overwhelmed the market in the 1980s, causing prices to tumble.

Gold purchases of China, India and some other Asian central banks have offset sales by several European banks and the International Monetary Fund, but they are also price conscious.

The market is thus dependent on continual purchases of hedge funds and other speculators and investors — large and small — to keep the price going northwards. They are betting on a further US dollar slide.

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