Last Updated :
14 April 2009 at 15:05 IST
When gold importers become exporters
By Sreekumar Raghavan MUMBAI: Is there anything unusual in major gold consumers becoming net exporters of the precious metal? It is a function of the rising gold prices that is prompting people to sell old jewellery which is then recycled by jewellery trade to make profits.
According to GFMS estimates, global scrap supply rose by 27% in 2008 to over 1200 tonnes.and make profits. The most significant increase was reported by Turkey, the fourth largest jewellery consumer due to a combination of soaring local prices and the economic downturn. India's recycling rose by nearly a quarter last year, according to GFMS Gold Survey 2009.India has been the world's biggest buyer of gold for years, but imports slumped 48% in 2008 to 396 tonnes. The falling trend has continued this year with imports in January plunging 89% from the same month last year to 1.9 tonnes.For the past two months imports have trickled down to zero.
In fact, gold now appears to be seeping out of India in the form of gold coins, which allow big traders to skirt restrictions on exports, a trend that underscores the resistance to spot gold prices challenging last year's all-time US$1,030.80 high.
When global crisis hit the automotive industry in Turkey, the gold, jewellery and precious stone sectors are competing with the auto sector for exports, according to a report in
Hurriyatdailynews.com. As under-the-mattress gold enters the market due to the economic hardships, it is being reprocessed into bullion, bringing a new dynamism to Turkey’s exports. Exports of pearls and other precious stones are also on the rise. Last year, the sector as a whole reached $5 billion in exports, but it has already reached $2.6 billion in the first two months of this year.. In February, the sector hit an export volume of $1.6 billion, mostly in jewelry and gold. Reaching alternative markets in Asia and the Middle East, sector players are outscoring their European rivals.
More than 50 large companies, those with between 200 and 1,500 employees, are active in Turkey’s precious metals and jewelry sector. As a whole, the sector employs nearly 250,000 people. Istanbul is its most important production center, followed by Ankara and İzmir. Gold and jewelry production also has a significant presence in some eastern and southeastern Anatolia cities,
Hurriyatdailynews.com reported.
As people sell off their gold to the more than 40,000 jewelry stores throughout the country, gold refineries turn it into bullion, trade it at the Istanbul Gold Exchange and then export it. The biggest export destinations are Britain and Switzerland.
Philip Klapwijk, Executive Chairman, GFMS noted that first quarter scrap supply has exceeded the already high levels witnessed at the end of last year. “The pressure on refining capacity this year has been quite tremendous. Several key consuming countries have, at times, emerged as net exporters of gold to the international market. Turkey, the fourth largest jewellery consumer last year, is a prime example of this trend, but by no means unique.”
Enter Currency Trading Contest now. Win $ 25,000Elsewhere, western markets saw their scrap supplies exceed the already elevated levels of 2007. In the United States and Europe,a combination of the rapid economic downturn, together with a far greater ease of selling old jewellery, partly because of greater advertising by scrap collectors, produced record levels of recycling in each market. The jewellery supply chain also liquidated larger quantities of unsold product, itself a function of the high gold price and recessionary conditions, which limited the re-sale potential for this jewellery.
Physical demand in the key centers such as Dubai and India has started to show marginal recovery as gold prices have steadied - Pradeep Unni, trader at Richcomm Global Services quoted in a Reuters report.
How long will the consumers continue to be importers? If GFMS forecasts are to be believed this trend may continue well into 2010 as inflationary concerns caused by US, Chinese stimulus packages will only increase the attraction for yellow metal. Major consumers like India and Turkey may then go on exporting recycled stock not importing. However, on balance the gains in gold may peter off if global mine production were to increase substantially in the year ahead.
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