A sharp rally in gold at the end of last week prompted a wave of scrap selling in India and elsewhere in Asia, as market participants took advantage of higher prices, while fresh buying was sluggish on Wednesday.
Spot gold jumped more than four per cent last Friday on rising expectations the US Federal Reserve could be forced to launch more monetary stimulus after data showed a surprisingly weak jobs market.
Prices have since been steady above $1,600, with investors eyeing a European Central Bank policy meeting later on Wednesday and a speech by Fed Chairman Ben Bernanke tomorrow. Gloomy equity markets and high interest rates have forced investors in India to cash out of gold, said Prithviraj Kothari, president of the Bombay Bullion Association.
Standard gold up
Standard gold slipped below the benchmark Rs 30,000 per 10g in Mumbai's Zaveri Bazaar immediately before closing of the trading session on Wednesday due to a sharp recovery in the rupee against the dollar. The yellow metal closed at Rs 29,940 per 10 grams, a marginal gain of Rs 130 from the previous day.
Physical buyers deserted the street on the metal's record setting spree continuously. Even need based buyers deferred their purchasing decision in anticipation of a correction in the precious metal prices.
The rupee hit the day's high of 55.61 against the dollar during the day and closed at 55.37. Traders believe that the appreciation in the Indian currency is due which may pull gold price down. Silver also shot up by Rs 1330 to settle on Wednesday at Rs 55915 a kg.
"There is no money available and people are selling their old gold," Kothari said, adding India could see scrap sales rise to 400 tonnes this year, more than triple last year's 130 tonnes.
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The rupee tumbled to a record low against the dollar last week, but has since pared some of those losses. The weak rupee has kept local gold prices at lofty levels and dampened buying demand in India, traditionally the world's top gold consumer.
"I last sold gold about a year ago and I am back again as prices are high," said a woman selling 100 grams of 20-year-old jewellery worth 300,000 rupees ($5,398) to a scrap dealer in Mumbai's famed Zaveri Bazaar, who declined to be named.
Gold bar premiums in Hong Kong were steady around $1.10 to $1.60 an ounce above London prices. In Singapore, premiums were unchanged from a week earlier at $1, dealers said.
"Last night, there was some selling from Thailand and other countries in Southeast Asia, and demand from Chinese banks was mediocre," said a Singapore-based dealer.
Data showed Hong Kong shipped more than 101 tonnes of gold to mainland China in April, up 62 per cent from the previous month. Gold imports into the territory from China rose to an unprecedented 34 tonnes, surprising many market participants.
Some said people could be taking advantage of the difference between onshore and offshore interest rates by shipping gold back and forth for financing purposes.
In Tokyo, fresh selling eased the tight supplies that had pushed local gold bar premiums to a 14-month high in late May, dealers said.
"Supply is still tight but has improved, as higher prices have lured back some selling," said a Tokyo-based dealer, though he added the strong yen was capping selling interest.