Gold recovery via scrap up 12.5%

Scrap supply rises as consumers sell their holdings at record prices.

The availability of recycled gold in India, the world’s largest consumer, rose 12.5 per cent in the third quarter of the current calendar year on heavy selling of used jewellery by retail consumers at record high prices.

Data compiled by GFMS, a leading research firm, suggest that Indian refineries recovered 18 tonnes of gold in the third quarter ending September 2009, as against 16 tonnes in the corresponding quarter last year. However, if compared to the first and second quarters this year, the recovery fell drastically, from 64 tonnes and 23 tonnes, respectively.

ON A SCRAP HEAP Supply estimates (in tonnes)
Supply	Q3 ‘08	Q4 ‘08	Q1 ‘09	Q2 ’09	Q3 ’09
Net imports, available for domestic consumption	266	147	12	102	130
Domestic supply from recycled gold	16	20	64	23	18
Domestic supply from other sources	4	3	-39	-2	3
Equals total supply available for fabrication	286	170	37	123	151
Net imports of finished jewellery and inventory change	-8	-5	2	-8	-10
Supply available for end use consumption	278	165	39	115	141
Source: GFMS

Analysts believe retail consumers in India cashed in on their extra holding of the yellow metal when the price surpassed Rs 15,000 per 10 gm in the first quarter. Fearing that the metal may crash due to the lack of fundamental support, they continued selling additional stocks in the second quarter. In the third quarter, uninterrupted price escalation re-affirmed that the trend will continue to heat up gold to $1,300 an ounce from the current level of $1,167 an ounce.

Gold prices in the first quarter averaged at $909.47 an ounce (Rs 14,488 per 10 gm) which surged to $922.13 an ounce (Rs 14,573 per 10 gm) in the second quarter, and $960.69 an ounce (Rs 15,118 per 10 gm) in the third quarter.

During the third quarter, total gold supply for fabrication was 151 tonnes, over 47 per cent less from 285 tonnes during the corresponding quarter last year, but 23 per cent more than 123 tonnes during the second quarter this year. Gold availability for fabrication, however, plunged to 37 tonnes in the first quarter of the current calendar year.

Similarly, gold imports for domestic consumption fell 51 per cent to 130 tonnes in the third quarter, as compared to 266 tonnes in the same quarter last year.

Fluctuations in recycling activity are an integral part of the Indian market, says GFMS. Jewellery is sold by weight at a low margin, with consumers paying close to the spot price in rupee terms. Furthermore, many Indian families own significant holdings of gold, most specifically in jewellery form. Consequently, bouts of profit-taking are a relatively logical response to a volatile gold price in a market that has low transaction costs and a very low margins.