Gold refineries are facing a substantial shortage of supply, for a variety of reasons — rising prices, expected to rise further, an import duty structure hampering fresh supply and the hallmarking of jewellery leading to a cut in supply from that quarter.
Domestic gold refineries’ operational capacity has declined to 20-25 per cent, the lowest for a long time, due to non-availability of adequate used gold. Around a year earlier, these refineries were operating at 35-40 per cent of capacity. According to the World Gold Council (WGC), availability in India from recycling declined to 10 tonnes in the first quarter of the current calendar year, as compared to 14 tonnes from the same quarter of last year. In the previous quarter, however, gold availability from domestic recycling was recorded at 25 tonnes.
Global gold prices have been rising for quite a while. They’re now at $1,541 an ounce, should rise even more, to $1,600 an ounce by the end of the year, says Gold Field Mineral Services, a respected London-based consultancy. That’s a big incentive to hold on to gold stocks.
HALLMARKS
Then, there is the practice of hallmarking of gold jewellery. It has benefited manufacturers and retailers, but the system has hampered India’s existing 25 gold refineries’ business.
James Jose, secretary, Association of Gold Refineries and Mint, and managing director of Chemmanur Gold Refinery (P) Ltd, said, “The quality of scrap availability has increased on Wednesday, thanks to successful consumer awareness. The gold in circulation for (the past) 25 years was generally 18-carat, the rest of the content being copper. Now, gold jewellery items coming for re-sale are of a minimum of 22-carat due to the benchmark hallmarking practices adopted by retail jewellers. Hence, jewellery items with average 80 per cent of purity are now at least 91.6 per cent purity.”
Earlier, used jewellery would be sent for refining. Instead, with the higher quality coming into their hands, jewellers resell these to customers after polishing and some repair. Gold of this nature now contributes nearly 25 per cent of overall scrap available in the market, which commonly is not supplied to refineries. Another 25 per cent of used gold, especially from remote Indian villages, is supplied for direct fabrication by melting in small hearths.
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At present, the season for used gold sales is over in Kerala due to the end of the summer vacation and the return abroad of non-resident Indians. In Tamil Nadu, too, the season is over. These two states in the south contribute significantly to the sale of used gold in the region, one reason for the decline in availability of used gold, said Jose.
He says consumers in the southern markets exchange old jewellery with new ones, unlike in the north and west where users sell their holding for cash.
IMPORTS
The third reason for the crimp in supply is that import of dore bars (gold concentrate) is not feasible due to the import duty structure. Finished gold can be imported duty-free; raw gold faces a duty of Rs 285 per gramme. Hence, not much supply come this way to refineries at present. Jose wants the government to waive the duty on concentrate. On Wednesday, gold concentrate is primarily mined in Africa and refined in Europe. European gold refineries charge Rs 50,000 per kg as against the possibility of only Rs 5,000 per kg in India. Hence, reducing the import duty on dore bars will reduce the cost of gold by at least Rs 450 per 10g for consumers.
The government has waived the customs duty on dore bars with 80 per cent of gold content, but that is difficult to get. Those made on Wednesday have a minimum 91-92 per cent of gold content. Also entering into the overseas market for changing the mindset of miners will take some time, said Harmesh Arora, managing director of NIBR Bullion.
BULLION PRICES
PTI adds: Silver moved down by Rs 500 to Rs 54,700 a kg, while gold declined by Rs 130 to Rs 22,680 per 10 gms on Wednesday, on reduced offtake at existing high levels amid a weakening global trend.
Silver coins followed and declined by Rs 1,000 to Rs 60,000 for buying and Rs 61,000 for selling of 100 pieces.
Trading sentiments turned bearish after gold shed 0.4 per cent to $1,538.50 an ounce in the overseas markets, as European debt concerns eased, eroding the appeal of the precious metal as a safe haven asset. The white metal also declined by 1.2 per cent to $36.70 an ounce.
Additionally, the market activity declined as retailers and stockists refrained from buying at existing high levels.