India's scrap gold supplies at record high on price rally, coronavirus: WGC

Record high local prices, coupled with short-term pressure on household finances, could encourage people to sell gold

Scrap gold supplies in India were likely to hit an all-time high in 2020 as consumers would sell jewellery to reap record high prices and cope with the financial crunch from the coronavirus lockdown, the World Gold Council (WGC) said on Thursday.

Rising scrap supplies, amid a fall in demand could, however, dent the world's second-biggest bullion consumer's imports and cap a rally in global prices, which hit a more than seven-year high earlier this month. Falling bullion imports could help reduce India's trade deficit and support the ailing rupee.

Record high local prices, coupled with a short-term pressure on household finances, could encourage people to sell gold, said Somasundaram PR, the managing director of WGC's Indian operations. "Definitely it (scrap supplies) will be much higher than last year," he told Reuters.

Scrap supplies in India jumped 37 per cent in 2019 from a year ago to a record 119.5 tonnes, the WGC said, driven by rising prices. Local gold prices surged 25 per cent in 2019, and they have risen another 16 per cent so far this year. Millions of Indians have lost their jobs or taken a pay cut after the country extended a nationwide lockdown on its 1.3 billion people until at least 3 May.

Moody's Investors Service earlier this week slashed India's growth forecast for calendar 2020 to 0.2 per cent, the lowest in decades, even as coronavirus cases exceeded 33,000 on Thursday. India's gold consumption in the March quarter fell 36 per cent to 101.9 tonnes, the lowest since the first quarter of 2009, on a sharp drop in jewellery and investment demand, the WGC said in its report on Thursday.

Consumption typically jumps in the June quarter due to weddings and key festivals such as Akshaya Tritiya, when buying gold is considered auspicious. However, June quarter demand this year could fall below the March quarter as jewellery stores were closed during the crucial buying season, Somasundaram said.

Weak first half demand would bring full-year consumption in 2020 below last year's 690.4 tonnes, he said, without giving an estimate. At the start of the year, the WGC had expected gold demand in 2020 to improve to 700-800 tonnes. An Indian trade body earlier this month said India's gold consumption could fall to 350 tonnes to 400 tonnes, the lowest since 1991.

Gold hoarding investors avert coronavirus demand collapse - WGC

Massive stockpiling of gold by investors spooked by the coronavirus outbreak offset a collapse in jewellery production to keep global demand for the metal stable in the first three tumultuous months of 2020, the World Gold Council said on Thursday.

The coronavirus has upended the gold trade, with lockdowns shuttering the two biggest markets, China and India, and disrupting supply routes. It has also roiled financial markets, triggering a surge of investment in the metal traditionally seen as an asset able to hold its value over the long term.

"This is the biggest change to the market that I can remember," said John Reade, the WGC's chief market strategist.

"It's very clear that you ain't seen nothing yet," he said.

Over January-March, exchange traded funds (ETFs) storing gold on behalf of investors mainly in the United States and Europe added a whopping 298 tonnes worth some $16 billion to their hoard, the WGC said in its latest quarterly report.

At the same time, use of gold in jewellery dropped to 325.8 tonnes, down 39 per cent from the first quarter last year and the lowest in at least a decade. Bar and coin sales fell 6 per cent to 241.6 tonnes, purchases by central banks slipped 8 per cent to 145 tonnes and use of gold in electronics, other industry and dentistry declined 8 per cent to 73.4 tonnes. Total demand was 1,083.8 tonnes, up 1 per cent from 2019, the WGC said.

With ETFs increasing their stocks by more than 150 tonnes so far in April, investors are likely to support overall demand again in the second quarter, Reade said. But he said jewellery and central bank purchases could be lower for some time, and while it is too early to estimate precisely, consumption in China and India could fall by half this year.

"There's a lot of potential for investment demand to be strong," said Reade. "Whether it turns out to be big enough to compensate ... remains to be seen."

The supply of gold fell to 1,066.2 tonnes over January-March, down 4 per cent from 2019, with both mined and recycled production decreasing, the WGC said. Coronavirus containment measures will likely disrupt mine supply in the second quarter but scrap supply should increase, said Reade.

Gold prices have risen to eight-year highs above $1,700 an ounce this year, and hit record levels in other currencies including the euro, yuan and rupee.

Gold eases as coronavirus treatment hopes bolster risk appetite

Gold eased on Thursday as risk appetite was boosted by positive trial results of an experimental Covid-19 treatment, although the U.S. Federal Reserve's decision to keep interest rates near zero kept bullion above the $1,700 per ounce level. Spot gold fell 0.1 per cent to $1,710.21 per ounce by 0519 GMT. U.S. gold futures rose 0.8 per cent to $1,726.80 per ounce.

"We have risk sentiment blossoming again, and that's just not a good optic for gold to go higher," said Stephen Innes, chief market strategist at financial services firm AxiCorp.

"But the massive support we're getting from the Fed is underpinning the general trend of support for gold... Gold is going to look very attractive as it doesn't cost anything to hold it right now."

Risk sentiment got a boost after the top U.S. infectious disease official said early clinical trial results showed Gilead Sciences Inc's experimental antiviral drug remdesivir helped patients recover more quickly from illness caused by the coronavirus.

Asian stocks rose to a fresh seven-week high on the news, while the U.S. dollar held near a two-week low after the Fed left its interest rates near zero and repeated a vow to use its "full range of tools" to shore up an economy hammered by the pandemic.

Lower interest rates reduce the opportunity cost of holding non-yielding gold, which also tends to benefit from widespread stimulus measures as it's often seen as a hedge against inflation and currency debasement. Investors also took stock of data showing factory activity in China expanded for a second straight month in April as more businesses resumed work, but a worsening slump in export orders pointed to a long road to recovery.

Market participants now await a policy decision from the European Central Bank due later on Thursday, amid pressure on the central bank to deploy even more firepower to prop up an economy that could shrink by a tenth this year.

Pointing to the growing economic pain from the virus outbreak and bolstering demand for safe havens such as gold, the U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession, while economists expect an even sharper contraction in the second quarter.

Among other precious metals, palladium rose 0.6 per cent to $1,948.51 an ounce, platinum gained 0.1 per cent to $775.19 per ounce, while silver slipped 0.6 per cent to $15.27 per ounce.