KALGOORLIE, Australia (Reuters) - A dramatic drop in the recycling of gold jewellery was helping to rebalance the global bullion market, now in surplus, and could set the stage for a price recovery, the industry-funded World Gold Council said on Tuesday.
The council's managing director of investment, Marcus Grubb, said supplies of gold from recycling would fall by 300 tonnes in 2013, almost a fifth of last year's 1,600 tonnes, as low bullion prices discourage people from cashing in their jewellery.
"Recycling is positively correlated to the gold price," Grubb told Reuters on the side of the Diggers and Dealers mining conference.
"In a bull market recycling rises as the price goes up, on the downside when the price drops, like we saw this year, you see recycling fall because people do not think they will get a good price for their gold," he said.
Grubb said the drop off started in the first quarter when recycling fell four percent as prices sagged and accelerated in April when gold saw its sharpest drop in 30 years.
Strong global economic data has dented gold's safe-haven appeal, physical buying in top consumers India and China remains subdued and traders expect further price falls.
The lion's share of recycled gold comes from India and China, where individuals hold 20,000 and 10,000 tonnes respectively, he said.
The decline in recycling combined with less "new" gold output from mines was helping offset the additional 650 tonnes estimated to enter the market in 2013 as more holdings by exchange traded funds are unwound, according to Grubb.
"What that has done is create a temporary surplus this year," Grubb said. "You need balance to be restored in the gold market in the short term for the longer term drivers of the price to return," he said.
Grubb did not give a timeframe for any recovery in gold prices.
(Reporting by James Regan; Editing by Michael Perry)
