Record gold prices in India fail to unlock scrap supply

NEW DELHI: Supplies of used gold jewellery and coins, typically released when investors book profits, have been scarce in India, as many expect bullion prices to continue climbing even after reaching new highs almost every week.

This contrasts with March, when spot gold first crossed $3,000 an ounce and retail customers rushed to sell their holdings, triggering a surge in scrap supply.

“Indians now believe gold prices will rise even higher, which is why they’re choosing to hold their assets instead of selling them for a profit,” James Jose, managing director of refiner CGR Metalloys said on the sidelines of the India Gold Conference in New Delhi.

Local gold prices , which scaled a record peak of 110,666 rupees ($1,260.94) per 10 grams earlier this week, have risen 42% year-to-date, after gaining 21% last year.

Scrap supplies typically rise when prices climb too high too quickly, as was the case with prices in recent months, said Harshad Ajmera of wholesaler JJ Gold House in Kolkata.

“Consumers now think prices could even touch 125,000 rupees, so they’re holding on to their gold instead of selling,” he said.

Although rising prices have made new jewellery unaffordable for many consumers, they are increasingly exchanging old pieces for new ones, said Amit Modak, chief executive of PN Gadgil and Sons, a Pune-based jeweller.

Refiners are sourcing scrap from replaced jewellery to sustain operations, as imports of dore – a semi-pure alloy produced by miners – have declined sharply, said Ajmera.

The limited supply of scrap ahead of the festive season is a boon for banks, as jewellers increasingly turn to them to meet demand from imported gold.

Indians will celebrate Dussehra and Diwali in October, festivals during which buying gold is considered auspicious.

Rising prices usually trigger deep discounts as scrap floods the market, but limited supplies are allowing banks to charge a $1 premium even at record price levels, said a Mumbai-based jeweller with a bullion importing bank.

India’s gold imports in August jumped 37% from a month ago to $5.4 billion, trade ministry data showed.