Singapore / Mumbai: Gold refiners are running at full capacity across Asia as people cash in jewellery and coins, while a near-record high price in India drives away consumers, dealers said on Wednesday.
Few takers: Gold bangles being displayed at a shop in Hyderabad. Jewellery sales in India have slowed after futures prices soared. Noah Seelam / AFP
“Demand is nil,” said Satish Bansal, head of MD Overseas Ltd, a New Delhi-based importer. “Demand may pick up if gold falls to $850 (Rs44,140.50) per ounce and if the rupee improves,” said Bansal, referring to a level last seen in January.
Gold powered to an 11-month high above $1,000 an ounce on 20 February, not far from a record of $1,030.80 last March, as investors sought a safe haven from turmoil in the financial markets. Prices have dropped around 9% but selling from holders persists.
“Indeed, refiners everywhere are operating at full capacity to convert old scrap into new good-delivery bullion bars in quantities since the beginning of the year measured in the hundreds of tonnes,” said Jeffrey Nichols, managing director of American Precious Metals Advisors.
Jewellery sales in India, the world’s largest gold consumer, have slowed to a trickle after a combination of a falling rupee and strong international prices sent local futures prices to a lifetime high of Rs16,040 in February.
At around Rs15,200 per 10 grams, prices on the Multi Commodity Exchange of India held within sight of the record level, and dealers said holders were still queueing up to sell trinkets for cash.
“What matters are prices in local currencies. Indian rupee prices, for example, are at historically high levels, so the impulse to sell is stronger than one might imagine from a US dollar perspective,” said Nichols.
“This picture is similar in many countries throughout Asia and Europe. Even here in the US, homemakers and working women are holding gold parties, where they and their friends sell unwanted jewellery to itinerant scrap buyers.”
Persistent sales weighed on premiums. Gold bars were offered at a discount of 50 US cents to spot London prices in Hong Kong, down from 30 cents last week.
Gold bars were on par in Singapore, unchanged from last week, but down from a premium of 50 cents two weeks ago.
“Indonesia is still the main seller, but we also see short covering from the Vietnamese side. There’s no interest from India and it looks like sentiment is a little bit weak at the moment,” said a dealer in Singapore.
While demand from investors has picked up, analysts said sales of scrap and falling demand from the jewellery sector could prevent gold from recapturing $1,000.
Jewellery accounts for nearly 60% of global demand for bullion.
“First and foremost, the market has had to absorb an absolutely fantastic flow of old scrap,” said Nichols.
“Record high prices in local currencies around the world, with a little help from falling incomes and rising unemployment, has prompted millions of people to cash in their old gold jewellery.”
The Bombay Bullion Association said India had not imported any gold so far in February as high prices dampened demand for the metal and the outlook in the coming weeks remained downbeat.