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Indians Sell Scrap Gold at Unprecedented Discounts as Price Rises

iconSep 9, 2013 11:12
Source:SMM
Gold is trading at near-record levels in India, pushed up largely due to the country's weak currency, but dealers are picking up castoff gold jewelry at unprecedented discounts.

06 Sep 2013 Last updated at 09:12:05 GMT
 
NEW DELHI—Gold is trading at near-record levels in India, pushed up largely due to the country's weak currency, but dealers are picking up castoff gold jewelry at unprecedented discounts amid a rush among sellers to take advantage of the high prices ahead of traditional high-demand season.

Living as they do in the world's largest gold-consuming nation, a lot of Indians have stashes of gold jewelry that they can convert into currency when it is wanted or needed, and that means that a lot of people are in a position to liquidate the precious metal when prices peak.

According to traders, the amount of gold landing on dealers' and jewelers' shop counters has tripled compared with average volumes. But while sellers are anxious to unload their trinkets at the best prices possible, traders said sales are thus far negligible, as customers are holding off on making purchases given that recent measures to reverse the local currency's depreciation may push the rupee-denominated price of gold down.

"Everyone in the market seems to have turned into a seller," said Jitendra Kantilal Jain, owner of Jugraj Kantilal and Co., a prominent Mumbai-based scrap-gold dealer.

Dealers like Mr. Jain don't have to pay the 10% tax levied on gold imports when they buy scrap. At the current global price of gold, that is a price difference of around $135-$140 a troy ounce.

Since the sellers haven't had to pay the import tax, which was raised from 8% in August and is up from 2% at the start of 2012, this is factored into the price they fetch, and the discount has widened further owing to the outpouring of molten gold scrap as outright gold prices have surged.

Dealers are giving sellers $45 to $70 less per ounce of gold than they would pay for imported bullion. A few months ago, when demand outpaced supply in response to two-year-low prices, they were paying around $25-$35 premiums on imported gold.

Back then, spot gold was trading as low as 26,000 rupees per 10 grams. It soared to a record of 34,000 rupees last Wednesday and has since pulled back a bit, to 32,100 rupees on Friday.

Mr. Jain said he is buying 10-12 kilograms of scrap gold a day compared with three-four kilograms a day last month.

It is a welcome alternative supply of the precious metal given the increasing difficulty dealers and jewelers are having sourcing it from overseas markets following restrictions imposed by government to rein in the outflow of dollars.

Aside from the finance ministry's tax boost on gold imports, the Reserve Bank of India in July required banks and dealers that import the metal to ensure that 20% of imports were re-exported.

"This [recycled gold] has provided much-needed relief to a market that was dying due to lack of raw materials," said Haresh Soni, chairman of All India Gems & Jewellery Trade Federation.

"There has not been a single ton of gold imported by banks since the second week of August. It will obviously help the government to trim the current-account deficit," said a Mumbai-based commodity broker, who didn't want to be identified.

Despite government efforts to curtail gold buying, India's gold imports jumped 45% to 553 tons during the first half of 2013, World Gold Council data shows. Overall imports could fall in the second half if the availability of scrap continues to increase, Mr. Soni said.

Demand for festival gold usually starts picking up in the first week of September, around the time of birthday celebrations for the elephant-headed god of wisdom, Ganesh, and continues through to November and Diwali, the festival of lights, widely considered the most auspicious buying occasion on the Hindu calendar.

Ganesh Agarwal, a Chennai-based director at bullion dealer Shiv Sahai & Sons, said only businesses are buying now.

"People are expecting gold prices to fall as the rupee is expected to stabilize in the coming week," he said.

"We expect fresh demand may come only around the 29,000-rupee [per-10-gram] level," said Mr. Jain of Jugraj Kantilal and Co.

The rupee fell by around a fifth against the U.S. dollar between May and earlier this week as foreign investors pulled money out of emerging markets in anticipation of the U.S. Federal Reserve moving to taper its $85 billion-a-month bond-buying program. But it has recovered from a record low reached Aug. 28, helped by fresh steps the central bank announced Wednesday to stabilize the currency and reassure investors

 


Author: Paul Ploumis
 

Scrap Gold
India Gold
Gold Price

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