In a notable shift in the Indian gold market, the supply of used gold jewellery and coins has seen a significant decline, as investors hold off on selling their assets in anticipation of further price increases. This is particularly evident following a dramatic rise in spot gold prices, which recently surpassed $3,000 an ounce for the first time. During that period, many retail customers were eager to liquidate their holdings, leading to a surge in scrap gold supply. However, current market sentiment reflects a belief that gold prices are set to climb even higher.
James Jose, managing director of CGR Metalloys, emphasized this trend at the India Gold Conference in New Delhi, stating that numerous investors are choosing to retain their gold rather than cashing in for profit. The local gold price recently reached a historic high of 110,666 rupees ($1,260.94) per 10 grams, marking a staggering 42% increase year-to-date, following a 21% rise the previous year.
The typical dynamics of gold trading suggest that rising prices would usually lead to greater scrap supplies, a phenomenon that was observed in earlier months. Harshad Ajmera from JJ Gold House noted that many consumers are now speculating that prices could surge up to 125,000 rupees, prompting them to hold onto their gold rather than sell.
While higher prices have made new jewellery too costly for many, there is a trend toward exchanging older pieces for new ones. Amit Modak, the chief executive of Pune-based PN Gadgil and Sons, noted that refiners are increasingly relying on scrap from these exchanges to maintain operations, especially as imports of dore—a semi-pure gold alloy—have dropped significantly.
The limited availability of scrap gold leading up to the festive season is advantageous for banks, as jewellers begin to seek out imported gold to meet growing demand. The upcoming celebrations of Dussehra and Diwali in October, which are traditionally associated with purchasing gold, only heighten this demand.
As the market grapples with restricted scrap supplies, many banks are charging a premium of around $1 above prevailing prices, a departure from the typical discounts seen during such periods of increased scrap. August data indicates that India’s gold imports surged 37% from the previous month, amounting to $5.4 billion, underscoring the robust demand amidst soaring prices.
