Sales of scrap gold in India are surging as a plunge in the nation’s currency drives bullion prices to a record, easing a supply crunch caused by curbs on imports by the world’s largest consumer.
Supplies of recycled bullion, mostly coins and bars, have climbed to 100 kilograms to 150 kilograms a day in Mumbai, the country’s biggest gold market, from 5 kilograms to 10 kilograms a week earlier, said Prithviraj Kothari, managing director of Riddhisiddhi Bullions Ltd. Investors, who bought the metal at lower prices, are leading the rush to sell, said S. Venkatesh Babu, president of the Jewellers’ Association of Bengaluru.
“Investors are selling gold all across the country,” said Kothari, who is also a director of the Bombay Bullion Association, which represents about 1,000 jewelers and traders. “There is a huge amount of scrap supply coming into the market. There is a liquidity crisis and people are selling and putting the money in the bank.”
Futures in Mumbai advanced to an all-time high last week, rebounding 41 percent from a two-year low in June, as the rupee slumped to the lowest level against the dollar. The increase in scrap supplies is helping jewelers meet demand as banks and traders have yet to resume shipments after the Reserve Bank of India tightened import rules in July, said Kumar Jain, a spokesman for the bullion association.
Banks and traders may resume imports immediately after the Customs Department issued detailed guidelines on purchases today, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, which represents about 300,000 jewelers and bullion dealers. Imports in September may total 35 tons as jewelers may stock up ahead of major festivals, he said.
Recycled bullion supply in India fell 44 percent to 31 metric tons in the first six months of 2013, even as gold imports jumped 45 percent to 553 tons, according to the World Gold Council. Scrap supplies were 117 tons in 2012 and 59 tons in 2011, council data showed. Consumption in the country, which imports almost all the bullion it needs, accounted for about 20 percent of global demand in 2012, council data showed.
“Consumers are selling coins and bars to benefit from the increase in prices,” said Bamalwa. “Gold is available at a discount as everyone wants to sell.”
The rupee weakened 18 percent against the dollar this year, set for the worst loss since 1991 when the nation had to pawn its gold for loans to pay for imports. The slump prompted the government to raise import taxes three times in 2013 to moderate consumption and curb a record current-account deficit.
“All the people who thought they were stuck with the gold when the prices fell are looking to exit and a lot of investor selling is happening,” Babu said. “There are no buyers in the market. Only sellers.”
The contract for delivery in October surged to an all-time high of 35,074 rupees per 10 grams ($522) on the Multi Commodity Exchange Ltd. on Aug. 28 and was at 33,370 rupees today. Prices in rupees gained 8 percent this year, compared with a 16 percent drop in the metal priced in dollars as some global investors lost faith in the metal as a store of value.
India’s rupee fell 8.1 percent in August, its biggest monthly loss since 1992 on concern a deepening economic slowdown will deter investors at a time when the U.S. prepares to pare stimulus. It fell to a record low of 68.845 on Aug. 28.
“Demand for jewelry is weak in the local market now and it will start looking up from the first week of next month when the festival season starts,” said Haresh Soni, chairman of the jewelry trade federation. “Unless and until the rupee stabilizes the current situation will continue.”