Gold Recycling in India Seen at 7-Year High on Record Prices

(Bloomberg) -- Gold recycling in India, which trails only China in consumption, is forecast to climb to the highest since 2012 as a surge in local prices pushes people to cash in on their jewelry, according to the World Gold Council.

Supplies through old gold sales may rise to around 100 tons this year, P.R. Somasundaram, managing director for India at the gold promotion body, said in an interview. That would be a 15% increase over 2018 and the highest since the 118 tons sold in 2012, according to WGC data.

Higher scrap supply in India, which imports almost all of its gold, may reduce dependence on overseas purchases that have already risen about 20% in the first six months of 2019. Additionally, Prime Minister Narendra Modi’s administration increased the import tax on the precious metal last month for the first time since 2013 to curb demand.

An increase in the tax will dampen demand in the three months through September but may not have a long-term impact, Somasundaram said by phone. Consumption this year may come in at the higher end of WGC’s 750 to 850 tons estimate for this year.

Switching to Gold

• “From the consumer’s point of view, prices have run up significantly, whether it is the import tax increase or the increase in the international price and it will therefore cut the amount of gold you can buy with the same amount of money,” according to Somasundaram. “But when you see that the other asset classes in which you are investing not doing so well, they will probably allocate more to gold.”
  • Additionally, demand will pick up as India’s festival season begins in the second half and consumers become used to higher prices, he said.
  • Domestic prices have tracked a surge in overseas spot gold, and have risen about 10% this year. Prices rose to a record 35,409 rupees last month.
• Investment demand for coins and bars in the second quarter was the best for the period in the past five years and purchases will rise as many equity and debt investors switch to gold, Somasundaram said.

Key Figures

• Indians bought 213.2 tons of gold in the April-June period, up 13% from a year earlier, taking consumption during the first half of this year 9% higher to 372.2 tons
• Net imports during April-June rose 28% to 247.4 tons from a year earlier period: WGC
  • Dore imports were 75.5 tons, up 9% on year
  • Scrap supply climbed 18% during the quarter to 38 tons, taking the January-June total to 54 tons

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Alpana Sarma

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