Gold prices in India remain unchanged, failing to catalyze increased supply from scrap sources
In India, gold prices have been on a steady climb, reaching new highs almost every week. The local price of gold per 10 grams recently peaked at a record 110,666 rupees, marking a 42% year-to-date increase and a 21% rise from the previous year.
This surge in gold prices has allowed banks to charge a $1 premium even at record price levels. The limited supply of scrap ahead of the festive season, such as Dussehra and Diwali in October, is particularly beneficial for banks involved in gold trading and refining, including major bullion banks and precious metals dealers.
India's gold imports in August saw a significant jump of 37% from the previous month, totalling $5.4 billion. However, imports of dore, a semi-manufactured gold product, have declined sharply. As a result, refiners are sourcing scrap from replaced jewellery to sustain their operations.
The surge in scrap supply in March was triggered by spot gold first crossing $3,000 an ounce. This event caused a surge in scrap supply, which has since dwindled due to the high prices.
James Jose, managing director of refiner CGR Metalloys, explained that Indians are choosing to hold their assets instead of selling them for a profit, due to the belief that gold prices will continue to rise, potentially touching 125,000 rupees. This trend has led to a scarcity of gold jewellery and coins in the market.
Harshad Ajmera of wholesaler JJ Gold House in Kolkata added that scrap supplies typically rise when prices climb too high too quickly, as was the case with prices in recent months.
Despite the high prices, consumers in India continue to hold onto their gold, reflecting a strong faith in the precious metal's potential for further growth. This belief is shared by James Jose, who stated that Indians believe gold prices will rise even higher, making them hesitant to sell their assets.
As India gears up for its festive season, it remains to be seen how the gold market will evolve. However, one thing is certain: the high demand for gold and the limited supply of scrap are set to continue benefiting banks and refiners in the near future.
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