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Reduced scrap gold sales suggest higher gold prices

Gold Fields Minerals Services (GFMS), the London-based metals consultancy, says that the sale of scrap gold in India and the Middle East this year is down compared with prior years. India and the Middle East are “price-sensitive” regions where gold sales usually increase with gold price increases.

However, this year the average quarterly volume of gold sold in India is running less than 20 tons. In 2003 when the price of gold averaged $364, scrap sales ran at about 30 tons a quarter.

GFMS analysts explain the aberration this way: “The most simple explanation appears to be that, as expectations of higher (and ever higher) prices have taken hold, consumers have reduced the amount of old jewellery they are willing to sell back.”

In the industrialized countries this year, scrap gold sales increased with higher prices; however, sales have not kept pace with prior years’ sales. GFMS says that is because of “less of a clear-out from the trade than there was last year,” which means that commercial end users are holding on to their scrap gold.

Supposedly, the jewelry industry, the major consumer of gold, is the best prognosticator of gold prices. So, reduced sales scrap gold sales may suggest higher gold prices.