Daily Market Update

Gold Scrap Supply to Drop Up to 25% as Sales Decline Due To Lower Prices

Today’s AM fix was USD 1,340.00, EUR 1,012.31 and GBP 872.40 per ounce. 
Yesterday’s AM fix was USD 1,326.75, EUR 1,007.10 and GBP 864.84 per ounce.

Gold rose $8.70 or 0.65% yesterday and closed at $1,342.40/oz. Silver remained unchanged at $20.46.

Gold pulled back today on profit taking after a 4 day rally drove prices to one month highs . Weak PMI data from China showed its economy is slowing, the U.S. dollar strengthened, and positive PMI data from Europe may have contributed to profit taking after gold’s more than 10% gain from the recent lows.

Support & Resistance Chart – (GoldCore)

Gold supply from scrap materials is expected to drop by 25% this year as cheaper prices discourage holders from selling gold jewellery while physical demand for coins and bars is growing, according to the World Gold Council.

Lower gold prices will reduce global scrap gold sales in this year and 2014 as it will reduce the incentives for holders of gold to sell their jewellery.

Bullion from recycled materials may drop by 300 to 400 metric tons in 2013 from about 1,600 tons last year, according to Marcus Grubb, MD of investment research at the World Gold Council in London.  Barclay’s research notes that scrap bullion supply may fall by 300 and forecasts recycled sales to drop by 174 tons this year. Recycling accounted for 37% of last year’s total supply.

Many gold holders sold metal when prices were higher and others are probably waiting for a rebound, Grubb said. “They think it’s a bad time to sell their gold,” Grubb responded in an interview.

Recycling of gold peaked in 2010 when sales reached 1,719 tons, according to Barclay’s. Gold prices climbed to a record $1,921.15/oz in 2011. Scrapping slowed from that time because many people had already sold their metal, Grubb said.

In 2013, scrap gold or gold sourced from secondary sources is forecast to decrease by 12% relative to 2012, to total 1,430 tonnes according to Australia’s Bureau of Resources and Energy Economics.

In 2014, Australia’s Bureau of Resources and Energy Economics believe the quantity of gold sourced from scrap is forecast to decline by a further 8% to total 1,314 tonnes.

Gold for immediate delivery fell 20% this year to $1,338.95/oz, and hit a 34-month low of $1,180.50/oz on June 28. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.2% since the beginning of 2013 and the MSCI All-Country World Index of equities gained 11%. Treasuries lost 2.4%, according to a Bank of America index. 

With the U.S. Fed’s indecision on a time frame to taper their debt buying and loose monetary policies bullion has recovered some of its 23% fall in Q2.

Cross Currency Table – (Bloomberg)

Rising demand for the yellow metal helped propel July futures on the Comex in New York above the August contract this month. Backwardation, when nearby contracts are more expensive than longer-dated futures, may signal concern about near-term supply. One-month gold forward offered rates, which show the interest rate at which dealers will lend gold for dollars, were the most negative since 2008 earlier this month, driving the cost of borrowing the metal to a 4 1/2-year high in London.

Japan’s largest gold retailer, Tanaka Kikinzoku Kogyo said on July 18th that its sales tripled in Q2 from the prior three months. Physical demand is driving imports by India which at 900 metric tons is up from 860 tons last year and China will grow from 817 tons last year to 1,000 tons this year, the World Gold Council reports.

The cash for gold phenomenon has led to a huge increase in gold supply in recent years as cash strapped consumers, primarily in the western world, sold their gold in order to get much needed  euros, pounds, dollars and other currencies.

The cash for gold industry managed to convince the unaware public that now was a great time to sell their gold jewellery because gold was trading "at record highs". They failed to inform customers that gold was trading at record nominal highs and remained well below the real high, the inflation adjusted high, of $2,400/oz.

Selling gold jewellery in this manner is a classic case of buying high, due to the very high margins on jewellery and taxes, and selling very low –akin to ‘selling the family silver’ for appalling prices. 

Those who have sold their gold jewellery will likely greatly regret their decision  in the coming years as currencies are devalued internationally and gold surpasses it’s real record highs in dollar terms.

“They think it’s a bad time to sell their gold” – Bloomberg

Gold eases after four days of gains as dollar firms – Reuters

Gold Swings Near 1-Month High as Investors Assess Fed Stimulus – Bloomberg

Silver bullion recovered from shipwreck off coast of Ireland – The Irish Times

Video: Ron Paul: Why I’m holding my gold – CNBC

Dennis Gartman: Gold is going ‘several hundred dollars higher’ – CNBC

Fools Say “Sell the Gold Rally” – Mish’s Global Economic Analysis

Jim Sinclair: The Legend, I Knew Him Way Back When – GoldSeek

ART CASHIN: Traders Are Talking About A Gold Conspiracy Theory And There’s Evidence To Back It Up – Business Insider

Time for ‘ugly duckling’ to shine? – CNBC

For breaking news and commentary on financial markets and gold, follow us on Twitter.

Mark O'Byrne
Executive Director


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