Rakesh Saxena

Gold: Recycling Threatens Demand-Supply Equation

Dear Roger Knights: Good point on statistics. Informally, our research shows a 30-70 ratio (used to be 15-85 in earlier agricultural and festival cycles) but, as more numbers are gathered, my estimate is that amount of gold actually sold will rise quite dramatically. More on this issue later. Many thanks - Rakesh


On Jan 05 07:33 PM Roger Knights wrote:

> I recall reading that most pawned gold in India is eventually reclaimed
> by the owner rather than going into the scrap / recycling bin. If
> so, this limits the impact of pawning on gold's price. (Were any
> statistics provided on the percentage sold vs. pawned?)

Gold: Recycling Threatens Demand-Supply Equation

Dear Smary_Pants: FYI only, the declines are in terms of ounces imported. Many thanks - Rakesh


On Jan 05 10:54 AM Smarty_Pants wrote:

> "the alarming pre-weekend announcement by the Bombay Bullion Association
> that gold imports into India, the world’s biggest gold consumer,
> fell 81% year-on-year in December 2008, as purchase orders through
> the complex gold chain (village-to-city) came to a virtual standstill.
> Indian gold imports for 2008 as a whole are estimated to have fallen
> by 47%."
>
> Are those statistics showing a decline in ounces purchased or in
> money spent? One would assume ounces purchased.
>
> Given that the price of gold stayed below $700/oz for 2/3 of CY2007
> you might expect that a large number of people with modest incomes
> would be able to afford more ounces than they could in CY2008 when
> the price remained above $850/oz for 2/3 of the year.
>
> If your income can only support a modest level of savings then one
> would expect fewer ounces of gold purchases at higher prices. Add
> in the effects of an economic slowdown and the reduction it might
> bring in the level of savings, plus higher gold prices, then even
> fewer ounces of gold would sell. That doesn't mean they have stopped
> buying what they can afford, only that what they can afford is fewer
> ounces at today's prices.
>
> As far as pawning or selling of dowrys, that is a common practice
> in India as I understand it. Harder times would expect to increase
> the practice, but it happens just as much here in the US.
>
> I am friends with a mom & pop jewelery store owner here in the
> US. He is seeing a very large increase in people selling their jewelry
> for the same reasons, to make ends meet. Not surprisingly, the amount
> he buys is directly proportional to the price. Lower prices restrict
> his buying to a trickle, even with today's near record price levels.
>
>
> While such selling may provide a temporary surge in supply, there
> is a limit. People only have so much gold to sell and those who still
> have it will be more likely to wait for higher prices before they
> are tempted to sell.
>
> What impact all that selling or pawning will have on the long term
> price level of gold remains to be seen. However, absent any clarification
> as to what 'falling imports' of gold mean (ounces or value?), the
> claim is slightly misleading. Higher prices would require lower volumes
> if the amount of money available to spend is relatively fixed.