Record scrap sales of gold in quarter one this year

Scrap sales of gold touched new highs in the first quarter of 2009, throwing speculations regarding gold prices into a wide disarray, analysts say. High levels of scrap sales are particularly being reported in the Middle East where such sales have risen 140 per cent in the past six months. According to GFMS, a London precious metals analyst, about 500 tonnes of scrap gold was sold in the markets in the first quarter of this year. Normally, 500 tonnes is the annual sales figure for gold scrap. In fact, for the first time in the past three decades, the amount of scrap sold has exceeded the amount of new gold bought, GFMS said. In sharp contrast, demand for gold jewellery has ebbed across the world, data published by GFMS showed. The World Gold Council recently announced the demand for gold as an investment product has surged the highest in the Middle East triggering sales of scrap gold. Analysts say demand for gold as an investment has surged in the Middle East since the beginning of 2009 as equity markets and oil and related sectors turned stubborn non-performers. "According to market reports demand for gold as investments has risen more than 140 per cent in the first four months of 2009 in the region," said Anoop PS Assistant Vice-President with JRG a Dubai-based brokerage house. Dubai Gold Securities, a Nasdaq Dubai listed ETF, has seen more than 7,500 contracts in the first 40 days after its listing, according to market figures. GFMS said gold prices will average at $908.41 an ounce this year, up 4.8 per cent from 2008. Prices may cross the $1,000/oz mark this year with $1,100 an ounce a "real possibility", it said. However, in the same report GFMS said several price "excursions" to $800 an ounce and $850 an ounce levels, triggering buying by investors. "Investors will remain the principal driver of the expected next leg of the bull market to a new high above the $1,000 mark with $1,100 a real possibility," GFMS said. "In the medium term, prices could retrace from the current levels; the mid-to-low 800s are possible low over the rest of this year, with prices in that region most likely to eventually be pushed up by bargain hunting and stock replenishment," it added. Evaluating markets in long term, a weaker US dollar and a potential build in inflation are likely to cause investors to increase their exposure to gold, ushering a rally into oil prices, said Sajith Kumar PK, Vice-President, JRG. According to GFMS, the value of gold investments in 2010 rose by $12bn last year to almost $26bn. Net investment demand rose 76 per cent, largely driven by exchange traded funds (ETFs). The sale of bullion bars also rose particularly in Middle East and Asia up 62 per cent. Official sale of gold will remain weak in 2009 as CBGA (Central Bank Gold Agreement) sales will remain below quota, GFMS said. However, impact on gold prices may come from sales by the IMF, Sajith said. "India and China want the IMF to sell off its entire gold reserves that stands at 400 tonnes. Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here .