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Refiners devour scraps, India laments sales

SINGAPORE/MUMBAI (Reuters) - Gold refiners are running at full capacity across Asia as people cash in jewellery and coins, while a near-record high price in India drives away consumers, dealers said on Wednesday.

Gold bangles are seen inside a display case at a jewellery shop in Singapore in this March 7, 2008 file photo. REUTERS/Vivek Prakash

“Demand is nil,” said Satish Bansal, head of M.D. Overseas Ltd, a New Delhi-based importer. “Demand may pick up if gold falls to $850 per ounce and if the rupee improves,” said Bansal, referring to a level last seen in January.

Gold powered to an 11-month high above $1,000 an ounce on Feb. 20, not far from a record of $1,030.80 hit last March, as investors sought a safe haven from financial market turmoil. Prices have dropped about 9 percent but selling from holders persists.

“Indeed, refiners everywhere are operating at full capacity to convert old scrap into new good-delivery bullion bars in quantities since the beginning of the year measured in the hundreds of tonnes,” said Jeffrey Nichols, managing director of American Precious Metals Advisors.

Jewellery sales in India, the world’s largest gold consumer, have slowed to a trickle after a combination of a falling rupee and strong international prices sent local futures prices to a lifetime high of 16,040 rupees ($309) in February.

At around 15,200 rupees per 10 grams, prices on the Multi Commodity Exchange of India held within sight of the record level, and dealers said holders were still queueing to sell trinkets for cash.

“What matters are prices in local currencies. Indian rupee prices, for example, are at historically high levels, so the impulse to sell is stronger than one might imagine from a U.S. dollar perspective,” said Nichols.

“This picture is similar in many countries throughout Asia, the Middle East, and Europe. Even here in the United States, homemakers and working women are holding gold parties, where they and their friends sell unwanted jewellery to itinerant scrap buyers.”

Persistent sales weighed on premiums. Gold bars were offered at a discount of 50 U.S. cents an ounce to spot London prices in Hong Kong, down from 30 cents last week. Gold bars were on par in Singapore, unchanged from last week, but down from a premium of 50 cents two weeks ago. .

“Indonesia is still the main seller but we also see short covering from the Vietnamese side. There’s no interest from India and it looks like sentiment is a little bit weak at the moment,” said a dealer in Singapore.

Gold bars stood at a discount of as much as 75 cents in Tokyo, unchanged from last week, but it was bigger than a discount of 25 cents two weeks ago.

“We are seeing some liquidation, but I also feel the general public may be waiting for the price to fall below $900 before they do bargain buying,” said a physical dealer in Tokyo.

While demand from investors has picked up, analysts said sales of scrap and falling demand from the jewellery sector could prevent gold from recapturing $1,000. Jewellery accounts for nearly 60 percent of global demand for bullion.

“First and foremost, the market has had to absorb an absolutely fantastic flow of old scrap,” said Nichols of American Precious Metals Advisors.

“Record high prices in local currencies around the world, with a little help from falling incomes and rising unemployment, has prompted millions of people to cash in their old gold jewellery.”

The Bombay Bullion Association said India had not imported any gold so far in February as high prices dampened demand for the metal and the outlook in the coming weeks remained downbeat.