Sunday, December 16, 2007

Higher gold prices need of the hour to boost recycling in the Middle East

12/16/2007 07:32 PM | By Naushad K. Cherrayil

Dubai: Gold prices will need to return to levels close to $850 to encourage a further surge in gold recycling in the Middle East, GFMS's latest report said.

"With gold pushing through $800 in early November, this sharp rise was expected to have provided the impetus for a hood of recycled gold from Saudi Arabia, the world's largest supplier of scrap last year.

"However, this has not been the case, with scrap fows from the Kingdom surprisingly weak in the second half of this year," said Cameron Alexander, an analyst at GFMS.

Year ahead

Looking ahead to the next year, he said it is unlikely that Saudi scrap gold volumes will return to 2006 levels unless a higher gold price is achieved.

The resultant slump in jewellery consumption would likely encourage a portion of retailers to take advantage of record prices and liquidate their holdings.

"Consider that average scrap volumes were over 30 tones per quarter in 2003 globally but, so far this year they have fallen to under 20 tones on average," Alexander said.

Similarly in the Middle East, the reaction to the rise in the metal prices has been controlled, with scrap supply supported by the distribution chain unloading slow moving inventory rather than individuals of loading gold assets, as was the case for much of 2006.

"Several dealers in Saudi Arabia involved in the scrap market said they were perplexed at the lower volumes of scrap currently being returned to local gold souks in spite of a 27-year high for the gold price," he said.

Trend: Dubai scenario

Demand for jewellery in Dubai has been modest with consumers buying solidly on dips in prices. But right now they do not appear selling, or exchanging jewellery, with the expectation of higher prices on the horizon, GFMS's report said.

The most simple explanation of this 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.

Report says the rise in the gold price, even in euro terms, obviously features but its direct importance should not be overstated.

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