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ScrapGold Millionaire

By Jon Nadler
23 Feb 2009 at 11:05 AM GMT-05:00

Kitcommentary for February 23, 3009

The last week of the month got off to a sluggish start in precious metals as some tired longs cashed in their chips ahead of options expiry and as others sold following the satisfaction of the $1,000 mark last week. The U.S. dollar (last seen at 86.72 on the index) fell slightly against the euro, following the reinforcement of perceptions that President Obama might semi-nationalize Citigroup and fully nationalize at least some of the top 20 U.S. banks coming under review soon. The sector hardly needs a 'bad bank' since it has a sack full of them already. A bailout by any other name - Dubai was pulled back from the brink by the UAE central bank's purchase of $10 billion of its bonds. Good, now they can build more manmade islands upon which to build $3,000 a night hotel rooms.

New York bullion trading opened with a $7.40 loss for gold, which was quoted at $985.80 per ounce - about $21 from the highs it achieved last week. While the trade does not appear to have soured on the metal just yet, it did take notice of embryonic signs that risk appetite might be starting a revival, and that it could at least partially result in a shift over to equities in the wake of their recent battering. Rising oil prices on the heels of OPEC's reiteration of its supply cuts did not lend much support to the yellow metal. Secretary of State Hillary Clinton's apparent success at 'convincing' Chinese officials to keep buying U.S. debt did not help either.

Clinton did not shy away from certain euphemisms last heard on the Sopranos - "We are truly going to rise or fall together," and "It would not be in China's interest if we were unable to get our economy moving again," were just two of the ones she used. Girl power in action. We predict success.

Silver was off a dime, trading at $14.32 per ounce at the start of the Monday session. Platinum fell $4 to open at $1077 and palladium lost an equal amount, showing a $209 per ounce open. In the news and analysis pipeline this week, are: Capitol Hill rotisserie time for Federal Reserve Bank Chairman Ben Bernanke, and a living room-full of housing data from various sources. Background news of future import: Ms. Mary Schapiro - SEC top cop - is mulling the revival of the uptick rule (no short-selling a share when it is falling).

Looking at the Oscar telecast last night was hardly like watching a country in the midst of the worst slump since (insert your favorite decade here). Glitz was on display. At the end of the night, Bollywood took over Hollywood and made “Slumdog Millionaire” top dog. We'd keep a watchful eye on that golden statuette however, as it might not make it to the mantelpiece if taken to Mumbai. Here is why, reports Singapore's Business Times:

"India's imports of gold have collapsed as people rush to sell their jewelry and coins to take advantage of soaring world prices for the precious metal.”

Influx of scrap gold: The rupee's weakness against the U.S.$ has driven Indian gold price to all-time peaks India, long famed as the world's largest gold consumer, normally imports 90 per cent of its gold needs.

But in January, even with the wedding season - a time of lavish gold gift giving - in full swing, it imported just 1.8 tonnes, down from 14 tonnes a year earlier, the Bombay Bullion Association said.

So far this month, there have been no imports, association president Suresh Hundia told AFP.

This has come on top of a 14 per cent drop last year in gold imports to 660 tonnes, down from usual annual import levels of 700 to 800 tonnes.

'We're seeing all kinds of people - middle class, lower class people, old people - selling their old gold to take advantage of higher prices,' said Kapil Kumar Chokshi, a partner at Mumbai's Chokshi Arvind Jewelers. 'There are probably several hundred people who line up outside the store a day wanting to sell,' he added.

Dealers say this influx of scrap gold is a key factor behind the drop in imports along with high prices, which are dampening demand. 'We're meeting demand from local supply,' said Kishore Narne, head of commodities at Anand Rathi Commodities.

Gold is climbing strongly on world markets - in London the spot price last week soared as high as U.S.$999.10 an ounce, the highest since March 2008 as investors sought a safe haven amid escalating fears about the global economy.

But in India, the local currency's weakness against the U.S. dollar has driven the Indian gold price to all-time peaks in rupee terms. 'We're seeing old broken bangles, coins ... People are clearing out the gold items they don't want. It's different from the rest of the world where people are buying - here people want to sell their gold,' Mr Chokshi said.

The country of 1.1 billion people is believed to have one of the world's biggest private gold hoards estimated at up to 15,000 tonnes.

Indian spot gold prices surged to a record 15,790 rupees (S$487.7) per 10 grams this week, up 1,600 rupees so far this month.

Many Indians are hoping to buy back gold once the cost comes down, although traders say they may have a long wait.

'People who are selling their jeweler expect a correction in the price - they're completely disconnected from what's happening in the rest of the world,' said Devender Kumar, a New Delhi jeweler merchant. 'I don't see prices coming down,' he added. 'I see them going higher.'

Indians are still buying gold for marriages - they believe it is auspicious to give gold for weddings and other religious events. But consumers are getting less for their money because of the high cost, said Mr Kumar. 'They're still coming in with their budgets of 150,000 rupees or 200,000 rupees but that buys them less gold. They're not increasing their budgets.'

Mr Kumar said at his store, the volume of gold sold was down by 25 to 30 per cent. Those people who just buy gold as jeweler, rather than for a special occasion, are shying away from purchases, waiting for prices to fall, he added.

Some wholesalers report gold inventories are starting to pile up. Still, in the investor category, Indians stung by steep share market falls, are snapping up paper gold or exchange-traded funds (ETFs), and seeing them as a safer option.

'There's no other asset class on which people are so bullish right now,' said an official of Benchmark Mutual Fund. 'The people who want physical gold are those who want it for a special reason like marriage or other religious purposes, but people who want to take advantage of the pricing get into exchange-traded funds.'

Globally, gold purchases are being driven by worries the financial crisis could lead to spiraling inflation long-term, because of the gigantic sums being spent by governments on rescue packages, analysts say.

Gold is seen as the ultimate safeguard of value - able to be used as money when money loses its worth."

Gold market tracking firms will soon be asking India: "Is That Your Final Answer?” as regards its attitude to lofty bullion values. This, in preparation of releasing their annual gold yearbooks, which normally contain a dedicated chapter to the world's single largest gold consumer. Locals have discovered a convenient way to become wealthy in a speedy manner - and it does not involve the travails of Jamal Malik.

For 15,800 rupees per 10 grams, your question is: How much gold will be mobilized?

Next up: Intermission.

Jon Nadler

Senior Analyst

Kitco Bullion Dealers Montreal

Direct: 1 (514) 875-4820 ext. 1360

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www.kitco.com and www.kitco.cn

jnadler@kitco.com