India's Scrap Gold Sales Jump On "Liquidity Crisis" As US Policy Splits G20 Summit

LONDON DELIVERY gold rose back to last week's closing level of $1395 per ounce Thursday morning, reversing an overnight drop of 1.0% as Asian stock markets rose but Europe stocks held flat.

The central banks of Japan, the UK and the Eurozone all kept their monetary policies unchanged at today's monthly meetings.

US Treasury bonds fell ahead of private US jobs data – expected to show a slight fall in new hiring, before Friday's official Non-Farms Payrolls release.

Silver prices meantime joined gold bullion in rising back to last week's finish, unwinding last night's 1.5% drop to trade back above $23.50 per ounce.

"China's seeing robust gold sales this year," said Duan Shihua at Shanghai Leading Investment Management, commenting today to Bloomberg after official data showed gold bullion imports to the world's second-largest economy rising 12% in July from June to 113 tonnes.

"The high prices in China's domestic market in July encouraged importers."

Gold bullion premiums in China, over and above the benchmark London settlement price, averaged some 2.1% in July, according to Bloomberg.

Gold that month began a 20% rise from 3-year lows. Physical gold contracts on the Shanghai Gold Exchange ended today 0.8% above London spot.

Premiums on gold in India meantime – the world's No.1 consumer nation – fell hard today, Singapore's Business Times reports, dropping $5 per ounce as wholesalers reacted to Wednesday's relaxation of the summer import ban by the Reserve Bank.

Indian gold bullion imports could still be limited to just 300 tonnes over the next 12 months, according to the Gem & Jewellery Export Promotion Council's Pankaj Parekh – down from almost 900 tonnes in 2012.

"Due to yesterday's circular, people are expecting consignments will start soon," says Haresh Soni, chairman of All India Gems & Jewellery Trade Federation.

Tight supplies and high gold premiums also mean "Scrap [supply] is increasing every day," says Soni, because "people are reselling jewellery" as well as gold bars and coins.

"Investors are selling gold all across the country," agrees Prithviraj Kothari, director of the Bombay Bullion Association and managing director of leading dealer Riddhisiddhi Bullions Ltd

"There is a liquidity crisis and people are selling and putting the money in the bank. There is a huge amount of scrap supply coming into the market."

Indian premiums fell Thursday to $25-30 per ounce, down from as high as $40 earlier this week.

Commenting on the US Federal Reserve's apparent plans to start tapering its $85 billion per month QE program in September, "The G20 Summit is an important forum to seek an international climate that is beneficial for all countries," said Indian prime minister Manmohan Singh ahead of joining the meeting of top 20 economy leaders in St.Petersburg today.

Faced with a current account crisis which has driven the Rupee to record lows on the currency markets, down 17% for 2013 to date, "India has emphasised [to the US] there has to  be a predictability about the withdrawal," adds secretary for economic affairs Arvind Mayaram, "as it has a spill-over impact on the emerging markets."

The Mumbai stock market meantime jumped 2.1% on Thursday, led by the fastest surge in banking shares for more than two years, after new central bank governor Raghuram Rajan announced a "swap line" for foreign currencies worth some $10 billion, plus fresh deregulation of the sector.

"It's all about restoring confidence and that Rajan has definitely done," says Sunil Singhania at the $15bn Reliance Capital Asset Management Ltd.

Dominating the G20 summit, however, will likely be arguments between Russia and other Syria allies with the US-aligned Western nations over the Assad regime's apparent chemical weapons attack on unarmed civilians two weeks ago.

Backing the Kremlin's stance, "Military action would have a negative impact on the global economy," said China's vice finance minister Zhu Guangyao at a press briefing today, "especially on the oil price – it will cause a hike."

Crude oil ticked half-a-per cent higher on Thursday morning, taking Brent back above $115 per barrel.

"The United States – the main currency issuing country – must consider the spill-over effect of its monetary policy," Zhu also said, "especially the opportunity and rhythm of its exit from the ultra-loose monetary policy."

Adrian Ash

(c) BullionVault 2013

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