Saudi faces scrap gold shortage
Riyadh, July 13, 2008
Saudi Arabia, the Middle East's largest gold jewellery consumer, is facing a shortage of scrap as jewellers and buyers expecting record prices to rise further hold onto their gold, traders and experts said on Sunday.
The scrap jewellery market in the kingdom usually provides about 20 to 30 tonnes per quarter for both domestic and regional refineries, traders said. Earlier this year, traders said Saudi Arabia had virtually stopped exporting scrap gold.
"Scrap supply has gone down significantly, even for domestic refineries," said Moaz Barakat, World Gold Council (WGC) managing director for the Middle East, Turkey and Pakistan.
"Consumers know that the gold price is still expected to go up, and they are keeping their gold for higher profits," he said.
Gold powered to a record of $1,030.80 an ounce on March 17 on record-high crude oil, fears of inflation and expectations of more rate cuts in the US, making the metal more attractive as an alternative investment.
It has fallen since then, but touched a session high of $967.60 on Friday, its strongest since March 19.
Gold is often used by investors as a hedge against inflation and as an alternative investment to currencies and bonds.
"Jewellers and buyers are aware that gold is on an upward trend, and the fall it has seen earlier in the year, was just temporary," a Gulf-based bullion trader said.
"Most people here think it will go above $1,000 an ounce, and some think it will hit $1,500 before the end of the year, and they won't sell before gold hits these levels," he said.
Gulf Arab women are vigorous buyers and are traditionally given gold jewellery by their husbands for their weddings.
Most women in the region, particularly Saudis, like to wear only new designs and traders say customers have their jewellery melted down and refashioned often.
"For the past few years, gold has been like a fashion statement for us, and you always want to keep up with the latest," said Zahra Mohammed, a 36-year-old Saudi housewife. "But with very high gold prices, I will not sell unless I make some money out of it."
Some jewellers melt down the scrap gold, mostly old jewellery, into a solid bar, often of a kilo (2.2 lb), while others use it to make investment bars ranging from one gram to 100 gram (0.035 to 3.5 ounces) which are very popular among Indians.
Trade in Saudi Arabia is often fuelled by strong demand from the rest of the Arab world and India, the world's number one gold market.
Gold's surge to above $1,000 an ounce in March has put off buyers in Saudi Arabia, and cut demand by 25 percent to 21 tonnes in the first quarter of 2008.-Reuters