All those tangled heaps at the bottom of jewelry boxes that you melted down this year may be keeping the gold price below $1,000. The leading independent precious metals market analyst, GFMS, released an interesting report today on the impact of gold scrap on its market price. Gold investment quadrupled during the first quarter but the gold price stayed below $1,000. Why? GFMS believes this is due to the surge of supply from the secondary market, not only from consumers selling grandma’s rings but also from jewelry manufacturers around the world. Countries like India, Turkey and Italy, usually large gold importers due to their jewelry-making industries, were net exporters during the period. That means they too were melting old jewelry and selling the gold (and also cashing in on gold dust in filters, carpets, polishing wheels: if you have a gold factory you send in everything to the scrap refiner.)
Hey, we’re all feeling a bit cash-strapped due to the credit crunch, so this isn’t surprising, but gold price forecasters haven’t yet learned how to take all this into account. The bottom line? Any surge in the gold price is likely to cause a corresponding surge in scrap, which will act as a drag on the price. Gold may be less volatile than forecasters have suggested over the next year. And it will once again, be a record year for scrap.
