The gold market surge is encouraging individuals in the US, Europe and Asia to trade in their jewellery.
Several jewellers report that there could eventually be a shortage of quality antique and vintage jewellery if the selling continues. Growing quantities of gold and silver jewellery are being bought and then sold to bullion traders and delivered to refiners. The refiners are working at full capacity to convert the bullion into gold bars to meet the voracious demand of investors who are seeking a safe haven.
“I haven’t seen anything like this since January 1980 when people queued up in Hatton Garden (London’s jewellery and diamond district) to sell their jewellery,” a jeweller said. At the time gold was experiencing its first major bull market that had taken the price from around $40 an ounce in 1970 to a peak of $850 an ounce ten years later. By the mid eighties gold had fallen to around $250 an ounce. Silver collapsed from $50 to $4 and is currently trading around $42 an ounce after briefly touching $50 a few months ago.
Refiners working at full capacity to melt down recycled gold
The World Gold Council, a producer gold lobby and research organisation estimates that the supply of recycled gold was 1645 tonnes last year and first half supplies this year, are slightly lower than the same period in 2010. The big price spike, however, has taken place in the third quarter and anecdotal evidence points to a sharp rise in recycled gold once the bullion is refined after a production time lag. Recycled gold accounted for two fifths of total annual supplies last year. Mine production, which rose by 4 per cent last year to 2698 tonnes, comprised 65 per cent of global supplies.
Gold a volatile safe haven
The current gold bull market developed from a low of around $250 just prior to 9/11. Gold rose above $1,000 an ounce mid 2008 before tumbling to $700 during the general market collapse of late 2008 and has since spiked in a parabolic rise to a peak of $1917 in New York trading on Tuesday. In volatile conditions the price is currently trading around $1800 an ounce, well above the $1500 to $1600 range seen in July.
Even committed bulls ranging from Ross Norman of Sharps Pixley and Martin Murenbeeld of Dundee Wealth Economics warned that gold was due for a correction, although both expect prices to eventually rise to further peaks again. Individuals, fund managers and some central banks have been prepared to buy gold at historically heady levels because of their worries about the US dollar and the punitively low interest rates and loose monetary policy of the US Federal Reserve Board. Moreover, worries about US, European and other debt laden nations and fears about global competitive currency devaluation have encouraged investors to buy gold. The enthusiasm compares with the lack of interest when gold was trading around $250 to $500 some five years ago.
Gold bulls love Ben Bernanke -what a Fed windfall!
Markets are currently focused on Fed chairman Ben Bernanke’s Jackson Hole speech on Friday and if there is a hint on more monetary easing more money will flow into safe havens such as gold, opines Mr Norman.
Others caution that gold is as volatile as any other commodity or share market and its safe haven status depends on its price. The global jewellery industry consumed 2017 tons in 2010 or 48 per cent of total global consumption last year, according to the World Gold Council, a gold producer lobby and research organisation. Jewellery consumers are sensitive to prices and the industry fears that ahead of Christmas they may scale back their purchases or buy cheaper items containing less gold.
The vast number of predictions on gold prices this year were nowhere near the peaks seen this week. One thing is sure, gold will continue to be volatile and flummox the forecasters.