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India’s gold recycling industry buoyed by strong demand

21st June 2022

By: Darren Parker

Creamer Media Contributing Editor Online

     

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Market development organisation the World Gold Council (WGC) says India’s gold demand continues to outpace domestic mine supply and is showing no signs of abating, which has bolstered the country’s gold recycling capability to make up some of the shortfall. The rest of the country’s demand is met through imports.

India currently ranks fourth globally in terms of gold recycling, accounting for as much as 11% of the country’s gold production over the past five years.

The WGC notes in a June 21 report that India’s Rs440-billion gold recycling industry is driven by movements in the gold price, future gold price expectations and the wider economic outlook, despite gold recycling facing headwinds.

The report notes that the anticipated growth in the Indian economy could mean higher incomes and less distress selling.

Moreover, while fashion-conscious consumers tend to keep their gold jewellery for shorter periods of time and are more confident of gold’s value when they sell, refineries cannot always make use of this gold.

Collection centres for recycled gold that have been set up by some of the larger refineries are few and far between, with refineries generally being reluctant to buy directly from jewellers, who deal largely in cash. This makes source verification nigh on impossible.

Therefore, the WGC’s view is that, until these issues can be resolved, a sizeable percentage of India’s gold recycling industry will remain unorganised.

Owing to the fact that the gold refining industry employs a significant number of people, the Indian government has been supportive by implementing a beneficial fiscal policy, such as introducing a lower customs duty on unrefined gold doré compared with refined bullion.

Sourcing guidelines have been introduced to ensure that gold doré comes directly from the country where it is produced. Gold recycling has also been aided by the introduction of the Indian Good Delivery Standards in 2020, which has helped refineries establish a chain of custody and to produce gold bars that meet the requirements of commodity and stock exchanges.

The Revamped Gold Monetisation Scheme has allowed interbank lending of gold against gold metal loans. It has also enabled jewellers to act as collection and purity testing centres and larger refineries to act as centres for collection, testing and assaying.

The WGC believes these government guidelines, standards and processes will help refineries improve the traceability of recycled gold and become less dependent on gold doré imports, as well as limit the unorganised collection of scrap gold and increase efficiencies in recycling.

GOLD REFINING

In terms of refining capacity, India has seen significant growth over the past decade. The WGC estimates that, from 2013 to 2021, capacity increased by about 1 500 t – a growth rate of about 500%.

However, the contribution of the informal sector accounts for an additional 300 t to 500 t.

The WGC notes that advantageous custom duties on gold doré fuelled the industry’s growth in the past.

However, the introduction of the Goods and Services Tax, as well as the impact of the Covid-19 pandemic and other macroeconomic factors, has affected India’s refining profitability, particularly among some of the smaller players.

The report says, however, that India’s refining industry is beginning to stabilise after the period of change. Some refineries have been choosing to sell directly to investors and, although only 5% of transactions were made digitally, the WGC expects this to increase as investors come to recognise the price advantage of buying directly.

Unfortunately, the remaining small-scale refineries now face stiff competition for a limited amount of imported gold doré.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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