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S African refinery says India gold sales down

Sales of small gold bars to India in financial terms has remained relatively stable, Chris Kenny, director Rand Refinery.

india Updated: May 31, 2006 12:22 IST

Physical sales of gold from South Africa's Rand Refinery to the biggest consuming nation India have fallen by around a fifth so far this year due to a strong rally in prices, a refinery official said on Tuesday.

Sales of small gold bars to India in financial terms has remained relatively stable, but the high prices has meant lower volumes, Chris Kenny, director of global markets at the refinery, said.

"It's a major consuming market for us and we have seen so far this year a reduction in demand for imported gold into India based on the high price of gold, therefore less weight in jewellery is being purchased," he said in an interview.

Scrap gold metal is also being recycled to produce jewellery, cutting down on the need for purchases of fresh gold, Kenny added.

Rand Refinery Ltd is one of the world's biggest gold refineries and since it was established in 1920 has refined more than 40,000 tonnes of gold, around a third of all the gold ever produced.

It refines around 400 tonnes of gold each year from the major miners in South Africa, the world's biggest gold producer, and elsewhere in Africa. Last year, around a quarter of that was shipped to India.

When asked the extent of the fall in the refinery's sales to India, Kenny replied: "It's difficult to tell because... it can be quite regional. I would not be surprised to see a 20 per cent reduction."

Jewellery faces competition

It was uncertain how much Indian gold buying might rebound if prices stabilise, he said.

"One issue is how much of this is delayed purchasing and how much is cancelled. Gold jewellery faces a lot of competition from other luxury goods, precious stones, to some extent platinum, so it's under attack."

The spot gold price shot up as much as 45 percent this year, peaking at $730 per ounce on May 12, the highest in 26 years.

Since then, however, the price has slipped by around 10 percent and was trading at $661 on Tuesday afternoon.

The lower prices during the past few weeks has not sparked a significant increase in gold buying in India, but activity is expected to be muted over the next several months as the monsoon season kicks in, he added.

A fresh buying period should resume in late August and September and this could see more buying if the market has calmed down.

"I do believe that we'll see more purchases from the Indian market as and when a range is established. If we establish a range of say $620 to $700, then that removes some of the volatility that was preventing people from buying previously."

Kenny said the strong rally in gold has attracted only a modest increase in demand for the Krugerrand gold coin, which the refinery markets for the South African Mint.

"We've seen some small pick-up in Krugerrand demand, not a huge amount locally, but more interest than last year, and some interest from certain areas in Europe."

Since its launch in 1967, more than 50 million Krugerrands have been minted, but over the years sales have slipped as other countries such as Canada, Australia and the United States launched their own investment coins.