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Indians melt down gold jewelry as prices soar

The liquid gold bubbling in giant vats at a refinery near Mumbai attests to the sentiment on the streets of India, the world's largest consumer of gold, as people rush to melt down jewelry to cash in on high gold prices.

Gold refineries have been struggling to keep up with demand as gold prices soared over the past months.

“I have to turn around the gold very quickly as the prices are volatile,” said the manager of a refinery on the outskirts of Mumbai, who asked to have his name withheld due to fear of being marked out by robbers or kidnappers.

“If scrap lands up in the evening, it should be ready early next morning and in the market before it opens,” he said at his refinery where a workman covered with sweat used huge tongs to pour a container of red-hot liquid gold into a mould.

On the top floor, large reaction tanks full of nitric and hydrochloric acid dissolve gold scraps through the night for production of bars early next day.

Gold prices are up nearly fourfold since early 2001. This year alone, bullion has jumped almost 25% to a record peak of $1,030.80 an ounce in mid-March as investors, looking for safety in turbulent financial markets, took sanctuary in gold and other commodities.

The soaring prices are being felt particularly in India, where gold is considered an auspicious metal and a traditional gift for religious holidays and family celebrations such as weddings and births.

Seen as portable assets, gold jewelry and bars are an important part of a woman's dowry, stored away until they are sold for their metal value.

India, the world's biggest consumer of gold, recycles about 200 metric tons of scrap gold every year. It imports about 700 metric tons, with only a miniscule production of its own.

But the high gold prices have hurt importers. India's gold imports in January plunged by 72 % to around 24 metric tons, an official from World Gold Council said.

“We can't say how imports will be in the full year unless we cross Akshaya Tritiya,” said Ajay Mitra, managing director India for the WGC, referring to a Hindu festival which is the second-biggest day on the Indian calendar for gold purchases.

“Since 30% of the sales happen during that festival, we will have an idea about the consumer's appetite for prices.”

As gold prices kept rising, people started selling their unwanted jewelry at cheaper rates than imported gold.

Traders or jewelers buy scrap gold from consumers and send it to the refinery for turning it into bars for a fee. They then sell the bars to investors - or to jewelers, who use it to produce new jewelry.

“This year, scrap sales would be 20% higher,” said Harmesh Arora, vice president of Bombay Bullion Association who also has a gold refining and trading business.

“It has pushed down imports to almost nil levels.”

On Friday, international spot gold traded at $902.60 an ounce, up 8% from the start of the year and 35% from the previous year.

The next wave of scrap sales can be expected if prices touch 12,500 rupees per 10 grams (around $969 an ounce), Jitendra Kantilal of Jugraj Kantilal & Co, a prominent buyer of scrap jewelry at Mumbai's gold hub Zaveri Bazaar said.

“It has slowed down now, but it can intensify again,” Kantilal, whose shop has queues of sellers spilling out into the street every time prices surge.

Scrap has also been smuggled into India from neighboring Nepal, Bhutan and Thailand, further adding to local supplies and keeping imports at bay, industry members in Kolkata said.

The scrap sales have changed Indian attitudes to gold, an analyst said.

“I think people's emotions are changing... they are beginning to see gold as a financial asset,” said Nayan Pansare, an analyst who works for jewelry exporting companies. (Reuters)