Consumers will sell the least used gold in five years after prices tumbled into a bear market, curbing a source of metal that typically accounts for about one in every three ounces of global supply.
Refiners will handle about 1,550 metric tons of old jewelry and other discarded metal this year, 4% less than in 2012 and the least since 2008, Toronto-based TD Securities Inc. estimates. The amount is valued now at $71.4 billion, from $84.5 billion at this year’s peak. Recycling more than doubled in the decade through 2011 as prices rose to a record. A majority of the 38 analysts surveyed by Bloomberg last month said gold’s streak of 12 consecutive annual gains is over.
“April was the worst month in memory,” said Arthur Abramov, the owner of Manhattan Buyers Inc., a cash-for-gold operator in New York that saw volumes drop to 300 ounces a month from 500 ounces. “A lot of people were shocked, and a lot of people were standoffish about selling.”
Gold had its biggest drop in 33 years on April 15 as some investors lost faith in bullion as a store of value, hurting everyone from miners to investors including billionaire John Paulson. While declining supply in commodities usually signals higher costs, the impact in gold may be more muted because most of the 171,300 tons ever mined are still circulating. Societe Generale, Credit Suisse Group AG and Goldman Sachs Group Inc. are among those predicting the price slump has further to go.
Futures tumbled 15% to $1,426.60 an ounce this year on the Comex. Prices are now 26% below the record $1,923.70 reached in 2011. The Standard & Poor’s GSCI gauge of 24 commodities fell 3.2% since the start of January and the MSCI All-Country World Index of equities rose 10%. A Bank of America Corp. index shows Treasuries lost 0.2%.
The 30-member Philadelphia Stock Exchange Gold and Silver Index, led by Freeport-McMoRan Copper & Gold Inc., fell 36% this year and more than $39 billion was wiped off the combined value of gold held through exchange-traded products, according to data compiled by Bloomberg.
The prospect of losses has made retailers who buy used gold and the middlemen who sell to refiners unwilling to part with metal purchased at higher costs. Volumes of recycled metal, known as scrap by the industry, dropped 2.6% last year as prices retreated from the record in 2011, according to data from the World Gold Council in London.
“Nobody is selling right now, and it’s survival of the fittest,” said Dan Nektal of 46th Street Buyers in New York, which has been in the jewelry business for three decades. “If you bought at $1,700, how can you sell at the moment? Everybody’s presuming it’s going to go back up.”