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Gold Bullion Scrap Supply Falls Despite High Prices

THE NET SCRAP SUPPLY of Gold Bullion to world markets fell in 2010, despite the average Gold Price being 26% higher the previous year, according to a survey published Wednesday.

Gold Survey 2011, published by the leading precious metals consultancy GFMS, shows that scrap Gold Bullion supplies, net of jewelry demand fell 2.9% last year to 1645 tonnes.

Net supply of scrap Gold Bullion has been flat since 2007, the survey shows.

Speaking at the survey's launch, Philip Klapwijk, chairman of GFMS, noted that the net decline in scrap supply was concentrated in the Middle East and the Indian subcontinent.

"Price expectations played a part in India," said Klapwijk, who argued that the 'floor' for the Gold Price, based on fundamentals, is rising.

"Growing price acceptance by consumers will help lift jewelry demand, while generating only a muted response from scrap," he said. "Together [with the economic backdrop], these will raise the support level in the gold market and provide a firm platform for investors to take gold higher."

 Demand for physical bullion – both gold and silver – continues to be strong in India, with some evidence that Indians are substituting into silver.

"Ordinary investors are buying silver as if there is no tomorrow," said Suresh Hundia, president emeritus of the Bombay Bullion Association, speaking to Dow Jones Newswires. "Many people are selling their gold and buying silver because gold has not given them as good a return."

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