Gold Demand Trends Full Year 2023

Total supply in 2023 increased by 3% y/y, the second successive year of modest increases. Annual production of 3,644t was the highest since 2018 as major production disruptions were generally absent. Higher gold prices prompted a 9% gain in recycling, to 1,237t. Preliminary estimates suggest a small increase in outstanding producer hedge books but the large amount of positions due to mature in Q4 mean there is lower than usual confidence about the end-of-year position for the gold mining industry.

Mine production

Mine production posted another gain in 2023, up 1% to 3,644t, although this total fell just short of the 3,656t record set in 2018. After a strong first half we had expected 2023 to mark a new high for the global gold mining industry, but the growth rates seen in the first two quarters were not replicated in the second half of the year. Mine production in Q4’23 fell 2% y/y to 931t, resulting in a weaker H2 than expected. This, together with some minor downward revisions to H1’23, left global mine production a fraction lower than in 2018.

Higher annual output was seen from South Africa (+14t or 15% y/y), where production recovered following protracted industrial action in 2022; Russia (+6t or 2% y/y); Mali (+5t or +4% y/y,); Brazil (+4t or 4% y/y) and Burkina Faso (+3t or 3% y/y).

Lower yearly production was seen in Sudan (-8t or -10% y/y), where domestic conflict disrupted artisanal production; Indonesia (-8t or -6% y/y); Mexico (-7t or -6% y/y) and Australia (-7t or -2% y/y). 

In Q4 2023 mine production from four countries drove the decline in global output:

• Mexican mine production fell 21% y/y, attributed largely to a strike at Peñasquito. Although the industrial action ended in October, production for the quarter was heavily affected
• Mine production fell 5% y/y in Russia due to lower forecast production from both Olimpiada, where production was weighted towards H1’23, and from Kupol
• Mali saw a 3% y/y decline in output during the fourth quarter as the Fekola mine moves into Phase 6 of the open pit
• In the US mine production is estimated to have fallen 3% y/y as declines from Bald Mountain, Carlin and the Fort Knox mines were greater than increases from Cortez, Turquoise Ridge and the Rochester expansion.

Increases from mines in four countries failed to offset the declines above:

• In Turkey production increased 21% y/y as operations at the Öksüt mine continue to ramp up and the operator, Centerra, raised production guidance for 2023 accordingly
• Papua New Guinea (PNG) saw 14% y/y higher mine production as the Phase 14A expansion at Lihir ramps up and operations recover from a plant shutdown in Q3’23
• Increases from Brucejack, Macassa and Meadowbank, together with the ramp up of the Magino mine, all contributed to an increase of 12% y/y in Canada
• Burkina Faso is expected to see production increase by 12% y/y due to improvements at the Bomboré and Mana mines.

Oceania was the only region to post y/y growth in the fourth quarter, and of only 1t. This was driven by slightly better production from PNG (Lihir) and New Zealand (Wahi). All other regions are expected to record y/y declines in Q4’23 with Africa and Central & South America falling the most, at 6t and 5t y/y respectively.

Four mine start-ups (a combination of new and re-started operations), with a combined annual capacity of over 13t, have recently begun production. Sleeping Giant in Canada will have an average annual output of about 1t; the Bau Gold Project in Malaysia will have output of about 3.6t per annum and Tuvatu in Fiji will produce about 2.4t annually. The most important new mine is Bellevue Gold in Australia, which will have an annual average output of 6.2t.

Gold mining costs continued to increase in Q3’23 (the latest quarter for which data is available) but further signs of slowing cost growth were evident. The average All-In Sustaining Cost (AISC) hit US$1,343/oz in Q3, another record high. While this was +5% y/y, the industry managed to keep the rise in AISC to 3% q/q. General inflation increased mining costs in all areas, with fuel, energy, labour and consumables all up y/y, although this was slightly offset by weaker local producer currencies against the US dollar. Gold producer margins increased by 9% in Q3’23 due largely to the higher gold price, averaging US$1,977oz in the third quarter.

Net producer hedging

The industry aggregate producer hedge book is estimated to have increased 17t to 190t in 2023. We will have more clarity once mining companies report their positions following the release of this report. We are aware of about 50t of maturing forward sales and options positions in the fourth quarter: if none of these have been replaced, the aggregate hedge book will have contracted by about 10t for the year; however, we expect that around half will be replaced, which would result in a modest increase in the global book.

The past year has been a useful test of the presumption that gold mining companies are reluctant to expand their hedging activities. Record high spot gold prices and attractive forward premiums for gold (due to much higher interest rates around the world) have made forward selling appear much more attractive than has been the case over the past decade when interest rates were essentially zero. Of course, this does not rule out a return to more widespread hedging should gold head lower and mining companies start to worry about maintaining profitability.

Recycling

The supply of recycled gold increased 9% y/y to 1,237t in 2023 as gold moved to record highs in almost every currency. Recycling rose y/y in all four quarters, with the largest increase (+13% y/y) in Q2’23 when the US dollar gold price surged to a new quarterly average high. 

Recycling increased 8% y/y to 313t in Q4. All regions saw both q/q and y/y increases in recycling volumes, with the exception of South Asia, which saw a roughly 4% y/y decline.

We often highlight that quarterly recycling is more sensitive to shorter-term increases in the gold price and there was evidence that this continued to be the case in 2023. The q/q change in recycling in each quarter mirrored the direction of the q/q change in the quarterly average gold price, as consumers looked to cash in when the price rose. Q3’23 was the only quarter to register a q/q decline in recycling, when the quarterly average gold price fell by 2% q/q.

It is notable that full year recycled gold supply was almost 30% lower than the record high set in 2009, despite 2023’s record average gold price. We believe there are two major reasons for this lower recycling supply. First, there were very few references to distress selling of old jewellery, a sharp contrast to the situation during the Global Financial and eurozone crises. Extensive fiscal support for consumers and businesses during the pandemic protected employment while energy subsidies in Europe following the Russian invasion of Ukraine helped insulate the public from surging energy prices. Second, we believe that the build-up of old/broken/unwanted jewellery by consumers has been limited, as it is only a decade since gold prices reached their last all-time high and many of those stocks of gold were flushed out in the wave of very elevated recycling between 2008 and 2012.

Other factors have also played a role in limiting the supply of jewellery for recycling. Volumes from the Middle East have remained subdued. In rich Middle Eastern countries there appears to be no incentive or need to sell gold when the price is performing well. And in countries experiencing economic difficulties, such as Egypt and Iran, anecdotal evidence suggests that gold is the last asset holders want to sell when there are shortages of hard currency alternatives and few attractive local investments. Similar behaviour is also true for Turkish consumers.

The other factor that should be remembered is that while gold prices may be at record highs in nominal terms, the recent burst of global inflation means spot US dollar gold prices are some way below all-time high real prices. Inflation has been so low for so long it’s easy to overlook the impact that two years of high inflation have had on real gold prices.

But if some countries did not see recycling supply respond as much as might have been expected, China and India both did. Chinese recycling volumes in 2023 hit an all-time high and Q4’23 almost matched the previous single quarter high. As well as wholesale scrapping from jewellery fabricators and retailers, the simple fact that Chinese jewellery demand has been so high means that the stock of gold jewellery owned by individuals has risen rapidly; the more they own, the more they are able to recycle when prices go up. In the case of India, the reasons were more prosaic: higher prices saw an increase in recycling although also led to a rise in gold loans.

With gold holding above US$2,000/oz in early 2024, we are hearing reports of good recycling supply. But as we have seen in the past, recycling volumes are highly sensitive to gold prices and the economic environment, the latter of which remains uncertain. For more details, please see the Outlook.