30 July, 2024
| Tonnes | Q2'23 | Q2'24 | Year-on-year % change |
|
| Total supply | 1,207.9 | 1,258.2 |
|
4 |
| Mine production | 899.7 | 929.1 |
|
3 |
| Net producer hedging | -15.7 | -6.3 | - | - |
| Recycled gold | 324.0 | 335.4 |
|
4 |
Source: Metals Focus, World Gold Council
Total gold supply increased in Q2 by 4% y/y. This was driven by strong mine production of 929t – an all-time Q2 high in our data series, which dates back to 2000 – and a 4% y/y increase in recycling to 335t. Preliminary estimates also suggest the net producer hedge book decreased by 6t in Q2, although the timing of this publication makes net producer hedging estimates subject to potentially meaningful revisions once the majority of mining companies have released their quarterly reports.
Early data for Q2 suggests that mine production increased 3% y/y to 929t, the strongest second quarter production level in our quarterly series going back to 2000, beating the previous 900t record set last year.
Combined with Q1 production of 859t – also a record for the time of year – this generated record H1 mine production of 1,788t – 2% more than the previous high set in H1 2023.
Note, however, that there is scope for revisions to the second quarter (and first half) mine production totals, due to the corporate reporting timetable and additional data on artisanal and small-scale gold mining (ASGM) becoming available in due course. As an example of how this data can change, our initial estimate for Q1 mine production of 893t – published in Gold Demand Trends Q1 2024 – has now been reduced to 859t to reflect updates from Metals Focus that accompanied this quarter’s dataset. These changes mean that Q1 production increased only 1% y/y…nevertheless, a new first quarter record.
On a q/q basis, production increased by 8% due primarily to normal seasonal fluctuations that limit production in the first quarter when open pit and alluvial operations are reduced or halted in some very cold climates, especially Russia and other CIS countries. Similarly, South Africa’s gold mining industry is subject to reduced output during the long summer holidays over Christmas and the New Year.
Four countries reported notable increases in mine production in Q2:
In contrast, operations in some countries were hit by a mix of ore body depletion, lower grades and, in the case of Mali, permitting delays:
Regionally, Asia saw the most significant increase – up 8% y/y driven by higher output from Indonesia and China – followed by a 5% increase in South America. Lower Australian output resulted in Oceana posting the weakest regional result, with mine production down 6% y/y.
Despite higher production, mining costs continued to increase at the start of 2024. In Q1 – the latest quarter for which we have data – all-in sustaining costs (AISC) increased by 10% y/y to reach a record quarterly high of US$1,439/oz. Since 2020 industry costs have been driven by inflationary pressure on all aspects of miners’ input costs: most notably labour, fuel and electricity.
Although it is too early to be certain, Metals Focus data suggests that mine production will hit a new all-time high in 2024, surpassing the prior record of 3,658t set in 2018.
Initial estimates suggest that the net hedging position of the gold mining industry declined in Q2, although at a much slower rate. Initial estimates suggest a reduction of 6t in the second quarter following a (much) revised contraction of 24t in Q1 (from a prior estimated of -5t). Almost all the reductions in hedged positions occurred through deliveries into maturing positions, not all of which were renewed.
The aggregate producer hedge book is estimated to have fallen by 31t over the first half of 2024. By comparison, additions of 23t were seen in H1’23 and 27t in H1’22.
At the end of Q2 the aggregate producer hedge book is estimated to stand at about 210t, the lowest for a year and a far cry from the total of more than 3,000t seen at the turn of the century.
Second quarter gold recycling increased 4% y/y to 335t. This marks the highest second quarter volume since Q2’12 , but recycling was lower compared to the previous quarter, down 4% q/q.
Record high gold prices (in all currencies) triggered a modest y/y increase in recycling supply, but a q/q fall. At first glance the quarterly decline may seem surprising, given the responsiveness of recycling to the gold price in some markets. The global total was supressed by a large decline in Indian recycled supply (discussed below), without which global recycling would have increased 9% y/y and would have been essentially flat q/q.
The largest contributor to growth in recycling supply was Europe, which, after relatively unexciting volumes over the past few quarters, saw a significant response in the Q2. The trigger appears to be price-related, with euro-denominated gold exceeding EUR70/g at the start of April. This sparked a lot of media headlines and, together with limited evidence of consumer distress in some markets, ignited a wave of selling back jewellery. Anecdotally, gold price stability in June saw European recycling flows slow, but a further jump in flows would likely be expected if local gold prices exceed psychologically important levels again.
In contrast to Europe, North America saw a more subdued increase in recycling activity: only Canada saw a marked increase in volumes, again likely related to the price breaking a ‘big figure’ level – in this case CAD3,000/oz – and generating headlines. With the US economy continuing to out-perform most countries there were fewer triggers for a material increase in recycling volumes.
Increased recycling activity in Turkey and the Middle East was largely currency-related. In Egypt, the long-awaited agreement with the IMF saw the Egyptian pound fall sharply and then stabilise at weaker levels. The subsequent increase in recycling supply demonstrated that gold holders had anticipated this reaction and when local gold prices surged, they took advantage of the higher price to liquidate old gold jewellery. Currency stability in Iran, although not triggered by an IMF deal, caused a similar response to higher gold prices. In Turkey, relative currency stability, after a long run of weakness in the Turkish lira, appears to have prompted a boost in recycling flows.
Higher prices and depressed consumer sentiment in China triggered an increase in recycling supply volumes, further enhanced by jewellery store closures and accompanying inventory liquidation. In marked contrast, the rest of the East Asian region saw a slump in recycling volumes (both y/y and q/q) due to both depleted near market stocks and expectations of further gold price gains.
Finally, the notable decline in recycling volumes in the South Asian region was driven entirely by behaviour in India. Other countries in the region performed much more in line with global trends. The lower recycling volumes in India reflected a surge in both gold loans against jewellery and the exchange of old gold jewellery for new. Our data methodology nets out ’gold-for-gold exchange’, excluding it from both recycled supply and gold jewellery consumption.
Adding this element into the gross total shows that scrap volumes increased by 5%. The contrast between sizable gold-for-gold exchange transactions and the rise in gold loans against relatively low outright sales of old gold jewellery suggests that consumer distress is not a driving factor and that perhaps holders of surplus, old jewellery are expecting further price increases.
The past few quarters have demonstrated that the prevailing gold price is only one motivating factor in the level of recycling supply. Expectations of further gains in gold – or weakness in local currencies – is important too, as well as domestic economic performance and overall consumer sentiment. Divergent performance of major economies will probably make the outlook for recycling supply as nuanced in coming quarters as has been the case recently, but it is worth reiterating that absolute levels of recycling supply, although recently increased, are far below the highs seen during the Global Financial Crisis and have yet to exceed levels reached during the pandemic.
