Gold Demand Trends Q3 2023

Q3 saw strength across all components of supply. Mine production reached 971t – an all-time third quarter high in our records back to 2000 – and recycling increased 8% y/y to 289t.

Preliminary estimates also suggest the net producer hedge book increased again in Q3, although the timing of this publication makes net producer hedging estimates subject to potential revisions once the majority of mining companies have released their quarterly reports.

Mine production

Mine production continued its strong run in Q3: up 2% y/y to hit another record. Y-t-d mine production of 2,744t is also a record: up 1% over the previous Q1-Q3 record of 2,706t achieved in 2018.

On a q/q basis, production increased by 6%, due primarily to normal seasonal fluctuations. Global gold production shows modest seasonality: in the ten years to 2022 first-half mine production averaged 48% of the annual total. H1 mine production is affected by Christmas and Easter holidays in many producing countries, along with very cold temperatures at some operations, which restrict alluvial and some other surface operations.

In Q3 mine production from four countries drove the increase in global output:

• Mine production increased by 14% y/y in Canada. Output was boosted by a ramp-up to full production at Eléonore after its temporary June closure due to wildfires in Quebec, and by higher forecast grades at Musselwhite 
• The United States saw a 13% y/y uplift due to increased production at Nevada Gold Mines. Improved mining efficiencies at the Cortez and Carlin operations, together with higher production from the third shaft at Turquoise Ridge, drove this jump in output
• In Ghana, the ongoing ramp-up at Bibiani, together with higher grade ore availability at Ahafo, saw mine production up 7% y/y
• Australian mine production increased 3% y/y due to higher output from KGCM – as expansion continues – and from the ongoing ramp-up of the Cowal underground.

Operations in some countries were hit by a mix of lower grades, production suspension and, in the case of Sudan, ongoing conflict:

• Mexico saw a 15% y/y decline in mine production largely attributable to the temporary suspension of Peñasquito due to a labour strike. Media reports suggest that a wage agreement in early October has now ended the strike
• In Tanzania output was 14% lower y/y due to expected lower production from Geita and North Mara due to sequencing
• In Sudan, mine production fell by an estimated 10% y/y due to disruption to artisanal and small-scale (ASM) mining from the ongoing conflict
• Russian mine production fell by 4% y/y due to lower output at Polyus’ Olimpiada, the country’s largest gold mine. This appears to be a consequence of mine sequencing rather than any impact of Western sanctions against Russia. These sanctions do not appear to be materially affecting gold mine volumes, although costs have risen rapidly and there have been delays to new projects under development.

Regionally, North America had the most significant increase, up 8t y/y. Gold production increased an estimated 7t y/y in the Asia region and by 4t in Oceania due to higher production from China, Australia and Papua New Guinea.

Despite higher production, mining costs have increased in 2023. In Q2’23 – the latest quarter for which we have data – AISC increased by 6% y/y to reach a record quarterly high of US$1,315/oz. Rising industry costs since 2020 have been driven by inflationary pressure on all aspects of miners’ input costs; most notably labour, fuel and electricity.

As 2023 progresses – and based on information from Metals Focus – it is increasingly likely that mine production will hit a new all-time high, surpassing the prior record of 3,656t set in 2018.

Net producer hedging

Initial estimates suggest that net hedging continued in the second quarter although possibly at a modest rate. We have pencilled in a 7t contribution to total supply from new net hedging in Q3’23, although we will likely adjust this following the completion of company reporting.

By the same token, Q2 net hedging has been adjusted sharply lower following the release of company results. The global delta-adjusted producer hedge book fell by 20t in Q2’23, to 188t, compared with the provisional estimate of a 9t increase. Despite higher local currency gold prices and steeper gold forward curves, there has been no evidence (yet) of a material increase in mining companies locking in attractive forward gold prices.

Recycled gold

Third quarter gold recycling increased to 289t, up 8% y/y but down 11% q/q. This y/y increase is a little deceptive, as the third quarter of 2022 was particularly weak owing to a lower gold price. Y-t-d, recycled gold volumes increased by 9% y/y to 924t, the highest over this period since 2020.

Recycling supply in the third quarter paints a contrasting picture with recycling from developed markets and the Middle East subdued, against average demand from South Asia and stronger East Asian supply.

Recycling volumes in western markets were below long-term averages, suggesting that near-market stocks are quite depleted and there is little evidence of widespread consumer distress. Still-low unemployment rates in the United States are helping to keep recycled supply subdued in spite of the strong performance of the US dollar gold price, which was up 12% y/y in Q3’23. In contrast, the shorter-term decline in gold prices played a role, especially in Europe, where recycling sales slowed after the euro-denominated gold price fell sharply in September.

In the Middle East weak domestic currencies saw high prices in Turkey and Egypt, but concerns about further economic and currency weakness, together with a lack of investment alternatives, resulted in sluggish recycling supply, demonstrating gold’s attraction in the face of economic and political turmoil.

In India recycling volumes fell sharply q/q due to a modest decline in the rupee-denominated gold price, although volumes were still higher y/y in line with the higher local currency gold price over the period. A higher share of jewellery sales facilitated by the exchange of old gold also depressed recycled volumes.

China also saw lower recycling volumes q/q after a surge in Q2’23. Jewellery demand improved in the quarter and retailers had less reason to liquidate stock. Following the significant amount of recycling by retailers in Q2, they adopted a more conservative approach. But recycled supply increased y/y compared to COVID-affected Q3’22. It’s interesting to note that COVID impacts on demand and supply in China will cause repercussions until at least Q1’24, as the first quarter of this year saw a surge in activity when 2022’s strict restrictions were lifted.

Overall, we were somewhat surprised by weak recycling supply in many markets in Q3’23, as we had expected slowing Western economies to trigger more distress selling. But a resilient US economy and lower gold prices in euro terms tempered recycling supply in these markets. Higher gold prices in October, following turmoil in the Middle East, may tempt some sellers in Q4’23, but larger increases will probably materialise if economies slow further or faster. Read the Outlook section for more detail.