Gold Demand Trends Q2 2023

Q2 saw strength across all components of supply. Mine production reached 923t – an all-time second quarter high in our records – and recycling increased 13% y/y to 322t.

Preliminary estimates also suggest the net producer hedge book increased again in Q2’23, 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

Early data for Q2 suggests that mine production increased 4% y/y to 923t. This is the strongest second quarter production level in our quarterly series going back to 2000, narrowly beating the previous record (899t) set in Q2’18.

Combined with Q1’23 production of 857t – also a record for the time of year – this generated a record H1 mine production of 1,781t – 2% higher than the previous record set in 2018.

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.¹  Similarly, South Africa’s gold mining industry is subject to reduced output during the long summer holidays over Christmas and the New Year.

In the second quarter, mine production from four countries drove the increase in global output: 

• Mine production increased by 29% y/y in South Africa, mostly due to the impact of disruptive strike action in Q2’22. Last year saw Sibanye-Stillwater’s gold mines suspended for the majority of the second quarter, but these operated at full capacity this year.
• Ghana saw a 20% y/y increase in mine production in the second quarter due to ramp-ups at two major mines: Bibiani and Obuasi. Mine management forecasts further increases in output at both operations in coming years, which should allow further gains in Ghanian production 
• Increased output from Nevada Gold Mines due to sequencing at Cortex and improved processing rates at Carlin and Turquoise Ridge drove an 11% y/y increase in mine production from the US 
• Russian mine production increased by 7% y/y due to higher grades at Polyus’ Olimpiada, the country’s largest gold mine and from the ramp-up of the recently commissioned Kutyn mine. Western sanctions against Russia do not appear to be affecting gold mine volumes, but costs have risen rapidly and there have been delays to new projects under development. 

Chinese production remained disruption-free for the first time in two years, following a recovery in production from previous safety stoppages.

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

• 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. 
• Argentina saw a 10% y/y decline in mine production largely attributable to planned lower grades and processed volumes at Veladaro
• In Cote d’Ivoire output was 6% lower y/y as falling grades reduced output from some mines, including Endeavour’s Ity and Perseus Mining’s Yaoure, the two largest mines in the country
• Australia saw production fall by 2% y/y following the suspension of Dacian Gold’s Mt Morgans operation in April and lower grades at Newmont’s Boddington mine and Newcrest’s Cadia Valley. 

Regionally, Africa had the most significant increase, up 11t y/y due to higher production from South Africa and Ghana as detailed above. Gold production increased an estimated 8t y/y in the CIS region and by 7t in North America due to higher production from Russia and the US respectively.

Despite higher production, mining costs have increased in 2023. In Q1’23 – the latest quarter for which we have data – AISC increased by 6% q/q to reach a record quarterly high of US$1,358/oz. This figure represents a 10% increase y/y. Rising industry costs since 2020 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, our expectation, based on Metals Focus data, is that the trends in the first half of the year suggest mine production will hit a new all-time high in 2023, 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 slower rate. We have pencilled in a 9t contribution to total supply from new net hedging in Q2’23, although we will likely adjust this following the completion of company reporting.

By the same token, Q1 net hedging has been revised higher on the basis of company results. The global delta-adjusted producer hedge book increased by 36t in Q1’23, to 205t, compared with a provisional estimate of 8t. New hedging appears to be divided between:

• Producers operating in South Africa and Australia, who took advantage of high local currency gold prices and steeper forward curves, and
• Project and/or debt-related hedging in North America.

Recycled gold

Second quarter gold recycling increased to 322t (+3% q/q, +13% y/y), the strongest level since Q4’20. Excluding robust gains from India and China, the rest of the world saw a small fall in recycling volumes – despite the gold price averaging a record US$1,976/oz for the quarter (the LBMA PM reference price).

Recycled gold volumes increased by 9% y/y to 634t in H1, the highest first half since 2016. 

Three factors boosted the increase in Chinese gold recycling in Q2’23. Firstly, COVID disruptions last year reduced recycling supply, distorting y/y comparisons due to base effects. Secondly, much weaker than expected jewellery demand triggered wholesale inventory recycling following disappointing trade fairs in April. And thirdly, there was an element of price-sensitive recycling supply due to strong local currency prices during the quarter. The supply of recycled gold in the rest of the East Asian region followed more normal patterns, responding mostly to local currency prices.

In India, base effects also played a role in the y/y and q/q increase in recycled gold supply, but the absolute level of recycling was in line with historic norms. There was some evidence that high prices and consumer distress fuelled recycled gold supply growth. Meanwhile, weak jewellery demand was also reflected in low volumes of old gold jewellery being exchanged for new.

There was only a marginal increase in recycled gold supply in the US, despite higher gold prices. Low unemployment and a resilient economy appear to have negated the effects of the cost of living crisis on gold recycling, and we have heard some reports of depleted near-market stocks of gold to recycle.

In continental Europe there was little reaction to higher gold prices, perhaps because consumers have acclimatised to a higher local gold price following sharp increases in 2022. Again, there was talk of near-market stock depletion, although only in northern European countries, as supply of old 18 carat gold jewellery in southern Europe remains plentiful. One outlier from the overall European narrative was the UK, where economic underperformance appears to have prompted a healthy supply of gold for recycling, especially during periods of strong sterling-denominated prices.

The Middle East saw a y/y and q/q decline in recycling volumes, with Iran and Egypt contributing to the fall, thanks in part to high inflation. In neighbouring Turkey, recycling activity was restrained ahead of presidential elections. Once concluded, selling picked up, boosted by a fall in the Turkish lira.

Gold’s price direction and the continuing inflation squeeze on consumers, will likely elevate recycling supply in H2. Lingering base effects will, however, be important context when interpreting y/y and q/q changes for the rest of the year. Although recession has been avoided in most markets, interest rates are higher and major economies are slowing. We continue to watch for signs of increased distress selling of gold and the potential for recycling supply to increase further. Read the Outlook section for more details.