3 February, 2017

Total supply grew 5% in 2016, with pronounced year-on-year growth in recycled gold and net producer hedging.

  • 2016 mine production was flat but there are signs of renewed interest in exploration
  • Full year net producer hedging doubled to 26.3t
  • Recycling rose 17% in 2016 as consumers responded to the higher price
Tonnes 2015 2016 YoY
Total supply 4,363.1 4,570.8 5%
Mine production 3,233.0 3,236.0 0%
Net producer hedging 13.5 26.3 95%
Recycled gold 1,116.5 1,308.5 17%

Mine production

Mined gold totalled 3,236t in 2016, virtually unchanged from 2015. Production peaked in Q3, when 850.4t was brought on to the market, before falling back to 810.9t in Q4 (-2% y-o-y).

Indonesia saw the largest gains in Q4 (more than 7t y-o-y). This was due to the mining of higher-grade ore – something of a current industry trend – at Grasberg, which promises to boost Indonesian production further in 2017. Production in Suriname also grew in Q4 (3t y-o-y), as Newmont’s Merian mine began commercial production in October. 

Russian Q4 production (-6t y-o-y) was hit by flooding at some of the largest operations, while production in Mongolia fell by 5t y-o-y due to the mining of lower grade ore at Oyu Tolgoi. The Q4 decline in Mali (-4t y-o-y) was partly due to a comparison with a high base quarter.

Plateauing production is inevitable given industry cost-cutting since 2013. Gold miners recognise that the capital-intensive nature of the industry is driven by two key factors: the costs of extracting gold from the ground, and the costs associated with replacing those gold reserves. Despite the need for strategic reserve levels to be maintained, the project pipeline is considerably thinner and exploration budgets were cut in recent years.

But 2016 signalled a renewed vigour for exploration; increased project development may be around the corner. Higher local gold prices, coupled with lower costs, allowed producers to reap higher margins. Coffers were boosted, providing opportunities for a pick-up in brownfield and, to a lesser extent, greenfield spending. In November, a Moody's report predicted that the higher average gold price in 2016 will spur an increase in capital spending over the coming year.  SNL Metals & Mining, in its recent Gold Mined Supply Report, also highlighted renewed interest in exploration in the latter part of 2016.1  Acacia Mining is a prime example; it expects its 2017 greenfield budget to be around 15% higher than in 2016,  with CEO Brad Gordon telling Reuters, "This is part of our long-term strategy to invest in exploration when the rest of the industry is walking away from that".


Signs of renewed interest in exploration

GDT Q4 2016 Supply - Signs of renewed interest in exploration

Note: You can turn items in this legend on/off

Note: A significant exploration announcement refers to reported drill results which are flagged as being of a certain value - based on grade, interval width and the yearly nominal metal prices.

Source: SNL Metals & Mining; ICE Benchmark Administration; World Gold Council

Data as of

Increased exploration is unlikely to affect mine production anytime soon. A greater focus on project development is understandable. Large-scale discoveries of gold are becoming rarer.2 But the gold price will continue to dictate the speed of this development. What's more, given the long lead times involved, it is unlikely that new discoveries or major project developments will significantly impact annual production for the foreseeable future.

Net producer hedging

2016 saw a near-doubling of annual net producer hedging, to 26.3t from 13.5t. Gold producers, who have struggled with the falling gold price in recent years, saw an opportunity to secure cash flow at higher prices.

The first and second halves of the year were polar opposites. In the first half, net hedging was a feature of the market (70.4t), as strong price gains – around 25% by mid-year – prompted some miners to act. Currency movements had driven the gold price up to record levels in some key producer currencies. But in the second half of the year the price struggled to hold onto these gains, leading to a shift in tone with producers less keen to hedge in a falling price environment. Net de-hedging (of 44.1t) was a feature of Q3 and Q4.

Recycled gold

The growth in recycling in 2016, up 17% from 1,116.5t to 1,308.5t, was concentrated in the first three quarters. At its peak, gold was almost 30% from end-2015 levels; these higher prices created an environment in which recycling thrived.


Higher prices in 2016 boosted recycled supply

GDT Q4 2016 Supply - Higher prices in 2016 boosted recycled supply

Source: Metals Focus; GFMS, Thomson Reuters; World Gold Council

Data as of

In Western markets, Q4 recycling volumes were 4% higher than Q4 2015, but 10% lower than Q3 2016. The lower price in Q4 dented US recycling. But European recycling levels were healthier as a weaker euro supported the local gold price. The available pool of near-market supplies was also a factor, with some European markets, such as Spain and Italy, having a greater volume of available stock to recycle.

The Middle East saw a regional rise of 28% in Q4, predominantly due to Egypt, where currency weakness encouraged consumers to sell back. Turkey was a key exception, both regionally and globally: recycling fell in Q4 on the back of a rallying cry by President Erdogan for Turks to forgo holding foreign currencies in favour of gold or the lira.

Recycling in India was hit by the government’s shock demonetisation announcement, falling 36% y-o-y and 67% q-o-q in Q4. The liquidity crunch affected jewellers, who struggled to obtain cash to purchase gold from consumers, blocking a key recycling channel and resulting in a surge in gold-for-gold exchange. In East Asia, Q4 recycling was up 7% y-o-y, but down 44% from Q3 as the focus switched to buying gold ahead of the Chinese New Year (28th January).


  1. Gold Mined Supply December 2016: Short-term plans, short-sighted benefits, SNL Metals & Mining, December 2016

  2. Major Gold Discoveries, 1990-2015, SNL Metals & Mining, June 2016

Important disclaimers and disclosures [+]Important disclaimers and disclosures [-]