30 January, 2020

Total supply up 2% y-o-y in 2019; recycling and producer hedging boosted by gold price performance

  • Total supply increased by 2% y-o-y in 2019 to 4,776.1t, the second consecutive marginal increase in annual supply
  • Mine production fell 1% to 3,464t in 2019, the first y-o-y decline in output since 2008
  • Recycled gold supply rose by 11% y-o-y in response to the gold price rally that began in June.
Tonnes 2018 2019 YoY
Total supply 4,673.0 4,776.1 2%
Mine production 3,509.3 3,463.7 -1%
Net producer hedging -12.5 8.3    -
Recycled gold 1,176.1 1,304.1 11%

Total supply was slightly higher in 2019 – up 2% y-o-y to 4,776.1t. This growth was attributable to the price performance of gold over the year, primarily through its impact on recycling, but also on net hedging to a certain extent. While mine production fell by 1% y-o-y, a sharp increase in gold recycling to its highest level since 2012 (+11% y-o-y) helped boost higher total supply. Modest net producer hedging – the first year of net hedging since 2016 – also contributed to overall supply. 

Mine production

Mine production in the final quarter of 2019 fell 2% y-o-y to 889.5t. This was the lowest level of Q4 mine output since Q4’16 and resulted in a clean sweep: y-o-y declines in all quarters in 2019. Gold mine production totalled 3,463.7t in 2019, 1% lower than in 2018. This is the first annual decline in production since 2008.


First year-on-year decline in mine production since 2008

First year-on-year decline in mine production since 2008

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer


Production growth was largely from greenfield and brownfield development. Russian gold mine production saw an 8% increase y-o-y in 2019. The ramp-up of greenfield sites – such as Natalka – and increases at several brownfield sites contributed to the growth in output. Similarly, in Australia, aggregate mine production rose by 3% y-o-y owing to higher production at several mines and the ramp up of projects such as Mount Morgans and Cadia Valley. Mine production in Turkey leapt (+66% y-o-y) due to improvements in the regulatory environment and permitting process, as well as expansion at the Copler project. In recent years the government has become more supportive towards the gold mining industry, helping to reduce the country’s trade deficit in gold. West Africa again proved to be an engine of growth for mine production. Several of the region’s nations, such as Ghana, Burkino Faso and Côte d'Ivoire, all saw increased gold production.

But this was outweighed by declines in some top producing nations. In China, the world’s largest producer, mine output fell 6% y-o-y in 2019, the third consecutive year of decline. Chinese gold production was hampered primarily by the strict environmental restrictions which have come into force in recent years. But the rate of decline has been slowing for some time as the industry becomes compliant with new regulations. In addition, the rising gold price accelerated many gold mining plans in 2019. In South Africa, industrial action in the first half of the year significantly curtailed operations. While the strikes at Beatrix, Kloof and Driefontein – which began in November 2018 – ended in April, mine production continued to feel the after-effects well into Q3. In South America, disputes between local communities and contractors – such as at Peñasquito in Mexico – also led to lower production compared to 2018. While there is a healthy pipeline of projects in this region, obtaining a social licence to operate has proved challenging.

But Indonesia had the biggest impact on global mine production in 2019 due to the activity at Grasberg. The exhaustion of higher-grade ore at Grasberg and its subsequent transition from open pit to underground mining was a constant issue throughout the year. But this drag on global production will not be felt to the same extent in 2020. The project has been ramping up its Grasberg Block Cave mine where output is expected to improve after 2020.1

Net producer hedging

In Q4, net producer de-hedging amounted to 29.9t. This was mostly due to options expirations and closing of existing hedging positions. Despite the sizeable de-hedging in the final quarter, 2019 saw a modest 8.3t of net hedging. De-hedging in the other three quarters failed to offset the 49t of hedging in Q2, when miners took advantage of a higher gold price in order to protect project financing and secure cash prepayments. Latest available estimates put the global hedge book at 265t at the end of Q3.

Modest hedging reaction to substantial gold price rises. In 2019, the annual average gold price – in US dollars – grew by 10%, the largest increase since 2011. The increase in many local gold prices was even greater – particularly in key producer currencies, which weakened against the US dollar during the year – with some reaching new record levels. At first this may seem counterintuitive; the impressive gold price rally of 2019, which began in June, should have made hedging more attractive. And while some fresh hedging (or restructuring of existing positions) was seen during the year, it appears that miners were broadly comfortable to adopt a “wait-and-see” approach, preferring to see if the gold price would rise further before committing their future production.

Recycled gold

Recycled gold supply rose 16% y-o-y in Q4, totalling 335t. This brought the annual supply of recycled gold to 1,304.1t in 2019, the highest since 2012 when the US dollar gold price was significantly higher.


Gold recycling rose in response to the price rally in 2019

Gold recycling rose in response to the price rally in 2019

Sources: ICE Benchmark Administration, Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer


While demand faltered, recycled gold supply jumped in response to price gain. Price was the overwhelming driver of this rise: the negative relationship between changes in the gold price and changes in recycling levels is well known. In 2019, the 10% jump in the annual average US dollar gold price understandably caught the attention of consumers.2 This was especially the case in some key consumer markets where currency weakness against the US dollar generated even greater local gold price gains and in some markets, such as India, led to record price levels.

Recycled gold supply saw sizeable increases in South and East Asia, as well as in the Middle East. India saw the largest up-tick in recycling across Asia, as the gold price blew past the previous record high and remained at elevated levels. The local gold price finished the year just above Rs39,000/10g, almost 24% higher than at the end of 2018. In the Middle East, both Turkey and Iran saw notable y-o-y increases in recycling, particularly in the second half of the year. In Iran, as the rial collapsed against the US dollar, consumers rushed to seize on gains in the local gold price.


  1. Based on end-of-period LBMA Gold Price (PM).

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