Gold Demand Trends Q1 2018

2 May, 2018


Total Q1 supply was boosted 3% by increased production and net hedging

  • Mine production grew fractionally to 770t in Q1; future growth will be driven by brownfield projects
  • Gold miners returned to marginal net hedging of 5.8t in Q1, as the price rose in key currencies
  • Recycled gold supply was virtually flat in Q1 despite higher gold prices.
Tonnes Q1'17 Q1'18 YoY
Total supply 1,031.6 1,063.5 3%
Mine production 759.8 770.0 1%
Net producer hedging -15.5 5.8 -
Recycled gold 287.3 287.7 0%

Mine production

Following a record 877.9t in Q4, global gold production in Q1 was 770t, fractionally higher y-o-y (1.4%).1 While mine production in Q1 exhibited typical seasonality, there are a number of interesting subplots worth highlighting. Signs of increasing cost pressures and a renewed focus on growth from gold miners – predominantly through brownfield projects – appears to be emerging.


Mine production in Q1 followed the typical seasonal pattern

GDT Q1 2018 Supply - Chart: Mine production in Q1 followed the typical seasonal pattern

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

Data as of

In China, the stricter environmental regulations introduced last year continued to impact the mining industry in Q1. Output from the world’s largest producer fell 8% y-o-y and may see further declines throughout 2018. Both Peruvian and South African gold production fell 4% y-o-y in Q1. In Peru, lower production was reported at Yanacocha and Misquichuilca, while in South Africa a combination of seasonal factors and a strengthening currency – which increased input cost pressures – were the main causes of decline. Notable declines in production were also seen in the US and Argentina.

Total output from Indonesia and Canada grew impressively in Q1 (12% y-o-y). In Indonesia, the continued mining of higher grades at Grasberg – the third largest gold mine by production in 2017 – drove this national gain. In Canada, the ongoing ramp-up of new starts from 2017 was the primary reason for the overall increase in output. Russian production rose 3 to 4% in Q1. Overall output continues to trend upwards and will be further boosted as Natalka ramps up towards full production before the end of the year.

The outlook suggests modest growth in global production in 2018. While a small handful of greenfield projects will contribute to the annual total (Q1 saw fewer start-ups than the previous quarter) the engines of growth will be the expansion of existing mines and the ramp-up of recent projects. This trend may continue beyond 2018. Increasing cost pressures (from currency movements and rising input prices) together with greater scrutiny from investors, are prompting miners to focus on growing margins. While we have previously expected mine production to decline beyond this year, the picture now appears to hint at greater – albeit modest – upside potential for mine production.

Net producer hedging

The gold mining industry saw 5.8t of net producer hedging in Q1, contrasting with almost 11t of net de-hedging in Q4’17. The gold price appreciation in some key producer currencies during Q1 – US dollar (3%), Australian dollar (5%) and Russian rouble (2%) – created the opportunity for modest tactical hedging.

Much of the hedging activity in the quarter can be attributed to a handful of companies.  In February, St Barbara announced forward agreements covering 150,000oz through to December 2019. These hedges were placed to secure the price that the company would achieve for a portion of its production at the Simberi operation in Papua New Guinea.

Other notable hedges in Q1 included: Acacia Mining buying additional put options for 120,000oz; Brio Gold hedging 63,000oz; and Westgold Resources 60,000oz.

Towards the end of the quarter Russian miner Petropavlovsk opted to hedge 96,000 oz (3t). The company stated that this agreement “…provides greater flexibility in managing the working capital of the Group.”  This reasoning is in line with much of the hedging we have seen in recent years, where miners look to secure project cashflow or project financing.

Recycled gold

The recycling sector was steady in Q1. Supply from recycled gold of 287.7t was virtually unchanged from the previous Q1 (287.3t), despite a rising gold price in many key markets as global uncertainty and depleted volumes of near-market stocks choked this source of supply. The general level of recycling in both Q1 2017 and Q1 2018 was at its lowest since 2007 as the impact of a higher gold price, which tends to spur recycling activity, was offset by stronger global growth.

Europe and North America diverge. Recycling in Europe saw a 4% y-o-y decline in Q1, as the euro gold price was flat during the quarter and down y-o-y. In the UK, recycling saw a further significant decline as the local gold price weakened during the quarter. This is in line with the broad downward trend in the pound sterling gold price since the Brexit-related peak in 2016. In the US, recycling volumes appear to have stabilised – after declining for several years – as the US dollar price has performed better.

Recycling in the Middle East increased marginally, while the response in Asia was more mixed. Most countries in the Middle East saw a marginal rise in recycled gold in Q1 on the back of higher gold prices. Egypt proved to be the notable exception, registering a y-o-y decline as the impact of the shock devaluation continues to subside (though volumes remain high by historical standards). In India, the rupee gold price lagged the US dollar price and the absence of significant drivers caused a y-o-y decline in recycling activity. Recycling in China was lower by comparison to Q1 2017, which was boosted by industry-wide inventory recycling in response to the rollout of new hallmarking regulations. Elsewhere in East Asia the reaction was unremarkable: recycling rose in response to the increase in the gold price.


Recycling unmoved by higher gold price in Q1

GDT Q1 2018 Supply - Chart: Recycling unmoved by higher gold price in Q1

*Average LBMA Gold Price (US$/oz, PM) for Q1 only.
Source: Metals Focus; GFMS, Thomson Reuters; ICE Benchmark Administration; World Gold Council

Data as of


  1. Mine production figures for 2015, 2016 and 2017 have been revised (by -7t, +12t, and +23t respectively) due to more comprehensive mine-level and ASM information becoming available since the publication of Gold Demand Trends Full Year 2017.

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