Gold Demand Trends Q1 2024

Total gold supply increased by 4% y/y in Q1’24. This was driven by strong mine production of 893t – an all-time Q1 high in our data series, which dates back to 2000 – and a 12% y/y increase in recycling to 351t. Total supply would have increased further, but provisional estimates suggest a modest reduction in the aggregate hedge book, although as usual there is room for substantial revisions in this data-set once mining companies have released their quarterly reports.

Mine production

The first quarter mine production of 893t represents a 4% y/y increase from the previous Q1 record of 855t, set in 2023.

On a q/q basis, however, production fell by 5%, due primarily to seasonal fluctuations: open pit and alluvial operations tend to cut back or stop altogether in the coldest part of the year, especially in China, Russia and other Central Asia countries. South Africa’s gold mining industry is also subject to reduced output as a result of the long summer holidays over Christmas and the New Year.

Notable Q1 production increases – based on data available at the time of publication – occurred in the following countries¹:

• Higher production in Canada at Meadowbank and Magino mines – the latter due to high growth as it ramps up – are estimated to have driven up production by 16% y/y
• Ghana saw production up 15% y/y due to the recovery in production at the Ahafo mine. Operations had been impacted by the failure of a conveyor to the primary crusher and damage to the SAG mill²
• Higher production at the vast Grasberg copper-gold mine together with higher forecast output from Batu Hijau and Tujuh Bukit should see Indonesian mine output up 14% y/y
• In China mine production increased 5% y/y. Growth was reported from mines in key provinces such as Shandong and Henan early in the quarter; lower grade operations are expected to expand due to the high gold price.

Operations in some countries were hit by a mix of mining, geological and weather factors:

• Bolivia saw output down 38% y/y due to lower production from Amayapampa and decreased artisanal and small-scale mining (ASM)
• In Mexico mine production is believed to have fallen 19% y/y after guidance was cut for some mines, including Peñasquito, La Herradura, Morales and Mulatos. Peñasquito is scheduled to produce lower grade ore throughout 2024
• Mine production in the Philippines is estimated to be 5% lower y/y due to lower throughput and lower ore grades
• In Australia, mine production fell by 4% y/y due to a combination of lower output from Cadia Valley, Boddington and Fosterville together with adverse weather conditions, which affected some mines.

Regionally, Africa and Asia are estimated to report the largest Q1’24 increases in mine production, each up 7% y/y on higher volumes from Ghana and China respectively. Gold production is also expected to increase in North America (+5t y/y) and Central and South America (+3t y/y) due to higher output from Canada and Brazil, respectively. For 2024 as a whole and over the next five years, Canadian mine production is expected to report a notable production increase as mines are commissioned, ramped up or expanded.

Based on current estimates, mine production started 2024 strongly, up 4% y/y. As a result, the year looks set to surpass the previous record of 3,656t set in 2018.

In Q4’23, based on the latest data available, average all-in sustaining costs (AISC) for the gold mining industry reached a record high, up 7% y/y to US$1,342/oz. Average AISC for the industry increased in each quarter of 2023, but cost inflation slowed sharply compared to the very rapid increases seen in 2021 (up 11%) and 2022 (+12% to US$1,276/oz).

Net producer hedging

The global delta-adjusted producer hedge book climbed by 16t to 226t in Q4’23, the last available data for producer hedging. This takes the annual change in the industry’s position to +55t, the largest yearly increase in the global hedge book since 2014. We estimate that modest amounts of de-hedging took place in Q1, although with gold’s recent strength it is possible that our current estimate of a 6t decline may be reversed once first-quarter company reports have been received.

In the previous edition of this report, we argued that “The past year has been a useful test of the presumption that gold mining companies are reluctant to expand their hedging activities”. Although we have revised up our estimates of the 2023 additions to the aggregate hedge book (to +55t from +17t), we stand by this view. Despite the 32% y/y increase, the absolute level of the global producer hedge book remains small; it stood at a higher level in 2016 and 2017 (259t and 234t respectively).

Recycled gold

Gold recycling in Q1 rose to 351t (+12% q/q and y/y) in response to higher gold prices. This was the strongest first quarter volume of recycling supply since 2014 and the strongest quarterly performance since Q3’20.

Increases were seen in almost all markets and regions, with higher gold prices the common theme. This upturn should come as no surprise to followers of the gold market – rapidly rising prices are usually accompanied by increased volumes of gold recycling, primarily in the form of jewellery but the increase in volumes has been more modest than some may have been expecting given the gold price ascent.³

Developments in major markets:

• East Asia saw the largest regional increase. This was mostly driven by stronger volumes in China – a consequence of the lingering COVID impacts seen in Q1’23. In addition, we received reports of high levels of recycling volumes from the (jewellery) trade
• Considering the rapid gold price rise during the quarter, Thailand saw relatively muted recycling supply. Normally, Thai holders of jewellery are quick to sell back if prices move higher. But a lot of gold was liquidated during the financial distress of COVID, which hit Thailand particularly hard, resulting in lower near-market supplies
• Although Indian recycling volumes increased, there were very few reports of distress selling. With a strong economy and expectations of a normal-to-good monsoon, there seems little desire to cash in on high gold prices at the moment
• Europe also saw minimal distress selling. Another explanation for the relatively small increase in Europe is that the gold price, at EUR60/g for much of January and February, was less enticing to gold holders. Gold only broke much higher, to approximately EUR 65/g, in March. This may be a prelude to higher recycling supply in Q2
• In the US recycling volumes increased only marginally: reports suggest that trade rather than retail flows were behind the uptick. As well as ‘cost of carry’ arguments – i.e. high gold prices and high interest rates make the cost of holding gold more expensive – there has been some talk of an increasing novelty factor in the US jewellery market. If a new line fails to sell well when introduced, it is quickly abandoned. It will be interesting to see whether this trend extends to other developed markets
• Middle Eastern recycling volumes increased marginally q/q but posted a y/y decline, the only region to do so. A combination of regional conflict and some economic distress has kept recycling volumes relatively depressed; gold holders have been inclined to hold onto safe haven assets such as gold.

While the increase in recycling supply was lower than may have been expected, almost all markets responded to higher prices. Continued gold price gains at the start of the second quarter, if sustained for any length of time, are likely to prompt further increases in scrap supply. We remain of the view, however, that near market stocks have been somewhat depleted in many regions, potentially limiting any increase in recycling supply in the coming quarters and beyond.