1 November, 2018

Q3 total supply slightly lower y-o-y: production growth was outweighed by elevated de-hedging and lower recycling

  • Record quarterly mine production of 875.3t in Q3, up 1.9% y-o-y
  • Second consecutive quarter of significant de-hedging; the global hedgebook fell to 197t in Q3 
  • Supply from recycling fell 4% y-o-y; lower gold prices discouraged consumers from selling
Tonnes Q3'17 Q3'18 YoY
Total supply 1,185.7 1,161.5 -2%
Mine production 859.1 875.3 2%
Net producer hedging 8.3 -20.0    -
Recycled gold 318.3 306.3 -4%

Mine production

Gold mine production rose in Q3 by 1.9% y-o-y, to 875.3t. This is the highest level of quarterly production in our records and comfortably above the five-year quarterly average of 809.8t . Some of the largest producing nations saw double-digit declines during the quarter but these were more than offset by significant gains elsewhere.

In China, environmental regulations introduced last year continue to impact the mining industry. National gold output fell in Q3 by 6% y-o-y as operations in or near nature reserves were closed, and as environmental levies and taxes increased. And these pressures may remain for the short term. South African output fell 10% y-o-y in Q3. The closure of loss-making operations such as Evander, TauTona and Cooke contributed to this decline, as did a reduction in output from South Deep. In Indonesia (-13% y-o-y), the completion of Phase 6 ore at Batu Hijau was the main driver of lower y-o-y production.1 In Peru, Q3 output dropped 17% y-o-y owing to lower production profiles from mature operations – such as Lagunas Norte, Orcopampa, La Zanja and La Arena, which saw production fall significantly during the quarter – and a reduced production pipeline.

Mali (34%) and Papua New Guinea (25%) saw the largest y-o-y growth in Q3. In Mali, this was driven by the ramp-up at the Fekola and Yanfolila projects. Papua New Guinea, Lihir and Hidden Valley were the main drivers of the increase in aggregate gold production. Production in the US was strong in Q3, rising by 9% y-o-y. The completion of maintenance work at Barrick Nevada, as well as y-o-y production gains from Carlin, Fort Knox and Cripple Creek contributed to this increase. Canadian output grew 13% y-o-y in Q3, as the ramp-up of production at Brucejack, Rainy River and Moose River continued.

Continued growth in production. Mine production has now registered six consecutive quarters of y-o-y growth, building on renewed optimism for the sector. A combination of growth from key producing countries – such as Russia and Canada – as well as the improving production pipeline, will be supportive of further growth in 2018. The declining production profile of two or three years ago has since shifted to a more robust picture for the industry.


New projects push mine production to a new high

New projects push mine production to a new high

Data as of

Sources: Metals Focus; Disclaimer

Net producer hedging

Gold miners reduced their hedging positions by a further 20t in Q3. This followed 43.1t of net de-hedging in Q2 – the highest level of quarterly de-hedging since 2010 – and reduced the global hedgebook to 197t (-17% y-o-y). Market conditions were generally unfavourable for producer hedging: existing short-term hedging positions reaching maturity and general weakness in gold prices (across many producer currencies) lowered the incentive for fresh hedging agreements.

Hedging remains sporadic and largely tactical. Australia’s Resolute Mining responded to volatility in the local gold price by adding 35,000oz to its existing hedgebook in Q3. This brought its overall hedged position to 85,000oz, which is helping to support the Ravenwood Expansion Project. Towards the end of the quarter, DRDGold announced it would hedge 50,000oz to address increased liquidity risk stemming from its acquisition of Far West Gold Recoveries from Sibanye-Stillwater. But the company was clear that this hedge was tactical in nature.3

In September, Polyus’ Chief Executive, Pavel Grachev, told Reuters that the company does not plan to extend its hedging programme beyond 2019.  Polyus Gold has been responsible for some of the largest tactical hedging agreements in recent years, such as 2.83mnoz (88t) in 2014 and then 625,000oz (19.4t) in 2016.

Recycled gold

Recycled gold totalled 306.3t in Q3, down 4% y-o-y and marginally higher than the five-year quarterly average of 298.5t.


Recycled gold marginally higher than the five-year quarterly average

Recycled gold marginally higher than the 5-year quarterly average

Data as of

Sources: GFMS, Metals Focus, Thomson Reuters, World Gold Council; Disclaimer

*Quarterly average between Q3'13-Q2'18

Turkey and Iran continued to see high recycling activity. Both Turkey (30%) and Iran (50%) saw further increases in recycling during Q3 as local gold prices soared. Currency weakness, inventory liquidation by retailers, profit taking and distressed selling by consumers all contributed to the jump in selling back. But this was not replicated across the entire Middle East region. In Egypt, continued normalisation of the local gold price and an improving economic picture have reduced the incentive to recycle by consumers. In other Gulf states, lower gold prices (as many local currencies are pegged to the US dollar) and higher oil prices improved sentiment and consequently reduced recycling.

Europe, the US and India all saw y-o-y declines in recycling in Q3. Weaker gold prices during the quarter were the key driver of these declines, although depleted near-market stocks and economic improvement in Europe and the US were also factors. In India, the fall in the local price in the first half of Q3 deterred selling back, although currency weakness boosted the gold price later in the quarter.

In East Asia, declining local gold prices again caused consumers to shy away from selling back their gold. In Thailand, capital outflows generated some expectation of currency devaluation, which prompted consumers to reduce their selling back, with some even buying gold in the hope of a short-term gain.


  1. Extraction of ore at open-pit mines, such as Batu Hijau, is done in phases. When current available ore is exhausted the pit is expanded to access deeper ore (a new phase). Phase 6 ore was exhausted last year, with the mine currently processing lower grade stockpiles.

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