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WGC: 3Q Global Gold Supply Falls 2% Year-On-Year; Mine Output, Recycling Lower

Thursday November 15, 2012 1:00AM

(Kitco News) - Global gold supplies contracted 2% year-on-year in the third quarter to 1,188.3 metric tons due to lower mine production and less recycling of scrap gold, the World Gold Council said Thursday.

Year-on-year supply fell by 21.7 tons, including roughly 8 tons from both mine output and recycling. The rest was a shift of 5.7 tons in hedging-related activity, the WGC said in its quarterly report on trends in supply and demand.

"Because the price was 3% lower in this quarter than Q3 2011, recycling was down 2%,” said Marcus Grubb, managing director for investment at the Gold Council. “And we know there has been some disruption to mine production, which was down 1%.”

Mine production fell 1% from the year-ago quarter to 731.6 metric tons.

"In volume terms, the 1% year-on-year drop in mine production was the largest since Q3 2008 and the origins of the decline were three-fold; disappointing results for a number of operations; lower-than-expected growth at a number of new or recovering mines; and the Q3 strikes in South Africa,” the report said.

Indonesia was the nation with the biggest year-on-year decline in output, the report said. Output fell 10 tons, or 33%. “Changes to mine plans at Grasberg, which delayed access to higher-grade material, were the main reason for the country-level decline, although ongoing expansion at Newmont Nusa Tenggara’s Batu Hijau mine also contributed,” the report said.

South African output fell by 9 tons, with 5 tons of this blamed on strikes in the mining sector. Meanwhile, mine output grew by a combined 15 tons in China, Mexico, Russia and Canada, mostly due to new projects that in some cases had not ramped up as quickly as initially expected. 

Hedging by mining companies was 4 tons in the third quarter, compared to net de-hedging of 1.7 tons in the year-earlier period. However, the WGC said that this activity remains at historically low levels.

The amount of recycling, or scrap gold on the market, fell 2% to 460.7 tons. This was due to lower recycling in industrialized nations, the report said.

"Emerging markets, by contrast, witnessed an upturn in the recycling of old gold,” the WGC report said. "This selling activity among emerging markets was particularly in evidence during the second half of the quarter as the gold price broke out of its consolidation range and climbed sharply higher."

"Already-low levels of near-market supplies of old gold in industrialized markets imply that a significant price move would be required to invoke a response and draw out further recycling across these regions.”

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By Allen Sykora of Kitco News; asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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