Spotlight on Gold Recycling
Chapter 2 - Profile of Recycling
- Statistics on recycling only refer to old scrap, and not process scrap nor the reformatting of bullion bars.
- Old scrap is dominated by jewellery, with emerging markets accounting for the bulk of these flows.
- Other areas of recycling are small, and lower than their share of fabrication due to recovery being uneconomical or impractical.
Categories of Recycling
It is important to remember that these recycling statistics cover what is frequently termed old scrap, which is just a portion of what a refinery might recycle. This approach has been adopted as it is only old scrap that has the potential to impact the gold price through its effect on the bullion market. This segment and the two other main categories are explained below.
This is material that has been sourced from a previously fabricated product and is returning to the market as bullion. This covers the entirety of gold that has gone into jewellery, electronics, dentistry, decorative applications, miscellaneous industrial and medical uses, and potentially coins.
It need not be a fully fabricated product though; fabrication is typically measured at the point of first transformation from bullion and so a semi-manufactured product that returns to a refiner for conversion back to bullion will get classified as old scrap. For example, if a jewellery manufacturer producing chains went bankrupt with a stock of alloyed wire and this material was returned to a refiner, the flow would be classified as gold scrap.
It may be a surprise that coins feature here. However, this is necessary for two reasons. Firstly, if a coin is fabricated but never sold, there has never been investment and so the metal’s return to bullion cannot be classified as disinvestment. In practice, this almost never occurs, especially for the regular bullion coins. It has occurred for commemorative coins and medals, however, but even then only rarely (although it is a small, regular component of silver recycling). As a reminder, bars (whether minted or cast) can never become part of scrap as by definition they have remained in bullion form and have never become a fabricated product.
A final issue to cover is the sale of old jewellery for cash versus exchange. In the latter, one piece of gold jewellery is handed over to a retailer in return for a new item with the consumer only paying for the markup on the new piece, plus or minus any difference in the fine weight of gold. For our statistics, we do not include the remelt of old jewellery that has been exchanged for new as the net impact on the bullion market is in theory zero.
Estimating the shares of scrap covered by cash and by exchange is obviously difficult but there is at least a high degree of geographical concentration. These distinctions are material in India, important in the Middle East and notable in China, but rarely of consequence elsewhere.
Indian gold jewellery scrap: Sale for Cash vs Exchange
Source: Metals Focus
Process (or production) scrap covers the material that forms part of the circular flows between a refiner and a fabricator. One of the easiest illustrations of this is a sheet of gold destined to become coins. Its next stage in transformation is for the coin blanks to be stamped out. This understandably will leave a considerable volume of gold in the gaps between the round edges of the coins.
This material will return straight back to the refiner for melting down and so never ends up in a fabricated product, nor ends up as an element of the bullion market. It is for this reason that process scrap is never counted in with the old scrap.
The lines between old and process can easily become blurred. For example, gold coming back from a dental practice could readily include a now unwanted filling (which we would classify as old scrap) as well as process scrap in its myriad forms. This blurring also commonly features in low grade scrap – a drum of this could easily include pre-processed electronic scrap at a purity of say 1% (which should get treated as old scrap), the same as jewellery sweeps (the material recovered from such practices as the filing and polishing of gold jewellery, and which should get classified as process scrap). Thankfully, the volumes involved in these blurred areas are comparatively small and so errors are unlikely to greatly distort statistics.
This area covers any transformation of existing forms of bullion into new forms of bullion. This therefore includes such activities as:
- the upgrading of non-good delivery bars into good delivery form or transformation of a bar into a form suitable for delivery onto an exchange
- the re-casting or re-minting of so-called grandfathered bullion into bars now more commonly accepted by investors
- the re-casting or re-minting of bars whose level of damage and consequential harm to the piece’s value makes the processing economically worthwhile
A final point to consider is mixed material, a flow frequently seen coming out of Thailand. Outflows from there are often referred to as ‘scrap’ but in fact are a mix of disinvested bars and old jewellery that has been melted down and at times mixed in with bars that were destined to be re-melted.
Knowing the split in these, at times, substantial flows is therefore important in assessing the nature of this supply, even if classification does not impact the total scale of supply.
Switzerland: gold bullion imports from Thailand
Source: Metals Focus