• Gold recycling forms a major part of total supply, accounting for 24-27% of the total since 2013.
  • Despite its scale, scrap is much more of a price taker and rarely impacts the international price and then only at the margin.
  • Strong recycling, in conjunction with weak demand, can easily push local markets to a discount to the world gold price.

The recycling of gold is a major contributor to supply, averaging 28% of the total in the period 2010-21. This share has fluctuated widely over the last decade or so; on an annual basis, it peaked at just over 35% in 2012, while the lowest share was in 2018 at just under 24%. However, it is worth noting that those early years were anomalous and scrap’s share during 2013-21 held in a narrow range of 24-27%. This story of a steady contribution still holds broadly true if one switches to quarterly data, with recycling’s share of total supply since the start of 2013 in a relatively narrow range of 20-32%.

There is little seasonality to scrap (at a global level), but the seasonality inherent in mine output means recycling’s importance is higher in the first quarter of each year; in the period 2013-21, recycling equalled 38% of mine production in the first quarter on average (and peaked at 48% in quarter 1, 2014).

Its scale and variability therefore mean that recycling has the potential to be a significant driver of the gold price. However, as noted in Chapter 4, the key driver of scrap volumes is the gold price. Recycling therefore is much more likely to be a price taker, rather than a price maker. Even when scrap has responded to other drivers and has become visible to the broader bullion market, it is still best seen as only having a modest impact on the price and quite often only through its impact on investor sentiment.

It is also worth noting that other elements of gold’s fundamentals can play a much greater role in shaping price moves (again quite commonly, indirectly through their role in shaping sentiment), such as a surge in Indian bullion imports or news of official sector buying/selling.

Recycling’s Share of Total Supply

Source: Metals Focus

While recycling may only have a limited impact on the global market, it can contribute more forcefully to local markets, helping drive these at times to discounts to the world price. That said, it is more often that swings in jewellery demand or retail investment that cause these country-level price differentials.

Those times when the Shanghai Gold Exchange has swung to a discount have been at times of weak Chinese demand, rather than burgeoning scrap. Similarly, and by way of illustration, the largest quarter-on-quarter change in Indian recycling was 28t, whereas this stood at 112t for jewellery fabrication. It is also quite common for scrap growth to be comprised of many small, well distributed pockets and so the impact on what could be seen as a national price is muted. For scrap to truly impact differentials, demand needs to be sufficiently weak that it can no longer absorb the supply being generated by recycling. This was very much the case in Egypt when a collapse in fabrication on top of a surge in scrap during the 2016 currency crisis drove the internal market to a discount that peaked at around $40/oz.

Quarterly Supply: Mine Production vs Recycling

Source: Metals Focus