The year 2018 brought numerous indications of a strong market activity in the gold industry, a positive note for all gold prospectors. Total gold demand increased to 4,345.1 tonnes, investments in bars and coins accelerated, gold used in technology increased, and total production grew to over 4,490.2 tonnes.
The World Gold Council (WGC), recently released the gold demand trends for the full year 2018. Further details can be found at:
www.gold.org/goldhub/data/gold-supply-and-demand-statistics
Demand
The gold demand has increased 4.26% compared to the year 2017, from 4,159.9 tonnes in 2017 to 4,345.1 tonnes. A large proportion of this increase was due to Central banks demand, which added 651.5 tonnes to official gold reserves in 2018.
This increase in demand from central banks is the second highest yearly total on record, the highest since the dissolution of Bretton Woods. It is also a large increase compared to the year 2017, 374.8 tonnes. Key buyers were Russia, Turkey and Kazakhstan.
Despite a decade since the global financial crisis, uncertainty is still felt across the markets, and central banks react by bolstering their gold reserves. A recent survey by the WGC showed that 76% of central banks value gold as a safe haven asset, and 59% cited its effectiveness as a portfolio diversifier.
Jewellery contains to account as the number 1 demand for gold, with approximately 2,000 tonnes of gold consumed in 2018. On average, the demand of gold in the jewellery industry has remained well above 2,000 tonnes, with approximately 2,268.2 tonnes average over the last 9 years.
Interestingly, the use of gold as an investment (in the form of gold bars and gold coins) grew 4% in 2018. Gold-backed ETFs, however, decreased from 206t in 2017 to 68.9t in 2018, or a decrease of approximately 67%. The WGC claims that European-listed funds drove yearly growth in ETFs, with a global Q$ fuelled by stock market volatility and signs of a slow economic growth.
Gold bars and coins rose by 4%, reaching 1,090t. This was attributed to a pick-up in retail investment demand, boosted by the fall in gold price across most currencies.
Gold coins, however, experienced a 26% surge in demand to 236t, a record number only shadowed by the 270.9t sold worldwide in 2013. The increase in demand was influenced by the flourishment in some countries, most noticeable Iran and South Africa, where retail investors value gold over the volatility of stock markets, currency weaknesses and geopolitical uncertainty.
The technology industry experienced a very marginal growth in volume of gold consumed (334.6t), close to the average consumption since 2015. However this consumption was the highest since 2014. A strong demand for consumer electronics and ongoing increase in the use of electronics in the automotive sector is attributed to this growth.
Demand in the dental industry recorded its 14th consecutive annual decline, falling 6% to 15.4t.
Supply
Mine production of gold hit a new record in 2018, with 3,347t produced across the world. Although production has regularly increased over the last ten years, the rate at which it grows is declining.
An important factor affecting total gold supply from mines include:
- Stricter environmental regulations, particularly in China.
- Plunge in production from Indonesia, due to a combination of:
- Completion of phase 6 ore at Batu Hijau, and
- Exhaustion of high-grade ore from the final phase of Grasberg open pit.
- 18% decrease in production from South Africa, affected by safety incidents and seismic disruptions (earthquakes).
- 9% decrease in production from Peru due to local opposition to mining.
However, some countries did extremely well, particularly Australia. In 2018, Australia enjoyed record local gold prices throughout the year, as a result of weakness against the US dollar, which supported growth in mine production.
In Australia, the national output grew 4%, despite losses at the Super Pit (Kalgoorlie, WA), due to a ground slip. This growth is likely to increase due to a strong recovery in the mining industry and greater level of exploration spend by Australian miners.
Similarly, Russian gold production rose 10% in 2018, supported by state incentives. In Papua New Guinea, national production grew a stunning 23% due to a higher output at the Lihir and Hidden Valley projects.
Canadian output also rose 9%, mainly due to a number of greenfield projects which continued to ramp-up.
Gold recycling on the other hand returned to historic norms during 2018, totalling 1,173t. In comparison, 2016 experienced a growth of 14%. Turkey and Iran remained the largest gold recycling markets in 2018.
Conclusion
Overall, total consumption and production of gold has been exceptional. Given the high demand for gold, strong gold prices and positivity in the exploration and mining industry, it is likely that 2019 will see even better results.