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WGC Report: Gold Recycling Low in 2014, Likely to Remain Stable in 2015

Mar 09, 2015

The volume of recycled gold that entered global markets dipped to a seven-year low in 2014 and is likely to remain stable at the same level in 2015, barring changes triggered by any unexpected price fluctuations, the World Gold Council has said while releasing its latest publication “The Ups and Downs of Gold Recycling: Understanding Market Drivers and Industry Challenges,” written and published jointly with The Boston Consulting Group (BCG).

At the outset, the report defines ‘recycled gold’ as “gold sold for cash”, adding that it excludes gold recovered and reused within a manufacturing set up, and any gold jewellery that is exchanged for new gold ornaments. It divides the industry into two segments – the high-value recycled gold and industrial recycled gold, adding that the former, which is mostly made up of jewellery, though it includes some bars and coins too, accounts for roughly 90% of total volumes recycled.

The report presents a historical and in-depth analysis of the gold recycling industry, identifying some of the key drivers and emerging trends for the future. Interestingly, it states that between 1995 and 2014, recycled gold accounted for, on average, about a third of total supply, though this average figure average belies the dynamic, responsive nature of recycling which reacts sharply to price fluctuations and severe econcomic crises. According to the study, while the former factor accounts for 75% of the changes in recycling volumes during this period, the latter has boosted recycling by 20%.

Citing the example of 2009, the report states that “with higher gold prices and the global economy faltering, recycled gold hit a record high of 1,728 metric tons, accounting for 42% of total gold supply” while by 2014, “as gold prices fell and the global economy began recovering...... saw the lowest level of recycling since 2007 at 1,122 metric tons or just 26%  of total supply”.

Giving an overview of the state of the industry, the report says that “iIntensified competition and overcapacity in the near and mid-terms represent the main challenges for both the high-value and industrial gold recycling segments”.

A few other interesting observations made in the report are:

1. As Asia’s stock of gold keeps growing, the ‘centre of gravity’ for gold recycling will likely shift east. India’s and China’s gold jewellery consumption rose from 28% of the global total in 2004 to 60% in 2014 and as a consequence local competition for gold recycling business could heat up in Asia.

2. North America and Europe's contribution to total recycling grew from 27% in 2004 to 43% in 2011 largely driven by the global financial crisis.

3. India's level of recycling has remained fairly stable and makes up a remarkably small proportion of its total stock of gold - less than 0.5% of the estimated annual 22,000 metric tons in the country

4. While the entire above ground stock of global gold (estimated at 1,76,000 tons) has the potential to be recycled, very little of it should be considered near-marketsupply. Indeed, when gold recycling hit record levels in 2009, it amounted to just 1% of the entire above ground stock.

5. For many people, jewellery has a sentimental value and evokes powerful emotions making them reluctant to part with it.

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