Recycled gold forms a large part of the total gold supply. Although the volume of recycled gold increased over the long term, in the short run it responds quickly to changes in prices and economic shocks. In 2014, gold recycling fell to its lowest level in seven years, and it is expected to remain low throughout 2015, the World Gold Council (WGC) said in a report, prepared along with the Boston Consulting Group.
Since gold does not tarnish or decay, all the gold ever mined still exists in some form. The 2014 Thomson Reuters GFMS Gold Survey estimates that at the end of 2013 the aboveground stock of hold amounted to 176,000 metric tonnes. The stock comprises jewelry, official holdings, private investment, and industrial fabrication. A small amount is lost to the market over time and thus unaccounted for.
While the entire aboveground stock has the potential to be recycled, very little of it should be considered near market supply. Indeed, when gold recycling hit record levels in 2009, it amounted to just 1% of the entire aboveground stock. Much of this stock may never come back on the market due to the following reasons.
- For many people, jewelry has sentimental value and evokes powerful emotions, making them reluctant to part with it;
- Some people's connection with gold is religious. Much of the gold stored in Indian temples, for example, is viewed as sacred;
- Many investors view gold as an intergenerational asset, to be handed down though families rather than sold;
- Central banks view gold as an important reserve asset, and recent trends suggest they are more likely to buy than sell gold;
- Some people are not aware of the value of gold in their technological devices, and they throw out old mobile phones and computers. Much of the gold in electronics from the 1980s and 1990s is likely in landfills.
The gold recycling industry comprises two segments, each constituting a unique market with its own value chain.
- High value recycled gold accounts for roughly 90% of the total supply of recycled gold. Although this segment is mostly made up of jewelry, gold bars and coins often get recycled, too.
- Industrial recycled gold makes up the remaining 10%, up from less than 5% ten years ago. It consists primarily of gold found in waste electrical and electronic equipment (WEEE).
DRIVERS OF GLOBAL GOLD RECYLCING
Gold recycling fluctuates fluidly with gold prices and economic conditions. In 1999, it accounted for just 17% of the total gold supply. In 2009, with higher gold prices and the global economy faltering, recycled gold hit a record 1,728 tonnes, accounting for 42% of the total gold supply. And in recent years, as gold prices fell and the global economy began recovering, gold recycling decreased. 2014 saw the lowest level of recycling since 2007 - 1,122 metric tonnes - accounting for just 26% of total supply.
Gold recycling's responsiveness helps keep the global gold market in balance. Mine production, which generates the lion's share of the total annual gold supply, takes longer to respond to price changes. For example, for 126 mines that started production during the period from 2004 though 2013, the average development time to production was 17 years.
To better understand the drivers of gold recycling, the WGC conducted an economical analysis of annual recycling data from 1980 through 2012. It confirmed three major themes:
1) The recycled gold supply increases over time. Over the long run, it grows by 4% annually, in part owing to increases in jewelry consumption.
2) Economic crises boost recycling. When financial crisis strike, people turn to gold as a liquid asses to raise cash. The Asian financial crisis in late 1990s boosted recycling by 19%, mostly in Asian countries. The 2008-2009 global financial crisis exerted a bigger impact, increasing global recycling by 25%. However, the effects of a sharply higher gold price as well as the financial crisis would have been combined over this period.
3) Changes in gold price have immediate, but temporary effect. Price changes account for 75% of annual changes in gold recycling once we account for major economic crises. For every 1% increase in price in a year, the supply of recycled gold will increased 0.6%. If the price stabilized at this higher level, the increase in recycling will reverse in the following year. This is probably because a price increase flushes out near market supply, a dynamic that does not recur the next year.
There are two types of source materials for gold recycling, each with distinct processes. 1) High value source materials. Such materials contain a significant proportion of gold alloyed with one ore more metals. Separating these metals from one another is relatively straightforward and the processes available to refiners are all well-established chemical and physical separation procedures. Some refiners separate metals by heating and melting an alloy.
2) Industrial source materials. Reclaiming metal from WEEE is considerably more complicated that from high value sources. Gold is used in the electronics industry primarily in the form of thin wires and as a plating metal. In 2010, printed circuit boards and mobile phones contained 200-350 grams of gold per metric tonne.
Yet these materials can contain up to 60 different elements as well as numerous complex and often dangerous chemicals. Plastics and steel tend to dominate by weight, but gold and other precious metals dominate by value. For example, in 2010, gold, palladium and silver made up an estimated 93% of the value of an end-of-life mobile phone.
Some companies have developed state-of-the-art recovery operations to surmount the challenge of extracting gold and other metals from WEEE material. For example, Umicore's plant in Belgium recovers 17 metals at high yield from a range of waste streams, such as spend catalytic converters and chemical catalysts, industrial materials, and various types of manufacturing waste. The facility uses eco-efficient process, whereby almost no outputs go waste. Even the slag is used an aggregate, and sulphuric acid (a smelting by-product) is captured and utilized.
Thanks to rising global consumer-electronics sales and even-shorter product life cycles, the volume of industrial materials produced will expand. Mobile phone sales are expected to grow from 1.75 billion units in 2011 to 2.2 billion units in 2017 and tablet sales will grow from 100 million units to 500 million units in the same period. According to the Boston Consulting Group's (BCG) industrial forecast, the global volume of WEEE (including large house hold appliances) could grow by 6% annually from 49 million tonnes in 2012 to 99 million tonnes in 2025.
Although this volume seems large, the amount of industrial material that is addressable - that lends itsels to gold recycling through smelting and refining - is rather small. For 2012, the BCG estimate addressable industrial material volume at less that 400,000 tonnes globally. In 2025, addressable volume will make up only about 2% of the overall industrial source materials.