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Gold Recycling

In tandem with gold supply falling 2% in 2014, gold recycling levels have also decreased to their lowest levels in 7 years. (Highest levels seen between 2009 and 2012). In 2013, gold recycling fell 11%.

What this means? According to World Gold Council: Gold Demand Trends Report 2014, gold recycling will remain low and will likely continue to decrease because of recent surges in gold demand in China and India. In other words, because of gold recycling contributes a significant percentage of gold supply, with the increase in demand flushing out gold supply, channels toward gold recycling are tightening. This is an interesting observation mainly because in a later report by World Gold Council drivers of recycled gold supply were its ability to a) increase over time, b) economic crisis, and c) changes in gold prices. While these are undoubtedly true, we are also seeing how gold demand is stemming some drivers (a & b), and reinforced by others (c).

Nonetheless, gold recycling remains to be an important contributor to the overall supply of gold, and a fascinating topic to those analyzing the gold market. Of the 4278.2 tonnes of gold supplied in 2014, gold recycling made up 26% at 1172.7 tonnes. This number is a a lot higher than most people realize, and although gold mining still supplies most of the world’s gold, recycling helps balance the gold market by alleviating some of the pressure off of the mining sector to supply gold demand, which was 3923.7 tonnes in 2014. In addition, one has to consider that, the environmental (as well as production) costs are far, far smaller than gold mining. In an article on Bullionstreet.com, they cite that environmental groups who focus on the environmental degradation of gold mining say to mine an 18k ring leaves behind 20 tons of ore and rock waste.

Countries with high demand vs. their recycling (2012)

India: Demand vs Recycle: 864.2 tonnes vs 113 tonnes

China: Demand vs Recycle: 817.5 tonnes vs 120 tonnes

United States: Demand vs Recycle: 161.8 tonnes vs 129 tonnes

Italy: Demand vs Recycle: 23.5 tonnes vs 123 tonnes

The four countries listed are the top 4 countries leading in gold recycling, however, the demand in China and India far exceeds their recycled supply, thus relying on gold mining and imports from other countries. Together, China and India make up over 40% of the world’s demand, yet they contribute roughly 20% of the world’s recycled supply. In other words, to meet the current demand for gold, the world still heavily relies on gold mining, while, at the same time, gold recycling wanes because demand implies “buying”, thus people aren’t selling to recycling companies. This creates an issue for recycled supply because if people aren’t selling gold to be recycled, then the recycling supply cannot keep up with growing demand. We see this most starkly in 2014 when prices were low, encouraging buying (increase in demand) and discouraging selling (decrease in recycled supply).

 

As much as there is an environmental upside to gold recycling, it is firmly dependent on the price of gold, and global supply and demand. Another factor which affects the recycling supply is the duration of which gold is held, especially jewelry. Disregarding intrinsic value and its relationship with the gold prices, sentimental value and religious significance keeps gold off the trading table. Considering that 90% of recycled gold is high value gold, according to World Gold Council’s The Ups and Downs of Gold Recycling article posted earlier this year, the time it takes to sell gold jewelry and reluctance on the part of the seller certainly does not stave off growing demand. Recycling supply is forced into a waiting game with its only incentive to offer are gold prices, which, if they are low, hardly is enough incentive for sellers.

Nonetheless, there are opportunities for recycling gold in industrial supply materials, such as electronics, making up 10% of supply. This is low compared to high value gold, but there is room to grow and has, in fact, doubled in the last ten years. While it has been known that electronics contain precious metals, the belief is that it is difficult and expensive to extract them for recycling. Between 15 and 20% of precious metals are recycled from electronics, the rest are thrown out. However, technology is developing to make extraction simpler and cost-effective, as well as advertised appropriately to encourage people to recycle their electronics more so in our electronic/mobile heavy society. In 2012, 400,000 tonnes of industrial waste was available for recycling, and is expected to grow to 2,000,000 tonnes by 2025. When we think that gold recycling is currently capturing 15-20%, that is a lot of recycled gold to potentially miss out on.

Overall, for gold recycling companies, whether it is for high value gold or industrial gold, there are pressures as well as opportunities. Low gold prices coupled with high gold demand in the East is diverting the attention of producers and sellers away from recycled gold which continues to give mined gold an important place in the supply side of the market. On the other hand, industrial waste is an avenue that gold recyclers can capitalize on as confidence grows and extraction methods develop.

Gold Around the World

Gold Around The World

The gold price has different meanings for everyone. For some, it is a source of wealth, for others it is the cost of fine jewelry, and there are many more who just don’t really care about it.

Is There Value in the Gold Price?

No matter what your opinion on the precious metal, gold is an important resource in our world and plays a significant role in our global economy. Even if it doesn’t interest you from an investment or fashion standpoint, the gold price is sure to affect you in some way.

With such a difficult to understand value proposition and tremendous economic weight, many ask “why?”.

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Warren Buffet

While this may be true, in most countries gold has a very important role to play through deep rooted cultural traditions and as a store of wealth. It’s true that the gold price is simply the value that we assign to it, but in reality this could be argued for just about any scarce resource or capital in a free market economy.

One of the best ways of understanding the gold price is to simply think of it as a currency. While most other commodities have very real and useful value as a source of energy, construction or as food, gold is quite limited in its general usefulness. Likewise, commodities tend to get used up, contributing to a certain amount of continuous demand regardless of the investment interest in it. Gold, of course is always there. Even if it ends up being used in jewelry you can always melt it down and reclaim it into its purest form.

Gold as a Currency

The reason we can equate the gold price to currency is because it really is just used as a store and transfer of wealth, just like cash. The difference is that cash tends to become devalued over time (inflation), whereas gold price almost always has a consistent value compared to inflation.

There are many economic factors influencing the gold price, but the same is true for currency. If all countries and businesses used gold price as the standard of currency it would lead to much more stable levels of exchange and contribute to an easing global trade. Currently, if a company manufactures a product in one country for sale in another, the fluctuations in exchange rates can lead to huge risks to profitability. The recent rise in globalisation has had more to do with the easing of import duties and the establishment of large-scale trade agreements.

A common currency would be the final consummation of true free trade between countries, also known as a currency union. While this has been tried with a certain level of success in Europe with the establishment of the Euro, the idea of using gold price as a common currency for countries in different parts of the world has been suggested as the next major push towards global free trade.

Just such a scheme has been floated as being plausible by an OMFIF report commissioned by the World Gold Council looking into the potential impacts of changes to China’s monetary policy.

While this type of move would be profound and extreme to say the least, it does show the sentiment towards moving away from currency systems that are easily manipulated by governments and towards a more inclusive system that offers greater stability for the businesses that ultimately engage in trade.

Given all this, it seems that there is a role for gold price as an international store of value and commerce, providing a common currency across international boundaries.

Gold as Currency

Gold Price as a Currency

gold price barsThe gold price has different meanings for everyone. For some, it is a source of wealth, for others it is the cost of fine jewelry, and there are many more who just don’t really care about it.

No matter what your opinion on the precious metal, gold is an important resource in our world and plays a significant role in our global economy. Even if it doesn’t interest you from an investment or fashion standpoint, the gold price is sure to affect you in some way.

One element of the gold price that many don’t consider is its usefulness as a common currency. Having many different countries trading with each-other in many different currencies presents a real problem in the consistency of the cost of goods from overseas. This is why the US dollar has been adopted as a standard currency for trade around the world. With the value of the dollar falling, and the rise of many developing countries, however, it has been suggested that a new global currency take its place, and the gold price is at the center of this argument.

Is There Value in the Gold Price?

With such a difficult to understand value proposition and tremendous economic weight, many ask “why is it worth so much?”.

Warren Buffett famously has this to say about the gold price:

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

While this may be true, in most countries gold has a very important role to play through deep rooted cultural traditions and as a store of wealth. It is also true that the gold price is simply the value that we assign to it, but in reality this could be argued for just about any scarce resource or capital in a free market economy.

One of the best ways of understanding the gold price is to simply think of it as a currency. While most other commodities have very real and useful value as a source of energy, construction or as food, gold is quite limited in its general usefulness. Likewise, commodities tend to get used up, contributing to a certain amount of continuous demand regardless of the investment interest in it. Gold, of course is always there. Even if it ends up being used in jewelry you can always melt it down and reclaim it into its purest form.

Gold as a Currency

The reason we can equate the gold price to currency is because it really is just used as a store and transfer of wealth, just like cash. The difference is that cash tends to become devalued over time (inflation), whereas gold price almost always has a consistent value compared to inflation.

gold price currencyThere are many economic factors influencing the gold price, but the same is true for currency. If all countries and businesses used gold price as the standard of currency it would lead to much more stable levels of exchange and contribute to an easing global trade. Currently, if a company manufactures a product in one country for sale in another, the fluctuations in exchange rates can lead to huge risks to profitability. The recent rise in globalisation has had more to do with the easing of import duties and the establishment of large-scale trade agreements.

A common currency would be the final consummation of true free trade between countries, also known as a currency union. While this has been tried with a certain level of success in Europe with the establishment of the Euro, the idea of using gold price as a common currency for countries in different parts of the world has been suggested as the next major push towards global free trade.

Just such a scheme has been floated as being plausible by an OMFIF report commissioned by the World Gold Council looking into the potential impacts of changes to China’s monetary policy.

While this type of move would be profound and extreme to say the least, it does show the sentiment towards moving away from currency systems that are easily manipulated by governments and towards a more inclusive system that offers greater stability for the businesses that ultimately engage in trade.

Given all this, it seems that there is a role for gold price as an international store of value and commerce, providing a common currency across international boundaries.

We all know the gold price has fallen recently. Read this article on whether the gold price will come back.

What’s Next For the Gold Price?

It is very difficult to predict whether people will perceive the drop in gold price as an opportunity for a bargain or a sign that gold is a risky investment. Since gold demand for both investments and (in part) jewellery are driven by speculation, the balance of these two conflicting market ideas will determine what is next for gold price.

My colleague Gregory Neilson recently shared his thoughts on the inflationary pressure that is affecting the price of gold, you can read his blog post on gold price here.

Gold Bar On Top of Platinum

Read the First Blog Post in This Series: Who is Charlie Pollock?

Read Blog Post #2: The History of the High Gold Prices

Read Blog Post #3: Comparing Gold, Stocks and Commodities

Read Blog Post #4: Jewellery Demand for Physical Gold

Read Blog Post #5: Investment Demand For Gold

Read Blog Post #6: Gold Supply

http://www.gold.org/investment/statistics/demand_and_supply_statistics/

#vancouvergold

Gold Supply

The supply of gold is “sticky”, but flexible. The rising gold prices have pushed mining companies to expand exploration and mine production. The output can lag behind the exploration by about 10 years in order for the mine to get going, but we are seeing increases in mine production already.

About 2/3 of gold supply annually comes from mine production. The remaining supply comes from recycled gold and when prices are higher more people consider selling. The long term increases in supply that come with the higher prices obviously create downwards pressure on gold price.
Read the Final Blog Post in This Series: What’s Next?

Read the First Blog Post in This Series: Who is Charlie Pollock?

Read Blog Post #2: The History of High Gold Prices

Read Blog Post #3: Comparing Gold, Stocks and Commodities

Read Blog Post #4: Jewellery Demand for Physical Gold

Read Blog Post #5: Investment Demand for Gold

My colleague Gregory Neilson recently shared his thoughts on the inflationary pressure that is affecting gold prices, you can read his blog post on gold prices here.

#vancouvergold

History of High Gold Prices

Before the Climb:

First, a quick look at what gold was going in the decades leading up to the climb of the 2000s.

For twenty years starting in the early 1980s, it was not a very pulse pounding time to be a gold investor. Gold was hovering around $300/ounce, but no real gains or losses were made. The 1970s though had been an exciting decade for gold with the end of the gold standard (pegging gold to $35/ounce) in August of 1971 allowing gold prices to move freely for the first time. Amid strong oil prices, high inflation and geo-political concerns, gold prices took off and prices shot up to $850/ounce (correcting for inflation that would work out to over $2000/ounce in today’s dollars). Then the bubble burst and, after a bumpy ride for a couple of years, prices levelled out around $300 with very little action.

In the short history of freely floating gold prices, the rapid rise and fall of value in the 1970s demonstrate that the prices can be quite volatile and the stagnation in the 1980s and 1990s demonstrate that prices have not always been rising.

Read The Next Blog Post in This Series: Comparing Gold, Stocks and Commodities

Read the First Blog Post in This Series: Who is Charlie Pollock?

Read Blog Post #4: Jewellery Demand for Physical Gold

Read Blog Post #5: Investment Demand for Gold

Read Blog Post #6: Gold Supply

Read The Final Blog Post in This Series: What’s Next?

My colleague Gregory Neilson recently shared his thoughts on the inflationary pressure that is affecting gold prices, you can read his blog post on gold prices here.

#vancouvergold

When Gold Rises, So Does Risk

With the DOW closing at record highs last week, the big question is “where do we go from here?”

The equity markets which, just a few short years ago, buckled under the weight of a struggling economy and cautious investors, have risen to never-before-seen highs.

With the recession still fresh in everybody’s minds, are we really going to see a continued rally, or is this just the beginning of a very painful run back to more “sustainable” levels?

#vancouvergold

Gold Demand Hit Record High in 2012

The World Gold Council released its quarterly report on gold demand today, highlighting the record-high investment in the precious-metal by central banks as well as increased demand for jewelry in India, up 41% over last year.

Interestingly, investment demand seems to have stalled, falling 8% over last year, even as prices trended generally higher during the period of the report. It seems that individual investors are shying away from the precious metal while central banks are shoring up their reserves and maintaining high levels of demand.

Will the bubble burst? It’s possible, but with huge economies around the world now more exposed to gold than ever, it seems that their macro-economic policies should tend to prop up its value.

Now might actually be a great time to buy gold if you were to speculate that it bears an increasing importance on a multi-currency reserve system, as individual investors are creating downward pressure on prices while the major investors (central banks) look to acquire even more of it.

#vancouvergold

14 Feb, 2013, 2012 sees gold demand hit record value level > Media > World Gold Council
In value terms, gold demand in 2012 was US$236.4bn – an all-time high. Gold demand in value terms for the final quarter of the year was 6% higher year-on-year at US$66.2bn, marking the highest ever Q4…

Gold Headlines

Gold prices rose sharply today as positive indicators from the European Union depressed the US dollar.

This helped to erase most of the losses that gold has seen over the past week. Bullish precious-metals investors are now saying that we could see gold hit $1800 sooner rather than later.

#vancouvergold

http://www.kitco.com/reports/KitcoNews20130110JW_pm.html

AM-PM Roundup with Jim Wyckoff
Get the Big Picture view on gold, silver and other precious metals markets with Kitco Senior Analyst, Jon Nadler. With thorough analysis, get a sense of today’s market as well as where it may be headi…

Weekly Roundup

What a week its been for gold: Starting out strong on the news that a last-minute deal was finally reached to save the US economy from teetering over the fiscal cliff. Gold and other precious metals didn’t have much staying-power though.

After a chance to digest the reality of the fiscal cliff deal, posting gains on Wednesday, things took a turn for the worse yesterday as market watchers felt that the US Federal Reserve’s monetary policy wasn’t favourable to gold. This also coincided with a weakening of the US dollar, a rare occasion where both precious metals and the dollar dropped in value at the same time.

The general consensus seems to be that the economy is now out of the woods, and demand for gold as an investment is on the way down.

So the question to ask is; do you jump on the bandwagon and sell now, or hang on in the hopes of the much-touted $2000 an ounce gold that everyone was predicting not too long ago?

Growing fears of inflation could signal an upward trend for gold, but if you sold now, it would be into a market that is currently feeling some downward pressure while still historically quite high. It has also brought positive gains for most precious-metals investors to this point.

Keep an eye on the market but don’t get too rattled about sudden changes, with the fear of inflation on the horizon, high gold prices are here to stay.

#vancouvergold

Gold Prices Plummet as Fed Considers End to Stimulus (Update 1) – TheStreet
Gold prices plummet on Friday after the Fed minutes reveal mixed feelings about the central bank’s stimulus programs.