Gold Market Primer Gold recycling

April 2018 www.gold.org

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Recycled gold is an important part of the market, accounting for around 30% of total supply over the past 20 years.

This primer serves as an introduction to gold recycling. It provides an overview of the market, including the above-ground stock of gold. It also considers the economic drivers of recycling and assesses the differences between jewellery and industrial recycling.

For more detailed information on gold recycling, please see The Ups and Downs of Gold Recycling: Understanding Market Drivers and Industry Challenges, a 2015 report by the World Gold Council and Boston Consulting Group.

Summary Although the above-ground stock of gold is around

190,000t, very little of it is recycled. At its peak in 2009, recycling stood at just 1,728t. – around 1% of the total stock of above ground gold at the time. But it is still an important part of the market, accounting for around 30% of total supply over the past 20 years.

Gold recycling fluctuates with gold prices and economic conditions. Price changes account for around 75% of annual changes in gold recycling, and economic crises - such as the 1997 Asian currency crisis - can boost recycling.

The gold-recycling industry has two distinct segments. Jewellery accounts for roughly 90 percent of the total supply of recycled gold, with industrial recycling contributing the remainder. Jewellery and industrial recycling have very different value chains.

Source: World Gold Council

Market Update | Gold recycling 2

Above-ground stock of gold Gold has captured humankind’s imagination. It is malleable, ductile, and corrosion resistant, and has many uses — from jewellery, to investment, to technologies like mobile phones and spacecraft safety equipment.

Since it does not tarnish or decay, nearly all the gold ever mined still exists in some form. The best estimates currently available suggest that the above-ground stock amounts to around 190,000 tonnes.1 This stock comprises jewellery, investment, central bank holdings, and technology products (Chart 1).

Chart 1: Above-ground stock of gold: 190,040t (end-

2017)

Source: GFMS, Thomson Reuters; Metals Focus, World Gold Council

While the entire above-ground stock theoretically could be recycled, very little of it can be considered as “near-market supply.” Indeed, when gold recycling hit record levels in 2009, it amounted to just 1 percent of the entire above-ground stock. Much of this stock is unlikely to ever come back on the market, for several reasons:

For many people, jewellery 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 inter-generational asset, to be handed down through families rather than sold.

Some people are not aware of the value of gold in their technological devices, so they throw out old mobile

1 GFMS, Thomson Reuters, Metals Focus, World Gold Council

2 Total supply is defined as mine production, recycling, and net producer hedging.

phones and computers. Much of the gold used in technology from the 1980s and 1990s is likely in landfill.

Still, thanks to its unique properties, gold lends itself to being recycled: between 1995 and 2017, recycled gold accounted for about one third of total supply, on average.2

Economic drivers of recycling Before we consider the economic forces affecting recycling, let’s clearly define what we mean by gold recycling. We - along with other gold industry analysts - define recycled gold as gold sold for cash either by consumers or by others in the supply chain, such as jewellery manufacturers who may sell old stock. The definition does not include the exchange of gold for gold – for example, when consumers exchange old jewellery for new pieces at retailers, a practice common in many Asian and Middle Eastern markets.

Gold recycling fluctuates in response to changing gold prices and economic conditions (Chart 2). This responsiveness helps keep the global gold market in balance. Mine production, which generates the lion's share of total annual production, takes far longer to respond to price changes. For more information on mine production, please visit www.gold.org/about-gold/gold-supply/gold-mining.

To better understand the drivers of gold recycling, we conducted an econometric analysis of annual recycling data from 1980 through to 2012.3 It confirmed three major themes:

Gold recycling increases slowly over time, in part because the stock of jewellery increases over time.

Economic crises boost recycling. When financial crises strike, people turn to gold as a high-quality liquid asset to raise cash. Notable examples include the Asian financial crisis in 1997 and the 2008-2009 global financial crisis.

Changes in the gold price have a significant effect on

gold recycling. Price changes account for around 75% of annual changes in gold recycling.

3 For more detail on the econometric drivers of gold recycling, please see The Ups and Downs of Gold Recycling by Boston Consulting Group and World Gold Council

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Chart 2: Recycling responds to the gold price and

economic shocks

Note: recycling was boosted in the late 1990s by the 1997 Asian Currency Crisis and the Global Financial Crisis and euro area sovereign crisis from 2008 to 2012

Source: World Gold Council

Recycling of jewellery vs bars and coins

Gold recycling is predominantly supplied by jewellery. Investment bars and coins do not tend to be recycled, rather they will be sold on the ‘secondary market’ (i.e. sold by/bought from a source other than the original vendor). Unlike old gold jewellery, which may become outdated or damaged, the value of old gold bars and coins will hold close to the market value of newly issued bullion products. Regardless of their age, the fine gold content of gold bars and coins (as well as being high) will remain constant, which makes them easy to value using the prevailing gold price. Gold investment products therefore perform just as well as an investment product whether new or ‘second hand’ (although the price will fall in line with any wear and tear) and for this reason are rarely melted down for re-refining into new bullion products.

Recycling: the processes The gold-recycling industry can be thought of as two distinct markets, each with its own value chain.

Jewellery – sometimes called high-value gold recycling – accounts for roughly 90 percent of the total supply of recycled gold.

4 GFMS, Thomson Reuters.

5 The Wohlwill process is an electrochemical process which can refine gold to a purity level of 99.999%.

Industrial recycled gold makes up the remaining 10%, up from less than 5% 10 years ago.4 It consists primarily of gold found in waste electrical and electronic equipment (WEEE), such as computers, tablets and mobile phones.

How it works: jewellery recycling

Jewellery often contains a significant proportion of gold alloyed with one or 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 simply by heating and melting the alloy. Jewellers can do this themselves on a small scale; little specialist equipment or knowledge is required.

But such simple procedures are not adequate for refining to the higher levels of purity often required by the industry. To achieve this purity, more complex procedures have been developed, often relying on chemical reactions. For example, refiners may use the aqua regia process to dissolve the alloy in strong acids, before recovering the gold electrolytically through the Wohlwill Process.5 This enables the removal of all residual platinum group metals (PGMs) and the delivery of extremely pure gold.

How it works: industrial recycling

The use of gold in the electronics industry (primarily in the form of thin wires and as a plating metal) has created a rich urban mine.6 But this urban mine can also contain up to 60 different elements, including numerous complex and sometimes dangerous chemicals. Plastics and steel tend to dominate by weight, but gold and other precious metals dominate by value. Extracting valuable metals from these materials safely and efficiently is difficult.

Some companies have developed state-of-the-art recovery operations. For example, Umicore’s plant at Hoboken, Belgium, recovers 17 metals at high yield from a range of waste streams (such as spent catalytic convertors and chemical catalysts, industrial materials, and various manufacturing waste). The facility uses a closed-loop process, whereby almost no outputs go to waste. Even the slag is used as construction aggregate, and sulphuric acid (a smelting by-product) is captured and utilised. 7

Not all recycling operations are run at such high standards. The United Nations Environment Programme estimates that only 15-20 percent of WEEE is recycled; the rest goes straight into landfills and incinerators. What’s more, the lure of the urban mine has driven growth in the unregulated

6 Urban mining refers to extracting useful, reusable materials from urban waste.

7 Slag is the waste-product generated once ore has been smelted or refined.

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recovery of metals from WEEE. Chemical leaching involving cyanide and aqua regia is sometimes used without proper safeguards, particularly in the developing world. In untrained hands, this is a polluting and inefficient way to recover metals, and it offers no protection from the dangerous chemicals in these source materials.

Numerous agencies and companies are working to resolve problems associated with WEEE recycling, with an eye toward turning challenges into opportunities. WorldLoop, for example, cooperates with recycling companies to train African entrepreneurs to establish environmentally sound solutions for WEEE collection and dismantling.8 Thanks to these partnerships, numerous African countries now have sustainable recycling operations.

Industry structure Industrial and jewellery recycling value chains are different. The value chain for industrial gold recycling is longer, comprises more market participants, and is more complex than the value chain for jewellery gold-recycling. These

8 worldloop.org/

differences stem from the additional steps – such as disassembling, pre-processing, and smelting – and more sophisticated technology required for industrial gold recycling (Figure 1). Jewellery and industrial gold recycling also differ in terms of market structure:

Geographical focus

The jewellery recycling market is generally served locally. For example, Umicore has six jewellery recycling sites worldwide serving customers in their respective regions. Other smelters and refiners focus on one key region, such as the Canadian Mint and Ohio Precious Metals in North America, Tanaka and the Perth Mint in Asia, and Rand in Africa. By contrast, the industrial recycling market is served globally, with pre-processed feedstock shipped from around the world to single smelting and refining sites. The reason: industrial recycling requires large sites and complex equipment, so recyclers consolidate their operations in one location to serve the global market.

Figure 1: Industrial and jewellery recycling value chains

Source: Boston Consulting Group; World Gold Council

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Based in the UK, with operations in India, the Far East and the US, the World Gold Council is an association whose members comprise the world’s leading gold mining companies.

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