Gold investors should not worry about correction

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1 Goldletter I N T E R N A T I O N A L the international independent information and advice bulletin for gold and related inves tments October 2016 Gold Market Outlook Gold investors should not worry about correction Having expected the gold price to maintain a resistance level of $ 1,300 in Q4 2016, the marker was surprised by a 4% drop to $ 1, in the first week of October. This correction was the result of positive U.S. jobs data based on which the Fed might already have increased the US funds rate in December rather than in early Higher interest rates are to be considered negative for gold but having been postponed several times in the course of this year, this was an encouragement for the price, without any specific reason, moving up from $ 1,062,25 at year-end 2015 to a 2016-high of $ 1,370 on 6 July, driven by ETF $ 14.3 billion buying during the first six months. In this respect, it is to be noted that the gold price broke the more important strategic resistance level of $ 1,200, which is currently used by gold producers for valuation of their reserves and economically viable calculations based on a margin of $ 300. From this perspective, with margins having gone up by more than US$ 100 in the first half of this year, this was a fundamental reason for the stocks of major gold companies, represented by the HUI-Index, having gained 144%, to a high of $ on 6 July It is also striking to see that the correction of the gold price did not stand on its own, with the silver price having shown a significantly higher correction of 14 % in the first week of October, despite not having a monetary function like gold. As a result of the leverage of the HUI-Index, which represents the world s major gold producers, after a plus of 4% in September, lost 15% in the first week of October, compared to the gold price having lost 5%. Even when higher interest rates traditionally may feed a rally in the US dollar, it is to be expected that the increase will be limited to 0.25% to a range of %. Also the growth of the world economy will come under pressure again according to the latest Word Bank and IMF forecasts. That would prevent more interest hikes in 2017, which is positive for gold. In my September 2016 Gold Market Outlook, I referred to a threatening of the existence of the EU under its current bureaucratic structure will be positive for both the US dollar and gold. ( From the traditional public view this looks like a contradiction, but my monthly updated historic overviews on the course of the dollar related to the Euro and gold demonstrate that since the 2008/2009 financial crisis, a sustainable correlation cannot be used as a given fact. Goldletter International 1 October 2016

2 China dictates the course of the gold price With the Euro not to be the world s reserve currency anymore within the next five years, and to be replaced by the Chinese yuan. there is no obvious reason for China to couple its currency to the gold price as a hedge against the dollar. Also, it is to be observed that the volatility of the yuan against the dollar is relatively small over a longer period of time. With China having passed South Africa in 2009 as the world s largest gold producer and also the world s second largest consumer next to India, the relatively big gap between demand and supply was supposed to have a positive impact on the gold price. However, in December 2014 China created an international gold fund of US$ 40 billion, named the Silk Road Fund, which not only shows the gap in supply, but also increased the influence of the yuan on gold pricing. The Fund was established with investment from the State Administration of Foreign Exchange, China Investment Corporation, Export-Import Bank of China and China Development Bank, which will invest in gold mining in countries along the ancient Silk Road which is connecting northwest China named the Xinjiang and the central part of the Euro-Asia Continent, and in the northeast bordered by Mongolia and in the northwest by Russia, Kazakhstan, Kyrgyzstan and Tajikistan. Xinjiang also borders with Pakistan, Afghanistan as well as India in its south. The total borderlines are 5,600 kilometres in length. The initiative has been taken because China accounts for a small share of the international god trade and as such does not have a big say in gold pricing. Therefore, the Chinese government seeks to increase the influence of the yuan in gold pricing by opening the domestic gold market to international investors. The move to create the Fund could also be designed to secure a supply in gold in case another financial crisis led to restrictions on the flow of gold bullion from west to east seen in recent years and China having been a huge net buyer of gold. The fund, to be overseen by the Shanghai Gold Exchange (SGE) is estimated to raise US$ 40 billion in three phases. Overview gold prices versus HUI-Index Gold price Change HUI-Index Change in % in % October September August July July 6 (high) June May April March February January Year-end A first installment of US$ 40 billion is composed of US$ 7.5 billion contributed by the State Administration of Foreign Exchange (through Buttonwood Investment Holding Co.), US$ 50 billion by China Investment Co, US$ 1.5 billion by Export-Import Bank of China and US$ 500 million by China Development Bank (through China Development Capital Co.). Along the 65 countries along the route of the Silk Road Economic Belt and the 21 st Century Maritime Silk Road, there are numerous Asian countries identified as an important reserve basis and consumers of gold. About 60 countries have invested in the Fund, which will in turn facilitate gold purchase for the central banks of member states to increase their gold holdings. Goldletter International 2 October 2016

3 Outlook for remainder of 2016 and for 2017 Under my scenario that growing international geopolitical tensions are changing the economic and financial world order at the expense of Western industrial countries and benefit of Asia, led by China, and specifically the erosion of the European Union under its current structure, as well as a geographical power play by Russia to expand its economic and political influence in the former Soviet Union countries, external factors will get the upper hand on the future course of the gold price. As a result, also taking a higher volatility into account, I expect that the gold price will continue to go north to a next target of at least $ 1,400 in the course of 2017, which is to be translated in a further increase of the HUI- Index to a level of 400. Historic course of gold price compared with silver During finanial crisis GOLD SILVER gold/silver ratio GOLD SILVER gold/silver ratio 2016 October September June May 31 1, April 29 1, Year-end 1, , , , , , , Year-end June September 11 ** October 24 *** Year-end June * default Lehman Brothers ** Low for 2008 Goldletter International 3 October 2016

4 Goldletter International 4 October 2016

5 Goldletter International 5 October 2016

6 Demand in 10 major consumer countries (in tonnes) Year 2015 Year 2014 Jewellery Bar and Coin Total Jewellery Bar and Coin Total investment investment India China USA Middle-East Germany Turkey Indonesia Russia 47 NA NA 72 Switzerland NA NA Hong Kong 30 NA NA 39 Sub-total Other World total Major consumers in % of world total source: Thomson Reuters GFMS Goldletter International 6 October 2016

7 Market valuation of the world's top-20 listed gold producers 30 September 2016 Trading Share price Change High Low Shares M arket capitalization symbol Current Year-end in % 12 month issued local currency US$ billion 2015 million (billion) Traditional countries (12): Canada (6) TSX - in Cdn$ Cdn$ US$ billion Barrick Gold ABX Goldcorp G Agnico-Eagle Mines AEM Kinross K Detour Gold DGC New Gold NGD Subtotal 57.9 South Africa (4) LSE - in Randgold Resources RRS JSE - in Rand Rand AngloGold Ashanti ANG Gold Fields GFI NYSE - in US$ US$ Sibanye Gold SBGL Subtotal 23.0 USA (1) NYSE - in US$ US$ New mont Mining NEM Subtotal 20.8 Australia (2) ASX - in A$ A$ New crest Mining NCM Evolution Mining EVN Subtotal 16.3 * listed on November 28, 2014 Emerging countries (7) : Russia (2) OTC US in US$ US$ Polyus Gold International 1) OPYGY:US LSE - in Polymetal International 2) POLY:LN Subtotal 19.3 China (2) Hong Kong / Shanghai - in HK$ HK$ Zijin Mining 3) 2899 / TSX - in Cdn$ Cdn$ Eldorado Gold 4) ELD Subtotal 9.7 Peru (2) TSX - in Cdn$ Cdn$ Tahoe Resources * THO NYSE - in US$ US$ Minas Buenaventura BVN Subtotal 7.8 * Rio Alto Mining - take-over as per April 1, 2015 by Tahoe Resources (producer of silver and byproducts gold, lead and zinc) in Guatemala Brasil (1) TSX - in Cdn$ Cdn$ Yamana Gold YRI Subtotal Traditional countries Subtotal Emerging countries 40.9 Total Goldletter International 7 October 2016

8 Market valuation of gold companies ($ 500 million plus) 30 September 2016 Trading Share price Change High Low Shares M arket capitalization symbol current Year-end in % 12 month issued local currency US$ billion Traditional countries (6) : 2015 (billion) USA (1) US$ US$ Novagold Resources (also Canada) NG CANADA (1) TSX - in Cdn$ Cdn$ IAM Gold IMG Australia (3) ASX - in A$ A$ Nothern Star Resources NST Regis Resources RRL Alacer Gold (also Turkey) AQG South Africa (1) JSE - in Rand Rand Oakbay Resources and Energy ORL Emerging countries (8): M exico (2) TSX - in Cdn$ Cdn$ Alamos Gold 1) AGI Torex Gold TXG Nicaragua (1) NYSE - in US$ US$ B2Gold BTG Russia (1) LSE- in US$ US$ Nord Gold (also Guinea, Burkina Faso) NORD:LI China (1) TSX - in Cdn$ Cdn$ China Gold International Resources CGG M ongolia (1) TSX - in Cdn$ Cdn$ Centerra Gold (also Kyrgyzstan) CG West Africa (1) TSX - in Cdn$ Cdn$ Endeavour Mining 2) EDV Tanzania (1) London - in Acacia Mining 3) ACA Total valuation in US$ billion ) merger with AuRico Gold finalized on July 2, ) operating four West African mines in Côte d"ivoire, Mali, Burkina Faso and Ghana ; completed acquisition of True Gold (gold prducer in Burkina Faso) as of April 26, ) formerly African Barrick Resources source: Goldletter International Goldletter International 8 October 2016

9 Overview metal / oil and uranium prices (in US$) - period gold price related to total metal market complex 30 Sept. Year-end 2016 Year-end Year-end Year to Year Year-end Year to Year Year-end to date / / (change %) (change %) (change %) Gold Silver Palladium Platinum Copper Lead Nickel Zinc Brent oil week range: H $ (2/9/2014) L $ (31/12/2015) 2008: H $ (7/7) L $ (5/12) Uranium (U3O8) spot High Nov. 10, Low September 26, pre-fukushima 2011 (H) Long-term pre-fukushima 2011 (H) source: Goldletter International Goldletter International 9 October 2016

10 Measuring the gold market as a safe haven London trading Change Period of in US$ in % change December 1, December 2, (2 years) April 14, ( 3½ months) May 10, (- 1 month) May 12, (- 1 month) October 6, (5 months) Year-end (3 months) April 20, (4 months) June 27, (2 months) September 18, (2½ months) Year-end (3½ months) March 17, 2008 (H) (2½ months) May 1, (1½ months) July 16, (2½ months) September 11, (2 months) October 10, (1 month) October 24, 2008 (L) (2 weeks) Year-end (2 months) February 20, (-2 months) (Interim high New York $ 1,006.30) April 20, (2 months) June 1, (-1½ month) July 13, (+1½ month) September 17, (2 months) December 3, 2009 (H) (2½ months) Year-end (1 month) January 29, (1 month) December 7, 2010 (H) (11 months) Year-end (12 months) January 31, (1 month) May 3, 2011 (H) (3 months) June 30, (2 months) September 6, 2011 (H) (2 months) September 30, (1 month) Year-end (4 months) February 29, 2012 (H) (2 months) July 12, 2012 (L) (4½ months) July 26, (5 months) Year-end (12 months) April 15, (3½ months) May 3, (1 month) June 30, 2013 (L) (1½ months) Year-end (6 months) March 14, 2014 (H) (2½ months) Year-end (12 months) January 21, 2015 (H) (1 month) December 3, 2015 (L) (11 months) Year-end (12 months) June 30, (6 months) July 6, 2016 (H) (1 week) September 30, (2 3/4 months) Goldletter International 10 October 2016

11 Gold runs its own course against dollar and oil price Gold ($) /$ Brent Oil Gold/Oil $/barrel ratio Year-end Year-end Year-end Year-end Year-end May 12, ) October 6, ) Year-end June 30, September 18, ) Year-end March 17, 2008 (High) April 30, ) June 30, July 9, ) July 16, September 15, October 8, ) October 24, 2008 (Low) November 24, December 5, ) December 16, ) Year-end January 15, ) March 5, ) April 2, ) May 13, ) June 30, September 30, December 3, 2009 (High) Year-end January 29, May 10, ) June 28, September 30, Year-end April 13, ) June 30, July 13, ) September 6, 2011 (High) September 30, November 9, ) December 14, ) Year-end July 5, ) July 26, ) Year-end May 8, ) June 30, 2013 (Low) November 11, ) Year-end June 12, ) September 11, ) September 30, Year-end January 22, ) December 16, ) Year-end July 6, 2016 (High) August 31, Goldletter International 11 October 2016

12 Goldletter International 12 October 2016

13 The crisis resistance of the dollar compared to gold price dollar/euro gold price March 17, high June 30, September 15, October 24, low December 16, ) Year-end February 27, high June 30, May 13, ) December 3, low high Year-end March 31, April 30, May 14, ) June 8, high September 30, Year-end January 28, low January 31, April 13, ) April 29, low June 30, July 13, ) September 6, high September 30, November 9, ) December 14, ) Year-end high February 29, high July 5, ) July 9, high low July 26, ) Year-end January 2, high February 20, low March 25, high April 15, May 8, ) June 30, low September 30, November 11, ) Year-end low March 14, low high June 12, ) June 30, September 13, ) September 30, October 31, low Year-end high January 2, low January 21, high March 6, high September 30, December 3, low December 16, ) Year-end July 6, high September 30, Goldletter International 13 October 2016

14 Goldletter International 14 October 2016

15 THE COURSE OF THE DOLLAR AGAINST OTHER CURRENCIES 1 US$ = Euro Yen RMB Rupee Cdn$ A$ SA Rand (00) (00) Year-end June 30, September 30, Year-end March 31, June 30, September 30, Year-end March 31, June 30, September 30, Year-end June 30, September 30, Year-end March 30, Year-end June 30, September 30, Year-end June 30, September 30, Year-end September 30, Year-end September 30, Dollar against : (in %) Euro Yen RMB Rupee Cdn$ A$ SA Rand year-to-year 2009 / year-to-year 2010 / year-to-year 2011 / year-to-year 2012 / year-to-year 2013 / year-to-year 2014/ year-end 2015/September 30, Goldletter International 15 October 2016

16 CALENDAR OF MINING EVENTS9 Goldletter International, Uraniumletter International and Rare Earths & Strategic Metals Letter International as Media Partner 2016 October WaCa Mining 2016 Accra, Ghana October MENA Mining Show Dubai, United Arab Emirates November Low Emission and Technology Minerals Conference, Pert, Australia incorporating the Australian Uranium Conference November Lantern Fund Forum Lugano November rd Central & Eastern Europe Nuclear Power Congress Warsaw,Poland December 7-8 Invest Mongolia Tokyo 2017 February 6-8 Investing in African Mining Indaba Cape Town, South Africa March 5-8 PDAC Convention Toronto, Canada Goldletter International 16 October 2016

17 Goldletter International a publication by Metal Commodities Investment Platform, the Netherlands Marino G. Pieterse, Publisher and Editor Information and investment comments are independently and thoroughly researched and believed correct. No guaranty of absolute accuracy can be given however. Investment decisions are fully made for own risk tel.: Chamber of Commerce marino.pieterse@metalcommodities-ip.com