Gold, Silver, And The Global Economy Outlook

Transcription

1 Gold, Silver, And The Global Economy Outlook Peruvian International Gold and Silver Symposium 21 May 2014 Jeffrey M. Christian Managing Partner 30 Broad Street, 37 th Floor New York, NY

2 Economic Environment 2

3 Slower Long Term Real Economic Growth Globally Real Gross Domestic Product Annual, Projected Through 2022 Percent Change 10 Percent Change 10 8 Actual Projected World Emerging and Developing Economies Advanced Economies p 2020p Source: IMF, CPM Group Note: Historical data are IMF statistics. Projections are made by CPM Group. Projections for "Emerging and Developing Economies are only for BRIC countries, which account for approximately 52.8% of this category. Projections for "Advanced Economies" are only for the U.S., U.K., Eurozone, and Japan. These countries accounted for 82.2% of this category. -6 3

4 Chinese Economic Growth 7.5% - 8.0%: On Target For Government

5 Inflation Remains Under Control For Now; Deflation is the Major Risk U.S. Inflation Monthly Data, Through January 2014 Percent 16 Percent Apr-68 Mar-71 Feb-74 Jan-77 Dec-79 Nov-82 Oct-85 Sep-88 Aug-91 Jul-94 Jun-97 May-00 Apr-03 Mar-06 Feb-09 Jan

6 Global Surplus of Labor Is A Major Impediment to Growth U.S. Unemployment Rate Monthly Data, Through January 2014 Percent 12 Percent Jan-48 Dec-51 Nov-55 Oct-59 Sep-63 Aug-67 Jul-71 Jun-75 May-79 Apr-83 Mar-87 Feb-91 Jan-95 Dec-98 Nov-02 Oct-06 Sep

7 Surplus Labor Will Be A Major Global Problem Now and Going Forward The U.S manufactures 51% more today than it did in the late 1980s, but uses 34% fewer workers. More jobs have been lost to computers than to off-shoring. The next wave of technological innovation will be even more devastating to jobs, replacing computer-assisted manufacturing with computerized manufacturing. It already has begun. U.S. Manufacturing Output U.S. Manufacturing Employment Index (2009 = 100) 130 Index 130 Million Persons 23 Million Persons

8 Gold Outlook

9 Gold Prices Gold Prices: 1 January 2010 to 25 April 2014 $ / Oz 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 9

10 Investors Physical Gold Purchases Are Sharply Lower Investment Demand's Effect on Gold Prices Price Change Through April 2014 Percent Net Investment Demand (Left Scale) Percent Change in Price Million Ounces p -10

11 CPM Group s intermediate-term price recommendations $/Oz. 2,000 1,800 S $/Oz. 2,000 1,800 1,600 1,600 1,400 1,400 1,200 1,200 1, S S S S S B 1, B B B B B

12 A Brief History Of Recent Gold Price Predictions Market Consensus: Gold Is Going to $2,000, $2,400, $3,000. CPM Group: Gold has reached a cyclical peak in a secular bull market. Prices may drop to $1,300 - $1,400 on an annual average basis between 2013 and 2015, before resuming an upward move later in the decade Market Consensus: Gold Is Going to $1,100 or $1,000. CPM Group: Gold reached a cyclical peak in a secular bull market in 2011 and Prices have dropped to $1,300 - $1,400 and may move sideways to slowly higher between now and 2015, before resuming an upward move later in the decade. 12

13 Here Is What We Said Gold Would Do in 2012 Quarterly Average Prices, Through 1Q 2014 $1,900 $1,900 $1,800 $1,800 $1,700 $1,700 $1,600 $1,600 $1,500 $1,400 Actual $1,500 $1,400 $1,300 $1,200 Projections $1,300 $1,200 $1,100 $1,100 $1,000 $1,000 $900 $900 $800 $800 $700 $

14 Gold Quarterly Average Price Projections to Q From CPM Group s Precious Metals Advisory, 2 May 2014 $ / Oz $ / Oz $1,900 $1,900 $1,800 $1,800 $1,700 $1,700 $1,600 $1,600 $1,500 $1,500 $1,400 $1,400 $1,300 $1,300 $1,200 $1,200 $1,100 $1,000 Actual Projections $1,100 $1,000 $900 $900 $800 $800 $ $700 14

15 Real Interest Rates There Is No Correlation Between Gold and Real Interest Rates Returns on Gold and Real Interest Rates 60% 50% 40% 30% 20% 10% 0% % % -30% Real Interest Rates -40% -50% -60% Gold Returns Slope: Correlation: Note: Monthly data from May 1968 through December Gold returns are based on changes in monthly average London PM fix gold prices. Real interest rates are U.S. 3-Month Treasury bills minus U.S. Consumer Price Index. Gold prices are the dependent variable and real interest rates are the independent variable. Data points in black are for those between September 2007 and December 2012.

16 Gold Is Highly Uncorrelated Over Time With Other Assets Long - Term Correlations Monthly Data Gold Inflation TWD DJIA S&P T-Bill T-Bond Silver % -33% -5% -6% 0% 3% 70% % -34% 2% -2% -2% 10% 71% % 6% 32% 13% -13% 3% 85% % -35% -18% -14% 2% -3% 65% % -38% -20% -17% 1% -8% 75% % -38% -18% -17% 1% -9% 75% % -34% -23% -22% 3% -5% 80% Source: CPM Group January,

17 The Outlook for Gold Gold prices have fallen to what CPM Group sees as a base. Prices may consolidate for a couple of years around $1,300 - $1,400 on an annual average basis, and may not fall much further. For prices to fall further economic conditions would have to improve dramatically more, which we do not see happening. For prices to rise more forcefully than we envision, economic conditions would have to deteriorate very sharply. This seems more possible than stronger than expected growth. 17

18 Silver

19 Silver Prices Remain Weak Silver Prices: 1 January 2010 to 24 April 2014 $ / Oz Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14

20 Silver Investment Demand Down Sharply, But Still High Silver Market Balance Projected Through 2014, Prices through 2013 $/Ounce Net Additions Net Changes in Inventories Price (LHS) Million Ounces Net Withdrawals

21 Here Is What We Said Silver Would Do in 2012 Quarterly Average Prices, Through 1Q 2014 $48 $48 $44 $44 $40 $40 $36 $32 Actual $36 $32 $28 $28 $24 $24 $20 $20 $16 $12 Projections $16 $12 $8 $

22 Silver Quarterly Average Price Projections to Q From CPM Group s Precious Metals Advisory, 2 May 2014

23 Uniformed Things To Say About Gold

24 There Are No Real Efforts To Push Gold And Silver Prices Down Contrary to market commentary, using last October as an example, one sees what really goes on in the market: 1. More than half of the trades have been heavy buying pushing prices higher; obviously not smack-downs. 2. No single entity but hundreds of algorithmic traders using similar systems generating the same sell points. 3. Occurring across financial markets: Other commodities, fixed income, currencies, equities. Recent Major Intraday Price and Volume Changes Date Time Interval S top Logic Troy Ounces Volume During Time Interval as % of Total Daily December Contract Volume as % of Total Daily Aggregate Futures Volume Price Action during Time Interval Daily Change in Settlement Prices 22-Oct 8:20-8:30 NA 2,219, % 12.6% $19.50 $ Oct 4:00-4:10 No 1,780, % 8.1% $33.00 $ Oct 9:50-10:00 No 1,320, % 6.1% $ $ Oct 8:50-9:00 20 Seconds 2,810, % 14.3% -$ $ Oct 10:10-10:20 No 1,280, % 7.8% -$ $ Oct 9:50-10:00 No 1,140, % 11.4% $11.00 $ Oct 8:40-8:50 10 Seconds 2,410, % 10.9% -$ $40.40 Averages on Declines 2,166, % 11.0% -$ $28.83 Averages on Increases 1,614, % 9.6% $18.63 $19.83 Ratio of Declines to Increases Note: Time is military time, EDT. S ources: Reuters data, CPM Group 24

25 Percent of Comex Gold Open Interest Backed by Stocks Monthly, Through February 2014 Percent 35% Percent 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% ene-85 mar-89 may-93 jul-97 sep-01 nov-05 ene-10 0%

26 Official Transactions

27 Official Transactions, Adjusted for Turkish Central Bank Additions Official Transactions Annual Data, Projected through 2014 Million Ounces Net Additions Net Reductions Adjusted for Turkish Central Bank's ROM Gold Additions e Million Ounces 20 Note: Turkey introduced a policy in 2011 that allowed commercial banks to use gold to meet a portion of their reserve requirements. The bank included this gold in its monetary reserves. Because these additions were not outright central bank purchases and no ownership has been transferred from the actual owner to the central bank, annual official transactions have been adjusted to exclude Turkish central bank gold additions since

28 Only A Handful of Central Banks Did the Most Buying Share of Central Banks in Gross Gold Reserve Additions, 2013 Others, 9% Indonesia, 2% Russia, 47% Ukraine, 4% Sri Lanka, 4% South Korea, 12% Kazakhstan, 17% Azerbaijan, 12%

29 Central Banks Are Not Dumping Dollars, But Adding Them Currency Composition of Official Foreign Exchange Reserves 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Yen, 6.8% Euro 27.3% U.S. Dollar 59.0% Other, 4.8% Other, 1.8% Other, 5.9% Pound, 2.1% Yen, 6.1% Pound, 2.8% Pound, 4.1% Yen, 4.1% Euro 18.3% Euro 24.1% U.S. Dollar 71.1% U.S. Dollar 61.8% 0% Note: 1995 Claims in Euros refers to the sum of claims in Deutschemarks, French francs, Netherland guilders, and the European Currency Unit data is end-september. Other years is year-end data. Source: IMF Statistics Department COFER database and International Financial Statistics.

30 Thank You Jeffrey M. Christian Managing Partner 30 Broad Street, 37 th Floor New York, NY