ERSTE GROUP. ERSTE Group, International Equities Research. 2nd Precious Metals Conference, Zagreb

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1 ERSTE GROUP Ronald-Peter Stöferle, CMT ERSTE Group, International Equities Research 2nd Precious Metals Conference, Zagreb May

2 Disclaimer Cautionary note regarding forward-looking statements THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY,COMPLETENESS OR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN. CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS. NONE OF ERSTE BANK OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALLFORM THE BASIS OF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER.

3 The longterm-case for gold. If I told you I was going to give you a large steel box for your kids, and that box was not to be opened for 50 years, would you rather put three million in cash in that box or three million in diamonds or gold? Me, I d rather pick the diamonds d or the gold. Which h would you choose? Richard Russell

4 The Austrian School of Economics offers investors a new angle on forecasting asset and commodity prices Inflation-adjusted oil price before and after Bretton Woods Gold/oil ratio and units of oil per USD (both indexed and on a logarithmic scale) kol 71 kol 74 kol 77 kol 80 kol 8 kol 86 kol 89 kol 92 kol 95 kol 98 kol 01 kol 04 kol 07 kol 10 Gold/oil ratio (indexed) Units of oil per USD (indexed)

5 World Bank confirms the Austrian View Money Growth vs. Inflation in 10 Countries - 10-year averages

6 Times are tough over there in the United States CEO's are now playing miniature golf Exxon-Mobil laid off 25 congressmen If the bank returns your check marked "Insufficient funds," you call them and ask if they meant you or them McDonald's is selling the 1/4 ouncer Angelina Jolie adopted a child from America Parents in Beverly Hills fired their nannies and learned their children's names A truckload of Americans is caught sneaking into Mexico When Bill and Hillary Clinton travel together, they now have to share a room The Treasure Island casino in Las Vegas is now managed by Somali pirates

7 Excessive structural debt suggests further appreciation of gold - Causes of the crisis are fought with the same means - Under current law, the federal budget CBO Projections Deficit or Surplus untill 2021 is on an unsustainable path meaning 400 that federal debt will continue to 200 grow much faster than the economy over the long run. 0 - Projections are based on very positive scenarios - New debt since 2008 amounts to more than 40% of fthe accumulated ddebt of fthe last 240 years : + 8,4 Trillions Dimensions are changing fast: USD billion in FY 2001/2002 vs. USD 140 billion in October No budget surplus until 2080? - Federal Reserve ss dual mandate: QE ahead?

8 Overindebtness in all industrial countries Source: BIS,, The Future of Public Debt

9 Currency basket vs. gold 1, Downtrend clearly intact 1, Fiat currencies devalue vs. gold 0, , y = -0,0002x 0002x + 8, R 2 = 0,9708 0, ,00000 Currency basket (USD, EUR, CHF, INR, CNY, AUD, CAD) 0,

10 Silver content of roman Aureus coin The farther backward you can look, the farther forward you are likely to see (Winston Churchill)

11 History repeats itself We have tried spending money. We are spending more than we have ever spent before and it does not work... We have never made good on our promises... I say after 8 years of the administration we have just as much unemployment as when we started, and an enormous debt to boot! Henry Morgenthau, Secretary of the Treasury during the New Deal, May 199 The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance of foreign lands should be curtailed lest the Republic become bankrupt. People must again learn to work, instead of living on public assistance. Cicero, 55 BC

12 Pray for the best, prepare for the worst

13 a MUST READ!!!

14 Financial repression: Negative real interest rates bode well for gold - Inflation is not the only factor for gold real interest rates = opportunity costs 54 % of 5,94 % of months negative real 51 % of months 10 months rates 1800 negative real - Average real negative real 8 rates 1600 interest above.5: 2.1% pa rates Between 0 and.5%: % pa Negative real interest rates: % pa. 0 - US now pays USD 20 billion for interest on their debt financial repression ahead?

15 Stock-to-Flow -ratio as most important factor for the monetary relevance of gold (and silver) - Gold s stock-to-flow ratio at 65 (170,000 tons / 2,600 tons) - Global gold reserves grow by 1.5% annually and thus at a much slower rate than all monetary aggregates -Trust in stability and the future purchasing power is essential for the value measurement of money - According to Mises regression theorem, past experience is the decisive factor for the future trust in monetary stability -Increase of mine production vs. disruption of production - Stock to flow explains why traditional supply /demand models do not work for gold and differentiates gold (and silver) from commodities Years st tock Existing stock versus yearly flows Gold Silver Crude Copper Corn Wheat

16 Why gold is not in a bubble (yet) % of gold-allocation in US-pension funds Source: Casey Research

17 Parabolic phase still ahead of us Every bull market ends in euphoria and excess - Our longterm-target is USD 2,00/ounce I can measure the motion of the 1200 heavenly bodies, but not the 1100 madness of crowds Sir Isaac Newton Bullenmarkt Bullenmarkt 1999-???

18 Corrections within the bullmarket ,2% ,6% ,1% ,6% % 15,% 22%

19 Sentiment extremely bearish great contrarian buy!

20 Sentiment extremely bearish great contrarian buy!

21 The case for gold Secular bull market still intact negative real interest rates are foundation for further price increases Fear trade AND love trade Loss of confidence in capital markets gold is becoming politically correct again Remonetisation of gold Sharp increase in investor interest in 2012 and beyond expected Central banks are net buyers now Attractive risk/reward ratio, upside far bigger than downside Longterm target: inflation adjusted all-time USD 2,00 per ounce

22 The end is near

23 Thank you for your attention!!! ERSTE Group, International Equities Research