Precious metal prices stronger for longer. Precious metal prices stronger for longer

Transcription

1 Dr Source: CSSS November 27 IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ARE IN THE DISCLOSURE APPENDIX. 1 In this debate we define precious metals as gold, platinum and silver and contend that the prices of these metals will likely remain stronger for longer. We forecast the gold price to skyrocket going forward due mainly to: A fundamental change in the supply and demand dynamics High production costs, which are likely to tip the supply and demand dynamics High energy costs US economic data- the long term health of the US dollar 2 LBMA Precious Metals Conference 27 Page 1

2 We forecast continued upward pressure on the platinum price, mainly due to: A continued deficit in platinum supply for at least three to four years and thereafter a continued tight supply and demand dynamics A stronger gold price, will likely drag both platinum and silver prices higher. We will show that these metals have a long term positive price correlation, whereby the gold price in almost all cases has an indirect influence on the price of platinum and silver to a greater or lesser extent, notwithstanding the supply and demand dynamics of these individual metals. 3 Going forward higher gold prices, solid platinum prices will likely support silver prices. Under these circumstances we cannot possibly agree to The motion: Precious Metal Prices are a Bubble Ready to Burst. We will provide you a summary of overwhelming evidence which can only lead to one conclusion that: Precious metal metal prices prices stronger stronger for longer for ever 4 LBMA Precious Metals Conference 27 Page 2

3 215F 214F 213F 212F 211F 21F 29F 28F 27F Gold set to skyrocket Why? Source: I-Net; CSSS estimates 5 Supply and demand dynamics Supply Reserves Costs Our studies indicate that the dynamics surrounding the gold supply and demand has begun to change inexorably towards a diminishing supply of gold and increasing investment demand, which will ultimately impact the gold price. In the long term global gold production (primary supply) will begin to decline as the diminishing number of new reserves fails to compensate for dying mines. The decline in global gold production will likely be accelerated, should the gold mining industry continue to incur significant year-on-year inflation rates, which are not offset by similar or significantly higher gold price increases year-onyear. Primary supply to trend downwards 6 LBMA Precious Metals Conference 27 Page 3

4 New mine production oz x 1 Gold recovered ounces (') Gold Supply and demand dynamics 6 5 Life-of-mine of gold produced for the top 36 global gold producers (72.5% of global mine production in 26) Source: Company records, CSSS estimates 7 Gold Supply and demand dynamics New mine life-of-mine of gold production forecast Life-of-mine of gold produced for the top 36 global gold producers (72.5% of global mine production in 26) Source: Company records, CSSS estimates 8 LBMA Precious Metals Conference 27 Page 4

5 Global gold production tonnes F 21F 212F 214F Gold production (tonnes) 215F 21F SA/world gold supply as a % Gold Supply and demand dynamics 3, 2,5 2, 1,5 1, 5 New South mine African life-of-mine Gold mine of supply gold production forecast Life-of-mine World of gold gold supply produced for the top 36 global gold producers SA/World (72.5% gold of global supply mine % production in 26) Source: GFMS, Chamber of Mines SA, CSSS estimates Global production set to decline Decline in gold production Gold not without price set precedence to skyrocket st reason Source: World Gold Council; CSSS estimates 1 LBMA Precious Metals Conference 27 Page 5

6 US$/oz US$/oz US$/oz US$/oz Gold Supply and demand dynamics Costs Global average for 26 : Total cash cost US$41/oz New mine life-of-mine of gold production forecast Life-of-mine of gold Cash produced costs US$317/oz 8 for the top 36 global gold 7 Average 26 producers gold price (72.5% US$64/oz of global mine production in 26) 6 5 Average Total cash cost US$41/oz 4 Global cash costs 3 US$/oz 2 Global Total cash 1 costs US$/oz Global gold production tonnes Cumulative production % Source: GFMS, CSSS estimates 11 Gold Supply and demand dynamics Costs Required gold New price mine 215, life-of-mine US$142/oz, of given 18 gold production forecast a similar Life-of-mine margin to the of gold gold price produced in 26 for the top 36 global gold 16 producers (72.5% of global mine production in 26) 14 Estimated total cash cost in 215 US$945/oz 12 at 1% annual inflation Global gold production tonnes Cumulative production % 2 nd reason 8 6 Source: GFMS. CSSS estimates 12 LBMA Precious Metals Conference 27 Page 6

7 F 28F 29F 21F 211F 212F 213F 214F 215F Gold tonnes F 28F 29F 21F 211F 212F 213F 214F 215F Net Sales tonnes Gold Supply and demand dynamics Secondary supply We believe Central Bank sales will likely wither going forward, and the Banks could become net buyers of gold Central Bank sales GBGA 1 24 September Central Banks GBGA 2 24 September Source: GFMS. CSSS estimates 3 rd reason 13 Gold Supply and demand dynamics Secondary supply (2) Hedging has turned into producer de-hedging, which has the effect of removing the supply of gold from the market, has accelerated in recent months. Net producer hedging 9 tonnes De- hedging (4) (6) Source: Mitsui, Haliburton, Virtual metals. CSSS 4 th reason 14 LBMA Precious Metals Conference 27 Page 7

8 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Tonnes Gold Mar-3 Jun-3 Sep-3 Dec-3 Mar-4 Jun-4 Sep-4 Dec-4 Mar-5 Jun-5 Sep-5 Dec-5 Mar-6 Jun-6 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Tonnes Supply and demand dynamics Investment Increased investment demand (ETF s), jewellery consumption. Growing economies India and China UTI Gold Gold BeES Central Gold Trust GoldIST Central Fund of Canada i Shares (Comex) GBS South Africa ZKB Gold ETF (Sw iss) US StreetTRACKS GBS UK and Euronex France GBS Australia Gold priceus$/oz Source: Exchange traded gold, UTI Mutual Fund, Benchmark Asset Managers, SWX, CGT, CFC, I-Shares. 15 Supply and demand dynamics Increased investment demand (ETF s), jewellery consumption. Growing economies India and China Cumulative rate of rise in ETF's 25 Cumulative rate of rise in ETF's 26 Cumulative rate of rise in ETF's 27 Investment -5 Source: GFMS. CSSS estimates 5 th reason 16 LBMA Precious Metals Conference 27 Page 8

9 F 28F 29F 21F 211F 212F 213F 214F 215F Gold (tonnes) Supply and demand dynamics Primary supply: downward trend Diminishing reserves Increasing costs Secondary supply: downward trend Diminishing Central Bank sales Hedging to de hedging Demand: Increasing Investment ETF s Growth in Asia Supply and demand imbalance Source: GFMS. CSSS estimates 17 Supply and demand dynamics Magnitude of primary supply and demand imbalance 15 1 Primary Supply : Mines supply and scrap Demand: Jew elery, Industrial coins ETF's (all demand) 5 (5) (1) (15) (2) No Central Bank selling or hedging Primary supply Demand = Deficit Source: GFMS. CSSS estimates 18 LBMA Precious Metals Conference 27 Page 9

10 F 28F 29F 21F 211F 212F 213F 214F 215F 27F 28F 29F 21F 211F 212F 213F 214F 215F 27F 28F 29F 21F 211F 212F 213F 214F 215F Gold (tonnes) F 28F 29F 21F 211F 212F 213F 214F 215F 27F 28F 29F 21F 211F 212F 213F 214F 215F Gold (tonnes) Supply and demand dynamics Magnitude of primary supply and demand imbalance 15 Primary Supply : Mines supply and scrap 1 Demand: Jew elery, Industrial coins ETF's (all demand) 5 (5) (1) (15) (2) Add secondary supply; Central Banks Primary Surplus/(Deficit) Surplus/(Defict) Net deficit changes Net Official Sector Supply Source: GFMS. CSSS estimates 19 Supply and demand dynamics Magnitude of primary supply and demand imbalance 15 Primary Supply : Mines supply and scrap 1 Demand: Jew elery, Industrial coins ETF's (all demand) 5 (5) (1) (15) (2) Add Central Banks Add hedging/de-hedging net deficit changes Primary Surplus/(Defict) Surplus/(Deficit) Net Official Sector Supply Source: GFMS. CSSS estimates 2 LBMA Precious Metals Conference 27 Page 1

11 F 28F 29F 21F 211F 212F 213F 214F 215F Gold (tonnes) 15 1 Supply and demand dynamics Magnitude of primary supply and demand imbalance Our model indicates that an additional 57 tonnes of gold w ill be needed to counter demand betw een 27 and (5) (1) (15) (2) Primary Surplus/(Defict) Net Official Sector Supply Additional Supply required to off-set the deficit Net Hedging/De-hedging Net Surplus/(Deficit) Gold price to skyrocket Source: GFMS. CSSS estimates 21 Gold set to skyrocket High energy costs Credit Suisse s Global oil team sees the global oil supply and demand remaining tight over the next five years with shrinking spare capacity, which in-turn will likely provide continued support for high oil prices. Higher oil prices are likely to result in inflationary pressures in the US, which in turn will likely result in upward pressure on the gold price because of gold s use as an inflation hedge. 4.% 3.% 2.% 1.% Adjusted Call on OPEC as % of global demand.% 27F 28F 29F 21F 211F 212F Source: IEA, Credit Suisse estimates 22 LBMA Precious Metals Conference 27 Page 11

12 F 28F 29F 21F 211F 212F 213F 214F 215F Platinum price US$/oz Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Brent Oil price US$ per barrel Gold set to skyrocket High energy costs Brent oil price, US$ per barrel Source: I-Net; CSSS estimates 6 th reason 23 Platinum prices to firm Why? Source: I-Net; CSSS estimates 24 LBMA Precious Metals Conference 27 Page 12

13 F 21F 212F 214F 216F 218F 22F Platinum ozs x F 21F 212F 214F 216F 218F 22F Platinum ozs x Platinum Supply and demand dynamics Total Supply South Africa 4% increase to 212 Russia North America Others South African production critical to supply: Faced with production problems and possible power shortages going forward. Source: Johnson-Matthey. CSSS estimates 25 Platinum Supply and demand dynamics Total Demand Total Supply South Africa 4% increase to 212 Russia North America Others Supply deficit 28 to 212 South African production critical to supply Source: Johnson-Matthey. CSSS estimates 26 LBMA Precious Metals Conference 27 Page 13

14 F 21F 212F 214F Platinum ozs x Platinum Supply and demand dynamics Supply deficit 28 to 212 Supply deficit 28 to 212 South African production critical to supply -8 1 st reason Platinum price to firm Source: Johnson-Matthey. CSSS estimates 27 Gold, Platinum and Silver price correlation Gold price to skyrocket Platinum price to firm Gold and platinum will drag silver prices upwards Silver price to firm 28 LBMA Precious Metals Conference 27 Page 14

15 Platinum price US$/oz Silver price US$/oz Gold and Platinum US$/oz Silver US$/oz The prices of gold, platinum and silver have followed similar trends over the long-term Gold Silver Platinum Source: I-Net, CSSS 29 The correlation between these precious metals is significant in the long-term- to date y = 2.929x R 2 =.998 y =.26x R 2 = Gold price in the driving seat Source: I-Net, CSSS 3 LBMA Precious Metals Conference 27 Page 15

16 2/1/ 2/1/ 2/1/ 2/1/2 2/1/21 2/1/22 2/1/23 2/1/24 2/1/25 2/1/26 2/1/27 Platinum/gold price ratio Platinum price US$/oz Silver price US$/oz The correlation between these precious metals is significant over the last six months y = x R 2 =.748 y =.157x R 2 = Source: I-Net, CSSS 31 Over long periods the gold price leads the platinum price Platinum/Gold price ratio Gold ahead of platinum : Gold acting as one of the drivers Source: I-Net, CSSS 32 LBMA Precious Metals Conference 27 Page 16

17 F 28F 29F 21F 211F 212F 213F 214F 215F Silver price US$/oz 2/1/ 2/1/ 2/1/ 2/1/2 2/1/21 2/1/22 2/1/23 2/1/24 2/1/25 2/1/26 2/1/27 Silver / Gold price ratio Over long periods the gold price leads the silver price.3 Silver/Gold price ratio Gold ahead of silver : Gold acting as one of the drivers Source: I-Net, CSSS 33 Silver price to firm on the back of rising gold and platinum prices going forward Source: GFMS. CSSS estimates 34 LBMA Precious Metals Conference 27 Page 17

18 In Summary I am sure the overwhelming and compelling evidence we have provided in our case, to show that precious metal prices will remain stronger, will convince you all to throw out the motion of this debate: Precious Metal Prices are a Bubble Ready to Burst LBMA Precious Metals Conference 27 Page 18

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