Tom Kendall - Conference Summary

Transcription

1 Tom Kendall - Conference Summary Credit Suisse Director Head of Precious Metals Research Securities Research and Analytics 2 Session 8 - Kendall 1

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3 LBMA Attendees Gold price Session 8 - Kendall 3

4 Mission Two Transform from a spot market to a derivative market. In 2004, SGE successfully launched the deferred trading product. From 2008, gold deferred trading has accounted for over 60% of SGE s gold market for three consecutive years and in 2011, the percentage rose to 73%. Ton SGE s Annual Trading Volume and Amount Billion Yuan 6, , , Without lowering the debt/gdp ratio to a sustainable level, there will be no real economic recovery, but (vi) Dollar devaluation Session 8 - Kendall 4

5 China s rebalancing: Rapid falling of current account surplus-to-gdp ratio 12.0% 10.0% 8.0% 6.0% 4.0% current account surplus-to-gdp ratio 2.0% 0.0% -2.0% -4.0% From 10% to 2.8%, behind Germany now Session 8 - Kendall 5

6 Real price of gold (Price of gold/u.s. CPI Index) LBMA/LPPM Precious Metals Conference November 2012 The tactical and strategic approach Position size reflects conviction AMG52992d Return to long-term core position Volatility is high and price is overbought Short-term Large position Volatility is low AND Silver is cheap AND sentiment is weak Today Medium-term Overweight position Volatility is low OR Silver is cheap OR sentiment is weak Long-term Core position Real rates are low, the non-dollar price trend is rising and gold is beating equities Gold bear market Gold prices appear to be highly negatively correlated to real interest rates 9 From Jan '97 to Aug ' Real yield (10-year TIPS) As of 31 August 2012 SOURCE: Bloomberg Refer to the Appendix for additional correlation information. pg 12 Session 8 - Kendall 6

7 Buying a gold ETF: Total cost to an investor 1 month trade European Gold ETFs Total Cost (Bid-Offer Spred + 1 Month Total Expense Ratio) US Gold ETFs Total Cost (Bid-Offer Spred + 1 Month Total Expense Ratio) ETFS 7 3 SPDR 1 3 Deutsche Bank 12 2 ETFS 3 3 ishares 18 2 Source 23 2 ishares Bid-Offer Spread 1mth TER Bid-Offer Spread 1mth TER Page 13 LBMA Conference Hong Kong 2012: Graham Tuckwell 2.6 商业银行主要贵金属业务 理财类 Major services of ICBC Financing 中国工商银行典型产品 积存金 Typical products of ICBC Gold Accumulation Program 中国工商银行与世界黄金协会合作发布了中国第一款以 日均价格积蓄黄金 的权益凭证式黄金投资产品 工银金行家 积存金 ICBC and World Gold Council jointly launched Gold accumulation program which is the first equity style voucher based on daily gold price in China. 14 Session 8 - Kendall 7

8 Part 1 Topic 3 Japan --- Mature and Changing Market behaviour changed along with gold price. --- Between Gold trading was liberalized in Japan in In 1980, when gold price went up to $850, gold in yen soared close to 7000 yen per gram, which was the historical high Between About 20 years until 2001, gold price went down, Japanese trading firms kept on importing, and Japanese people continued buying. --- Between Present Because of 911, gold price started to soar up. From 2001 for 10 years, Japanese gold market reversed trading behaviour. Investors liquidation on long position made Japan a net gold exporting country. --- Current observation We noticed a change this year that much less selling interest out of Japan. We foresee Japan could be a buying country next year again, as we see younger generations are interested in investing in gold. --- Speciality GAP( Gold Accumulation Plan ) is the one biggest vehicle of the gold market in Japan. Estimated to have around 550,000 to 600,000 accounts. Tanaka has the lion s share, and over 80%. --- Exchange On March TOCOM started trading gold futures and it quickly became a very active market next to COMEX. From 2008 TOCOM open interest went down as low as 1/5 of peak days and there were no sign of recovery as now yet. Part 3 C. How to open up Bullion Market in Asia? 16 Free up gold export; Introducing gold derivative markets, such as Options and ETF; Asia Bullion Banks must assist to provide market liquidities; Looking into gold clearing and custodian services in Asia; Gold fixing during Asia time zone. Session 8 - Kendall 8

9 Taiwan Gold Import Demand ( ) Average Annual Demand >100 ton Quantity (ton) (Year) 2012/11/13 光洋僅供 LBMA/ LPPM 年會參考資料禁止複製 轉載 外流 SOLARTECH DOCUMENT. FOR LBMA/LPPM CONF. DO NOT COPY 17 Change for Excellence! Green. Value. Future. 2012/11/13 光洋僅供 LBMA/ LPPM 年會參考資料禁止複製 轉載 外流 SOLARTECH DOCUMENT. FOR LBMA/LPPM CONF. DO NOT COPY 18 Session 8 - Kendall 9

10 Future Supply Constraints 1. S.A Mining inflation Electricity - 220% Diesel - 110% Steel - 100% Wages - 75% 2. Productivity (11.5%) 3. Net speculative Pt. length at near record highs - > 2.0m oz 4. Above ground stocks adequate, but shrinking. 5. The days of cheap migrant labour are over. 6. Increased focus and cost of safety. One Team One Vision With Pride New Gitanjali print and TVC Session 8 - Kendall 10

11 Summary Future PGM demand profile from the aftertreatment sector will probably shift to a somewhat higher Pt ratio due to new diesel market segments (heavy duty diesel on road, non road). In the gasoline sector major increase of PGM loading per car is unlikely. There is no substitute for PGM on the horizon. The biggest impact for future PGM demand will come from growth prospects for the global economy. Title and date 21 Session 8 - Kendall 11

12 Changing Demographics To increase saving rate 88% of India s population to be less than 60 years old by 2025E India s age profile in 2025E (% of population) Source: Kotak Institutional Equities estimates Session 8 - Kendall 12

13 Vietnam South-Korea Japan Market is strictly controlled by the central bank Minor flows to Singapore Small scale domestic refining Strong domestic refining Bullion banks active in scrap market Some scrap flow offshore Lots of LBMA good delivery refiners in Japan General trading companies getting strongly involved Jochen Schlessmann Heraeus Ltd. Hong Kong November 2012 Signet Supply Sources (simplified) On average, suppliers have at least 3 different supply sources of gold This implies at least 1,000 distinct gold supply chains for Signet 26 Session 8 - Kendall 13

14 Declining Discovery Rates Endowment (Moz) (1) 120 Gold Exploration Spending (US$B) Discovery Year Sources: Metals Economics Group, Intierra and Barrick 0 27 Features of China s Gold Industry Fast development, unrivalled as World s largest gold producer Small size, low grade, mining alongside with exploration, small scale development for large mines Consolidation is the trend and mainly led by governments Great potential for deep exploration Low capital cost Session 8 - Kendall 14

15 Rising EM countries are top holders of FX reserves Emerging markets (ex Japan) World Gold Council Central banks: The outlook for demand 13 November Session 8 - Kendall 15