LBMA (LPPM) Precious Metals Conference September 2011 SILVER INVESTMENT THE RICH MAN S NEW STRATEGY? PHILIP NEWMAN Research Director

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1 LBMA (LPPM) Precious Metals Conference September 211 SILVER INVESTMENT THE RICH MAN S NEW STRATEGY?. PHILIP NEWMAN Research Director THOMSON REUTERS GFMS THE LBMA PRECIOUS METALS CONFERENCE, MONTREAL, SEPTEMBER 211 PRESENTATION OUTLINE MOTIVES FOR INVESTING IN SILVER Market fundamentals; Safe haven status; The appeal, or not, of silver s price characteristics. SIGNS OF INVESTOR MONEY ENTERING THE MARKET Western trends: futures, ETF, OTC and physical markets; Chinese SGE and physical investment markets. SUMMARY Economic and silver investment outlook. Session Six - Newman 1

2 LBMA (LPPM) Precious Metals Conference September 211 Index (January 25=1) SILVER S PERFORMANCE: AT TIMES, IMPRESSIVE AGAINST GOLD US$/oz 21 y-o-y % 211 y-o-y % Silver 38% 12% 78% Gold 26% 29% 31% 211, Intraperiod Silver Price Gold Price 1 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 MOTIVES FOR INVESTING IN SILVER EVOLVING SINCE THE COLLAPSE OF LEHMAN BROTHERS Market Fundamentals Price strength broad based. World silver investment accounted for 29% of global silver demand in 21, historically high but far lower than in gold. Safe Haven Role Ongoing sovereign debt crisis; Increasing risk of a double-dip recession; Continuing loose monetary policy: historically low interest rates and growing inflationary concerns. Price Action Price volatility, attractive to short-term players, less so for buy & hold investors; Upside potential, assuming gold achieves new record highs; Behaviour as an industrial commodity, tracking copper higher, although at risk from a potential double-dip recession. Session Six - Newman 2

3 Million ounces LBMA (LPPM) Precious Metals Conference September 211 SILVER S FUNDAMENTALS A MIXED MESSAGE FROM SILVER S SUPPLY/DEMAND FUNDAMENTALS SUPPLY (mine production + scrap) 8 7 DEMAND (fabrication excluding coins) F Session Six - Newman 3

4 LBMA (LPPM) Precious Metals Conference September 211 Index (2 nd Jan 28=1) SAFE HAVEN ASSET DIVERSIFICATION AND WEALTH PRESERVATION Silver Price MSCI EU 5 S&P 5 Jan-8 Jan-9 Jan-1 Jan-11 Session Six - Newman 4

5 LBMA (LPPM) Precious Metals Conference September month rolling volatility SILVER S PRICE CHARACTERISTICS SILVER PRICE VOLATILITY HAS EXCEEDED GOLD 12% 1% 8% Silver 6% 4% 2% Gold % Jan-5 Jan-7 Jan-9 Jan-11 Session Six - Newman 5

6 LBMA (LPPM) Precious Metals Conference September 211 Constant 211 US$/oz (silver) SOME UPSIDE PRICE POTENTIAL REMAINS SILVER PRICE EXPECTATIONS ALSO STRONG 6 1, Silver Price (LH) Gold Price (RH) 1,6 1,4 1,2 1, Constant 211 US$/oz (gold) F Forecast SILVER S PRICE PERFORMANCE: A MIXED RECORD THIS YEAR 16 Index, 2 nd Jan 211=1 13 Index, 4 th May 211=1 14 Silver Price Gold Price Gold Price 8 Silver Price 8 Jan-11 Feb-11 Mar-11 Apr-11 May- 7 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Session Six - Newman 6

7 LBMA (LPPM) Precious Metals Conference September : MIXED SIGNS OF GROWING SILVER INVESTOR DEMAND MAIN AREAS OF SILVER INVESTMENT DEMAND Western Markets Comex: recent indications of growth but falling short of mid-2 levels; OTC: May 211 sell-off as prices fell sharply, some reticence to rebuild positions; ETFs: strong demand until end-21, has since weakened; Physical demand: small bar & coin demand at record levels. Non-Western Markets India & China: impacted by rising price expectations, Chinese market has also responded to growing inflationary concerns. Session Six - Newman 7

8 LBMA (LPPM) Precious Metals Conference September 211 Net positions (contracts, thousands) US$/oz WESTERN MARKET INVESTMENT DEMAND INVESTORS NET POSITIONS ON COMEX* REBOUND POST-LEHMAN, BUT REMAIN BELOW MID-2s LEVELS Collapse of Lehman Brothers Silver Price Jan-3 Jan-5 Jan-7 Jan-9 Jan-11 *Non-commercial & non-reportable net positions in futures taken as proxy for investors positions Source: CFTC Session Six - Newman 8

9 LBMA (LPPM) Precious Metals Conference September 211 Million ounces Million ounces SILVER ETF HOLDINGS PULLBACK FROM END-21 PEAK, BUT SELL-OFF LIMITED ishare ZKB ETF Securities* Other** 569 Moz at end-august 211, down by 32 Moz from end *Includes ETFS London, Australia, NYSE, Glitter and WITE ** Includes Julius Baer, Mitsubishi, Sprott, Claymore, Central Fund of Canada, Silver Bullion Trust, DB Physical Silver, ishare ETC, Source: Respective Issuers US EAGLE SALES A RESURGENT COIN MARKET : Monthly average:.8 Moz Jan 9-Aug 11: Monthly Average of 2.9 Moz Jan-2 Jan-4 Jan-6 Jan-8 Jan-1 Session Six - Newman 9

10 Million ounces LBMA (LPPM) Precious Metals Conference September 211 WHILE THE GROWTH IN EUROPEAN COIN DEMAND IS EQUALLY IMPRESSIVE 3 North America Europe Other Q1 8.Q1 9.Q1 1.Q1 11.Q1 Quarterly Bullion Coin Survey CHINESE INVESTMENT DEMAND Session Six - Newman 1

11 LBMA (LPPM) Precious Metals Conference September 211 DRAMATIC GROWTH IN CHINESE SILVER INVESTMENT Monthly Total SGE Turnover, Moz US$/oz Small Bar & Coin Demand, Moz Silver Price Jan-7 Jan-9 Jan F Source: Shanghai Gold Exchange INVESTMENT SUMMARY Session Six - Newman 11

12 LBMA (LPPM) Precious Metals Conference September 211 Million Ounces SILVER INVESTMENT (in 211) THE RICH MAN S NEW STRATEGY? Retail and high-net-worth investors have been galvanised since the collapse of Lehman Brothers; speculative investors have focussed on silver s upside potential; Pre-May 211, silver was seen as the rich man s strategy, given the: narrow gold-silver ratio; a smaller market offering more upside price potential; firmer market fundamentals (against gold); sovereign debt crisis, rising inflationary concerns; historically low interest rates. Large rise in allocated metal accounts and small bar & coin demand; US dollar commitment very high at this time. Post May 211, investor reticence but now starting to re-appear, albeit more cautiously. With gold forecast to exceed $2,, the rich man s strategy is still broadly in place as silver is being taken seriously as a hard asset. Although a double-dip recession will impact fabrication, the decline will not be as acute as in 29, so silver prices will to some extent be insulated. Overall, price expectations now less robust but we will see growing investor commitments. SILVER WORLD INVESTMENT* Value of World Investment 6 US$bn F * World Investment = the sum of net implied investment and coins & medals Session Six - Newman 12

13 LBMA (LPPM) Precious Metals Conference September 211 DISCLAIMER The information and opinions contained in this presentation have been obtained from sources believed to be reliable, but no representation, guarantee, condition or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. Accordingly, GFMS Ltd accepts no liability whatsoever to the people or organizations attending this presentation, or to any third party, in connection with the information contained in, or any opinion set out or inferred or implied in, this presentation. This presentation does not purport to make any recommendation or provide investment advice to the effect that any gold related transaction is appropriate for all investment objectives, financial situations or particular needs. Prior to making any investment decisions investors should seek advice from their advisers on whether any part of this presentation is appropriate to their specific circumstances. This presentation is not, and should not be construed as, an offer or solicitation to buy or sell gold or any gold related products. Expressions of opinion are those of GFMS Ltd only and are subject to change without notice. Session Six - Newman 13

LBMA Precious Metals Conference Montreal, September Silver Investment. Philip Newman Research Director, Thomson Reuters GFMS

LBMA Precious Metals Conference Montreal, September Silver Investment. Philip Newman Research Director, Thomson Reuters GFMS Silver Investment Philip Newman Research Director, Thomson Reuters GFMS As Mike has mentioned, I am going to talk about silver investment, asking the question, Is silver investment the new rich man s strategy?