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1 Commodities Daily 28 August 2009 Focus: Gold volatility set to rise As we head into September, indications are that volatility in the gold market could rise. This has been the pattern for 1-month ATM implied volatility for gold since 2003, irrespective of whether you include the last 12 months when gold volatility was very high. If volatility should rise, it would imply that the underlying price should move either up or down. We expect the move to be higher. * CFA +44 (20) Walter.DeWet@standardbank.com Leon Westgate* +44 (20) Leon.Westgate@standardbank.com Manqoba Madinane* +27 (11) Manqoba.Madinane@standardbank.co.za Base metals have shrugged off worries that China might tighten lending standards could see demand for metals fall. The buying support in Shanghai and London this morning comes despite Chinese equities closing down another 2.9%. In general there remains good buying on dips which is supporting the metals. The dollar is much weaker this morning. However, the gold price has failed to fully benefit from the more than 1 cent move which took the dollar to above $ against the euro in a matter of minutes yesterday. We still see gold as range-bound today. Crude oil prices garnered support in New York yesterday following betterthan-expected US Q2:09 GDP data which showed a 1.0% q/q contraction (consensus: a 1.5% q/q contraction). Commodity price data (27 August 2009) Base metals LME 3-month Open Close High Low Daily change Change (%) Cash Settle Change in cash settle Cash 3m Aluminium 1,858 1,885 1,890 1, , Copper 6,290 6,271 6,352 6, , Lead 2,035 2,012 2,065 1, , Nickel 18,974 18,760 19,304 18, , Tin 13,900 14,000 14,200 13, , Zinc 1,830 1,831 1,858 1, , Sources: Standard Bank; LME; BBG Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q3' % ICE EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFPs Gold* /0.50 Silver /3 Platinum 1, , , , , /4 Palladium /3 Please refer to the disclaimer at the end of this document.

2 Focus: Gold volatility set to rise Gold 1-month ATM implied vol ( ) As we head into September, indications are that volatility in the gold market could rise. This has been the pattern for 1- month ATM implied volatility for gold since 2003, irrespective of whether you include the last 12 months when gold volatility was very high. We believe volatility could rise because: Firstly, according to the VIX index, September, October and November are the three most volatile months of the year for US equities. The VIX index measures implied volatility for S&P equities. This higher volatility is likely to spill over into other markets, including the gold market % Secondly, as we head into Q4, jewellery demand is likely to rise. We estimate that jewellery demand in Q4 is on average 3x greater in Q4 than in Q3. This increase in demand could see increased gold price volatility. 14 Jan Feb Mar Apr May Jun Jul Aug Average Sep Oct Nov Dec If volatility should rise, it would imply that the underlying price should move either up or down. We expect the move to be higher. Q4 traditionally sees a substantial seasonal rise in jewellery demand. The seasonal pattern should remain, irrespective of the actual level of demand. Also, we expect the dollar to continue its depreciating trend against other major currencies especially the euro. Our dollar target is still an exchange rate $1.50 against the euro by year-end. Source: Global Markets Research Thirdly, we have seen the gold price at which the physical market is willing to buy, increase steadily over the past few months. This not only provides good support to the gold price, but also means the scrap flow to the market is less at a higher gold price. We expect this trend to continue. Base metals The whole base metals complex is trading higher on a combination of a much weaker dollar, good confidence data out of Europe and equity markets in the US and Europe which are trading higher. The buying support in Shanghai and London this morning comes despite Chinese equities closing down another 2.9%. In general there remains good buying on dips which is supporting the metals. It appears base metals have, for now, shrugged off worries that China might tighten lending standards. There was good economic and consumer confidence numbers out of Europe this morning. Economic confidence in the Eurozone rose to its highest level since October last year, while consumer confidence is close to levels last seen in September This afternoon we will keep a close eye on the University of Michigan consumer confidence levels. Based on the recent trend in economic data we expect good figures here as well. This could further support equity markets and commodity prices. Copper pushed above $6450 this morning despite Shanghai warehouse stock rising of 4,975mt to 86,625mt. This is the highest stock level in just more than two years. There has also been a 1,375mt rise in LME warehouse stock this morning. But the optimism in other financial markets clearly dominates price direction at this stage. The futures market signals that US equities could rise again today which should support copper. Aluminium is not only benefiting from factors mentioned above, but continues to find good support from an oil price which rebounded yesterday after it failed to break through key support levels. This has helped push the aluminium 3-month price back above $1,900. The 10-day correlation coefficient between aluminium and Brent crude is at Like copper, stockpiles in Shanghai and the LME are up. Shanghai stocks rose 21,287mt this week while LME stock was up 625mt this morning. Lead remains well supported as the smelter closures in China continue. The positive sentiment towards the complex as a whole has also assisted to push the 3-month price 3.5% higher to $2,115 this morning. 2

3 The dollar is much weaker this morning. However, the gold price has failed to fully benefit from the more than 1 cent move which took the dollar to above $ against the euro in a matter of minutes yesterday. We still see gold as range-bound today. While there is some physical buying because of seasonal demand, we doubt it would be enough to push the gold price above $960. Investor demand via ETF s could also remain subdued ahead of the weekend and month-end. However, markets are quiet, and amid the low liquidity, we might see sharp moves in the gold price. Our strategy remains one of selling into strength. Gold support is at $945 and $940, with resistance at $954 and $958. The Impala Platinum strike seems unlikely to end this week. NUM and Impala management reportedly aren t close to an agreement. However, we still believe that as long as Impala smelters are unaffected supply disruptions, this should not be a major problem yet. These developments, which may not result in platinum moving higher, would certainly provide support on the downside. Platinum support is at $1,230 and resistance at $1,250. Palladium support is at $282 and resistance at $288. Silver is higher this morning on the back of a weaker dollar, and copper which is trading above $6,400 again. Silver is holding onto levels above $ With limited data out today, and market volumes low silver could also be suspect to large movements. Silver support is at $14.25 and $14.00, with resistance at $14.55 and $ Crude oil prices garnered support in New York yesterday following better-than-expected US Q2:09 GDP data which showed a 1.0% q/q contraction (consensus: a 1.5% q/q contraction). Front-month WTI crude found support at $69.85/bbl and rallied to $72.97/bbl in the aftermarket trade. A 2.67% slump by the Shanghai Composite this morning weighed on crude oil in Asia, which saw front-month WTI crude bounce between $73.03/bbl and $72.49/bbl ahead of European trade. Japan s jobless rate increased from 5.4% m/m, in June, to 5.7% m/m in July worse-than-market expectations for a 5.5% m/m gain. The greenback is directionless after yesterday s sharp depreciation ranging between $ and $ against the euro. Front-month ICE Brent crude oil came under pressure this morning, sliding from $72.90/bbl to $72.39/bbl ahead of the release of Eurozone data which showed a rise in economic and consumer confidence. Noteworthy, the UK s August GFK consumer confidence index was unchanged, at -25 (consensus: -24). N.W.E spot jet fuel range-traded between $635/mt to $630/mt in Asian and early London trade this morning following a 3.2% w/w rise in European Jet fuel stockpiles. Thermal coal contract prices remained under pressure yesterday, tracking crude oil lower. API2(CIF ARA) for Q4:09 delivery shed $1.25/mt to $71.35/mt; API4(FOB) for Q4:09 delivery slipped $1.80/mt to $64.60/mt. The long-end of the API4(FOB) coal forward curve also came under pressure yesterday, signaling that investors are pricing in long-term demand weakness as China moves to curb excesses in industrial production. According to Chinese Customs data, Chinese coal imports contracted 13.6% m/m and 24% y/y in July. Lower German base load power prices and low trading volumes weighed on carbon emissions contract prices yesterday. ICE EUA for December 2009 delivery shed EUR0.07/mtCO2, to EUR15.15/mtCO2. Active-year UN-backed CER slipped EUR0.09/mtCO2, to EUR13.36/mtCO2. Manqoba Madinane 3

4 Base metals Daily LME stock movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Contract turnover Aluminium 4,614,350 4,613,725 5,375 4, ,285, , ,056 Copper 298, ,550 1, ,375-40,850 7, ,203 Lead 120, , ,800 1, ,440 Nickel 113, ,026 1, ,416 35,052 1, ,875 Tin 19,765 19, , ,946 Zinc 434, , ,100 9, ,993 Shanghai 3-month forward prices Copper 50,630 50, Cu Aug' % Zinc 15,350 15, ZAR metal prices (27 Aug 2009) Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 14,395 49,171 15, , ,912 14, month 15,053 50,076 16, , ,803 14, futures pricing Price Change Price Change Price Change Price Change Price Change 1-month forward 2-month forward 3-month forward 6-month forward 1-year forward Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO 380 Cargo ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q4:09 Q1:10 Q2:10 Cal 11 Cal 12 API2 (CIF ARA) API4 (FOB RBCT) Carbon Spot Dec-09 Dec-10 Dec-11 Dec-12 ICE - ECX EUA ( /mt) ICE - ECX CER ( /mt) Forwards (%) 1-month 2-month 3-month 6-month 12-month Gold Silver USD Libor Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold Silver Platinum , , , , , , Palladium Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD Dec'09 Sep'09 Oct'09 Oct'09 Aug'09 Jun'10 Aug'09 Settlement , , Open Interest 373, ,548 21,360 27,290 1,009 86,508 2,948 Change in Open Interest -5, Date: 27 August 2009 Sources: Standard Bank; LME; Bloomberg Cancelled warrants (mt) COMEX active month future prices Cancelled warrants (%) Metal Open Last 1d Change Open Close Change Change (%) Aluminium 15,150 15, Ali Aug' % 4

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