Volatility in Global Precious Markets. Harriet Hunnable Managing Director, Metals Products, CME Group

Transcription

1 Volatility in Global Precious Markets Harriet Hunnable Managing Director, Metals Products, CME Group

2 The information presented herein has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this document are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by the official rules of the relevant CME Group Exchanges. Current Exchange rules should be consulted in all cases concerning contract specifications. Copyright 21 CME Group 21 CME Group. All rights reserved 2

3 Agenda - Introduction - Landscape - Score Card (review of 211) - Volatility of the precious metals market - Tools and Solutions for - Risk Management (hedging) - Investors (speculation) - New metals products 21 CME Group. All rights reserved 3

4 Number of Contracts Number of Contracts Number of Contracts in Thousands Number of Contracts Global Gold Landscape * CME Group NYSE Tocom SHFE MCX Global Silver Landscape * CME Group NYSE MCX 7,, 6,, 5,, 4,, 3,, 2,, 1,, Global Copper Landscape CME Group MCX LME SHFE * Global Platinum Landscape * CME Group TOCOM * As at Nov CME Group. All rights reserved

5 Score Card Several Annual Precious Metals Volume Records Set in 211 Metals Futures Volume Y.T.D 211 Volume Y.T.D 21 (In Contracts) (In Contracts) % Change COMEX Gold 49,175,593 44,73, % COMEX Gold miny 192,575 15, % COMEX E-Micro Gold 474,444 23,534 1,916.% COMEX Silver 19,68,557 12,826, % COMEX Silver miny 16,576 24, % NYMEX Platinum 1,993,263 1,486, % NYMEX Palladium 1,139,529 91, % Metals Options Volume Y.T.D 211 Volume Y.T.D 21 (In Contracts) (In Contracts) % Change COMEX Gold 1,8,754 7,73, % COMEX Silver 2,124,18 1,64, % NYMEX Palladium 37,389 12, % Daily Volume and Open Interest Record: E-micro Gold Futures open interest record: 4,98 1/4 Gold Futures daily volume record: 483,429 8/24 Gold options open interest record: 1,521,421 9/26 Silver Futures daily volume record: 319,24 4/25 Palladium options open interest record: 9,41 11/1 Platinum futures daily volume: 27,748 9/26 21 CME Group. All rights reserved 5

6 Volatility strikes gold market Why does volatility matter? 1.Rising Volatility has been a reliable predictor of previous corrections in Gold price. 2.Volatility is damaging to the gold market for two reasons: 1. It s a sign of uncertainty. 2. Increase the cost of trading. 21 CME Group. All rights reserved

7 Year Gold/Silver Ratio 1871 lo hi lo hi lo hi lo hi lo 3 Note: gold/silver price ratio marked hi means an interim low silver price, and one marked lo means an interim high silver price, that is, the relationship is inverse. the above table shows the unprecedented long-wave volatility in the history of prices driven by pure psychology unrelated to any supply/demand fundamentals. 21 CME Group. All rights reserved

8 For Risk Management Liquidity - A liquid markets that enable market participants to get in and out quickly. Financial Safeguards As a central clearing house, we guarantee the performance of every transaction to eliminate counterparty risk. Global Access CME Globex is a global electronic trading platform available around the clock and around the world. Transparency and Anonymity Flexibility - combination of standard-sized contracts with smaller contract size (miny and E-micro) on our benchmark Gold and Silver may offer traders more flexibility. 21 CME Group. All rights reserved

9 For Investors E-micro contracts are tailored to meet demand of individual investors. Investors/Speculators prefer CME Globex as it has less slippage and less risk of not executing the orders. Market orders with protection: to avoid cascading market orders being filled at extreme prices. Price Banding: Without price banding, a limit bid at a price well above the market or a limit offer at prices well below the market, could trigger a sequence of market-moving trades that require subsequent price adjustments. Iceberg: AKA max show orders. only certain quantity of orders will be showed on screen. Non reviewable range: if the price of the trade is inside the NRR, the trade shall stand. 21 CME Group. All rights reserved

10 New Product Launches Gold Short-Dated Options London Gold Forward (clearing) Coming Soon? Asian Kilo Gold contract 21 CME Group. All rights reserved

11 CME Group Metals Education and Research Sites: Please visit.. CME Metals Product Page: CME Group Market Commentary: Morning market report Mid-session Market Report Recap Market Report (after U.S. closing) CME Group Tools: 21 CME Group. All rights reserved

12 GOLD SURVEY UPDATE 2. PHILIP KLAPWIJK GLOBAL HEAD OF METALS ANALYTICS HONG KONG, 17TH JANUARY 212

13 Thomson Reuters GFMS gratefully acknowledge the generous support from the following companies for this year s Gold Survey and its two Updates Paulson & Co. Inc. Tanaka Precious Metals A Global Partner in Commodities Barrick Gold Corporation JPMorgan Chase Bank ScotiaMocatta Johnson Matthey Kinross Gold Corporation INTL Commodities, inc.

14 PRESENTATION OUTLINE PRICES SUPPLY DEMAND SUMMARY AND PRICE OUTLOOK

15 PRICES

16 US$/oz US DOLLAR GOLD PRICE 2 US$/oz Average 1, , US$/oz 15 Intra-Year 25.3% 1.3% Year-on-Year 25.9 % 28.3% 1 2-day moving average 5 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Source: Thomson Reuters GFMS

17 Euro/oz EURO GOLD PRICE Euro /oz Average , Intra-Year 36.2% 13.7% Year-on-Year 32.7 % 22.1% Euro/oz day moving average 4 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Source: Thomson Reuters GFMS

18 Index (4th January 211 = 1) GOLD PRICES IN DIFFERENT CURRENCIES INDEXED DAILY SERIES Indexed Daily Series Rand/Kg US$/oz 11 Euro/oz 1 Rupee/1g 9 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Source: Thomson Reuters GFMS

19 GOLD PRICE CORRELATIONS (BASED ON LOG-RETURNS ON DAILY PRICES) 1.Q4 11.Q1 11.Q2 11.Q3 11.Q4 US$/EURO RATE US$/YEN RATE SILVER OIL (WTI) GSCI INDEX CRB INDEX S&P Source: Thomson Reuters GFMS

20 SUPPLY

21 Tonnes GOLD MINE PRODUCTION Europe CIS Oceania Asia North America South America Africa 211E up 13t or 3.8% y-o-y H1 7 H1 8 H1 9 H1 1 H1 11 Source: Thomson Reuters GFMS

22 Tonnes MINE PRODUCTION: WINNERS AND LOSERS IN 211* China Canada Eritrea Sudan Argentina South Africa Peru Indonesia * Figures represent year-on-year change, i.e. 211E less 21 Source: Thomson Reuters GFMS

23 US$/oz PRODUCTION COSTS 2-211E E Total Cash Costs: $ E All-In Cost: $ Gold Price Total Cash Costs Source: Thomson Reuters GFMS

24 Tonnes (end-year) OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION Source: Thomson Reuters GFMS

25 Tonnes CHANGE IN SUPPLY FROM ABOVE-GROUND STOCKS 211 COMPARED TO Official Sector Scrap Source: Thomson Reuters GFMS

26 Tonnes CHANGE IN SUPPLY FROM ABOVE-GROUND STOCKS 211 COMPARED TO Official Sector Scrap Source: Thomson Reuters GFMS

27 Tonnes NET OFFICIAL SECTOR SALES/PURCHASES Net Sales CBGA IMF (ON-MARKET SALES) OTHER Net Purchases Source: Thomson Reuters GFMS

28 Tonnes REGIONAL CHANGES IN SCRAP SUPPLY 211 LESS North America -2 East Asia Europe Rest of World -4 Indian S-C -6-8 Middle East Source: Thomson Reuters GFMS

29 DEMAND

30 Tonnes JEWELLERY FABRICATION: WINNERS AND LOSERS (Figures represent year-on-year change, i.e. 211 less 21) Indian S-C Europe North America Rest of World CIS East Asia -6 Middle East Source: Thomson Reuters GFMS

31 Tonnes INDIAN JEWELLERY FABRICATION 3 25 Local Gold Price 3, 25, , 15, Rupees/1g 1 1, 5 5, Q1-7 Q1-8 Q1-9 Q1-1 Q1-11 Q1-12 Forecast Source: Thomson Reuters GFMS

32 Tonnes CHINESE JEWELLERY FABRICATION 2 4 Local Gold Price RMB/g Q1-7 Q1-8 Q1-9 Q1-1 Q1-11 Q1-12 Forecast Source: Thomson Reuters GFMS

33 Tonnes JEWELLERY FABRICATION & SCRAP SUPPLY Jewellery Fabrication Scrap Supply Q1 5.Q1 6.Q1 7.Q1 8.Q1 9.Q1 1.Q1 11.Q1 12.Q1 Forecast Source: Thomson Reuters GFMS

34 Tonnes WORLD INVESTMENT* AND FABRICATION (EXCLUDING COINS) Fabrication World Investment *World Investment is the sum of implied net investment, physical bar investment and all coins & medals Source: Thomson Reuters GFMS

35 Tonnes GOLD MARKET SURPLUS IS EXPLODING IN VALUE TERMS 8 7 Value US$ Billions Q1-7 Q1-8 Q1-9 Q1-1 Q1-11 Q1-12F *Surplus is defined as mine production plus scrap supply minus fabrication demand (excluding all coins) Source: Thomson Reuters GFMS

36 Tonnes WORLD INVESTMENT* Value US$ Billions Q1.8 Q1.9 Q1.1 Q1.11 Q1.12 Forecast *World Investment is the sum of implied net investment, physical bar investment and all coins & medals Source: Thomson Reuters GFMS

37 Net positions (contracts, thousands) INVESTORS NET POSITIONS ON COMEX* 35 3 Gold Price US $/oz 4 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 *Non-commercial & non-reportable net positions in futures taken as proxy for investors positions. Source: CFTC

38 Tonnes GOLD EXCHANGE TRADED FUNDS Others ishares COMEX Gold Trust SPDR Gold Trust NewGold Gold Debentures GBS LSE As of 3/12/11, 154t increase from end Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Source: Respective issuers

39 Tonnes PHYSICAL GOLD INVESTMENT* 45 4 India China Europe North America Other Q1 7.Q1 8.Q1 9.Q1 1.Q1 11.Q1 * Including bars and all coins Source: Thomson Reuters GFMS

40 INVESTMENT IN 211 and 212 World Investment dropped in Q1 211, largely due to profit taking. However, investor interest rebounded in Q Safe haven purchases picked up further in the summer as a result of the US credit downgrade and rapidly developing debt crisis in Europe. Selling in some areas, especially futures, in the final third of the year amid new fears over the health of the banking sector in Europe, coupled with profit taking and stop loss sales due to the slide in the price. Demand strong, however, for physical bullion. Environment for gold investment in 212 is expected to remain supportive, with negative real interest rates in many countries, currency values questioned and Eurozone debt crisis continuing.

41 SUMMARY AND PRICE OUTLOOK

42 MARKET OUTLOOK: NEXT SIX MONTHS Positives: Macro-economic backdrop remains supportive for gold investment: Eurozone debt crisis continues; more aggressive monetary easing by ECB Further monetary stimulus by Fed Rising inflation expectations Short-term interest rates in major economies remain at low levels, close to zero Scrap supply is set to decline slightly Ongoing robust purchases from the official sector Negatives: Stronger dollar Liquidity concerns/distress selling Slight increase in mine production Lower jewellery demand

43 US$/oz QUARTERLY PRICE FORECASTS FOR Average 211: $1, Forecast: $1,76 High Average Low Q1 1.Q1 11.Q1 12.Q1 Source: Thomson Reuters GFMS

44 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, Reuters 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, silver, platinum or palladium 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, silver, platinum or palladium or any gold, silver, platinum or palladium related products. Expressions of opinion are those of Reuters Ltd only and are subject to change without notice.