GOLD MONITOR r Chart Comments (Q4 2018) Q4 Comments: 18) 2018) 1. U.S. interest expense as a percentage of U.S. government outlays has likely bottomed (Fig. 20). Interest rates on U.S. debt have been rising and the average maturity of U.S. Federal debt is currently 69 months. There have been, however, fewer buyers of U.S. Treasurys (Fig 22, 23). 2. While net purchases by foreign buyers of U.S. Treasurys has declined, central bank gold holdings continue to rise and are at the highest levels as a percentage of total central bank reserves in over five years (Fig. 32, 33). 3. Gold and silver equity weighting in the S&P/TSX Composite Index is low (Fig. 44). 4. The amount of equity raised by gold miners in 2018 was almost non existent (Fig. 47). As a contrarian investor, this is surely a good sign for the future price of gold and gold mining equities. 5. There is a significant value gap between larger cap and small cap gold companies (Fig. 52). Chart Comments (Q4 2018) Chart Comments (Q4 2018)
Section I. Macro $1,800 $1,600 $1,400 Fig. 1. Gold Price and U.S. Real Rates 4. 3. 2. 1. 0. 1. 2. 3. 4. 5. 6. $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $1,500 $500 Fig. 2. Fed Balance Sheet Gold Price (US$/oz) U.S. Real Rates (%) Fed Balance Sheet (US$B) 1,600 1,400 1,200 1,000 800 600 400 200 Fig. 3. Gold Price and ECB Real Rates 5. 4. 3. 2. 1. 0. 1. 2. 6,000 5,000 4,000 3,000 2,000 1,000 Fig. 4. ECB Balance Sheet 3. Gold Price ( /oz) ECB Real Rates (%) ECB Balance Sheet ( B) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Fig. 5. Gold Price and PBC Real Rates 4. 3. 2. 1. 0. 1. 2. 3. 4. 5. 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Fig. 6. PBC Balance Sheet Gold Price ( /oz) PBC Real Rates (%) PBC Balance Sheet ( B) 1
(US$T) Section I. Macro Fig. 7. The Biggest 6 Central Bank Balance Sheets U.S., U.K., Japan, China, EU & Switzerland Fig. 8. Gold Price and M2 (Fed, ECB & PBC) $60,000 $25 $1,800 $1,600 $50,000 $20 $1,400 $40,000 $15 $30,000 $10 $5 $20,000 $10,000 Gold Price (US$/oz) M2 (US$B) 2 Fig. 9. U.S. M1 YoY% 12% Fig. 10. U.S. M2 YoY% 1 8% 6% 4% 2% 14% Fig. 11. ECB M1 YoY% 12% Fig. 12. ECB M2 YoY% 12% 8% 8% 6% 6% 4% 4% 2% 2% 2
Jan40 Jan43 Jan46 Jan49 Jan52 Jan55 Jan58 Jan61 Jan64 Jan67 Jan70 Jan73 Jan76 Jan79 Jan82 Jan85 Jan88 Jan91 Jan94 Jan97 Jan00 Jan03 Jan06 Jan09 Jan12 Jan15 Jan18 Section I. Macro Fig. 13. PBC M1 YoY% Fig. 14. PBC M2 YoY% 4 3 4 3 3 3 2 2 1 1 Fig. 15. Inflation December 2018 Fig. 16. U.S. National Debt (US$T) 12. $25 10. 9.6% $20 8. 6. 4. U.S. Euro Area China $15 $10 2. 1.9% 2.2% 1.9% 1.8% $5 0. 1.6% 1. Headline CPI Core CPI Shadowstats Source: Bloomberg, Shadow Government Statistics. 1 Fig. 17. Total Public Market Debt as % of GDP $25 Fig. 18. U.S. Debt Ceiling (US$T) $25 10 $20 $20 8 $15 $15 6 $10 $10 4 $5 $5 Debt Ceiling Limit Total Federal Debt 3
Dec88 Dec89 Dec90 Dec91 Dec92 Dec93 Dec94 Dec95 Dec96 Dec97 Dec98 Section I. Macro Fig. 19. Average Annual Interest Rate on U.S. Debt Fig. 20. Interest Expense as % of Government Outlays 8% 2 7% 6% 1 4% 3% 2% 1% Source: U.S. Treasury, Meridian Macro. Source: Bloomberg, U.S. Treasury. Fig. 21. TTM Global Forex Accumulation (US$B) Fig. 22. TTM Net Purchases of U.S. Treasurys by Foreign Countries (US$B) $1,500 $500 $500 Dec77 Dec82 Dec87 Dec92 Dec97 $250 Fig. 23. TTM China Net Purchases of LongTerm U.S. Securities (US$B) Fig. 24. Margin Debt vs. S&P 500 $150 $100 $50 Jul89 Jul92 Jul95 Jul98 Jul01 Jul04 Jul07 Jul10 Jul13 Jul16 $50 $100 Source: Bloomberg, MacroMavens. Source: Advisor Perspectives. 4
Millions of Ounces Section II. Gold Fig. 25. Gold Supply and Demand (tonnes) 2010 2011 2012 2013 2014 2015 2016 2017 Supply Mine production 2,744 2,846 2,911 3,073 3,150 3,223 3,263 3,269 Net producer hedging (109) 23 (45) (28) 105 13 33 (30) Recycled gold 1,683 1,668 1,691 1,263 1,189 1,120 1,295 1,160 Total supply 4,318 4,536 4,558 4,308 4,444 4,356 4,591 4,398 Demand Jewellery 2,043 2,090 2,133 2,722 2,526 2,455 1,995 2,122 Technology 460 429 381 356 349 332 323 333 Subtotal above fabrication 2,503 2,519 2,514 3,078 2,875 2,787 2,318 2,455 Total bar & coin demand 1,204 1,500 1,308 1,723 1,052 1,075 1,049 1,029 ETFs & similar products 430 232 306 (912) (184) (125) 547 203 Central bank & other inst. 79 481 569 624 584 577 390 371 Gold demand (Fabr. Basis) 4,216 4,732 4,697 4,513 4,326 4,314 4,304 4,058 Surplus/Deficit 103 (196) (139) (206) 117 42 287 340 Total demand 4,318 4,536 4,558 4,308 4,444 4,356 4,591 4,398 LBMA Gold Price (US$/oz) 1,225 1,572 1,669 1,411 1,266 1,160 1,251 1,257 Source: World Gold Council. Fig. 26. Market Value of Above Ground Gold/U.S. Financial Assets Source: U.S. Geological Survey, World Gold Council, Federal Reserve, Bloomberg. Fig. 27. Gold Held by ETFs 80 40 0 Nov04 Nov06 Nov08 Nov10 Nov12 Nov14 Nov16 Nov18 All ETFS SPDR Trust 5
Section II. Gold 600.0 Fig. 28. GDX Shares Outstanding (in millions) NonInstitutional Fig. 29. SPDR Gold Trust Ownership by Type 60.7% 500.0 Insurance Company 0.2% 400.0 Mutual Fund 0.8% 300.0 Hedge Fund Pension Fund 5.8% 1. 200.0 Private Banking 6.6% 100.0 Broker 4.6% Investment Adviser 19.9% 3 4 5 6 7 Source: FactSet. Fig. 30. Notable Gold Purchases YTD Oct. 31, 2018 (tonnes) 800 Fig. 31. Central Bank Net Purchases/(Sales) (tonnes) Turkey 51.1 600 400 200 Russia 263.9 (200) Kazakhstan 45.6 0 50 100 150 200 250 300 (400) (600) (800) Source: World Gold Council. Source: World Gold Council. Fig. 32. Central Bank Gold Holdings (tonnes) Fig. 33. Central Bank Gold Holdings as % of Total Reserves 35,000 14% 34,000 13% 33,000 12% 32,000 11% 31,000 30,000 9% 29,000 8% Source: World Gold Council. Source: World Gold Council. 6
Section II. Gold 120 Fig. 34. Web Searches for "Gold Bubble" 100 80 60 40 20 0 Sep07 Sep09 Sep11 Sep13 Sep15 Sep17 Source: Google. 120 Fig. 35. Web Searches for "Gold Investment" 100 80 60 40 20 0 Oct04 Oct06 Oct08 Oct10 Oct12 Oct14 Oct16 Oct18 Source: Google. Fig. 36. Bernstein's Daily Sentiment Index $1,800 $1,600 $1,400 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 Jan18 100 90 80 70 60 50 40 30 20 10 Gold Price (US$/oz) BDSI Source: Bloomberg, Bernstein's DSI. Fig. 37. Market Vane Sentiment Index $1,800 $1,600 $1,400 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 Jan18 100 90 80 70 60 50 40 30 20 10 Gold Price (US$/oz) MVSI Source: Bloomberg, Market Vane. 7
Jan00 Jan01 Jan02 Jan03 Jan04 Jan05 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan16 Jan17 Jan18 Section II. Gold Fig. 38. Comex Gold Futures Open Interest 2,500 60 Fig. 39. Gold vs Continuous Commodity Index Performance $1,800 $1,600 $1,400 2,000 50 40 1,500 1,000 30 20 500 10 10 Gold Price (US$/oz) Open Interest (tonnes) Gold Price CCI Index Fig. 40. Comex Gold Futures Activity 800 $1,500 300 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 200 700 1,200 Source: CFTC. Net Large Speculators (tonnes; LHS) Net Hedgers/Commercials (tonnes; LHS) Gold Price (US$/oz) $500 Fig. 41 Commercial Net Shorts as % of Total Open Interest 6 600 Fig. 42. Registered COMEX Gold Stocks vs. Owners per Ounce 6,000 $1,800 $1,600 $1,400 5 4 3 500 400 300 200 100 5,000 4,000 3,000 2,000 1,000 Jul10 Jul11 Jul12 Jul13 Jul14 Jul15 Jul16 Jul17 Jul18 Gold Price (US$/oz) Net Short/Open Interest Owners per Ounce (LHS) Registered Stocks (koz; RHS) 8
Dec94 Dec95 Dec96 Dec97 Dec98 Section III. Gold Mining Equities 7 Fig. 43. XAU and HUI as a Ratio of Gold 4 16% Fig. 44. Gold & Silver Sector Weight in S&P/TSX Composite Index 6 3 14% 5 3 12% 4 3 2 1 8% 6% 4% 2% HUI/Gold (RHS) XAU/Gold (LHS) Gold & Silver as a % of S&P/TSX Composite Index Average Source: FactSet. $4,000 Fig. 45. Net Fund Flows for Morningstar's Equity Precious Metals Fund Universe ($M) $18 Fig. 46. Market Cap of VanEck Gold Equity ETFs (US$B) $3,000 $16 $14 $12 $10 $8 () () $6 $4 $2 ($3,000) Source: Morningstar. Source: FactSet. $16 $14 $12 $10 $8 $6 $4 $2 Fig. 47. Equity Capital Issued by Gold Miners 600 500 400 300 200 100 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Equity Issued (US$B) # of Transactions 0 9
Section III. Gold Mining Equities Fig. 48. BI Global Senior Gold Peers Return on Capital 1 Mar06 Mar07 Mar08 Mar09 Mar10 Mar11 Mar12 Mar13 Mar14 Mar15 Mar16 Mar17 Mar18 1 2 Fig. 49. Average Cost of Acquisitions in the Gold Sector 1 10 8 6 4 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Acquisition Cost (US$/oz) As Ratio of Gold Price Source: RBC Capital Markets, Bloomberg. Fig. 50. AllIn Sustaining Cost vs. Gold Spot Price and Reserve Price Source: Scotiabank. 10
Section III. Gold Mining Equities Fig. 51. Gold Price Discounted by Market ($/Oz) Source: BMO Capital Markets, FactSet. Fig. 52. Price/NAV of Gold Mining Equities Source: BMO Capital Markets, FactSet. Fig. 53. P/CF Universe of Coverage Average Fig. 54. Adj. Market Cap per Oz of Resource / Gold Price Source: Scotiabank. Source: Scotiabank. 11