The State of the Gold Market Fourth Quarter 213 through 214 Denver Gold Group Toronto, 21 October 213 Denver, 31 October 213 Jeffrey M. Christian Managing Partner jchristian@cpmgroup.com 3 Broad Street, 37 th Floor New York, NY 14 www.cpmgroup.com
Topics For Today s Presentation The Economic Outlook The Outlook For Gold The Relationships Among Monetary Supply, Inflation, And Gold Gold Standards Do Not Work Gold Has No Role In Future Monetary Systems The Optimal Future International Currency Regime Gold Investment Demand And Price Gold Supply Hedging Gold Fabrication Demand Official Transactions The Gold Market Does Not Know Itself A Note About Comex Inventory Levels Relative To Open Interest Forwards Are Not Spot Physical Transactions The Next Big Thing For Gold Investors
Spread Between Shanghai and London Gold Prices Spread Between Shanghai and London Gold Prices Monthly Average, Through October 3, 213 $/oz 4 $/oz 4 35 35 3 25 Premium 3 25 2 $18.9 2 15 Annual Average Premiums 15 1 $5.24 $8.86 $6.1 1 5 $2.27 5-5 Discount -5-1 3 4 5 6 7 8 9 1 11 12 13-1 4
Large Comex Gold Trading Volumes In October Contrary to market commentary: 1. Half of the trades have been heavy buying pushing prices higher; obviously not smack-downs. 2. No single entity but hundreds of algorithmic traders using similar systems generating the same sell points. Recent Major Intraday Price and Volume Changes Volume During Time Interval Date Time Interval Stop Logic Troy Ounces as % of Total Daily December Contract Volume as % of Total Daily Aggregate Futures Price Action during Volume Time Interval Daily Change in Settlement Prices 17-Oct 4: - 4:1 No 1,78, 8.2% 8.1% $33 $41 15-Oct 9:5-1: No 1,32, 6.5% 6.1% $11 ($3) 11-Oct 8:5-9: 2 Seconds 2,81, 15.1% 14.3% ($27) ($29) 9-Oct 1:1-1:2 No 1,28, 8.1% 7.8% ($1) ($17) 7-Oct 9:5-1: No 1,14, 11.9% 11.4% $11 $15 1-Oct 8:4-8:5 1 Seconds 2,41, 11.3% 1.9% ($24) ($4) Note: Time is military time, EDT. Sources: Reuters data, CPM Group 5
The Economic Outlook 6
Slower Real Economic Growth Globally Long Term Real Gross Domestic Product Annual, Projected Through 222 Percent Change 1 Percent Change 1 8 Actual Projected 8 6 6 4 4 2 2-2 -4 World Emerging and Developing Economies Advanced Economies -2-4 -6 198 1985 199 1995 2 25 21 215p 22p Source: IMF, CPM Group Note: Historical data are IMF statistics. Projections are made by CPM Group. Projections for "Emerging and Developing Economies are only for BRIC countries, which account for approximately 52.8% of this category. Projections for "Advanced Economies" are only for the U.S., U.K., Eurozone, and Japan. These countries accounted for 82.2% of this category. -6 7
Slowing Chinese Economic Growth: On Target For Government Chinese GDP Quarterly Data, Through Q2 213 Percent 14% Percent 14% 13% 13% 12% 12% 11% 11% 1% 1% 9% 9% 8% 8% 7% 7% 6% 6% 5% 5% 4% Mar-4 Mar-5 Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 4%
Sub-par Growth in U.S. Real Gross Domestic Product Annual, Projected Through 222 Percent Change 8. Percent Change 8. 6. Actual Projected 6. 4. 4. 2. 2... -2. -2. -4. -4. 198 1983 1986 1989 1992 1995 1998 21 24 27 21 213p 216p 219p 222p 9
Inflation Remains Under Control For Now; Deflation is the Major Risk Monthly Data, Through August 213 Percent 16 14 12 1 8 6 4 2-2 Percent 16 14 12 1 8 6 4 2-2 -4 Apr-68 Nov-71 Jun-75 Jan-79 Aug-82 Mar-86 Oct-89 May-93 Dec-96 Jul- Feb-4 Sep-7 Apr-11-4 1
U.S. Consumer Expenditures, Weighted To Percentage of Spending % CHANGE FROM FEBRUARY 212 4 Weightings of the components of the consumer price basket Bar heights measure change from a year earlier in some major areas of spending. 4 3 WEIGHT IN CPI (percentage of 3 The cost of home ownership*, which represents 24.% 2 2 1 1-1 -1-2 -2-3 -3 % 1 % 2 % 3 % 4 % 5 % 6 % 7 % 8 % 9 % 1 *Measure as the cost of renting the home you own Source: Labor Departm
Inflation Data Should Be Understood Before It Is Criticized Table A. Percent changes in CPI for All Urban Consumers (CPI-U): U.S. city average Seasonally adjusted changes from preceding month Unadjusted 12-mos. Mar. Apr. May June July Aug. Sep. ended 213 213 213 213 213 213 213 Sep. 213 All items... -.2 -.4.1.5.2.1.2 1.2 Food.....2 -.1.2.1.1. 1.4 Food at home... -.1.1 -.3.2.1.1. 1. Food away from home (1)...2.3.2.2.2.2.1 1.9 Energy... -2.6-4.3.4 3.4.2 -.3.8-3.1 Energy commodities... -4.1-7.9 -.1 5.7 1...9-7. Gasoline (all types)... -4.4-8.1. 6.3 1. -.1.8-7.5 Fuel oil (1)... -2.1-4.4-2.9 -.5 1.1 1.2.9-3.1 Energy services... -.2 1.4 1.2.1-1. -.7.8 3.7 Electricity... -.6.5.8.2 -.3 -.1.5 3.2 Utility (piped) gas service... 1. 4.4 2.4 -.4-2.8-2.3 1.8 5.3 All items less food and energy....1.1.2.2.2.1.1 1.7 Commodities less food and energy commodities... -.1...2.. -.1 -.1 New vehicles....1.3..3.1..2 1.2 Used cars and trucks... 1.2.6 -.1 -.4 -.4 -.1..4 Apparel... -1. -.3.2.9.6.1 -.5.8 Medical care commodities.1.1 -.5.5.4.4.1.2 Services less energy services....2.1.2.2.2.2.2 2.4 Shelter....2.2.3.2.2.2.2 2.4 Transportation services.2 -.2.4 -.1.4 -.5.3 2.4 Medical care services....3 -.1..4.1.7.3 3.1 1 Not seasonally adjusted. 12
Global Surplus of Labor Is A Major Impediment to Growth U.S. Unemployment; Monthly Data, Through August 213 Percent 12 Percent 12 1 1 8 8 6 6 4 4 2 2 Jan-48 Oct-52 Jul-57 Apr-62 Jan-67 Oct-71 Jul-76 Apr-81 Jan-86 Oct-9 Jul-95 Apr- Jan-5 Oct-9 13
Surplus Labor Will Be A Major Global Problem Now and Going Forward The U.S manufactures 51% more today than it did in the late 198s, but uses 34% fewer workers. More jobs have been lost to computers than to off-shoring. The next wave of technological innovation will be even more devastating to jobs, replacing computer-assisted manufacturing with computerized manufacturing. It already has begun. U.S. Manufacturing Output U.S. Manufacturing Employment Index (29 = 1) 13 Index 13 Million Persons 23 Million Persons 23 12 11 12 11 21 19 17 21 19 17 1 1 15 15 9 9 13 11 13 11 8 8 9 9 7 7 7 7 6 87 89 91 93 95 97 99 1 3 5 7 9 11 13 6 5 39 45 52 59 66 72 79 86 93 99 6 13 5 14
The Outlook For Gold 15
Gold Prices Nearby Active Comex Gold Futures High, Low, and Settlement Prices Daily, Through 1 October 213 $/Ounce 2, 1,9 1,8 1,7 1,6 1,5 1,4 1,3 1,2 1,1 $/Ounce 2, 1,9 1,8 1,7 1,6 1,5 1,4 1,3 1,2 1,1 1, Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 1, 16
The Outlook for Gold Gold prices have fallen to what CPM Group sees as a base. Prices may consolidate for a couple of years around $1,3 - $1,4 on an annual average basis, and may not fall much further. For prices to fall further economic conditions would have to improve dramatically more, which we do not see happening. For prices to rise more forcefully than we envision, economic conditions would have to deteriorate very sharply. This seems more possible than stronger than expected growth. Mine production continues to rise, but the growth expecations have been cut in half by lower gold prices and investor disenchantment with gold mining companies. Secondary supply has fallen sharply as prices declined 17% in 213 alone. Investors have sharply reduced their gold buying. Still high, net purchases are off 25% in 213. Those few central banks that were buying gold have pulled back on purchases, waiting to see how low prices will fall. Fabrication demand is rising modestly in line with lower gold prices and slow economic recovery. 17
Medium-Term Gold Price Projections Quarterly Data, Through Q3 215 $/Ounce $1,9 $1,8 $1,7 $1,6 $1,5 $1,4 $1,3 Actual $/Ounce $1,9 $1,8 $1,7 $1,6 $1,5 $1,4 $1,3 $1,2 $1,1 $1, $9 $8 Projections $1,2 $1,1 $1, $9 $8 $7 29 21 211 212 213 214 215 $7 18
CPM Group s Long-Term Real Gold Price Projections Real Gold Prices and Year-on-Year Change in Prices Percent Change $/Oz 1 Y-o-Y Change 2,.8 Base Price = 212 Real Gold Price (RHS) Forecast Long-Term Average Real Price of Gold: $1,346.6 1,714.6 1,429.4.2 Historical Long-Term Average Real Price of Gold: $691.3 Historical (22-212) Average Real Price of Gold: $888.4 1,143 857 571 -.2 286 -.4 51 56 61 66 71 76 81 86 91 96 1 6 11 16p 21p 19
Monetary Supply, Inflation and Gold 2
Monetary Ease Does Not Necessarily Lead to Inflation and High Gold Prices Monetary accommodation does not necessarily leads to inflation. Gold prices do not inevitably have to rise due to monetary accommodation. Gold prices do not necessarily rise and fall in response to inflation. There are no fixed quantifiable relationships between gold prices and money supply (e.g. gold prices should be $1, per ounce because of the level of M1 money supply in the United States). Which money supply do you want to use? M1, M2, MZM? US, OECD, World? The 4% cover of classic gold standards. Historical statistics do not support such beliefs. They are not theories, but beliefs. Gold does not have a constant purchasing power over time. In fact, it is worth a fraction of what it used to be worth.
What About Tapering? The Fed may institute a very small movement toward limited reductions in the size of its monthly bond purchases in early 214. It will not do this as long as the political impasse between the Republican controlled House of Representatives and the White House no longer threatens the U.S. and global economies with a recession worse than the one in 27 29. It also will not do it unless and until it sees somewhat stronger economic growth backed by sustainable trends. Housing market strength is not sustainable at present. Equity market strength is meaningless to economic conditions, and actually is indicative of future weak economic conditions. The labor market is not in good shape by any standard. The Fed most likely will not begin any significant tapering until the economy is much stronger. Significant tapering only will occur at some point in the future when the economy is in such a strong shape that it begins to show signs of nascent inflation. Only when the economy is strong enough to support itself and is consequently showing signs of future inflation will the Fed significantly tighten monetary policy. 22
U.S. Narrow Money Supply Does Not Necessarily Cause Inflation M1 Money Supply and U.S. Inflation Monthly Data, through August 213 Percent 25 2 15 1 Percent 25 2 15 1 Correlation Time Lag Correlation No lag -.4 One Year Lag.1 Two Year Lag.24 5 5 U.S. CPI -5 U.S. M1 Money Supply -1 Jan-77 Sep-81 May-86 Jan-91 Sep-95 May- Jan-5 Sep-9-5 -1 23
Excessive Money Supply Does Not Necessarily Lead to Higher Inflation MZM Money Supply and U.S. Inflation Monthly Data, through August 213 Percent 4 35 3 25 MZM Money Supply (LHS) U.S. Inflation (CPI) Percent 7 6 4 Correlation Time Lag Correlation No lag -.14 2 3 One Year Lag -.12 15 1 1 Two Year Lag.2 5-5 Correlation: negative.14-1 Nov-82 Apr-86 Sep-89 Feb-93 Jul-96 Dec-99 May-3 Oct-6 Mar-1-1 -3 24
Gold Prices and U.S. Inflation Real Gold Prices Nominal Gold Prices CPI $/Ounce 2, Percent 16 Correlation: Gold with Inflation 1,8 1,6 14 12 Year Real Gold Prices Nominal Gold Prices 1,4 11 68-12.33.43 1,2 9 72-74.49.7 1, 8 7 5 76-8.95.96 86-9 -.73 -.69 98- -.93 -.77 6 3 2-12.24.36 4 2 2 68-82.4.46 84- -.25 -.15 Jan-69 Jan-75 Jan-81 Jan-87 Jan-93 Jan-99 Jan-5 Jan-11-2 25
Gold s Purchasing Power Is Neither Constant Nor Stable Real and Nominal Gold Prices Quarterly, Through Third Quarter 213 $/Ounce 1,8 1,6 1,4 1,2 1, 8 6 4 Nominal $/Ounce 1,8 1,6 1,4 1,2 1, 8 6 4 2 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13 Real 2 Note: Base years are 1982-84, which are the same base years as reported U.S.CPI.
Gold s Purchasing Power Has Deteriorated Over Time London Gold Prices since 17, Base Year = 212 $/Ounce 7, $/Ounce 7, 6, 6, 5, 5, 4, Real 4, 3, 3, 2, 2, 1, 1, Nominal 17 175 18 185 19 195 2 Source: The Gold Constant, CPM Group
Gold Standards Do Not Work 28
Gold Standards Do Not Work Most of the monetary systems throughout history have been backed either by gold or silver, or both metals. All of them have failed, despite their gold or silver backing. None of them protected against deterioration of currency values. None of them protected against inflation and economic volatilities. The only international currency regime that has not failed is the current one. It too shall pass away at some point. There is no alternative to the de facto dollar reserve currency system on the immediate horizon. Some Chinese theorists are speaking of a dirty floating exchange rate system based on a new global reserve currency, like the IMF s Special Drawing Rights created in the 197s. They are calling this new global reserve currency paper gold, but it has no gold backing or relationship to gold in their views. 29
The Economy Was More Volatile in the Good Old Days U.S. real GDP: 185 1919, 16 recessions, 22 month average length; 1945 29, 11 recessions, 1 months average length Percent Change 2% Percent Change 2% 15% 15% 1% 1% 5% 5% % % -5% -5% -1% -1% -15% 185 186 187 188 189 19 191 192 193 194 195 196 197 198 199 2-15% 29
Gold Investment Demand 31
Investors Physical Gold Purchases Are Sharply Lower Investment Demand's Effect on Gold Prices Price Change Through 1 October 213 Percent Change 11 Million Ounces 6 9 5 7 Net Investment Demand (Right) Price Change 4 5 3 3 2 1 1-1 -3 66 69 72 75 78 81 84 87 9 93 96 99 2 5 8 11-1 13p
Gold Demand Is Up In China and Weak In India Total Indian Demand Total Chinese Demand Million Ounces 4 Million Ounces 4 Million Ounces 4 Million Ounces 4 35 Investment Demand Fabrication Demand 35 35 Net Investment Demand Fabrication Demand 35 3 3 3 3 25 25 25 25 2 2 2 2 15 15 15 15 1 1 1 1 5 5 5 5 1 2 3 4 5 6 7 8 9 1 11 12 13p 1 2 3 4 5 6 7 8 9 1 11 12 13p 33
Deduced Chinese Gold Imports and Exports Monthly Data, Through August 213 Thousand Ounces 9, Thousand Ounces 9, 7,5 7,5 6, 6, 4,5 3, Deduced gold imports 4,5 3, 1,5 1,5-1,5-1,5 Deduced gold exports -3, -3, J- A-1 J-2 O-3 J-5 A-6 J-7 O-8 J-1 A-11 J-12 O-13 34
Gold ETFs: Easy To Buy, Easy To Sell ETF Gold Holdings Through 3 September 213 Million Ounces 9 8 25 2 15 7 1 5 6-5 5-1 -15-2 4-25 3 Annual Net Changes to Gold ETP Holdings Through September 213 Million Ounces Million Ounces 25 2 15 1 5-5 -1-15 -2-25 3 4 5 6 7 8 9 1 11 12 13YTD Million Ounces 9 8 7 6 5 4 3 2 2 1 1-23 24 25 26 27 28 29 21 211 212 213 -
Weak Premia on U.S. Mint Gold Coins Premia on U.S. Mint Gold Coins Daily data through 8 October 213 4.1% 4.1% 4.% 3.9% American Eagle 1Oz American Buffalo 1Oz 4.% 3.9% 3.8% 3.8% 3.7% 3.7% 3.6% 3.6% 3.5% 3.5% 3.4% 3.4% 3.3% 3.3% 3.2% Jan-12 Jul-12 Jan-13 Jul-13 3.2%
Record Investor Short Positions on Comex Earlier in 213 Non-Commerical Positions in Comex Gold Futures & Options. Weekly Data, through 24 September 213 Million Ounces 35 3 25 2 15 1 5-5 -1 Net Fund Position in Comex Long Short Million Ounces 35 3 25 2 15 1 5-5 -1-15 A-95 J-97 S-98 J- M-2 D-3 A-5 M-7 F-9 O-1 J-12-15
The U.S. Dollar Is Not Imploding Euro/ U.S. Dollar and J.P. MorganTrade Weighted U.S. Dollar Daily, Through 1 October213 Euro/$ 15 Index 15 14 14 13 13 12 12 11 1 Euro/$ (Left Scale) 22.2% 31.9% 2.9% 11 1 9 9 8 8 7 Trade Weighted Dollar (Right Scale) 5.9% 7 6 99 1 2 3 4 5 6 7 8 9 1 11 12 13 6 38
Longer Term The Dollar Is Falling Which Means Little To Gold Gold and the U.S. Dollar Quarterly, Through Third Quarter 213 $/Ounce $1,8 TWD Index 16 Correlation Of The Trade Weighted U.S. Dollar To Gold $1,6 $1,4 $1,2 Trade Weighted Dollar Gold (left scale) 15 14 13 Q1 1968 Q3 213 -.32 Q4 1976 Q3 1977.96 Both Rising $1, 12 Q3 1982 Q1 1983.98 Both Rising $8 11 Q1 1986 - Q4 199 -.47 $6 $4 $2 1 9 8 Q1 1998 - Q4 2 -.52 Q1 22- Q3 213 -.4 Q1 25 - Q4 25.54 Both Rising $ 68 71 74 77 8 83 86 89 92 95 98 1 4 7 1 13 7 39
Gold Supply 4
Total Supply Declining, But Mine Production Is Rising Total Gold Supply Annual, Projected Through 213 Mln Oz 14 12 1 8 Secondary Supply Transitional Economies Exports to Market Economies Market Economy Mine Production Mln Oz 14 12 1 8 6 6 4 4 2 2 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13p
Gold Mine Supply In Fact Was Flat Between 2 and 212 Total Gold Mine Supply Annual, Projected Through 213 Mln Oz 9 3.3% Transitional Economies Exports to Market Economies Market Economy Mine Production 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 1 11 12 13p 42
It Has Risen More Than 11 Million Ounces Since 28 Total Gold Mine Supply Annual, Projected Through 213 Mln Oz 9 Transitional Economies Exports to Market Economies Market Economy Mine Production 85 15.8% 8 75 7 65 6 8 9 1 11 12 13p 43
Mine Supply Is Forecast To Be The Second Highest On Record in 213 Total Gold Supply Annual, Projected Through 213 Mln Oz 9 8 7 Transitional Economies Exports to Market Economies Market Economy Mine Production 6 5 4 3 2 1 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13p 44
Lower Gold Prices Have Slashed Estimated Gross Additions to Gold Mine Production Capacity Almost By Half Mln. Oz. 4 September 213 Mln. Oz. Mln. Oz. 4 4 January 213 Mln. Oz. 4 35 3 25 Post 216 216 215 214 213 35 35 3 3 25 25 Post 216 216 215 214 35 3 25 2 2 2 213 2 15 15 15 15 1 1 1 1 5 5 5 5 213 214 215 216 Post 216 Note: Post 216 data refers to 217 through 222. 213 214 215 216 Post 216 Note: Post 216 data refers to 217 through 222. 45
Cost Reductions Are On The Way The market will be pleasantly surprised by producers ability to reduce costs relatively quickly, starting with capital costs but later also operating costs. Production-Weighted All-In Sustaining Cost For Select Gold Mining Companies (Accounting for 43% of Production) USD/Oz 1,4 Costs Related to Sustaining Production All-In Sustaining Costs Rose by 1.1% Cash Costs USD/Oz 1,4 1,2 1,2 1, 8 Increase of 2.8% in Costs related to Sustaining Production 1, 8 6 6 4 2 Increase of 15.3% in Cash Costs 4 2-212 213-46
Effective Hedging Is Needed, But Faces The Same Old Obstacles Producers this month could lock in a guaranteed floor of $1,11 per ounce and given up only $6 of any upside. Gold HedgeFor Dec 214 Indicatively priced on 1 October 213 US$ / Ounce - Sales Price 2, 1,8 1,6 1,4 1,2 1, 8 $1,1 Floor Spot Sales 6 6 8 1, 1,2 1,4 1,6 1,8 2, Market Price Obstacles To Effective Hedging Mining companies often lack financial expertise to evaluate, counter-bid, and effectively manage hedging programs. Banks offer less than ideal hedges to mining companies, which lack the internal capacity to evaluate proposed hedges and counter-bid. Conflicts of interest and obstacles from the 199s still exist in the market. 47
Fabrication Demand 48
Gold Fabrication Demand Gold Fabrication Demand Projected Through 213 Million Ounces 12 1 Other Uses Dental/ Medical Jewelry - Developed Countries Million Ounces 12 1 8 Electronics 8 6 6 4 4 2 Jewelry - Developing Countries 2 77 8 83 86 89 92 95 98 1 4 7 1 13p
Official Transactions 5
Official Transactions, Adjusted for Turkish Central Bank Additions Official Transactions Annual Data, Projected through 213 Million Ounces 2 Net Additions 15 1 5-5 -1-15 -2 Adjusted for Turkish Central Bank's ROM Gold Million Ounces 2 15 1 5-5 -1-15 -2-25 -3 Net Reductions -25-3 -35 8 83 86 89 92 95 98 1 4 7 1 13p Note: Turkey introduced a policy in 211 that allowed commercial banks to use gold to meet a portion of their reserve requirements. The bank included this gold in its monetary reserves. Because these additions were not outright central bank purchases and no ownership has been transferred from the actual owner to the central bank, annual official transactions have been adjusted to exclude Turkish central bank gold additions since 211. -35
Why are Central Banks Adding Gold to their Monetary Reserves? Currency Composition of Official Foreign Exchange Reserves 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Yen, 6.8% Euro 27.3% U.S. Dollar 59.% Other, 4.8% Other, 1.8% Other, 5.9% Pound, 2.1% Yen, 6.1% Pound, 2.8% Pound, 4.1% Yen, 4.1% Euro 18.3% Euro 24.1% U.S. Dollar 71.1% U.S. Dollar 61.8% % 1995 2 212 Note: 1995 Claims in Euros refers to the sum of claims in Deutschemarks, French francs, Netherland guilders, and the European Currency Unit. 212 data is end-september. Other years is year-end data. Source: IMF Statistics Department COFER database and International Financial Statistics.
A Few Final Points 53
Comex Gold Inventories Always Have Been Low Relative To Open Interest Comex Gold Inventories & Total Open Interest Monthly, Through September 213 M Million Ounces 7 Million Ounces 7 6 6 5 Total Open Interest (Right Scale) 5 4 4 3 3 2 Total Comex Stocks 2 1 1 Jan-85 Mar-89 May-93 Jul-97 Sep-1 Nov-5 Jan-1 54
Gold Inventories Actually Are Historically High Compared To Open Interest Percent of Comex Gold Open Interest Backed by Stocks Monthly, Through September 213 Percent 35% Percent 35% 3% 3% 25% 25% 2% 2% 15% 15% 1% 1% 5% 5% % Jan-85 Mar-89 May-93 Jul-97 Sep-1 Nov-5 Jan-1 % 55
Forwards Do Not Involve Spot Physical Metal Mis-measuring Gold Supply and Demand Statistics Has Over-Stated The Market For Decades Million Ounces 16 14 Including forward paper transactions in producer hedging as a form of spot physical supply has led to physical supply being over-counted by 13.3 MM ounces between 1986 and 1999. Million Ounces 16 14 12 12 1 1 8 Including forward paper transactions in producer dehedging as a form of spot physical demand then led to physical demand being over-counted by 96.3 MM ounces from 2 through 212. 8 6 Actual Physical Supply and Demand 6 4 4 86 87 88 89 9 91 92 93 94 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 Note: Actual supply and demand are CPM total data; the over-counting is not adjusted for other statistical discrepancies. 56
The Next Big Thing For Gold Investors In 1998, when CPM Group first suggested to the World Gold Council and gold producers that they should focus on stimulating investment demand instead of jewelry demand if they want higher gold prices, our suggestion was a fund-like gold investment product that would allow investors to buy physical gold as easily as equities. Yield 5% 4% 3% 2% 1% % -1% 1% Guaranteed principal with exposure to gold price increases. Gold Guaranteed Principal Five-Year Note Yield We warned that investors would like a gold ETF only in a bull market, and that redemptions could add to the pain in a down market. We suggested a guaranteed principal gold fund. -2% -3% -4% Spot Gold Price Change -5% -5% -38% -25% -12% % 13% 26% 38% 51% Price of Gold 57
CPM Group Precious Metals Yearbooks & Other Reports For general inquiries, email info@cpmgroup.com 58