The Official Sector: Gold Rehabilitated? Philip Klapwijk Chairman, GFMS Ltd. London Bullion Market Association Annual Conference Berlin, 27 th September 2010 The Official Sector: Gold Rehabilitated? Gold Sales and Purchases: Historical Review Recent Developments Future Prospects Session 3 Philip Klapwijk 1
Official Sector Purchases and Sales (annual average in tonnes, by decade) Net Sales Net Purchases Source: IMF, GFMS CBGA and Other Net Gold Sales Other CBGA CBGA refers to signatories to the 1999, 2004 and 2009 Agreements Other refers to all other countries or institutions Source: IMF, ECB and GFMS estimates Session 3 Philip Klapwijk 2
Historical Review 1950s net purchases, 1960s, 70s, 80s broadly neutral, i.e. no strong buy or sell trend Gold fell into disfavour in the 1990s Price trend negative Other assets returns superior Generally benign economic & political environment Net official sector sales every year 1989-2009 1989-2009 net sales totalled nearly 8,000 tonnes; decline of 1/5 th in official gold reserves and 10% total gold supply Central Bank Gold Agreements since September 1999 The Official Sector: Gold Rehabilitated? Gold Sales and Purchases: Historical Review Recent Developments Future Prospects Session 3 Philip Klapwijk 3
Above-Ground Stocks of Gold, end-2009 Above-ground Stocks, end 2009 = 165,600t Source: GFMS Official Sector Gold Holdings, end-2009 Total officially declared holdings end-2009 = 30,623 tonnes Source: IMF and central bank websites Session 3 Philip Klapwijk 4
Weekly Sales in CBGA 2 & 3 Cumulative sales in latest Agreement year through to 17/09 came to < 10 tonnes Source: ECB; GFMS Quarterly CBGA and Other Net Gold Sales & Purchases Net Sales IMF (on-market sales) CBGA Other Net Purchases CBGA refers to signatories to the 2004 and 2009 Agreements Other refers to all other countries Source: IMF, ECB and GFMS estimates Session 3 Philip Klapwijk 5
Recent Developments Collapse in CBGA sales Sales programmes already completed Financial and sovereign debt crises Gold price trend & performance Lack of confidence in alternatives to gold IMF sales of 400t; majority purchased off market Net purchases in aggregate by other countries Diversification of foreign reserves Catastrophe insurance Domestic and international market purchases Non-monetary gold and Sovereign Wealth Funds The Official Sector: Gold Rehabilitated? Gold Sales and Purchases: Historical Review Recent Developments Future Prospects Session 3 Philip Klapwijk 6
Top 10 Gold Holders*, end-2009 70% Gold s % share of central bank s total reserves at market prices 66% 65% 65% 2% 27% 3% 5% 54% 7% Source: IMF; GFMS *excluding IMF Top 10 Forex Holders, end-2009 2% Gold s % share of central bank s total reserves at market prices 3% 5% 3% 4% <1% 7% <1% <1% 2% Source: IMF; GFMS Session 3 Philip Klapwijk 7
Tonnes Future Prospects During the next 10 years some members of the CBGA group will sell part of their gold reserves They are overweight in gold by any measure Sovereign debt crisis will not last forever Alternative investments may be attractive, e.g. Chinese government bonds Gold price will eventually change direction US sales unlikely but cannot be entirely ruled out over next decade Potential for further IMF sales? Other countries will in aggregate be net buyers Gold rehabilitated as a reserve asset They are collectively underweight gold Off-market purchases may facilitate transfer of bullion from West to East Overall, official sector sales & purchases activity will become less predictable but more neutral in terms of its long run market impact Net Official Sector Sales, 2000-2010F 700 600 Net Sales 500 400 300 200 100 0-100 -200-300 Source: GFMS Net Purchases Forecast 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F Session 3 Philip Klapwijk 8
Disclaimer The information and opinions contained in this presentation have been obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. 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 3 Philip Klapwijk 9