GOLD MONITOR Chart Comments (Q3 218) 1. 2. The average annual interest rate on U.S. debt continues to increase (Fig. 19). The average maturity of U.S. Federal debt is 69 months as of September 3, 218. Interest rate increases will also impact margin costs. The net margin debt balance in the U.S. is at an all time high (Fig. 24). 3. Real interest rates remain negative on global basis (Fig. 1, 3), which is a bullish sign for gold. Interestingly, U.S. real rates are increasing while ECB real rates are decreasing. Speculators on gold futures are currently net short (Fig. 4), which hasn t happened since 21. This is a rare occurrence given gold futures are typically in contango. 4. Gold resources in the ground are still being valued inexpensively (Fig. 54).
Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Section I. Macro $1,8 $1,6 $1,4 $1,2 Fig. 1. Gold Price and U.S. Real Rates 4. 3. 2. 1.. -1. -2. -3. -4. -5. -6. $5, $4,5 $4, $3,5 $3, $2,5 $1,5 $5 Fig. 2. Fed Balance Sheet Gold Price (US$/oz) U.S. Real Rates (%) Fed Balance Sheet (US$B) 1,6 1,4 1,2 1, 8 6 4 2 Fig. 3. Gold Price and ECB Real Rates 5. 4. 3. 2. 1.. -1. -2. 6, 5, 4, 3, 2, 1, Fig. 4. ECB Balance Sheet - -3. - Gold Price ( /oz) ECB Real Rates (%) ECB Balance Sheet ( B) 14, 12, 1, 8, 6, 4, 2, - Fig. 5. Gold Price and PBC Real Rates 4. 3. 2. 1.. -1. -2. -3. -4. -5. 4, 35, 3, 25, 2, 15, 1, 5, - Fig. 6. PBC Balance Sheet Gold Price ( /oz) PBC Real Rates (%) PBC Balance Sheet ( B) 1
Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 (US$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) $6, $25 $1,8 $1,6 $5, $2 $1,4 $1,2 $4, $15 $3, $1 $5 $2, $1, Gold Price (US$/oz) M2 (US$B) 2 Fig. 9. U.S. M1 YoY% 12% Fig. 1. U.S. M2 YoY% 2 1 1 8% 6% 1 4% 2% - 14% Fig. 11. ECB M1 YoY% 12% Fig. 12. ECB M2 YoY% 12% 1 1 8% 8% 6% 6% 4% 4% 2% 2% 2
Jan-4 Jan-43 Jan-46 Jan-49 Jan-52 Jan-55 Jan-58 Jan-61 Jan-64 Jan-67 Jan-7 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan- Jan-3 Jan-6 Jan-9 Jan-12 Jan-15 Jan-18 Section I. Macro Fig. 13. PBC M1 YoY% Fig. 14. PBC M2 YoY% 4 3 4 3 3 3 2 2 2 2 1 1 1 1 Fig. 15. Inflation Sept 218 Fig. 16. U.S. National Debt (US$T) 12. $25 1. 1. $2 8. 6. 4. 2. 2.7% 2.3% 2.2% 2. U.S. Euro Area China $15 $1 $5. 2..9% Headline CPI Core CPI Shadowstats Source: Bloomberg, Shadow Government Statistics. 12 Fig. 17. Total Public Market Debt as % of GDP $25 Fig. 18. U.S. Debt Ceiling (US$T) $25 1 $2 $2 8 $15 $15 6 $1 $1 4 $5 $5 2 Debt Ceiling Limit Total Federal Debt 3
Dec-88 Dec-89 Dec-9 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Section I. Macro Fig. 19. Average Annual Interest Rate on U.S. Debt Fig. 2. Interest Expense as % of Government Outlays 8% 2 7% 6% 2 1 4% 3% 1 2% 1% Source: U.S. Treasury, Meridian Macro. Source: Bloomberg, U.S. Treasury. Fig. 21. TTM Global Forex Accumulation (US$B) Fig. 22. TTM Net Purchases of U.S. Treasurys by Foreign Countries (US$B) $1,5 $5 -$5 - Dec-77 Dec-82 Dec-87 Dec-92 Dec-97 Dec-2 Dec-7 Dec-12 Dec-17 - - - $25 Fig. 23. TTM China Net Purchases of Long-Term U.S. Securities (US$B) Fig. 24. Margin Debt vs. S&P 5 $15 $ $5 Jul-89 Jul-92 Jul-95 Jul-98 Jul-1 Jul-4 Jul-7 Jul-1 Jul-13 Jul-16 -$5 -$ Source: Bloomberg, MacroMavens. Source: Advisor Perspectives. 4
Millions of Ounces Section II. Gold Fig. 25. Gold Supply and Demand (tonnes) 21 211 212 213 214 215 216 217 Supply Mine production 2,744 2,846 2,911 3,73 3,15 3,223 3,263 3,269 Net producer hedging (19) 23 (45) (28) 15 13 33 (3) Recycled gold 1,683 1,668 1,691 1,263 1,189 1,12 1,295 1,16 Total supply 4,318 4,536 4,558 4,38 4,444 4,356 4,591 4,398 Demand Jewellery 2,43 2,9 2,133 2,722 2,526 2,455 1,995 2,122 Technology 46 429 381 356 349 332 323 333 Sub-total above fabrication 2,53 2,519 2,514 3,78 2,875 2,787 2,318 2,455 Total bar & coin demand 1,24 1,5 1,38 1,723 1,52 1,75 1,49 1,29 ETFs & similar products 43 232 36 (912) (184) (125) 547 23 Central bank & other inst. 79 481 569 624 584 577 39 371 Gold demand (Fabr. Basis) 4,216 4,732 4,697 4,513 4,326 4,314 4,34 4,58 Surplus/Deficit 13 (196) (139) (26) 117 42 287 34 Total demand 4,318 4,536 4,558 4,38 4,444 4,356 4,591 4,398 LBMA Gold Price (US$/oz) 1,225 1,572 1,669 1,411 1,266 1,16 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 8 4 Nov-4 Nov-6 Nov-8 Nov-1 Nov-12 Nov-14 Nov-16 All ETFS SPDR Trust 5
Section II. Gold 6 Fig. 28. GDX Shares Outstanding (in millions) Non-Institutional Fig. 29. SPDR Gold Trust Ownership by Type 6.7% 5 Insurance Company.2% 4 Mutual Fund.8% 3 Hedge Fund Pension Fund 5.8% 1. 2 Private Banking 6.6% Broker 4.6% Investment Adviser 19.9% 1 2 3 4 5 6 7 Source: FactSet. Fig. 3. Notable Gold Purchases YTD Aug. 31, 218 (tonnes) 8 Fig. 31. Central Bank Net Purchases/(Sales) (tonnes) Turkey 44.3 6 4 2 Russia 159.7 - (2) Kazakhstan 26.6 2 4 6 8 12 14 16 18 (4) (6) (8) 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, 14% 34, 13% 33, 12% 32, 11% 31, 1 3, 9% 29, 8% Source: World Gold Council. Source: World Gold Council. 6
Section II. Gold 12 Fig. 34. Web Searches for "Gold Bubble" 8 6 4 2 Sep-7 Sep-9 Sep-11 Sep-13 Sep-15 Sep-17 Source: Google. 12 Fig. 35. Web Searches for "Gold Investment" 8 6 4 2 Oct-4 Oct-6 Oct-8 Oct-1 Oct-12 Oct-14 Oct-16 Oct-18 Source: Google. Fig. 36. Bernstein's Daily Sentiment Index $1,8 $1,6 $1,4 $1,2 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 9 8 7 6 5 4 3 2 1 - Gold Price (US$/oz) BDSI Source: Bloomberg, Bernstein's DSI. Fig. 37. Market Vane Sentiment Index $1,8 $1,6 $1,4 $1,2 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 9 8 7 6 5 4 3 2 1 - Gold Price (US$/oz) MVSI Source: Bloomberg, Market Vane. 7
Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Section II. Gold Fig. 38. Comex Gold Futures Open Interest 2,5 6 Fig. 39. Gold vs Continuous Commodity Index Performance $1,8 $1,6 $1,4 2, 5 4 $1,2 1,5 1, 3 2 5 1 - -1 Gold Price (US$/oz) Open Interest (tonnes) Gold Price CCI Index Fig. 4. Comex Gold Futures Activity 8 $1,5 3 26 27 28 29 21 211 212 213 214 215 216 217 218-2 -7-1,2 Source: CFTC. Net Large Speculators (tonnes; LHS) Net Hedgers/Commercials (tonnes; LHS) Gold Price (US$/oz) $5 Fig. 41 Commercial Net Shorts as % of Total Open Interest 6 6 Fig. 42. Registered COMEX Gold Stocks vs. Owners per Ounce 6, $1,8 $1,6 $1,4 $1,2 5 4 3 2 1 5 4 3 2 5, 4, 3, 2, 1, -1 Jul-1 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 - - Gold Price (US$/oz) Net Short/Open Interest Owners per Ounce (LHS) Registered Stocks (koz; RHS) 8
Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec- Dec-1 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 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 2 2 1 1 1 8% 6% 4% 1 2% HUI/Gold (RHS) XAU/Gold (LHS) Gold & Silver as a % of S&P/TSX Composite Index Average Source: FactSet. $4, Fig. 45. Net Fund Flows for Morningstar's Equity Precious Metals Fund Universe ($M) $18 Fig. 46. Market Cap of VanEck Gold Equity ETFs (US$B) $3, $16 $14 $12 $1 $8 () () $6 $4 $2 ($3,) Source: Morningstar. Source: FactSet. $16 $14 $12 $1 $8 $6 $4 $2 Fig. 47. Equity Capital Issued by Gold Miners 6 5 4 3 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 Equity Issued (US$B) # of Transactions 9
Section III. Gold Mining Equities 1 Fig. 48. BI Global Senior Gold Peers Return on Capital 1 Mar-6 Mar-7 Mar-8 Mar-9 Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 - -1-1 -2 12 Fig. 49. Average Cost of Acquisitions in the Gold Sector 12 1 8 8 6 6 4 4 2 2 5 6 7 8 9 1 11 12 13 14 15 16 17 Acquisition Cost (US$/oz) As Ratio of Gold Price Source: RBC Capital Markets, Bloomberg. Fig. 5. All-In Sustaining Cost vs. Gold Spot Price and Reserve Price Source: Scotiabank. 1
Gold Price / Gold Price Discounted by the Market (US$/oz) Section III. Gold Mining Equities Fig. 51. Gold Price Discounted by Market ($/Oz) 2 18 16 14 12 8 6 4 2 Premium Above Spot (US$/oz) Gold Price Gold Price Discounted by Market 15 5-5 - -15-2 -25-3 -35-4 -45-5 -55-6 -65-7 -75 Premium to Spot (US$/oz) Source: BMO Capital Markets, FactSet Fig. 52. NAV Premiums - Senior & Intermediate Producers (N.A.) 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