Bernstein Research - Gold 04.01.2011

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January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • [email protected] • +1-212-756-4663

Caglasu Altunkopru • [email protected] • +1-212-823-2630

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Equity Portfolio Strategy: Does the price of gold tell us anything useful about the nature of investor fears?

Highlights

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is externally and universally accepted as the unalterable fiduciary value par excellence," Charles de Gaulle

"When most money consisted of silver or gold or some other item that had a nonmonetary use, or of an enforceable promise to pay a specified amount of such an item, the 'metallist' fallacy arose that 'it is logically essential for money to consist of, or be 'covered' by, some commodity so that the logical source of the exchange value or purchasing power of money is the exchange value or purchasing power of that commodity, considered independently of its monetary role',(Schumpeter 1954, p. 288). The examples of the stone money of Yap, of cigarettes in Germany after World War II, and of paper money currently make clear that this 'metallist' view is a fallacy," Milton Friedman

Gold, which is effectively just another fiat currency, has recently benefited from its perceived ability to hedge against a variety of potential economic outcomes that are currently foremost in investor's minds: inflation, sources of economic growth, downward spiral in fiat currencies, etc.

Academic research does suggest that gold can be a hedge for the stock market, inflation and/or currency risk. We attempted to quantify what may be embedded in gold prices using empirical models. With some reasonable assumptions, we find that a 20% decline in the stock market or 4% inflation or 20% devaluation of the US Dollar is already priced into gold. In other words, gold could be attractive for an investor who expects a significantly worse outcome (e.g. a collapse in US Dollar due to reserve diversification by emerging countries).

On the flip side, if the recovery continues to gain steam and risk aversion subsides, we could see 20-40+% downside from current levels. Gold miners, especially given their current un-hedged positions, could be severely affected by any downside.

Meanwhile, investors could be well-advised to consider other means of insurance and exposure to real assets. In particular, diversified portfolios of commodities that would benefit from secular growth themes such as emerging market growth could continue to be attractive as a hedge and a diversification tool.

Arguments for owning gold based on an anticipated return to the gold standard seem far-fetched and would not be in the interests of virtually any nation. The transition to a reserve rebalancing to include sufficient quantities of gold would be anticipated by the market and may perversely favor the US Dollar.

Details

Recent slowing of inflows into gold ETFs and outflows from bond funds may be indicative of declining risk aversion, as investors place lower value on investments that look like insurance policies (gold as inflation

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protection and fixed income as deflation). In 1H11, we expect current trends to continue as enormous liquidity is re-directed toward productive uses (e.g. capital spending, hiring…), as well as assets with higher expected returns than US bonds. As we highlighted in previous research, we are monitoring four key metrics to further increase our pro-cyclical stance: Small-business confidence, high-end consumer spending, pricing power and capital expenditures. While the recovery remains fragile, currently these metrics seem neutral to positive and we see no obvious catalysts to derail continued expansion in 2011. The price of gold can be a useful coincidental indicator of risk aversion, with declines being indicative of more risk seeking behavior. As a result, we decided to take a more detailed look at gold: what is currently priced-in, what would drive upside from current levels, and whether there are superior hedges to investor concerns.

Gold is somewhat unique in its perceived ability to hedge against a variety of fears and concerns that are currently foremost in investor's minds. An uncertain economic outlook, sovereign debt issues, deflationary and inflationary fears, as well historically low real yields have made gold one of the safe-haven assets of choice. As a result, gold has been a constant feature of financial news headlines over the past few months. In this note, we attempt to put gold's recent rally into historical context, and assess what types of tail events gold prices could be embedding.

Some historical context

News headlines notwithstanding, recent increases in the price of gold are high, but not unprecedented (see Exhibit 1). The current annual change does not quite make top quintile vs. history. What is remarkable however is the persistent trend of longer-term price increases since the earlier part of this decade, after nearly 20 years of ho-hum performance, resulting in new record-high gold prices being reached every week (see Exhibit 2).

In fact, recent long-term, four-year performance is only surpassed by the 70s / early 80s which featured the adjustment process to a flexible exchange rate regime, two oil shocks, two recessions and a bout of double-digit inflation. Clearly, the past decade has not been a walk in the park by comparison. Two asset price bubbles have come and gone, we have been at the brink of financial melt-down, sovereign debt concerns linger, and U.S. households could continue to de-leverage, depressing global demand growth. Investor demand for safe-haven assets have depressed yields, making gold increasingly attractive.

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Exhibit 1Recent increases in gold prices do not seem exceptional in terms of magnitude…

Exhibit 2…but what does seem remarkable is the sustained increase since early 2000s

Daily 1-Year Rolling Gold Returns250 Day Log Change,Through December 2010

-100%

-50%

0%

50%

100%

150%

70 75 80 85 90 95 00 05 10

% of days when return was higher excl. last year: 22.1%

Daily 4-Year Rolling Gold Returns1,000 Day Log Change, Through December

2010

-100%

-50%

0%

50%

100%

150%

200%

73 78 83 88 93 98 03 08

% of days when return was higher excl. last 4 yrs: 15.7%

Source: Global Insight, Bernstein analysis Source: Global Insight, Bernstein analysis

While gold certainly enjoys the reputation of being the ultimate store-of-value and a hedge for inflation, a quick look at history suggests that this has not always been the case (see Exhibit 3), and just like any asset, gold's performance depends on timing, especially in the post-gold standard world, where central banks are no longer committed to trading gold at fixed prices.

For a long stretch of history, gold prices were effectively fixed, as most advanced economies were on some version of the gold standard until the collapse of the Bretton Woods agreement in 1971. Countries on the gold standard maintained the fixed gold price by committing to buy or sell gold at that price, such that they observed fixed exchange rates relative to each other. Strict adherence to the gold standard would therefore mean that balance of payments surpluses were accompanied by an inflow of gold and expansion of the money supply, while the country with the current account deficit would see gold outflows and deflation. In reality, central banks made efforts to maintain price stability by changing the "bank rate" or by engaging in open market operations. Wars typically led to suspension of the gold standard, but once peace was restored, countries strove to get back on the gold standard.

Once gold prices were no longer fixed, they increased dramatically through the 70s as the oil crises, two recessions and double-digit inflation took their toll. It is interesting to note however that the first round of increases only brought the gold price to where it should be, if it were a perfect inflation hedge. After 1980, the price of gold declined gradually for 20 years, dropping -56% below its 1980 peak by 2001. In fact, aninvestor who bought gold in 1980 and held it to-date has so far lagged inflation even with the recent increases. Similarly, an investor who bought gold in 1990, even with gold well off its prior peak, caught up with inflation only in 2006. In other words, over a relatively brief 40-year history when its price was not fixed, gold seems to have rallied in times of crisis, rather than keep pace with inflation.

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Exhibit 3Gold's performance as an inflation hedge has depended on timing with periods of outperformance coinciding with post Bretton Woods periods of distress

Historical Gold Price vs. Inflation Hedge Price*London PM Fix, Annual Average, Log Scale

457

203

1,627

6421,225

10

100

1,000

10,000

1833

1843

1853

1863

1873

1883

1893

1903

1913

1923

1933

1943

1953

1963

1973

1983

1993

2003

From 1833From 1970From 1980From 1990Actual

Classical Gold

Standard

WW I

Gold Exchange

Standard

Great Depression and WW II

Bretton Woods

Oil Crises

Dot-Com

Bubble Burst

Great RecessionResumption

Act

US$ set at $20.67 per

troy oz

U.S. Civil War and

aftermath

Note: Gold price at a given starting point grown at CPI such that the calculated price reflects the price gold would trade at if it were a "perfect" inflation hedge

Source: Kitco, Global Insight, BLS, Bernstein analysis

A related argument favored by gold bulls is that, with fiat money having grown exponentially in the absence of the "iron discipline" of gold, government debt at alarming levels (domestically and abroad), and the ever-widening fiscal deficit, it is only a matter of time before fiat money becomes worthless and we revert back to the gold standard.

The erosion of the gold reserve to currency ratio goes back to the post-World War II period (see Exhibit 4). The Bretton Woods agreement, the last attempt at a gold standard, pegged all other currencies to the US$ and the US$ to gold at $35 per ounce. The US maintained gold reserves and settled accounts in terms of gold, while all others used US$ to settle international accounts. However, the system was self-defeating. With world trade growing well ahead of the gold base, as well as persistent US balance of payments deficits, the US gold reserves gradually diminished, such that the 25% gold cover had to be eliminated in 1968. This in turn created a confidence problem in the participating countries, with Switzerland and France redeeming part of their US Dollar holdings for gold, further depleting US gold reserves. Finally, in 1971, Nixon "closed the gold window", putting the final nail in the coffin of the Bretton Woods agreement.

Since then, US gold reserves as reported by the Treasury have remained broadly unchanged both in weight and reported value which is booked at $42.20 per ounce, the value announced by Nixon in February 1973.If marked to market, current gold reserves are sufficient to "cover" 40% of currency, comparable to the mid-60s.

In the absence of a gold standard there has not been an effort to accumulate gold reserves. While the Treasury has allowed a limited amount of gold to be sold, especially in the 70s with the belief that "Neither gold nor any other commodity provides a suitable base for monetary arrangements," (Fred Bergsten, as Assistant Secretary for International Affairs at the U.S. Treasury Department), this has not been substantial in volume.

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Exhibit 4With gold marked to market, gold reserves stand at 40% of currency, comparable to mid-60s

Ratio of U.S. Gold Reserves to Currency in Circulation

40%

0%

50%

100%

150%

200%

250%

300%

14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Gold Reserves / CurrencyMandated Gold CoverGold Reserves at Market Value / Currency

Gold ExchangeStandard

Bretton Woods

Great Depres

sion

Gold Reserve Act: US$ devalued vs. gold to $35 from

$20.67 per oz

WWI & aftermath

Genoa Conference

US$ Gold convertibility suspended

WW II

Gold cover eliminated

Gold window closed

Start of Vietnam

War

Gold cover reduced

Gold commission established

US$ devalued vs. gold to $38

per oz

US$ devalued vs. gold to

$42.2 per oz

Source: Banking and Monetary Statistics, St. Louis Fed (1914-1947), H. 6 Money Stock Measures, Federal Reserve, Global Insight, Bernstein analysis

If gold reserves were marked to market, gold would account for 74% of total US reserves compared to the reported 8% (see Exhibit 5). While we do not anticipate a re-valuation of US reserves any time soon, we do believe that the marked-to-market figures provide a more realistic assessment of monetary ratios.

Exhibit 6 summarizes money supply to overall reserve ratios both as reported and adjusted for gold reserves valued at prevailing market prices. These figures indicate that currency-to-reserves is broadly in-line with 1959 levels, while M1 is significantly lower. Even though M2-to-reserves is somewhat higher than 1959 levels, increasing financial sophistication may account for part of the increase; meanwhile, M2 remains reasonable compared to subsequent years (see Exhibit 7).

One may conclude that the US Dollar has effectively de-valued vs. gold to normalize the money supply to reserve ratios. What is more difficult to assess is the potential for further significant expansion of the monetary supply as a result of the ballooning federal debt.

Given that the US Dollar remains a key reserve currency, the picture is not complete without a discussion of global reserves. Currently, foreign reserve banks hold a known $2.8tr US Dollar-denominated claims including currency, deposits and government debt, equivalent to 30% of global reserve holdings (Exhibit 8). Moreover, there is yet another $3.6tr of foreign reserves whose allocation is unknown.

This leads to the argument posed by US$ bears and gold bulls…what if the countries holding US Dollar-denominated assets decided to dump those assets and switch to gold, as confidence in the US$ waned, analogous to what we saw at the end of the Bretton Woods regime. While this is a possibility, especially if US policies fail to show fiscal responsibility, foreign banks have much to lose by this move. Converting just the known $2.8tr of US Dollar-denominated reserves to gold would require over 2bn oz. of gold at current prices, more than double current global gold reserves. Taking this one step further, if all reserves were to be converted to gold, this would equate to about 6bn oz. of gold. Obviously, this could never happen in practice, as the possibility of such transaction would cause gold to be bid up well above any level of practicality.

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Exhibit 5With gold marked to market, 74% of current reserves are in gold

Exhibit 6With US reserves adjusted for the market value of gold, current money supply relative to reserves seems reasonable vs. history

U.S. Gold Reserves as % of Total U.S. Reserves

8%

74%

0%

20%

40%

60%

80%

100%

42 49 56 63 70 77 84 91 98 05

As Reported

Gold Marked to Market

Curr M1 M2 Curr M1 M2

Jan-59 1.3 6.2 12.7

Jan-69 2.8 12.9 36.8

Jan-79 4.7 17.5 67.0 1.3 4.9 18.8

Jan-89 4.4 16.3 62.2 1.5 5.6 21.4

Jan-99 5.7 13.6 54.5 3.2 7.6 30.5

Jan-09 11.0 21.0 110.4 2.7 5.2 27.3

Nov-10 6.8 13.5 65.0 1.9 3.8 18.1

Current Value ($tr) 0.9 1.8 8.8

Currency: Physical currency outside the U.S. Treasury, Federal

Reserve Banks, and the vaults of depository institutions

M1: Currency, traveler's checks, demand & other checkable deposits

M2: M1 plus retail money funds, savings and small time deposits

Based on Reported Adjusted for Gold at Market Value

Money Supply Relative to Reserves

Figures

Source: Federal Reserve, Global Insight, Bernstein analysis Source: Federal Reserve, Global Insight, Bernstein analysis

Exhibit 7Adjusted M2 is now somewhat higher than 1959 levels,but the increase may be partly explained by increased financial sophistication

Exhibit 8At least $2.8tr of $9.5tr of reserve assets represent claims on US Dollar denominated securities

U.S. M2 to ReservesThrough November 2010

65.0

18.1

0

30

60

90

120

59 64 69 74 79 84 89 94 99 04 09

Reported Figures

Gold Marked to MarketUS as %

Global US* of Global

Gold 1.06 0.28 26.9%% of total 11% 70%

FX Holdings* 8.17 0.12 1.5%% of total 86% 30%Known US$ 2.84 Other 5.33 0.12 2.2%

Other 0.25

Total 9.48 0.40 4.3%

GDP 58.23 14.3 24%

*The Fed also holds $2tr of US$ denominated securities

** Includes banknotes, bank deposits, T-bills, gov't securities

US$tr, As of YE 2009

Summary of Global Reserve Positionswith Gold Marked to Market

Source: Federal Reserve, Global Insight, Bernstein analysis Source: IMF, Global Insight, Bernstein analysis

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In fact, it could be argued that foreign central banks have more of an incentive today not to act against the US Dollar compared to the Bretton Woods era, since the decreasing share of gold in reserves has meant increased exposure to the Dollar (see Exhibit 9). One point of concern could be that, the emerging countries which now account for 66% of global foreign exchange reserves, do seem to be gradually reducing their exposure to the US$ (Exhibit 10). However, the -13% decline in global gold reserves in volume from 1995 to 2009 suggests that the shift has so far not been towards gold. While global monetary authority gold reserves were up 1% in volume in 2009, they still remain below 2006 levels.

Exhibit 9Decreasing share of gold in global reserves has meant increased exposure to the US$

Exhibit 10However, emerging countries which are growing share of global reserves are gradually decreasing their exposure

Global Gold Reserves As % Total Reserves

0.6%

12.1%

0%

20%

40%

60%

80%

100%

48 53 58 63 68 73 78 83 88 93 98 03 08

As Reported

Gold Marked to MarketEnd of Bretton Woods

Emerging Countries' FX Reserves

30%

40%

50%

60%

70%

80%

1995

1996

*

1997

*

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Emerging as % of Total

US$ as % of Emerging

Source: IMF COFER, Bernstein analysis Source: IMF COFER, Bernstein analysis

Investors trying to assess the likelihood of a potential return to the gold standard may find the "Report to the Congress of the Commission on the Role of Gold in the Domestic and International Monetary Systems", dated March 1982, a worthwhile read. In October 1980, Congress created the Gold Commission, responding to growing concern about high and persistent inflation. As the commission stated:

"Many citizens believe that an expanded and more explicit role restored to gold in the U.S. monetary system is the solution to the problem of inflation, arguing that it will promote monetary and fiscal discipline and reduce inflationary expectations."

Among other topics, the commission considered:

Treasury issue of gold bullion coins and/or gold-backed bonds

A public audit of physical gold reserves as citizens "fear that the actual amounts held by the government are less than are reported officially"

The appropriate size of the U.S. gold stock

Whether to continue to value the gold stock at $42.2 per ounce

Whether the gold stock should be put to productive use through swaps or intervention in foreign exchange markets

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Whether gold should be reintroduced into domestic monetary arrangements through reinstituting a gold cover and allowing the gold stock to be determined by gold flows

Adopting a gold standard with a fixed price of gold in terms of dollars

While it is not in the scope of this piece to discuss each of these items in detail, we thought the similarities to issues being discussed today were quite striking (and somewhat amusing). By the time the report was released, the Fed under Volcker had raised the Federal funds rate to 20% in June 1981 and inflation dropped to 3.2% in 1983, from its peak of 13.5% in 1981. Meanwhile, gold peaked in January 1980 at $850 per oz and started its decline to $253 per oz in August 1999.

What empirical models say

Given gold's reputation as a hedge against various risks, we wanted to understand which risks gold can be shown to have been a hedge against, and which expectations could be embedded in current gold prices. In our survey of academic research, we found some evidence that gold can act as a hedge for: Stock market declines, inflation and US$ depreciation (see Exhibit 11).

Clearly, these risks are inter-related. Academic research suggests that the stock market has tended to produce negative real returns during inflationary periods, and relative inflation is one of the factors that influence exchange rates.

Exhibit 11We looked at empirical models focusing on various hedging qualities of gold to evaluate what potential scenarios current prices could be embedding

Model Equation Variables Source

Rgold, t – Rf,t = a+ b (Rm, t – Rf,t) + et

Rgold : Gold returns

Rf : The risk free rateRm : MSCI returns

McCown, J.R., and Zimmerman J.R., 2007. Analysis of the Investment Potential and Inflation-Hedging Ability of Precious Metals

Rgold, t = a+ b1 Rstock, t + b2 Rstock, t(q) +

c1 Rbond, t + c2 Rbond, t(q) + et

Rgold : Gold returnsRstock: MSCI U.S. stock returnsRbond: MSCI U.S. bond returns

Rstock, t(q): MSCI U.S. stock returns where return is less than q-percentile of historic returns (q: 1%, 2.5%, 5%)

Baur, D.G. and Lucey B.M., 2009. Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold

Inflation rt = a + bpt+ g ( pt - pt-12) + ut

rt : Gold returns

pt : Inflation as measured by CPIAttie, A.P. and Roache S.K., 2009. Inflation Hedging for Long-Term Investors

FX rates Dgt = b0 Dx t + a1 Dg t-1

Dgt : Ln change in gold price

Dx t : Ln change US$ FX rate vs. GB£

and ¥

Capie, F., Mills T. C., Wood G., 2004. Gold as a Hedge against the Dollar

Stockmarket

Summary of Empirical Models Utilized

Source: Various academic papers, Bernstein research

Since gold's historic performance has been rather episodic, a common feature of these models is that the linkages with the relevant variables were typically much stronger in the 70s, and in bear markets in the case of the "safe haven" model. With year-end 2006 as the starting point, the predicted gold price for today ranges from $588 (based on FX rates vs. the GB£) to $720 (based on the stock market safe haven model) per oz using the "Base" model based on full-sample estimates (see Exhibit 12). With sub-sample estimates

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that feature these higher sensitivities to the model variables, the estimates range from $468 (based on FX rates vs. the GB£) to $1,127 (based on the stock market safe haven model) per oz.

In addition to these models, we also looked at another framework, which uses mining production costs, the trade-weighted US$ exchange rate, inflation expectations and consumer expectations as dependent variables. Starting with YE 2006, this model produces a "predicted" current price of $844. Interestingly, the model tracks the realized gold price fairly closely through 2007 and much of 2008, but starts to lag in September 2008, when the Lehman bankruptcy was announced, which seems to confirm the fear component of gold's recent rally.

Assuming that the current gold price is anticipatory, we then tried to quantify which level of model variables could mean that the gold price is "right" for each model and arrived at some fairly dramatic outcomes. Taking each model individually, the current gold price seems to embed:

Over 20% drop in the stock market

Over 8% inflation

Or a 50% devaluation of the US$

Exhibit 12Current gold prices seem to embed some fairly bearish scenarios

Base Sub Sample Base Sub sample Base Sub sample Base Sub Sample Base Sub SampleFrom YE 2006

PredictedGold Price

720 779 720 1,127 700 715 588 468 686 853

vs. Current -49% -45% -49% -20% -50% -49% -58% -67% -51% -39%

Implied scenario if gold anticipatory

Stock market -77% -47% -68% -22%

Inflation (YOY)

10.4% 8.0%

US$ valuation -93% -56% -96% -46%

Frequency of predicted value (or greater)

55% 48% 55% 31% 57% 55% 74% 92% 60% 44%

Conditional likelihood of current value (or greater)

29% 33% 29% 51% 27% 29% 21% 17% 26% 36%

Gold Price 1,406 As of 12/30/2010*Stock market downside estimates assume a succession of 1%-ile down days

FX Ratesvs. GB£ vs. Yen

Predicted Gold Prices and Scenarios Implied by Current Gold Price Based on Empirical Analyses

CAPM Safe haven*Stock market Inflation

Source: Various academic papers, Global Insight, Bernstein research

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It is important to recognize that these models individually are inherently flawed, as they factor in only one or two variables, while in reality, there are several variables that affect the price of gold. Thus, it can be informative to consider how extreme the current price of gold is vs. the predicted values. Given the predicted value from a model and the probability of achieving the realized gold price using the predicted value as a base based on historical performance can help us assess how extreme a scenario of "other" factors is embedded in the current gold price.

To illustrate, if gold were currently priced at $1,127, this would suggest a distribution of "other" factors that are in-line with the Safe-Haven model history. However, the gap vs. the $1,406 per oz. actual gold price suggests that the range of outcomes is limited to scenarios that are only worse than average since the likelihood of achieving $1,406 given $1,127 as a lower-bound is 51%.

Similarly, the inflation model yields a "predicted" gold price at $715. In other words, if the distribution of future macro outcomes were in-line with history, gold should be priced at $715. Yet, the current price of $1,406 implies a set of outcomes that is substantially skewed to the downside, given the 29% likelihood of the current price, with $715 as a lower-bound.

Conversely, if investor outlook improves to a set of outcomes that is more in-line with history, gold could trade back down to the $715-$1,127 per oz. range which represents significant downside to current levels.

Another way to interpret the results from these empirical models is to say that the recent gold price trajectory has been dominated by the stock market safe-haven qualities of gold. This makes intuitive sense since over the past 4 years economic concerns as they pertain to gold have been much more manifest in the stock market, rather than the inflationary environment, which remains uncertain and the US$ which has so far benefited from the flight to safety.

Using $1,127 per oz as the starting point for the price of gold, we then try to assess which scenarios may be further embedded in the current stock price (see Exhibit 13). Assuming the stronger correlations from sub-sample estimates, we find that the current gold price is already embedding a combination of

20% downside to the stock market and/or

4% inflation and/or

20% devaluation of the US Dollar

As such, assessment of whether gold is fairly priced depends on one's expectations on these metrics. For example, given that 4% inflation already seems to be priced in, gold becomes an attractive hedge for investors expecting inflation above that 4%.

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Exhibit 13Gold price seems to embed 20% downside to the stock market and/or 4% inflation and/or 20% devaluation of the US$

Using 1,127$ per Troy oz as base

Base Sub Sample Base Sub sample Base Sub sample Base Sub Sample Base Sub Sample

Implied scenario if gold anticipatory

Stock market

-38% -21% na -22%

Inflation (YOY)

5.3% 4.2%

US$ valuation

-49% -15% -63% -24%

*Stock market downside estimates assume a succession of 1%-ile down days

FX Ratesvs. GB£ vs. Yen

Implied Economic Scenarios Assuming Recent Gold Price Trajectory Has Been

CAPM Safe haven*Stock market Inflation

Dominated by "Safe Haven" Qualities

Source: Various academic papers, Global Insight, Bernstein research

If investor interest is any indication, we have been observing some loss of steam behind gold ETF inflows. While much of the increase in price from 2006 has been accompanied by inflows (see Exhibit 14), the most recent rally from mid-2010 has not generated further inflows, which suggests a lack of conviction at these price levels (see Exhibit 15). It seems particularly noteworthy that the Fed's announcement of a second round of quantitative easing in November has not resulted in significant inflows into gold.

Exhibit 14Since 2006, GLD price increases have been supported by inflows…

Exhibit 15…but the most recent rally from mid 2010 shows a lack of conviction at these levels

GLD Price and Shares OutstandingIndex YE 2006 = 100

100

140

180

220

260

300

06 07 08 09

Shares o/s

Price

GLD Price and Shares OutstandingIndex 3/31/2010 = 100

100

110

120

130

3/10 5/10 7/10 9/10 11/10

Shares o/s

Price

Source: Bloomberg, Bernstein analysis Source: Bloomberg, Bernstein analysis

While gold miners' performance has only a modest correlation with the overall stock market on down days in particular (see Exhibit 16), there is a much stronger linkage with gold prices on both up and down days (see Exhibit 17).

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Exhibit 16Gold miner stocks have only a modest correlation to the stock market…

Exhibit 17…but they have been much more correlated to gold prices

Correlation of Gold Miners' Stock Performance with the S&P500

Log Change, 6/96-12/10

y = -0.1208x + 0.095

R2 = 0.0048

y = 0.209x - 0.0798

R2 = 0.0286

-40%

-20%

0%

20%

40%

-20% -10% 0% 10% 20%

Monthly Log Change in S&P500

Mo

nth

ly L

og

Ch

ang

e in

G

old

Min

ers

Ind

ex

Note: Excludes 10/08

Correlation of Gold Miners' Stock Performance with the Gold Price


y = 0.9484x + 0.0619

R2 = 0.27

y = 0.9766x - 0.0627

R2 = 0.256-40%

-20%

0%

20%

40%

-20% -10% 0% 10% 20%

Monthly Log Change in Gold Price

Mo

nth

ly L

og

Ch

ang

e in

G

old

Min

ers

Ind

ex


Source: Bernstein analysis Source: Bernstein analysis

More recently, the correlation of gold miners' performance to gold on up-days has increased, likely given the increasingly un-hedged positions of the miners which poses a substantial risk for the stocks, should gold prices start to decline (Exhibit 18). Exhibit 19 summarizes the results of the bivariate regression of gold miners' performance vs. gold prices and the S&P500.

Exhibit 18More recently, the gold price has offered greater explanatory power given the miners' un-hedged positions…

Exhibit 19…,posing substantial risk to the stocks, should the gold price decline

Correlation of Gold Miners' Stock Performance with the Gold Price


y = 1.3786x + 0.0285

R2 = 0.4514

y = 0.4545x - 0.0622

R2 = 0.1389-20%

0%

20%

40%

-20% -10% 0% 10% 20%

Monthly Log Change in Gold Price

Mo

nth

ly L

og

Ch

ang

e in

G

old

Min

ers

Ind

ex


GoldS&P 500 Price

Sample period:6/96 - 12/10Coefficient 0.47 1.83T-Stat 4.0 15.1Adjusted R2 0.59

Sample period: 1/07 - 12/10Coefficient 0.53 1.75T-Stat 3.2 10.1Adjusted R2 0.72

Results of Bivariate Regressionfor Monthly Gold Miner Returns

Source: Bernstein analysis Source: Bernstein analysis

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13

What is the alternative?

Depending on the specific risks that investors are concerned about, at gold's current price it may be worth evaluating alternative methods of insurance. For instance, it may be relatively simple to hedge against a 20% drop in the stock market with index options. Meanwhile, TIPS are pricing in about 2% inflation up to 10 years out (see Exhibit 20). It seems worth noting that while inflation expectations per TIPS are well off their 2009 lows, current levels remain somewhat below highs achieved in mid-2000s.

In "The Strategic and Tactical Value of Commodity Futures", Erb and Harvey find a negative inflation beta for gold and silver futures vs. high positive inflation beta for heating oil, hog and corn based on 1982-2003 data (Exhibit 21). While the gold beta could be significantly higher if it were possible to include data from the 70s, the point is that other commodities have acted as superior inflation hedges over an extended period of time. Given significant volatility in commodity prices, investors may consider building a portfolio of commodities that are exposed to secular growth trends, such as growth in the emerging markets.

Exhibit 20TIPS are pricing in 2% inflation

Exhibit 21Other commodities may offer superior hedges

Expected Inflation per TIPSThrough December 30, 2010

2.292.05

1.81

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

03 04 05 06 07 08 09 10

10 year7 Year5 Year

Inflation Sensitivity Estimates by CommodityAnnual Futures Prices, 1982-2003

-10

-5

0

5

10

15

20

(12) (8) (4) - 4 8 12

Inflation

YO

Y C

hg

in

In

flat

ion Heating oilCopper

HogCattle

CornSugar

Wheat

CottonCoffee

SilverGold

Soybeans

Source: Federal Reserve, Global Insight, Bernstein analysis Source: Erb C.B. and Harvey C. R. (2006), Bernstein analysis

Timberland and farmland also provide examples of how productive real assets have been able to outperform gold. $100 invested in timberland in 1986 has now turned into $2,099 vs. gold at $336 (Exhibit 22). Farmland has been a similarly lucrative investment (Exhibit 23). Given the significant pool of increasingly better off emerging markets consumers, these could continue to be attractive investments in the long-run. Moreover, in the worst case scenario, which would you rather have? Gold or food?

Stra

tegy

January 4, 2011


14

Exhibit 22Which one glitters? Timber or gold?

Exhibit 23Gold, after all, is a non-productive asset

Cumulative Returns from Gold vs. Timberland

Assuming $100 invested at YE 1986

2,099

336

0

500

1,000

1,500

2,000

2,500

86 89 92 95 98 01 04 07

Timberland

Gold

Cumulative Returns from Gold vs. Timberland

Assuming $100 invested at YE 1991

695

696

370

0

100

200

300

400

500

600

700

800

91 94 97 00 03 06 09

TimberlandFarmlandGold

Source: NCREIF, Global Insight, Bernstein analysis Source: NCREIF Global Insight, Bernstein analysis

The good news is that thanks to the significant rally in gold, the Christmas Basket cost only 17oz. of gold this year.

Exhibit 24The good news is… the Christmas Basket only cost 17oz of gold this year

Ounces of Gold Needed to Purchase 12 Days of Christmas Basket

33

57

17

0

10

20

30

40

50

60

1984 2001 2010

"The Twelve Days of Christmas" basket: a partridge in a pear treetwo turtle doves three French hensfour calling birdsfive gold(en) ringssix geeseseven swanseight maids (assumed to be unskilled laborers at min wage)nine dancing ladies (salary fig.s from Philadanco)ten leaping lords (salary fig.s from Philadelphia Ballet)eleven pipers (fig.s from a PA musicians union)twelve drummers (fig.s from a PA musicians union)

Source: PNC, Global Insight, Bernstein analysis

Disclosure Appendix

Disclosure Appendix

SRO REQUIRED DISCLOSURES

References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, and Sanford C. Bernstein, a unit of AllianceBernstein Hong Kong Limited, collectively.

Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration,productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues.

Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise specified. We have three categories of ratings:

Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.

Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.

Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.

Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.

As of 01/03/2011, Bernstein's ratings were distributed as follows: Outperform - 45.2% (1.6% banking clients) ; Market-Perform - 46.0% (1.6% banking clients); Underperform - 8.8% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parenthesesrepresent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve (12) months.

In addition to his role at Bernstein, Vadim Zlotnikov is also an employee of AllianceBernstein L.P., an asset management firm and Bernstein affiliate. Mr. Zlotnikov serves as Chief Market Strategist of AllianceBernstein, as one of the portfolio managers of the AllianceBernstein Market Neutral Strategy Fund (the “Fund”), and as an advisor to the portfolio managers of other AllianceBernstein investment products. Accordingly, he owes fiduciary duties to the Fund and other clients of AllianceBernstein and is subject to information barriers that may prevent him from disclosing certain information to Bernstein’s clients. Mr. Zlotnikov is compensated for his duties at AllianceBernstein along with the compensation he receives from Bernstein. While Mr. Zlotnikov is normally not involved in specific security selection for AllianceBernstein investment products, insights and analysis that Mr. Zlotnikov shares with Bernstein’s clients may differ from or be contrary to positions taken by the Fund and other AllianceBernstein investment products, and vice versa.

Sanford C. Bernstein Limited and BBVA have entered into a research distribution agreement under which BBVA may distribute Bernstein Research in certain limited markets.

BNP Paribas owns more than 5.00% of the outstanding ordinary shares of AXA, the majority owner of Bernstein's parent, AllianceBernstein L.P.

A company controlled by a member of Robin Bienenstock's family has a billing dispute with BT Italia, a subsidiary of BT/A.LN / British Telecom. The amount in question is € 2,682.18.

A junior member of the research analyst's team, Peter Handy, has received compensation from JPMorgan Chase & Co, his former employer, within the past twelve months.

We would like to thank Christienne Genaro, an Industry Specialist dedicated to Bernstein’s Computer Services and IT Consulting team, for her contributions to our research on topics covered in this report.

Claude Bebear, the chairman of the Supervisory Board of AXA, the majority owner of Bernstein's parent, AllianceBernstein L.P., is also a non-executive Director of Vivendi SA.

12-Month Rating History as of 01/02/2011

11.HK: M (IC) 01/21/10; 1288.HK: M (IC) 07/19/10; 135.HK: M (IC) 06/23/10; 1398.HK: M (IC) 01/21/10; 2.HK: M (IC) 06/23/10; 23.HK: U (IC) 01/21/10; 2388.HK: U (RC) 10/26/10, M (RC) 09/08/10, O (IC) 01/21/10; 2498.TT: O (IC) 10/12/10; 2688.HK: O (IC) 06/23/10; 3.HK: U (IC) 06/23/10; 3328.HK: M (RC) 11/15/10, U (IC) 01/21/10; 386.HK: M (IC) 06/29/09; 3968.HK: M (IC) 01/21/10; 3988.HK: M (IC) 01/21/10; 6.HK: M (IC) 06/23/10; 763.HK: O (IC) 05/27/10; 836.HK: M (IC) 06/23/10; 857.HK: O (IC) 06/29/09; 883.HK: O (IC) 06/29/09; 902.HK: O (IC) 06/23/10; 939.HK: O (IC) 01/21/10; 991.HK: U (IC) 06/23/10; 998.HK: U (IC) 01/21/10; AAL.LN: O (IC) 11/19/09; AAP: M (IC) 05/06/08; AAPL: O (RC) 10/13/08; ABB.SS: O (RC) 07/28/10, M (IC) 03/31/09; ABBN.VX: O (RC) 07/28/10, M (IC) 03/31/09; ABC: M (RC) 11/23/09; ABF.LN: M (RC) 02/12/08; ABI.BB: O (IC) 03/02/06; ABT: M (RC) 11/18/10, O (IC) 05/22/09; ACA.FP: M (IC) 11/24/09; ACN: O (RC) 03/15/04; ADI: O (RC) 03/10/10, M (IC) 06/04/09; ADP: O (RC) 10/30/09; AEP: M (IC) 01/15/03; AET: O (IC) 10/03/08; AFL: M (RC) 03/23/10, O (IC) 07/15/04; AGN: O (IC) 03/02/06; AH.NA: O (RC) 09/08/09; AI.FP: M (IC) 09/16/10; AKZA.NA: M (IC) 09/16/10; ALO.FP: O (IC) 03/31/09; ALU: U (RC) 11/08/10, M (IC) 06/30/08; ALU.FP: U (RC) 11/08/10, M (IC) 06/30/08; ALXN: O (RC) 09/22/10, M (IC) 11/09/09; AMD: O (RC) 12/07/09; AMGN: O (RC) 06/16/09; AMP: O (IC) 10/20/06; AMTD: M (IC) 08/12/09; ANTO.LN: M (RC) 11/15/10, O (IC) 11/19/09; AVP: M (RC) 07/03/07; AXP: M (IC) 10/06/09; AZN: M (IC) 10/23/07; AZN.LN: M (IC) 10/23/07; AZO: M (RC) 01/12/09; BA: M (RC) 11/12/10, O (RC) 06/01/10, M (RC) 12/11/08; BA/.LN: M (RC) 03/23/10, O (RC) 07/21/09; BAC: O (IC) 10/02/09; BARC.LN: M (RC) 09/08/10, O (RC) 03/01/10, M (IC) 11/24/09; BAS.GR: O (IC) 09/16/10; BAYN.GR: O (IC) 09/16/10; BBBY: O (RC) 01/22/08; BBL: O (IC) 01/13/10, O (DC) 06/04/09; BBT: O (RC) 03/04/10, M (IC) 07/08/04; BBVA.SM: O (IC) 10/15/10, M (DC) 07/21/08; BBY: M (RC) 10/23/06; BEI.GR: U (IC) 01/20/06; BG/.LN: O (IC) 01/22/09; BHI: O (RC) 10/01/09; BIIB: U (RC) 07/30/10, M (RC) 07/27/06; BK: M (IC) 06/09/09; BLT.LN: O (IC) 11/19/09; BME.SM: U (RC) 10/05/09; BMPS.IM: M (IC) 10/15/10; BMW.GR: M (RC) 04/06/09; BMY: M (RC) 04/03/09; BN.FP: O (RC) 07/17/08; BNP.FP: U (RC) 09/08/10, O (IC) 11/24/09; BP: M (IC) 08/03/10, O (DC) 08/02/10, O (RC) 05/10/10, M (RC) 03/03/09; BP.IM: U (IC) 10/15/10; BP/.LN: M (IC) 08/03/10, O (DC) 08/02/10, O (RC) 05/10/10, M (RC) 03/03/09; BRBY.LN: M (RC) 08/27/09; BRCD: M (RC) 03/25/10, O (IC) 05/12/09; BRCM: M (IC) 06/04/09; BSX: M (RC) 01/21/10, O (IC) 05/22/09; BSY.LN: M (RC) 05/28/09; BT/A.LN: M (RC) 11/19/10, U (RC) 10/11/10, M (RC) 05/17/10, O (RC) 07/17/09; BUD: O (IC) 10/08/09; C: M (IC) 08/12/08; CA.FP: M (IC) 06/07/06; CAG: M (RC)

03/27/09; CAH: M (IC) 01/16/09; CARLB.DC: M (RC) 10/19/10, O (IC) 09/09/08; CBK.GR: U (DC) 01/20/06; CCE: M (IC) 11/16/10, U (DC) 01/31/08; CCL: O (RC) 04/12/10, M (IC) 02/25/09; CCL.LN: O (RC) 04/12/10, M (IC) 06/26/09; CELG: O (RC) 04/22/09; CEO: O (IC) 06/29/09; CEPH: M (RC) 08/15/06; CFR.VX: M (RC) 06/23/10, O (RC) 01/13/10, M (IC) 06/04/08; CHKP: O (IC) 10/02/09; CI: O (IC) 10/03/08; CL: M (IC) 05/07/07; CLX: U (RC) 05/11/09; CMA: M (RC) 09/21/09; CMCSA: O (RC) 12/14/10, M (RC) 05/10/10, O (IC) 05/29/03; CME: M (RC) 01/23/09; CNE.LN: O (IC) 01/22/09; CO.FP: M (RC) 07/30/10, M (IC) 06/07/06; COF: O (DC) 09/26/07; COST: M (IC) 09/30/09; CPB: O (RC) 07/18/07; CSC: U (RC) 11/19/04; CSCO: O (RC) 05/12/06; CSGN.VX: O (RC) 09/08/10, M (RC) 03/01/10, U (RC) 03/03/09; CTSH: O (RC) 09/12/07; CVC: M (RC) 05/10/10, O (RC) 03/06/07; CVH: O (RC) 11/08/10, M (IC) 10/03/08; CVS: O (IC) 01/16/09; D: M (RC) 09/04/07; DAI.GR: O (RC) 09/18/09; DB1.GR: O (RC) 10/29/09; DBK.GR: M (RC) 03/01/10, U (RC) 11/24/09; DELL: O (RC) 02/08/06; DEO: O (IC) 10/08/09; DF: M (RC) 05/11/10, O (IC) 05/15/08; DG: O (IC) 12/23/09; DGE.LN: O (RC) 08/25/09; DHR: O (RC) 09/03/09; DISH: M (RC) 10/10/08; DO: M (RC) 07/26/10, U (IC) 05/16/06; DPS: O (IC) 11/16/10; DRI: M (RC) 05/21/10, O (IC) 09/25/09; DTE.GR: O (RC) 02/18/10, M (RC) 03/31/09; DTV: M (RC) 04/24/08; DUK: M (RC) 08/05/04; DXNS.LN: M (RC) 10/22/07; E: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 11/21/08; EAD.FP: O (RC) 12/17/09; EAT: M (RC) 11/05/09; EIX: M (RC) 10/08/09; EL: M (IC) 05/07/07; EMC: M (RC) 05/20/08; EMR: M (RC) 11/30/10, O (RC) 05/20/10, M (IC) 02/05/09; ENI.IM: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 11/21/08; ENR: O (IC) 05/14/08; ERIC: O (RC) 05/26/09; ERICB.SS: O (RC) 05/26/09; ESRX: M (IC) 01/16/09; ESV: M (RC) 02/19/09; EXC: M (RC) 02/05/10, O (RC) 01/12/05; F.IM: O (RC) 09/20/10, M (IC) 10/13/08; FE: M (RC) 10/27/10, O (RC) 08/05/09; FFIV: M (IC) 10/17/08; FITB: M (RC) 03/04/10, O (RC) 05/08/09; FME.GR: O (RC) 09/27/07; FMS: O (IC) 03/26/09; FP.FP: O (IC) 08/03/10, M (DC) 08/02/10, M (RC) 02/16/10, O (IC) 05/30/03; FRX: M (RC) 01/03/11, O (RC) 10/16/08; FTE.FP: M (IC) 04/15/08; GALP.PL: O (RC) 05/26/10, M (IC) 01/22/09; GD: M (RC) 10/19/06; GE: O (RC) 11/06/09; GENZ: O (RC) 05/13/08; GILD: M (RC) 07/16/10, O (RC) 10/16/08; GIS: M (IC) 08/02/06; GLE.FP: M (RC) 03/01/10, O (IC) 11/24/09; GLW: O (RC) 06/08/10, M (RC) 04/28/09; GNW: M (IC) 10/20/06; GR: O (IC) 01/13/10; GS: O (RC) 06/04/09; GSK: M (IC) 10/23/07; GSK.LN: M (IC) 10/23/07; H: M (RC) 08/09/10, U (IC) 11/11/09; HAL: O (RC) 11/12/07; HBAN: O (RC) 09/13/10, M (IC) 10/13/09; HD: M (RC) 05/11/09; HEIA.NA: O (RC) 01/12/10, M (IC) 03/02/06; HEN.GR: O (IC) 02/01/06; HEN3.GR: O (IC) 01/20/06; HGSI: M (RC) 09/13/10, O (RC) 07/21/09; HIG: M (IC) 12/17/09; HMB.SS: O (RC) 06/23/10, M (RC) 01/29/07; HNP: O (IC) 06/23/10; HNT: M (IC) 03/12/10; HNZ: M (RC) 01/14/09; HON: O (IC) 02/05/09; HOT: M (RC) 05/13/09; HP: O (IC) 10/01/09; HPQ: O (RC) 09/09/08; HSP: O (RC) 08/12/10, M (RC) 07/14/10, O (IC) 01/07/10; HSY: M (RC) 06/18/10, U (RC) 04/11/08; HUM: O (IC) 10/03/08; IBM: O (RC) 07/13/05; ICE: O (IC) 06/19/07; INFY: M (IC) 09/23/05; INTC: M (IC) 06/04/09; IR: O (IC) 10/06/10, M (DC) 07/16/10, M (IC) 06/06/07; ISP.IM: O (IC) 10/15/10, M (DC) 07/21/08; ITV.LN: U (RC) 05/27/10, M (RC) 01/21/09; ITX.SM: O (RC) 03/26/07; JDSU: O (RC) 08/11/10, M (RC) 10/31/08; JNJ: M (IC) 05/22/09; JNPR: M (RC) 11/12/07; JPM: O (IC) 08/12/08; K: O (IC) 08/02/06; KAZ.LN: M (IC) 11/19/09; KEY: M (RC) 04/19/05; KFT: O (IC) 08/02/06; KGF.LN: O (RC) 01/07/10, M (RC) 09/14/09; KMB: M (IC) 05/07/07; KO: O (IC) 11/16/10, M (DC) 01/31/08; KPN.NA: M (RC) 03/17/10, O (IC) 10/13/09; LEAP: O (IC) 12/14/09; LIN.GR: M (IC) 09/16/10; LKOD.LI: U (IC) 01/15/09; LLY: M (IC) 10/23/07; LMI.LN: M (RC) 05/17/10, U (IC) 11/19/09; LMT: O (IC) 01/04/05; LNC: O (RC) 09/08/09; LOW: M (RC) 05/11/09; LPLA: M (IC) 12/28/10; LSE.LN: O (RC) 06/09/09; LVS: O (IC) 02/25/09; LXK: O (RC) 09/06/07; MA: M (RC) 09/13/10, O (IC) 02/02/10, M (DC) 11/05/08; MAR: O (RC) 10/26/10, M (IC) 02/25/09; MC.FP: M (RC) 03/09/10, O (IC) 04/29/08; MCD: O (IC) 09/25/09; MCK: O (RC) 12/15/10, M (IC) 01/16/09; MDT: O (RC) 12/17/10, M (IC) 05/22/09; MEO.GR: M (RC) 12/06/10, O (RC) 09/01/10, M (RC) 06/01/09; MET: O (RC) 01/15/08; MGM: M (RC) 08/06/09; MHS: O (IC) 01/16/09; MI: M (RC) 12/20/10, O (RC) 09/13/10, M (RC) 04/21/10, O (RC) 09/21/09; MKC: M (RC) 07/08/10, O (IC) 01/07/10; MKS.LN: O (RC) 05/19/10, M (RC) 10/16/09; MMM: O (RC) 02/11/10, M (RC) 06/17/09; MMT.FP: M (IC) 02/02/06; MOT: O (IC) 12/08/09; MRK: O (RC) 03/13/09; MRK.GR: M (RC) 08/12/09; MRW.LN: M (RC) 08/13/07; MRX: M (RC) 10/29/10, O (RC) 06/30/10, M (RC) 10/23/09; MS: O (RC) 08/09/07; MS.IM: M (RC) 12/17/09; MTB: M (RC) 03/04/10, O (RC) 05/19/09; MU: M (DC) 07/06/06; MYL: O (RC) 08/09/10, M (RC) 05/14/09; NATP.IN: M (IC) 06/23/10; NBR: O (RC) 09/07/07; NE: M (RC) 02/19/09; NEE: M (IC) 12/18/09; NESN.VX: O (IC) 02/21/02; NOBN.VX: M (IC) 09/19/08; NOC: O (RC) 02/12/09; NOK: U (RC) 09/27/10, M (RC) 04/26/10, O (RC) 11/17/08; NOK1V.FH: U (RC) 09/27/10, M (RC) 04/26/10, O (RC) 11/17/08; NOVN.VX: M (IC) 10/23/07; NOVOB.DC: M (RC) 07/28/09; NSM: M (RC) 03/12/10, U (IC) 06/04/09; NSRGY: O (IC) 04/22/03; NTRS: M (IC) 06/09/09; NVO: U (RC) 08/29/08; NVS: O (RC) 05/09/08; NVTK.LI: O (IC) 01/15/09; NXT.LN: M (IC) 05/26/06; ODP: O (IC) 11/07/01; OGZD.LI: O (RC) 07/16/09; ONGC.IN: M (RC) 11/17/09; OR.FP: U (RC) 01/13/09; ORLY: M (IC) 05/06/08; OSH.AU: O (IC) 06/29/09; PAH3.GR: M (RC) 03/23/10, O (RC) 01/06/10, M (IC) 10/13/08; PAYX: M (RC) 01/27/09; PCG: O (RC) 03/22/07; PCS: M (RC) 08/09/10, O (IC) 12/14/09; PDE: M (RC) 12/17/10, O (IC) 10/01/09; PEP: O (IC) 11/16/10, O (DC) 01/31/08; PFE: O (RC) 11/01/10, M (IC) 10/23/07; PFG: M (RC) 09/21/09; PG: M (RC) 01/15/09; PHIA.NA: M (RC) 10/14/09; PLCM: O (IC) 09/08/10; PMI.IM: O (IC) 10/15/10; PMO.LN: O (RC) 02/19/10, M (IC) 01/22/09; PNC: M (RC) 08/24/09; POP.SM: U (IC) 10/15/10; PP.FP: M (RC) 09/30/10, O (IC) 05/26/06; PRU: O (RC) 10/09/03; PSON.LN: O (IC) 12/04/07; PTC.PL: U (RC) 12/15/10, M (RC) 07/30/10, U (RC) 07/09/10, M (RC) 06/03/10, O (IC) 05/12/10, M (DC) 02/04/08; PTEN: O (RC) 09/07/07; PTR: O (IC) 06/29/09; PTTEP.TB: M (IC) 06/11/10; PUB.FP: O (IC) 11/30/10; QCOM: O (IC) 06/04/09; RB/.LN: M (RC) 10/22/07; RCL: O (RC) 08/19/09; RDC: M (RC) 02/19/09; RDS/A: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDS/B: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSA.LN: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSA.NA: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSB.LN: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSB.NA: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; REL.LN: M (RC) 05/07/10, O (IC) 12/04/07; REN.NA: M (RC) 05/07/10, O (IC) 12/04/07; RF: O (RC) 09/13/10, M (RC) 04/21/10, O (RC) 09/21/09; RHHBY: M (IC) 11/12/09; RI.FP: O (RC) 12/18/07; RIG: O (RC) 02/19/09; RIGD.LI: M (RC) 04/27/10, O (IC) 12/18/09; RIL.IN: M (RC) 04/27/10, O (IC) 06/29/09; RIM.CN: U (IC) 10/20/09; RIMM: U (IC) 10/06/09; RIO: O (RC) 05/17/10, M (IC) 01/13/10, O (DC) 06/04/09; RIO.LN: O (RC) 05/17/10, M (IC) 11/19/09; RNO.FP: O (RC) 04/06/09; ROG.VX: M (IC) 11/12/09; ROSN.LI: U (IC) 01/15/09; RPWR.IN: U (IC) 06/23/10; RR/.LN: M (RC) 11/30/09; RTN: M (RC) 02/12/09; S: U (RC) 01/19/10, M (IC) 10/17/07; SAB.LN: O (IC) 03/02/06; SAB.SM: U (IC) 10/15/10; SAN.FP: M (IC) 10/23/07; SAN.SM: M (IC) 10/15/10, O (DC) 07/21/08; SAPE: O (RC) 09/26/03; SBRY.LN: M (RC) 09/10/08; SBUX: O (IC) 09/25/09; SCHW: M (RC) 02/02/09; SGGD.LI: U (IC) 01/15/09; SHP.LN: M (RC) 07/30/10, O (RC) 11/23/09; SHPGY: M (RC) 07/30/10, O (RC) 11/23/09; SIE.GR: M (RC) 06/24/10, O (RC) 09/03/09; SJM: M (IC) 02/12/10; SLB: M (IC) 09/19/07; SLE: O (RC) 12/14/10, M (RC) 02/11/09; SN/.LN: U (RC) 08/03/09; SNN: U (RC) 08/03/09; SNP: M (IC) 06/29/09; SNV: O (RC) 01/29/10, M (RC) 11/05/08; SNY: M (IC) 10/23/07; SPLS: O (RC) 06/15/06; SPR: M (RC) 04/14/09; STI: M (RC) 10/19/07; STJ: O (IC) 05/22/09; STL.NO: M (IC) 01/22/09; STMN.SW: O (IC) 09/19/08; STO: M (IC) 01/22/09; STO.AU: O (RC) 07/12/10, M (RC) 04/09/10, O (IC) 06/29/09; STT: M (RC) 05/28/10, O (IC) 06/09/09; SU.FP: O (RC) 10/27/09; SYK: O (RC) 05/04/10, M (IC) 05/22/09; SYNN.VX: M (IC) 09/16/10; SYST.VX: M (RC) 09/28/09; T: M (RC) 01/05/09; TCSL3.BZ: O (RC) 07/30/10, M (IC) 05/12/10; TCSL4.BZ: M (IC) 05/12/10; TEF.SM: M (RC) 06/03/10, U (RC) 04/30/09; TEVA: M (RC) 07/26/10, O (IC) 03/07/06; TFI.FP: U (RC) 06/09/09; TGT: O (IC) 09/30/09; THC: M (DC) 02/10/06; TIT.IM: O (RC) 02/18/10, M (RC) 11/18/09; TITR.IM: O (RC) 02/18/10, M (RC) 11/18/09; TLPP3.BZ: U (IC) 05/12/10; TLPP4.BZ: U (IC) 05/12/10; TLW.LN: O (IC) 01/22/09; TOT: O (IC) 08/03/10, M (DC) 08/02/10, M (RC) 02/16/10, O (IC) 05/30/03; TRI: M (IC) 04/29/09; TRI.CN: M (IC) 04/29/09; TSCO.LN: O (IC) 06/07/06; TSP: U (IC) 05/12/10; TSU: M (IC) 05/12/10; TWC: O (RC) 11/02/10, M (RC) 05/10/10, O (IC) 03/13/07; TXN: O (RC) 10/30/09; TYC: M (RC) 09/15/10, O (RC) 06/17/09; UBI.IM: M (IC) 10/15/10; UBSN.VX: O (RC) 07/30/10, U (RC) 03/03/09; UCG.IM: U (IC) 10/15/10, O (DC) 07/21/08; UG.FP: M (RC) 01/18/10, O (IC) 10/13/08; UHR.VX: O (RC) 09/30/10, M (IC) 04/24/09; UHS: M (DC) 02/10/06; UL: O (RC) 05/13/09; ULVR.LN: O (RC) 05/13/09; UN: O (RC) 05/13/09; UNA.NA: O (RC) 05/13/09; UNH: O (RC) 03/17/09; USB: M (IC) 03/12/09; UTX: M (RC) 01/23/09; V: M (RC) 09/13/10, O (IC) 02/02/10, M (DC) 11/05/08; VIV: O (RC) 12/15/10, M (IC) 05/12/10; VIV.FP: M (IC) 10/17/08; VIVO3.BZ: M (RC) 07/30/10, U (RC) 07/09/10, M (IC) 05/12/10; VIVO4.BZ: O (RC) 12/15/10, M (IC) 05/12/10; VMW: U (DC) 10/30/08; VOD: O (RC) 04/16/09; VOD.LN: O (RC) 04/16/09; VOW.GR: M (RC) 08/17/10, U (RC) 03/23/10, M (RC) 01/06/10, U (IC) 05/14/09; VOW3.GR: M (RC) 08/17/10, U (RC) 03/23/10, M (RC) 10/14/09; VRTX: O (RC) 06/01/04; VWS.DC: U (RC) 08/25/10, M (RC) 05/14/09; VZ: U (RC) 10/12/10, M (RC) 02/09/10, U (RC) 01/05/09; WEN: M (IC) 09/25/09; WFC: O (RC) 09/21/09; WFT: O (RC) 08/18/10, M (RC) 12/16/08; WKL.NA: M (IC) 12/04/07; WLP: M (IC) 10/03/08; WMT: M (IC) 09/30/09; WPI: M (IC) 03/07/06; WPL.AU: O (RC) 11/17/09; WPP.LN: O (IC) 11/30/10, O (DC) 04/22/10, O (IC) 03/30/04; WSM: M (RC) 05/11/09; WYNN: M (RC) 05/06/09; XTA.LN: M (IC) 11/19/09; YUM: M (IC) 09/25/09; ZION: O (RC) 09/13/10, M (RC) 04/20/10, O (IC) 10/13/09; ZMH: O (RC) 09/21/09;

Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated

Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change

OTHER DISCLOSURES

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Bernstein Research - Gold 04.01.2011

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