Gold Investment Pitch
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Transcript of Gold Investment Pitch
BASIC MATERIALS
Ryan Shelley Bill McCarran Thao Truong
AGENDA
Current Holding Sub-Industries Sector Leaders Materials Outlook Deere & Co (DE) Alcoa (AA) SPDR Gold Trust (GLD) Recommendations Q&A
Current Holdings
Alcoa (AA) Purchased 9/14/11 283 shares @ $10.44
Deere & co (DE) Purchased Feb 25th 2011 25 Shares @ $90.49
S&P Basic Materials Weighting: 3.7%
Atkins Basic Materials Weighting: 5.3%
Purchase: 2.2%8/31/11: 2.2%YTD: 23.75%Purchase: (1.99%)8/31/11: 9.8%YTD: 14.41%
SPDR Gold Trust Gold Spot: $1,736
GLD: $168.50Mkt Cap: 71.46 BExpense: .4%
Beta: .11Inst own: 42%1 GLD= 1/10 an ounce
Who Holds gold
1. U.S. - $418 billion 2. Germany $174.7
billion 3. IMF $144.76 billion
4. Italy $ 126.12 billion
5. France $125.28 billion
6. SPDR Gold ETF $72 billion
20%
50%
18%
12%
World Gold Holdings
CBs
Jewlery
Investments
Industrial
Gold investment rationale
1. Demand > Supply
2. Increasing Global MS
3. Low Real Int Rates
4. Weak Dollar
5. Econ/Political uncertainty
6. Portfolio diversification
Gold Supply
2011: 2% Driven by
recycled Min-ing60%
Re-cy-
cled40%
China 14%
Australia 10%
US 9%
Africa 8%
Russia 8%
1. Demand > Supply
Gold Demand
2011: 6% Investment driven: 33% yoy Central Banks buying
1. Demand > Supply
Central Banks
Central Banks purchases were up 200% Signaling concerns about weak currency China: moving from Treasuries to Gold: +30%
YoY WGC predicts purchases to continue for 2012
Negative Real rates: continue to diversify to Metals
Gold as % of foreign reserves Developed nations: 70%
Brazil
.5%
Russia
8.2%
India 8.5%
China
1.6%
Japan
3%
1. Demand > Supply
Today’s World
Global debt crisis Devalue vs Default 1. Devalue:
Target Int rates Increase MS Weak currency
2. Default: Ugly
Debt/GDP
10yr bond
Greece
140% 25.11%
Italy 119% 7.26%
Ireland
96% 7.88%
US 100% 1.95%
Spain 60% 5.77%
Portugal
180% 15.22%
2. Global Money Supply
Global MS &Gold
Loose Global Monetary Policies QE programs: US, JAPAN, UK ECB LTRO to inject liquidity
2. Global Money Supply
United States
US Debt to GDP 100% Fed promises low int rates and
possible QE3
Stocks P/B: 2.05
Graph: Monetary policy & stocks1. Rates low to mid 20132. Operation Twist3. US $ liquidity4. ECB LTRO5. China stimulus6. Rates low to mid 2014
2. Global Money Supply
Europe & ECB
ECB initiates LTRO 3 yr loans to help fund $960B in debt due next
yr
2. Global Money Supply
Europe Crisis
Gold coin: “Heads I win, Tails you lose”
Bond Purchases
Est $2.5 Trillions
Italy+France+Greece
$5 Trillion Debt outstanding
3,4 times Feds QE
Currency break up
Greece returns to Drachma
Capital controls
Gold as currency?
No Resolution
Faith disappears
2. Global Money Supply
Japan
Debt-GDP: 220% 10yr yield .98%
60% debt to roll over in next 5 yrs More borrowing
April: $566 bill to fund budget 2011 first trade deficit- Needs weaker YEN
Sustainable? What’s the Trigger
S&P warn of a downgrade Europe default: Greece, Portugal?
QE boosted to $715B this Oct.
2. Global Money Supply
US Real Interest Rates
1. Implies poss. inflation
2. Investors seek alt. investments
3. Implies weak economy
Gold inverse relationship with real int rates
10 yr yield: 2% Real int rate: -.2%
Fed promise to keep rates low
Limited downside risk
3. Low Real Int Rates
Dollar Index & Gold
Weak dollar performance Debt, Feds weak $ policy, & Trade imbalance
4. Weak US $
Portfolio Diversification
Risk management Low Volatility Low Correlation Superior risk adjusted
return
6. Diversification
Gold Performance charts
Morgan: $2200
BofA: $2000 Barclays:
$1975
Risks
Stronger economy no QE3 Strong Dollar India demand CME Margin Hikes Further correction
Highlights
Physical Demand > supply China and India Miners quit hedges Global MS outpacing gold prices
Monetizing Debt More to liquidity to come
Falling Real interest rates Political stand still: EU, US Diversification benefits
Recommendations
Option 1: HOLD DEERE SELL ALCOA BUY SPDR GLD
Option 2: HOLD DE & AA
Q & A
Fear
Correlation to VIX
Gold and MS2. Global Money Supply
ETF VS MINING
Cutting out the middle man Geographical & Political risks
Africa High Energy Cost
Hurting Margins Top 4 Miners coming up empty handed
More $ chasing less Gold
Graph??????? Vs mining