Gold Survey 2010 Presentation_London_public

8/9/2019 Gold Survey 2010 Presentation_London_public

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Gold Survey 2010Philip Klapwijk

Executive Chairman, GFMS Ltd.

London, 14thApril 2010


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GFMS gratefully acknowledge the generoussupport from the following companies for this

years Gold Surveyand its two Updates

ScotiaMocatta

Tanaka Precious Metals Group

Kinross Gold Corporation www.randrefinery.com

Barrick Gold Corporation

www.newmont.comwww.IBKCapital.com

Johnson Matthey

World Gold Council

www.nyse.com/nyseliffeus

INTL Commodities, INC.www.natexiscm.com

www.pamp.com

Dubai Multi Commodities

Centre

www.commodities.sgcib.com

Commerzbank GlobalPrecious Metals Valcambi sa

JPMorgan Chase Bank

www.ljgold.com

www.standardbank.com


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Large and experienced team of 25 Analysts + Consultants.

Not just desk-based: Over 300 companies and organisations in

36 countries visited by our personnel in the last 12 months.

Annual Gold, Silver, Platinum & Palladium and Copper Surveys.

Also, weekly, monthly, quarterly & bi-annual reports plus

forecasts and a wide range of consultancy services across allthe precious and base metals & steel.

For more information visit: www.gfms.co.ukor email: [email protected]

The GFMS Groups Unique ResearchCapabilities & Programme
http://www.gfms.co.uk/http://www.gfms.co.uk/


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Presentation Outline

Gold Prices

Supply

Demand

Outlook


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US Dollar Gold PriceWeekly Averages

26-week moving average

US$/oz

DOLLAR 2008 2009 Q1 2010

Average 871.96 972.35 1,109.12

Intra-Year 2.7% 24.4% -0.5%

Year-on-Year 25.4% 11.5% 22.1%

Source: GFMS; Thomson Reuters


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Euro Gold PriceWeekly Averages

Euro/oz

26-week moving average

EURO 2008 2009 Q1 2010

Average 593.09 696.94 802.51

Intra-Year 6.9% 21.5% 6.1%

Year-on-Year 17.0% 17.5% 15.0%



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Euro/kg

US$/oz

Rupee 10g/g

Gold Prices in Different CurrenciesIndexed Daily Series



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Real and Nominal Gold Prices(real US$ price in constant 2009 terms)

Nominal Price

Real Price

Source: GFMS, Thomson Reuters

New record nominalannual average reached in

2009, but in real termstodays prices are still wellshort of historical peaks.

1980 average: $1,600


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Supply


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Gold Supply in 2009

2008 2009 y-o-y

Mine production 2,409 2,572 6.8%

Official sector sales 232 41 -82.2%

Old scrap supply 1,316 1,674 27.2%

TOTAL SUPPLY 3,957 4,287 8.3%

Source: GFMS (Gold Survey 2010)


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GFMS Mine Supply Database Over 100 companies analysed on a quarterly basis

production/costs/corporate activity Over 300 mines recorded on an annual basis

production/costs/reserves/grade

Over 320 projects projected production profile, start-up

date, capex, reserves, resources Informal mine production measured on a country-by-

country basis

Costs measured at 70% of Western World gold production

Bottom-up cost analysis methodology to assess $/tonnemining, ore processing and on-site administration costs,plus benchmarking of fuel, power, labour productivity andother key inputs

Global analysis and forecasting of mine supply, breakdown

of industry cost structures and trends, benchmarking


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Gold Mine Production

Australia2009 up 163tor 6.8% yoy


North America

Latin America

South AfricaChina

Other


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Argentina

Ghana

Mine Production: Winners and Losers(Figures represent year-on-year change, i.e. 2009 less 2008)

Indonesia

UnitedStates

China

SouthAfrica

Source: GFMS

Russia

Mongolia


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Latin

America

NorthAmerica

South Africa

Other

Major Western World Mines' Cash Costs(in money-of-the-day terms)


Australia


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Year-on-Year Changes to Cash Costs


464 478

+21

+10

+12

+6+5

+5 +3

-4

-12

-33

2009 vs 2008


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Mine Production

163 tonne increase equal to 6.8% y-o-y in 2009; the firstannual increase for three years.

Strong increases from a suite of new projects and operatingmines. Strong country gains in Indonesia, China, Russia,

Argentina, Brazil and Mexico.

All regions posted growth, except for North America. Twolargest falls at the mine level were seen in the UnitedStates.

US dollar denominated total cash costs increased by anaverage 3%, or $14/oz, to $478/oz in 2009.

GFMS proprietary All-In Costs measure increased by 3.9%to $717/oz.


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Above-Ground Stocks of Gold, end-2009

Above-ground Stocks,end 2009 = 166,000t

Gold is not consumed like most commodities; stocks can be

available at the right price



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Supply from Scrap, Hedging & Official Sales

Hedging SupplyScrap

Net Official Sector Sales

Secular increase in supply 1987-99

Flat trend since 2000?

Source: GFMS


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Change in Supply from Above-Ground Stocks2009 compared to 2008



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Regional Changes in Scrap Supply2009 compared to 2008



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Jewellery Fabrication & Scrap Supply


Jewellery Fabrication

Scrap Supply


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Above-Ground Jewellery Stocks by Region,end-2009



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CBGA and Other Gold Sales

Other

CBGA

CBGA refers to signatories to the Central Bank Gold AgreementOther refers to all other countries



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Demand


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Gold Demand in 2009

2008 2009 y-o-yFabrication

Jewellery 2,193 1,759 -19.8%

Other 696 658 -5.4%Total Fabrication 2,889 2,417 -16.3%

Bar hoarding 386 187 -51.6%

Net producer de-hedging 352 254 -27.8%

Implied net investment 330 1,429 332.9%

TOTAL DEMAND 3,957 4,287 8.3%



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World Gold Fabrication

Developing CountriesIndustrialised Countries

2009 down 472t

or 16% yoy



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IndianS-C

MiddleEast

Europe

Jewellery Fabrication: Winners and Losers(Figures represent year-on-year change, i.e. 2009 less 2008)

East

Asia

North

America

Other

LatinAmerica



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Fabrication Demand in 2009

A sharp decline in jewellery demand was the principal driver

of the 16% or 472t fall in fabrication demand to 2,417 t.

Full year jewellery fabrication dropped by 20% or 434

tonnes, with higher gold prices and the economic downturn

the primary reasons for the fall.

Other fabrication fell by just 5.4% y-o-y to 658 tonnes in

2009. However, with all coins excluded, the drop reaches

15%. Electronics demand dropped by16%, largely due to the

economic crisis, particularly in the first half.


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GFMS Hedging Analysis

GFMS enter all hedging transactions into our hedging

database and the Brady Trinitysystem.

Trades are input on a quarterly basis by company,

instrument, year of expiry and currency.

Using detailed market data, accurate deltas and other

sensitivities are calculated.

Comprehensive global hedge book analysis is publishedonce per quarter by GFMS, in association with Socit

Gnrale.


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Net Market Impact of Producer Hedging

Supply

Demand



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* outstanding forward sales, loans and net delta hedge against positions

Outstanding hedge book just

236 tonnes at end-2009

Total Accelerated Supply from Producer Hedging*


I t t i 2009


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Investment in 2009

World Investment (which includes the implied figure, bar

hoarding and all coins) nearly doubled in 2009 to over 1,900tonnes and reached an approximate value of $60 billion.

The first few months of 2009 saw a record level of investment

demand. Fears about financial stability and economic

depression triggered a wave of safe haven buying, particularly inthe forms of gold ETFs and physical bullion products.

After a summer lull, investor activity, especially in the OTC and

futures markets, picked up strongly from September onwards,

primarily driven by a weaker dollar, higher price expectationsand growing concerns regarding future trends in inflation. This

surge in investment demand drove prices above $1,200, before a

loss of momentum and some profit taking brought about a price

correction in the final weeks of 2009.


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World Investment*

Value of WorldInvestment

*World Investment is the sum of Implied net investment, bar hoarding and all coins & medals



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Gold Exchange Traded Funds

Source: Respective issuers

At 31/12/2009, 617t rise

from 31/12/08


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Non-commercial & non-reportable net positions in futures taken as proxy for investors positions.Source: CFTC

Investors positions in gold futures in 2009(non-commercial & non-reportable positions in Comex & CBOT futures)

Gold Price2006 135k contracts

2007 157k contracts

2008 177k contracts

2009 219k contracts

Average size of net investor long.

European & North American


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European & North AmericanRetail Investment

Europe

North America



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Price Outlook

G ld S l 2008 2010F


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Gold Supply 2008-2010F

Mine Production

Scrap

Official Sector

Source: GFMS


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Supply in 2010

Mine Production forecast to increase this year but at aslower pace, just over 2%, compared to the nearly 7%year-on-year growth seen in 2009.

Official Sales expected to recover in 2010, mainly

driven by 191 tonnes on-market sales by the IMF.Disposals from current CBGA members to be subduedwhile other countries to be small scale net buyers.

Scrap forecast to be lower year-on-year in first half but

higher in second half, with full year total little changed.

Overall supply growth in 2010 to slow to perhapsaround 5% compared to 2009s rapid 8% pace.

G ld D d 2008 2010F


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Gold Demand 2008-2010F

Other Fabrication

Producer De-Hedging

*World Investment is sum of Implied Net Investment, Bar Hoarding and all Coins & Medals


Jewellery

D d i


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Demand in 2010

In spite of a reasonable first quarter, for full year 2010

jewellery demand will recover only modestly, due tohigher prices and constrained budgets, especially in lightof continued economic weakness in many countries.Concentrated buying expected on price dips.

Other fabrication set to recover in 2010, due to growthin the electronics sector.

Prospects for further de-hedging are limited by the now

very low outstanding producer hedgebook. Investor interest in gold is expected to remain strong

throughout this year and potentially well into 2011.


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Investment in 2010?

Backdrop for investment in 2010 will remain positive as long as:

Zero to negative real short term interest rates continue in all majorcurrencies.

Concerns over sovereign debt increase and crisis spreads fromEurope to United States.

Inflation expectations grow, especially in the US with its expected$1.6 trillion FY 2010 deficit and probable debt monetization.

Notwithstanding the above, risk may be growing of short-term and

temporary sell-off by investors if fears of double-dip triggerliquidations across all risky assets.

Longer-term, gold price vulnerability is rising due to investmentsexceptionally high share of demand and the increasing size ofinvestors near-market bullion stocks.


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World Investment* & Fabrication (excluding all coins)(1980-2010F)

Fabrication

World Investment

*World Investment = the sum of implied investment, bar hoarding and all coins


Price Outlook


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Price Outlook Investors will remain the principal driver of prices this year, with a breachof $1,300 in the second half still a possibility, although perhaps no longer astrong probability.

In the short term, prices could retrace from current levels; the mid$1,000s are a possible low over the next three months, with prices in thatregion most likely to be eventually pushed up again by bargain hunting andstock replenishment.

Supply expected to rise fairly strongly in 2010, with growth in mineproduction, and, from a very low base, official sector sales, the latter alsoexpected to be concentrated in the second half. Scrap supply has fallenyear-to-date but should recover in the latter part of 2010 basis higher priceconditions. These will also mean that there is only a moderate recovery infabrication demand for the calendar year as a whole.

Imbalances in the market suggest that at some point the gold price willhave to retreat. Nevertheless, this is most unlikely to occur on a secularbasis in 2010 and potentially not until well into 2011 given current economicconditions, which in an underlying sense still favour gold investment.


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GFMS Gold Price Forecast for 2010

Source: GFMS

Forecast Average: $1,170Forecast Range: $1,050-$1,300


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GFMS Forthcoming Events

22 April 2010: Platinum & Palladium Survey 2010

27 May 2010: World Silver Survey 2010

September 2010: Gold Survey 2010 Update 1


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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 anyrecommendation 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.

Producer Hedging in 2009


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Producer Hedging in 2009

Producer de-hedging generated 254 tonnes of demand in 2009.

Net supply from the mining industry increased 13% to a four-

year high.

The delta-adjusted hedge book, at end-2009, stood at just 236

tonnes, equivalent to one month of annual mine supply.

Major de-hedging undertaken by several key participants:

Dominated by Barrick in the second half of 2009, though well

supported by AngloGold Ashanti. Outlook: Given the now very limited volume (historically) of the

producer book, and its concentration among few producers,

GFMS expect a further slowing of the rate of de-hedging in 2010.

Jewellery Fabrication and World Investment Demand


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WorldInvestment

Jewellery Fabrication(excluding scrap supply)

Je e e y ab cat o a d o d est e t e a d(Excluding Scrap, Quarterly)

Source: GFMS; *the sum of implied, investment, bar hoarding, all coins


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