Gold Survey 2010 - The Silver Mountain · Full year jewellery fabrication dropped by 20% or 434...

Gold Survey 2010

Philip KlapwijkExecutive Chairman, GFMS Ltd.

London, 14th April 2010

GFMS gratefully acknowledge the generous support from the following companies for this

year’s Gold Survey and 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 Global Precious Metals Valcambi sa

JPMorgan Chase Bank

www.ljgold.com

www.standardbank.com

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 all the precious and base metals & steel.

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

The GFMS Group’s Unique Research Capabilities & Programme

http://www.gfms.co.uk/

Presentation Outline

• Gold Prices

• Supply

• Demand

• Outlook

US Dollar Gold Price Weekly 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

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%


Euro/kg

US$/oz

Rupee 10g/g

Gold Prices in Different CurrenciesIndexed Daily Series


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

Nominal Price

Real Price

Source: GFMS, Thomson Reuters

New record nominal annual average reached in

2009, but in real terms today’s prices are still well short of historical peaks.

1980 average: $1,600

Supply

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)

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 $/tonne mining, ore processing and on-site administration costs, plus benchmarking of fuel, power, labour productivity and other key inputs

• Global analysis and forecasting of mine supply, breakdown of industry cost structures and trends, benchmarking

Gold Mine Production

Australia

2009 up 163t

or 6.8% yoy


North America

Latin America

South Africa

China

Other

Argentina

Ghana

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

Indonesia

United

States

China

South

AfricaSource: GFMS

Russia

Mongolia

Latin

America

North

America

South Africa

Other

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


Australia

Year-on-Year Changes to Cash Costs


464 478

+21

+10

+12

+6+5

+5+3

-4

-12

-33

2009 vs 2008

Mine Production

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

Strong increases from a suite of new projects and operating mines. Strong country gains in Indonesia, China, Russia, Argentina, Brazil and Mexico.

All regions posted growth, except for North America. Two largest falls at the mine level were seen in the United States.

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

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

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…


Supply from Scrap, Hedging & Official Sales

Hedging Supply

Scrap

Net Official Sector Sales

Secular increase in supply 1987-99

Flat trend since 2000?

Source: GFMS

Change in Supply from Above-Ground Stocks2009 compared to 2008


Regional Changes in Scrap Supply2009 compared to 2008


Jewellery Fabrication & Scrap Supply


Jewellery Fabrication

Scrap Supply

Above-Ground Jewellery Stocks by Region, end-2009


CBGA and Other Gold Sales

Other

CBGA

“CBGA” refers to signatories to the Central Bank Gold Agreement“Other” refers to all other countries


Demand

Gold Demand in 2009

2008 2009 y-o-y

Fabrication

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%


World Gold Fabrication

Developing Countries

Industrialised Countries2009 down 472t

or 16% yoy


Indian

S-C

Middle

East

Europe

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

East

Asia

North

AmericaOther

Latin

America


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.

GFMS’ Hedging Analysis

• GFMS enter all hedging transactions into our hedging

database and the Brady Trinity system.

• 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 published

once per quarter by GFMS, in association with Société

Générale.

Net Market Impact of Producer Hedging

Supply

Demand


* 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*


Investment in 2009

• World Investment (which includes the implied figure, bar

hoarding and all coins) nearly doubled in 2009 to over 1,900

tonnes 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 in

the 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 expectations

and 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.

World Investment*

Value of World

Investment

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


Gold Exchange Traded Funds

Source: Respective issuers

At 31/12/2009, 617t rise

from 31/12/08

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

Retail Investment

Europe

North America


Price Outlook

Gold Supply 2008-2010F

Mine Production

Scrap

Official Sector

Source: GFMS

Supply in 2010

Mine Production forecast to increase this year but at a

slower 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 subdued

while 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 perhaps

around 5% compared to 2009’s rapid 8% pace.

Gold Demand 2008-2010F

Other Fabrication

Producer De-Hedging

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


• Jewellery

Demand in 2010

• In spite of a reasonable first quarter, for full year 2010 jewellery demand will recover only modestly, due to higher prices and constrained budgets, especially in light of continued economic weakness in many countries. Concentrated buying expected on price dips.

• Other fabrication set to recover in 2010, due to growth in 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.

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 major

currencies.

Concerns over sovereign debt increase and crisis spreads from

Europe 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‟ trigger

liquidations across all „risky assets‟.

Longer-term, gold price vulnerability is rising due to investment‟s

exceptionally high share of demand and the increasing size of

investors‟ near-market bullion stocks.

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• Investors will remain the principal driver of prices this year, with a breach of $1,300 in the second half still a possibility, although perhaps no longer a strong 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 that region most likely to be eventually pushed up again by bargain hunting and stock replenishment.

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

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

GFMS Gold Price Forecast for 2010

Source: GFMS

Forecast Average: $1,170

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

GFMS Forthcoming Events

• 22 April 2010: Platinum & Palladium Survey 2010

• 27 May 2010: World Silver Survey 2010

• September 2010: Gold Survey 2010 – Update 1

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.

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.

World

Investment

Jewellery Fabrication

(excluding scrap supply)

Jewellery Fabrication and World Investment Demand

(Excluding Scrap, Quarterly)

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

Gold Survey 2010 - The Silver Mountain · Full year jewellery fabrication dropped by 20% or 434...

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