Central Banks: Inactive or Active? . PHILIP KLAPWIJK Managing - - PowerPoint PPT Presentation

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Central Banks: Inactive or Active? . PHILIP KLAPWIJK Managing - - PowerPoint PPT Presentation

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Central Banks: Inactive or Active? . PHILIP KLAPWIJK Managing Director, Precious Metals Insights Limited BLOOMBERG PRECIOUS METALS FORUM London,18 th May 2016 www.preciousmetalsinsights.com 2 Central Banks: Inactive or Active? Official

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Central Banks: Inactive or Active?

.

PHILIP KLAPWIJK

Managing Director, Precious Metals Insights Limited BLOOMBERG PRECIOUS METALS FORUM London,18th May 2016

www.preciousmetalsinsights.com

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Central Banks: Inactive or Active?

  • Official sector holds roughly 18% of above-ground gold stock
  • Shift from net seller to net buyer of gold since 2010

– Gross gold sales have collapsed (especially from Europe / Central Bank Gold Agreement) – China and Russia by far the most important buyers; relatively few other countries have added gold to reserves

  • Massive reduction in gold loans / swaps by central banks in

last 10-plus years

– Credit issues with counterparty commercial banks – Collapse in borrowing demand from producer hedging – Slump in gold lease rates

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TOTAL OFFICIAL SECTOR GOLD RESERVES

5000 10000 15000 20000 25000 30000 35000 40000 45000 1948 1958 1968 1978 1988 1998 2008 Tonnes (end-year)

Source: IMF

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4 Other Stocks 82% Official Holdings 18%

ABOVE-GROUND STOCKS OF GOLD

Source: WGC; IMF

Total Above-Ground Stocks, end 2015 = 186,700t

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CHANGES IN ABOVE-GROUND STOCKS BY SECTOR, 2010-15 (NET CUMULATIVE CHANGE)

Source: Metals Focus

1000 2000 3000 4000 5000 6000 7000 8000

Jewellery Other Fabrication Private Investment Official Sector

Tonnes

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  • 600
  • 400
  • 200

200 400 600 1950s 1960s 1970s 1980s 1990s 2000s 2010s Tonnes

Source: IMF; Thomson Reuters GFMS (from Bloomberg); Metals Focus

OFFICIAL SECTOR PURCHASES & SALES

(ANNUAL AVERAGE IN TONNES, BY DECADE)

Net Sales Net Purchases

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ANNUAL NET CHANGE IN OFFICIAL SECTOR HOLDINGS

  • 800
  • 700
  • 600
  • 500
  • 400
  • 300
  • 200
  • 100

100 200 300 400 500 600 700 800

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016F

Annual Net Change in Tonnes

Net Purchases

Source: Thomson Reuters GFMS (from Bloomberg); Metals Focus; Precious Metals Insights

Net Sales

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2000 4000 6000 8000 10000 12000 Tonnes 6%

TOP 15 GOLD RESERVE HOLDERS

56%

% = Gold’s share of central bank’s total reserves at market prices

72% 2% 13% 3% 66% 2% 8% 20% 27% 2% 5% 16%

Source: IMF

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OFFICIAL SECTOR SALES

100 200 300 400 500 600 700 1999 2001 2003 2005 2007 2009 2011 2013 2015 Tonnes CBGA IMF (On-market Sales) OTHERS (Net Basis)

Source: Thomson Reuters GFMS (from Bloomberg); Metals Focus

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500 1000 1500 2000 2500 3000 3500 US$ (Billion) 3%

TOP 15 FOREIGN EXCHANGE HOLDERS

2%

% = Gold’s share of central bank’s total reserves at market prices

2% 56% 6% 2% <1% 1% <1% 3% 3% 8% 13% 1% 5%

Source: IMF

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OFFICIAL SECTOR PURCHASES

100 200 300 400 500 600 700 2010 2011 2012 2013 2014 2015 2016F Tonnes China + Russia Others*

*Gross Purchases Source: Metals Focus; Precious Metals Insights

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GOVERNMENT BOND YIELD CURVES

  • 1.00
  • 0.75
  • 0.50
  • 0.25

0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75

3-Month 1-Year 2-Year 3-Year 5-Year 10-Year 30-Year

Interest Rate in %

UNITED STATES

Source: Bloomberg

GERMANY JAPAN

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< 0% 0 - 1% > 1%

OUTSTANDING INVESTMENT GRADE SOVEREIGN BONDS DISTRIBUTION BY YIELD*

*As of 21/03/16: Sovereign Debt from Australia, Canada, Denmark, Euro Area, Japan, Sweden, Switzerland, UK, USA

Source: WGC

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75 80 85 90 95 100 105 110 115 120 125 130

1973-01-01 1979-01-01 1985-01-01 1991-01-01 1997-01-01 2003-01-01 2009-01-01 2015-01-01

REAL TRADE WEIGHTED US DOLLAR INDEX

Source: Federal Reserve Bank of St Louis

Real Trade Weighted US Dollar Index (Broad)

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1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 02/01/2014 02/07/2014 02/01/2015 02/07/2015 02/01/2016

GOLD PRICE

Source: LBMA

US$/oz

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OFFICIAL SECTOR LENDING & PRODUCER HEDGING

Source: Precious Metals Insights; Metals Focus

end-1999 end-2015 end-1999 end-2015

Tonnes (end-year)

OFFICIAL SECTOR DEPOSITS + SWAPS PRODUCER HEDGE BOOK (DELTA ADJUSTED)

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0.0 0.5 1.0 1.5 2.0 2.5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GOLD LEASING RATES (12-MONTH; ANNUAL AVERAGES)

Source: Various

12-Month Gold Leasing Rate in %

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EMERGING MARKETS 10-YEAR GOVERNMENT BONDS’ SPREADS OVER US 10-YEAR

200 400 600 800 1,000 1,200 1,400 1,600 1,800

Argentina Brazil Chile Colombia Egypt Greece India Indonesia Mexico Pakistan Philippines Russia South Africa Turkey

Emerging Markets 10-Year Spreads in Basis Points Source: Bloomberg

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  • 4.0
  • 3.0
  • 2.0
  • 1.0

0.0 1.0 2.0 02/01/2014 02/07/2014 02/01/2015 02/07/2015 02/01/2016

GOLD 25-DELTA RISKS REVERSAL*

*Difference in implied volatility between 25-delta call and put options. Illustrates whether interest in the gold options market is skewed to the call side (if positive) or the put side (if negative), as well as the extent of the skew Source: Metals Focus; Bloomberg

Difference in Implied Volatility in %

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Central Banks: Inactive or Active?

  • Net official sector purchases should continue over the next few years

at least:

– Existing large holders (CBGA, US, IMF) still unlikely sellers – Bias towards purchases rather than sales in Rest-of-World – China and Russia may continue to add gold to reserves

  • Some countries could use existing gold reserves for swaps:

– Outright sales may be too politically or market sensitive – Gold swaps can provide access to hard currency loans at significantly reduced borrowing costs for countries with a low credit rating

  • Using options to earn a return on ‘idle’ gold reserves or to protect

their value makes sense but central bank reserve managers are very conservative

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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, guarantee, condition

  • r warranty, express or implied, is made that such information is accurate or

complete and it should not be relied upon as such. Accordingly, Precious Metals Insights Limited accepts no liability whatsoever to the people or organizations attending this presentation, or to any third party, in connection with the information contained in, or any opinion set out or inferred or implied in, this presentation. This presentation does not purport to make any recommendation or provide investment advice to the effect that any gold, silver, platinum or palladium 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
  • r solicitation to buy or sell gold, silver, platinum or palladium or any gold, silver,

platinum or palladium related products. Expressions of opinion are those of Precious Metals Insights Limited only and are subject to change without notice.