Gold Survey 2010 Philip Klapwijk Executive Chairman, GFMS Ltd. - - PowerPoint PPT Presentation

Gold Survey 2010

Philip Klapwijk

Executive 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.com www.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.uk

• r email: charles.demeester@gfms.co.uk

The GFMS Group’s Unique Research Capabilities & Programme

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 Price

Weekly 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%

Source: GFMS; Thomson Reuters

Euro/kg US$/oz Rupee 10g/g

Gold Prices in Different Currencies

Indexed Daily Series

Source: GFMS; Thomson Reuters

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

• ther key inputs
• Global analysis and forecasting of mine supply, breakdown
• f industry cost structures and trends, benchmarking

Gold Mine Production

Australia 2009 up 163t

• r 6.8% yoy

Source: GFMS (Gold Survey 2010)

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 Africa

Source: GFMS

Russia Mongolia

Latin America North America South Africa Other

Major Western World Mines' Cash Costs

(in money-of-the-day terms)

Source: GFMS (Gold Survey 2010)

Australia

Year-on-Year Changes to Cash Costs

Source: GFMS (Gold Survey 2010)

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…

Source: GFMS (Gold Survey 2010)

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 Stocks

2009 compared to 2008

Source: GFMS (Gold Survey 2010)

Regional Changes in Scrap Supply

2009 compared to 2008

Source: GFMS (Gold Survey 2010)

Jewellery Fabrication & Scrap Supply

Source: GFMS (Gold Survey 2010)

Jewellery Fabrication Scrap Supply

Above-Ground Jewellery Stocks by Region, end-2009

Source: GFMS (Gold Survey 2010)

CBGA and Other Gold Sales

Other CBGA

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

Source: GFMS (Gold Survey 2010)

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%

Source: GFMS (Gold Survey 2010)

World Gold Fabrication

Developing Countries Industrialised Countries

2009 down 472t

• r 16% yoy

Source: GFMS (Gold Survey 2010)

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 America Other Latin America

Source: GFMS (Gold Survey 2010)

Fabrication Demand in 2009

A sharp decline in jewellery demand was the principal driver

• f 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
• nce per quarter by GFMS, in association with Société

Générale.

Net Market Impact of Producer Hedging

Supply Demand

Source: GFMS (Gold Survey 2010)

* 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*

Source: GFMS (Gold Survey 2010)

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 Source: GFMS (Gold Survey 2010)

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 Price

2006 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

Source: GFMS (Gold Survey 2010)

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 Source: GFMS (Gold Survey 2010)

• 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

• f 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 Source: GFMS (Gold Survey 2010)

Price Outlook

• Investors will remain the principal driver of prices this year, with a breach
• f $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

• bjectives, 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