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Precious Metals: Review and Outlook . PHILIP KLAPWIJK Managing Director, Precious Metals Insights Limited ETF Securities Annual Conference London, 21 st January 2015 www.preciousmetalsinsights.com PRECIOUS METALS: REVIEW AND OUTLOOK

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SLIDE 1

Precious Metals: Review and Outlook

.

PHILIP KLAPWIJK

Managing Director, Precious Metals Insights Limited

ETF Securities Annual Conference

London, 21st January 2015

www.preciousmetalsinsights.com

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SLIDE 2
  • Economic Assumptions
  • Gold
  • Silver
  • Platinum
  • Palladium

PRECIOUS METALS: REVIEW AND OUTLOOK

2

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SLIDE 3
  • Moderate slowdown in global GDP growth:
  • US the major exception
  • Eurozone and Japan especially weak
  • China moving towards 6% rate of growth
  • EMs generally ‘underperforming’
  • Tighter monetary policy in US but Fed very cautious about raising rates
  • ECB engages in large-scale QE
  • Continued appreciation of the USD against most currencies
  • Inflation to stay at trivial levels in 2015; deflation threat in Europe/Japan
  • Commodity prices in general remain depressed
  • US stock market to be more volatile but still trend up, this year at least
  • No ‘systemically important’ financial or political crises

ECONOMIC ASSUMPTIONS

3

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SLIDE 4

600 800 1,000 1,200 1,400 1,600 1,800 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

GOLD PRICE: MONTHLY AVERAGES JAN-07 TO DEC-14

Source: LBMA

General trend still appears to be downwards but moderately so, unlike first half of 2013.

US$/oz 4

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SLIDE 5

Supply/Demand

  • Supply from both mine production and scrap will decline in 2015.
  • Reduction in supply this year will not be large enough to affect price.
  • Global jewellery consumption will increase but fail to reach 2013’s level.
  • Demand growth in China and India will be solid but unspectacular.

Bullion Surplus Absorption

  • ‘Surplus’ will fall in 2015 but remain very large by historical standards.
  • Net official sector purchases to continue but at a reduced level.
  • Investment mostly limited to short term speculation and bars & coins.
  • No grounds at present time for expecting a new wave of investor purchases.

Economic & Political Backdrop

  • Continued appreciation of the USD will be a major negative for gold.
  • Tighter monetary policy in the US, with interest rates set to rise in 2015.
  • Inflation to stay at trivial levels in 2015; deflation threat in Europe/Japan.
  • Stock market to be more volatile but still trend up, this year at least.
  • Political risk may from time-to-time support prices but to a limited extent.

GOLD PRICE OUTLOOK 2015: CONSIDERATIONS

5

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SLIDE 6

GLOBAL GOLD SUPPLY: 2005-2015F

Source: Thomson Reuters GFMS; Precious Metals Insights

1000 2000 3000 4000 5000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015F

Tonnes Mine production Scrap Hedging

Decline in Total Supply of some 3% p.a. in both 2014 and 2015

6

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SLIDE 7

GLOBAL JEWELLERY CONSUMPTION: 2012-2015F

Source: Thomson Reuters GFMS; World Gold Council; Precious Metals Insights

500 1000 1500 2000 2500

2012 2013 2014F 2015F

Tonnes

Others China India

6% rise forecast globally in 2015.

7

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SLIDE 8

500 1000 1500 2000 2500 3000 3500 4000 4500 5000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015F

Tonnes

STRUCTURAL GOLD MARKET SURPLUS* FORECAST TO NARROW IN 2015

FABRICATION DEMAND (excluding coins) SUPPLY (mine production + scrap)

*Surplus = Mine Production plus Scrap minus Fabrication (excluding all coins) Source: Thomson Reuters GFMS; Precious Metals Insights

8 1,364 t bullion ‘surplus’ currently forecast for 2015

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SLIDE 9

20 40 60 80 100 120 140

500 1000 1500 2000 2500 3000

2007 2008 2009 2010 2011 2012 2013 2014E 2015F

Tonnes Net Producer De-hedging Net Official Sector Purchases World Investment** US$ Billion

Value of market surplus

(right hand scale)

‘Bullion surplus’ continues

to be absorbed by both private investors and the

  • fficial sector.

GOLD MARKET SURPLUS* ABSORPTION

Source: Thomson Reuters GFMS, Precious Metals Insights * Mine Production plus Scrap minus Fabrication (excluding all coins) ** World Investment is the sum of Implied Net Investment, Physical Bar Investment and all Coins & Medals

9

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SLIDE 10

WORLD INVESTMENT*: ANNUAL BY SOURCE

*World Investment is the sum of all categories of investment on a net basis in terms of their physical market impact. Source: Thomson Reuters GFMS, Precious Metals Insights

  • 1000
  • 750
  • 500
  • 250

250 500 750 1000 1250 1500 2009 2010 2011 2012 2013 2014E 2015F Tonnes

ETF BAR+COIN OTHER

Continued high levels historically

  • f bar and coin demand set to
  • ffset modest liquidations in ETFs

and ‘other’ category in 2015.

10

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SLIDE 11

GLOBAL ETF HOLDINGS & GOLD PRICE

(daily, 31/12/2012 to 07/01/2015)

200 400 600 800 1,000 1,200 1,400 1,600 1,800 500 1000 1500 2000 2500 3000 31/12/2012 31/12/2013 31/12/2014 Gold Price (US$/oz) Global ETF Holdings (Tonnes)

Gold Price

Source: Bloomberg

11 2014’s 164t net decline left holdings at end-year at 1,598t.

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SLIDE 12

5 10 15 20 25 30 35 40 200 400 600 800 1000 1200 1400 1600 1800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Gold Price US$/oz

Annual Average Gold Price

VALUE OF INVESTORS’ NET FUTURES POSITIONS ON COMEX* AND THE GOLD PRICE

Value of Investors’ Average Annual Net Long Gold Futures Positions on Comex

*Investors’ net positions taken as sum of net non-commercial and non-reportable futures positions; annual averages Source: CFTC; Precious Metals Insights

12

Value of Net Long Futures Positions in US$ Billions

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SLIDE 13
  • Drop in supply forecast for 2015, with mine production beginning a secular decline and a

further fall in recycling expected. Overall reduction in supply not large enough to matter this year, except (at the margin) perhaps in terms of investor sentiment.

  • An increase in jewellery demand will support the price but not drive it higher. (A partial

exception here is buying for Chinese New Year.) Importantly, demand growth this year in the two largest consumers, India and China, will be limited by domestic factors.

  • The fundamental market ‘surplus’ should fall in 2015 by some 300 tonnes to +/- 1,350
  • tonnes. However, this otherwise positive development will be offset by a reduced level of

interest in purchasing gold from both private investors and the official sector:

  • Net global investment demand forecast to fall with this due mainly to lower bar +

coin purchases plus some on-going ETF and OTC market gold sales

  • Official sector purchases are expected to decline from the exceptionally high levels

recorded in 2013 and 2014

  • Underlying supply / demand factors (especially jewellery demand) will become more

positive for gold over the medium term but their effect will be relatively limited in 2015.

GOLD SUPPLY / DEMAND SUMMARY

13

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SLIDE 14
  • Chinese New Year related demand plus investors’ concerns over Greece, ECB policy and

potential financial impact of oil price collapse, CHF revaluation driving a short term price rally.

  • A critical observation is that this rally does not represent a secular change in trend for gold.

Indeed, it is probable that the upward move will run out of steam in the next few weeks and then be followed by a renewed slump in the price.

  • Gold’s supply/demand fundamentals this year will not support a recovery in the price unless

investors’ or central banks’ appetite for gold increases markedly. In fact, the forecast is for investment demand and official purchases to both decline a little in 2015.

  • A general move back into gold by investors in 2015 is highly improbable given forecasts of a

stronger USD, limited interest rate rises in the US, falling inflation and continued stock market

  • gains. Although perceived financial and political risk may grow, this will act more as a brake on

existing longs selling than an incentive for new investor purchases.

  • Positive longer-run economic factors for gold, e.g. the inevitable bear market for stocks or

unsustainable debt levels and their consequences are not expected to have an impact this year.

  • 2015 is therefore likely to see another, probably final, leg down in the gold price. PMI’s current

forecast is for a trading range of $1060-$1320, with an annual average of $1173.

2015 GOLD OUTLOOK: CONCLUSIONS

14

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SLIDE 15

5 10 15 20 25 30 35 40 45 50 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

SILVER PRICE: MONTHLY AVERAGES JAN-07 TO DEC-14

Source: LBMA

Silver price down by two-thirds since its 2011 peak.

US$/oz 15

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SLIDE 16

GLOBAL SILVER MINE PRODUCTION: 1995-2013

Source: Thomson Reuters GFMS

100 200 300 400 500 600 700 800 900 1000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Million Ounces

Long run increase in silver mine production has been very substantial, with important implications for silver prices

16

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SLIDE 17

GLOBAL SILVER SUPPLY: 2011-2015F

Source: Metals Focus; Precious Metals Insights

100 200 300 400 500 600 700 800 900 1000 1100 1200

2011 2012 2013 2014E 2015F

Million Ounces Mine Production Scrap

Decline in Total Supply of some 2% forecast for 2015

17

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SLIDE 18

GLOBAL SILVER FABRICATION DEMAND: 2011-2015F

Source: Metals Focus; Precious Metals Insights

100 200 300 400 500 600 700 800 900

2011 2012 2013 2014E 2015F

Million Ounces Industrial Photography Jewellery & Silverware

Just over 2% growth in Total Demand forecast for 2015

18

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SLIDE 19

10000 20000 30000 40000 50000 60000

1000 2000 3000 4000 5000 6000 7000 8000

2011 2012 2013 2014E

Tonnes

Silver Price in India 235 Moz may have been imported in 2014, equivalent to 22% of global supply

INDIAN SILVER IMPORTS*

*Bullion; Semis; Powder Source: GTIS, Precious Metals Insights

19

Rupees/Kg

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SLIDE 20

200 400 600 800 1000 1200

2011 2012 2013 2014E 2015F

Million Ounces

SILVER MARKET BULLION SURPLUS*

FABRICATION DEMAND (excluding coins) SUPPLY (mine production + scrap)

*Surplus = Mine Production plus Scrap minus Fabrication Demand (excluding all coins) Source: Metals Focus; Precious Metals Insights

20 211 Moz bullion ‘surplus’ currently forecast for 2015, down some 40 Moz from 2014’s level

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SLIDE 21

SILVER INVESTMENT: ANNUAL BY SOURCE

Source: Metals Focus; Precious Metals Insights

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

  • 100
  • 50

50 100 150 200 250 300 350 400

2011 2012 2013 2014E 2015F

Million Ounces

ETF PHYSICAL OTHER VALUE 21

Annual Net Value of Investment in US$ bn

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SLIDE 22

GLOBAL ETF HOLDINGS & SILVER PRICE

(daily, 31/12/2012 to 13/01/2015)

5 10 15 20 25 30 35 100 200 300 400 500 600 700 31/12/2012 31/12/2013 31/12/2014 Silver Price (US$/oz) Global ETF Holdings (million ounces)

Silver Price

Source: Bloomberg

22 Silver ETF Holdings have been remarkably stable in 2013/14

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SLIDE 23
  • 2% fall in supply from mine production plus scrap expected in 2015.
  • Fabrication demand forecast to rise by 2%.
  • Somewhat tighter physical market will provide limited support for the price.
  • However, unlike gold, silver fabrication demand relatively price inelastic in the short term.
  • Backdrop for investment not favourable due to rise in US interest rates, stronger dollar,

low inflation, weakness in gold and other commodity prices.

  • Investment mostly to come from buyers of physical bullion products, but they will require

the incentive of low silver prices.

  • Silver vulnerable to flagging retail investor interest, potential ETF outflows and reduced

demand from India.

  • Precious Metals Insights forecasts average price of $15.95 in 2015, with trading range of

$13.90-$18.45. (2014 average $19.08 and trading range $15.34-$21.98.)

SILVER SUMMARY

23

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SLIDE 24

800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

PLATINUM PRICE: MONTHLY AVERAGES JAN-07 TO DEC-14

Source: LPPM

Downtrend in platinum pre-dates that in gold. Particularly sharp fall in final third of 2014.

US$/oz 24

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SLIDE 25

GLOBAL PLATINUM SUPPLY: 2011-2015F

Source: Metals Focus; Precious Metals Insights

1000 2000 3000 4000 5000 6000 7000 8000 9000

2011 2012 2013 2014E 2015F

Thousand Ounces Mine Production Autocatalyst Scrap Other Scrap

15% growth in Total Supply forecast for 2015

25

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SLIDE 26
  • 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

2012 2013 2014E 2015F 2016F

Thousand Ounces

SOUTH AFRICAN PLATINUM & PALLADIUM MINE PRODUCTION

PALLADIUM PLATINUM

Source: Metals Focus; Precious Metals Insights

26

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SLIDE 27

GLOBAL PLATINUM FABRICATION DEMAND: 2011-2015F

Source: Metals Focus; Precious Metals Insights

1000 2000 3000 4000 5000 6000 7000 8000 9000

2011 2012 2013 2014E 2015F

Thousand Ounces Autocatalyst Jewellery Other Fabrication

Growth of 7% forecast for Total Demand in 2015

27

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SLIDE 28

PLATINUM JEWELLERY DEMAND: 2011-2015F

Source: Metals Focus; Precious Metals Insights

1000 2000 3000

2011 2012 2013 2014E 2015F

Thousand Ounces CHINA OTHERS

Global growth of 5% forecast for 2015

28

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SLIDE 29
  • 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

2011 2012 2013 2014E 2015F

Thousand Ounces

PLATINUM MARKET BULLION SURPLUS / DEFICIT*

FABRICATION DEMAND (excluding retail investment) SUPPLY (mine production + scrap)

*Surplus / Deficit = Mine Production plus Scrap minus Fabrication Demand (excluding retail investment) Source: Metals Focus; Precious Metals Insights

29 1,014 thousand

  • unces bullion

‘deficit’ currently forecast for 2015

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SLIDE 30

PLATINUM INVESTMENT: ANNUAL BY SOURCE

Source: Metals Focus; Precious Metals Insights

  • 2.0
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0

  • 1600
  • 1200
  • 800
  • 400

400 800 1200

2011 2012 2013 2014E 2015F

Thousand Ounces

ETF PHYSICAL OTHER VALUE 30

Annual Net Value of Investment in US$ bn

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SLIDE 31

GLOBAL ETF HOLDINGS & PLATINUM PRICE

(daily, 31/12/2012 to 13/01/2015)

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 500 1,000 1,500 2,000 2,500 3,000 31/12/2012 31/12/2013 31/12/2014 Platinum Price (US$/oz) Global ETF Holdings (Thousand Ounces)

Platinum Price

Source: Bloomberg

31 Platinum ETF Holdings declined in the final third of 2014 but still ended the year up by 108,000 oz

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SLIDE 32
  • 15% rise in supply from mine production plus scrap expected in 2015.
  • Fabrication demand forecast to rise by 7%.
  • Market to be in fundamental ‘deficit’ again this year but at a reduced level compared to

2014’s strike-affected figure.

  • Although any disruption to South African supply unlikely to be as severe as last year’s

the market is currently under-pricing this risk.

  • On the other hand, platinum vulnerable to any worsening of the economic situation in

Europe (re: autocatalyst demand) or China (re: jewellery demand).

  • Investor interest forecast to be lacklustre this year even though longer term supply/

demand trends point to good upside potential for the platinum price. Net investor sales will be necessary for the market’s bullion ‘deficit’ to be covered.

  • Precious Metals Insights forecasts average price of $1,267 in 2015, with trading range of

$1,420-$1,180. (2014 average $1,385 and trading range $1,512-$1,183.)

PLATINUM SUMMARY

32

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SLIDE 33

100 200 300 400 500 600 700 800 900 1,000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

PALLADIUM PRICE: MONTHLY AVERAGES JAN-07 TO DEC-14

Source: LPPM

Strong uptrend in palladium in the last couple of years in contrast to the other major precious metals.

US$/oz 33

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SLIDE 34

GLOBAL PALLADIUM SUPPLY: 2011-2015F

Source: Metals Focus; Precious Metals Insights

1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

2011 2012 2013 2014E 2015F

Thousand Ounces Mine Production Autocatalyst Scrap Other Scrap

8% rise in Total Supply forecast for 2015

34

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SLIDE 35

RUSSIAN STATE STOCK SALES: 2005-2014

Source: Johnson Matthey; Metals Focus; Precious Metals Insights

100 200 300 400 500 600 700 800 900

200 400 600 800 1000 1200 1400 1600 1800 2000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

Thousand Ounces

Palladium Price

Russian stock sales helped to cap the palladium price in past

  • years. Since then, the virtual absence of this source of supply

has contributed to price gains over 2012-14. A key assumption is that there will no resumption of Russian stock sales in 2015.

35 US$/oz

slide-36
SLIDE 36

GLOBAL PALLADIUM FABRICATION DEMAND: 2011-2015F

Source: Metals Focus; Precious Metals Insights

1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000

2011 2012 2013 2014E 2015F

Thousand Ounces Autocatalyst Electronics Other Fabrication

Just under 5% rise in Total Demand forecast for 2015

36

slide-37
SLIDE 37

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

2011 2012 2013 2014E 2015F

Thousand Ounces

PLATINUM & PALLADIUM AUTOCATALYST DEMAND

PALLADIUM PLATINUM

Source: Metals Focus; Precious Metals Insights

37

slide-38
SLIDE 38

2000 4000 6000 8000 10000 12000

2011 2012 2013 2014E 2015F

Thousand Ounces

PALLADIUM MARKET BULLION DEFICIT*

FABRICATION DEMAND (excluding retail investment) SUPPLY (mine production + scrap)

*Surplus / Deficit = Mine Production plus Scrap minus Fabrication Demand (excluding retail investment) Source: Metals Focus; Precious Metals Insights

38 1 Moz bullion ‘deficit’ currently forecast for 2015

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SLIDE 39

PALLADIUM INVESTMENT: ANNUAL BY SOURCE

Source: Metals Focus; Precious Metals Insights

  • 0.9
  • 0.8
  • 0.7
  • 0.6
  • 0.5
  • 0.4
  • 0.3
  • 0.2
  • 0.1

0.0

  • 1600
  • 1200
  • 800
  • 400

400 800 1200

2011 2012 2013 2014E 2015F

Thousand Ounces

ETF PHYSICAL OTHER VALUE 39

Annual Net Value of Investment in US$ bn

slide-40
SLIDE 40

GLOBAL ETF HOLDINGS & PALLADIUM PRICE

(daily, 31/12/2012 to 13/01/2015)

100 200 300 400 500 600 700 800 900 1,000 500 1,000 1,500 2,000 2,500 3,000 3,500 31/12/2012 31/12/2013 31/12/2014 Palladium Price (US$/oz) Global ETF Holdings (Thousand Ounces)

Palladium Price

Source: Bloomberg

40 New ETF largely behind major jump in holdings seen in Q2.14

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SLIDE 41
  • Supply set to grow by some 8% in 2015 due to rebound in South African mine production

and higher autocatalyst recycling.

  • Fabrication demand forecast to grow by just under 5% in 2015, driven by an over 7%

increase the use of palladium in autocatalysts.

  • Comparing supply from mines plus recycling with fabrication demand (excluding bars

and coins) the palladium market bullion ‘deficit’ will decline but continue to be substantial at just over 1 Moz in 2014.

  • Assuming no Russian State stock sales, even a limited amount of net private sector

investment could therefore push up prices. On the other hand, existing longs may take take profits on any increase in prices above the $900 level.

  • Precious Metals Insights forecasts a range of $775-$920 this year, with an average price
  • f $841. (2014 average was $803, with a trading range of $702-$911.)

PALLADIUM SUMMARY

41

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SLIDE 42

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. 42