The Strategic Case for Gold
Amsterdam
11 October 2009
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 the World Gold
Council only and are subject to change without notice.
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Introducing World Gold Council
MEMBERS
Agnico Eagle
• Funded by the world’s leading gold
mining companies
AngloGold Ashanti
Barrick Gold Corporation
Coeur d’Alene Mines Corporation
Compania de Minas Buenaventura
• We promote the use of gold in all its
forms through marketing activities in
major international markets.
• Offices in key consuming countries:
India
China
Middle East
United States
Eldorado Gold
Goldcorp
Gold Fields Limited
Harmony
IAM Gold
Kinross Gold Corporation
Newmont Mining Corporation
Peter Hambro Mining
Yamana Gold
ASSOCIATES
Cedimin
China National Gold Corporation
The Hutti Gold Mines Company
Kahama Mining
Minera Yanacocha S.R.L.
Mitsubishi Materials Corporation
Royal Gold Inc.
Outline
• Demand and supply fundamentals – resilient demand and
constrained supply
• The outlook
• Key investment attributes
–
–
–
–
A hedge against inflation
A hedge against dollar movements
A safe haven and insurance policy
A diversifier
4
Demand and Supply Fundamentals
Q2 tonnage down 9% on Q2 2008
6
Total identifiable demand (tonnes)
1,400
1,200
1,000
800
600
400
200
-
Q1'06
Q3'06
Jewellery Consumption
Q1'07
Q3'07
Industrial & Dental
Q1'08
Q3'08
Identifiable Investment
Q1'09
London PM fix (US$/oz)
Source: GFMS
Price volatility a constraint on jewellery demand
The five year daily gold price (per oz) in selected currencies
1800
55000
1600
50000
45000
1400
40000
1200
35000
1000
30000
800
25000
600
20000
400
15000
200
02-Jan-04
10000
02-Jan-05
$US
02-Jan-06
Euro
02-Jan-07
New Turkish Lira
02-Jan-08
02-Jan-09
Indian Rupees, rhs
Source: WGC based on Global Insight data
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China the lone positive jewellery story
Jewellery by country (tonnes, Q2'09 vs Q2'08, % change)
10
0
-10
-20
-30
-40
-50
-60
Source: GFMS
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A breakdown of investment demand
Identifiable investment
Net retail investment
ETFs and similar
“Inferred investment”
“Total” investment
Tonnes, Q2’08
Tonnes, Q2’09
% change
151.9
222.4
46
147.9
165.7
12
4.0
56.7
1315
10.2
195.1
1657
162.1
417.4
157
Source: GFMS
European flows remain very buoyant
10
European retail investment demand, tonnes
180
160
140
120
100
80
60
40
20
0
-20
Q1'05
Q3'05
Q1'06
Other (Europe)
Q3'06
Q1'07
Switzerland
Q3'07
Q1'08
Germany
Q3'08
Q1'09
France
Source: GFMS
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ETF flows generally long term in nature
Holdings in Exchange Traded Funds (tonnes) and the
gold price, Jan 06 - Sep 09
2000
1100
1800
1000
1600
900
1400
800
1200
700
1000
600
800
500
600
400
400
200
300
0
Jan-06
200
Jul-06
Jan-07
Other funds
Jul-07
Jan-08
'GLD'
Jul-08
Jan-09
Jul-09
Gold price, $US/oz, rhs
Source: www.exchangetradedgold.com, Global Insight
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Share of identifiable demand
Q2 2009
Q2 2008
Identifiable
Investment
19%
Industrial
15%
Identifiable
Investment
31%
Jewellery
56%
Jewellery
66%
Industrial
13%
Source: GFMS
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Total Q2 supply down 23% on Q1 2009
Quarterly supply in tonnes
1,400
1,200
1,000
800
600
400
200
Q1'05
-200
Q3'05
Q1'06
Q3'06
Total mine supply
Q1'07
Q3'07
Official sector sales
Q1'08
Q3'08
Recycled gold
Q1'09
Source: WGC, GFMS
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Net central bank sales have continued to reduce
Supply from net central bank sales in tonnes
500
400
300
200
100
0
H1'02
H1'03
H1'04
H1'05
H1'06
H1'07
H1'08
H1'09
-100
Non-CBGA
CBGA
Source: GFMS, WGC, IMF
The Strategic Investment Case
for Gold
Why gold? A safe haven and form of insurance
•
•
•
•
•
A simple asset
No default risk
No counterparty risk
Liquid
Gold’s history
– As a means of exchange
– As the centre of the global monetary system
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Gold is a hedge against inflation uncertainty
• Inflation or deflation?
• Gold is a long run hedge against inflation
• Yet, a period of deflation suggests ongoing economic
uncertainty, so safe haven flows would remain
underpinned
• Medium to longer term, inflation is a significant risk
17
Gold is a long run hedge against the US dollar
18
Gold and $/Euro
1050
0.58
1000
0.61
950
0.64
900
0.67
850
0.70
800
0.73
750
0.76
700
0.79
Source: Global Insight
650
0.82
Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09
Gold
Dollar/Euro (RHS, Inverted)
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Gold is a diversifier
Correlations, weekly returns 3 years ending June 2009
Gold
Gold
1.00
FTSE 100
-0.22
DAX 30
-0.20
S&P500
-0.10
MSCI World Ex UK
-0.28
LB /BarCap Global Treasuries Index , TR, GBP
0.02
LB/BarCap Global Treasuries Index, TR, Euro
-0.01
Euribor, 3 month
0.01
UK Lending Rate, 3 month
0.03
Red text denotes that correlation coefficient is not significantly different from zero.
Violet text denotes that correlation coefficient is negative (5% level of significance).
Data: Global Insight, Lehman Bros., WGC
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Gold is not particularly volatile
Average 22 Day Volatility,
1 August 2007 – 31 October 2009(%)
Oil
50.1
Silver
41.2
Palladium
36.1
GSCI Index
32.8
Nikkei
31.7
Platinum
31.2
FTSE
27.4
Gold
23.8
Dow Jones Euro Stoxx Index
20.3
WHERE DOES GOLD FIT INTO A
PORTFOLIO?
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Results with gold added
Optimal Portfolios Composition Map
volatility
4.3% 4.4% 4.6% 5.1% 5.6% 6.2% 6.9% 7.6% 8.3% 9.1% 9.9% 10.9% 11.9%
0.0%
10.0%
20.0%
allocation
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
UK Gilts Short
Global Bonds
North American Equities
UK Gilts Medium
UK Equities
Pacific Equities
UK Gilts Long
Europe Ex UK Equities
Gold
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Over and above a commodity basket
Optimal Portfolios Composition Map
volatility
4.3%
0.0%
4.3%
4.6%
4.9%
5.4%
6.0%
6.7%
7.3%
8.0%
8.8%
9.6%
10.5% 11.4%
10.0%
20.0%
allocation
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
UK Gilts Short
Global Bonds
North American Equities
Commodities
UK Gilts Medium
UK Equities
Pacific Equities
UK Gilts Long
Europe Ex UK Equities
Gold
Summary
• The demand for gold has shown considerable resilience
across the economic cycle
• The three sectors provide a source of balance
• The outlook for supply remains constrained
• High levels of uncertainty – economic, inflation, currency
– are supportive for gold
• Gold’s biggest strength is its diversification properties the focus on diversification and risk management are
expected to continue
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Questions?
www.gold.org
www.invest.gold.org
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