the state of the gold market - denver gold group
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The State of the Gold Market
Fourth Quarter 2013 through 2014
Denver Gold Group
Toronto, 21 October 2013
Denver, 31 October 2013
30 Broad Street, 37th Floor
New York, NY 10004
www.cpmgroup.com
Jeffrey M. Christian Managing Partner jchristian@cpmgroup.com
The Economic Outlook
The Outlook For Gold
The Relationships Among Monetary Supply, Inflation, And Gold
Gold Standards Do Not Work
Gold Has No Role In Future Monetary Systems
The Optimal Future International Currency Regime
Gold Investment Demand And Price
Gold Supply
Hedging
Gold Fabrication Demand
Official Transactions
The Gold Market Does Not Know Itself
A Note About Comex Inventory Levels Relative To Open Interest
Forwards Are Not Spot Physical Transactions
The Next Big Thing For Gold Investors
Topics For Today’s Presentation
Spread Between Shanghai and London Gold Prices
4
-10
-5
0
5
10
15
20
25
30
35
40
-10
-5
0
5
10
15
20
25
30
35
40
03 04 05 06 07 08 09 10 11 12 13
Premium
Discount
$/oz $/oz
Monthly Average, Through October 30, 2013
$8.86
$2.27
$5.24 $6.10
$18.90
Annual Average Premiums
Spread Between Shanghai and London Gold Prices
Large Comex Gold Trading Volumes In October
5
Recent Major Intraday Price and Volume
Changes
Volume During Time Interval
Date Time Interval Stop Logic Troy Ounces
as % of Total
Daily December
Contract Volume
as % of Total Daily
Aggregate Futures
Volume
Price Action during
Time Interval
Daily Change in
Settlement Prices
17-Oct 4:00 - 4:10 No 1,780,000 8.2% 8.1% $33 $41
15-Oct 9:50 - 10:00 No 1,320,000 6.5% 6.1% $11 ($3)
11-Oct 8:50 - 9:00 20 Seconds 2,810,000 15.1% 14.3% ($27) ($29)
9-Oct 10:10 - 10:20 No 1,280,000 8.1% 7.8% ($10) ($17)
7-Oct 9:50 - 10:00 No 1,140,000 11.9% 11.4% $11 $15
1-Oct 8:40 - 8:50 10 Seconds 2,410,000 11.3% 10.9% ($24) ($40)
Note: Time is military time, EDT.
Sources: Reuters data, CPM Group
Contrary to market commentary:
1. Half of the trades have been heavy buying pushing prices higher; obviously not ‘smack-downs.’
2. No single entity but hundreds of algorithmic traders using similar systems generating the same
sell points.
The Economic Outlook
6
Slower Real Economic Growth Globally Long Term
Source: IMF, CPM Group
Note: Historical data are IMF statistics. Projections are made by CPM Group. Projections for "Emerging and Developing Economies are only for BRIC countries, which account for
approximately 52.8% of this category. Projections for "Advanced Economies" are only for the U.S., U.K., Eurozone, and Japan. These countries accounted for 82.2% of this category.
7
-6
-4
-2
0
2
4
6
8
10
-6
-4
-2
0
2
4
6
8
10
1980 1985 1990 1995 2000 2005 2010 2015p 2020p
World
Emerging and Developing Economies
Advanced Economies
Real Gross Domestic Product
Annual, Projected Through 2022
Percent Change Percent Change
Actual Projected
Slowing Chinese Economic Growth: On Target For Government
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Chinese GDP
Quarterly Data, Through Q2 2013
Percent Percent
9
Sub-par Growth in U.S. Real Gross Domestic Product
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013p 2016p 2019p 2022p
Annual, Projected Through 2022
Percent Change Percent Change
Actual Projected
10
Inflation Remains Under Control For Now; Deflation is the Major Risk
-4
-2
0
2
4
6
8
10
12
14
16
-4
-2
0
2
4
6
8
10
12
14
16
Apr-68 Nov-71 Jun-75 Jan-79 Aug-82 Mar-86 Oct-89 May-93 Dec-96 Jul-00 Feb-04 Sep-07 Apr-11
Percent Percent
Monthly Data, Through August 2013
U.S. Consumer Expenditures, Weighted To Percentage of Spending
-3
-2
-1
0
1
2
3
4
-3
-2
-1
0
1
2
3
4
0 10 20 30 40 50 60 70 80 90 100
% CHANGE FROM FEBRUARY 2012
WEIGHT IN CPI (percentage of
The cost of home ownership*, which represents 24.0%
*Measure as the cost of renting the home you own
Weightings of the components of the consumer price basket Bar heights measure change from a year earlier in some major areas of spending.
Source: Labor Department
% % % % % % % % % %
Inflation Data Should Be Understood Before It Is Criticized
12
Table A. Percent changes in CPI for All Urban Consumers (CPI-U): U.S. city average
Seasonally adjusted changes from preceding month
Unadjusted
12-mos.
Mar. Apr. May June July Aug. Sep. ended
2013 2013 2013 2013 2013 2013 2013 Sep.
2013
All items.................. -.2 -.4 .1 .5 .2 .1 .2 1.2
Food...................... .0 .2 -.1 .2 .1 .1 .0 1.4
Food at home............. -.1 .1 -.3 .2 .1 .1 .0 1.0
Food away from home (1).. .2 .3 .2 .2 .2 .2 .1 1.9
Energy.................... -2.6 -4.3 .4 3.4 .2 -.3 .8 -3.1
Energy commodities....... -4.1 -7.9 -.1 5.7 1.0 .0 .9 -7.0
Gasoline (all types).... -4.4 -8.1 .0 6.3 1.0 -.1 .8 -7.5
Fuel oil (1)............ -2.1 -4.4 -2.9 -.5 1.1 1.2 .9 -3.1
Energy services.......... -.2 1.4 1.2 .1 -1.0 -.7 .8 3.7
Electricity............. -.6 .5 .8 .2 -.3 -.1 .5 3.2
Utility (piped) gas
service.............. 1.0 4.4 2.4 -.4 -2.8 -2.3 1.8 5.3
All items less food and
energy................. .1 .1 .2 .2 .2 .1 .1 1.7
Commodities less food and
energy commodities.... -.1 .0 .0 .2 .0 .0 -.1 -.1
New vehicles............ .1 .3 .0 .3 .1 .0 .2 1.2
Used cars and trucks.... 1.2 .6 -.1 -.4 -.4 -.1 .0 .4
Apparel................. -1.0 -.3 .2 .9 .6 .1 -.5 .8
Medical care commodities .1 .1 -.5 .5 .4 .4 .1 .2
Services less energy
services.............. .2 .1 .2 .2 .2 .2 .2 2.4
Shelter................. .2 .2 .3 .2 .2 .2 .2 2.4
Transportation services .2 -.2 .4 -.1 .4 -.5 .3 2.4
Medical care services... .3 -.1 .0 .4 .1 .7 .3 3.1
1 Not seasonally adjusted.
13
Global Surplus of Labor Is A Major Impediment to Growth
0
2
4
6
8
10
12
0
2
4
6
8
10
12
Jan-48 Oct-52 Jul-57 Apr-62 Jan-67 Oct-71 Jul-76 Apr-81 Jan-86 Oct-90 Jul-95 Apr-00 Jan-05 Oct-09
Percent Percent
U.S. Unemployment; Monthly Data, Through August 2013
Surplus Labor Will Be A Major Global Problem Now and Going Forward
14
The U.S manufactures 51% more today than it did in the late 1980s, but uses 34% fewer workers. More jobs
have been lost to computers than to off-shoring.
The next wave of technological innovation will be even more devastating to jobs, replacing computer-assisted
manufacturing with computerized manufacturing. It already has begun.
60
70
80
90
100
110
120
130
60
70
80
90
100
110
120
130
87 89 91 93 95 97 99 01 03 05 07 09 11 13
Index (2009 = 100) Index
5
7
9
11
13
15
17
19
21
23
5
7
9
11
13
15
17
19
21
23
39 45 52 59 66 72 79 86 93 99 06 13
Million Persons Million Persons
U.S. Manufacturing Output U.S. Manufacturing Employment
The Outlook For Gold
15
Gold Prices
16
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
$/Ounce $/Ounce
Nearby Active Comex Gold Futures High, Low, and Settlement Prices
Daily, Through 10 October 2013
The Outlook for Gold
17
Gold prices have fallen to what CPM Group sees as a base. Prices may consolidate for a
couple of years around $1,300 - $1,400 on an annual average basis, and may not fall much
further.
For prices to fall further economic conditions would have to improve dramatically
more, which we do not see happening.
For prices to rise more forcefully than we envision, economic conditions would have
to deteriorate very sharply. This seems more possible than stronger than expected growth.
Mine production continues to rise, but the growth expecations have been cut in half by lower
gold prices and investor disenchantment with gold mining companies.
Secondary supply has fallen sharply as prices declined – 17% in 2013 alone.
Investors have sharply reduced their gold buying. Still high, net purchases are off 25% in 2013.
Those few central banks that were buying gold have pulled back on purchases, waiting to see
how low prices will fall.
Fabrication demand is rising modestly in line with lower gold prices and slow economic
recovery.
Medium-Term Gold Price Projections
18
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
$1,800
$1,900
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
$1,800
$1,900
2009 2010 2011 2012 2013 2014 2015
Projections
Actual
$/Ounce $/Ounce
Quarterly Data, Through Q3 2015
CPM Group’s Long-Term Real Gold Price Projections
19
0
286
571
857
1,143
1,429
1,714
2,000
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
51 56 61 66 71 76 81 86 91 96 01 06 11 16p 21p
Y-o-Y Change
Real Gold Price (RHS)
Real Gold Prices and Year-on-Year Change in Prices
Percent Change $/Oz
Historical Long-Term
Average Real Price of Gold:
$691.30
Forecast Long-Term Average Real
Price of Gold: $1,346.60 Base Price = 2012
Historical (2002-2012)
Average Real Price of Gold:
$888.40
Monetary Supply, Inflation and Gold
20
Monetary Ease Does Not Necessarily Lead to Inflation and High Gold Prices
• Monetary accommodation does not necessarily leads to inflation.
• Gold prices do not inevitably have to rise due to monetary accommodation.
• Gold prices do not necessarily rise and fall in response to inflation.
• There are no fixed quantifiable relationships between gold prices and money supply
(e.g. ‘gold prices should be $10,000 per ounce because of the level of M1 money supply
in the United States).
Which money supply do you want to use? M1, M2, MZM? US, OECD, World?
The 40% cover of classic gold standards.
Historical statistics do not support such beliefs. They are not theories, but
beliefs.
• Gold does not have a constant purchasing power over time. In fact, it is worth a
fraction of what it used to be worth.
What About Tapering?
22
The Fed may institute a very small movement toward limited reductions in the size of its
monthly bond purchases in early 2014. It will not do this as long as the political
impasse between the Republican controlled House of Representatives and the White
House no longer threatens the U.S. and global economies with a recession worse than
the one in 2007 – 2009. It also will not do it unless and until it sees somewhat stronger
economic growth backed by sustainable trends.
• Housing market strength is not sustainable at present.
• Equity market strength is meaningless to economic conditions, and actually
is indicative of future weak economic conditions.
• The labor market is not in good shape by any standard.
The Fed most likely will not begin any significant tapering until the economy is much
stronger.
Significant tapering only will occur at some point in the future when the economy is in
such a strong shape that it begins to show signs of nascent inflation. Only when the
economy is strong enough to support itself and is consequently showing signs of future
inflation will the Fed significantly tighten monetary policy.
U.S. Narrow Money Supply Does Not Necessarily Cause Inflation
Correlation
Time Lag Correlation
No lag -0.04
One Year Lag 0.10
Two Year Lag 0.24
23
-10
-5
0
5
10
15
20
25
-10
-5
0
5
10
15
20
25
Jan-77 Sep-81 May-86 Jan-91 Sep-95 May-00 Jan-05 Sep-09
U.S. CPI
U.S. M1 Money Supply
Monthly Data, through August 2013
M1 Money Supply and U.S. Inflation
Percent Percent
Excessive Money Supply Does Not Necessarily Lead to Higher Inflation
24
Correlation
Time Lag Correlation
No lag -0.14
One Year Lag -0.12
Two Year Lag 0.02
-3
-1
0
1
3
4
6
7
-10
-5
0
5
10
15
20
25
30
35
40
Nov-82 Apr-86 Sep-89 Feb-93 Jul-96 Dec-99 May-03 Oct-06 Mar-10
MZM Money Supply (LHS)
U.S. Inflation (CPI)
MZM Money Supply and U.S. Inflation
Percent Percent
Correlation: negative 0.14
Monthly Data, through August 2013
Gold Prices and U.S. Inflation
-2
0
2
3
5
7
9
11
12
14
16
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan-69 Jan-75 Jan-81 Jan-87 Jan-93 Jan-99 Jan-05 Jan-11
Real Gold Prices Nominal Gold Prices CPI
$/Ounce Percent
25
Correlation: Gold with Inflation
Year
Real Gold
Prices
Nominal Gold
Prices
68-12 0.33 0.43
72-74 0.49 0.70
76-80 0.95 0.96
86-90 -0.73 -0.69
98-00 -0.93 -0.77
02-12 0.24 0.36
68-82 0.40 0.46
84-00 -0.25 -0.15
Gold’s Purchasing Power Is Neither Constant Nor Stable
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Nominal
Real
$/Ounce $/Ounce
Real and Nominal Gold Prices
Quarterly, Through Third Quarter 2013
Note: Base years are 1982-84, which are the same base years as reported U.S.CPI.
London Gold Prices since 1700, Base Year = 2012
Gold’s Purchasing Power Has Deteriorated Over Time
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1700 1750 1800 1850 1900 1950 2000
Real
Nominal
$/Ounce $/Ounce
Source: The Gold Constant, CPM Group
Gold Standards Do Not Work
28
Gold Standards Do Not Work
29
Most of the monetary systems throughout history have been backed either by
gold or silver, or both metals.
All of them have failed, despite their gold or silver backing.
None of them protected against deterioration of currency values.
None of them protected against inflation and economic volatilities.
The only international currency regime that has not failed is the current one.
It too shall pass away at some point.
There is no alternative to the de facto dollar reserve currency system on the
immediate horizon.
Some Chinese theorists are speaking of a dirty floating exchange rate system
based on a new global reserve currency, like the IMF’s Special Drawing Rights
created in the 1970s. They are calling this new global reserve currency ‘paper
gold,’ but it has no gold backing or relationship to gold in their views.
The Economy Was More Volatile in the Good Old Days
U.S. real GDP: 1850 – 1919, 16 recessions, 22 month average length;
1945 – 2009, 11 recessions, 10 months average length
-15%
-10%
-5%
0%
5%
10%
15%
20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Percent Change Percent Change
2009
Gold Investment Demand
31
-10
0
10
20
30
40
50
60
-30
-10
10
30
50
70
90
110
66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
Percent Change Million Ounces
Investment Demand's Effect on Gold Prices
Price Change Through 10 October 2013
Net Investment Demand (Right) Price Change
Investors Physical Gold Purchases Are Sharply Lower
13p
Gold Demand Is Up In China and Weak In India
33
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
01 02 03 04 05 06 07 08 09 10 11 12 13p
Net Investment Demand Fabrication Demand
Million Ounces Million Ounces
Total Chinese Demand
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
01 02 03 04 05 06 07 08 09 10 11 12 13p
Investment Demand Fabrication Demand
Million Ounces Million Ounces
Total Indian Demand
34
Deduced Chinese Gold Imports and Exports
-3,000
-1,500
0
1,500
3,000
4,500
6,000
7,500
9,000
-3,000
-1,500
0
1,500
3,000
4,500
6,000
7,500
9,000
J-00 A-01 J-02 O-03 J-05 A-06 J-07 O-08 J-10 A-11 J-12 O-13
Deduced gold imports
Deduced gold exports
Thousand Ounces
Monthly Data, Through August 2013
Thousand Ounces
Gold ETFs: Easy To Buy, Easy To Sell ETF Gold Holdings Through 30 September 2013
-
10
20
30
40
50
60
70
80
90
-
10
20
30
40
50
60
70
80
90
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Million Ounces Million Ounces
-25
-20
-15
-10
-5
0
5
10
15
20
25
-25
-20
-15
-10
-5
0
5
10
15
20
25
03 04 05 06 07 08 09 10 11 12 13YTD
Million Ounces Million Ounces
Annual Net Changes to Gold ETP Holdings
Through September 2013
Weak Premia on U.S. Mint Gold Coins
3.2%
3.3%
3.4%
3.5%
3.6%
3.7%
3.8%
3.9%
4.0%
4.1%
3.2%
3.3%
3.4%
3.5%
3.6%
3.7%
3.8%
3.9%
4.0%
4.1%
Jan-12 Jul-12 Jan-13 Jul-13
American Eagle 1Oz American Buffalo 1Oz
Premia on U.S. Mint Gold Coins
Daily data through 8 October 2013
Record Investor Short Positions on Comex Earlier in 2013
-15
-10
-5
0
5
10
15
20
25
30
35
-15
-10
-5
0
5
10
15
20
25
30
35
A-95 J-97 S-98 J-00 M-02 D-03 A-05 M-07 F-09 O-10 J-12
Long
Short
Net Fund Position in Comex
Million Ounces Million Ounces
Non-Commerical Positions in Comex Gold Futures & Options. Weekly Data, through 24 September 2013
The U.S. Dollar Is Not Imploding
38
60
70
80
90
100
110
120
130
140
150
60
70
80
90
100
110
120
130
140
150
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Euro/$ Index
Euro/ U.S. Dollar and J.P. MorganTrade Weighted U.S. Dollar
Daily, Through 10 October2013
Euro/$ (Left Scale)
Trade Weighted Dollar (Right Scale)
31.9% 20.9%
22.2%
5.9%
Longer Term The Dollar Is Falling… Which Means Little To Gold
39
Correlation Of The Trade Weighted
U.S. Dollar To Gold
Q1 1968 – Q3 2013 -0.32
Q4 1976 – Q3 1977 0.96 Both Rising
Q3 1982 – Q1 1983 0.98 Both Rising
Q1 1986 - Q4 1990 -0.47
Q1 1998 - Q4 2000 -0.52
Q1 2002- Q3 2013 -0.40
Q1 2005 - Q4 2005 0.54 Both Rising
70
80
90
100
110
120
130
140
150
160
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13
$/Ounce TWD Index
Trade Weighted
Dollar
Gold (left scale)
Gold and the U.S. Dollar
Quarterly, Through Third Quarter 2013
Gold Supply
40
Total Supply Declining, But Mine Production Is Rising
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13p
Secondary Supply
Transitional Economies Exports to Market
Economies
Market Economy Mine Production
Total Gold Supply
Annual, Projected Through 2013
Mln Oz Mln Oz
Gold Mine Supply In Fact Was Flat Between 2000 and 2012
42
0
10
20
30
40
50
60
70
80
90
00 01 02 03 04 05 06 07 08 09 10 11 12 13p
Transitional Economies Exports to Market Economies
Market Economy Mine Production
Total Gold Mine Supply
Annual, Projected Through 2013
Mln Oz 3.3%
It Has Risen More Than 11 Million Ounces Since 2008
43
60
65
70
75
80
85
90
08 09 10 11 12 13p
Transitional Economies Exports to Market Economies
Market Economy Mine Production
Total Gold Mine Supply
Annual, Projected Through 2013
Mln Oz
15.8%
Mine Supply Is Forecast To Be The Second Highest On Record in 2013
44
0
10
20
30
40
50
60
70
80
90
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13p
Transitional Economies Exports to Market Economies
Market Economy Mine Production
Total Gold Supply
Annual, Projected Through 2013
Mln Oz
Lower Gold Prices Have Slashed Estimated Gross Additions to Gold
Mine Production Capacity Almost By Half
45
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
2013 2014 2015 2016 Post 2016
Post 2016
2016
2015
2014
2013
September 2013
Mln. Oz. Mln. Oz.
Note: Post 2016 data refers to 2017 through 2022.
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
2013 2014 2015 2016 Post 2016
Post 2016
2016
2015
2014
2013
Mln. Oz. Mln. Oz.
Note: Post 2016 data refers to 2017 through 2022.
January 2013
Cost Reductions Are On The Way
46
-
200
400
600
800
1,000
1,200
1,400
-
200
400
600
800
1,000
1,200
1,400
2012 2013
Costs Related to Sustaining Production Cash Costs
Production-Weighted All-In Sustaining Cost For Select Gold Mining Companies (Accounting for 43% of Production)
USD/Oz USD/Oz
Increase of 15.3% in
Cash Costs
Increase of 2.8% in Costs
related to Sustaining
Production
All-In Sustaining Costs Rose by 10.1%
The market will be pleasantly surprised by producers ability to reduce costs relatively quickly,
starting with capital costs but later also operating costs.
Effective Hedging Is Needed, But Faces The Same Old Obstacles
47
600
800
1,000
1,200
1,400
1,600
1,800
2,000
600 800 1,000 1,200 1,400 1,600 1,800 2,000
Market Price
Spot Sales
Gold HedgeFor Dec 2014 Indicatively priced on 10 October 2013
$1,100 Floor
US$ / Ounce - Sales Price
Producers this month could lock in a guaranteed floor of $1,110 per ounce and
given up only $60 of any upside.
Obstacles To Effective Hedging
• Mining companies often lack
financial expertise to evaluate,
counter-bid, and effectively manage
hedging programs.
• Banks offer less than ideal hedges
to mining companies, which lack the
internal capacity to evaluate proposed
hedges and counter-bid.
• Conflicts of interest and obstacles
from the 1990s still exist in the
market.
Fabrication Demand
48
Gold Fabrication Demand
0
20
40
60
80
100
120
0
20
40
60
80
100
120
77 80 83 86 89 92 95 98 01 04 07 10 13p
Other Uses
Dental/ Medical
Electronics
Gold Fabrication Demand
Projected Through 2013
Million Ounces Million Ounces
Jewelry - Developing Countries
Jewelry -
Developed Countries
Official Transactions
50
Official Transactions, Adjusted for Turkish Central Bank Additions
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
80 83 86 89 92 95 98 01 04 07 10 13p
Million Ounces Million Ounces
Net Additions
Net Reductions
Official Transactions
Annual Data, Projected through 2013
Note: Turkey introduced a policy in 2011 that allowed commercial banks to use gold to meet a portion of their reserve requirements. The bank included this gold in its monetary
reserves. Because these additions were not outright central bank purchases and no ownership has been transferred from the actual owner to the central bank, annual official transactions
have been adjusted to exclude Turkish central bank gold additions since 2011.
Adjusted for Turkish Central Bank's ROM Gold
Why are Central Banks Adding Gold to their Monetary Reserves?
Note: 1995 Claims in Euros refers to the sum of claims in Deutschemarks, French francs, Netherland guilders, and the European Currency Unit. 2012
data is end-September. Other years is year-end data.
Source: IMF Statistics Department COFER database and International Financial Statistics.
U.S. Dollar
59.0%
U.S. Dollar
71.1% U.S. Dollar
61.8%
Euro
27.3%
Euro
18.3% Euro
24.1%
Yen, 6.8% Yen, 6.1%
Yen, 4.1%
Pound, 2.1% Pound, 2.8% Pound, 4.1%
Other, 4.8% Other, 1.8% Other, 5.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 2000 2012
Currency Composition of Official Foreign Exchange Reserves
A Few Final Points
53
Comex Gold Inventories Always Have Been Low Relative To Open Interest
54
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
Jan-85 Mar-89 May-93 Jul-97 Sep-01 Nov-05 Jan-10
O
Total Comex Stocks
M
Million Ounces Million Ounces
Total Open Interest (Right Scale)
Comex Gold Inventories & Total Open Interest
Monthly, Through September 2013
Gold Inventories Actually Are Historically High Compared To Open Interest
55
0%
5%
10%
15%
20%
25%
30%
35%
0%
5%
10%
15%
20%
25%
30%
35%
Jan-85 Mar-89 May-93 Jul-97 Sep-01 Nov-05 Jan-10
Percent of Comex Gold Open Interest Backed by Stocks
Percent Percent
Monthly, Through September 2013
Forwards Do Not Involve Spot Physical Metal
56
40
60
80
100
120
140
160
40
60
80
100
120
140
160
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Million Ounces Million Ounces
Including forward paper transactions in producer
hedging as a form of spot physical supply has led to
physical supply being over-counted by 103.3 MM
ounces between 1986 and 1999.
Including forward paper transactions in producer
dehedging as a form of spot physical demand then
led to physical demand being over-counted by 96.3
MM ounces from 2000 through 2012.
Actual Physical
Supply and
Demand
Mis-measuring Gold Supply and Demand Statistics Has Over-Stated The Market For Decades
Note: Actual supply and demand are CPM total data; the over-counting is not adjusted for other statistical discrepancies.
The Next Big Thing For Gold Investors
57
In 1998, when CPM Group first suggested
to the World Gold Council and gold
producers that they should focus on
stimulating investment demand instead of
jewelry demand if they want higher gold
prices, our suggestion was a fund-like gold
investment product that would allow
investors to buy physical gold as easily as
equities.
We warned that investors would like a
gold ETF only in a bull market, and that
redemptions could add to the pain in a
down market.
We suggested a guaranteed principal gold
fund.
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-50% -38% -25% -12% 0% 13% 26% 38% 51%
Gold Guaranteed Principal Five-Year Note Yield
Price of Gold
Yield
100% Guaranteed
principal with exposure
to gold price increases.
Spot Gold
Price
Change
CPM Group Precious Metals Yearbooks & Other Reports
58
For general inquiries, email info@cpmgroup.com
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