Professional Documents
Culture Documents
January 2010
ijjkbkjknkl
1
ijjkbkjknkl
2
Basis of monetary standards maintained by IMF Malleable and ductile metal Good conductor of heat and electricity and not impacted by corrosion Melting point is at 1064.18 C, Boiling Point at 2856 C Industrial applications like : dentistry and electronics Weight measured in troy ounce or grams.
Purity of Gold
Carat is used for measurement of purity of gold. (At times written as karat)
where X is the carat rating of the material, Mg is the mass of pure gold or platinum in the material, and Mm is the total mass of the material.
Currency markets
Monetary Policy
US Economic data
Mine Supply
The most important price determinant currently is Hedge Fund/ ETF investment in bullion
6
ijjkbkjknkl
7
USA is major holder of gold in its national coffers, in value as well as tonnage terms.
Gold Reserves (USD million) 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
Q1 2000
Q1 2007
The above ground stocks as per GFMS estimates are about 155,500 tonnes.
Ita ly Sw i tz er lan d
en ez ue la Ki ng do m U ni te d
Fr an ce
Ch in a
Sp ain
er m an y
Ru ss ia
St ate s
lan ds
Po rtu ga l
Ja pa n
EC B
In di a
an
eth er
Ta iw
ni te d
us t ri a
IM
By the tonne .
Gold Reserves (T onnes) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Q1 2000
Q1 2007
Ru ss ia
EC B
In di a
ue la
nd
in
Po rtu ga l
et he r
V en ez
itz e
in gd om
St at es
Ch in a
Ja p
Fr a
Ta
er
ni ted
Sw
In tonnage terms, US reserves stand largely unchanged, but due to higher prices of gold they have risen to 76% from 54% of total reserves held by the country. 20% or about 30,280 tonnes are world reserves (including IMF) IMF holds about 3,218 tonnes.
ni ted
us tri a
an
m an y
la nd s
IM F
nc e
an iw
ly
Sp a
Ita
rla
10
12%
85% S&P 500 / 15% TSE Gold Essentially the same risk level but significantly higher return average annual return.
Peaks at 35% TSE Gold & Precious Minerals Index
11%
10%
9%
8%
7%
6%
0%
5%
20 %
35 %
15 %
50 %
30 %
40 %
45 %
10 %
25 %
60.00%
Silver
50.00%
Nifty Gold
40.00%
30.00%
20.00%
10.00%
0.00% 2-Jan-97
2-Jan-98
2-Jan-99
2-Jan-00
2-Jan-01
2-Jan-02
2-Jan-03
silver
nifty
gold
12
13
14
Symbol Expiry Trading Unit Quotation/ Base Value Tick Size Initial Margin Delivery Centers
GC On every 5th of the alternate month (Oct, Dec, Feb, April, June, Aug) 100 troy ounces 1 troy ounce 10 cents per troy ounce $3,375 per contract A designated depository licensed by the exchange.
Quality Specification
995 purity ; It should be serially numbered Gold bars supplied by LBMA approved suppliers or other suppliers to be submitted along with suppliers quality certificate.
15
Symbol Expiry Trading Unit Delivery Unit Quotation/ Base Value Tick Size Initial Margin Delivery Centers
Gold 3rd business day prior to delivery day (Delivery day = last day of even month) 1 kg 1 kg JPY/gram JPY 1 per gram JPY 165,000 (approx 7%) A designated depository licensed by the exchange.
Quality Specification
16
17
18
Volume in kg
100,000
10,500
80,000
9,500
60,000
8,500
40,000
7,500
6,500
20,000
5,500
0
M ar-04 Jul-04 Nov-04 M ar-05 Jul-05 Nov-05 M ar-06 Jul-06
Nov-03
VOLUME
MCX
19
Correlation studies!!
Rs/10 gm
10500
$/ Troy ounce
750 700
9500
650
Correlation: 0.99
600 8500 550 7500 500
350
MCX
COMEX
20
21
International suppliers Large Bullion Banks including CSFB, MKS Finance, UBS, N M Rothschild, Societe Generale, etc. Active players on the London Bullion Market, COMEX and TOCOM Authorized agencies 14 Banks (Bank of Nova Scotia, ICICI Bank, etc) and 4 agencies (MMTC, STC, PEC & HHEC) Import on consignment basis from Dubai, Switzerland, London No price risk taken by these agencies Commission based business
22
Wholesale traders - 25 Import through authorised agencies and bullion banks Income - Arbitrage and price risk Active players on Comex through unofficial route Jewellers More than 20000 Domestic Buys from wholesale traders Risk management through unofficial channels Margins making charges Exporters Purchase based on gold loan from authorised agencies Price fixing flexibility upto 6 months Margins making charges
23
ijjkbkjknkl
24
Provisional. Excluding any delta hedging of central bank options. This is the residual from combining all the other data in the table. It includes institutional investment other than ETFs & similar, stock movements and other elements as well as any residual error.
25
2,279 t Jewellery 324 t Official Sector Sales Annual Flow Supply 2,471 t Mine Production 650 t ETF and Investments Demand 451 t Industrial
-373 t
Producer Hedging
26
Is it heading anywhere?
M Prod ction ine u 1000 900 800 700 U /troy ou SD 600 500 400 300 200 100 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0 1000 500 1500 tonne M Prod ction ine u Price (C M Fu res) O EX tu 2500 2000 3000
Source: GFMS
Top Producing Countries (% share, GFMS 2004) : South Africa (14%), United States (11%), Australia (10%), China (9%), Russia (7.4%), Peru (7%)
27
Company Barrick Newmont Anglogold Ashanti Goldfields Harmony Gold Corp 2004 4.958 6.988 5.829 4.406 3.157 0.628
Production (Moz) 2005 2006 5.46 8.643 6.5 5.9 6.166 5.635 4.488 4.074 2.386 2.965 1.136 1.693
Barrick Gold acquired Placer Dome in FY 06 Newmont adopts no gold hedging policy Mine production has been steady
28
Company
Cash Costs (USD/troy ounce) 2005 2006 2007 Q1 Barrick 214 227 282 Newmont 237 304 421 Anglogold Ashanti 281 308 332 Goldfields 331 358 -Harmony 433 380 445 Gold Corp 110 160 181
Source: Annual Reports, Bloomberg, GFMS
Production costs Royalty costs Marketing costs Excludes capitalised costs, depreciation, amortisation Also excludes. mine closure costs
29
Producer Hedging
Gold is leased by central banks and other holders to commercial/bullion banks and earns a return in line with gold lease rate. With respect to producer hedging, bullion banks contract to buy gold forward from mining companies. To fund the purchase, the bullion banks sell an equivalent amount of gold and proceeds are invested at money market rates. This brings metal to the active market and hence hedging is sometimes referred to as accelerated supply. The above ground supplies being large, the gold lease rate is lower than the money market rate encouraging bullion banks to sell gold and invest in money market instruments. The market is implicitly biased towards producer hedging and speculator selling. Hence the gold market is a contango market.
30
Is it Eureka or Euro?
ijjkbkjknkl
31
1400 G old 1200 1000 800 600 400 200 1997 1998
Source: Bloomberg, JMFCL
1. 2.
The correlation is found to be strong between Gold and Euro Typical range: 0.7 0.8
32
10 40 10 20 10 00 80 0 60 0 40 0 20 0 M ar-97 M ar-98
G old
ZAR
1 6 1 4 1 2 1 0 8 6 4 2
M ar-99
M ar-00
M ar-01
M ar-02
M ar-03
M ar-04
M ar-05
M ar-06
M ar-07
M ar-08
M ar-09
1. 2. 3.
Majority of mining happens in South Africa Primary influence on cash costs of mines Appreciating Rand pushes up cash costs, since gold is finally traded in USD
33
1400 G old 1200 1000 800 600 400 D ollar Ind ex 145.00 135.00 125.00 115.00 105.00 95.00 85.00 75.00
200 65.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg, JMFCL
1. 2.
Base = 100.00; March 1973, after dismantling of Bretton Wood. Weighted average of a collection of foreign currencies relative to the dollar, namely Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Kroner (SEK) and Swiss Franc (CHF). Exhibits negative correlation
3.
34
1 0 .0 40 0 1 0 .0 20 0 1 0 .0 00 0 80 0 0 .0 60 0 0 .0 40 0 0 .0 20 0 0 .0 0 0 .0 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9
10 0 6 .0 10 0 4 .0 10 0 2 .0 10 0 0 .0 8 .0 0 0 6 .0 0 0 4 .0 0 0 2 .0 0 0 0 0 .0
1. 2.
Primary influence on cash costs of mines Rise in energy prices pushes up cash costs, since 15% of cash costs can be attributed to diesel purchases
35
ijjkbkjknkl
36
800 Lyxor- LSE 700 GBS - ASX Street T racks-NYSE New Gold - JSE iShares COMEX (IAU)
600
500
Tonnes
400
300
200
100
0 Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
37
38
ijjkbkjknkl
39
GDP
1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Source: Bloomberg, JMFCL
20 15 10 5 0 -5 -10
Recessions in USA
December 1969-November 1970
Limited chance for US heading for a negative QOQ GDP growth rate US Fed says moderate growth developing
November 1973-March 1975 January 1980-July 1980 July 1981-November 1982 July 1990-March 1991 March 2001-November 2001
Source: Bloomberg, JMFCL
40
Interest Rate
900 800 700 600 USD/troy ounce 500 8 400 300 200 100 0 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
1400 20
US CPI YOY
Gold Price
16 14 12 10
6 4 2 0
1200
% change in CPI
15
As real interest rates turn negative, the price of gold is seen to rise during that period.
Wall street talks about possibility of a Fed rate cut by end of 2007. With domestic consumption undeterred, crude oil at high levels, this would be further reduce real interest rates.
0 400 -5
200
0 -10 19691971 19731975 19771979 198119831985 19871989 19911993 19951997 19992001 20032005 20072009
41
US Economy numbers
GDP ISM Employment Producer Price Index Retail Sales Consumer Sentiment Housing starts Durable Goods order Trade balance
42
GDP
C+I+G+X-M = GDP (Macroeconomics) Durable goods = 15% of C Non durable goods = 30% of C Services = the rest of C 20% of GDP = Investment
43
GDP
44
GDP
18% of GDP = fed,state and local govt spending 35% of G = Federal Spending Defence Aircrafts,weapons Social Security Medicare
45
Industrial growth in US Institute for Supply Management Directly from executives of 400 industrial companies A slide towards 40 indicates recession is at hand.
46
Employment situation
Unemployment rate
Indicated as a level
47
PPI Commodities CPI commodities and services Consumer goods excluding food and energy = 40% of PPI PPI ex-food and energy known as core PPI. Impact of PPI
48
Retail Sales
Sales inclusive of auto sales Indicative of future GDP growth Durables and Non durables Volatile and hard to estimate data
49
Consumer Sentiment
Feel good factor Expenditure on big ticket items Univ of Michigan Sentiment Index Monthly telephone survey of 500 consumers Consumer confidence (conference board)
5,000 households across country
50
Housing starts
Most Americans have biggest investment in real estate (their own home) Bureau of Census Dept of Commerce Housing is direct bolster to stock markets But inflation could be a concern Hence interest rate scenario..
51
Other Statistics
52
In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement: 1. Gold will remain an important element of global monetary reserves. 2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons. 3. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement. 4. This agreement will be reviewed after five years.
53
Recent Activity
Year 1 2004-05 352.2 47.0 15.0 30.0 115.0 5.4 55.0 54.8 30.0 15.0 130.0 497.2 Year 2 2005-06 385.8 57.0 13.7 0.0 134.8 5.3 67.5 44.9 62.5 10.0 0.0 395.8 Year 3 2006-07 288 60.0
Eurosystem announced by June 12, 2007 of which: European Central Bank to date Austria to end Apr 2007 Belgium to end Apr 2007 France to end Apr 2007 Germany to end Apr 2007 Netherlands to end Apr 2007 Portugal to end Apr 2007 Spain to end May 2007 Country not yet known Sweden to M ay 31 2007 Switzerland Total reported selling so far Remaining possible to Sept 26, 2007
Sources: IMF, International Financial Statistics; ECB Weekly Financial Statement; announcements and data from individual countries.
54
The witchcraft
ijjkbkjknkl
55
Bullish vs Bearish
Bullish factors Change in policy of central banks with regard to diversification of assets. Prevalent dehedging in the gold mining industry on expectations of higher metal prices Volatile price surge in the energy basket (especially, hurricane impact) Growth in demand from emerging economies Labour disputes at mines in South Africa Appreciation of South African Rand Uncertainty in Middle East Slowdown in US consumer spending Slowdown in US Business expenditure Changes in hedging policy of gold mines Official sector sales/intentions Monetary stance by central bankers (surprise element) Liquidation of carry trade
Bearish factors
56
January 2009
ijjkbkjknkl
57
16
700
14
600
12
500
10
400
300
200 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07
Silver exhibits poor correlation, this year. Recent sharp fall to USD 11.06/troy ounce further distorts the above statistical relationship.
58
1600 Gold prices (USD/troy ounce) 1400 Silver Prices (cents/troy ounce) Gold - Silver Ratio
85.00
80.00
70.00
1000
65.00
800
60.00
600
55.00
40.00
0 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
35.00
The successful launch of Barclays ETF has skewed the gold silver arbitrage indicator. The USD 7/troy ounce USD 8/troy ounce metal is now being valued above USD 10/troy ounce.
59
Gold:
600
Street Tracks-NYSE
500 400
300 200
100 0 Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07
May-07
Aug-07
Source: www.exchangetradedgold.com
60
Silver:
5000 ishares Silver 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Source: www.ishares.com
ishares Silver :
61
5000
14
3000 2000 1000 0 -1000 -2000 -3000 2 -4000 -5000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 0 6 10
The average silver prices have shown a rise above the usual USD 5/troy ounce to USD 10 USD 12/troy ounce. Implied net investment has turned positive with the successful launch of Barclays ETF.
62
Silver jewellery from India and China (10% contraction in 2006) Industrial usage driven by global economic growth rates. (5% growth in 2006)
63
64
Miscellaneous 20%
Plating 24%
Foil 6%
Industrial demand close to 13% of world industrial demand, ranking 5th in industrial demand Burgeoning middle class would boost this demand McKinsey Global Institute expects average incomes in India to triple by 2025
65
Thank You!!
For further information mail us at vickysajnani@yahoo.com
66
75.00
70.00
65.00
60.00
55.00
50.00
45.00
40.00
35.00 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07
67
Voodoo
View: Sideways with bullish bias Target: USD 700/troy ounce Advice: Buy on a correction to USD 655/troy ounce
68
69