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January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Caglasu Altunkopru • • +1-212-823-2630

Equity Portfolio Strategy: Does the price of gold tell us

anything useful about the nature of investor fears?


"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be
shaped into ingots, bars, coins, which has no nationality and which is externally and universally accepted
as the unalterable fiduciary value par excellence," Charles de Gaulle
"When most money consisted of silver or gold or some other item that had a nonmonetary use, or of an
enforceable promise to pay a specified amount of such an item, the 'metallist' fallacy arose that 'it is
logically essential for money to consist of, or be 'covered' by, some commodity so that the logical source of
the exchange value or purchasing power of money is the exchange value or purchasing power of that
commodity, considered independently of its monetary role',(Schumpeter 1954, p. 288). The examples of the
stone money of Yap, of cigarettes in Germany after World War II, and of paper money currently make clear
that this 'metallist' view is a fallacy," Milton Friedman
 Gold, which is effectively just another fiat currency, has recently benefited from its perceived ability to
hedge against a variety of potential economic outcomes that are currently foremost in investor's minds:
inflation, sources of economic growth, downward spiral in fiat currencies, etc.
 Academic research does suggest that gold can be a hedge for the stock market, inflation and/or currency
risk. We attempted to quantify what may be embedded in gold prices using empirical models. With some
reasonable assumptions, we find that a 20% decline in the stock market or 4% inflation or 20%
devaluation of the US Dollar is already priced into gold. In other words, gold could be attractive for an
investor who expects a significantly worse outcome (e.g. a collapse in US Dollar due to reserve
diversification by emerging countries).
 On the flip side, if the recovery continues to gain steam and risk aversion subsides, we could see 20-
40+% downside from current levels. Gold miners, especially given their current un-hedged positions,
could be severely affected by any downside.
 Meanwhile, investors could be well-advised to consider other means of insurance and exposure to real
assets. In particular, diversified portfolios of commodities that would benefit from secular growth themes
such as emerging market growth could continue to be attractive as a hedge and a diversification tool.
 Arguments for owning gold based on an anticipated return to the gold standard seem far-fetched and
would not be in the interests of virtually any nation. The transition to a reserve rebalancing to include
sufficient quantities of gold would be anticipated by the market and may perversely favor the US Dollar.


Recent slowing of inflows into gold ETFs and outflows from bond funds may be indicative of declining risk
aversion, as investors place lower value on investments that look like insurance policies (gold as inflation

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January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

protection and fixed income as deflation). In 1H11, we expect current trends to continue as enormous
liquidity is re-directed toward productive uses (e.g. capital spending, hiring…), as well as assets with higher
expected returns than US bonds. As we highlighted in previous research, we are monitoring four key
metrics to further increase our pro-cyclical stance: Small-business confidence, high-end consumer
spending, pricing power and capital expenditures. While the recovery remains fragile, currently these
metrics seem neutral to positive and we see no obvious catalysts to derail continued expansion in 2011. The
price of gold can be a useful coincidental indicator of risk aversion, with declines being indicative of more
risk seeking behavior. As a result, we decided to take a more detailed look at gold: what is currently priced-
in, what would drive upside from current levels, and whether there are superior hedges to investor concerns.
Gold is somewhat unique in its perceived ability to hedge against a variety of fears and concerns that are
currently foremost in investor's minds. An uncertain economic outlook, sovereign debt issues, deflationary
and inflationary fears, as well historically low real yields have made gold one of the safe-haven assets of
choice. As a result, gold has been a constant feature of financial news headlines over the past few months.
In this note, we attempt to put gold's recent rally into historical context, and assess what types of tail events
gold prices could be embedding.

Some historical context

News headlines notwithstanding, recent increases in the price of gold are high, but not unprecedented (see
Exhibit 1). The current annual change does not quite make top quintile vs. history. What is remarkable
however is the persistent trend of longer-term price increases since the earlier part of this decade, after
nearly 20 years of ho-hum performance, resulting in new record-high gold prices being reached every week
(see Exhibit 2).
In fact, recent long-term, four-year performance is only surpassed by the 70s / early 80s which featured the
adjustment process to a flexible exchange rate regime, two oil shocks, two recessions and a bout of double-
digit inflation. Clearly, the past decade has not been a walk in the park by comparison. Two asset price
bubbles have come and gone, we have been at the brink of financial melt-down, sovereign debt concerns
linger, and U.S. households could continue to de-leverage, depressing global demand growth. Investor
demand for safe-haven assets have depressed yields, making gold increasingly attractive.

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 1 Exhibit 2
Recent increases in gold prices do not seem exceptional …but what does seem remarkable is the sustained
in terms of magnitude… increase since early 2000s

Daily 1-Year Rolling Gold Returns Daily 4-Year Rolling Gold Returns
250 Day Log Change,Through December 2010 1,000 Day Log Change, Through December
200% 2010
% of days when return was higher % of days when return was higher
excl. last year: 22.1% 150% excl. last 4 yrs: 15.7%

-50% -50%

-100% -100%
70 75 80 85 90 95 00 05 10 73 78 83 88 93 98 03 08

Source: Global Insight, Bernstein analysis Source: Global Insight, Bernstein analysis

While gold certainly enjoys the reputation of being the ultimate store-of-value and a hedge for inflation, a
quick look at history suggests that this has not always been the case (see Exhibit 3), and just like any asset,
gold's performance depends on timing, especially in the post-gold standard world, where central banks are
no longer committed to trading gold at fixed prices.
For a long stretch of history, gold prices were effectively fixed, as most advanced economies were on some
version of the gold standard until the collapse of the Bretton Woods agreement in 1971. Countries on the
gold standard maintained the fixed gold price by committing to buy or sell gold at that price, such that they
observed fixed exchange rates relative to each other. Strict adherence to the gold standard would therefore
mean that balance of payments surpluses were accompanied by an inflow of gold and expansion of the
money supply, while the country with the current account deficit would see gold outflows and deflation. In
reality, central banks made efforts to maintain price stability by changing the "bank rate" or by engaging in
open market operations. Wars typically led to suspension of the gold standard, but once peace was restored,
countries strove to get back on the gold standard.
Once gold prices were no longer fixed, they increased dramatically through the 70s as the oil crises, two
recessions and double-digit inflation took their toll. It is interesting to note however that the first round of
increases only brought the gold price to where it should be, if it were a perfect inflation hedge. After 1980,
the price of gold declined gradually for 20 years, dropping -56% below its 1980 peak by 2001. In fact, an
investor who bought gold in 1980 and held it to-date has so far lagged inflation even with the recent
increases. Similarly, an investor who bought gold in 1990, even with gold well off its prior peak, caught up
with inflation only in 2006. In other words, over a relatively brief 40-year history when its price was not
fixed, gold seems to have rallied in times of crisis, rather than keep pace with inflation.

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 3
Gold's performance as an inflation hedge has depended on timing with periods of outperformance coinciding with
post Bretton Woods periods of distress

Historical Gold Price vs. Inflation Hedge Price*

London PM Fix, Annual Average, Log Scale
10,000 From 1833 Dot-
From 1970 Com
From 1980 Resumption WW I Oil Recession
From 1990 Act Crises 1,627
Actual 1,225
US$ set at U.S. Classical Gold Great Bretton 457
$20.67 per Civil Gold Excha Depressi Woods
troy oz War Standard nge on and 203
100 and Standa WW II
afterma rd


















Note: Gold price at a given starting point grown at CPI such that the calculated price reflects the price gold would trade at if it were a "perfect" inflation

Source: Kitco, Global Insight, BLS, Bernstein analysis

A related argument favored by gold bulls is that, with fiat money having grown exponentially in the
absence of the "iron discipline" of gold, government debt at alarming levels (domestically and abroad), and
the ever-widening fiscal deficit, it is only a matter of time before fiat money becomes worthless and we
revert back to the gold standard.
The erosion of the gold reserve to currency ratio goes back to the post-World War II period (see Exhibit 4).
The Bretton Woods agreement, the last attempt at a gold standard, pegged all other currencies to the US$
and the US$ to gold at $35 per ounce. The US maintained gold reserves and settled accounts in terms of
gold, while all others used US$ to settle international accounts. However, the system was self-defeating.
With world trade growing well ahead of the gold base, as well as persistent US balance of payments
deficits, the US gold reserves gradually diminished, such that the 25% gold cover had to be eliminated in
1968. This in turn created a confidence problem in the participating countries, with Switzerland and France
redeeming part of their US Dollar holdings for gold, further depleting US gold reserves. Finally, in 1971,
Nixon "closed the gold window", putting the final nail in the coffin of the Bretton Woods agreement.
Since then, US gold reserves as reported by the Treasury have remained broadly unchanged both in weight
and reported value which is booked at $42.20 per ounce, the value announced by Nixon in February 1973.
If marked to market, current gold reserves are sufficient to "cover" 40% of currency, comparable to the
In the absence of a gold standard there has not been an effort to accumulate gold reserves. While the
Treasury has allowed a limited amount of gold to be sold, especially in the 70s with the belief that "Neither
gold nor any other commodity provides a suitable base for monetary arrangements," (Fred Bergsten, as

Assistant Secretary for International Affairs at the U.S. Treasury Department), this has not been substantial
in volume.

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 4
With gold marked to market, gold reserves stand at 40% of currency, comparable to mid-60s

Ratio of U.S. Gold Reserves to Currency in Circulation

300% Gold Reserves / Currency
Gold Reserve Act: Mandated Gold Cover
US$ devalued vs. Gold Reserves at Market Value / Currency
gold to $35 from
Gold cover US$ devalued
US$ Gold $20.67 per oz US$
reduced vs. gold to
200% convertibility devalued vs. $42.2 per oz
suspended Start of gold to $38 Gold
Vietnam per oz commission
150% Genoa War established
Conference Gold
Gold cover window
100% WW eliminated closed
Gold Great Bretton 40%
50% WWI & Woods
Exchange Depres
Standard sion
14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09

Source: Banking and Monetary Statistics, St. Louis Fed (1914-1947), H. 6 Money Stock Measures, Federal Reserve, Global Insight, Bernstein analysis

If gold reserves were marked to market, gold would account for 74% of total US reserves compared to the
reported 8% (see Exhibit 5). While we do not anticipate a re-valuation of US reserves any time soon, we
do believe that the marked-to-market figures provide a more realistic assessment of monetary ratios.
Exhibit 6 summarizes money supply to overall reserve ratios both as reported and adjusted for gold
reserves valued at prevailing market prices. These figures indicate that currency-to-reserves is broadly in-
line with 1959 levels, while M1 is significantly lower. Even though M2-to-reserves is somewhat higher
than 1959 levels, increasing financial sophistication may account for part of the increase; meanwhile, M2
remains reasonable compared to subsequent years (see Exhibit 7).
One may conclude that the US Dollar has effectively de-valued vs. gold to normalize the money supply to
reserve ratios. What is more difficult to assess is the potential for further significant expansion of the
monetary supply as a result of the ballooning federal debt.
Given that the US Dollar remains a key reserve currency, the picture is not complete without a discussion of
global reserves. Currently, foreign reserve banks hold a known $2.8tr US Dollar-denominated claims
including currency, deposits and government debt, equivalent to 30% of global reserve holdings (Exhibit
8). Moreover, there is yet another $3.6tr of foreign reserves whose allocation is unknown.
This leads to the argument posed by US$ bears and gold bulls…what if the countries holding US Dollar-
denominated assets decided to dump those assets and switch to gold, as confidence in the US$ waned,
analogous to what we saw at the end of the Bretton Woods regime. While this is a possibility, especially if
US policies fail to show fiscal responsibility, foreign banks have much to lose by this move. Converting just

the known $2.8tr of US Dollar-denominated reserves to gold would require over 2bn oz. of gold at current
prices, more than double current global gold reserves. Taking this one step further, if all reserves were to be
converted to gold, this would equate to about 6bn oz. of gold. Obviously, this could never happen in
practice, as the possibility of such transaction would cause gold to be bid up well above any level of

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 5 Exhibit 6
With gold marked to market, 74% of current reserves are With US reserves adjusted for the market value of gold,
in gold current money supply relative to reserves seems
reasonable vs. history

U.S. Gold Reserves as % of Total U.S. Money Supply Relative to Reserves

Based on Reported Adjusted for
100% Figures Gold at Market Value
Curr M1 M2 Curr M1 M2
80% Jan-59 1.3 6.2 12.7
74% Jan-69 2.8 12.9 36.8
Jan-79 4.7 17.5 67.0 1.3 4.9 18.8
Jan-89 4.4 16.3 62.2 1.5 5.6 21.4
Jan-99 5.7 13.6 54.5 3.2 7.6 30.5
Jan-09 11.0 21.0 110.4 2.7 5.2 27.3
Nov-10 6.8 13.5 65.0 1.9 3.8 18.1
As Reported Current Value ($tr) 0.9 1.8 8.8
Gold Marked to Market 8%
Currency: Physical currency outside the U.S. Treasury, Federal
Reserve Banks, and the vaults of depository institutions
42 49 56 63 70 77 84 91 98 05
M1: Currency, traveler's checks, demand & other checkable deposits
M2: M1 plus retail money funds, savings and small time deposits

Source: Federal Reserve, Global Insight, Bernstein analysis Source: Federal Reserve, Global Insight, Bernstein analysis

Exhibit 7 Exhibit 8
Adjusted M2 is now somewhat higher than 1959 levels, At least $2.8tr of $9.5tr of reserve assets represent
but the increase may be partly explained by increased claims on US Dollar denominated securities
financial sophistication

U.S. M2 to Reserves Summary of Global Reserve Positions

Through November 2010 with Gold Marked to Market
120 US$tr, As of YE 2009
Reported Figures
US as %
Gold Marked to Market
Global US* of Global
Gold 1.06 0.28 26.9%
% of total 11% 70%
60 FX Holdings* 8.17 0.12 1.5%
% of total 86% 30%
Known US$ 2.84
30 Other 5.33 0.12 2.2%

18.1 Other 0.25

Total 9.48 0.40 4.3%

59 64 69 74 79 84 89 94 99 04 09 GDP 58.23 14.3 24%

*The Fed also holds $2tr of US$ denominated securities

** Includes banknotes, bank deposits, T-bills, gov't securities

Source: Federal Reserve, Global Insight, Bernstein analysis Source: IMF, Global Insight, Bernstein analysis

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

In fact, it could be argued that foreign central banks have more of an incentive today not to act against the
US Dollar compared to the Bretton Woods era, since the decreasing share of gold in reserves has meant
increased exposure to the Dollar (see Exhibit 9). One point of concern could be that, the emerging
countries which now account for 66% of global foreign exchange reserves, do seem to be gradually
reducing their exposure to the US$ (Exhibit 10). However, the -13% decline in global gold reserves in
volume from 1995 to 2009 suggests that the shift has so far not been towards gold. While global monetary
authority gold reserves were up 1% in volume in 2009, they still remain below 2006 levels.

Exhibit 9 Exhibit 10
Decreasing share of gold in global reserves has meant However, emerging countries which are growing share
increased exposure to the US$ of global reserves are gradually decreasing their

Global Gold Reserves As % Total Reserves Emerging Countries' FX Reserves

As Reported Emerging as % of Total
End of
80% US$ as % of Emerging
Bretton Gold Marked to Market
80% Woods


20% 40%

0% 0.6% 30%


48 53 58 63 68 73 78 83 88 93 98 03 08

Source: IMF COFER, Bernstein analysis Source: IMF COFER, Bernstein analysis

Investors trying to assess the likelihood of a potential return to the gold standard may find the "Report to the
Congress of the Commission on the Role of Gold in the Domestic and International Monetary Systems",
dated March 1982, a worthwhile read. In October 1980, Congress created the Gold Commission,
responding to growing concern about high and persistent inflation. As the commission stated:
"Many citizens believe that an expanded and more explicit role restored to gold in the U.S. monetary system
is the solution to the problem of inflation, arguing that it will promote monetary and fiscal discipline and
reduce inflationary expectations."
Among other topics, the commission considered:
 Treasury issue of gold bullion coins and/or gold-backed bonds
 A public audit of physical gold reserves as citizens "fear that the actual amounts held by the
government are less than are reported officially"

 The appropriate size of the U.S. gold stock

 Whether to continue to value the gold stock at $42.2 per ounce
 Whether the gold stock should be put to productive use through swaps or intervention in foreign
exchange markets

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

 Whether gold should be reintroduced into domestic monetary arrangements through reinstituting a
gold cover and allowing the gold stock to be determined by gold flows
 Adopting a gold standard with a fixed price of gold in terms of dollars
While it is not in the scope of this piece to discuss each of these items in detail, we thought the similarities
to issues being discussed today were quite striking (and somewhat amusing). By the time the report was
released, the Fed under Volcker had raised the Federal funds rate to 20% in June 1981 and inflation
dropped to 3.2% in 1983, from its peak of 13.5% in 1981. Meanwhile, gold peaked in January 1980 at $850
per oz and started its decline to $253 per oz in August 1999.

What empirical models say

Given gold's reputation as a hedge against various risks, we wanted to understand which risks gold can be
shown to have been a hedge against, and which expectations could be embedded in current gold prices. In
our survey of academic research, we found some evidence that gold can act as a hedge for: Stock market
declines, inflation and US$ depreciation (see Exhibit 11).
Clearly, these risks are inter-related. Academic research suggests that the stock market has tended to
produce negative real returns during inflationary periods, and relative inflation is one of the factors that
influence exchange rates.

Exhibit 11
We looked at empirical models focusing on various hedging qualities of gold to evaluate what potential scenarios
current prices could be embedding

Summary of Empirical Models Utilized

Model Equation Variables Source

Rgold : Gold returns McCown, J.R., and Zimmerman J.R., 2007.

Rgold, t – Rf,t = a+ b (Rm, t – Rf,t) + et Rf : The risk free rate Analysis of the Investment Potential and Inflation-
Rm : MSCI returns Hedging Ability of Precious Metals

Stock Rgold : Gold returns

market Rstock: MSCI U.S. stock returns
Rgold, t = a+ b1 Rstock, t + b2 Rstock, t(q) + Baur, D.G. and Lucey B.M., 2009. Is Gold a
Rbond: MSCI U.S. bond returns
Hedge or a Safe Haven? An Analysis of Stocks,
c1 Rbond, t + c2 Rbond, t(q) + et Rstock, t(q): MSCI U.S. stock returns where Bonds and Gold
return is less than q-percentile of historic
returns (q: 1%, 2.5%, 5%)

rt : Gold returns Attie, A.P. and Roache S.K., 2009. Inflation

Inflation rt = a + bpt+ g ( pt - pt-12) + ut
pt : Inflation as measured by CPI Hedging for Long-Term Investors

Dgt : Ln change in gold price

Capie, F., Mills T. C., Wood G., 2004. Gold as a
FX rates Dgt = b0 Dx t + a1 Dg t-1 Dx t : Ln change US$ FX rate vs. GB£
Hedge against the Dollar
and ¥

Source: Various academic papers, Bernstein research


Since gold's historic performance has been rather episodic, a common feature of these models is that the
linkages with the relevant variables were typically much stronger in the 70s, and in bear markets in the case
of the "safe haven" model. With year-end 2006 as the starting point, the predicted gold price for today
ranges from $588 (based on FX rates vs. the GB£) to $720 (based on the stock market safe haven model)
per oz using the "Base" model based on full-sample estimates (see Exhibit 12). With sub-sample estimates

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

that feature these higher sensitivities to the model variables, the estimates range from $468 (based on FX
rates vs. the GB£) to $1,127 (based on the stock market safe haven model) per oz.
In addition to these models, we also looked at another framework, which uses mining production costs, the
trade-weighted US$ exchange rate, inflation expectations and consumer expectations as dependent
variables. Starting with YE 2006, this model produces a "predicted" current price of $844. Interestingly, the
model tracks the realized gold price fairly closely through 2007 and much of 2008, but starts to lag in
September 2008, when the Lehman bankruptcy was announced, which seems to confirm the fear
component of gold's recent rally.
Assuming that the current gold price is anticipatory, we then tried to quantify which level of model
variables could mean that the gold price is "right" for each model and arrived at some fairly dramatic
outcomes. Taking each model individually, the current gold price seems to embed:
 Over 20% drop in the stock market
 Over 8% inflation
 Or a 50% devaluation of the US$

Exhibit 12
Current gold prices seem to embed some fairly bearish scenarios

Predicted Gold Prices and Scenarios Implied by Current Gold Price Based on Empirical Analyses
Stock market Inflation FX Rates
CAPM Safe haven* vs. GB£ vs. Yen
Base Sub Sample Base Sub sample Base Sub sample Base Sub Sample Base Sub Sample
From YE 2006
720 779 720 1,127 700 715 588 468 686 853
Gold Price

vs. Current -49% -45% -49% -20% -50% -49% -58% -67% -51% -39%

Implied scenario if gold anticipatory

Stock market -77% -47% -68% -22%

10.4% 8.0%

US$ valuation -93% -56% -96% -46%

Frequency of
55% 48% 55% 31% 57% 55% 74% 92% 60% 44%
value (or
likelihood of
29% 33% 29% 51% 27% 29% 21% 17% 26% 36%
current value
(or greater)

Gold Price 1,406 As of 12/30/2010

*Stock market downside estimates assume a succession of 1%-ile down days

Source: Various academic papers, Global Insight, Bernstein research

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

It is important to recognize that these models individually are inherently flawed, as they factor in only one
or two variables, while in reality, there are several variables that affect the price of gold. Thus, it can be
informative to consider how extreme the current price of gold is vs. the predicted values. Given the
predicted value from a model and the probability of achieving the realized gold price using the predicted
value as a base based on historical performance can help us assess how extreme a scenario of "other"
factors is embedded in the current gold price.
To illustrate, if gold were currently priced at $1,127, this would suggest a distribution of "other" factors that
are in-line with the Safe-Haven model history. However, the gap vs. the $1,406 per oz. actual gold price
suggests that the range of outcomes is limited to scenarios that are only worse than average since the
likelihood of achieving $1,406 given $1,127 as a lower-bound is 51%.
Similarly, the inflation model yields a "predicted" gold price at $715. In other words, if the distribution of
future macro outcomes were in-line with history, gold should be priced at $715. Yet, the current price of
$1,406 implies a set of outcomes that is substantially skewed to the downside, given the 29% likelihood of
the current price, with $715 as a lower-bound.
Conversely, if investor outlook improves to a set of outcomes that is more in-line with history, gold could
trade back down to the $715-$1,127 per oz. range which represents significant downside to current levels.
Another way to interpret the results from these empirical models is to say that the recent gold price
trajectory has been dominated by the stock market safe-haven qualities of gold. This makes intuitive sense
since over the past 4 years economic concerns as they pertain to gold have been much more manifest in the
stock market, rather than the inflationary environment, which remains uncertain and the US$ which has so
far benefited from the flight to safety.
Using $1,127 per oz as the starting point for the price of gold, we then try to assess which scenarios may be
further embedded in the current stock price (see Exhibit 13). Assuming the stronger correlations from sub-
sample estimates, we find that the current gold price is already embedding a combination of
 20% downside to the stock market and/or
 4% inflation and/or
 20% devaluation of the US Dollar
As such, assessment of whether gold is fairly priced depends on one's expectations on these metrics. For
example, given that 4% inflation already seems to be priced in, gold becomes an attractive hedge for
investors expecting inflation above that 4%.

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 13
Gold price seems to embed 20% downside to the stock market and/or 4% inflation and/or 20% devaluation of the US$

Implied Economic Scenarios Assuming Recent Gold Price Trajectory Has Been
Dominated by "Safe Haven" Qualities
Using 1,127$ per Troy oz as base
Stock market Inflation FX Rates
CAPM Safe haven* vs. GB£ vs. Yen
Base Sub Sample Base Sub sample Base Sub sample Base Sub Sample Base Sub Sample
Implied scenario if gold anticipatory
-38% -21% na -22%

5.3% 4.2%

-49% -15% -63% -24%

*Stock market downside estimates assume a succession of 1%-ile down days

Source: Various academic papers, Global Insight, Bernstein research

If investor interest is any indication, we have been observing some loss of steam behind gold ETF inflows.
While much of the increase in price from 2006 has been accompanied by inflows (see Exhibit 14), the most
recent rally from mid-2010 has not generated further inflows, which suggests a lack of conviction at these
price levels (see Exhibit 15). It seems particularly noteworthy that the Fed's announcement of a second
round of quantitative easing in November has not resulted in significant inflows into gold.

Exhibit 14 Exhibit 15
Since 2006, GLD price increases have been supported by …but the most recent rally from mid 2010 shows a lack
inflows… of conviction at these levels

GLD Price and Shares Outstanding GLD Price and Shares Outstanding
Index YE 2006 = 100 Index 3/31/2010 = 100
Shares o/s Shares o/s
Price Price




100 100
06 07 08 09 3/10 5/10 7/10 9/10 11/10

Source: Bloomberg, Bernstein analysis Source: Bloomberg, Bernstein analysis

While gold miners' performance has only a modest correlation with the overall stock market on down days
in particular (see Exhibit 16), there is a much stronger linkage with gold prices on both up and down days
(see Exhibit 17).

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 16 Exhibit 17
Gold miner stocks have only a modest correlation to the …but they have been much more correlated to gold
stock market… prices

Correlation of Gold Miners' Stock Correlation of Gold Miners' Stock

Performance with the S&P500 Performance with the Gold Price
Log Change, 6/96-12/10 Log Change, 6/96-12/10
y = -0.1208x + 0.095 40%
40% y = 0.9484x + 0.0619

Monthly Log Change in

R2 = 0.0048
Monthly Log Change in

R2 = 0.27

Gold Miners Index

Gold Miners Index


0% 0%

-20% -20%
y = 0.209x - 0.0798 y = 0.9766x - 0.0627
R2 = 0.0286 R2 = 0.256
-40% -40%
-20% -10% 0% 10% 20% -20% -10% 0% 10% 20%
Monthly Log Change in S&P500 Monthly Log Change in Gold Price
Note: Excludes 10/08 Note: Excludes 10/08

Source: Bernstein analysis Source: Bernstein analysis

More recently, the correlation of gold miners' performance to gold on up-days has increased, likely given
the increasingly un-hedged positions of the miners which poses a substantial risk for the stocks, should gold
prices start to decline (Exhibit 18). Exhibit 19 summarizes the results of the bivariate regression of gold
miners' performance vs. gold prices and the S&P500.

Exhibit 18 Exhibit 19
More recently, the gold price has offered greater …,posing substantial risk to the stocks, should the gold
explanatory power given the miners' un-hedged price decline

Correlation of Gold Miners' Stock Results of Bivariate Regression

Performance with the Gold Price for Monthly Gold Miner Returns
Log Change, 1/07-12/10
40% Gold
Monthly Log Change in

y = 1.3786x + 0.0285 S&P 500 Price

Gold Miners Index

R2 = 0.4514 Sample period:6/96 - 12/10

20% Coefficient 0.47 1.83
T-Stat 4.0 15.1
Adjusted R2 0.59
0% Sample period: 1/07 - 12/10
Coefficient 0.53 1.75
y = 0.4545x - 0.0622
T-Stat 3.2 10.1
R2 = 0.1389
-20% Adjusted R2 0.72
-20% -10% 0% 10% 20%

Monthly Log Change in Gold Price

Note: Excludes 10/08

Source: Bernstein analysis Source: Bernstein analysis

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

What is the alternative?

Depending on the specific risks that investors are concerned about, at gold's current price it may be worth
evaluating alternative methods of insurance. For instance, it may be relatively simple to hedge against a
20% drop in the stock market with index options. Meanwhile, TIPS are pricing in about 2% inflation up to
10 years out (see Exhibit 20). It seems worth noting that while inflation expectations per TIPS are well off
their 2009 lows, current levels remain somewhat below highs achieved in mid-2000s.
In "The Strategic and Tactical Value of Commodity Futures", Erb and Harvey find a negative inflation beta
for gold and silver futures vs. high positive inflation beta for heating oil, hog and corn based on 1982-2003
data (Exhibit 21). While the gold beta could be significantly higher if it were possible to include data from
the 70s, the point is that other commodities have acted as superior inflation hedges over an extended period
of time. Given significant volatility in commodity prices, investors may consider building a portfolio of
commodities that are exposed to secular growth trends, such as growth in the emerging markets.

Exhibit 20 Exhibit 21
TIPS are pricing in 2% inflation Other commodities may offer superior hedges

Expected Inflation per TIPS Inflation Sensitivity Estimates by Commodity

Through December 30, 2010 Annual Futures Prices, 1982-2003
2.5 2.29 20
2.0 2.05
Copper Heating oil
YOY Chg in Inflation

1.81 15
1.0 10
0.5 Hog
5 Sugar
0.0 Corn
Soybeans Coffee Cotton
-0.5 0
-1.0 Gold Wheat
-5 Silver
-1.5 10 year
7 Year -10
-2.0 5 Year
(12) (8) (4) - 4 8 12
03 04 05 06 07 08 09 10 Inflation

Source: Federal Reserve, Global Insight, Bernstein analysis Source: Erb C.B. and Harvey C. R. (2006), Bernstein analysis

Timberland and farmland also provide examples of how productive real assets have been able to outperform
gold. $100 invested in timberland in 1986 has now turned into $2,099 vs. gold at $336 (Exhibit 22).
Farmland has been a similarly lucrative investment (Exhibit 23). Given the significant pool of increasingly
better off emerging markets consumers, these could continue to be attractive investments in the long-run.
Moreover, in the worst case scenario, which would you rather have? Gold or food?

January 4, 2011

Vadim Zlotnikov (Chief Market Strategist) • • +1-212-756-4663

Exhibit 22 Exhibit 23
Which one glitters? Timber or gold? Gold, after all, is a non-productive asset

Cumulative Returns from Gold vs. Cumulative Returns from Gold vs.
Timberland Timberland
Assuming $100 invested at YE 1986 Assuming $100 invested at YE 1991
2,500 800
Timberland Timberland
700 695
2,099 Farmland
2,000 Gold
600 Gold

1,500 500

1,000 300

336 100
0 0
86 89 92 95 98 01 04 07 91 94 97 00 03 06 09

Source: NCREIF, Global Insight, Bernstein analysis Source: NCREIF Global Insight, Bernstein analysis

The good news is that thanks to the significant rally in gold, the Christmas Basket cost only 17oz. of gold
this year.

Exhibit 24
The good news is… the Christmas Basket only cost 17oz of gold this year

Ounces of Gold Needed to Purchase 12 Days of Christmas Basket

60 57
"The Twelve Days of Christmas" basket:
50 a partridge in a pear tree
two turtle doves
three French hens
40 four calling birds
five gold(en) rings
30 six geese
seven swans
17 eight maids (assumed to be unskilled laborers at min wage)
nine dancing ladies (salary fig.s from Philadanco)
ten leaping lords (salary fig.s from Philadelphia Ballet)
10 eleven pipers (fig.s from a PA musicians union)
twelve drummers (fig.s from a PA musicians union)
1984 2001 2010

Source: PNC, Global Insight, Bernstein analysis


Disclosure Appendix

Disclosure Appendix
 References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, and Sanford C. Bernstein, a unit of
AllianceBernstein Hong Kong Limited, collectively.
 Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration,
productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating
investment banking revenues.
 Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the
U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian
companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside
of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless
otherwise specified. We have three categories of ratings:
Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.
Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.
Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.
Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.
 As of 01/03/2011, Bernstein's ratings were distributed as follows: Outperform - 45.2% (1.6% banking clients) ; Market-Perform - 46.0%
(1.6% banking clients); Underperform - 8.8% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses
represent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve
(12) months.
 In addition to his role at Bernstein, Vadim Zlotnikov is also an employee of AllianceBernstein L.P., an asset management firm and Bernstein
affiliate. Mr. Zlotnikov serves as Chief Market Strategist of AllianceBernstein, as one of the portfolio managers of the AllianceBernstein
Market Neutral Strategy Fund (the “Fund”), and as an advisor to the portfolio managers of other AllianceBernstein investment products.
Accordingly, he owes fiduciary duties to the Fund and other clients of AllianceBernstein and is subject to information barriers that may
prevent him from disclosing certain information to Bernstein’s clients. Mr. Zlotnikov is compensated for his duties at AllianceBernstein
along with the compensation he receives from Bernstein. While Mr. Zlotnikov is normally not involved in specific security selection for
AllianceBernstein investment products, insights and analysis that Mr. Zlotnikov shares with Bernstein’s clients may differ from or be contrary
to positions taken by the Fund and other AllianceBernstein investment products, and vice versa.
 Sanford C. Bernstein Limited and BBVA have entered into a research distribution agreement under which BBVA may distribute Bernstein
Research in certain limited markets.
 BNP Paribas owns more than 5.00% of the outstanding ordinary shares of AXA, the majority owner of Bernstein's parent, AllianceBernstein
 A company controlled by a member of Robin Bienenstock's family has a billing dispute with BT Italia, a subsidiary of BT/A.LN / British
Telecom. The amount in question is € 2,682.18.
 A junior member of the research analyst's team, Peter Handy, has received compensation from JPMorgan Chase & Co, his former
employer, within the past twelve months.
 We would like to thank Christienne Genaro, an Industry Specialist dedicated to Bernstein’s Computer Services and IT Consulting team, for
her contributions to our research on topics covered in this report.
 Claude Bebear, the chairman of the Supervisory Board of AXA, the majority owner of Bernstein's parent, AllianceBernstein L.P., is also a
non-executive Director of Vivendi SA.
12-Month Rating History as of 01/02/2011
11.HK: M (IC) 01/21/10; 1288.HK: M (IC) 07/19/10; 135.HK: M (IC) 06/23/10; 1398.HK: M (IC) 01/21/10; 2.HK: M (IC) 06/23/10; 23.HK: U (IC) 01/21/10; 2388.HK: U
(RC) 10/26/10, M (RC) 09/08/10, O (IC) 01/21/10; 2498.TT: O (IC) 10/12/10; 2688.HK: O (IC) 06/23/10; 3.HK: U (IC) 06/23/10; 3328.HK: M (RC) 11/15/10, U (IC)
01/21/10; 386.HK: M (IC) 06/29/09; 3968.HK: M (IC) 01/21/10; 3988.HK: M (IC) 01/21/10; 6.HK: M (IC) 06/23/10; 763.HK: O (IC) 05/27/10; 836.HK: M (IC) 06/23/10;
857.HK: O (IC) 06/29/09; 883.HK: O (IC) 06/29/09; 902.HK: O (IC) 06/23/10; 939.HK: O (IC) 01/21/10; 991.HK: U (IC) 06/23/10; 998.HK: U (IC) 01/21/10; AAL.LN:
O (IC) 11/19/09; AAP: M (IC) 05/06/08; AAPL: O (RC) 10/13/08; ABB.SS: O (RC) 07/28/10, M (IC) 03/31/09; ABBN.VX: O (RC) 07/28/10, M (IC) 03/31/09; ABC: M
(RC) 11/23/09; ABF.LN: M (RC) 02/12/08; ABI.BB: O (IC) 03/02/06; ABT: M (RC) 11/18/10, O (IC) 05/22/09; ACA.FP: M (IC) 11/24/09; ACN: O (RC) 03/15/04; ADI:
O (RC) 03/10/10, M (IC) 06/04/09; ADP: O (RC) 10/30/09; AEP: M (IC) 01/15/03; AET: O (IC) 10/03/08; AFL: M (RC) 03/23/10, O (IC) 07/15/04; AGN: O (IC)
03/02/06; AH.NA: O (RC) 09/08/09; AI.FP: M (IC) 09/16/10; AKZA.NA: M (IC) 09/16/10; ALO.FP: O (IC) 03/31/09; ALU: U (RC) 11/08/10, M (IC) 06/30/08; ALU.FP:
U (RC) 11/08/10, M (IC) 06/30/08; ALXN: O (RC) 09/22/10, M (IC) 11/09/09; AMD: O (RC) 12/07/09; AMGN: O (RC) 06/16/09; AMP: O (IC) 10/20/06; AMTD: M (IC)
08/12/09; ANTO.LN: M (RC) 11/15/10, O (IC) 11/19/09; AVP: M (RC) 07/03/07; AXP: M (IC) 10/06/09; AZN: M (IC) 10/23/07; AZN.LN: M (IC) 10/23/07; AZO: M
(RC) 01/12/09; BA: M (RC) 11/12/10, O (RC) 06/01/10, M (RC) 12/11/08; BA/.LN: M (RC) 03/23/10, O (RC) 07/21/09; BAC: O (IC) 10/02/09; BARC.LN: M (RC)
09/08/10, O (RC) 03/01/10, M (IC) 11/24/09; BAS.GR: O (IC) 09/16/10; BAYN.GR: O (IC) 09/16/10; BBBY: O (RC) 01/22/08; BBL: O (IC) 01/13/10, O (DC)
06/04/09; BBT: O (RC) 03/04/10, M (IC) 07/08/04; BBVA.SM: O (IC) 10/15/10, M (DC) 07/21/08; BBY: M (RC) 10/23/06; BEI.GR: U (IC) 01/20/06; BG/.LN: O (IC)
01/22/09; BHI: O (RC) 10/01/09; BIIB: U (RC) 07/30/10, M (RC) 07/27/06; BK: M (IC) 06/09/09; BLT.LN: O (IC) 11/19/09; BME.SM: U (RC) 10/05/09; BMPS.IM: M
(IC) 10/15/10; BMW.GR: M (RC) 04/06/09; BMY: M (RC) 04/03/09; BN.FP: O (RC) 07/17/08; BNP.FP: U (RC) 09/08/10, O (IC) 11/24/09; BP: M (IC) 08/03/10, O
(DC) 08/02/10, O (RC) 05/10/10, M (RC) 03/03/09; BP.IM: U (IC) 10/15/10; BP/.LN: M (IC) 08/03/10, O (DC) 08/02/10, O (RC) 05/10/10, M (RC) 03/03/09;
BRBY.LN: M (RC) 08/27/09; BRCD: M (RC) 03/25/10, O (IC) 05/12/09; BRCM: M (IC) 06/04/09; BSX: M (RC) 01/21/10, O (IC) 05/22/09; BSY.LN: M (RC) 05/28/09;
BT/A.LN: M (RC) 11/19/10, U (RC) 10/11/10, M (RC) 05/17/10, O (RC) 07/17/09; BUD: O (IC) 10/08/09; C: M (IC) 08/12/08; CA.FP: M (IC) 06/07/06; CAG: M (RC)
03/27/09; CAH: M (IC) 01/16/09; CARLB.DC: M (RC) 10/19/10, O (IC) 09/09/08; CBK.GR: U (DC) 01/20/06; CCE: M (IC) 11/16/10, U (DC) 01/31/08; CCL: O (RC)
04/12/10, M (IC) 02/25/09; CCL.LN: O (RC) 04/12/10, M (IC) 06/26/09; CELG: O (RC) 04/22/09; CEO: O (IC) 06/29/09; CEPH: M (RC) 08/15/06; CFR.VX: M (RC)
06/23/10, O (RC) 01/13/10, M (IC) 06/04/08; CHKP: O (IC) 10/02/09; CI: O (IC) 10/03/08; CL: M (IC) 05/07/07; CLX: U (RC) 05/11/09; CMA: M (RC) 09/21/09;
CMCSA: O (RC) 12/14/10, M (RC) 05/10/10, O (IC) 05/29/03; CME: M (RC) 01/23/09; CNE.LN: O (IC) 01/22/09; CO.FP: M (RC) 07/30/10, M (IC) 06/07/06; COF: O
(DC) 09/26/07; COST: M (IC) 09/30/09; CPB: O (RC) 07/18/07; CSC: U (RC) 11/19/04; CSCO: O (RC) 05/12/06; CSGN.VX: O (RC) 09/08/10, M (RC) 03/01/10, U
(RC) 03/03/09; CTSH: O (RC) 09/12/07; CVC: M (RC) 05/10/10, O (RC) 03/06/07; CVH: O (RC) 11/08/10, M (IC) 10/03/08; CVS: O (IC) 01/16/09; D: M (RC)
09/04/07; DAI.GR: O (RC) 09/18/09; DB1.GR: O (RC) 10/29/09; DBK.GR: M (RC) 03/01/10, U (RC) 11/24/09; DELL: O (RC) 02/08/06; DEO: O (IC) 10/08/09; DF: M
(RC) 05/11/10, O (IC) 05/15/08; DG: O (IC) 12/23/09; DGE.LN: O (RC) 08/25/09; DHR: O (RC) 09/03/09; DISH: M (RC) 10/10/08; DO: M (RC) 07/26/10, U (IC)
05/16/06; DPS: O (IC) 11/16/10; DRI: M (RC) 05/21/10, O (IC) 09/25/09; DTE.GR: O (RC) 02/18/10, M (RC) 03/31/09; DTV: M (RC) 04/24/08; DUK: M (RC)
08/05/04; DXNS.LN: M (RC) 10/22/07; E: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 11/21/08; EAD.FP: O (RC) 12/17/09; EAT: M (RC) 11/05/09; EIX: M (RC)
10/08/09; EL: M (IC) 05/07/07; EMC: M (RC) 05/20/08; EMR: M (RC) 11/30/10, O (RC) 05/20/10, M (IC) 02/05/09; ENI.IM: O (IC) 08/03/10, O (DC) 08/02/10, O (RC)
11/21/08; ENR: O (IC) 05/14/08; ERIC: O (RC) 05/26/09; ERICB.SS: O (RC) 05/26/09; ESRX: M (IC) 01/16/09; ESV: M (RC) 02/19/09; EXC: M (RC) 02/05/10, O
(RC) 01/12/05; F.IM: O (RC) 09/20/10, M (IC) 10/13/08; FE: M (RC) 10/27/10, O (RC) 08/05/09; FFIV: M (IC) 10/17/08; FITB: M (RC) 03/04/10, O (RC) 05/08/09;
FME.GR: O (RC) 09/27/07; FMS: O (IC) 03/26/09; FP.FP: O (IC) 08/03/10, M (DC) 08/02/10, M (RC) 02/16/10, O (IC) 05/30/03; FRX: M (RC) 01/03/11, O (RC)
10/16/08; FTE.FP: M (IC) 04/15/08; GALP.PL: O (RC) 05/26/10, M (IC) 01/22/09; GD: M (RC) 10/19/06; GE: O (RC) 11/06/09; GENZ: O (RC) 05/13/08; GILD: M
(RC) 07/16/10, O (RC) 10/16/08; GIS: M (IC) 08/02/06; GLE.FP: M (RC) 03/01/10, O (IC) 11/24/09; GLW: O (RC) 06/08/10, M (RC) 04/28/09; GNW: M (IC) 10/20/06;
GR: O (IC) 01/13/10; GS: O (RC) 06/04/09; GSK: M (IC) 10/23/07; GSK.LN: M (IC) 10/23/07; H: M (RC) 08/09/10, U (IC) 11/11/09; HAL: O (RC) 11/12/07; HBAN: O
(RC) 09/13/10, M (IC) 10/13/09; HD: M (RC) 05/11/09; HEIA.NA: O (RC) 01/12/10, M (IC) 03/02/06; HEN.GR: O (IC) 02/01/06; HEN3.GR: O (IC) 01/20/06; HGSI: M
(RC) 09/13/10, O (RC) 07/21/09; HIG: M (IC) 12/17/09; HMB.SS: O (RC) 06/23/10, M (RC) 01/29/07; HNP: O (IC) 06/23/10; HNT: M (IC) 03/12/10; HNZ: M (RC)
01/14/09; HON: O (IC) 02/05/09; HOT: M (RC) 05/13/09; HP: O (IC) 10/01/09; HPQ: O (RC) 09/09/08; HSP: O (RC) 08/12/10, M (RC) 07/14/10, O (IC) 01/07/10;
HSY: M (RC) 06/18/10, U (RC) 04/11/08; HUM: O (IC) 10/03/08; IBM: O (RC) 07/13/05; ICE: O (IC) 06/19/07; INFY: M (IC) 09/23/05; INTC: M (IC) 06/04/09; IR: O
(IC) 10/06/10, M (DC) 07/16/10, M (IC) 06/06/07; ISP.IM: O (IC) 10/15/10, M (DC) 07/21/08; ITV.LN: U (RC) 05/27/10, M (RC) 01/21/09; ITX.SM: O (RC) 03/26/07;
JDSU: O (RC) 08/11/10, M (RC) 10/31/08; JNJ: M (IC) 05/22/09; JNPR: M (RC) 11/12/07; JPM: O (IC) 08/12/08; K: O (IC) 08/02/06; KAZ.LN: M (IC) 11/19/09; KEY:
M (RC) 04/19/05; KFT: O (IC) 08/02/06; KGF.LN: O (RC) 01/07/10, M (RC) 09/14/09; KMB: M (IC) 05/07/07; KO: O (IC) 11/16/10, M (DC) 01/31/08; KPN.NA: M
(RC) 03/17/10, O (IC) 10/13/09; LEAP: O (IC) 12/14/09; LIN.GR: M (IC) 09/16/10; LKOD.LI: U (IC) 01/15/09; LLY: M (IC) 10/23/07; LMI.LN: M (RC) 05/17/10, U (IC)
11/19/09; LMT: O (IC) 01/04/05; LNC: O (RC) 09/08/09; LOW: M (RC) 05/11/09; LPLA: M (IC) 12/28/10; LSE.LN: O (RC) 06/09/09; LVS: O (IC) 02/25/09; LXK: O
(RC) 09/06/07; MA: M (RC) 09/13/10, O (IC) 02/02/10, M (DC) 11/05/08; MAR: O (RC) 10/26/10, M (IC) 02/25/09; MC.FP: M (RC) 03/09/10, O (IC) 04/29/08; MCD:
O (IC) 09/25/09; MCK: O (RC) 12/15/10, M (IC) 01/16/09; MDT: O (RC) 12/17/10, M (IC) 05/22/09; MEO.GR: M (RC) 12/06/10, O (RC) 09/01/10, M (RC) 06/01/09;
MET: O (RC) 01/15/08; MGM: M (RC) 08/06/09; MHS: O (IC) 01/16/09; MI: M (RC) 12/20/10, O (RC) 09/13/10, M (RC) 04/21/10, O (RC) 09/21/09; MKC: M (RC)
07/08/10, O (IC) 01/07/10; MKS.LN: O (RC) 05/19/10, M (RC) 10/16/09; MMM: O (RC) 02/11/10, M (RC) 06/17/09; MMT.FP: M (IC) 02/02/06; MOT: O (IC) 12/08/09;
MRK: O (RC) 03/13/09; MRK.GR: M (RC) 08/12/09; MRW.LN: M (RC) 08/13/07; MRX: M (RC) 10/29/10, O (RC) 06/30/10, M (RC) 10/23/09; MS: O (RC) 08/09/07;
MS.IM: M (RC) 12/17/09; MTB: M (RC) 03/04/10, O (RC) 05/19/09; MU: M (DC) 07/06/06; MYL: O (RC) 08/09/10, M (RC) 05/14/09; NATP.IN: M (IC) 06/23/10; NBR:
O (RC) 09/07/07; NE: M (RC) 02/19/09; NEE: M (IC) 12/18/09; NESN.VX: O (IC) 02/21/02; NOBN.VX: M (IC) 09/19/08; NOC: O (RC) 02/12/09; NOK: U (RC)
09/27/10, M (RC) 04/26/10, O (RC) 11/17/08; NOK1V.FH: U (RC) 09/27/10, M (RC) 04/26/10, O (RC) 11/17/08; NOVN.VX: M (IC) 10/23/07; NOVOB.DC: M (RC)
07/28/09; NSM: M (RC) 03/12/10, U (IC) 06/04/09; NSRGY: O (IC) 04/22/03; NTRS: M (IC) 06/09/09; NVO: U (RC) 08/29/08; NVS: O (RC) 05/09/08; NVTK.LI: O (IC)
01/15/09; NXT.LN: M (IC) 05/26/06; ODP: O (IC) 11/07/01; OGZD.LI: O (RC) 07/16/09; ONGC.IN: M (RC) 11/17/09; OR.FP: U (RC) 01/13/09; ORLY: M (IC)
05/06/08; OSH.AU: O (IC) 06/29/09; PAH3.GR: M (RC) 03/23/10, O (RC) 01/06/10, M (IC) 10/13/08; PAYX: M (RC) 01/27/09; PCG: O (RC) 03/22/07; PCS: M (RC)
08/09/10, O (IC) 12/14/09; PDE: M (RC) 12/17/10, O (IC) 10/01/09; PEP: O (IC) 11/16/10, O (DC) 01/31/08; PFE: O (RC) 11/01/10, M (IC) 10/23/07; PFG: M (RC)
09/21/09; PG: M (RC) 01/15/09; PHIA.NA: M (RC) 10/14/09; PLCM: O (IC) 09/08/10; PMI.IM: O (IC) 10/15/10; PMO.LN: O (RC) 02/19/10, M (IC) 01/22/09; PNC: M
(RC) 08/24/09; POP.SM: U (IC) 10/15/10; PP.FP: M (RC) 09/30/10, O (IC) 05/26/06; PRU: O (RC) 10/09/03; PSON.LN: O (IC) 12/04/07; PTC.PL: U (RC) 12/15/10,
M (RC) 07/30/10, U (RC) 07/09/10, M (RC) 06/03/10, O (IC) 05/12/10, M (DC) 02/04/08; PTEN: O (RC) 09/07/07; PTR: O (IC) 06/29/09; PTTEP.TB: M (IC) 06/11/10;
PUB.FP: O (IC) 11/30/10; QCOM: O (IC) 06/04/09; RB/.LN: M (RC) 10/22/07; RCL: O (RC) 08/19/09; RDC: M (RC) 02/19/09; RDS/A: O (IC) 08/03/10, O (DC)
08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDS/B: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSA.LN: O (IC) 08/03/10, O (DC)
08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSA.NA: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSB.LN: O (IC) 08/03/10, O (DC)
08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; RDSB.NA: O (IC) 08/03/10, O (DC) 08/02/10, O (RC) 02/16/10, M (RC) 03/16/09; REL.LN: M (RC) 05/07/10, O (IC)
12/04/07; REN.NA: M (RC) 05/07/10, O (IC) 12/04/07; RF: O (RC) 09/13/10, M (RC) 04/21/10, O (RC) 09/21/09; RHHBY: M (IC) 11/12/09; RI.FP: O (RC) 12/18/07;
RIG: O (RC) 02/19/09; RIGD.LI: M (RC) 04/27/10, O (IC) 12/18/09; RIL.IN: M (RC) 04/27/10, O (IC) 06/29/09; RIM.CN: U (IC) 10/20/09; RIMM: U (IC) 10/06/09; RIO:
O (RC) 05/17/10, M (IC) 01/13/10, O (DC) 06/04/09; RIO.LN: O (RC) 05/17/10, M (IC) 11/19/09; RNO.FP: O (RC) 04/06/09; ROG.VX: M (IC) 11/12/09; ROSN.LI: U
(IC) 01/15/09; RPWR.IN: U (IC) 06/23/10; RR/.LN: M (RC) 11/30/09; RTN: M (RC) 02/12/09; S: U (RC) 01/19/10, M (IC) 10/17/07; SAB.LN: O (IC) 03/02/06;
SAB.SM: U (IC) 10/15/10; SAN.FP: M (IC) 10/23/07; SAN.SM: M (IC) 10/15/10, O (DC) 07/21/08; SAPE: O (RC) 09/26/03; SBRY.LN: M (RC) 09/10/08; SBUX: O
(IC) 09/25/09; SCHW: M (RC) 02/02/09; SGGD.LI: U (IC) 01/15/09; SHP.LN: M (RC) 07/30/10, O (RC) 11/23/09; SHPGY: M (RC) 07/30/10, O (RC) 11/23/09;
SIE.GR: M (RC) 06/24/10, O (RC) 09/03/09; SJM: M (IC) 02/12/10; SLB: M (IC) 09/19/07; SLE: O (RC) 12/14/10, M (RC) 02/11/09; SN/.LN: U (RC) 08/03/09; SNN:
U (RC) 08/03/09; SNP: M (IC) 06/29/09; SNV: O (RC) 01/29/10, M (RC) 11/05/08; SNY: M (IC) 10/23/07; SPLS: O (RC) 06/15/06; SPR: M (RC) 04/14/09; STI: M
(RC) 10/19/07; STJ: O (IC) 05/22/09; STL.NO: M (IC) 01/22/09; STMN.SW: O (IC) 09/19/08; STO: M (IC) 01/22/09; STO.AU: O (RC) 07/12/10, M (RC) 04/09/10, O
(IC) 06/29/09; STT: M (RC) 05/28/10, O (IC) 06/09/09; SU.FP: O (RC) 10/27/09; SYK: O (RC) 05/04/10, M (IC) 05/22/09; SYNN.VX: M (IC) 09/16/10; SYST.VX: M
(RC) 09/28/09; T: M (RC) 01/05/09; TCSL3.BZ: O (RC) 07/30/10, M (IC) 05/12/10; TCSL4.BZ: M (IC) 05/12/10; TEF.SM: M (RC) 06/03/10, U (RC) 04/30/09; TEVA:
M (RC) 07/26/10, O (IC) 03/07/06; TFI.FP: U (RC) 06/09/09; TGT: O (IC) 09/30/09; THC: M (DC) 02/10/06; TIT.IM: O (RC) 02/18/10, M (RC) 11/18/09; TITR.IM: O
(RC) 02/18/10, M (RC) 11/18/09; TLPP3.BZ: U (IC) 05/12/10; TLPP4.BZ: U (IC) 05/12/10; TLW.LN: O (IC) 01/22/09; TOT: O (IC) 08/03/10, M (DC) 08/02/10, M (RC)
02/16/10, O (IC) 05/30/03; TRI: M (IC) 04/29/09; TRI.CN: M (IC) 04/29/09; TSCO.LN: O (IC) 06/07/06; TSP: U (IC) 05/12/10; TSU: M (IC) 05/12/10; TWC: O (RC)
11/02/10, M (RC) 05/10/10, O (IC) 03/13/07; TXN: O (RC) 10/30/09; TYC: M (RC) 09/15/10, O (RC) 06/17/09; UBI.IM: M (IC) 10/15/10; UBSN.VX: O (RC) 07/30/10,
U (RC) 03/03/09; UCG.IM: U (IC) 10/15/10, O (DC) 07/21/08; UG.FP: M (RC) 01/18/10, O (IC) 10/13/08; UHR.VX: O (RC) 09/30/10, M (IC) 04/24/09; UHS: M (DC)
02/10/06; UL: O (RC) 05/13/09; ULVR.LN: O (RC) 05/13/09; UN: O (RC) 05/13/09; UNA.NA: O (RC) 05/13/09; UNH: O (RC) 03/17/09; USB: M (IC) 03/12/09; UTX:
M (RC) 01/23/09; V: M (RC) 09/13/10, O (IC) 02/02/10, M (DC) 11/05/08; VIV: O (RC) 12/15/10, M (IC) 05/12/10; VIV.FP: M (IC) 10/17/08; VIVO3.BZ: M (RC)
07/30/10, U (RC) 07/09/10, M (IC) 05/12/10; VIVO4.BZ: O (RC) 12/15/10, M (IC) 05/12/10; VMW: U (DC) 10/30/08; VOD: O (RC) 04/16/09; VOD.LN: O (RC)
04/16/09; VOW.GR: M (RC) 08/17/10, U (RC) 03/23/10, M (RC) 01/06/10, U (IC) 05/14/09; VOW3.GR: M (RC) 08/17/10, U (RC) 03/23/10, M (RC) 10/14/09; VRTX:
O (RC) 06/01/04; VWS.DC: U (RC) 08/25/10, M (RC) 05/14/09; VZ: U (RC) 10/12/10, M (RC) 02/09/10, U (RC) 01/05/09; WEN: M (IC) 09/25/09; WFC: O (RC)
09/21/09; WFT: O (RC) 08/18/10, M (RC) 12/16/08; WKL.NA: M (IC) 12/04/07; WLP: M (IC) 10/03/08; WMT: M (IC) 09/30/09; WPI: M (IC) 03/07/06; WPL.AU: O
(RC) 11/17/09; WPP.LN: O (IC) 11/30/10, O (DC) 04/22/10, O (IC) 03/30/04; WSM: M (RC) 05/11/09; WYNN: M (RC) 05/06/09; XTA.LN: M (IC) 11/19/09; YUM: M
(IC) 09/25/09; ZION: O (RC) 09/13/10, M (RC) 04/20/10, O (IC) 10/13/09; ZMH: O (RC) 09/21/09;
Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated
Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change

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