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LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 1
2
Tom Kendall - Conference Summary
Credit Suisse
Director
Head of Precious Metals Research
Securities Research and Analytics
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 2
3
0
200
400
600
2000 2002 2004 2006 2008 2010 2012
4
100
1000
2000 2002 2004 2006 2008 2010 2012
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 3
5
100
1000
2000 2002 2004 2006 2008 2010 2012
LBMA Attendees Gold price
6
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 4
Mission Two Transform from a spot market to a derivative market.
In 2004, SGE successfully launched the deferred trading product.
From 2008, gold deferred trading has accounted for over 60% of
SGE’s gold market for three consecutive years and in 2011, the
percentage rose to 73%.
42.49 470.69 665.3 906.42
1,249.60 1828.13
4463.77 4710.819
6,051.50
37.38 491 795.23 1068.63 1947.51
3164.9
8696.05 10288.76
16,157.81
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
0
1000
2000
3000
4000
5000
6000
7000
2002 2003 2004 2005 2006 2007 2008 2009 2010
Billion Yuan Ton SGE’s Annual Trading Volume and Amount
(vi) Dollar devaluation
Without lowering the debt/GDP ratio to a sustainable level, there will be no real
economic recovery, but
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 5
China’s rebalancing: Rapid falling of current account surplus-to-GDP ratio
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
current account surplus-to-GDP ratio
From 10% to 2.8%, behind Germany now
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 6
22997-A
MG
52
99
2d
Long-term
Core
position
Short-term
Large
position
Medium-term
Overweight
position
Return to
long-term
core position
Gold bear market
The tactical and strategic approach
Position size reflects conviction
Real rates are low, the non-dollar price trend is rising
and gold is beating equities
Volatility is low OR Silver is cheap
OR sentiment is weak
Volatility is low AND Silver is cheap
AND sentiment is weak
Volatility is high and
price is overbought
Today
pg 12 pg 12
Gold prices appear to be highly negatively
correlated to real interest rates
As of 31 August 2012
SOURCE: Bloomberg
Refer to the Appendix for additional correlation information.
From Jan '97 to Aug '12
0
1
2
3
4
5
6
7
8
9
-1 0 1 2 3 4 5
Real yield (10-year TIPS)
Real p
rice o
f g
old
(P
rice o
f g
old
/U.S
. C
PI In
dex)
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 7
LBMA Conference Hong Kong 2012: Graham Tuckwell Page
13
Buying a gold ETF: Total cost to an investor – 1 month
trade
European Gold ETFs US Gold ETFs
6
3
1
2
3
3
0 2 4 6 8 10
iShares
ETFS
SPDR
Total Cost (Bid-Offer Spred + 1 Month Total Expense Ratio)
Bid-Offer Spread 1mth TER
23
18
12
7
2
2
2
3
0 5 10 15 20 25
Source
iShares
Deutsche Bank
ETFS
Total Cost (Bid-Offer Spred + 1 Month Total Expense Ratio)
Bid-Offer Spread 1mth TER
14
中国工商银行与世界黄金协会合作
发布了中国第一款以“日均价格积
蓄黄金”的权益凭证式黄金投资产
品 ——“工银金行家·积存金”。
ICBC and World Gold Council
jointly launched Gold
accumulation program which is
the first equity style voucher
based on daily gold price in
China.
中国工商银行典型产品——积存金
Typical products of ICBC——Gold Accumulation Program
2.6 商业银行主要贵金属业务——理财类
Major services of ICBC——Financing
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 8
15
Japan --- Mature and Changing
Market behaviour changed along with gold price.
--- Between 1978 - 1980
Gold trading was liberalized in Japan in 1978.
In 1980, when gold price went up to $850, gold in yen soared close to 7000 yen per gram, which was the
historical high.
--- Between 1980 – 2001
About 20 years until 2001, gold price went down, Japanese trading firms kept on importing , and
Japanese people continued buying.
--- Between 2001 -- Present
Because of “911”, gold price started to soar up. From 2001 for 10 years, Japanese gold market reversed
trading behaviour. Investors’ liquidation on long position made Japan a net gold exporting country.
--- Current observation
We noticed a change this year that much less selling interest out of Japan. We foresee Japan could be a
buying country next year again, as we see younger generations are interested in investing in gold.
--- Speciality
GAP( Gold Accumulation Plan ) is the one biggest vehicle of the gold market in Japan. Estimated to
have around 550,000 to 600,000 accounts. Tanaka has the lion’s share, and over 80%.
--- Exchange
On March 23 1982 TOCOM started trading gold futures and it quickly became a very active market next to
COMEX. From 2008 TOCOM open interest went down as low as 1/5 of peak days and there were no
sign of recovery as now yet.
Topic 3
Part 1
16
C. How to open up Bullion Market in Asia?
Free up gold export;
Introducing gold derivative markets, such as Options and ETF;
Asia Bullion Banks must assist to provide market liquidities;
Looking into gold clearing and custodian services in Asia;
Gold fixing during Asia time zone.
Part 3
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 9
光洋僅供LBMA/ LPPM 年會參考資料禁止複製、轉載、外流│SOLARTECH DOCUMENT. FOR LBMA/LPPM CONF. DO NOT COPY
Taiwan Gold Import Demand (1989-2011)
2012/11/13 17
(Year)
Quantity (ton) Average Annual Demand >100 ton
光洋僅供LBMA/ LPPM 年會參考資料禁止複製、轉載、外流│SOLARTECH DOCUMENT. FOR LBMA/LPPM CONF. DO NOT COPY
Green. Value. Future.
Change for Excellence !
2012/11/13 18
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 10
One Team One Vision With Pride
Future Supply Constraints
1. S.A Mining inflation 2007 – 2012
Electricity - 220%
Diesel - 110%
Steel - 100%
Wages - 75%
2. Productivity 2007 – 2012
– (11.5%)
3. Net speculative Pt. length at near record highs - > 2.0m oz
4. Above ground stocks adequate, but shrinking.
5. The days of cheap migrant labour are over.
6. Increased focus and cost of safety.
New Gitanjali print and TVC
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 11
Title and date 21
Summary
Future PGM demand profile from the aftertreatment sector will probably shift
to a somewhat higher Pt ratio due to new diesel market segments (heavy
duty diesel on road, non road).
In the gasoline sector major increase of PGM loading per car is unlikely.
There is no substitute for PGM on the horizon.
The biggest impact for future PGM demand will come from growth prospects
for the global economy.
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 12
Changing Demographics – To increase saving rate
0
20
40
60
80
100
0-4
5-9
10-1
4
15-1
9
20-2
4
25-2
9
30-3
4
35-3
9
40-4
4
45-4
9
50-5
4
55-5
9
60-6
4
65-6
9
70-7
4
75-7
9
80+
88% of India’s population to be less than 60 years old by 2025E
India’s age profile in 2025E (% of population)
Source: Kotak Institutional Equities estimates
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 13
Vietnam South-Korea Japan
Jochen Schlessmann | Heraeus Ltd. Hong Kong | November 2012
Market is strictly controlled by
the central bank
Minor flows to Singapore
Small scale domestic refining
Strong domestic refining
Bullion banks active in
scrap market
Some scrap flow offshore
Lots of LBMA good delivery
refiners in Japan
General trading companies
getting strongly involved
26
Signet Supply Sources (simplified)
• On average, suppliers have at least 3
different supply sources of gold
• This implies at least 1,000 distinct gold
supply chains for Signet
LBMA/LPPM Precious Metals Conference 2012 13 November 2012
Session 8 - Kendall 14
27
Endowment (Moz)(1)
0
20
40
60
80
100
120
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Discovery Year
Declining Discovery Rates
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
0
20
40
60
80
100
120
140
160
180
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Go
ld a
nd
Co
pp
er-G
old
Exp
lora
tio
n S
pen
din
g (U
S$M
)
End
ow
men
t (M
oz)
Discovery Year
Gold and copper-gold 3 year average
Sources: Metals Economics Group, Intierra and Barrick
Exploration spending
0
1,500
3,000
4,500
6,000
7,500
9,000
0
20
40
60
80
100
120
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Gold
Explo
ration S
pendin
g (
US$M
)
Endow
ment (M
oz)
Discovery Year
Gold Exploration Spending (US$B)
0
1.5
3.0
4.5
6.0
7.5
9.0
Features of China’s Gold Industry
▪ Fast development, unrivalled as World’s largest gold producer
▪ Small size, low grade, mining alongside with exploration, small scale development for large mines
▪ Consolidation is the trend and mainly led by governments
▪ Great potential for deep exploration
▪ Low capital cost