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Outlook for precious metals prices
 

Outlook for precious metals prices

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Mining On Top: Stockholm 2013

Mining On Top: Stockholm 2013
26-27 Nov 2013

Outlook for precious metals prices – Jeffrey Christian,
CPM Group; Managing Director

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    Outlook for precious metals prices Outlook for precious metals prices Presentation Transcript

    • The Outlook for Precious Metals Mining On Top Intierra/Raw Material Group Stockholm 27 November 2013 Jeffrey M. Christian Managing Partner jchristian@cpmgroup.com 30 Broad Street, 37th Floor New York, NY 10004 www.cpmgroup.com
    • Slower Real Economic Growth Globally Long Term Real Gross Domestic Product Annual, Projected Through 2022 Percent Change 10 Percent Change 10 Actual 8 Projected 8 6 6 4 4 2 2 0 0 World -2 -2 Emerging and Developing Economies -4 -4 Advanced Economies -6 -6 1980 1985 1990 1995 2000 2005 2010 2015p 2020p 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. 2
    • The Outlook For Gold 3
    • Gold Prices Nearby Active Comex Gold Futures High, Low, and Settlement Prices Daily, Through 19 November 2013 $/Ounce 2 000 $/Ounce 2 000 1 900 1 900 1 800 1 800 1 700 1 700 1 600 1 600 1 500 1 500 1 400 1 400 1 300 1 300 1 200 1 200 1 100 1 100 1 000 jan-10 1 000 maj-10 sep-10 jan-11 maj-11 sep-11 jan-12 maj-12 sep-12 jan-13 maj-13 sep-13 4
    • Large Comex Gold Trading Volumes In October Contrary to market commentary: 1. More than 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. Recent Major Intraday Price and Volume Changes Volume During Time Interval Troy Ounces as % of Total Daily December Contract Volume as % of Total Daily Aggregate Futures Volume Price Action during Daily Change in Time Interval S ettlement Prices Date Time Interval S top Logic 22-Oct 8:20 - 8:30 NA 2,219,600 13.9% 12.6% $19.50 $26.80 17-Oct 4:00 - 4:10 No 1,780,000 8.2% 8.1% $33.00 $40.70 15-Oct 9:50 - 10:00 No 1,320,000 6.5% 6.1% $11.00 -$3.40 11-Oct 8:50 - 9:00 20 S econds 2,810,000 15.1% 14.3% -$27.00 -$28.70 9-Oct 10:10 - 10:20 No 1,280,000 8.1% 7.8% -$10.00 -$17.40 7-Oct 9:50 - 10:00 No 1,140,000 11.9% 11.4% $11.00 $15.20 1-Oct 8:40 - 8:50 10 S econds 2,410,000 11.3% 10.9% -$24.00 -$40.40 2,166,667 1,614,900 1.34 11.5% 10.1% 1.14 11.0% 9.6% 1.15 -$20.33 $18.63 -1.09 -$28.83 $19.83 -1.45 Averages on Declines Averages on Increases Ratio of Declines to Increases Note: Time is military time, EDT. S ources: Reuters data, CPM Group 5
    • The Outlook for Gold 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 expectations 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. 6
    • Gold Investment Demand 7
    • Investors Physical Gold Purchases Are Sharply Lower Investment Demand's Effect on Gold Prices Price Change Through 19 November 2013 Percent Change Million Ounces 110 60 90 50 Price Change Net Investment Demand (Right) 70 40 50 30 30 20 10 10 -10 0 -30 -10 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 13p
    • Gold Demand Is Up In China and Weak In India Total Indian Demand Million Ounces 40 Investment Demand Total Chinese Demand Million Ounces Million Ounces 40 40 Fabrication Demand Net Investment Demand Million Ounces 40 Fabrication Demand 35 35 35 35 30 30 30 30 25 25 25 25 20 20 20 20 15 15 15 15 10 10 10 10 5 5 5 5 0 0 0 0 01 02 03 04 05 06 07 08 09 10 11 12 13p 01 02 03 04 05 06 07 08 09 10 11 12 13p 9
    • Spread Between Shanghai and London Gold Prices Spread Between Shanghai and London Gold Prices Monthly Average, Through October 30, 2013 Spread Between Shanghai and London Gold Prices Daily, through 7 November 2013 $/oz $/oz 40 40 $/Oz $/Oz 100 100 Premium 35 35 80 60 60 40 40 20 30 80 20 0 0 30 Premium 25 25 $18.90 20 Annual Average Premiums 15 20 15 $8.86 10 $6.10 10 $5.24 5 5 $2.27 0 0 -20 Discount -5 -5 -10 -10 03 04 05 06 07 08 09 10 11 12 13 -20 Discount -40 J-13 -40 F-13 M-13 A-13 M-13 J-13 J-13 A-13 S-13 O-13 N-13 10
    • Gold ETFs: Easy To Buy, Easy To Sell ETF Gold Holdings Through 30 October 2013 Million Ounces 90 80 Million Ounces 90 Annual Net Changes to Gold ETP Holdings Through October 2013 Million Ounces 25 20 20 15 15 10 70 10 5 5 0 0 60 -5 -10 -10 -15 -15 -20 40 70 60 -5 50 80 Million Ounces 25 -20 -25 -25 -30 50 40 -30 03 04 05 06 07 08 09 10 11 12 13YTD 30 30 20 20 10 10 - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
    • Record Investor Short Positions on Comex Earlier in 2013 Non-Commerical Positions in Comex Gold Futures & Options. Weekly Data, through 12 November2013 Million Ounces 35 Million Ounces 35 30 30 Net Fund Position in Comex 25 25 Long 20 20 15 15 10 10 5 5 0 0 -5 -5 Short -10 -10 -15 A-95 -15 J-97 S-98 J-00 M-02 D-03 A-05 M-07 F-09 O-10 J-12
    • Gold Supply, Fabrication Demand, and Official Transactions 13
    • Total Supply Declining, But Mine Production Is Rising Total Gold Supply Annual, Projected Through 2013 Mln Oz 140 Mln Oz 140 Secondary Supply 120 120 Transitional Economies Exports to Market Economies 100 100 Market Economy Mine Production 80 80 60 60 40 40 20 20 0 0 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13p
    • Gold Mine Supply In Fact Was Flat Between 2000 and 2012 Total Gold Mine Supply Annual, Projected Through 2013 Transitional Economies Exports to Market Economies Market Economy Mine Production Mln Oz 3.3% 90 80 70 60 50 40 30 20 10 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13p 15
    • It Has Risen More Than 11 Million Ounces Since 2008 Total Gold Mine Supply Annual, Projected Through 2013 Transitional Economies Exports to Market Economies Market Economy Mine Production Mln Oz 90 85 15.8% 80 75 70 65 60 08 09 10 11 12 13p 16
    • Mine Supply Is Forecast To Be The Second Highest On Record in 2013 Total Gold Supply Annual, Projected Through 2013 Mln Oz 90 Transitional Economies Exports to Market Economies 80 Market Economy Mine Production 70 60 50 40 30 20 10 0 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13p 17
    • Lower Gold Prices Have Slashed Estimated Gross Additions to Gold Mine Production Capacity Almost By Half September 2013 January 2013 Post 2016 35 Mln. Oz. 40 Mln. Oz. Mln. Oz. 40 40 Mln. Oz. 40 Post 2016 35 35 2016 35 2016 30 2015 30 30 30 2015 2014 25 25 25 25 2014 2013 20 20 20 15 15 15 15 10 10 10 10 5 5 5 5 0 0 0 0 2013 2014 2015 2016 Post 2016 20 2013 2013 2014 2015 2016 Post 2016 Note: Post 2016 data refers to 2017 through 2022. Note: Post 2016 data refers to 2017 through 2022. 18
    • Effective Hedging Is Needed, But Faces The Same Old Obstacles Producers this month could lock in a guaranteed floor of $1,110 per ounce and given up only $60 of any upside. Gold HedgeFor Dec 2014 Obstacles To Effective Hedging Indicatively priced on 10 October 2013 US$ / Ounce - Sales Price • Mining companies often lack 2 000 financial expertise to evaluate, counter-bid, and effectively manage hedging programs. 1 800 1 600 • Banks offer less than ideal hedges to mining companies, which lack the internal capacity to evaluate proposed hedges and counter-bid. 1 400 1 200 $1,100 Floor 1 000 800 Spot Sales 600 600 800 1 000 1 200 1 400 Market Price 1 600 1 800 2 000 • Conflicts of interest and obstacles from the 1990s still exist in the market. 19
    • Gold Fabrication Demand Gold Fabrication Demand Projected Through 2013 Million Ounces 120 Million Ounces 120 Jewelry Developed Countries Other Uses 100 100 Dental/ Medical 80 80 Electronics 60 60 40 40 Jewelry - Developing Countries 20 20 0 0 77 80 83 86 89 92 95 98 01 04 07 10 13p
    • Official Transactions, Adjusted for Turkish Central Bank Additions Official Transactions Annual Data, Projected through 2013 Million Ounces 20 Net Additions 15 Million Ounces 20 Adjusted for Turkish Central Bank's ROM Gold 15 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 -20 -25 -25 Net Reductions -30 -30 -35 -35 80 83 86 89 92 95 98 01 04 07 10 13p 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.
    • Why are Central Banks Adding Gold to their Monetary Reserves? Currency Composition of Official Foreign Exchange Reserves 100% 90% Yen; 6.8% 80% 70% Euro 27.3% Other; 4.8% Pound; 2.1% Yen; 6.1% Other; 1.8% Pound; 2.8% Other; 5.9% Pound; 4.1% Yen; 4.1% Euro 18.3% Euro 24.1% 60% 50% 40% 30% U.S. Dollar 59.0% U.S. Dollar 71.1% U.S. Dollar 61.8% 20% 10% 0% 1995 2000 2012 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.
    • Silver
    • Silver Prices: Waning Investor Interest Comex Silver Prices Daily, Through 19 November2013 $ / Oz $ / Oz 55 55 50 50 45 45 40 40 35 35 30 30 25 25 20 20 15 15 10 Jan-10 10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
    • Key Silver Market Trends • Investment Demand is projected to decline 43% to 97.5 million ounces in 2013, despite an expected 30 million ounce increase in coin demand. Large institutional and high net worth individuals with short to medium term investment horizons appear to be selling their bullion due to cyclical weakness. Silver Supply and Demand Balance Projected Through 2013 Million Ounces 1100 1000 1000 900 900 800 • • Total Newly Refined Supply may decline 5% in 2013, mostly due to the 19% drop in old scrap, a highly pricesensitive source of supply. Fabrication Demand is expected to rise to 838.7 million ounces this year, up 3% from a year ago. This increase is almost entirely driven by the 17.6 million ounces increase in jewelry and silverware demand, which has benefitted from lower silver prices. Million Ounces 1100 Fabrication Demand 800 700 700 600 600 Supply 500 500 400 400 300 300 200 200 60 63 66 68 72 75 78 81 84 87 90 93 96 99 02 05 08 11
    • Silver Investment Demand to Drop 43% This Year Silver Market Balance Projected Through 2013, Prices through 2012 Million Ounces $/Ounce 50 250 Net Additions Net Changes in Inventories 45 200 40 150 35 100 30 50 25 0 20 -50 Price (LHS) 15 -100 10 -150 5 -200 Net Withdrawals 0 -250 60 64 68 72 76 80 84 88 92 96 00 04 08 12e
    • Investment Demand Trends by Source Investment Demand by Region Mln Oz Investment Demand by Major Investment Vehicle Mln Oz 250 250 Mln Oz Other 200 200 China India 250 Net Investment Demand 200 150 Mln Oz 250 200 Other Net Investment Demand 150 150 150 ETPs 100 100 100 50 100 50 Coins 50 0 0 50 0 0 -50 -100 -50 -50 -100 -150 -150 -50 -100 -100 -150 -150 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: Bars represent gross investment demand. -200 -200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: Bars represent gross investment demand.
    • Silver ETFs And Ample Silver Inventories Silver ETP Holdings Through October 2013 Mln Oz 700 600 500 ZKB 400 300 SLV 200 100 CEF 0 2000 2002 2004 2006 2008 2010 2012
    • Major Short Building in 2012 and 2013 Gross Long and Short Positions of Non-Commercial Positions Comex Silver Futures and Options. Weekly Data, Through 12 November 2013 Mln Ozs Mln Ozs 400 400 Net Fund Position in Comex 350 350 300 250 300 Long 250 200 200 150 150 100 100 50 50 0 0 -50 -50 -100 -100 Short -150 -150 -200 A-95 -200 M-97 J-99 A-01 S-03 N-05 D-07 J-10 F-12
    • Total Supply is Expected to Decline 5% in 2013 Annual Total Supply Projected Through 2013 Million Ounces Million Ounces 1 100 1 100 1 000 1 000 Net Exports from Tran. Econ. 900 900 800 800 Secondary 700 700 Government Disposals 600 600 500 500 400 400 300 300 Mine Production 200 200 100 100 0 0 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12e
    • Secondary Supply Rose in 2012, but is Projected to Decline 19% in 2013 Annual Secondary Supply Projected Through 2013 Million Ounces Million Ounces 350 350 South Asian Exports 300 300 Indian Scrap 250 250 Demonetized Coins 200 200 Old Scrap 150 150 100 100 50 50 0 0 77 78 79 80 81 82 83 84 85 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 12e 13p
    • Fabrication Demand Expected to Rise 3% in 2013 Annual Total Fabrication Demand Projected Through 2013 Million Ounces Million Ounces 1 000 1 000 Net Imports into Transitional Economies 900 900 Super Conductors 800 800 Biocides Other Uses 700 700 Other Countries 600 600 Photovoltaic Electronics 500 500 400 400 Jewelry and Silverware 300 300 200 200 100 100 Photography 0 0 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13p
    • Electronics Demand Growth is Slowing Silver Fabrication Demand for Electronics and Batteries Annual, Projected Through 2013 Million Ounces 260 Million Ounces 260 240 240 220 220 200 200 Other Countries 180 180 160 160 China 140 140 120 120 Japan Europe 100 100 80 80 60 60 40 40 U.S. 20 20 0 0 77 79 81 83 85 87 89 91 Note: Prior to 2000, China was excluded from market economy demand statistics. 93 95 97 99 01 03 05 07 09 11 13p
    • First Drop in Silver Demand from Photovoltaics in 2012, Recovered in 2013 Solar Panel Silver Demand, Installations, and Production Projected Through 2013 Million Ounces Gigawatts 60 60 PV Silver Demand (Left Scale) 50 50 Solar Panel Installations 40 40 30 30 20 20 10 10 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13p
    • Chinese Silver Imports are Down 40% This Year Through September Chinese Silver Imports and Exports Monthly, Through September 2013 Moz Moz 25 25 20 20 15 15 10 10 5 5 0 0 -5 -5 -10 -10 Gross Imports -15 -20 Gross Exports -15 -20 Net Trade -25 -25 J-05 S-05 M-06 J-07 S-07 M-08 J-09 S-09 M-10 J-11 S-11 M-12 J-13
    • Indian Silver Imports Have Doubled from Last Year So Far Reported Net Silver Imports to India Annual, through June 2013 Million Ounces 200 180 160 140 120 100 80 60 40 20 0 1999 2001 2003 Note: Light blue bars are January through June only. Source: GTIS - HS Code 7106 2005 2007 2009 2011 2013 YTD
    • CPM Group Precious Metals Yearbooks & Other Reports For general inquiries, email info@cpmgroup.com 37