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SA Bullion IFA Presentation
 

SA Bullion IFA Presentation

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This is the presentation that was delivered to wealth managers and financial advisors in August 2009 at the launch of the SA Bullion IFA Platform....

This is the presentation that was delivered to wealth managers and financial advisors in August 2009 at the launch of the SA Bullion IFA Platform.

The presentation is in 3 Parts:

1. The Case for Gold in the 21st Century
2. How to Include Bullion in an Investment Portfolio
3. Presenting The BullionGold Facility

All interest to be directed to business@sabullion.co.za

www.sabullion.co.za

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    SA Bullion IFA Presentation SA Bullion IFA Presentation Presentation Transcript

    •  
    • The case for Gold in the 21 st century An orderly currency in a disorderly world
    • Background
      • A new world order commenced in 1944 - Bretton Woods
      • Since 1971 currencies have been backed only by confidence in the issuers and by extrapolation their economies
      • Monetary disorder may be brought about by structural weakness in a country, its economy and its currency
      • “ In good times gold is a commodity, in bad times gold is a currency.”
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • The Makings of A Disorderly World The Best of Times
      • 1989 ushered in optimism
      • Reagan had set off deficit spending
      • Greenspan commenced easy money
      • The dollar was strong
      • America dominated
      • Balance sheets were strong
      • Regulation was high
      • Inflation was on the decline
      • Strong productivity gains via technology
      • Globalisation
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • The Makings of A Disorderly World The Blow-Off Phase
      • From 1994 the super-sizing of financial leverage
      • Deregulation of the financial sphere
      • Greenspan and “The Great Moderation”
      • Credit became plentiful and cheap
      • Fed support for impenetrable financial instruments
      • Consumption frenzy
      • Serial asset price bubbles
      • Rating agencies culpable
      • Savings rates fell to zero
      • “ Greed is Good”
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • The Makings of A Disorderly World What was the Inflection Point ?
      • In order to have the maximum possible blow-out everyone had to be involved
      • the stockmarket boom to 1998
      • the IT and dotcom boom up to 2000
      • the “EVERYTHING” boom up to 2007
      • the “EVERYTHING” boom got “EVERYONE” involved – via the residential property boom blow-off
      • The first cracks….
      • after the parabolic rise in residential property the problems would reveal themselves starting at their source – the CDO’s
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Household Debt 1974 – 2009 ($ billions)   The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Business Debt (non-financial) 1974 – 2009 ($ billions)   The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Private Sector Debt 1974 – 2009 ($ billions) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Private Sector Debt and GDP 1974 – 2009 The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Public Debt 1974 – 2009 ($ billions) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Public Debt 1974 – 2009 (as a % of GDP) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • Sovereign Debt in the rest of the World National Debt as a % of GDP *IMF Sources: CIA World Factbook, The Economist, OECD, IMF and SA Bullion Research The Case for Gold in the 21 st Century An orderly currency in a disorderly world 2010 2014 U.S. 95 107 Japan 200 234 Germany 77 91 Britain 100 88 France 90 90 Italy 120 129 Top 10 richest 106 114 - 150*
    • The US Picture Today
      • Ultimate demand comes from highly-employed, well-paid labour. This demand is collapsing and will not recover for years….
      • Government to the rescue:
      • 0% interest rates
      • Quantitative easing
      • $2 trillion fiscal deficit
      • $1 tillion in MBS and bond purchase, TALF, TARP
      • Trillions in FDIC quarantees
      •  
      • THE BIG QUESTION:
      • Can they reflate to achieve 5% nominal growth again?
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • Commentary
      • Government Accountability Office – March 2009 Update
      • “ updated simulations continue to show escalating and persistent debt that illustrates the long-term fiscal outlook is unsustainable”
      • Warren E Buffet – 19 August 2009
      • “ The United States is spewing a potentially damaging substance into our economy – greenback emissions… unchecked greenback emissions will certainly cause the purchasing power of currency to melt.”
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US GDP Quarterly Growth 2000 – 2009 (% annualized) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US House Prices Index 2000 – 2009 (Case-Shiller Composite 20) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Unemployment Rate 2000 – 2009 (U-3 Series, official rate) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • US Public Debt per capita 1974 – 2009 ($) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • The Curse of Cheap Money
      • The Link to Currencies, Society and Politics:
      • Excessive credit expansion and asset price increases in the extreme ultimately leads to problems in the real economy –
      • problems of bankruptcies, credit contraction and unemployment
      •  
      • These problems mutate into currency, societal and political problems.
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • What choices does the US have?
      • US Choices:
        • austerity
        • default
        • Inflate
      • Austerity depends on:
        • the size of the debt
        • economic growth
        • the interest rate that government must pay
      • The prudent austerity route is unlikely as:
        • Monetary stimulus is essential
        • The economy will be weak
        • Big budget surpluses are unlikely
        • Tax revenues will be under pressure
        • Lenders will be unwilling without higher yields on their capital
        • The population is aging
      •   Default is not an option
      •   Inflation is the only possibility
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • Private Sector Deleveraging Private Sector Demand For Credit is Low or negative Treasury is the only source of credit demand growth The US Liquidity Trap and the escape hatch Demand in Real Economy via tax cuts The Case for Gold in the 21 st Century An orderly currency in a disorderly world Set off by asset price defiation Despite FFR at zero Fiscal Stimulus Fed prints money Quantitive Easing Reflation Expectations of Inflation Spend not hoard
    • 2-3% nominal GDP Growth High Unemployment & Low Consumer Spending growth Increasing Government Share of Economy The US Post Reflation Low short yields The Case for Gold in the 21 st Century An orderly currency in a disorderly world Down from 5-7% Lower profit growth Up from 4-6 % to 10-15% Decreased Weath Practising austerity Weaker structure of Economy govt-backed leverage replacing private-backed leverage Weakening Dollar The story is in the long bonds
    • Has Gold taken notice of the disorder Performance of gold (% change in US $) Source: London Bullion Market Association and SA Bullion Research The Case for Gold in the 21 st Century An orderly currency in a disorderly world In US dollar 2001 2.5 2002 24.7 2003 19.6 2004 5.2 2005 18.2 2006 22.8 2007 31.4 2008 5.8 2009 to date 10.8 Average (p.a.) 16.3 Median (p.a.) 18.9
    • Gold Performance 1/1/2000 – to date (US$) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • Gold Performance 1/1/2000 – to date (Rand) The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • In Good Times Gold is a Commodity In Bad Times Gold is a Currency
      •  
      • Gold is unlike a national currency. It has:
        • scarcity
        • security
        • perfect credit-worthiness
      •  
      • Gold is not stored on the balance sheet of a bank in order to earn interest; it presents a safehaven when banks are risky
      • The smart money turns to gold in bad times to achieve currency
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • The Case for Gold
      • Generational Problems:
        • Deleveraging
        • Weak economies
        • Low interest rates
        • High public debt-raising
        • Persistent easy money
      •  
      • Economies have to reflate
      • Debts have to be inflated away
      • Currencies have to take the pain
      •  
      • The South African Rand faces its own challenges as a commodity currency
      •  
      • Gold is benefiting and will continue to benefit as the currency for bad times…
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • What about Cash? Cash is King?... Or is it?
      • The future holds:
        • poor economic performance
        • low interest rates
        • leading to dollar debasement
      •  
      • The future for cash is not good,
      • But,
      • This does not mean that investors must be entirely forced into risk assets (which are very risky!)
      •  
      • As a result,
      • Gold is the ascending currency in a disorderly world
      The Case for Gold in the 21 st Century An orderly currency in a disorderly world
    • How to include physical Gold Bullion as a currency in an Investment Portfolio
    • Physical gold bullion Where the smart money is moving
      • Investment flows into gold bullion up 1,800%
      • 32.48 $Bn of gold was purchased in 2008.
      • Gold has unique qualities that are driving investment demand for gold to increasingly higher levels.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • Investment qualities of gold High levels of liquidity
      • Gold is one of the deepest commodity markets with the highest levels of liquidity, second only to oil.
      • Gold can be traded around the clock in greater size, at narrower spreads, and more rapidly than many mainstream investments.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • Investment qualities of gold Market risk and Portfolio diversification
      • Gold and mainstream financial assets have negligible correlation
      • Why?
      • Returns on gold are not correlated to economic activity
      • Returns on mainstream financial assets are positively correlated to economic activity
      How to include physical gold bullion as a currency in an Investment Portfolio
    • Investment Qualities of Gold Credit/Counterparty risk overview
      • Most conventional portfolio’s consist of cash, bonds and equities and all of these asset classes contain varying degrees of credit risk.
      • Physical gold holds no credit risk/counterparty risk – this is because title held physical gold is the investors asset and no one else’s liability.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • Paper gold vs Physical gold
      • Examples include:
        • gold exchange traded funds
        • mint-backed certificates
        • gold accounts
      • Paper gold tracks the movement in the gold price but similar to equities, paper gold contains exposure to credit and counterparty risks.
      • Title owned physical gold does not.
      • This places paper gold and title owned physical gold into different asset classes.
      • Paper gold should be treated as a component of an equity portfolio, not cash.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • Owning physical gold in South Africa
      • The Precious Metals Act
      • Krugerrands or minted bars
      • Differences between ‘proof’ Krugerrand and ‘bullion’ Krugerrand.
      • The Bullion Krugerrand is VAT exempt
      • 14% VAT renders all other minted bar uneconomical
      How to include physical gold bullion as a currency in an Investment Portfolio
    • The Bullion Krugerrand Legal Tender gold currency
      • Introduced in 1967
      • Is legal tender and therefore uniquely VAT exempt
      • Derives its value from the gold content.
      • Underwritten by the South African Reserve Bank therefore 100% liquidity.
      • Priced In US Dollars and provides a Rand hedge
      • 56 Million ounces in circulation
      How to include physical gold bullion as a currency in an Investment Portfolio
    • Taxation of Krugerrands
      • The sale of Krugerrands will be taxed as a capital gain provided that;
      • The Investor can prove his intention for the investment
      • was ‘ for keeps ’.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • The role of SA Bullion Creating an investment proposition in physical gold
      • SA Bullion recognised the Krugerrand as the ideal instrument for investing in legal tender gold bullion
      • The Krugerrand offers not only pure gold exposure but also specific legal status qualifying it as a compelling currency alternative
      • SA Bullion has concluded unique agreements with the South African Reserve Bank and Rand Refinery Limited that enable an economically viable method to make investments into physical legal tender gold bullion
      How to include physical gold bullion as a currency in an Investment Portfolio
    • The role of SA Bullion Supply constraints of Bullion Krugerrands
      • The annual worldwide supply of bullion Krugerrands is regulated by the minister of finance
      • This limit has been set at 500 000 ounces per annum. (approximately ZAR 4 Billion)
      • Worlwide demand massively exceeds supply
      • SA Bullion has been granted a special supply dispensation by the South African Reserve Bank
      • In 2010, SA Bullion’s supply dispensation will exceed the worldwide supply of bullion Krugerrands.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • The role of SA Bullion Reducing all transactional costs to a minimum
      • Reducing the acquisition and redemption cost.
      • SA Bullion has reduced the buy-sell spread from 25% to 4.5%.
      How to include physical gold bullion as a currency in an Investment Portfolio
    • The role of SA Bullion Providing a value-added custody service
      • Vaulting at Rand Refinery in the investor’s name
      • Comprehensive insurance with Lloyds of London
      • Investor administration and reporting
      • Audit by
        • SA Bullion: Ernst and Young
        • RRL: Deloitte
      • Supervision by FSB and SARB
      How to include physical gold bullion as a currency in an Investment Portfolio
    • South African Investors Choices for holding cash
      • Bank deposits or money market instruments
      • Foreign currency by using the R 2 million offshore allowance.
      • Legal tender gold bullion with SA Bullion
      • Turn Rands into Krugerrands
      How to include physical gold bullion as a currency in an Investment Portfolio
    • The BullionGold Facility & Financial Advisor Support
    • Product Definition
      • The BullionGold Facility creates an enabling environment for investors to accumulate funds in order to acquire physical gold bullion . The platform provides investors with the lowest acquisition costs for bullion , while providing a complete solution to the traditional concerns related to the vaulting, insurance and liquidity of physical gold bullion
      The BullionGold Facility and Financial Advisor Support
    • The Shortcomings of the Retail Market
      • Only manufacturing jewellers or numismatic dealers may acquire gold bullion from Rand Refinery Limited
      •  
      • The retail market for Gold Bullion relies solely on the imposition of upfront and redemption margins on gold.
      •  
      • As such retail margins for Krugerrands are typically 10% above the wholesale supply price at acquisition and varies between 10%-15% on redemption.
      •  
      • Therefore, typical friction charges amount to some 20%-30% through traditional channels for gold bullion Krugerrands
      •  
      • This is clearly an unfeasible investment proposition.
      The BullionGold Facility and Financial Advisor Support
    • Product Rationale
      • The objective of the product is to provide the market with a feasible investment proposition surrounding physical gold bullion.
      •  
      • This has been achieved through the disintermediation of the retail supply chain
      •  
      • And has lead to the creation of a gold supply for investment demand and a gold bullion management chain
      •  
      The BullionGold Facility and Financial Advisor Support
    • The BullionGold Facility and Financial Advisor Support
      • Title owned call accounts held on behalf of each client to manage funds
      •  
      • Preferential wholesale interest rates payable from 1 st Rand held on call
      •  
      • Client receives monthly statements , annual IT3 certificate and log-in access to account
      •  
      • Advisors receive single point of access to view/monitor all clients call accounts
      •  
      • Contributions via recurring debit order or ad-hoc lump sums
      •  
      • Gold Price queried daily against call balance for possible purchases
      The BullionGold Facility and Financial Advisor Support
      • Deposits receipted by 1pm eligible for gold purchase the following day
      • Clients may request SA Bullion to purchase on instruction only
      •  
      • Call Balances may be withdrawn at any time
      •  
      • All transfers to client nominated bank accounts effected by real time transfer
      •   
      • First R7.50 of interest earned payable as a bank charge – no capital diminishment
      • Perfectly transparent record of all cash movements in the facility – investments, gold purchases, fees and gold redemptions
      The BullionGold Facility and Financial Advisor Support
      • SA Bullion operates a bullion desk which processes all gold transactions
      • Gold bullion purchases and redemptions are processed daily from the Bullion Desk on behalf of clients
      • Transaction advices in respect of gold purchases and redemptions are remitted to the client and advisor following each transaction
      The BullionGold Facility and Financial Advisor Support
      • Bullion acquired from RRL at the previous days LBMA PM Gold Price Fix ($) ( www.lbma.org.uk )
      • SARB releases applicable exchange rate to Rand Refinery Limited at first light daily
      •  
      • Resultant price is Rand Gold Price for Bullion ( www.randrefinery.co.za )
      •  
      • The Wholesale rate for refining and minting obtained by SA Bullion is currently 4% . This is at a discounted rate than is available to the retail market. SA Bullion passes on this rate to the client.
      • Retail Minting Premium Comparison:
      • 1-49 Krugerrands 6.5% ( 38% discount to small quantities of retail supply )
      • 50+ Krugerrands 4.5% (11% discount to large quantities of retail supply)
      The BullionGold Facility and Financial Advisor Support
      • The bullion is stored at RRL in Germiston in an allocated vault on behalf of clients
      • The bullion is held in the clients title
      • The bullion is insured through Lloyds of London while vaulted
      •  
      • Reconciliation of bullion holdings occur between SA Bullion and RRL
      •  
      • RRL auditors – Deloitte confirm reconciliation by physical stock count
      •  
      • Costs related to Vaulting and Insurance are included in ongoing platform fee
      The BullionGold Facility and Financial Advisor Support
      • Cash Redemptions
      • Perfectly liquidity for redemptions into Rands (underwritten by SARB)
      •  
      • Rand Redemption instructions received by 1pm are eligible for redemption the following day
      •  
      • The price received on redemptions is the previous days LBMA PM Gold Price Fix ($) expressed in Rand
      •  
      • Settlement is receipted in clients call account within two working days and paid into the clients nominated bank account
      The BullionGold Facility and Financial Advisor Support
      • Physical Bullion Redemptions
      • Physical gold redemptions are subject to a 3 year holding period
      • SA Bullion is authorized by SARB to create an investment not retail proposition
      • SA Bullion dispensation from SARB provides guaranteed supply and below retail acquisition costs for bullion – this would be subject to exploitation in retail markets
      • Clients may request earlier redemption, however an exit fee may be imposed (this charge will never exceed the equivalent of 3 years fees)
      • Gold deliveries are via RAM couriers Valuable Cargo Delivery option at preferential rates negotiated between SA Bullion and RAM Couriers
      •  
      • Courier costs are for the clients account and is quoted upfront on physical redemption request
      The BullionGold Facility and Financial Advisor Support
    • Fee Structure : Upfront Fees
      • Levied on initial investment amounts
      • Fixed 1.5% Platform Charge
      • Advisor Fee 0% - 3.5%
      • Fees excl. VAT
      The BullionGold Facility and Financial Advisor Support 1.5% 3.5%
    • Fee Structure : Ongoing Fees
      • Levied on Gold Bullion holdings
      • Fixed 2% Platform Charge
      • Advisor Rebate 0.5%
      • Calculated daily on market value of Gold Bullion holdings
      • Levied monthly in arrears and payable by debit order
      The BullionGold Facility and Financial Advisor Support
    • Fee Structure : Redemption Fees Cash Redemptions Perfect Liquidity - No fee applies No time restiction applies Physical Redemptions Perfect Liquidity – No fee applies in respect of redemptions after 3 years Redemptions within 3 years from date of acquisition subject to an early redemption fee (max 6% excl. VAT) The BullionGold Facility and Financial Advisor Support
    • Large Transactions
      • Phase In Option
      • Minimum initial investment R100 000
      • Phase in over 3/6 months
      • Redemption of Gold to offset fees
      • Subject to minimum gold holdings of R350 000
      The BullionGold Facility and Financial Advisor Support
    • Reporting
      • Client
      • Activity notifications - remitted with each investment or withdrawal from the call account
      • Transaction Advices - remitted following each gold transaction
      • Quarterly Statements - reflect both market value of Gold and Call Balances
      • Quarterly SA Bullion Gold Report – publication
      • Online access to view call account
      • Financial Advisor
      • Single point of access to view all client call accounts
      • Weekly commission runs and statements
      The BullionGold Facility and Financial Advisor Support
    • The Investment Proposition
      • The BullionGold Facility has enabled the following proposition:
      • Significantly reduced the friction charges associated with trade in physical gold bullion
      •  
      • Imposed a maximum upfront charge allowable of 5%
      •  
      • Integrated all the cumbersome aspects relating to title ownership of bullion into a seamless facility wherein insurance, vaulting, redemption and liquidity are all addressed.
      •  
      • The platform charge is fixed at 2% pa on the value of gold bullion held in the fully integrated facility
      www.sabullion.co.za The BullionGold Facility and Financial Advisor Support
    • The Investment Proposition
      • The BullionGold Facility has enabled the following proposition:
      • Ensures that there is no cost leakage on sale of bullion since the platform provides perfect liquidity for gold under management
      • Provides perfect transparency of all cash movements
      •  
      • Ensures title ownership of all assets contained in the product
      •  
      • Creates an enabling environment for the accumulation of Rands in order to acquire gold bullion
      The BullionGold Facility and Financial Advisor Support
    • Def n : the process of adding value to a metal, mineral or commodity. Gold Beneficiation Chain : Role Gold Mining Companies Rand Refinery Limited & SA Mint SA Bullion SA Bullion Financial Advisor Extraction Manufacturing Wholesale/Retail Distribution & Sales Regulated By: The SA Bullion Gold Beneficiation Chain The BullionGold Facility and Financial Advisor Support Copyright 2009 Department of Minerals & Energy South African Reserve Bank Financial Services Board South Africa