2. 10 Reasons to be bullish about Gold
1) The Stimulus Effect
The current US stimulus plan is pumping $12.8 trillion into the economy,according to
Bloomberg. As the Globe & Mail reports flatly, “Many believe that the monetary stimulus
efforts will cause a spike in inflation,” driving gold higher.
2) COMEX Traders Predict $1,600 Gold…by December
If gold trades at or above $1,600 by December, some 100,000 call option contracts will be
“in the money”.
3) “Big Money” Inflows
If 2008, NYC-based hedge fund Paulson & Co’s flagship fund returned 37%, as the world
markets burned. Paulson’s bullish on gold, big time, including the Mar. 17 purchase of 39.9
million shares of AngloGold, worth $1.28 billion. Other major hedge funds are piling into
gold too, including Eton Park Capital, Greenlight Capital and Hayman Advisors.
4) China!
China just revealed that it has doubled its gold holdings to 1,054 tons. Yet that still only
equals 1.6% of its overall reserves. As China moves out of U.S. Treasuries into gold, this will
help fuel the next leg of the run-up.
5) Demand Building across the Board
Worldwide demand for gold jumped by $29.7 billion in the first quarter, a 36% bolt, according
to the World Gold Council. Demand for gold ETFs (Exchange Traded Funds) rocketed 540%
...another trigger for the coming gold boom
3. 10 Reasons to be bullish about Gold
6) The Paper Dollar’s 30% Drop
Since 2001, the U.S. Dollar Index has tanked 30%...while gold has risen 300%. With all
the downward pressure on the dollar, and inflation on the way, this trend is about to pick
up steam
7) Gold/Dow Ratio historically can go to 1
During major gold bull markets (and corresponding equity bears), gold and the Dow
converge at a 1-to-1 ratio. During the last gold bull, the Dow sank to 850 and gold rose to
$850. The Dow is now over 8,000…But even if it fell to 4,000, we could see $4,000 gold
before this bull run is over!
8) U.S. Treasury Dept. Signals $5,468 Gold
Currently, the U.S. government holds about 286.9 million ounces of gold. It has printed
about $1,569 trillion worth of paper dollars. If each dollar were backed by gold, that would
put the price at $5,468.80 an ounce.
9) Riding the “Commodity Super Cycle”
Gold has a high correlation to commodities overall and we are still in the beginning phase of
a commodity super cycle.
10) Historic Model Predicts $6,214 Gold
During the last gold bull, the yellow metal ran from $35 an ounce to $850, a 24-fold
increase. This bull started with gold at $255.95, meaning that if historic trends hold, the
price target would be $6,214 an ounce.
7. Dow to Gold ratio 30 year weekly chart
(to 30/06/09)
8. Gold vs Swiss Francs
10 Year Weekly Chart (to 30/06/09)
9. Gold Facts
Did you know that…
… the total amount of gold that has ever been produced
weighs 155,000 tons and is worth more than 4.8
trillion USD? That amounts to a price of 33,312 USD
155,000 4.8
per kilogram.
… all the gold on earth could make up a cube with edges of
66 feet (20 meters)?
… one ounce of gold (31.1 grams) can be extended to
form a wire as long as 35 miles (56 kilometers)?
… gold can be produced artificially by core meltdown
processes, but the production is not economical due to
high costs?
10. Gold Facts
Did you know that…
… a 22-karat gold bracelet weighing 12 ounces only gives you 11 ounces of pure gold?
155,000 4.8
… China is currently the largest producer and India is the largest consumer of Gold?
… hundreds of pounds of rock needs to be unearthed to produce an ounce of gold?
… the Gold Reserve Act in 1934 prohibited the private ownership of gold in the United
States?
… the price of gold hit a record of $1011 in March 2008?
… the United States abandoned the “Gold Standard” in 1971, thus breaking the last
tie between gold and circulating currency?
12. Why Invest in Gold?
Safe haven
Zero credit risk. Gold has always been a secure refuge in
unsettled times, even though it bears some market risk.
Gold has proven to be an effective wealth manager.
Effective performance
Gold delivers consistent returns within a wider portfolio of
assets.
Gold’s performs independently of most other investments and
key economic indicators.
13. Arguments for an allocation to Gold
In a Diversified Portfolio Include:
Gold is a “safe haven” against
inflation
and financial crises.
Gold often trades inversely to the
U.S. dollar, making it a useful hedge
in times of dollar depreciation.
Gold can viewed as an alternative
asset class.
Gold, and even gold stocks, are not
closely correlated to either the stock
or bond markets.
14. Gold as a Safe Haven
Gold is among only a handful of financial assets that is not matched by a
liability. It provides ‘insurance’ against extreme movements in the value of
traditional assets when markets are unsettled.
In fact, over the past thirty years, the correlation between gold and the Dow
Jones Industrial Average (DJIA) actually declined during the worst 30 months
of the DJIA – showing that gold investors were protected when they needed
it most.
Source: World Gold Council
15. Gold as a Safe Haven
There is a ‘flight to quality’ in volatile and uncertain times as investors seek to
protect their capital by shifting into assets that are safer stores of value.
Gold has attracted investors for centuries, protecting their wealth and
providing a 'safe haven' in troubled or uncertain times.
16. Recent Examples of the Refuge
Afforded by Gold:
During the 1997/98 Asian Financial Crisis, the South Korean government offered
its citizens local currency debt instruments in exchange for their gold holdings.
South Korea raised over five million ounces of gold in this way, which enabled
them to service their external debt and boost their country’s credit rating.
Y2K caused a flight to gold in 1999 as investors feared the predicted electronic and
communications meltdown.
Japanese investors fled to gold in the first quarter of 2002 as they expected the
withdrawal of government guarantees on bank deposits.
Dollar demand for gold reached an all time high of $32 billion in the third quarter
of 2008 as investors sought refuge from the global financial crisis.
17. Is Gold Really Reaching an All Time High?
Jan. 21, 1980
Gold hits high of $ 850 Jan. 30, 2008
As inflation has picked up Apr. 2006
amid Islamic Revolution in Oct. 1987
and the stock market has Jan. 1983
Iran and Soviet invasion of Gold futures hit
Gold futures
tumbled, investors seeking Afghanistan Stock market record high
Gold rises above cross $600 on
a safe haven have piled crashes. Gold reaching
$500 as interest rates dollar weakness,
surpasses $500 $936.30
into gold, driving the metal fall, then falls $105 in geopolitical
in December
to all-time highs. the last 4 trading tensions over
Aug. 15, 1971 days of February Iran’s nuclear
Jan. 1989
1992 - 1996 19, 2003 program
Mar.
Nixon ends Gold
Gold falls bellow
Gold futures have risen Standart, priceU.S. 1999
/ British
Gold SummerDec. 2005
1975 - 1976 $500
suspending remains relatively invades
coalition
more than 48% in the last 2 convertibility of stable Iraq
Sep. 2001 Goldto $250
Gold tumbles tops $500
years and was traded at a dollar into gold U.S. Treasury begins
after Bank of England
record of more than $1000 public sales of gold
Investors turn to gold asplanned
announced it
in March 2008. stocks. IMF 5-years
haven following terrorist
to sell more than half
gold sales program.
atacks gold reserve
its
IMF auctions and
lower inflation outlook
To keep pace with inflation drive gold prices 2000
Jan. 17, 1991 Oct. 2002
going back to 1980, gold down
Bull Market: Down hits
futures would need to be Gold tumbles astop in January. Nasdaq,
air End of bear
phase of Gulf War and Wilshire 5000 market in stocks
above $ 1,800 today begins
S&P
hit highs in March
Source: Wall Street Journal
19. Gold can serve as a “Haven”
in time of Crisis
Gold experienced a fierce bull market in the ’70s as inflation accelerated
Gold vs. CPI
$600 100
90
$500
Gold (left scale)
CPI 80
$400
70
$300
60
$200
50
$100
40
$0 30
Jan-70 Mar-71 May-72 Jul-73 Sep-74 Nov-75 Jan-77 Mar-78 May-79
Source: Superfund Data
20. Gold Performs Well During Fiscal Crises
Gold's value as a safe haven can be illustrated by its behavior
during periods of financial turmoil.
Gold in Mexican Pesos
3500
3000
2500
2000 Mexico Crisis
1500
1000
500
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jul-91
Jul-92
Jul-93
Jul-94
Jul-95
Jul-96
Jul-97
Jul-98
Jul-99
Source: Superfund Data
21. Gold Performs Well During Fiscal Crises
Asian Crisis (represented by Thai experience)
Gold in Thai Baht
18500
16500
14500
12500
Asian Crisis
10500
8500
6500
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Source: Superfund Data
24. Maintaining Value in the Long Term
Market cycles come and go, but gold has maintained its long term value.
Jastram (1977) demonstrated that in the long run, in both inflationary and
deflationary cycles, gold retains its purchasing power.
The value of gold, in terms of real goods and services that it can buy, has
remained remarkably stable. In contrast, the purchasing power of many
currencies has declined.
This is why gold is so popular: to counter the effects of inflation and currency
fluctuations. Harmston (1998) concluded that over the long term, in spite of
price fluctuations:
Gold consistently reverts to its historic purchasing power parity (PPP)
Gold has proven an effective preserver of wealth
During periods of economic and social turmoil, gold has been a safe
refuge for investors while the value of other assets plummet
In the short run, the effectiveness of using gold as an inflation hedge varies,
but in the long run it remains a reliable store of value (University of Sterling
working paper, 2000).
25. Dollar Hedge
Gold is widely considered to be a particularly effective hedge against
fluctuations in the US dollar, the world's main trading currency.
26. Historical Volatility
Assets with low volatility help to
reduce overall portfolio risk.
Volatility, or risk, is measured
here as the extent to which
asset prices fluctuate during a
given period.
This chart compares the
volatility of gold with stocks
between 1987 and 2007. The
price volatility of gold is
generally similar to blue-chip
stock market index’s like the
S&P 500. Gold prices usually
rally when volatility increases.
Gold is versatile. It can help manage a range of risks of concern to investors,
including exposure to dollar fluctuations and unanticipated inflation. Gold’s
longstanding history as a safe haven asset attracts investors around the world.
Source: World Gold Council
Data: Global Insight,WGC
27. Central Bank Transactions
Central banks and other official institutions’ stocks of gold are currently 30,815
tonnes, or just under 20% of all the gold that has ever been mined. That’s the
equivalent of just over 12 years’ new mine production at the current rate.
Over the past decade a few central banks have sold gold in significant
quantities (more than 100 tonnes); but most central banks are holding on to
what they own. Gold remains a key reserve asset. In fact, some institutions
are actively building up the level of gold in their reserves.
What’s more, the Central Bank Gold Agreements of 1999 and 2004 have
stabilized sales from 15 of the world’s biggest holders of gold at a rate that the
signatories felt the market could absorb without undue disruption.
Adding in other countries and institutions that have declared themselves non-
sellers brings the total of official sector gold that will not come onto the market
in regulated form to around 75%. Sales from outside this group amount to
little more than a trickle, and are offset by purchases from other governments.
28. Liquidity and Ease of Trading
Liquidity
The gold market is a deep and liquid one in which trades can be executed 24
hours a day with the capacity to trade single transactions well in excess of
$25M at a time, under normal market conditions.
Ease of Trading
Traditionally, access to the gold market has been through:
Investment in physical gold, usually as gold coins or small bars, or, for
larger quantities, by way of the over the counter market
Gold futures and options
Gold mining equities, often packaged in gold oriented mutual funds
Exchange- Traded Funds (ETFs) and similar products, offering potential
investors cost-efficient, easy access to gold through stock exchanges
But more recently, new ways to invest in gold have come on stream for
potential investors, providing cost-efficient, easy access through stock
exchanges. Find out how to invest and where to buy.
29. Supp;y & Demand
Rising Demand Limited Supply
Increase in Investment Demand Annual gold production represents
> ETF: holdings grew by more than only 1.5% of existing stocks of
260t (8.3 Moz) in January and the gold.
first half of February 2009 alone.
Increase in Gold Reserves
> China Increased Gold Reserves Central Banks are selling less gold:
76% to Fifth-Largest holder in the
world (2003-2009). > In 2008 official
Increasing Jewellery demand sales of gold were
from China and India: 42% lower from a
year ago.
> Jewellery demand
amounted to US$54B > Official sales
in 2007, making it fell to 8% of total
one of the largest gold supply in
categories of 2008 from 14% a
consumer goods. year ago.
> India accounted for
25% of global demand
in 2007.
30. Portfolio Diversification
While gold has shown strong returns over recent years, its most valuable
contribution to a portfolio lies in the fact that it is relatively uncorrelated to
equities, bonds and a large number of other asset classes
Gold price is not driven by the same factor that drive the performance of
other assets
WHY?
32. When Did Gold Appreciate?
Historically, gold rose steadily when at least two of the
following conditions were met:
State Expanding a country’s money supply generally leads
Intervention to to inflation, which results in the falling value of
stimulate the paper money
economy by
printing money
When the financial system is being questioned and
Financial crises
investors feel insecure about their investments
Deficits increase when governments spend money to
Risk of Default of stimulate their economies. Government bonds are the
government debt basis for fixed-income investments in all countries, but
are viewed cautiously when spending goes wild.
An environment of When real interest rates are low or negative, gold’s
Low or Negative popularity as a secure alternative investment increases
(because the return on other low-risk assets is small or
Interest Rates
negative).
33. Quotes
“…the general rule: a pure paper money that has practically no value as a commodity
in itself.Such an arrangement has been the general rule only since President Richard
M. Nixon ‘closed the gold window’ on August 15, 1971 – that is, terminated the
obligation that the United States had assumed at Bretton Woods to convert dollars
held by foreign monetary authorities into gold at the fixed price of $35 an
ounce.Before 1971, every major currency from time immemorial had been linked
directly or indirectly to a commodity.” ~ Milton Friedman (1994)
“The dollar will go down. So the investor has to be very careful to be in assets that
will actually appreciate in both foreign currency terms and in dollar terms. And if I
look around the world, in my opinion, the most precious asset going forward will
still be gold…” ~ Marc Faber (Nov 2008)
“I own some gold and if gold goes down I’ll buy some more and if gold goes up I’ll
buy some more. Gold during the course of the bull market, which has several
more years to go, will go much higher.” ~ Jim Rogers (Dec 2008)
“Deficit spending is simply a scheme for the confiscation of
wealth. Gold stands in the way of this insidious process. It stands as a protector of
property rights.” ~ Alan Greenspan (1967)
34. Disclaimer
This presentation has been prepared by Superfund Financial (Singapore) Pte Ltd for financial planners only
and is not intended for general public distribution. The information contained herein is for educational
purposes only. This presentation does not constitute either investment advice or an offer or an invitation to
offer to acquire, dispose of, subscribe for or underwrite any of the securities described herein. All
information and data contained herein was obtained through careful evaluation of information provided by
reliable internal and external sources. However Superfund Financial (Singapore) Pte Ltd or any other
members of the Superfund group of investment companies cannot guarantee the complete validity and
accuracy of all figures as well as the illustrated graphs/diagrams.
Performance results shown in this document are net of all fees. Past performance of the financial products
contained in this presentation, especially performance figures of Superfund Q-AG (closed fund), Superfund
GCT (closed fund) and Superfund Cayman (closed fund), are not indicative of future results for these or any
other products. They exclusively serve as a historical presentation of the performance of their respective
trading managers and of certain members of the Superfund Group. No subscriptions or follow-up
subscriptions from existing investors are possible or will be accepted in closed funds. Fee structures of open
Superfund funds may differ from those of closed Superfund funds identified herein, in which event the
future performance of such open funds will likewise differ from said closed funds.
Financial products managed by members of the Superfund group of affiliated investment companies are
speculative investments. There is a substantial risk of loss in trading futures and options. Every capital
investment contains risks. The value of an investment may fall as well as rise.
35. Disclaimer
Some performance results indicated herein represent simulated results based on historical data, and not the
results of actual trading. The simulated performance of Superfund Gold A strategy is based first on the actual
past performance of Superfund Q-AG (closed fund) since 1996, which is denominated in EUR. This
performance has then been valorized based on the actual performance of gold (in USD/ounce) on the London
Metal Exchange on the respective valuation dates for Superfund Q-AG (the last banking day of each month).
Superfund Gold A strategy, however, did not yet exist during the time period cited. Your attention is
specifically drawn to the fact that this simulated performance is based on the price of gold in USD and that
fluctuations during this time in the USD/EUR exchange rate have not been considered or included in the
simulated performance. The simulated performance results are provided for informational purposes only to
indicate historical performance had the new product strategies been available over the relevant period. No
representation is being made that any investment will or is likely to achieve results similar to those shown.
Past and simulated performance is not indicative of future results. Although the simulation includes
adjustments for certain fees payable by the new strategies, the simulated performance results may vary once
actual fees are taken into account. Hypothetical performance results have many inherent limitations. No
representation is being made that any investment will or is likely to achieve profits or losses similar to those
shown.
THE AUTHOR AND DISTRIBUTORS OF THIS MATERIAL EXPRESSLY DISCLAIM ANY AND ALL LIABILITY FOR
ANY INACCURACIES CONTAINED IN THIS DOCUMENT, AND SHALL NOT BE HELD LIABLE FOR THE SAME.
