Investment Update

1. INVESTMENT UPDATE
Gold’s True Volatility

2. Points TO Be Covered Today:
• About the World Gold Council
• Time To Realise Gold’s True Volatility
• Where Investors Are Bearish & Bullish On Gold
• The Gold Derivatives Markets Telling Us
• What The Technicals Suggest
• Conclusion

3. About The World Gold Council
• The World Gold Council is the market development organisation for the gold
industry.
• Our purpose is to stimulate and sustain demand for gold, provide industry
leadership, and be the global authority on the gold market.
• We develop gold-backed solutions, services and products, based on authoritative
market insight, and we work with a range of partners to put our ideas into action.
• As a result, we create structural shifts in demand for gold across key market
sectors. We provide insights into the international gold markets, helping people
to understand the wealth preservation qualities of gold and its role in meeting
the social and environmental needs of society.
• Based in the UK, with operations in India, China, Singapore and the USA, the
World Gold Council is an association whose members comprise the world’s
leading gold mining companies.

4. Time To Realise Gold’s True Volatility
• The volatility of numerous assets has shifted along with the
performance of gold, which has recently rebounded to nearly flat on
the year.
• Given this shift, we consider it important to assess the current gold
market conditions from a volatility and derivatives perspective, along
with what technical charts are suggesting about where gold could
move in the near- and long-term.
• We believe that regardless of an investor’s gold sentiment, the
following conditions are present and create an opportunity

5. Where Investors Are Bearish On Gold
• Where investors are bearish on gold, we could expect to see activity
including:
• 1. Buying at-the-money puts: Implied volatility remains low for at-
the-money (ATM)6 puts, and for an investor who believes gold could
move meaningfully lower, we may see an outright put purchase that
would provide maximum downside exposure.
• 2. Buying put spreads7 : Put skew is rich8 from a historical
perspective right now with out-of-the-money puts implying a higher
volatility than at-the-money puts. We may see bearish investors buy
put spreads with the aim of achieving capped downside exposure
with less premium at risk

6. Where Investors Are Bullish On Gold
• Where investors are bullish on gold, we could expect to see activity
including:
• 1. Selling puts outright or selling puts to finance buying calls: The rich
put/call skew in gold options creates an opportunity for investors to use
the premium from selling the relatively expensive puts which would bode
well should gold stay range-bound, or to use it to buy upside calls at a
lower cost.
• 2. Buying call spreads9 : The rich call skew could lead to investors buying
call spreads; this could provide ample capped exposure to the upside with
less premium at risk.
• 3. Buying at the money calls: Implied volatility remains low ATM; those
who believe gold could move meaningfully higher in the near-term could
consider buying the calls outright

7. Gold Volatility Has Remained Relatively Stable
• Gold volatility has remained relatively stable, while other asset classes’ volatility
diverged in risk-on and risk-off periods 2020 was a year of immense volatility across
assets, with the COVID-19 pandemic shocking markets in the first half, and risk
assets recovering late in the year.
• Average asset volatility was clearly higher across most assets last year— as one
might expect, riskier assets like equities and alternatives had higher volatility overall.
• But what is noteworthy is that while gold was sourced for its liquidity qualities early
in the pandemic, with an initial drawdown and quick recovery, its overall volatility
did not increase more than a few volatility points over its long term (five-year)
average (19 vs 14).
• At the same time, US equities, for instance, had volatilities that nearly doubled.
More speculative assets like cryptocurrencies saw their volatility increase to
extreme levels, above the VIX itself1 .
• With a more stable market in 2021, realised volatility has fallen across most assets,
including gold, highlighting its ability to mitigate risks and perform in various
environments

8. Gold Has Been A Stable Asset In Good Times
And Bad Over The Past Decade

9. Despite Some Growing Institutional Acceptance,
Cryptocurrencies Remain Incredibly Volatile
Speculative Assets

10. What Are The Gold Derivatives Markets Telling
Us?
• Generally, implied put volatility tends to be higher than implied call volatility for
stocks.
• This so-called put/call skew exists as there is a tendency for stocks to sell off
sharply in periods of financial uncertainty and, thus, investors are willing to pay
more for protection to the downside.
• In contrast, gold often exhibits lower implied put volatility compared to call
volatility given its historical upside potential in risk-off scenarios.
• However, in 2021, this relationship flipped, with gold’s put implied volatility
trading higher than the corresponding implied call volatility.
• This suggests that, as the gold price dropped, some investors were willing to pay
more for protection ahead of further potential downside.
• And while the put/call skew is starting to normalise as the gold price has rallied in
recent months, it remains below historical levels and may signal that investors
still believe there is downside potential, or that the rally could continue.

11. Put/Call Skew Remains Rich Despite Gold’s
Recent Rally
• Difference
between three-
month 120%
(OTM) call option
and 80% (OTM)
put option
implied volatility.

12. Implied Volatility Difference Between Three-month
80% (OTM) And 100% (ATM) Put Options

13. Investors Are Also Paying A Slight Premium For
Upside Gold Exposure
• As gold has ascended approximately 13% over the
past two months, investors have begun to purchase
OTM calls, driving call skew higher, albeit not to levels
seen during the 2020 rally.
• Coupled with high put skew, the overall gold ‘smile’ is
increasing.

14. Call Skew Remains Elevated, But Not As High
As During Gold’s 2020 Rall

15. Recent Lower Realised Volatility Has Driven
Down Shorter-dated Implied Volatility
• The volatility curve of gold has steepened suggesting
shorter-dated options are cheap, compared to longer-dated
options.
• The curve is generally flatter as shown below, and in periods
of stress like March of 2020, the curve often inverts, with
shorter dated vols moving above longer-dated implied
volatility, creating opportunities for volatility investors to
initiate arbitrage trades, or other investors to purchase
shorter-dated options outright

16. The Front End Of The Implied Volatility Curve
Has Fallen, With Longer Options Remaining Bid

17. What The Technicals Suggest
• Gold sailed through the 200-day moving average resistance level,
approaching its way toward US$1,900/oz.
• The breakout suggests, from a technical perspective, that the price
could reach US$1,960/oz – a level it touched twice in Q4 last year.
• However, gold’s relative strength index (RSI), at 76, appears
overbought and we could see some consolidation before an
additional move higher as it has rallied 12% off the lows over the past
~6 weeks

18. The Recent Gold Rally Is Compelling Long
Term, But Could Consolidate In The Near-term

19. Conclusion
• Gold has had one of the most stable volatility profiles during and post
the pandemic more consistent than stocks and other alternative
assets, and the current gold derivatives market provides
opportunities for gold exposure independent of an investor’s bullish
or bearish stance as discussed on slide number 4 & 5 .
• At the same time, gold’s role in a portfolio remains ever strong, and
its recent technical breakout is compelling suggesting the potential to
reach all time highs seen in 2020.

20. INVESTMENT UPDATE
Gold’s True Volatility

21. THANKS FOR LISTENING
(INVESTMENT UPDATE)Gold’s True Volatility