10. 1. Demand >
Central Banks Supply
Central Banks purchases were up 200%
Signalingconcerns about weak currency
China: moving from Treasuries to Gold: +30% YoY
WGC predicts purchases to continue for 2012
Negative Real rates: continue to diversify to
Metals
Brazil .5%
Gold as % of foreign reserves
Developed nations: 70% Russi 8.2%
a
India 8.5%
China 1.6%
Japan 3%
11. 2. Global Money
Today’s World Supply
Global debt crisis
Devalue vs Default
1. Devalue: Debt/GD 10yr
Target Int rates P bond
Increase MS Greece 140% 25.11%
Weak currency Italy 119% 7.26%
2. Default: Ireland 96% 7.88%
Ugly
US 100% 1.95%
Spain 60% 5.77%
Portug 180% 15.22%
12. 2. Global Money
Global MS &Gold Supply
Loose Global Monetary Policies
QE programs: US, JAPAN, UK
ECB LTRO to inject liquidity
13. 2. Global Money
United States Supply
US Debt to GDP 100% Graph: Monetary policy &
Fed promises low int rates and possible stocks
QE3 1. Rates low to mid 2013
2. Operation Twist
3. US $ liquidity
4. ECB LTRO
5. China stimulus
Stocks P/B: 2.05
6. Rates low to mid 2014
14. 2. Global Money
Europe & ECB Supply
ECB initiates LTRO
3 yr loans to help fund $960B in debt due next yr
15. 2. Global Money
Europe Crisis Supply
Gold coin: “Heads I win, Tails you lose”
Bond Purchases Currency break No Resolution
up
Est $2.5 Trillions Faith
Greece returns disappears
Italy+France+Greece to Drachma
$5 Trillion Debt
outstanding Capital controls
3,4 times Feds QE Gold as
currency?
16. 2. Global Money
Japan Supply
Debt-GDP: 220%
10yr yield .98%
60% debt to roll over in next 5 yrs
More borrowing
April: $566 bill to fund budget
2011 first trade deficit- Needs weaker YEN
Sustainable?
What’s the Trigger
S&P warn of a downgrade
Europe default: Greece, Portugal?
QE boosted to $715B this Oct.
17. 3. Low Real Int Rates
US Real Interest Rates
1. Implies poss. inflation
2. Investors seek alt.
investments
3. Implies weak economy
Gold inverse
relationship with real int
rates
10 yr yield: 2%
Real int rate: -.2%
Fed promise to keep
rates low
Limited downside risk
18. 4. Weak US $
Dollar Index & Gold
Weak dollar performance
Debt, Feds weak $ policy, & Trade imbalance
21. Risks
Stronger economy no QE3
Strong Dollar
India demand
CME Margin Hikes
Further correction
22. Highlights
Physical Demand > supply
China and India
Miners quit hedges
Global MS outpacing gold prices
Monetizing Debt
More to liquidity to come
Falling Real interest rates
Political stand still: EU, US
Diversification benefits
23. Recommendations
Option 1:
HOLD DEERE
SELL ALCOA
BUY SPDR GLD
Option 2:
HOLD DE & AA
27. ETF VS MINING
Cutting out the middle man
Geographical & Political risks
Africa
High Energy Cost
Hurting Margins
Top 4 Miners coming up empty handed
More $ chasing less Gold
Graph??????? Vs mining
Editor's Notes
Bought 131 shares more over break @
ETF Listed on NYSE, trust fund holds physical gold and traces the value almost perfectly, 1share= 1/10 ounce. And has a low beta at .11Expense .4%The ETF is and open end trust, which means that it is traded through our the day unlike a mutual fund. A trust means you are just trading with another market participant, they don’t take your money and go buy more gold. Creation/ redemption is the key to AP’s and the trustee. Gld has a NAV- the underlying value at the trust corresponding to the outstanding shares. If too many people want to BUY shares, it may rise above NAV. That’s when APs will mbe market makers and short you shares, while buyin actual gold. They sell u a share above NAV and buy real gold, then take the gold they bought to the trustee in exchange for shares. Since they now have new shares it closes out their short position they made when they sold to you. This keeps the price close to NAV take the gold they bought
A look at the largest holders of the worlds gold. US #1 about double Germany. SPDR ranked number 6. then a quick look at where gold ends up.China 7th-54 bi reservesIndia 12thECB-13th 25.8
Overview of Why people invest in it, and its relationship/ correlation to other investments/factorsInflation: so when a countries currency is depreciating due to inflation and an surge in the moneysupple, People, governemnets, banks..are eager to store their wealth in a hard asset such as gold. Obviously if ur currency is devalued, goods cost more, harder to pay debt. Some consider gold a bet on monetary policies.Econ & political uncertainty: in a market like todays, investors face a ton of uncertainty and alternative investments seem far too questionable, stocks too risky, governemntsarentfunctionaing properly… they move to gold as a safe haven vs stocks bondsPortfolio diversification: since it’s a hard asset, not highley correlated with markets many believe it earns a spot in any portfolio-look at the graphs see yes, over the long run dollar and gold have clear inverse relationship, since its priced in $, but I want to point out these green areas indicating positive correlations, so in times likes this when people want to avoid the euro, both dollarand gold can win. Then you can cleary see the correlation between global money supply and gold.Inflation: people store their wealth in gold as a safe haven against their currency become less valuable. When they believe that the MS is growing to quickly people/governments will buy gold. If MS grows to quick, currencies drop, harder to pay off foreign debt, or buy foreing goods. Kind of a bet on monetary policiesEconomic uncertainty: When economys are shaky, people are nervous where to park their wealth, buy gold since other investments like stocks arent very stable. Too mmuch Volatility, buy gold.Political uncertainty: USgov cant meet an agreement to pay off its debt and it worries people, send them ot the safe haven. Iran threatens to only accept gold. Portfolio Diversification: since it is not very correlated to many investments, people believe it earns a spot in every portfolio.
Bullets top4, no new finds, 4x as money being spent since 2000Before we go any father, I showed that 50% of gold is in jewlery, another 12 is in tech= 62%. News headlines can make many forget gold is a hard asset. And like anything else its price is driven by S & D. So first on the supply side. WGC reported supply was up 3.8% on the yr. Top 4 miners had lower production levels, so this was mainly driven by cashin in gold at high prices and small miners. This graph from the wgc shows a steady decline in new gold finds along with steady inclines of gold prices. Now as production and new finds continues to slow, exploration for gold has not slowed, but is 4 times as much as in 2000.
Now a look at the demand side, overall global 2011 was up 6% yoy outpacing supply. This chart shows who represents demand, and you can see china and india combined make up 52%. They drive it with jewlery and tech, the west is more investment driven. China demand grew 13% for jewlery and 24% investment, however India had a poor yr as there depreciated currency made gold very expensive. Investment demand was up 33% yoy. As Cbs continued to increse their allocation to gold as reserves and investors bought in. CBs bought record high levels and expected to maintain through 1H. And then u add BRIC CBs allocating reserves…Demand Side: Demand comes from Jewlery , investment, Industrial,Cbs.. Jewlelry makes up about 50% of demand and driven by China and INdia in Private markets. While US and EU used to hold 44% now only 14%, while China and Mid east now responsible for 66% of demand.Jewlery demand stats: total demand eased as gold prices were spiking, but should rebound as est china grew 16% and indiaCBs: Talk:qucik why CBs ,bought 430 tonnes of gold , highest record, 5x as much, WGC expects them to buy 190 in the 1Hand gold to reserve ratios of BRIC should continue.China & India represent 52% of demand for gold. Through the first half of the year gold prices were up 25% and still china and India alone increased demand by 7.5%. Overall 2011 demand up 6%.
CB’s have a direct influence on the price of gold. With 20% of above ground gold, they are continuing to purchase. By Q3 WGC reported CBs had nearly uped purchases by 200% . This wasdriven by emerging and developing countries led by Russia, South korea, mexico. They see this demand staying strong atleasttherough the first half of the yr. and on pace for the same growth. CBS keep foreign reserves to store wealth, pay off debt obligations,influence exchange rates ect. Developed countries historically hold at least 70% of their reserves in gold. This buying signals that Countries are worried the dollar will remain weak andhard currencies are the best option as a store of wealth. They
Clearly we have we ar facing global debt crisis, europe, US… and it really comes down to 2 options: 1. devalue or 2. default The first option is to boost the economy and different approaches to this, but overall keeping int rates low to boost demand, and this can easily be done and has been by increase MS to provide liquidty, and weakens the countries currency. Now the second is to default and if these countries default, the whole world gets hit, banks get whiped, credit crunch, further defaults…point is it gets ugly and real quick..mean while gold is winning. As we know , all bodes well for gold.Japan 220% debt to gdp, int rate only .98%
Global Money supply rising sharply and predicted to continue its growth. We saw gold spike in sept and has since corrected itself.Whos creating this MS growth, CBS- FED,UK, JAPAN, and even ECB nowAs I mentioned, faced with debt and slow economic growth, countries must provide liquidity and target int rates to keep them low. Some are doing this by quantitative easing programs and purchasing assets to provide liquiditing, keep rates low and increases the MS. We are all aware of the 2 QE’s of the fed (Fed QE equaled $1.85 trill). Both Japan and UK announced in October they would boost their programs. Europe crisis ECB has program LTRO which is lending to banks for 3yrs and well talk more about it later.
Us debt now 100%, puts us right with Europe and no real resolution. Europe taking eyes off us somewhat, but it gives us confidence the dollar wil not be appreciating too soon. Fed has promised us low int rates, and will initiate a QE3 if needs to.GRAPH:Aug 8- fed commits to 0% rates to mid 2013.Oct- fed launches operations twistNov- globally commited central bank to provide US dollar liquidityDecember- ECB 3yr loansJan- China stimulus
Current policy..------mark ecb announcementsWhere does the safe money run to?-Germany? NO, Bonds say so at 1.7% but debt is 85% of GDP, higher than france-UK?NO, Uk bonds have done okay as well with 10yr around 2%--but budget deficit of 10% of GDP, that’s the same as Greece., and more than spain, Italy, and portg, the pound could easily fall further.-Switzerland?- No,gov will manipulate to stop the value from increasing so much.
New ECB president Mariodraghi, might have to rip up rule book and start buying massive debt to provide liquidity fight a crisis.Italy debt=1.9 trill euros, France 1.6 trillion Greece-Fed QE equaled $1.85 trill… ECB buyin bonds floods the market with 3, to 4 times as much as the feds QE, gold surges with MS
Japan is the 3rd largest economy with the largest debt to GDP at extremely unsustainable rates. Come april the gov will be taking on another $566 bill in debt to fund their budget which relies 50% on debt…
CHART: shows inverse relationship of gold and realint rates. With Gold in yellow. 10 yr yield is 2%, and real yield is about neg .2%With the fed promising to keep rates low for next couple of years, real rates arent going anywhere and improvements in the economy show there is some room for inflation, sending gold higher with limited downside.. If US struggles in short term rates drop even lower, and fed pursues a QE3..
Aug-sept dollar was falling, gold was benefiting. Us got down graded, Europe fears were escalating.Golds correction after it ran up too fast. Now since late december we’ve seen both perform well.
chartAnd gold vs SPY vsXlb
Stronger economy- more positive job numbers, ISM, investors will turn on risk, no QE3 and $ will be strong
Demand outpacing supply trending onChina and indias strong demand outlook for gold, as individuals as well as CBs buy gold, gov encouraging purchases, yr of the dragon and celebration Miners arent hedging gold prices & 80% bet its over $2000 an ounceGlobal debt issues and monetizingPolitical lockDiversification benefitsChinagov continue to encourage gold investment– deregulation in last yr has created over 2million gold savings account in every major bank
Cut out middle man– if gold goes up we win, but maybe not if not good mining company**a lot of mining out of australia where the AUS is rising very fast, and hurting sales.-currency risk
