During this week's Invast Insights we cover: ► Implications of lower Copper price ► Gold to Silver price ratio ► Gold to Oil price ratio GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER) http://invast.com.au/insights CONNECT WITH INVAST TODAY Facebook ► https://www.facebook.com/invastglobal Twitter ► http://twitter.com/InvastGlobal Linkedin ► http://www.linkedin.com/company/invast Invast ► http://www.invast.com.au Google+ ► https://plus.google.com/+InvastAu/

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This week…
• Implications of lower
Copper price
• Gold to Silver price ratio
• Gold to Oil price ratio

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General Advice & Risk Warning
Please note that any advice given by Invast staff is deemed to be GENERAL advice, as the information or
advice given does not take into account your particular objectives, financial situation or needs.
Therefore at all times you should consider the appropriateness of the advice before you act further.
CFDs and Forex are leveraged products and carry a high level of risk and are not suitable for everyone. You
can lose more than your initial deposit so you should ensure CFD and Forex trading meets your investment
objectives. We recommend you seek independent advice. Strategies and charts used in this presentation are
for example only. You are reminded that past performance is not indicative of future performance.
Invast Financial Services is regulated by ASIC. It's important for you to read and consider the relevant Product
Disclosure Statement and Financial Services Guide which contains details of our fees and charges before you
decide whether or not to acquire any financial products. These documents are available at www.invast.com.au
Invast Financial Services Pty Ltd ABN: 48 162 400 035. Australian Financial Services Licence No.438 283

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This week we look at the following topics:
• Implications of lower Copper price
• Gold to Silver price ratio
• Gold to Oil price ratio

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Dear Readers,
Throughout the monthly of October we will be
publishing our views and insights on commodity
prices after they have been absolutely savaged
during the month of September. We thought this
would be a great opportunity to run through
some of the key markets that Invast quotes on its
MT4 platform and compare price action against
fundamental information. Invast clients will also
have access to a webinar presented by Invast
Insights editor Peter Esho on Tuesday 28
October at 6:30PM.

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Our focus will be on base metals and bulk commodities this month, all under savage
price action as of the time of writing as global investors anticipate higher interest rates in
the United States and drive up bond yields, in turn adding upward pressure to the US
dollar. As a general summary, we think of commodities in the following two ways:
1. Industrial commodities – These are commodities like oil, copper, iron ore, nickel, zinc,
tin and natural gas which are used in the production of goods and services (industry);
and
2. Currency commodities – These are commodities like gold, silver and platinum which
have little industrial use and more currency elements.

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Our weekly summary will be as follows:
• Week commencing 6 October 2014 – a quick look over the price performance of
key commodities
• Week commencing 13 October 2014 – fundamental drivers behind the industrial
commodities
• Week commencing 20 October 2014 – the impact of China on the bulk
commodities, namely iron ore and coal
• Week commencing 27 October 2014 – medium to long term trading ranges for the
key commodities and also a look at cross pairs like the gold to silver or gold to oil ratio.

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We spoke last week about the fall in the Brent crude price, Chinese pollution problems
and protests in Hong Kong as possible indicators for where short term commodity prices
are heading. This week our focus is on key technical levels for the medium to long term.
If you are thinking about using the current commodities downturn to take strategic
positions, our aim this week is to help point you in the right direction in terms of
medium to long term prices.
1. Dr Copper and US$3/lb. We made the point that copper was our preferred industrial
commodity to trade and have held the view now that US$3/lb copper is a very important
long term support level that we think will hold. Each time the copper price holds these
levels, the following move is up by around 10% to the next resistance level of around
US3.30/lb.

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Chat via www.kitcometals.com showing sport copper prices

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Invast quotes copper futures on its MT4 platform
(HGZ4). The first thing to note here is that the futures
and spot price will always show a difference when
adjusting for the time value of money.
We think US$3/lb should hold again in the coming weeks as a major long term support
level and any move below will only be driven by a huge risk to the global financial
system – something like a bear market crash or an all-out collapse of the Chinese
economy. In the absence of these events, US$3/lb copper is a key support level which the
chats about highlight.

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We also look to the supply of copper when forming the view around the US$3/lb
support level. One of the best examples is to look at Australian listed copper and gold
miner Oz Minerals (OZL). Co-incidentally, OZL was one of our six key stock tips in our
2014 forecast guide. OZL recently announced its quarterly production numbers which
highlight the true cost of producing copper at a commercial, world class mine called
Prominent Hill in South Australia.

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The numbers to the left show that despite a large
fall in fuel prices and cost cutting at OZL mines, the
business has a cost price of about US$2.47/lb year
to date for producing an ounce of copper. At
US$3/lb, the business is making around US$0.50/lb
margin for each tonne mined, hardly a large profit
when taking into account the huge amounts of
capital it takes to commission a mine and the higher
than usual required rate of return which investors
need for investing in a mining venture.

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If the ‘cost price’ for producing an ounce of copper at one of the largest copper mines in
Australia is US$2.47/lb, we find it very difficult to see how the market can price spot
copper below US$2/lb for a prolonged period of time without huge mine closures which
in turn will reduce supply and support prices.
2. Gold to silver ratio. Again, something which isn’t new to the readers of this
publication. We tend to raise the gold to silver ratio at least once every few months and
for a very good reason – it remains one of the most traded commodities cross trades
particularly with experienced veteran traders. The beauty of the gold to silver ratio is
that you don’t necessarily have to get the overall direction of the market right, you just
need to get which commodity will outperform the other. The ratio tends to decline when
market risk sentiment is large and rise rapidly when fear starts to enter the market. The
rationale here is that gold is seen as a “safer” haven play relative to silver which over the
past few decades has moved from and industrial commodity into a currency one.

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Gold to silver ratio chart via goldprice.org

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As we write the gold to silver ratio is current at around 72x, slightly below. We feel that
the long term average of around 50x will be the key figure to watch over the medium to
long term. The ratio has moved from 45x to 72x within the space of three years, the
gain representing a move of around 60% despite a fairly flat gold price for most of the
past two years. The illustration here highlights way so many traders still prefer to play
this trade.

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Going long the gold to silver ratio would involve
buying gold and selling silver. Going short is the
opposite. Again this is a matter of placing two
different trades on Invast’s MT4 platform.
Both spot instruments are highlighted to the left. As the chart above shows, there is a
strong propensity for the ratio to reach extreme levels before reverting back to the long
term mean at around 50x and so this trade needs to be placed within the appropriate
time frame, as indicated by the time axis on the chart. Hence our inclusion for the gold to
silver ratio in this week’s discussion which is a focus on medium to long term trades in
commodities.

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3. Gold to oil ratio. It wasn’t too long ago where we spoke about this trade. Like the gold
to silver ratio, it is a bet on gold relative to the average price of oil. Both commodities
have been traded for decades and our sample size is fairly large in order to make an
informed judgement. In our prior August discussion, we spoke about this ratio in order
to find an implied ratio of where the oil price could go down to. We looked at the gold
price and used the long term ratio of 15x to see what the market was implying as the
appropriate oil price. Funnily enough, despite being bullish on energy in August, the
market was implying a Brent crude price of around US$85 based on the gold price in late
August and that is where we find the Brent crude price today.

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Image: Long term gold to oil price chat via incrediblecharts.com

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The extremes between the high of 30x to the low of 8x during the Asian Financial and
tech boom collapse is a sign of just how much volatility there could be in this ratio
during a short period of time – in that case a few years. The implied move during the
1998-2001 period was in the order of 73% - obviously impacted by the volatility in
markets and outright collapse in the gold price after currency fears were addressed. At
the moment we feel that the 15x multiple (as of the time of writing) is about close to the
last decade average and don’t really have strong inclination for trading the ratio, but we
have this firmly on our watch list and will revisit this call if there is a sudden move.

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At the very least, as a commodities trader, we suggest
using the gold to oil ratio mean of 15x to determine
where each individual commodity could go as a
generate rule of thumb.
Using either Brent Crude of WTI is fine, as long as you ensure your past analysis is based
on the right denominator. All our analysis here is based on Brent as the underlying oil
price denominator. For example a US$100pb stable Brent crude price would imply around
US$1500/oz of gold or thereabouts. The current US$85 Brent crude price implies gold at
around US$1275/oz where the ratio holds price.

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The top three ratios hold the basis for most liquid and commonly traded commodities. Our aim
this week has been to give you a solid medium to long term view. Many traders have access to
short term technical indicators but huge wealth by commodities traders like George Soros
have been built on taking measured, medium to long term fundamental views based on
reversion to mean scenarios.
We’ll go through the past four weeks of Invast Insights commentaries in this week’s webinar.
Book your place early, the event is likely to gain significant interest.

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Commodities outlook: Join the webinar to discuss these points
Invast Insights editor and contributing author Peter Esho will summarise the October outlook
guide for key commodities – copper, nickel, gold and silver - in this exclusive webinar. Esho is a
regular contributor on CNBC, Bloomberg and host of ‘Your Money Your Call’. In his webinar he
will outline:
Current price actions on the key commodities
Fundamental drivers behind demand and supply
The impact of China – are things about to change?
Trading key cross pairs like the gold to silver ratio and gold to oil
Peter’s webinar will cover both the fundamental and technical outlook on key commodities
quoted on Invast’s MT4 platform, plus the key drivers to look out for when trading. This
webinar is expected to fill fast. Q&A will be open straight after the presentation. Register now
by visiting http://www.invast.com.au/resources/webinars.aspx.

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Disclaimer
Please note that you are receiving this report complimentary from Invast Financial Services Pty Ltd
(AFSL 438 283). Invast staff members may from time to time purchase securities which are
included in this or future reports. The authors of this report may or may not be holding a position
in the securities mentioned. Please note that the information contained in this report and Invast's
website is of a general nature only, and does not take into account your personal circumstances,
financial situation or needs. You are strongly recommended to seek professional advice before
opening an account with us.
General Disclaimer: This newsletter contains confidential information and is intended only for the
person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast
does not accept liability for any errors or omissions in the contents of this newsletter which arise
as a result of downloading this newsletter. This newsletter is provided for informational purposes
and should not be construed as a solicitation or offer to buy or sell any financial product. Invast
Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).

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Risk Warning: It's important for you to read and consider the relevant Product Disclosure
Statement, and any other relevant Invast Financial Services Pty Ltd documents before you
decide whether or not to acquire any financial products listed in this email. Our Financial
Services Guide contains details of our fees and charges. All these documents are available here
on our website, or you can call us on +612 8036 7555. CFDs and Foreign Exchange are
leveraged products and carry a high level of risk and you can lose more than your initial deposit
so you should ensure CFD and Foreign Exchange trading meets your personal circumstances.
General Advice Warning: Being general advice, this newsletter does not take account of your
objectives, financial situation or needs. Before acting on this general advice you should
therefore consider the appropriateness of the advice having regard to your situation. We
recommend you obtain financial, legal and taxation advice before making any financial
investment decision.

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