Collection of views on gold trends in 2012 1st qtr.

1. Shamik Bhose long and medium term outlook on Gold & Silver price direction in US dollar
terms :
Emerging Market Central Bank Gold Allocations Could Rise If Dollar-Based
Valuations Removed – WGC
Central banks became net purchasers of gold in 2010, with emerging-market central banks
leading the accumulation trend as they seek to diversify their growing foreign-exchange
holdings.
On average, emerging-market central banks hold less than 4% of their foreign-exchange
reserves in gold, which is slightly under the 4.6% to 7% mid-range optimal level suggested by
previous research done by academics, institutions and the World Gold Council for diversification
of reserves.
Analysis of optimal gold holdings has normally been conducted in U.S. dollar terms since gold is
traditionally denominated in the U.S. dollar. A new research report by the World Gold Council
looks at the role gold holdings denominated in local currency plays in diversification and the
report suggests that stripping out the dollar impact could allow optimal gold holdings to rise
without adding to risk. The new mid-range optimal allocations could be as high as 8.4% to
10%, the report said.
In the spring edition of RBS Reserve Management Trends 2012, just published by Central
Banking Publications, Ashish Bhatia, manager, government affairs for the World Gold Council,
concluded that valuing gold holdings in an emerging-market central bank’s local currency,
rather than from a U.S. dollar perspective, minimizes the impact of foreign-exchange
fluctuations that normally can occur and improves risk-adjusted returns.
The chapter in the spring edition is titled “Optimal Gold Allocation For Emerging-Market Central
Banks.” The book is an exclusive report of a survey of more than 40 central banks on how they
view key questions facing financial markets and the international monetary system. The book
also includes chapters with expert opinion to allow central bankers to benchmark their policies
versus those of their peers
Will the Re-birth of Uncertainty and Consumer Demand Fuel Gold
The rebirth of uncertainty takes place when the Spanish 10-year bond yield surged 40 basis
points last week as investors were expecting Spain, like Greece, Ireland and Portugal, would
need to request for international aid. Spain is the most closely-watched country as the

2. bellwether for Europe's sovereign debt crisis. The higher than expected China's March CPI
number of 3.6%, compared to median economists' forecast of 3.4%, may bring more
uncertainty to China's monetary easing.
CFTC data confirms that the net speculators' positions on gold declined from this year's peak of
221,542 at end-February to 149,599 as of the week ending 3 April. The technical position for
gold appears better as some of the "weak longs" have been removed from the market.
Though too early to tell, the re-opening of the Indian Jewellers for business last Saturday
should bring out the pent-up demand. The Indian consumers will gear up for the Akshaya
Tritiya festival on 24 April as well as the wedding season. Physical demand especially from India
and China is the key supporting factor for investment demand for gold.
Gold on Track to Fulfill its Multiple Roles
While investors and traders are speculating whether the U.S. Fed will engage in QE3 or not and
where gold price may head, the Euro crisis still has a major bearing on gold price. Europe is
simultaneously facing three crises: banking, debt and economic growth crises. According to
Jefferies' Chief European economist, Europe needs to see enough growth to escape from the
worst of its problems. To have growth ECB may end up engaging in a fully transparent
quantitative easing policy, perhaps as soon as the third quarter, if economic conditions remain
distressed.
The latest GFMS gold survey predicted that gold investment demand, especially physical gold
demand, is the current key driver of gold prices and can reach 2,000 tonnes in 2012. Central
banks which became net buyers of 400 metric tonnes in 2011, will remain gold buyers in 2012.
However, the head of Metals Analytics of GFMS also warned that production supply will continue
to grow at 3% this year as producers are motivated by higher prices, producer hedging will
probably go up after 10 years of de-hedging and investment demand will need to rise as much
as $130 billion in order to fill the gap between supply (mining plus scraps) and fabrication
demand.
GFMS predicts gold price will trade this year in the range of $1,530 to $1,920, the peak reached
in early September, 2011, and will likely pass $2,000 in early 2013. For now, gold continues to
fulfill its role as a safe asset, an inflation hedge and according to World Gold Council, a
foundation asset in portfolios.
Gold Rises 6.6% in First Quarter
Rating agency Egan Jones downgraded its U.S. credit rating to AA on concerns over growing
debt. Managing Director Sean Egan wrote that the U.S. debt-to-GDP ratio exceeds 100% for
the first time since World War II. At these levels, "a country's financial flexibility becomes
increasingly strained," he said. Egan Jones has a negative outlook for the U.S. with a 1.2%
probability of default in the next year.
Minutes released by the Fed this week "indicated that there would be no quantitative easing
unless the economy takes a dip for the worse," said Standard Bank analyst Walter de Wet.
However, Thomas Simons, money market economist at Jefferies & Co in New York, said the
March payroll data "is going to turn up the heat on the debate for QE3."

3. Jewelry shop owners in India agreed to end a 21 day strike after the nation's Finance Minister
pledged to roll back new taxes on gold. Lower physical demand from the strike had been
negative for gold, along with Chinese gold markets closing for a three-day holiday.
Societe Generale analyst Robin Bhar sees "a buying opportunity as we expect the U.S.
economy to surprise on the downside over coming months," leading to a third round of
quantitative easing. Kinsale Trading President Tom Essaye said that the gold price currently
looked "pretty compelling" as an entry point, noting "I would be a buyer of gold at these
levels," based on factors including worsening negative real interest rates. "Prices are likely to
reach another all time high by the year end," said Eugen Weinberg, head of commodities
research at Commerzbank AG. "It is definitely a good buying opportunity."
Standard Bank analyst Walter de Wet said the price of gold would probably rise above $1,900
per ounce towards the end of the year while Deutsche Bank analyst Daniel Brebner said he was
bullish on gold in the long term and predicted an average price of $1,800 per ounce in 2012
Gold Gain 6% for Q1, Beating CRB Commodities and Dollar Indices...
The concept of gold as an occasional part of an investment portfolio has tremendous
merits- not necessarily only as a hedge against inflation (or deflation), but more
because of its role as an insurance policy against monetary debasement. However,
with gold having just completed an unprecedented 11 year bull run, the natural
question to ask if it’s time to sell or too late to buy. Various investors and global
strategist have been outlining the reasons why gold should not be sold off yet- to
summarise our rationale along with theirs here are some of our thoughts :
Gold futures have given a return 6% for Q1 2012, beating crude oil which would return about
4.6% and the CRB Commodities Index which would be flat for the quarter, though
underperforming copper which would return about 11%, as of Asian open on Friday. Dollar
Index would decline around 1.6% while Euro would gain about 3% for the quarter. The MSCI
World Local Index for developed world is set to return about 10% this quarter.
Earlier last week, the U.S. Fed indicated it would not rule out QE3 or other options to stimulate
the economy and said that recovery is still "extremely sluggish", boosting gold prices. Fed's
Thinking has helped the Gold Rally as the concept of Safe Haven Holds as gold futures
recovered to around $1,680, helped by Fed's Bernanke's remarks that the U.S. needs more
growth to reduce the unemployment rate, recovery is not yet on a firm path and the Fed
considers all options to stimulate growth....Last week, all markets were fixated upon the news
of both the Euro-area and China PMI falling from the February level. Gold futures dropped $28
to an intra-week low of $1,627.5 last Thursday before recovering to $1,662.4, down only $6.6
for the week.
However as Indian Jewellers' strike went on past 13 days over a government levy on non-
branded products, the Bombay Bullion Association expected that gold imports in Q1 could dive
59% due to retail price rise of 6%, reported by news agencies . This could prevent any major
rise in gold prices according to some analysts. So far physical demand remains quiet from India
and China with Shanghai traders only reacting to strong price corrections. After days of protest
by Indian jewellers, the government remained firm on import duty on gold which will double
from 2% to 4%.

4. Traders remarked due to quarter-end, people are not willing to do much on either side. The
amount of pent-up demand when the stores reopen would be important to gauge the physical
demand from Asia, which should put a floor to the gold price...As physical demand for gold
remains quiet and sentiment low, gold prices are being pushed around by macro data releases
and technical trading......
However the rise in demand for risky assets and the negative sentiment surrounding gold
prompted F.T. to question the gold's bull-run, citing Credit Suisse who said that gold is now
considered a contrarian trade. Though it is tempting to project short-term corrections into the
long-run, investors should ask has the catalyst for gold waned. Globally major central banks are
maintaining zero interest rates and negative real interest rate could persist for a prolonged
period. Financial conditions and sovereign debt problems have been eased but not resolved,
hence further quantitative easing by ECB, Fed or Japan cannot be ruled out, further debasing
national currencies. Gold's function as an alternative currency and hedge, albeit volatile,
remains clear.
The fact that Bernanke did not rule out QE3 bodes well for gold as an inflation hedge...as does
LTRO phase two in EU ; Last Friday, the market saw and heard the EU Finance Ministers raise
the ceiling to the rescue fund to 940 billion Euros and oversee how the weaker European
economies are progressing.
An agreement among euro zone finance ministers was announced to temporarily increase the
lending capacity of the region's rescue funds to $934 billion. In reaction, the dollar fell against
the euro and gold prices rose. Comments from Fed Chairman Ben Bernanke this week
suggested that the U.S. labor market recovery may not sustain its momentum in the near
future. In a speech to the National Association for Business Economics, Bernanke said "we
cannot yet be sure that the recent pace of improvement in the labor market will be sustained."
The possibility of accommodative monetary policy if certain conditions, such as
employment, do not improve, is a favorable environment for gold.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., said this
week that the secular bull market in gold could peak at $3,000 per ounce within the current
economic cycle of negative real interest rates. Anglo Gold Ashanti Ltd. CEO Mark Cutifani said
the price of gold could exceed $2,000 per ounce in 2012 on robust demand in fast-growing
economies such as India and China. "With the increasing middle class in China, many Chinese
are choosing gold as a way to store wealth, so I don't think that will change UBS, Goldman and
Anglo gold's CEO remain firm on their gold price forecast this year - gold can still touch $1,800
to $2,000/oz
South Africa's gold output fell again in January and was down a very large 11.3% in
volume terms in January. Annual gold production is set to be close to 220 tonnes which is a
level of gold production not seen since 1922 (see chart below). The falls were seen only in the
gold market with production of other minerals holding up with total mineral production down
only 2.5% compared with the same month last year. South Africa as recently as two decades
ago was the world's largest producer of gold by a huge margin. Only 40 years ago South Africa
produced more than 1,000 tonnes of gold per annum but will only produce some 220 tonnes in
2012. Production peaked in 1970 and has been falling steadily and sharply since. The nearly
80% fall in South African gold production has led to it being recently overtaken by China,
Australia and the U.S. South Africa produces only about 15% of world's production. Declining
South African production largely contributes to the supply constraint in gold.

5. Therefore, the long-term supply outlook will continue be constrained which is a key
fundamental support factor for gold price...world production has however gone up , though
certain producers like China, Russia etc have also emerged as major gold buyers in both retail
and sovereign fund + ETF funds category...This production rise is buffeted by a major
rise in retail demand form emerging markets
According to a study by Amit Bhartia and Matt Seto of US investment firm GMO, the majority of
physical gold purchases in the past decade have not come from speculators in ETFs. Indeed,
ETFs only account for a tiny fraction (around 7.5%) of the near-30,000 tons of gold
purchased between 2000 and 2010. The demand didn’t come from developed market
investors or central banks either – in fact, central banks have been net sellers.
Instead, nearly 80% of the total demand for physical gold has come from retail
purchases in developing markets. China and India’s combined demand alone
amounts to more than that of the entire developed world. “the main driver for gold’s
dramatic rise has been the emerging markets consumer”, While trade liberalisation and the
commodity boom has enabled emerging markets to prosper, their financial systems have not
kept up with the pace of modernisation. Combined with a tendency to save – rather than spend
– money, this has led to a large build-up of savings. (Or, as economists call it, a “savings glut”).
There are of course domestic savings accounts. Unfortunately, in many countries the banking
system is either corrupt or interest rates are set by the state-- Negative real interest rates (ie
adjusted for inflation) making saving money another aspect of financial repression . The final

6. course left is to invest savings in hard assets. Property has proven popular. But with
prices – in China at least – at record levels, and now starting to fall, this has become
less attractive. That leaves gold. As the chart below and above indicates that China
and Russia have emrged as serious suppliers of gold in the world markets of late,
but with demand coming from retail and sovereign wealth fund buyers in China and
fund managers and individual portfolios in Russia, not a lot of this excess gold has
come to open markets.
Gold shed 5% following last Wednesday evening our time as the U.S. Federal Reserve Chairman
Ben Bernanke's semi-annual testimony on monetary policy before the House Financial Services
Committee this afternoon. In his report he gave no clear indication of further economic
measures to stimulate the US economy and the outlook for inflation being "subdued'. The effect
on gold was palpable.In early London trading that day gold had been trading at $1790 and

7. expected to launch an assault on resistance at $1796 (the November 14 2011 high) as well as
the psychologically important $1800 level. The news that the US Federal Reserve may desist
from further QE, threw the market into reverse, shedding $84/ounce. The news had a more
modest impact on the US dollar index which rallied by approximately 1%. For the more
experienced observer and long term we would say : Do Bear in mind this is coming from a Fed
Chairman who has been collateralizing everything at The FRB as part and parcel of the QE floats
But long term Commodity trends and – Super Cycle Bull runs are characterized by retracements
such as these and in fact confer greater strength and validity on higher prices in the year to
come. What will be most interesting is to see just how quickly gold recovers from this set back
as it will be a good test of the resolve of gold bulls. A test of their combined risk taking
character if you like.
Either way, market watchers enviously wishing to get into gold at an attractive level
cannot complain that windows of opportunity do not present themselves from time
to time. The long term gold story remains unchanged and that is to say :- - it is largely
unreadable and volatile in the very short term, driven as it is by fast-moving news, political
actions, policy decisions and economic events that are almost impossible to predict. In this
environment, short term speculation is frankly a bit of a game. I feel - however, it remains
very positive for longer term investors (particularly pension funds) with very
positive fundamentals (the market is supply constrained and demand remains
robust) and the broad macroeconomic issues remain unchanged.
Couple this with shifting pro-gold Asian and Emerging Market Central Bank attitudes
plus producers manifestly opposed to hedging (and thereby crushing the bull run)
and massive consumer retail interest in India,China, Midldle East plus safe haven
asset buying from places like Iran,Syria, Libya and Egypt and you have a compelling
case for buying and holding gold. Best of all, news ways of accessing to gold with a
multitude of products over a wide range of regulations /jurisdictions is likely to continue to fuel
investment demand...anecdotal evidence mounts that jewellery demand in Asian countries have
grown by 79% over the past 10 years with both Indian and Chinese consumers buying gold and
silver regularly
The tone of my reports and TV interviews might suggest that we are perma-bulls - we are not
and we will be first to let you know when our position changes... probably some time after
regulators clear up bank insolvency issues in USA; and EU finds a way to resolve a growing
sovereign Bond crisis that has refused to go away but has been tackled with major QE and
LTRO projects that lead to printing and debasement of money. Rising oil and food prices
across the world with implications for inflation and very low yields on sovereign
bonds suggest that international investors will look for better return on risk taken,
across the world...Precious metals do benefit during such times.
Shamik Bhose long and medium term outlook on Gold & Silver price direction in US
dollar terms :

8. Gold is highly sensitive to US QE, as every dollar of QE goes into M0, triggering the debasement
of the USD. the simple case that the worse things get, the stronger the response by global
central banks will be. Here is the key quote for those worried that : "A major liquidity crisis
should not occur this time, as we think we are on the eve of major QE in the UK, US and
(a bit) later on in the EZ. The next question is "How big will QE3 be"? Fed did preannounce
it in the January 2012 FOMC statement, the monetization will last from March 2012 until the
end of the year, and will a total of greater than $600 billion , probably in the $1.5 trillion range
as the Fed will finally say "enough" to piecemeal solutions. Most observers like us have some
simple advice:
Buy gold ahead of QE3 as money creation has a strong impact on prices in order to
catch up with the increase in the monetary base since 1920 (as it did in the early
80s). Or to close the gap with the monetary base increase since July
2007(QE1+QE2).So go long a real asset, which will always have value and may
quadruple in short notice? The answer seems simple to me....
Problems in the Euro-zone and a potential sovereign debt default will escalate the
problems of monetary debasement and bring forms QE from the ECB to postpone
the reckoning : The huge political costs aside that’s the way to protect yourself because
if the system survives in the next couple of years, it will only be because there is massive
money printing.... Without that they cannot survive.
But because of the massive risks to the financial system, I think it’s absolutely
critical that investors hold a part of their funds outside of the co-relation investment
arena via alternate assets like precious metals ; If you look at every central bank in the
world they are in an absolute mess and they need to print unlimited amounts of money. So we
will have a lot of zeros after the price of gold in many currencies. But even in today’s money I
see gold going up many times from here The risk that many banks will fail is major. The
authorities and central banks, around the world, are going to try to rescue them, but it’s not
certain they can or will. That’s why, again, it’s important to hold some alternate assets ;
whether it’s gold or silver or assets in the ground.

9. 1. Reflation.......as discussed above ; excess money printing
2. Increase in Chinese Gold Reserves ; new emerging country specific buying including and
especially -- Sovereign Wealth Funds Buying Gold, The sovereign wealth funds of China, Qatar,
and Saudi Arabia have begun heavily investing in commodities world-wide to diversify out of fiat
currency (dollar, euro). Look for more SWFs to follow.
3. Scarcity of Gold :Throughout history only 160,000 tons of gold has ever been mined. For
folks who might not know, all the gold that’s ever been found would fit into two olympic-size
swimming pools! At today’s prices that equates to $9 trillion dollars vs $60 trillion in outstanding
fiat currency. As fiat currency continues to be deliberately debased look for this price
relationship to invert.
4. Central Banks Becoming Net Buyers of Gold ; Total central-bank gold purchases in the
third quarter more than doubled from the second quarter and were almost seven times higher
than a year earlier as countries continued to diversify reserves, according to a World Gold
Council report...Central banks are in the process of switching from net sellers of gold
to net buyers, this is a major secular change and is likely to continue as other
central banks look to follow suit diversify reserves away from heavy fiat currency
exposure. Gold Lures Central Banks also.........Purchases Accelerated in Third
Quarter Amid Debt Crisis
5. Major Fund Managers Buying Gold ; Respected and widely followed fund managers are
publicly piling into gold and/or out of the dollar and other fiat currencies including John Paulson,
Bill Gross, Paul Tudor Jones, Kyle Bass, Andrew Hall, David Einhorn, Paolo Pellegrini, John
Burbank, Sri Kumar, David Rosenberg (economist), John Hasenstab, Evy Hambro, Donald Coxe,
John Brynjolfsson, Henry McVey, Eric Sprott, Steve Leuthold and David Tice. Look for other
major mutual funds, hedge funds and pension funds to follow the leaders.
6. Gold Hedging Concluding as miners seek to maximize gains riding on the coat tails of ETF
and Sovereign Funds : Traditional gold hedgers (producers, miners etc) such as Barrick, the
world’s largest gold company, are eliminating their hedge books…essentially taking the cap of
the market…as gold supplies dry up producers are no longer locking in prices by selling massive
quantities of futures contracts…this takes selling pressure off and indicates producers believe
prices will be going much higher. Look for all producers to unwind their hedge books.