Overview of the Global Gold and Silver Markets Philip Klapwijk Executive Chairman, GFMS Ltd. Lima, 18th May 2010 The GFMS Group’s Unique Research Capabilities & Programme Large and experienced team of 25 Analysts + Consultants. Not just desk-based: Over 300 companies and organisations in 36 countries visited by our personnel in the last 12 months. Annual Gold, Silver, Platinum & Palladium and Copper Surveys. Also, weekly, monthly, quarterly & bi-annual reports plus forecasts and a wide range of consultancy services across all the precious and base metals & steel. For more information visit: www.gfms.co.uk or email: [email protected] Gold Market Overview • Supply/Demand ‘Fundamentals’ • Investment • Outlook for 2010 Real and Nominal Gold Prices (real US$ price in constant 2009 terms) 1800 1980 average: $1,600 2009’s average price of 1500 $972 was a record, but in real terms today’s prices are still well short of 1200 historical peaks. 900 Real Price US$/oz 600 300 Nominal Price 0 Source: GFMS, Thomson Reuters Gold Supply in 2009 2008 2009 y-o-y Mine production 2,409 2,572 6.8% Official sector sales 232 41 -82.2% Old scrap supply 1,316 1,674 27.2% TOTAL SUPPLY 3,957 4,287 8.3% Source: GFMS (Gold Survey 2010) Gold Mine Production Latin America Other North America China 2009 up 163t 3000 South Africa Australia or 6.8% yoy 2500 2000 1500 tonnes 1000 500 0 1981 1985 1989 1993 1997 2001 2005 2009 Source: GFMS (Gold Survey 2010) Above-Ground Stocks of Gold, end-2009 Gold is not “consumed” like most commodities; stocks can be available at the right price… Above-ground Stocks, end 2009 = 166,000t Jewellery 52% Lost & Unaccounted Official Holdings 2% 16% Other Fabrication 12% Private Investment 18% Source: GFMS (Gold Survey 2010) Supply from Scrap, Hedging & Official Sales Net Official Sector Sales Flat trend since 2000? Hedging Supply 2000 Scrap 1800 1600 Secular increase in supply 1987-99 1400 1200 1000 Tonnes 800 600 400 200 0 1980 1984 1988 1992 1996 2000 2004 2008 Source: GFMS Gold Demand in 2009 2008 2009 y-o-y Fabrication Jewellery 2,193 1,759 -19.8% Other 696 658 -5.4% Total Fabrication 2,889 2,417 -16.3% Bar hoarding 386 187 -51.6% Net producer de-hedging 352 254 -27.8% Implied net investment 330 1,429 332.9% TOTAL DEMAND 3,957 4,287 8.3% Source: GFMS (Gold Survey 2010) World Gold Fabrication 4500 Developing Countries 4000 Industrialised Countries 2009 down 472t or 16% yoy 3500 3000 2500 tonnes 2000 1500 1000 500 0 1980 1984 1988 1992 1996 2000 2004 2008 Source: GFMS (Gold Survey 2010) Total Accelerated Supply from Producer Hedging* 4 Outstanding hedge book just year 3 - 236 tonnes at end-2009 2 1 (1000s) tonnes, end 0 1995 1997 1999 2001 2003 2005 2007 2009 * outstanding forward sales, loans and net delta hedge against positions Source: GFMS (Gold Survey 2010) World Investment* 2000 70 Value of World 60 Investment 1500 50 US$ Billions US$ 40 1000 30 Tonnes 20 500 10 0 0 2000 2002 2004 2006 2008 *World Investment is the sum of Implied Net (Dis)Investment, Bar Hoarding and all Coins & Medals. Source: GFMS (Gold Survey 2010) World Investment* & Fabrication (excluding all coins) (1980-2010F) 4000 3500 Fabrication 3000 2500 2000 Tonnes 1500 World Investment 1000 500 0 1980 1984 1988 1992 1996 2000 2004 2008 *World Investment is the the sum of implied investment, bar hoarding and all coins & medals Source: GFMS Outlook for 2010 Gold Supply 2008-2010F Official Sector 5000 Scrap 4500 Mine Production 4000 3500 3000 tonnes 2500 2000 1500 1000 500 0 2008 2009 2010F Source: GFMS Gold Demand 2008-2010F 5,000 Producer De-Hedging 4,500 Other Fabrication 4,000 3,500 3,000 World Investment* Tonnes 2,500 2,000 1,500 1,000 500 • Jewellery - 2008 2009 2010F *World Investment is sum of Implied Net Investment, Bar Hoarding and all Coins & Medals Source: GFMS Gold Price Outlook • Investment remains the principal driver of prices this year, with an investor-led breach of $1,300 a growing possibility. • In the short-term, prices could advance from recent peaks as long as concerns remain acute over sovereign debt in Europe and the long-run stability of the Euro. • “Resistance” from weaker fabrication demand and higher scrap supply will grow if and when price approaches (or exceeds) the $1,300 mark. • But, at the present time (and with price in a $1,200 -$1,250 range) only a partial deterioration in these fundamental supply/demand factors. • Imbalances in the market and excessive dependency on investment suggest that at some point the gold price will have to retreat. • Nevertheless, this is most unlikely to occur on a secular basis in 2010 and potentially not until well into 2011 given current economic conditions and the scope for the sovereign debt crisis to widen, which will support high levels of gold investment. Silver Market Overview • Supply/Demand ‘Fundamentals’ • Investment • Outlook for 2010 Real and Nominal Silver Prices (real US$ price in constant 2009 terms) 60 1980 average: $54.63 50 Real Price 40 30 US$/oz 20 10 0 Nominal Price Source: GFMS, Thomson Reuters EcoWin World Silver Supply 2008 Actual 2009 Estimated Scrap Scrap 18% 20% Government Government Sales Sales 2% 3% Mine Mine Production Production 77% 80% Source: GFMS Ltd. World Silver Supply Estimated Annual Changes: 2009 less 2008 25 20 15 10 5 0 Million ounces -5 -10 -15 Mine Production Old Silver Scrap Net Government Sales Source: GFMS Ltd. World Silver Demand 2008 Actual 2009 Estimated Investment Investment Coins 5% Industrial 15% 7% 51% Industrial 40% Coins Jewelry & 9% Silverware 24% Jewelry & Photography De-hedging De-Hedging Silverware 12% Photography 1% 1% 25% 10% Source: GFMS Ltd. World Silver Fabrication Estimated Annual Changes: 2009 less 2008 20 0 -20 -40 -60 Million ounces Million -80 -100 Industrial Jewelry & Coins Photographic Silverware Source: GFMS Ltd. From “Deficit” to “Surplus” 950 900 DEMAND (fabrication demand) 850 800 750 SUPPLY 700 (mine production + scrap) Millionounces 650 600 550 500 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: GFMS Silver (Dis)Investment and Real Price 160 16 Real Silver Price 2009 Estimate price silver in real 120 14 80 12 Net Investment 40 10 0 8 2009 million oz -40 6 dollars/oz -80 4 Net Disinvestment -120 2 -160 0 1985 1990 1995 2000 2005 Source: Silver Institute, GFMS Ltd. Silver Price Outlook Silver’s supply/demand fundamentals (excluding investment) are providing some support for higher prices in 2010, mainly due flat supply and a fair recovery in fabrication demand. The silver market will still remain in substantial surplus, albeit of a smaller magnitude compared with 2009. This surplus is being absorbed by investors. Silver like gold is now benefiting from a surge in investor interest, although there is some drag (as with the base metals) from cloudier economic prospects. A breach of the $20-mark is on the cards and possibly too a jump above 2008’s high of $20.92 (basis the London fix). Disclaimer The information and opinions contained in this presentation have been obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. This presentation does not purport to make any recommendation or provide investment advice to the effect that any precious metals related transaction is appropriate for all investment objectives, financial situations or particular needs. Prior to making any investment decisions investors should seek advice from their advisers on whether any part of this presentation is appropriate to their specific circumstances. This presentation is not, and should not be construed as, an offer or solicitation to buy or sell precious metals or any precious metals related products. Expressions of opinion are those of GFMS Ltd only and are subject to change without notice. .