gold forecast 2010

8/4/2019 Gold Forecast 2010

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ScotiaMocatta

Precious Metals Forecast 2010

Gold

www.scotiamocatta.com

Executive Summary

The Gold rally continues with prices posting fresh all time highs in early October,

the rally is expected to continue within an $850-$1,400/oz trading range in 2010.

After the turmoil in the financial markets last year a strong rebound has been seen,

but with numerous large issues unresolved the rebound seems unsustainable.

The fact Gold prices are this high suggests there is still a lot of fear in the markets.If a double dipped recession unfolds, prices could have considerably further to

run.

The outlook for Gold remains bullish, as it continues to provide a hedge against

weakness in fiat currencies and further turmoil in the markets. It should alsoprovide protection against inflation at a later date.

Introduction

The onset of the financialcrisis in the summer of 2008

saw Gold prices sell-offsharply, which to manypeople was a surprise as

given the turmoil in themarkets and fear for thebanking system, Gold should

have been attracting safe-haven buying. Indeed it was,

but the buying could notabsorb all the selling on theback of deleveraging that was

happening as the market sold liquid assets to pay margin against their less liquidassets. The sell-off saw prices drop to a low of around $682/oz in October 2008,

before the buying once again dominated and investors and traders moved intoGold to protect their capital against the uncertainty swirling around the financialmarkets. After rebounding to $1,006/oz in February 2009, Gold prices then

consolidated in a broad sideways range between $865-$990/oz as the marketdigested what had happened and what was likely to happen going forward. The

fact Gold prices have broken out to the upside of this consolidation pattern isbullish for Gold, but is also a warning that the market feels there is more troublefor the financial markets in the weeks and months ahead. Whether this trouble

comes in the form of a double dipped recession, a dollar or bond crisis, orstagflation, inflation, or deflation, remains to be seen.


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Precious Metals Forecast 2010_Gold October 2009

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The present situation is one in which the dollar is trending lower again and equities have ralliedstrongly off their lows. Quantitative easing and government borrowing are providing the means

for Western governments to issue stimulus packages and support those industries andinstitutions that are deemed too big to fail, but the legacy of all this debt and the means to

pay it back are likely to become the next problems. As such, there are many cross-currents

impacting the global economy that are likely to keep the markets turbulent and dangerous. Inthis environment we expect Gold to remain highly sought after as the ultimate and time-tested

safe-haven. At some stage a broad based sustainable economic recovery is likely to reduce theneed for safe-haven investments and that is likely to see money move out of Gold. We think

that, before that, the financial environment will deteriorate further and demand for Gold willrise.

The Big Picture

Reviewing the testimony of the Worlds central bankers, it appears that the Western bankingsystem was close to collapse in 2008. Governments reacted strongly and without significant

constraint and that has halted the meltdown- indeed judging how much equity markets haverebounded, you could even feel they have corrected the problem. However, on closerinspection they have probably only bought some time. They may have prevented a total crisis,

but in doing so have saddled countries and electorates with huge debt and budget deficits thatare likely to last for years. So once again there seems a myriad of problems that will now needto be overcome before real recovery can begin.

Confidence has rebounded, but there is a danger this may prove to be groundless and more aknee-jerk relief reaction that the markets did not implode. Judging by the rise in Gold and othercommodity prices and even equity values, it seems that investors want to own somethingtangible (even if it is just a share in a company) rather than owning fiat money. However, while

consumers pay down their debt and unemployment remains high, consumer spending is likelyto remain restrained and with this accounting for some 70% of GDP in many developed

countries, the prospects of a return to strong growth are low. In addition, the practice in Anglo-Saxon countries of remortgaging homes to supplement disposable income that helped fuel theconsumer boom in the mid- 2000s has been curtailed and this makes any return to high

spending less likely.

The equity rally started in March 2009 and impressive gains were seen over the summer.Indeed the rally even gained additional momentum on the back of second quarter earnings.However, since much of the improvement was due to cost cutting, there is doubt as to whether

the improved earnings picture is sustainable. If not, then another correction in equity priceswould be likely and in turn that could spark another risk reduction sell-off. Such a move is

likely to initially drag Gold prices down too, but the increased fear that another stock marketsell-off would bring, is also likely to see a further movement into Gold as a secondary reaction.

In the short-to-medium term the risk of inflation seems subdued and deflation seems a biggerthreat as it is latent in many parts of the developed world. Although, for the moment, the

popular press might be pointing to inflation as a reason for Golds rise, we would say dollarweakness and concern over fiat currencies and paper assets in general are the more likelydrivers. In time inflation, or even stagflation, is likely to become a driving bullish force in the

Gold market, but we do not see that being a key driver at present as we expect another down

turn in the global economy to dampen price pressures.


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One of the risks going forward is that confidence may turn negative again as in such a casedeflation could spread as consumers further batten down the hatches. With governments

already committed to massive stimulus packages another down turn could see the need formore fiscal boosts and that would run the risk of digging a deeper fiscal hole.

Overall the markets current focus seems to be on recovery but we fear there is a high chanceof the financial crisis evolving further (perhaps to a dollar - or derivative crisis) and as such

think Gold will remain in an up trend, even though there are likely to be significant correctionsalong the way.

How has Gold reacted so far?Since the rally in Gold started in 2001, Gold prices have climbed on the back of a host of issues

including: the weaker dollar, increased geopolitical risk, higher oil prices, portfoliodiversification, producer dehedging, lower than expected official sales , falling mine production

and, until recently, reliable and resilient Asian jewellery demand. The financial crisis has hadthe effect of reshuffling these factors with the dollar weakness and need for safe-haven

investments rising to the top. However, the Gold market has also had to suffer a significant falloff in fabrication demand and a surge in supply in the form of increase scrap sales. Indeed ifyou look at the balance between supply from mining and scrap and compare it with fabrication

demand, Gold would have been in surplus, absent investment demand, to the tune of 750tonnes in 2008 and an estimated 1,168 tonnes this year and in that case, on pure fundamentals,you would have expected prices to be falling. However, changes in investment demand andofficial sales have had a hugely positive impact on Gold, while less dehedging has been anegative. Of these influences on the Gold market, it is changes to investment demand that havereally driven prices higher. Given the economic environment and the situation in the financialmarkets, we feel there is good potential for considerably more investment buying and just asany rally can run away on the upside it is possible investment demand could do the same,

given the size of the financial market and the Gold markets small size in relationship to it.However, just as any rally can go exponential, at some stage it inevitably corrects - perhaps

sharply. With large holdings of Gold in ETFs, futures, bars and coins, the market will rightly benervous and on the look out for signs of change. However, this should not deter investors fromkeeping an interest in Gold over the next few years.

US creditors

The fact that the dollar has been the worlds reserve currency and the currency of trade for solong, means the amount of dollars, and therefore US creditors, in the global market is huge.Seeing the value of the dollar steadily erode must be a nightmare for large US creditors such as

China, Japan, South Korea, Russia, the oil producing countries and Sovereign Wealth Funds(SWF). The danger is that they will reduce their exposure, although, in reality their collective

holdings are so enormous that if they started to liquidate, the markets would likely collapsemaking a bad situation a lot worse. So the option to sell seems to have been discounted asunworkable and their second option is to collectively try to underpin the dollar and to ride out

the storm. Their third option is to do nothing. As things stand, most Asian central banks havestarted to build up their reserves again (the exception seems to be Japan), although while China

maybe buying US dollar assets on the one hand, it is also diversifying by using dollars to buildup strategic stockpiles of commodities. If US creditors were to panic, then a dollar crisis, orbond crisis, would likely follow. However, we think the catastrophic implications of such an

outcome will probably prevent such a situation developing, unless a geopolitical showdown

between, say, China and the US or Russia and the US, gets out of control.


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But the dollar is falling again - will that force creditors hands?

The fact the dollar is falling in value is of no surprise as the US has been running a trade deficitfor years and has been issuing I.O.Us in the form of Treasury bonds, bills and notes, to pay for

the fact that it has consumed more than it has earned. As a result of this, the value of the dollar

has been in decline since 2001. For some peculiar reason the onset of the financial crisis in thesecond half of 2008 saw the dollar rebound, but that was probably as US investors liquidated

overseas assets and repatriated them, as well as some overseas investors looking for sanctuaryin US Treasuries. The recession has seen the US rein in its trade deficit as consumers have

retrenched in a way that should be supportive for the dollar. However, the onset of quantitativeeasing, whereby the US Federal Reserve prints money to buy Treasuries and enable the USgovernment to boost its borrowing, in order to finance its stimulus spending and bailouts, is

bound to devalue the dollar.

With other governments, notably the UK, following the same path, and with other countriesbuying dollars to keep their own currencies weak for competitive reasons, there is a spiral of

competitive devaluation underway. The fact that governments can determine the value of theircurrency and are doing so in this economic climate, provides little confidence for holders ofthose fiat currencies. So it is not surprising Gold prices are on the rise and the fact Gold prices

are rising in other currencies such as euro, sterling and Indian rupees, highlights what aninternational safe-haven Gold can be.

In summary, the big picture outlook is very cloudy. Optimism that the worst is over and that arecovery is underway, is running high. It is therefore reasonable to ask why Gold prices arerising as there is little sign of inflation in the system yet. Furthermore, if the recovery is on theway then why the need of ongoing safe-haven buying? We fear that the rebound is ill-foundedand the measures to prevent a melt-down will in turn create other global problems in the

financial system, especially for the dollar and also for equities. Consequently, we expect furtherturmoil in the markets, creating more pain, uncertainty and fear in the process, all of which is

likely to boost the appeal of Gold.

Factors driving Gold prices

The dollar After the dollar weakness

seen between 2006 and mid-2008, thedollar started to rebound in July 2008,(see chart opposite) as risk reduction

gathered pace and US companiesrepatriated assets previously held

overseas. In addition, the market turned toits traditional safe-havens which includedthe dollar. However, the dollars rebound

ran out of steam as the USs policies totackle the financial crisis became clear

notably to push more money into thefailing systems and to finance this byborrowing and by means of quantitative easing. The creation of more debt and the increase in

money supply by quantitative easing, have not surprisingly raised concern that the dollar is

being devalued. In turn the down trend in the dollar has resumed with the dollar falling againstmost currencies. Interestingly enough, the better- than-expected economic data that has boosted


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the US equity markets has so far failed to underpin the dollar, which is a sign of deterioratingconfidence in the dollar. However, once the US makes it clear that it has a policy to soak up the

extra money supply, then the combination of this and economic recovery (when it eventuallygets going) is likely to see the dollar turn higher. However, if the prospects for growth and

loose monetary policy are also seen as being inflationary, then a stronger dollar will not

necessarily mean weaker Gold.

Inflation fearsAt present, there is little inflation around; indeed, deflation is more in evidence, although the

market does not seem too concerned about deflation as the underlying fear is that all thequantitative easing and global stimulus packages will end up being inflationary. Although intheory governments should be able to tighten monetary policy to out-manoeuvre inflation, there

is concern that slow growth and high unemployment rates will make it hard for governments tobe proactive and any delay in tightening policy when the time comes, could see inflation take

hold. As a result, the threat of inflation down the road is another driving force for Gold, even ifit may be premature to be too concerned about it at the moment.

De-hedging At the start of the bull market for Gold, which roughly coincided with the startof de-hedging, the total hedge book stood at 3,107 tonnes (99.9Moz). Eight years later it has

already fallen to 458 tonnes (14.7Moz). As the hedge book shrinks the level of de-hedging hasnot surprisingly slowed, but is still running at around 125 tonnes a year and is likely to continueto provide support next year. However, after years of providing support de-hedging willbecome less of an issue in the years ahead and then the combination of high Gold prices withimproving prospects for economic recovery and therefore less need for safe-havens, could wellstart to see producers look at re-establishing hedges. Although the current wishes ofshareholders of mining companies is for no, or limited, hedging, that might change if thebullish outlook for Gold changes as we move into a new economic era. However, we would

expect the next hedging wave to be done via put options and not outright forward/futures sales.For the moment the mood amongst producers is, in the majority, still bullish for the Gold price

in the period ahead.

Central Bank Official Sales For the fourth year running sales made under the Central Bank

Gold Agreement (CBGA) have failed to reach the maximum amount of 500 tonnes allowed bythe agreement. In the CBGA year that ended in September 2006, sales were 104 tonnes short of

the 500 tonne allowance; in 2006/07 sales fell short by around 24 tonnes; in the 2007/08 periodsales were 143 tonnes short of the limit and in the year to 26th September 2009, sales totalled160 tonne,340 tonnes short of the limit. So for CBGA-2 as a whole, sales of between 1,880 and

1,900 tonnes were some 75% of the permitted 2,500 tonnes. On 7

th

August, 2009, a new five-year CBGA was announced by its 19 signatory members, but the annual quota was cut to 400

tonnes, even though the IMF has said it plans to sell its 403.3 tonnes of Gold during CBGA-3.However, with China and Russia looking to increase Gold reserves, net supply from officialsales may be limited in the years ahead.

Central Bank diversification The global financial crisis has exposed how vulnerable central

banks are to the dollar and US Treasuries. As a result, a number of large sovereign holders ofUS dollars and Treasuries have started to diversify their holding. China surprised the market inApril 2009, when it announced its Gold reserves had increased 76% to 1,054 tonnes since

2003, when it held 600 tonnes. However, this higher holding still represents only 1.9% of total

reserves. With China holding over $2 trillion of currency reserves and with some 70% of this indollar denominated assets, China is heavily exposed to the value of the US dollar and not


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surprisingly is keen to diversify. There is talk that China might buy some of the Gold that theIMF is selling, but China is also likely to prefer to continue buying Gold from its domestic

producers. In 2007, China surpassed South Africa as the worlds largest Gold producer withproduction reaching 282 tonnes in 2008 and rising 13.5% in the first half of 2009. In addition,

Russia has continued to build up its Gold reserves. It bought 69 tonnes in 2008 and in the

January to August period this year, it has bought a further 62 tonnes. As of September, it heldsome 568 tonnes, or 4.3% of its reserves. Back in November 2005 it stated that it would be

appropriate to hold 10% of its reserves in Gold, which would mean increasing Gold holdings to1,320 tonnes. Holding 10% of reserves in Gold is about the average that all countries hold

although, however, the Euro area holds an average of 59.7%, the US holds 77.4%, while Japanholds just 2.3% and Korea holds just 0.2%.

Oil Oil and Gold prices have beenpositively correlated for most of the

bull run, indeed the turn down in oilprices in mid-July lasts year coincided

with weaker Gold prices too. It isinteresting that Gold prices have heldup better than oil prices and this

serves to highlight the poor currenteconomic conditions. Indeed,although optimism is running highabout economic recovery, judging byindustrial commodity and equityprices, the fact oil is still well below the highs and Gold is near record highs, does raisequestions as to how strong real recovery prospects are. When oil does start to run higher inanticipation of economic recovery then the rising oil price is also likely to be seen as

inflationary which, in turn, is likely to be supportive for Gold prices too.

Jewellery demand High Gold prices and the impact of the global economic slowdown overthe past twelve months has led to a significant drop in Gold demand from the jewellery andindustrial sectors. In the second quarter 2009, World demand for Gold fell 9% year on year,

with jewellery demand off 22%. Industrial demand, which accounts for 13% of Golds use, fell21%. The biggest impact has been seen in India where according to the World Gold Council

(WGC), Gold imports in the first half of the year fell 55% to 126 tonnes. Turkeys importshave also been very low with just 32.9 tonnes imported in the January to September periodcompared to 164.6 tonnes in the same period in 2008.

Demand from jewellery manufacturers continues to be price elastic, but in addition to price, the

sector is suffering the fall out from recession where consumers have cut back on luxurypurchases. Gold jewellery demand peaked in 2005 at 2,707 tonnes, it fell to 2,288 tonnes in2006, rebounded in 2007 to 2,404 tonnes, fell to 2,159 tonnes last year and is likely to be

around 2,000 tonnes this year. However, the steady fall in demand combined with the largeamount of jewellery scrapping that has taken place in recent years, is likely to have created

considerable pent up demand across the jewellery spectrum from jewellery fabricators tojewellery retailers to jewellery owners. Once global recovery is underway we would expect astrong rebound in jewellery demand with China leading the way, followed by Asia. Even

during the recent economic slowdown, Chinese demand for Gold jewellery managed to rise 6%

in Q209 only just down from the 8% rise in 2008.


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Investment demand continues to grow

The financial crisis has put Gold firmlyback in the spotlight as investors have

wanted to protect their wealth as well as

speculate on Golds price rise. At theheight of the banking crisis there was fear

about holding money in banks and salesof Gold bars and coins shot higher, but

even though this fear has subsided (as hasdemand for coins and small bars), there ismore than enough concern about the state

of the financial markets, fiat currenciesand inflation, to see investors continue to

want to diversify their investments. Theinterest in Gold Exchange Traded Funds

(ETF) has continued to build (see chartopposite) and the fact this has happened despite soaring equities is noteworthy and suggeststhese are long term investments aimed at diversifying portfolios. Interestingly there was a

period over the summer that did see a pick-up in redemptions and this seems to have been as aresult of money shifting from safe- havens to riskier equity investments. However the trend inthe level of holdings is now rising again, which suggests either money is rotating back into thesafety of Gold, or else funds continue to invest new money into Gold, either of which is ahealthy sign of ongoing confidence in bullion. At some stage, once recovery is underway andthe threat of inflation is under control, further redemptions are likely and with around 1,700tonnes of Gold held in ETFs, the market may well correct significantly. However, this isunlikely to be an issue in 2010 because there is still the risk of a double-dipped recession,

dollar devaluation and eventual inflation. In addition, after the near collapse of the financialsystem in 2008 and early 2009, the practice of keeping investment portfolios diversified is

likely to remain in place and as the amount of money in the investment pool grows and thepractice spreads geographically, the flow of money into Gold is likely to remain strong.

The Futures market - In February2008, the net long fund position reached

a high of 212,259 contracts (660mt).During the broad based risk reductionsell-off in the second half of that year

the position fell to 63,959 contracts(199mt), before recovering this year and

rising to a new record high of 236,749contracts. During these gyrations in thenet fund long position it has not

surprisingly been changes in the grosslong position that have seen the

aggressive movements, with the shortposition fluctuating less. For example from the February 2008 position high to the November2008 low, the longs cut their position by 53%, while the shorts increased theirs by 32% and the

recent rise in the net long position has seen the gross longs increase their holdings by 137%,

while the short position has dropped 62%. The gross long position was at a high of some 827tonnes in late September which is worrying some market commentators, but with the peak in


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the net long position in 2008 some 20% above the peak in 2005, a further 20% gain could beenvisaged and could see the net long position climb another 20,000 contracts or so. Given that

quantitative easing has raised the stakes in competitive currency devaluation and inflation, wesee that the market may well be able to sustain an even larger fund long position.

SupplyAfter seven years of higher Gold prices the supply response is beginning to be seen with output

on the increase again, ending a down trend in production that has lasted for more than a decade.In 2008, mine production was 2,416 tonnes, the lowest for twelve years, however in the first

half of 2009, mine output increased 7% according to GFMS. In recent years demand for all thefactors of production needed by miners have been particularly strong and shortages havedisrupted mine output, expansions and new mine development. These factors have affected

Gold producers just as much as base metal producers. Indeed even over the past year with thepull back in base metal production that has alleviated the equipment and manpower tightness,

Gold producers have still been suffering from credit issues and financing constraints and thebulk of the increase in production recently has come from China and Russia, where financing is

not dependent on the Western banking system. That said, better operating conditions andscheduled production expansions in the West have seen some pick-up in output and, asfinancial constraints ease and as profit margins rise, output is likely to increase as producers

capitalise on record high Gold prices. Overall with average cost of production at around $650-$700/oz, current margins are likely to encourage a faster-than-forecast rebound in global mineproduction.

China remains No.1 producer

China became the worlds largest Gold producer in 2007 and held that position in 2008, andwith output up 13% in the first seven months of 2009, it seems to be extending its lead. SouthAfrica continues to see output fall, with H109 production falling and output in July off 7.6%

year on year. Australias mine production is on the increase again as is Russian production thatrose 21.7% in H109 to 89.2 tonnes. In Peru and Indonesia output also increased.

2009s production is expected to be around 2,488 tonnes, up around 3% from 2008s level of2,416 tonnes and this is expected to climb next year by around 2% to 2,537 tonnes. The extra

50 tonnes will come from the numerous expansions and new mines scheduled to come onstream predominantly in Australia and Canada. However, even if production rises to this level

it will still leave mine output below the level reached in 1998.

Scrap

Scrap supply has become more volatile in recent years and as a result is having more influenceon the supply / demand balance and on prices. In 2008, annual Gold scrap supply amounted to

around 1,220 tonnes, and in H109 alone it had reached 900tonnes, with some 550 tonnescoming on to the market in Q109 and 350 tonnes in Q209. Generally after periods of highscrap flows, the following period is that much quieter. Indeed the rise in advertisements along

the High Street and in local newspapers encouraging people to sell old jewellery is bound tohave sucked a lot of scrap out of the woodwork by now, leaving less there for scrapping in the

future. In 2009 as a whole, it is estimated that scrap supply could reach 1,300 tonnes. Thereforeover the past two years roughly 2,500 tonnes of scrap will have been returned to the market,equivalent to around one years worth of mine production. This destocking bodes well for the

supply / demand balance going forward as it suggests on the one hand there will be less scrap

supply in 2010 and, secondly, having got rid of old jewellery, there may well be pent updemand for new jewellery.


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As such, although mine output is expected to pick-up next year, we feel it will be more than

offset by a drop in scrap supply. Indeed if mine output rises 50 tonnes in 2010 and, say, scrapsupply falls to its ten year average of 960 tonnes, then 2010 could see net scrap and mine

supply 290 tonnes lower than this year.

Technical Outlook

After a long period ofconsolidation after the run up to

$1,006/oz in February 2009,prices have broken higher out ofthe triangle and are in the process

of setting fresh all time highs. Atpresent prices do not look too

extended and the stochasticindicators are looking strong too.

The strong rally in August 2007,went from $640/oz to$1,032.50/oz, a move of close to

$400/oz, so with this latest bull-run starting around $680/oz asimilar run would take pricestowards $1,100/oz. As far as pull backs are concerned, the uptrend line at $970/oz shouldprovide support as should the $1,000/oz area. A move below the uptrend line would thensuggest a possible pull back to around the $900/oz area, where the 60 week moving averagelies. The stochastics did recently cross lower but failed to move down too far and have nowcrossed higher. A similar situation was seen in January 2009 and after the stochastics crossed

higher again price went on to rise $200/oz. With prices breaking into new high ground, wewould target $1,250/oz as the ne xt major upside target. (After the move above $850/oz prices

climbed 21.5%, so a similar percentage move from $1,032.50/oz is $1,254/oz). Overall weexpect Gold to extend its gains, but once the next peak has been established another longperiod of consolidation is likely to follow as the market adjusts to the price rise.

Forecast & Conclusion

Gold is going through a very interesting time, but there are a multitude of factors influencingthe price some of which are quite contradictory such as the presence of deflation and the fear ofinflation. We also have an uneasy feeling that after the near catastrophic events seen over the

past twelve months, the sharp recovery seen since March seems too good to be true and for thatreason it probably is. Indeed given the massive governments stimulus packages and bailouts

mainly paid for with borrowed and printed money, there is considerable uncertainty as to whatlies ahead. The global imbalance between those countries that have massive dollar debt andthose with huge dollar reserves, is also coming to a head as the US seems set on a path to

devalue the dollar by means of quantitative easing. In addition, the weak dollar is promptingcompetitive currency devaluation and with numerous former hard currencies trying to lose

value, it is not surprising that faith in fiat currencies is waning and those with money arelooking to diversify into assets with intrinsic value, of which Gold and other commodities aretop of the list. Indeed this might well be what is driving base metals higher, even though

demand is weak and stockpiles are mounting. The fact US dollar creditors are talking about the

need for another global reserve currency shows that they are losing faith in the dollar.


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Overall, given the parlous condition of the worlds financial markets in recent years, it isdoubtful that the short-sharp asset-bubble deflation seen in the second half of 2008 and first

quarter of 2009, resolved the matter completely. There are still many unsolved problems andimbalances that need to be settled and as there does not seem to be any easy way to fix them,

the financial system and the heavily indebted countries are likely to experience more hardship

in the future. The Western financial system has always had been founded on confidence, and in2008 this confidence was shattered. The rebound across markets this year has restored some

hope but with many of the underlying issues unresolved, this new dawn may prove false. Ifevents take another turn for the worse, the fear seen in 2008 is likely to be renewed and another

flight to safety could well keep the bull market in Gold going for a considerable while longerand a take prices considerably higher.

It seems likely that there is still a big window of opportunity for Gold to shine in the monthsahead. At some stage, the problems facing the global economy, especially those in the West,

will be solved and a return to normality will unfold. When that process begins, safe-havenassets are likely to be sold. However until such time, Gold is likely to remain highly sought-

after as a store of wealth and we would not be surprised to see Gold prices rise to, perhapssignificantly, new highs. There are likely to be periods of widespread risk reduction that carryGold prices lower too, but each dip is expected to attract strong scale down buying from

investors and fabricators. Overall, we would expect the bulk of trading between now and theend of 2010 to be within the $850/oz to $1,400/oz range.


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contained herein. This report is not a direct offer financial promotion, and is not to be

construed as, an offer to sell or solicitation of an offer to buy any products whatsoever.

This market commentary is regarded as a marketing communication. It has not been prepared

in accordance with legal requirements designed to promote the independence of investment

research and is not subject to any prohibition on dealing ahead of the dissemination ofinvestment research.

The Bank of Nova Scotia is authorised and regulated by The Financial Services Authority.

gold forecast 2010

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