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Aurum The future simply awes… January 2010 ijjkbkjknkl

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Page 1: Gold the Yellow Metal NMIMS 2010

1

Aurum

The future simply awes…

January 2010

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Page 2: Gold the Yellow Metal NMIMS 2010

2

Gold needs no introduction!

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Page 3: Gold the Yellow Metal NMIMS 2010

3

Gold : Key Characteristics

Basis of monetary standards maintained by IMF

Malleable and ductile metal

Good conductor of heat and electricity and not impacted by corrosion

Melting point is at 1064.18 °C, Boiling Point at 2856 °C

Industrial applications like : dentistry and electronics

Weight measured in troy ounce or grams.

Page 4: Gold the Yellow Metal NMIMS 2010

4

Purity of Gold

Carat is used for measurement of purity of gold. (At times written as “karat”)

whereX is the carat rating of the material, Mg is the mass of pure gold or platinum in the material, and Mm is the total mass of the material.

Caratage Fineness24 99922 91621 87510 4179 375

Page 5: Gold the Yellow Metal NMIMS 2010

5

Gold Prices - An Enigma

Page 6: Gold the Yellow Metal NMIMS 2010

6

Gold Price – too may determinants …

Monetary Policy

Geo-Political Tensions

Mine Supply Demand in India/ China

Crude oil/ Energyprices

US Economic data

Currency markets

Gold Prices

The most important price determinant currently is Hedge Fund/ ETF investment in bullion

Page 7: Gold the Yellow Metal NMIMS 2010

7

Its different. Its a monetary asset.

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Page 8: Gold the Yellow Metal NMIMS 2010

8

Central Banks’ Treasure

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007

% o

f res

erve

s

United States Germany France Italy Switzerland ECB India

Gold Reserves (USD million)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

United

State

sGerm

any

IMF

France

Italy

Switzerl

and Japan

Netherl

ands

ECB

China

Taiwan

Spain

Russia

Portug

al

India

Venezu

ela

United

Kingdo

mAust

ria

Q1 2000 Q1 2007

USA is major holder of gold in its national coffers, in value as well as tonnage terms.

CBGA forms a formidable force in price control of the yellow metal.

The above ground stocks as per GFMS estimates are about 155,500 tonnes.

Source: GFMS, WGC

Page 9: Gold the Yellow Metal NMIMS 2010

9

By the tonne ….

Gold Reserves (Tonnes)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

United Stat

esGerm

any IMF

France Italy

Switzerl

and

Japan

Netherl

ands

ECB

China

Taiwan

Spain

Russia

Portugal Ind

iaVene

zuela

Unit

ed King

dom

Austria

Q1 2000 Q1 2007

In tonnage terms, US reserves stand largely unchanged, but due to higher prices of gold they have risen to 76% from 54% of total reserves held by the country.

20% or about 30,280 tonnes are world reserves (including IMF)

IMF holds about 3,218 tonnes.

Source: GFMS, WGC

Page 10: Gold the Yellow Metal NMIMS 2010

10

Efficient Frontier Theory

Page 11: Gold the Yellow Metal NMIMS 2010

11

Efficient Frontier Theory

Portfolio Series of S&P 500 Total Return Index and Toronto Gold & Precious Minerals Total Return Index for the Holding

Period of 1971 - 2003, Annual Rebalancing

6%

7%

8%

9%

10%

11%

12%

13%

0% 5% 10%

15%

20%

25%

30%

35%

40%

45%

50%

Volatility (Standard Deviation)

Aver

age

Annu

al R

etur

n

100% TSE Gold & Precious Minerals Index

Peaks at 35% TSE Gold & Precious Minerals Index

85% S&P 500 / 15% TSE Gold Essentially the same risk level but significantly higher return average annual return.

100% S&P 500

Commodities – An asset class by itself!!

Page 12: Gold the Yellow Metal NMIMS 2010

12

Nifty Volatility vs Bullion volatility

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2-Jan-97 2-Jan-98 2-Jan-99 2-Jan-00 2-Jan-01 2-Jan-02 2-Jan-03

silver nifty gold

NiftySilver

Gold

Page 13: Gold the Yellow Metal NMIMS 2010

13

Global Bullion Market Structure

Page 14: Gold the Yellow Metal NMIMS 2010

14

Global Bullion Market - LBMA

London Bullion Market - Incorporated in 1987

FSA www.fsa.gov.uk under Financial Services and Markets Act 2000

OTC Market – Clearing through LBMA Clearing house

Standard dealing amounts between market makers

Gold 500 Ounce (15.5 kg)

Silver 100,000 Ounce (3215 kg)

Good delivery – London

Gold Bar Size - 400 Ounce (12.5 kg) , 995 fine

Silver Bar Size – 1000 Ounce (30 kg), 999 fine

Page 15: Gold the Yellow Metal NMIMS 2010

15

Global Bullion Market – Comex

Symbol GC

Expiry On every 5th of the alternate month (Oct, Dec, Feb, April, June, Aug)

Trading Unit 100 troy ounces

Quotation/ Base Value 1 troy ounce

Tick Size 10 cents per troy ounce

Initial Margin $3,375 per contract

Delivery Centers A designated depository licensed by the exchange.

Quality Specification 995 purity ; It should be serially numbered Gold bars supplied byLBMA approved suppliers or other suppliers to be submitted along with supplier’s quality certificate.

Page 16: Gold the Yellow Metal NMIMS 2010

16

Global Bullion Market – TOCOM

Symbol Gold

Expiry 3rd business day prior to delivery day (Delivery day = last day of even month)

Trading Unit 1 kg

Delivery Unit 1 kg

Quotation/ Base Value JPY/gram

Tick Size JPY 1 per gram

Initial Margin JPY 165,000 (approx 7%)

Delivery Centers A designated depository licensed by the exchange.

Quality Specification 99.99% purity; specified warehouses

Page 17: Gold the Yellow Metal NMIMS 2010

17

Indian Commodity Exchanges

Multi Commodity Exchange

Page 18: Gold the Yellow Metal NMIMS 2010

18

Gold – MCX Contract Specification

Symbol GOLD

Expiry On every 5th of the alternate month (Oct, Dec, Feb, April, June, Aug)

Trading Unit 1 Kg

Quotation/ Base Value 10 gm

Tick Size Re. 1 per 10 gm

Price Quote Ex-Ahmedabad

Initial Margin 7%

Delivery unit 1 Kg

Delivery Centers Mumbai and Ahmedabad at designated clearing house facilities of Group4 Securitas

Quality Specification 995 purity ; It should be serially numbered Gold bars supplied byLBMA approved suppliers or other suppliers as may be approvedby MCX to be submitted along with supplier’s quality certificate.

Page 19: Gold the Yellow Metal NMIMS 2010

19

Gold Near Month Price-Volume Data on MCX

5,500

6,500

7,500

8,500

9,500

10,500

11,500

Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-060

20,000

40,000

60,000

80,000

100,000

VOLUME MCX

Volume in kgRs. / 10 gm

Page 20: Gold the Yellow Metal NMIMS 2010

20

Correlation studies!!

5500

6500

7500

8500

9500

10500

No v-0 3 Jan-04 Mar-04 May-04 Jul-04 Sep-0 4 No v-04 Jan-05 Mar-05 May-0 5 Jul-0 5 Sep -05 Nov-05 Jan-0 6 Mar-06 May-06 Jul-06350

400

450

500

550

600

650

700

750

MCX COMEX

Rs/10 gm $/ Troy ounce

Correlation: 0.99

Page 21: Gold the Yellow Metal NMIMS 2010

21

Features – Indian Bullion Market

Bullion Market players

International suppliers

Authorised agencies

Wholesale traders

Jewellers: Domestic and Exporters

Retail investors

Page 22: Gold the Yellow Metal NMIMS 2010

22

Indian Bullion Market Structure

International suppliersLarge Bullion Banks including CSFB, MKS Finance, UBS, N M Rothschild, Societe Generale, etc.

Active players on the London Bullion Market, COMEX and TOCOM

Authorized agencies

14 Banks (Bank of Nova Scotia, ICICI Bank, etc) and 4 agencies (MMTC, STC, PEC & HHEC)Import on consignment basis from Dubai, Switzerland, LondonNo price risk taken by these agenciesCommission based business

Page 23: Gold the Yellow Metal NMIMS 2010

23

Bullion Market Structure

Wholesale traders - 25Import through authorised agencies and bullion banks Income - Arbitrage and price riskActive players on Comex through unofficial route

Jewellers – More than 20000Domestic

Buys from wholesale tradersRisk management through unofficial channelsMargins – making charges

ExportersPurchase based on gold loan from authorised agenciesPrice fixing flexibility upto 6 monthsMargins – making charges

Page 24: Gold the Yellow Metal NMIMS 2010

24

Demand & Supply Overview

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Page 25: Gold the Yellow Metal NMIMS 2010

25

The two sides of a coin….

Source: GFMS Ltd.

1. Provisional.2. Excluding any delta hedging of central bank options.3. This is the residual from combining all the other data in the table. It includes institutional investment other than ETFs & similar, stock movements and other elements as well as any

residual error.

Page 26: Gold the Yellow Metal NMIMS 2010

26

Gold Demand – Supply Flow Diagram

Annual

DemandFlow Supply

Jewellery

Industrial

ETF and Investments

Scrap Supply

Official Sector Sales

Mine Production

324 t

2,471 t

451 t

650 t

2,279 t

1,108 t

Producer

Hedging

-373 t

Page 27: Gold the Yellow Metal NMIMS 2010

27

Is it heading anywhere?

Mine Production

0

100

200

300

400

500

600

700

800

900

1000

1991 1992 1993 1994 1995 1996 1997 1998 19992000 2001 2002 2003 2004 2005 2006 2007 2008

USD

/troy

ou

0

500

1000

1500

2000

2500

3000

tonn

e

Mine Production Price (COMEX Futures)

Source: GFMS

Top Producing Countries (% share, GFMS 2004) : South Africa (14%), United States (11%), Australia (10%),

China (9%), Russia (7.4%), Peru (7%)

Page 28: Gold the Yellow Metal NMIMS 2010

28

The Big Guys!

Company2004 2005 2006 2007 Q1 2007 Q2

Barrick 4.958 5.46 8.643 2 1.96Newmont 6.988 6.5 5.9 1.342 1.448Anglogold Ashanti 5.829 6.166 5.635 1.330 1.349Goldfields 4.406 4.488 4.074 -- --Harmony 3.157 2.386 2.965 0.579 0.527Gold Corp 0.628 1.136 1.693 0.558 0.546

Production (Moz)

Source: Annual Reports, Bloomberg, GFMS

Barrick Gold acquired Placer Dome in FY 06

Newmont adopts “no gold hedging” policy

Mine production has been steady

Page 29: Gold the Yellow Metal NMIMS 2010

29

Cash Cost of Mines on the rise……

Company Cash Costs (USD/troy ounce)2005 2006 2007 Q1 2007Q2

Barrick 214 227 282 280Newmont 237 304 421 433Anglogold Ashanti 281 308 332 333Goldfields 331 358 -- --Harmony 433 380 445 655Gold Corp 110 160 181 133

Source: Annual Reports, Bloomberg, GFMS

Cash costs include:• Production costs

• Royalty costs

• Marketing costs

• Excludes capitalised costs, depreciation, amortisation

• Also excludes. mine closure costs

Page 30: Gold the Yellow Metal NMIMS 2010

30

Producer Hedging

Gold is leased by central banks and other holders to commercial/bullion banks and earns a return in line with gold lease rate.

With respect to producer hedging, bullion banks contract to buy gold forward from mining companies. To fund the purchase, the bullion banks sell an equivalent amount of gold and proceeds are invested at money market rates.

This brings metal to the active market and hence hedging is sometimes referred to as “accelerated supply”.

The above ground supplies being large, the gold lease rate is lower than the money market rate encouraging bullion banks to sell gold and invest in money market instruments. The market is implicitly biased towards producer hedging and speculator selling. Hence the gold market is a contango market.

Page 31: Gold the Yellow Metal NMIMS 2010

31

Is it Eureka or Euro?

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Page 32: Gold the Yellow Metal NMIMS 2010

32

Correlation with Euro

200

400

600

800

1000

1200

1400

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.60

0.80

1.00

1.20

1.40

1.60

1.80Gold Euro

Source: Bloomberg, JMFCL

1. The correlation is found to be strong between Gold and Euro

2. Typical range: 0.7 – 0.8

Page 33: Gold the Yellow Metal NMIMS 2010

33

Correlation with South African Rand

Year* Correlation

1997 -0.10

2001 -0.54

2002 -0.51

2003 -0.05

2004 0.55

2005 0.61

2006 0.35

Source: JMFCL, Bloomberg

* - correlation from the specific year till Aug 31, 2007.

0

200

400

600

800

1000

1200

1400

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

0

2

4

6

8

10

12

14

16Gold ZAR

Source: Bloomberg, JMFCL

1. Majority of mining happens in South Africa

2. Primary influence on cash costs of mines

3. Appreciating Rand pushes up cash costs, since gold is finally traded in USD

Page 34: Gold the Yellow Metal NMIMS 2010

34

Correlation with Dollar Index

200

400

600

800

1000

1200

1400

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201065.00

75.00

85.00

95.00

105.00

115.00

125.00

135.00

145.00Gold Dollar Index

Year* Correlation

Dec-1985 -0.59

2001 -0.81

2002 -0.74

2003 -0.69

2004 -0.53

2005 -0.48

2006 -0.85

Source: JMFCL, Bloomberg

Source: Bloomberg, JMFCL* - correlation from the specific year till August 31,2007.

1. Base = 100.00; March 1973, after dismantling of Bretton Wood.

2. Weighted average of a collection of foreign currencies relative to the dollar, namely Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Kroner (SEK) and Swiss Franc (CHF).

3. Exhibits negative correlation

Page 35: Gold the Yellow Metal NMIMS 2010

35

Correlation with Crude Oil

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 090.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

Year* Correlation

2006 0.24

2007 0.92

2008 0.58

2009 0.76

Source: JMFCL, Bloomberg

* - correlation year wise

Source: Bloomberg, JMFCL

1. Primary influence on cash costs of mines

2. Rise in energy prices pushes up cash costs, since 15% of cash costs can be attributed to diesel purchases

Page 36: Gold the Yellow Metal NMIMS 2010

36

ETF – The extra terrestrial

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Page 37: Gold the Yellow Metal NMIMS 2010

37

Stupendous growth in Assets Under Management (tonnes)

0

100

200

300

400

500

600

700

800

Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07

Tonn

es

Lyxor- LSE GBS - ASX Street Tracks-NYSE New Gold - JSE iShares COMEX (IAU)

Source: Bloomberg, www.exchangetradedgold.com, www.ishares.com

Page 38: Gold the Yellow Metal NMIMS 2010

38

Macro economic factors

Page 39: Gold the Yellow Metal NMIMS 2010

39

Data releases and market cues!

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Page 40: Gold the Yellow Metal NMIMS 2010

40

GDP

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008-10

-5

0

5

10

15

20

Source: Bloomberg, JMFCLRecessions in USA

December 1969-November 1970

November 1973-March 1975

January 1980-July 1980

July 1981-November 1982

July 1990-March 1991

March 2001-November 2001

Source: Bloomberg, JMFCL

• Limited chance for US heading for a negative QOQ GDP growth rate

• US Fed says ”moderate” growth developing

Page 41: Gold the Yellow Metal NMIMS 2010

41

Interest Rate

As real interest rates turn negative, the price of gold is

seen to rise during that period.

The price of gold is a reflector of inflation expectation of the

market.

0

100

200

300

400

500

600

700

800

900

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

USD

/troy

oun

ce

0

2

4

6

8

10

12

14

16

% c

hang

e in

CPI

∆ US CPI YOY Gold Price

0

200

400

600

800

1000

1200

1400

196919711973197519771979198119831985198719891991199319951997199920012003200520072009-10

-5

0

5

10

15

20

• Wall street talks about possibility of a Fed rate cut by end of 2007.

• With domestic consumption undeterred, crude oil at high levels, this would be further reduce real interest rates.

Page 42: Gold the Yellow Metal NMIMS 2010

42

US Economy numbers

GDP

ISM

Employment

Producer Price Index

Retail Sales

Consumer Sentiment

Housing starts

Durable Goods order

Trade balance

Page 43: Gold the Yellow Metal NMIMS 2010

43

GDP

C+I+G+X-M = GDP (Macroeconomics)Durable goods = 15% of CNon durable goods = 30% of CServices = the rest of C20% of GDP = Investment

Page 44: Gold the Yellow Metal NMIMS 2010

44

GDP

Residential

Non – Residential

Change in business inventories

Page 45: Gold the Yellow Metal NMIMS 2010

45

GDP

18% of GDP = fed,state and local govt spending35% of G = Federal SpendingDefenceAircrafts,weaponsSocial SecurityMedicare

Page 46: Gold the Yellow Metal NMIMS 2010

46

ISM Mfg index

Industrial growth in USInstitute for Supply ManagementDirectly from executives of 400 industrial companiesA slide towards 40 indicates recession is at hand.

Page 47: Gold the Yellow Metal NMIMS 2010

47

Employment situation

Unemployment rateIndicated as a level

Non farm payrollsIndicated as a change

Average work weekAverage hourly earning

Page 48: Gold the Yellow Metal NMIMS 2010

48

Producer Price Index

PPI – CommoditiesCPI – commodities and servicesConsumer goods excluding food and energy = 40% of PPIPPI ex-food and energy known as core PPI.Impact of PPI

Page 49: Gold the Yellow Metal NMIMS 2010

49

Retail Sales

Sales inclusive of auto sales

Indicative of future GDP growth

Durables and Non durables

Volatile and hard to estimate data

Page 50: Gold the Yellow Metal NMIMS 2010

50

Consumer Sentiment

“Feel good” factorExpenditure on “big ticket” itemsUniv of Michigan Sentiment IndexMonthly telephone survey of 500 consumersConsumer confidence (conference board)

5,000 households across countryConsumer confidence adjusts for seasonal adjustments

Page 51: Gold the Yellow Metal NMIMS 2010

51

Housing starts

Most Americans have biggest investment in real estate (their own home)Bureau of Census – Dept of CommerceHousing is direct bolster to stock marketsBut inflation could be a concernHence interest rate scenario…..

Page 52: Gold the Yellow Metal NMIMS 2010

52

Other Statistics

Jobless claims

Employment cost index

Current Account Balance

Page 53: Gold the Yellow Metal NMIMS 2010

53

Who has signed it?

Name of Central Bank Country Reserves (tonnes)European Central Bank ECB 642Banca d'Italia Italy 2452Banco de España Spain 377Banco de Portugal Portugal 383Bank of Greece Greece 112Banque Centrale du Luxembourg Luxembourg 2Banque de France France 2689Banque Nationale de Belgique Belgium 228Central Bank & Financial Services Authority of Ireland Ireland 6De Nederlandsche Bank Netherlands 641Deutsche Bundesbank Germany 3423Oesterreichische Nationalbank Austria 289Suomen Pankki Finland 49Schweizerische Nationalbank Switzerland 1290Sveriges Riksbank Sweden 156

In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:1. Gold will remain an important element of global monetary reserves. 2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales

over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.

3. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.

4. This agreement will be reviewed after five years.

Source: ECB, GFMS

Page 54: Gold the Yellow Metal NMIMS 2010

54

Recent Activity

Year 1 Year 2 Year 32004-05 2005-06 2006-07

Eurosystem announced by June 12, 2007 352.2 385.8 288 of which: European Central Bank to date 47.0 57.0 60.0 Austria to end Apr 2007 15.0 13.7 Belgium to end Apr 2007 30.0 0.0 France to end Apr 2007 115.0 134.8 77.0 Germany to end Apr 2007 5.4 5.3 Netherlands to end Apr 2007 55.0 67.5 14.0 Portugal to end Apr 2007 54.8 44.9 Spain to end May 2007 30.0 62.5 122 Country not yet known 15Sweden to May 31 2007 15.0 10.0 5.7Switzerland 130.0 0.0 0.0Total reported selling so far 497.2 395.8 294Remaining possible to Sept 26, 2007 206

Sources: IMF, International Financial Statistics; ECB Weekly Financial Statement; announcements and data from individual countries.

Page 55: Gold the Yellow Metal NMIMS 2010

55

The witchcraft

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Page 56: Gold the Yellow Metal NMIMS 2010

56

Bullish vs Bearish

Bullish factors

Change in policy of central banks with regard to diversification of assets.

Prevalent dehedging in the gold mining industry on expectations of higher metal prices

Volatile price surge in the energy basket (especially, hurricane impact)

Growth in demand from emerging economies

Labour disputes at mines in South Africa

Appreciation of South African Rand

Uncertainty in Middle East

Slowdown in US consumer spending

Slowdown in US Business expenditure

Bearish factors

Changes in hedging policy of gold mines

Official sector sales/intentions

Monetary stance by central bankers (surprise element)

Liquidation of carry trade

Page 57: Gold the Yellow Metal NMIMS 2010

57

Argentum

The white metal

January 2009

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Page 58: Gold the Yellow Metal NMIMS 2010

58

Silver – The poor cousin of gold!

Year Correlation2004 0.702005 0.872006 0.802007 0.38Source: JMFCL

200

300

400

500

600

700

800

Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-074

6

8

10

12

14

16

Gold prices (USD/troy ounce) Silver Prices

Source: Bloomberg, JMFCL

• Silver exhibits poor correlation, this year.

• Recent sharp fall to USD 11.06/troy ounce further distorts the above statistical relationship.

Page 59: Gold the Yellow Metal NMIMS 2010

59

Gold – Silver Ratio

0

200

400

600

800

1000

1200

1400

1600

Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-0735.00

40.00

45.00

50.00

55.00

60.00

65.00

70.00

75.00

80.00

85.00Gold prices (USD/troy ounce) Silver Prices (cents/troy ounce) Gold - Silver Ratio

Barclays ETF

• The successful launch of Barclays ETF has skewed the gold – silver arbitrage indicator.

• The USD 7/troy ounce – USD 8/troy ounce metal is now being valued above USD 10/troy ounce.

Page 60: Gold the Yellow Metal NMIMS 2010

60

Stupendous growth in Assets Under Management (tonnes) - ETFs

Gold:

0

100

200

300

400

500

600

Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07

Street Tracks-NYSE

Source: www.exchangetradedgold.com

Street tracks (NYSE) : 514.21 tonnes (USD 10.87 billion)

Page 61: Gold the Yellow Metal NMIMS 2010

61

Stupendous growth in Assets Under Management (tonnes) - ETFs

Silver:

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07

ishares Silver

Source: www.ishares.com

ishares Silver : 4297 tonnes (USD 1.62 billion)

Page 62: Gold the Yellow Metal NMIMS 2010

62

The ETF phenomenon cushions prices!

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

2

4

6

8

10

12

14Implied Net Investment (tonnes) Silver (USD/troy ounce)

Source: GFMS, JMFCL

The average silver prices have shown a rise above the usual USD 5/troy ounce to USD 10 – USD 12/troy ounce.

Implied net investment has turned positive with the successful launch of Barclays ETF.

Page 63: Gold the Yellow Metal NMIMS 2010

63

Demand – Supply Balance Sheet

2002 2003 2004 2005 2006Supply (tonnes)Mine Production 18553 18693 19296 19956 20096Net Government Sales 1841 2818 2068 2115 2417Old Silver scrap 5816 5711 5636 5826 5847Producer Hedging -- -- 311 470 --Implied Net Disinvestment 641 -- -- -- --Total Supply 26851 27221 27312 28363 28360

Demand (tonnes)FabricationIndustrial Applications 10581 10911 11455 12730 13374Photography 6354 6000 5630 5126 4535Jewellery and Silverware 8161 8516 7707 7763 6995Coins and Medals 983 1107 1316 1263 1238Total Fabrication 26080 26531 26108 26885 26142Net Government Purchases -- -- -- -- --Producer de-hedging 771 650 -- -- 212Implied Net investment -- 40 1204 1477 2006Total Demand 26851 27221 27312 28363 28360

Source: GFMS, JMFCL

ETF demand visible

Other Demand drivers:

• Silver jewellery from India and China (10% contraction in 2006)

• Industrial usage driven by global economic growth rates. (5% growth in 2006)

Page 64: Gold the Yellow Metal NMIMS 2010

64

Industrial Demand of Silver – Do we see growth?

Electrical and electronic applicationsMulti layer ceramic capacitors (MLCCs)Cell phonesHigh end military applicationsPlasma display panels (PDPs)

Brazing alloys and solders70:30 silver- palladium alloys75:25 and 80:20 gaining acceptance due to higher prices of palladiumWEEE directives in Europe would eventually ban lead soldersDemand for tin-silver-copper solders

Solar panelsFuel cellsCatalysts

Page 65: Gold the Yellow Metal NMIMS 2010

65

Indian Industrial Demand of White Metal

Pharmacy and Chemicals12%

Jari12%

Solders and Brazing8%

Foil6%

Miscellaneous20%

Electrical18%

Plating24%

Source: GFMS (2005), JMFCL

Industrial demand close to 13% of world industrial demand, ranking 5th in industrial demand

Burgeoning middle class would boost this demand

McKinsey Global Institute expects average incomes in India to triple by 2025

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Is silver overpriced as compared to the yellow metal?

35.00

40.00

45.00

50.00

55.00

60.00

65.00

70.00

75.00

80.00

85.00

Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07

Gold - Silver Ratio

Page 68: Gold the Yellow Metal NMIMS 2010

68

Voodoo

View: Sideways with bullish bias

Target: USD 700/troy ounce

Advice: Buy on a correction to

USD 655/troy ounce

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69

Books for Economic indicators