Dundee Wealth On Gold

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					Thoughts on Gold and Resources
The Forbes Manhattan Conference

Dr. Martin Murenbeeld
November 4, 2010




        Overview



        1.    Gold bullion is in a long-term
              bull market
        2.    Resources will continue to
              benefit from Asian demand
              for years to come


1




                                               1
         Gold in a Bull Market
         Nine bullish arguments:


    1.     Global fiscal and monetary reflation: PIIGS, US, etc.
    2.     Global imbalances: the dollar must decline
    3.     Global FX reserves are “excessive”: diversification
    4.     Central bank attitudes to gold: now positive
    5.     Gold is not in a bubble: room to rise
    6.     Mine supply is flat: “peak” gold?
    7.     Investment demand: long-run uptrend
    8.     Commodity price cycle: many years to run
    9.     Geopolitical environment: positive


2




    Bullish: (1) Global Reflation
    Antecedents of the (PIIGS) Sovereign Debt Crisis:


    1.    Baby-Boomer Retirements: The fiscal stresses
          this would cause was visible years ago
    2.    The Great Recession: Pushed budgets into
          record deficit – just when the early boomers are
          about to retire
    3.    The Euro Common Currency: Membership in the
          Euro System allowed interest rates to
          “converge” - and “undisciplined” governments
          to borrow excessively


3




                                                                   2
             Bullish: (1) Global Reflation
             The baby-boomers are about to retire …

                                       US Scenarios                                                                                          Canadian Scenarios




    Source: Congressional Budget Office, November 6th presentation by Director Elmendorf
    Slide: Federal Debt Under CBO’s Long-Term Budget Scenarios                                                     Source: Office of Parliamentary Budget Officer
                                                                                                                   “Fiscal Sustainability Report”, Feb 18, 2010



                                                            Policy Options:
       Increase retirement age                                                             Decrease benefits
       Decrease payment per service                                                        Decrease number of services
       Increase tax rates for services                                                     Institute new taxes (VAT?)
4




                          Bullish: (1) Global Reflation
                          Fiscal policy blown out by “Great Recession”
                      4
                                                                                            Fiscal Balances
                      2                                                                            % of GDP


                      0

                     -2

                     -4

                     -6

                     -8
                                                                   2007                2009
                  -10

                  -12

                  -14
                                 US            Canada           Japan          Germany France       Italy     UK          Greece Portugal                     Spain   OECD   China   India
                  -16
                                Source: OECD, IMF


                                THEY ARE ALL PIGS!
5




                                                                                                                                                                                             3
     Bullish: (1) Global Reflation
     Monetary policy blown up by “Great Recession”
    2200
                $bn
    2000
                  US Monetary Base
    1800
    1600                                                                                     September 2008
                                                                                             Federal Bailouts
                                                                                                  Begin
    1400
    1200                                                                                     September
                                                                                              11, 2001
                                                                         Nixon
    1000                                                              Eliminates
                                                                      The Fixed
                                                                      Gold Price             Y2K
    800                                WWII

    600                  1929 Stock                             Vietnam
                        Market Crash                              War
    400
    200
      0
                                                                                             Last month: September 2010
    -200
           15     20   25   30    35   40   45   50   55   60   65    70    75     80   85     90    95    00   05   10




           Bullish: (1) Global Reflation
           So how will governments handle their debts?



                       Government Choices:
                             Renege on promises
                             Cut other services
                             Raise taxes

                             Print more money?


7




                                                                                                                          4
           Bullish: (1) Global Reflation
           Money drives gold …
    1350                                                                                                             12.0

    1200                                                                                                             10.5

    1050                                                                                                             9.0

     900                                                         Global Liquidity                                    7.5
                                                                      (trillion$)
     750                                                                                                             6.0

     600               Gold (US$)                                                                                    4.5

     450                                                                                                             3.0

     300                                                                                                             1.5
                                                                                                     Latest month:
                                                                                              Liquidity: June 2010
                                                                                             Gold: September 2010
     150                                                                                                             0.0
           82     84      86      88      90      92   94   96   98   00     02     04     06       08       10
           Global Liquidity: FX Reserves + US MBase
           Source: IMF, Federal Reserve

8




           Bullish: (1) Global Reflation
           Gold rises and falls with liquidity
     60                                                                                                              42

     48                                                                                                              35
                                            Global Liquidity yoy%
     36                                                                                                              28

     24                                                                                                              21

     12                                                                                                              14

      0                                                                                                              7

     -12                                                                                                             0

     -24                                                                                                             -7
                               Gold yoy%                                            Latest month:
                                                                                     Liquidity: June 2010
                                                                                     Gold: September 2010
     -36                                                                                                             -14
           82     84      86      88     90       92   94   96   98   00     02     04     06       08       10
           Global Liquidity: FX Reserves + US MBase
           Source: IMF, Federal Reserve

9




                                                                                                                            5
      Bullish: (2) Global Imbalances
      The US current account deficit is rising again
      2                                                                                                                                  140
                                                                                         Current Account - %GDP
      1                                                                                                                                  133

      0                                                                                                                                  126

     -1                                                                                                                                  119

     -2                                                                                                                                  112

     -3                                                                                                                                  105

     -4                                                                                                                                  98

     -5                          US Dollar Index                                                                                         91
                                   (four currencies)

     -6                                                                                                                                  84

     -7      Last quarter:                                   US recession
                                                                                                                                         77
              US$ - 2010-Q3
              Current Account – 2010-Q2
     -8                                                                                                                                  70
           80       82     84      86        88        90    92    94     96       98    00     02    04        06        08        10
           * So will continued recession!

10




       Bullish: (2) Global Imbalances
       The US trade deficit with China is unsustainable
      0                                                                                                                                  0
             $bn
                                                                      US trade with China

      -5                                                                                                                                 -50



     -10                                                                                                                                 -100



     -15                                                                                                                                 -150



     -20                                                                                                                                 -200

                                            12-month moving total bn$
     -25                                                                                                                                 -250
                                                                   US recessions

                Last month: August 2010
     -30                                                                                                                                 -300
           96       97      98       99        00       01    02     03     04      05     06    07        08        09        10




11




                                                                                                                                                6
           Bullish: (2) Global Imbalances
           China must revalue; reserves are excessive!
      1                                                                                                                       2700
                      RMB/US$
      2                                                                            Chinese FX reserves ($bn)                  2400

      3                                                                                                                       2100
                                                      The Chinese RMB was devalued
                                                      at year-end 1993 by 34% … of
      4                                                                                                                       1800
                                                      which only a little has been given
                                                      back recently
      5                                                                                                                       1500

      6                                                                                                                       1200

      7                                                                                                                       900

      8                                                                                                                       600

      9                                                                                                                       300

     10                                                                                                                       0
           86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
            Source: IMF

12




     Bullish: (2) Global Imbalances
     US energy deficit bleeds dollars on world markets
      0                                                                                                                       0
             $bn
      -4                                                            US imports of crude oil                                   -40

      -8                                                                                                                      -80
                                           12-month running total
     -12                                                                                                                      -120

     -16                                                                                                                      -160

     -20                                                                                                                      -200

     -24                                                                                                                      -240
     -28                                                    US recessions                                                     -280

     -32                                                                                                                      -320
                                                                     Total energy-related
     -36                                                             petroleum products                                       -360
                                                                           12-month running total


     -40                                                                                                                      -400
     -44                                                                                                                      -440
                Last month: August 2010                                                                                 $bn
     -48                                                                                                                      -480
           96        97     98      99    00    01     02      03     04           05         06    07   08   09   10




13




                                                                                                                                     7
     Bullish: (2) Global Imbalances
     The Obama Administration wants the dollar down


          “We can’t go back to the era where the
          Chinese or the Germans or other
          countries just are selling everything to
          us, we’re taking out a bunch of credit
          card debt or home equity loans, but
          we’re not selling anything to them”
          President Obama on CNN in run-up to the G-20 Meeting in Pittsburgh, Sep
          2009


          So now we have “currency wars”!

14




     Bullish: (3) Global Reserves
     Foreign exchange reserves have exploded*
     90                                                                                         10
                                                                                          (e)
     81            Global FX Reserves                  Global FX Reserves                       9
                              % change yoy
     72                                                                                         8

     63               65% of FX Reserves
                                                                                                7
                         are in US$!!
     54                                                          $7 trillion rise               6
                                                                  since 2002
     45                                                                                         5

     36                                                                                         4

     27                                                                                         3

     18                                                                                         2

      9                                                                                         1

      0                                                                                         0
           Source: IMF
     -9                                                                                         -1
          69     73         77       81      85   89   93   97           01         05   09
     * Most are held by emerging country central banks
15




                                                                                                     8
             Bullish: (3) Global Reserves
             Global reserves are “excessive”

                      Foreign Exchange Reserves
                             (countries over $100 bn)
                                       bn$                     bn$
                  China              2648.3    India          256.2
                  Japan              1015.1    Brazil         254.1
                  Russia              436.6    Switzerland    202.4
                  Saudi Arabia        422.4    Thailand       149.3
                  Taiwan              372.1    Algeria        146.2
                  Korea               281.4    Mexico         106.1
                  Hong Kong           260.6
                                            TOTAL            6550.9
                  Addendum: Fuel Exporters $1350.5bn
                  Source: IMF - data through August 2010


16




       Bullish: (3) Global Reserves
       Diversification out of $’s in FX reserves likely

     The choices for a central bank are limited:
        1. Other currencies
             •      These currencies must have deep international
                    capital markets - some do not: renminbi, ruble: some
                    do: yen, pound, euro (but is euro now suspect?)
        2.       SDR’s issued by the IMF
             •      The SDR is a basket currency that includes only the
                    dollar, yen, pound, and euro - it has limited use
                    outside of central bank markets
        3.       Gold, other “hard” assets, mining investments
             •      But gold market is “narrow” and China likes
                    commodity-producing assets

17




                                                                           9
     Bullish: (4) Central Bank Attitudes
     Central bank attitudes towards gold have changed


     1.        CBGA signatories are selling less gold
               (not selling at all)
     2.        China raised its gold reserves from 600
               to 1054 tonnes
     3.        India bought 200 tonnes of IMF gold
     4.        Russia and India have suggested a new
               SDR basket should include gold


18




          Bullish: (5) Gold Not in a Bubble
          Gold looks like it is in bubble …
      1400
               Friday p.m. fix
      1300
      1200
      1100
      1000
       900
       800
       700
       600
       500
       400
       300
       200
       100
                                                                Last date: October 22, 2010
          0
              69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03     05 07 09



19




                                                                                              10
        Bullish: (5) Gold Not in a Bubble
        … but that may be a function of perspective
     10000
              Friday p.m. fix
              log scale




     1000




                                                                             B
      100



                          Compound return from A to B is 6.8%
                 A        From A to any other point it is more
                                                                             Last date: October 22, 2010
       10
             69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09



20




             Bullish: (5) Gold Not in a Bubble
             It is not in a bubble in constant Dollars
      1750
                                                                           Last date: 2010-Q3
                Gold peak of
                $850 translates
      1500      into $2385 in
                today’s money!
                                                                 Average price $635
      1250                                                              (2010-Q3$)



      1000


       750


       500


       250
                                                   Average price $371
                                                          (Nominal $)
         0
             70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10



21




                                                                                                           11
           Bullish: (5) Gold Not in a Bubble
           Not in terms of oil prices
     35


     30


     25
                                                              Average:
                                                               15.03
     20


     15


     10


      5
                  Barrels of oil per ounce of gold
                                                           Latest month: September 2010
      0
           70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10


22




           Bullish: (5) Gold Not in a Bubble
           Not in terms of copper prices
     800

     700
                                                             Average:
                                                               343
     600

     500

     400

     300

     200

     100
                      Pounds of copper per ounce of gold
                                                           Latest month: September 2010
       0
           70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10


23




                                                                                          12
       Bullish: (5) Gold Not in a Bubble
       Not if US gold had to “cover” US money supply
     8000


     7000                                                    Price of gold to “cover” US M2                                  $7000
                                                                    (Cover ratio = .24)
     6000


     5000


     4000


     3000                                                                                                                    $3100

     2000               Price of gold to “cover” US M1
                               (Cover ratio = .38)
     1000


       0
        1900        1910          1920     1930    1940      1950        1960    1970       1980       1990    2000     2010
            “cover ratio” as determined in 1934 when gold was revalued to $35



24




            Bullish: (5) Gold Not in a Bubble
            Gold still “cheap” In terms of financial assets
       30    Ratio: S&P vs. Gold
             1871 = 1.00
             S&P Index: 1941-43=10.0
                                                                                                       Peak - 2000
       25


                                                                        •Recession 1973-1975
       20
                                                                        •Gold “cut loose” in 1971
                                                                        •Gold cut 5 years after peak
       15
                 •Depression 1930-1933
                 •Gold revalued to $35 in 1934
       10
                 •Gold revalued 5 years after peak

                                                                                                                                Current
                                                                                                                               10/01/2010
        5                                                                                                                      Gold $1315
                                                                                                                                SP 1150


        0
        1870     1880      1890     1900   1910   1920    1930   1940    1950   1960     1970   1980   1990   2000    2010
                                                    With gold = $1315 then S&P = 265
                                                    With S&P at 1150 then gold = $5660

25




                                                                                                                                            13
                Bullish: (5) Gold Not in a Bubble
                It may one day be – but that day is not now
     2500

                                                         GOLD PRICE 1971-1982


     2000



     1500



     1000



     500
                Set to 100
                                                                                        NASDAQ 1990-2009
                                                             GOLD PRICE 2001-2010
       0
            1           2    3       4     5     6       7        8        9       10      11         12
                                                     Years




            Bullish: (6) Gold Supply
            Model suggests WW mine flat
     2700
                Tonnes

                                 World Mine Output (GFMS)
     2300




     1900




     1500


                                                                  Model Estimate
                                                       The Mine Production Model is based on lagged
     1100                                                   gold prices and lagged production



                   Western World Mine Output (GFMS)
      700
            70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
            Source: GFMS, Murenbeeld


27




                                                                                                           14
           Bullish: (6) Gold Supply
           The general commodity supply outlook is impaired



          1.    Difficult governments: i.e., Venezuela
          2.    Governments are in debt: i.e., Australia has
                introduced a “resource super-profits tax” …
          3.    Environmental hurdles: i.e., the Gulf of Mexico
                disaster changes the future for off-shore
                drilling
          4.    “Peak” gold, “peak” oil, peak … : The low-
                hanging fruit has been picked …



28




                Bullish: (7) Investment Demand
                Can we make a case for investment demand?

     1.        Central banks are rediscovering that gold is not another central
               bank’s liability (i.e., China holds US Federal Reserve liabilities!)
     2.        The private sector is beginning to worry about the nature of fiat
               currencies and the likelihood of currency debasement
     3.        The private sector is also discovering that gold has attractive
               portfolio characteristics (gold improves the “efficient frontier”)
     4.        Commodities in general, and gold specifically, are morphing into an
               “investment asset class” (like real estate did once it became
               securitized)
     5.        Jewelry demand wasn’t always the dominant demand in the gold
               market; private and central bank demand was historically more
               dominant
     6.        Major deregulation of Asian gold markets encourages people with an
               affinity for gold to invest in gold (and jewelry in many parts of the
               world is seen to be investment as well as adornment demand)


29




                                                                                       15
     Bullish: (7) Investment Demand
     The gold ETF rising strongly since introduction


                                   1700
                                          Last date: October 21, 2010

• ETF demand                       1600
                                   1500
                                   1400
  has been very                    1300
                                   1200                GOLD TONNAGE - ETF
  strong during                    1100
                                   1000
  this period of                    900
                                    800
                                    700
  financial stress                  600
                                    500
                                    400
                                    300
                                    200
                                    100
                                      0
                                          2003      2004        2005    2006    2007     2008      2009      2010




30




          Bullish: (7) Investment Demand
          Retail investment plus ETF demand rising
     50
                                                                                                      (e)
     45       Net retail investment demand plus ETF’s as
              a percent of total identifiable gold demand
     40

     35

     30

     25

     20

     15

     10

     5

     0
           2000    2001   2002    2003    2004       2005        2006    2007     2008      2009      2010
           Source: World Gold Council “Gold Demand Trends”
           Based on data tabulated by GFMS
           2010 estimate by DundeeWealth Economics
31




                                                                                                                    16
          Bullish: (7) Investment Demand
          Retail investment demand will grow in Asia

                               Net Retail Investment Demand (excluding ETF’s)
                        Billion US$

      1600                                                                                          160
              World – tonnes                                                          (e)                      China – tonnes                                                    (e)
      1400                                                                                          140
      1200                                                                                          120
      1000                              Without ETF                                                 100
      800                               With ETFs                                                   80
      600                                                                                           60
      400                                                                                           40
      200                                                                                           20                                                                                 2001
                                                                                             2001
                                                                                             H1                                                                                        H1
          0                                                                                          0
              96   97    98   99   00    01   02   03   04   05   06   07   08   09     10                96    97   98   99   00   01   02   03   04   05   06   07   08   09    10




      120                                                                                           250
              US - tonnes                                                                                  India – tonnes
      100
                                                                                      (e)                                                                                   (e)
                                                                                                    200
       80
                                                                                                    150
       60

       40
                                                                                                    100
                                                                                             2001
       20                                                                                    H1
                                                                                                    50                                                                                 2001
          0                                                                                                                                                                            H1

       -20                                                                                           0
              96   97   98    99   00    01   02   03   04   05   06   07   08   09     10                96    97   98   99   00   01   02   03   04   05   06   07   08   09    10

               Source: World Gold Council, GFMS
               Estimates by DundeeWealth Economics

32




     Bullish: (7) Investment Demand
     Investment demand in gold/commodities will grow
     70
                                         Global financial assets                                                                    Managed assets
     60                                    total $ 117 trillion                                                                       $ 40 trillion

                   Equities declined
     50             by 45% in 2008



     40

     30
                                                                                                                                                           Managed
                                                                                                                                                         commodities
                                                                                                                                                         $ 300 billion
     20

     10

      0
                    Equities                       Private Debt                        Government                         Managed                        Managed
                                                                                          Debt                             Assets                       Commodities
              Source: McKinsey & Company, IMF, Barclay’s
              Estimates are for 2008


33




                                                                                                                                                                                              17
     Bullish: (7) Investment Demand
     Gold investment products more sophisticated

                       The Dynamic Strategic Gold Fund




               GOLD BULLION                                   GOLD EQUITIES
                   Physical bullion                  Senior, Intermediate & Junior Producers
                  Bullion certificates                      Production & Development
                                                            “Best-in-class companies”




34




           Bullish: (9) Geopolitical
           The biggest geopolitical crisis to date …
     900


     800
             about $400                              Cyclical peak in gold
              (or 100%)
     700


     600


     500

                                         Iranian hostage crisis /
     400
                                         Russia in Afghanistan
     300
                 Gold Price: 1979-1980
     200
      30-Jul-79 11-Oct-79 28-Dec-79 13-Mar-8030-May-8012-Aug-80 24-Oct-80 14-Jan-81 27-Mar-81




35




                                                                                                18
             Outlook: Six Bearish Arguments


        1.        Policy “exit strategies”: in US, Asia, Europe
        2.        Strong dollar: against the euro …
        3.        Deflation: government debt more attractive
        4.        Liquidity of last resort: for Greece, Italy, …
        5.        Dehedging finished: hedging to recommence
        6.        Chinese recession: commodity demand will
                  decline


   36




                      Bearish: (1) Exit Strategies
                      Real rates will rise with “exit strategies”
                 5
                                                           US real short term
                 4                                           interest rate

When above 2%    3
 gold prices
 often “stall”
                 2

                 1

                 0                                                                                              Exit
                                                                                                             strategy!
                 -1                Real rates below zero are
                                   very positive for gold
                 -2

                 -3

                 -4
                                                                                Last month: September 2010
                 -5
                      90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10



   37




                                                                                                                         19
          Bearish: (1) Exit Strategies
          fiscal policies must be tightened


     Assuming central banks do not “print money”:

     1.     Tighter fiscal policies will be a drag on economic
            growth
     2.     Inflation pressures will remain subdued, and the
            threat of deflation will linger
     3.     Confidence in monetary policy (and fiscal policy)
            will improve
     4.     Which all will weigh heavily on the gold price

38




          Bearish: (4) Liquidity of Last Resort
          The PIIGS need cash!


•         The PIIGS hold over             Gold Reserves
          3000 tonnes of gold                      tonnes
                                      Greece          112
•         We have been
                                      Ireland           6
          concerned about Italy       Iceland           2
          for years                   Italy          2452
•         But Greece, Portugal,       Portugal        383
          and Spain might be          Spain           281
          the first to sell – were
          it to come to that          Total         3236



39




                                                                 20
          Bearish: (6) A Chinese Recession
          Commodity demand could tumble

     1.     China’s growth rate will decline (a recession is <6%)
     2.     Investment cools - money could leave China
     3.     World equity markets sell off – some very sharply
     4.     A flight to safety will almost certainly favor US Treasuries
     5.     Chinese gold demand will suffer

     But policy will respond …
     1.   The PBoC will likely “print money”, and the government will
          expand fiscal policy
     2.   Other Asian central banks will want to insulate their
          economies, and print/devalue
     3.   Which could eventually see gold demand rise to new highs


40




          The October 2010 Forecast*
          We are bullish – Scenario A is given low probability



                       Gold Price Scenarios
                                               2010-avg    2010-end   2011-avg

             Scenario A: p.=.10%              $1187       $1215       $1074
             Scenario B: p.=.45%              $1217       $1340       $1398
             Scenario C: p.=.45%              $1237       $1420       $1559
             _______________________________________________
             Weighted:                        $1223       $1365       $1438

          * Forecasts are updated quarterly

41




                                                                                 21
       Commodity/Resources
       The IMF forecasts a moderate global recovery …
      6                   Billion US$                                                        18

                World GDP (%)                                                                16                                        China GDP (%)
      5
                                                                                             14
      4                                                                                      12

                                                                                             10
      3
                                                                                              8
      2                                                                                (e)    6

      1                                                                                       4

                                                                                              2
      0
                                                                                              0

      -1                                                                                      -2
           80   82   84    86   88   90   92   94   96   98   00   02   04   06   08   10          80   82   84   86   88   90   92   94   96   98   00   02   04   06   08   10
      12                                                                                      5

                                                                                              4
      10        India GDP (%)
                                                                                              3                                                                               (e)
       8                                                                                      2

                                                                                              1
       6
                                                                                              0
       4
                                                                                             -1

       2                                                                                     -2

                                                                                             -3
       0
                                                                                             -4         EU GDP (%)
      -2                                                                                     -5
           80   82   84    86   88   90   92   94   96   98   00   02   04   06   08   10          80   82   84   86   88   90   92   94   96   98   00   02   04   06   08   10

                Source: IMF, October 2010


42




      Commodity/Resources
      China has a major impact on commodities
     30
                                                         Chinese consumption of copper
     27                                                            As a % of world copper consumption

     24
     21
     18
     15
     12
      9
      6                          US consumption of copper
                                     As a % of world copper consumption
      3
      0
     -3
                90              92              94                 96             98         00              02             04              06                 08             10
                Source: World Metals Bureau


43




                                                                                                                                                                                    22
     Commodity/Resources
     China’s oil consumption has risen dramatically
     45
           Percent of world consumption
     40                                                         Up 839%

     35

     30

     25


     20

     15

     10


      5

      0
            2000     2001     2002    2003      2004   2005   2006   2007     2008   2009


44




     Commodity/Resources
     China’s nickel consumption has risen significantly
     9
            As a percent of world consumption

     8                                                           Up 410%

     7

     6

     5

     4

     3

     2

     1

     0
          1980         1985          1990          1995       2000          2005       2010

45




                                                                                              23
           Commodity/Resources
           BRIC’s appetite for commodities has surged
     60
           Percent of world consumption
                                                    2000         2009
     50



     40



     30



     20



     10



      0

             Copper         Aluminum             Nickel           Zinc            Lead
46




      Commodity/Resources
          BRIC set to overtake US oil consumption
     30
           Percent of world consumption

                                                  BRIC                  US
     25



     20



     15



     10



      5
           1999   2000    2001   2002     2003    2004    2005   2006    2007   2008   2009

47




                                                                                              24
            Commodity/Resources
            All commodities exhibit long cycles …*
      700
      650
      600               Shortest cycle – 16 years
                                                            Real Copper Price
      550
                                                                   2009 cents/lb
      500
      450
      400
      350
      300
      250
      200
      150
      100                                                 10-year MA

       50
        1850       1875            1900         1925        1950            1975          2000

     *despite reversals, which are common in all cycles
48




      Commodity/Resources
      Including gold – which has had no reversal to date
     1600


     1400
                                          Shortest bull-cycle – 10 years
     1200


     1000
                                                              Several years
      800                                                      of “counter-
             Real Gold Price - 2009$/oz                           trend”
                                                              developments
      600


      400

                   10-year MA
      200


        0
        1800     1825       1850      1875       1900     1925       1950          1975     2000



49




                                                                                                   25
          Commodity/Resources
          In short, the demand side of market has exploded


     1.     Commodity prices have been driven higher by
            fundamental structural changes in the global
            economy
     2.     Which suggests that the long-cycle is intact and
            will continue for many years
     3.     Some short-term price weakness is of course
            possible as China’s economic growth decelerates
            to more normal and sustainable levels (8%-9%)
            and demand in OECD remains subdued.


50




          Last Thought
          Boomers create asset bubbles …

          Boomers have rotated through three assets:
            Equities – Saving, Pension Assets
               This asset bubble exploded in 2000-2001
            Real Estate – Family Home, Recreational Property
               This asset bubble exploded in 2007-2008
            Debt Instruments – Retirement Income
               This asset bubble exploded in 2011-2012 ??
          After debt?
            Resources and Gold – the emerging asset class?


51




                                                               26
Thank you for your attention




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