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MPS
MAR TIN PLACE SECURITIES
Australia’s Boutique
Resource Investment Firm
1
MPS
MAR TIN PLACE SECURITIES
Sydney 20 July 2010
An Outlook for Gold
‐ US$5000/oz??
Barry Dawes
B Sc FAusIMM(CP) MASA MSEG
Managing Director
Martin Place Securities
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MPS
MAR TIN PLACE SECURITIES
Disclaimer
Nothing in this presentation shall be construed as a solicitation to buy or sell any
security or product, or to engage in or refrain from engaging in any transaction. In
preparing this research, MPS did not take into account the investment objectives,
financial situation and particular needs of the reader.
Before making an investment decision on the basis of this presentation, the reader
needs to consider, with or without the assistance of an adviser, whether the advice
is appropriate in light of their particular investment needs, objectives and financial
circumstances.
This presentation is based on information obtained from sources believed to be
reliable but MPS does not make any representation or warranty that it is accurate,
complete or up to date. MPS accepts no obligation to correct or update the
p p p j g
information or opinions in it. Opinions expressed are subject to change without
notice and accurately reflect the views of MPS at the time of writing.
This presentation has originated from MPS (ABN 30 094 927 947), a licensed securities
dealer (AFS Licence 247 404). MPS can gain income through brokerage, capital
raising commissions and corporate advisory fees.
MPS
MAR TIN PLACE SECURITIES
Strong Outlook for Gold
• Gold hits new all time highs in most currencies
• Global currency instability
Global currency instability
• `Quantitative Easing’ debasing currencies
• China and other BRIIC still growing
• Breakdown of global bond markets
• Gold reacquiring reserve status
Gold reacquiring reserve status
• Global gold production still weak
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MPS
MAR TIN PLACE SECURITIES
Gold Supply Data
2009 2009 2010
Q3 Q4 Q1
2005 2006 2007 2008 2009
Mine production (t) 2,549 2,483 2,473 2,409 2,572 676 676 611
Official sector sales (t) 663 65 484 232 61 (13) (4) 15
Recycled gold (t) 902 1,133 982 1,317 1,674 296 402 343
Total supply (t) 4,115 3,982 3,939 3,957 4,307 959 1074 969
Source: GFMS, WGC
,
[1] Total investment includes identifiable investment plus inferred investment which is a balancing item
Global supply data, Source: GFMS and WGC
MPS
MAR TIN PLACE SECURITIES
Global Demand Data
[1] Total investment includes identifiable investment plus inferred investment which is a balancing item
2009 2009 2010
Q3 Q4 Q1
2005
2005 2006
2006 2007
2007 2008
2008 2009
2009
Jewellery (t) 2,718 2,298 2,418 2,193 1,759 488 511 471
Industrial and dental (t) 427 452 465 439 373 97 103 103
Total investment[1] (t) 779 831 612 973 1,894 256 381 349
Total (t) 3,924 3,581 3,495 3,605 4,026 841 995 923
Source: GFMS, WGC
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MPS
MAR TIN PLACE SECURITIES
Gold Supply 2005 vs 2009
Source: GFMS, WGC
MPS
MAR TIN PLACE SECURITIES
Long Term Mine Grade g/t
Source: GFMS, WGC
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MPS
MAR TIN PLACE SECURITIES
Average Gold Production Costs
Source: GFMS, WGC
MPS
MAR TIN PLACE SECURITIES
Long Term US$ Gold Price
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MPS
MAR TIN PLACE SECURITIES
Long Term Real US$ Gold Price
MPS
MAR TIN PLACE SECURITIES
US$ Gold Price
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Record highs in BP + Euro MPS
MAR TIN PLACE SECURITIES
MPS
MAR TIN PLACE SECURITIES
World Gold Production
Source: Kitco
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MPS
MAR TIN PLACE SECURITIES
Long Term Gold Price
Source: Eric de Groot
MPS
MAR TIN PLACE SECURITIES
Long Term Silver Price
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MPS
MAR TIN PLACE SECURITIES
The Long Term US Gold Index
MPS
MAR TIN PLACE SECURITIES
Barron’s Gold Mining Index
Source: Barron’s
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MPS
MAR TIN PLACE SECURITIES
Gold Stocks outperforming SP500
Source: StockCharts.com
MPS
MAR TIN PLACE SECURITIES
US Gold Sector Volume increase
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MPS
MAR TIN PLACE SECURITIES
Long Term Dow Jones Ind Index
Source: Thechartstore.com
MPS
MAR TIN PLACE SECURITIES
Currency and debt issues
• Government long term debt problems
• Shift from OECD currencies to East and South
• US T Bond market breaking down
• Capital flows: ex bonds to stocks, commodities
• Commodity currencies and Yuan to rally
• Gold and silver best currencies
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MPS
MAR TIN PLACE SECURITIES
US$ Index
MPS
MAR TIN PLACE SECURITIES
The Long View on US T‐Bond Yields
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1942 -1981 39 Yrs rising bond yields 1981-2009 28 Yrs falling yields
14
Deflation
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Disinflation
Inflation
10
8
6
4
2 Reflation
0
1940 1944 1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: IRESS MPS
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MPS
MAR TIN PLACE SECURITIES
US 30 Year Bonds
MPS
US Stocks vs 30 yr T‐Bonds
MAR TIN PLACE SECURITIES
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MPS
MAR TIN PLACE SECURITIES
Australian Gold Outlook
• A$ gold price resurging
• A$/US$ follows gold stocks
A$/US$ follows gold stocks
• Gold production rising again
• Exploration and development
• Australia is major player in gold
MPS
MAR TIN PLACE SECURITIES
A$ Gold Price
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MPS
A$ vs XAU
MAR TIN PLACE SECURITIES
300 150
140
250
A$/US$ 130
120
200
110
150
100
90
100
XAU 80
50 70
Jan‐93 Jan‐95 Jan‐97 Jan‐99 Jan‐01 Jan‐03 Jan‐05 Jan‐07 Jan‐09
MPS
MAR TIN PLACE SECURITIES
A$ vs US$ 1913 ‐ 2010
Source: Thechartstore.com
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MPS
A$ strong on cross rates
MAR TIN PLACE SECURITIES
MPS
MAR TIN PLACE SECURITIES
Australian Gold Production History
350
(tonnes) Av. Decline -1.9% 1997-2008
300
250
200
150
Av. Growth 6.2% 1960-1997
100
50
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011F
Source: ABARE
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MPS
MAR TIN PLACE SECURITIES
China still leading
• Major Fiscal stimulus
• Major internal migration
Major internal migration
• Basic industries still growing
• Crude steel production still rising
• Aggressively acquiring global resources
• Gold reserves 1054t (up 75% since 2003)
Gold reserves 1054t (up 75% since 2003)
MPS
MAR TIN PLACE SECURITIES
US and China Crude Steel
Source: World Steel
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MPS
MAR TIN PLACE SECURITIES
Shanghai (SSE) Composite 1990‐2010
Source :The Chart Store
MPS
MAR TIN PLACE SECURITIES
Commodity Outlook
• Steel industry is key driver
• Iron ore met coal Ni Zn Mo Co Va
Iron ore, met coal, Ni, Zn, Mo, Co, Va
• Base metals with high mine utilisation
• Energy security for oil, gas & uranium
• Currency and debt turmoil boosts gold
• Minor metals scarce Wo Sb Cd Ti
Minor metals scarce – Wo, Sb, Cd, Ti
• Technology drives Rare Earths and Li
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MPS
MAR TIN PLACE SECURITIES
Long term commodity prices
MPS
MAR TIN PLACE SECURITIES
Long term commodity prices
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MPS
MAR TIN PLACE SECURITIES
Conclusions
• Gold suggests inflation ahead
• W ld t i fl ti ti i
World monetary inflationary pressures continuing
• Resources stocks heavily discounted
• Energy prices to remain firm on supply worries
• Exploration successes to drive market
• p g
The `Optimism’ leg now underway? y
MPS
MAR TIN PLACE SECURITIES
Idealised Elliot Wave Market Psychology
Euphoria
Ill based
Rally
Optimism
False
OpportunityOpportunity
Pessimism
Disbelief
We are here
Pessimism
Source: MPS
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MPS
MAR TIN PLACE SECURITIES
Gold Stock Selection
• Large Caps NCM, LGL, AND
• Mid caps KCN, MML, AVO, MDL, RSG
• Small caps BDG, SLR, CAH, CRK, ALK, NGF
• Micro caps MCO, HEG, ATV, GOA
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