Presentation on theme: "Investing in Precious Metals"— Presentation transcript:
1Investing in Precious Metals Gold ,Silver, and PlatinumBrief History of GoldOverview of the Supply and DemandChina’s role in the gold equation (http://news.goldseek.com/GoldForecaster/ php)
2Disclosures Investing in Precious Metals This seminar is a service offered to existing and prospective FOREX.com clients. It will discuss risk management concepts and strategies and does not include the recommendation or endorsement of any particular security, chart pattern or investment strategy by FOREX.com.The concepts and strategies discussed may not be suitable for all investors. It is important that investors consider the information presented in light of their individual circumstances and objectives, including personal risk tolerances and investment goals.Currency symbols shown herein are for illustrative purposes only. FOREX.com and/or its employees and/or directors may have positions in currencies referenced herein, and may, as principal or agent, buy from or sell to clients.Please note that the price and volume data, screen samples, and chart patterns illustrated in this seminar are for illustrative purposes only. The discussions or illustrations of particular currencies herein should not be construed as an offer to sell or a solicitation of an offer to buy any currency.UK Oil (BCO), US Oil (WTI), USD/CNY, USD/BRL, S&P 500 and/or the Thomson/Reuters CRB Commodity Index and/or any direct derivatives are NOT included within the current line of FOREX.com product offerings for US residents.Some or even all chart and data calculations based on Bloomberg PROFESSIONAL pricing sources which may not be indicative of FOREX.com rates.FOREX.com does not recommend the use of technical analysis as a sole means of investment research. At FOREX.com we recommend that investors define their goals, risk tolerance, time horizon, and investment objectives in addition to researching possible investment choices through multiple channels. Use of technical analysis may result in increased frequency of trading and, therefore, significantly higher transaction costs than a fundamental approach.Increasing leverage increases risk.Placing Contingent orders (such as stop or limit) may not limit the risk of loss to intended amounts.This presentation will include references to actual past trading results for discussion purposes. Past results are not indicative of future performance.Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the futureForex trading involves significant risk of loss and is not suitable for all investors.Please take a few minutes to review the following disclosures.Of particular note:UK Oil (BCO), US Oil (WTI), USD/CNY, USD/BRL, S&P 500 and/or the Thomson/Reuters CRB Commodity Index and/or any direct derivatives are NOT included within the current line of FOREX.com product offerings for US residents.Some or even all chart and data calculations based on Bloomberg PROFESSIONAL pricing sources which may not be indicative of FOREX.com rates.Forex trading involves a substantial risk of loss and is not suitable for all investors.Past results are not indicative of future results.
3Platinum – 1, (278%)Gold – 1, (483%)Silver 5.37 – (475%)Platinum 23% per yearGold 40%Silver 39%Commodities and derivatives trading involves a substantial risk of loss and is not suitable for all investors. Past results are not indicative of future results.
4content History of gold, silver and platinum Why now? Supply & demand situationOutlook forWays to invest & speculate in PreciousQ&A
6Why gold1900 – 19701971 – 19801983 – 20001900 The US formally adopt the gold standard. At this point most of the European countries were on the gold standard already. In March 1914, most of these countries suspended the gold standard in order to funds their militaries during WWI. In 1919 the UK places a complete ban on gold exports and allows the sterling to float freely against the USD. In April 1925, Winston Churchil announced that the UK Sterling would once again be interchangable with gold. France returns to the gold standard in In 1931 the UK government suspended the the gold standard alone initially thought temprory sue to the difficult economic conditions at the time resuling from the post war conditions like high unemployment, over valued exchange rates and weak current account. By the end of the year, Austria, canada, finland, germany, japand, norwar, sweden, and portugal all abandoned the gold standard. In 1933, Franklin Roosevalt enacted legislation to effectively ban all private gold ownership. Over the next few month, American switched about 500 Mtonnes of gold coins and bars to US treasury bonds and US Dollars. This was the oint when the US severed its relationship to gold and the USD dropped 28% taking the USD to $27/ounce was a famous year because the britton woods agreement was signed that year. The agreement fixed the USD to (One dollar was valued at gram of fine gold, or $35 an ounce) $35 / OZ of gold and other currencies were then fixed to the USD. The reason for this was to attempt and stabalize the global economy after the WWII when countries were devalusing their currencies in a currency war and putting in place barriers to trade to protect their economies from other countries. This went well until in 1971 president Nixon suspended once again the convertability of the USD to gold effectlvely making Britton Woods non effective due to the persistant negative balance of payment and high deficit partially as a result of the wars the US was engaged in most famously Vitnam US ended restrictions on private gold ownership which was in place since gold hits a record high price due to the geopolitical atmosphere at the time when the Soviet Union invaded afganistan and the US hostage crisis in Iran was at its peak as well as very high inflation. In 1983 inflation started easing and so did gold prices. Gold continued to decline throughout the 80 and 90th due to the over supply by many institutional sellers getting rid of gold and holding to cash due to the interest rate differential in favor of cash. This ended in 1999 when gold reached a 20 year low following the bank of england decision to sell almost half of its gold reserves, after which came something called the CBGA or the central bank gold agreement the aim of which is to coordinate sales of gold in the market between central banks to preserve value and not to start another gold war like currency wars. The agreement limits the sale to 2000 MT for the next 5 years or 400 MT per year. At that time central banks held about a quarter of all known above ground gold estimated around 33,000 tons at the time. The other secondary reason for this was that the dumping of gold in the market hurt gold producing countries as well who were usually developing countries that were heavily indebted to the western countries and thus couldn’t pay if the gold prices fell sharply. The first agreement was made among 15 european Central banks, 11 of which today became under the EURO ECB. These signatories accounted for 45% of the global gold reserve. The announcement of the Agreement came as a major surprise to the market. It prompted a sharp spike in the price over the following days, but it also removed much of the uncertainty surrounding the intentions of the official sector. Once the markets had adapted to it, a major element of instability had been effectively removed with the introduction of greater transparency. Another significant factor in gold appreciation in 1999 was The ECB agreed that 15% of this initial transfer should be in gold, a clear demonstration of the fact that European central bankers continued to believe that gold strengthened the balance sheet of a central bank and enhanced public confidence. Today ECB hold about 26% of its reserve in gold.Commodities and derivatives trading involves a substantial risk of loss and is not suitable for all investors. Past results are not indicative of future results.
7Preservation of capital 26% in 2010 from 112 to 142010.6% in 2011 from 1414 – 15642012 to date about 5%
9CHINESE INFLATIONRising 85% by weight since 2004, China's private gold demand has more than quadrupled in Dollars. It pretty much doubled by value in terms of both Dollars and the Renminbi in the last two years alone, rising to $13.6 billion in Overall, China accounted for more than 14% of global gold investment and jewelry demand last year on the World Gold Council/GFMS data – a close second to the 16% of private world hoarding swallowed by India. Based on World Bank estimates of China's household savings rate – probably worth some $660bn last year – the proportion of private savings spent on gold investment and jewelry each year has almost doubled to 2.1% since the market was deregulated in Yi Gang, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), recently estimated that private households own some 3000 tonnes of gold. Two-thirds of that has been accumulated in the last 5 years alone. Those 1890 tonnes outweigh by four times the gold bought by SAFE and then transferred to the People's Bank between 2002 and 2009.
10China Money supplyChina has not only been the country that prints money at the fastest rate but also been the country with the largest money supply in the world in the past decade. China’s M2, a broad measure of money supply, was up 19.46% at the end of November from a year earlier…This compares with 3.3% and 2.5% of annual M2 growth in the US and Japan respectively over the same period…China’s money supply, M2-to-GDP ratio over the past decade is the highest in the world. The nation with the longest history of excessive money printing and consequent inflation has clearly forgotten its past. The past, however, has not forgotten China. On February 8th, Karen Maley in Australia’s Business Spectator discussed this growing phenomenon in her article, China’s gold tsunami: It’s not hard to understand the growing Chinese enthusiasm for gold. Officially, China’s inflation rate was 4.6 per cent in December, but many believe the actual inflation rate is considerably higher. But Chinese savers earn a paltry interest rate of 2.75 per cent on one-year deposits, which means that they face negative real interest rates. China, which is already the world’s largest gold producer, imported more than 209 metric tons of gold in the first ten months of 2010 alone. This compares with the estimated 45 metric tons it imported in all of 2009.
11EURO (GERMAN) DEMANDGermany was the biggest market for smallinvestment bars in 2009 and that will probablybe true for Why that is the case I willtell you in a couple of minutes. Germany nowconsumes between 115 and 135 tonnes of smallbars a year.Why are people buying so much gold? Globally Morethan US$70 billion of physical gold in the formof coins, bars and so-called imitation coins havebeen bought in the last four years alone.Germans remember when there was a 100 trillion bank notefrom2000 until 2008,Turkey was the biggest marketin the world for gold coins. The two mostpopular gold coins are produced locally by theTurkish Mint.Euro zone crisis main driver but gold jewelery demand was also healthy growing about 5%. Total global demsn rose to 4,067 tons worth around 206 billion which is a historical high and the first time above 200 billion, which means high gold prices have not caused demand structure. India is still the country where most gold is sold, despite the recent weakness of the rupee, with around 500 metric tons of gold jewelry sold in 2012, and total demand of 933 metric tons. There was a hefty increase in Chinese demand, which led the WGC to predict thatChina would be the biggest buyer of gold in the world next year Central banks also hiked their purchases from 77 metric tons in 2010 to 440 metric tons in 2011 as worries about a second global recession grew. “There were two main factors driving the results: Asian growth and optimism on the one hand, and Western desire to protect assets against uncertainty on the other,” Marcus Grubb, managing director of investment at the WGC, said in a statement.
12Central banks reserves Russia: Value of reserves: $44.8 billion Holdings total: 960.1 tons The Central Bank of the Russian Federation is in charge of the country’s 960.1 tons of gold, which are valued at $44.8 billion and comprise 9.2 percent of the country’s foreign reserves. In 2009, Russia increased its gold production by 21 percent, due in part to the launch of several new mines. In 2010, the country overtook Japan in total holdings, adding more than 140 tons to its stockpile in that year alone. Russia's buying of gold continued in 2011, purchasing 4.9 tons in July, according to the IMF's August report.China: Value of reserves: $54.22 billion Holdings total: 1,161.9 tons At 1,161.9 tons, the world's most populated country has the world's seventh largest gold reserve. Expect it to be higher on the list? Well, bear in mind that China's gold only accounts for 1.8 percent of its foreign reserves. With a population of 1.34 billion, the country holds about $40.46 worth of gold per person, totaling $54.22 billion.ETF: SPDR Gold ETF (GLD)Value of holdings: $64.53 billion Holdings total: 1,213.9 tons Unlike other major gold holdings, this is one that investors can actually buy in to. As the price of gold fluctuates, so does the value of SPDR Gold Trust, also known the GLD. The fund held 38,845,889 ounces, or 1,213.9 tons of gold as of its 10-Q filing on June 30, 2011. Although gold is off it’s all time highs, during the week of August 22, 2011, the SPDR Gold Trust surpassed the heavily-traded S&P 500 SPDR (SPY) for the first time. Like many investors, the ETF has indicated they have increased their holdings of gold since their most recent filing. Germany GermanyValue of reserves: $174.7 billion Holdings total: 3,743.7 tons The Deutsche Bundesbank, Germany's central bank, has 3,743.7 tons of gold reserves, which are valued at about $174.7 billion. According to the World Gold Council, Germany’s gold coffers account for 73.7 percent of total foreign reservesUSA Altogether, the total gold reserves of the U.S. equal 8,965.6 tons and would be valued at approximately $ billion in today's marketCentral Banks buy goldLate in 2011 we wrote of Central Banks becoming net buyers of gold for the first time since the 1960s proved to be a big investment year for the central banks who, along with official institutions, increased their purchases by 571%, from 77 tonnes in 2010 to 440 tonnes in In 2011, Mexico dominated the Central Bank purchases, buying 100 tonnes. This was closely followed by Russia. This is not surprising news. Earlier this month we discussed the increasing moves by countries toabandon the dollar for gold. Mexico’s proximity to the US may well have left it feeling vulnerable in the snowballing economic crisis. Whilst in Russia there are rumours of gold payments for oil, something which has been discussed for many years. Gold Investment DemandThe World Gold Council looked at gold demand in three separate categories: Technology, jewellery and investment. Of the three, investment demand has seen the greatest increase in the last year. It reached a 14-year high in The other categories saw a decrease in demand; jewellery, for instance, saw a 15% year on year decline. However this huge increase in investment demand “helped to counterbalance declining demand in the jewellery and technology sectors.”Annual demand for bars and coins in 2011 reached a record-high of 1,486.7 tonnes, 24% higher than in Physical bar demand saw a 29% increase compared to ETFs which saw a decrease of 58%. Perhaps the concerns about counterparties and ETFs are having an effect on market participants?In regard to where this investment demand for bars and coins originates it appears to be a global movement. The WGC state that, during 2011 “net-investment demand was the result of a mixture of liquidity-driven selling and store of wealth buying and speculation on either side of the equation”.The demand for bars and coins appears to be geographically widespread, with the exception of the US, Egypt and Japan reporting a decline in gold investment demand. A number of countries saw an ‘upsurge’ in physical bar demand in allocated accounts, particularly in Turkey and German speaking European markets.China and the high gold priceChina is set to usurp India as the world’s biggest buyer of gold in The Chinese seem to prefer to buy an ‘established rising trend,’ so when the price dropped slightly in Q4 of 2011, so did Chinese demand. However early reports show that it has picked up once again in 2012 as the gold price makes a speedy recovery.Regardless of low buying levels in Q4 of 2011, the overall annual demand of tonnes ‘eclipsed 2010 levels as the first 9 months of the year were dominated, ‘by rising gold prices, which in turn fuelled positive price expectations, high inflation, poor performance of alternative assets and an increased availability of gold retail investment products.’Gold – the inflation hedgeMany countries’ gold buying activities are remarked upon in the report. However one which is particularly worth noting is Vietnam. Vietnam is a country which is frequently noted for its belief in gold, it acts as a third currency in the country preferred over both the dong and the US dollar. According to the WGC, the Vietnamese ‘continued to clamour for gold bars’ seeing a 50% increase in Q4 compared to the average for QThis 30% increase to 87.3 tonnes in physical gold demand and gold investment in Vietnam, is fuelled by ‘persistent high inflation’.The gold standard of a safe havenTurkey also saw increased demand for gold bars, which they are increasingly choosing as ‘their investment vehicle of choice’. The World Gold Council states this is due to ‘Turkish investors who are increasingly troubled by the on-going crisis in the euro area’ therefore they are turning to gold for its ‘insurance properties’.In Europe, the centre of much mistrust and insecurity, gold investment demand registered its 7th annual gain, reporting purchases of a record tonnes. Germany accounted for the largest proportion of investment in the European region, something which we expected after last year’s reports. Demand reached record levels and was 26% above those in 2010.The WGC report also made a point of shining a light on the ‘other Europe” category. These countries, ‘now account for a considerable proportion of investment in the region.’ Like the rest of Europe, a ‘substantial amount of this new demand has been generated by countries with previously no or very little interest in gold investment, including the UK and a number of Eastern Europe countries.’Whilst there was far more discussion in the WGC report, we believe the most important points to come from the report are the one-way street which is gold investment. There is little disagreement as to why and how both individuals and governments decide to buy gold. They buy as an insurance against the toppling economy and they buy physical bars due to its distance from the banking system and it’s historically proven worth.Arabian: 1- saudia arabia tons (3.2% of reserves) 2- Lebanon 286.8% (32.6%) 3- Algeria (5.1%) 4- Libya (7.6) 5-Kuwait 79 tons (13.7%)
14China, russia, and other brics China and Russian decided to settle bilateral trade in their own currencies. What will happen to their $$$ reserves.
15Renimbe Internationalization By 2020 china is expected to suprceed the US as the world largest economy. Usually the currency takes a while longer to catch up. Nigeria central bank announced that it will change much of its euro reserves to Yuan mainly because 80% o fits imports are from china, which 80% of its exports (,ainly oil) is to the US and europe. SO there is a lot of exposure to oil prices dropping or usd and euro dropping vs chinese yuan. . South africa has now endorsed the renimbi as a currency of trade which means that s. africans can now get a renimbi denominated bank account accept and make payments in yuan and rand totally by passing the USD and euro. This is an added incentive toBut central banks in Asia used the last correction to add gold to their balance sheets. I am convinced that China is still on the buying side as well. It has not announced its gold holdings since 2009 when it was 1,050 tons. But one thing is obvious: China wants to establish the yuan as a global trade currency in the future. And the Chinese know that if the Chinese Central Bank has large gold holdings, confidence in a free trading currency might be much higher. The U.S. has more than 8,000 tons of gold, Germany has 3,400 tons, the central banks of the entire Eurozone own more than 11,000 tons of gold. My conclusion: China will add several thousand tons to its holdings in the next five years or so. Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010. “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.
18India Leads demand http://www.cnbc.com/id/43974854 of the more than 200 million households in India, 40 million are active purchasers of gold; he estimates in the next ten years the number of households buying gold will more than double. Even with those relatively small numbers, about 7 percent of household savings in India are already in gold.Gold is so central to the Indian psyche, it’s at the center of every occasion, every festival. Bridal demand [for jewelry] makes up percent of the total demand," said Prachi Tiwari, director of marketing at the World Gold Council India.
21The sleeping giantGlobal pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion). the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% – that is, less than one third of one percent of assets committed to the gold sector. Now here’s the fun part. Let’s say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.The market cap of the entire sector of gold stocks (producers only) is about$234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it. But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion– it would overwhelm the system and rocket prices skyward. And let’s not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view mirror at $100 trillion.
22The sleeping giants (central banks) Most of the emerging economies, whose central banks are the most aggressive buyers, have a very low percentage of their reserves in gold, and a much smaller ratio than first-world central banks. To reach parity, they will need to add thousands of tons to their reserves. The Chinese central bank for example, which has only 1.6% of its reserves in gold, plans to raise its reserves from around 1,100 tons, where they stand today, to 6,000 tons. This represents over two years of global production. Unofficially, they have stated a goal of 10,000 tons.When the public at large becomes fully educated with respect to precious metals, it will bid up the price. Considering that global financial assets are estimated at over $180 trillion, while total global above-ground gold is only $4 trillion (and above-ground bullion is less than $1.5 trillion), a massive wealth transfer event is likely to occur. It is interesting to note that even a 10 percent switch from financial assets to gold would result in a 450 percent to 1,200 percent increase in the gold price.
23Gold distribution by industy Many analysts argue there isn't enough gold being produced to satisfy rising demand. The above-ground stock of gold is around 160,000 metric tons and grows about 2,400 tons a year, which is only 1.75% ,while demand keeps expanding. In the World Gold Council's recent Gold Demand Trend report, gold mine supply rose 3% in the third quarter from a year ago compared to a 12% rise in total global identifiable gold demand. Mine production grew to 702 tons while demand popped to tons. Although mine supply only grew 3%, total supply grew 18% to 1,028 tons more than enough to cover demand. The amount of recycled gold in circulation grew 41% as consumers took advantage of high gold prices to cash in on their gold. The WGC says that another price surge, however, is needed to trigger more selling and that for now sellers appear to be tiring out, which would further limit gold supply. From 2005 to 2009, the gold industry received 59% of its supply from mining production, 31% from recycled or scrap gold and 10% from central bank sales. Juan Carlos Artigas, investment research manager at the World Gold Council, says that as central banks become buyers instead of sellers the supply picture loses 10% of its gold while simultaneously grappling with gold-producing countries that have exhausted their resources. For example, South Africa produced 74% in the beginning of the decade but is now down to 19%. "What we've seen is that there's a strong demand going on at the same time that the supply picture is shifting," says Artigas. Weak gold grades in the third quarter also contributed to deteriorating supply from mines in Peru and Indonesia. Helping mitigate some of these losses were better grades and more gold from mines in Australia, Argentina and the U.S. run by Newmont Mining(NEM) and Barrick Gold(ABX). But the supply picture is still pretty much a mining and production crap shoot. One factor that could perpetuate a supply and demand imbalance and higher gold prices is the advent of physically backed gold ETFs. Along with the GLD, the iShares Comex Gold Trust(IAU_) and ETFS Physical Swiss Gold Shares(SGOL_) hold more than 1,400 tons of gold, over half of annual gold production. Over the past three years, cumulative supply has grown 59% while demand has surged 62%. According to Artigas, this imbalance has "created a fundamental support in the development of the gold market and, consequently, an environment of rising gold prices."The fundamentals for gold are very bullish. Supply is coming from three sources, gold mines, recycling and central banks. The gold mines are supplying less gold every year, as mines become depleted and new mines are not coming on stream fast enough.Mining experts do not expect any large new gold mines, until the gold price rises above $1,200.00South Africa’s gold mines, the world’s #2 suppliers, are still suffering from power shortages, and mines there are delivering about 10% less gold compared to a year ago.The world’s #1 supplier, China, is reported to be keeping all the gold mined in China within its borders, to balance its reserves, which at last report were less than 3% of its huge ‘paper reserves.’ Supply of scrap gold has been rising, along with the higher price, but that supply is finite.It will no doubt rise each time there is a sharp rise in the gold price, but eventually it drops off, as people run out of rings, bracelets and gold teeth. The supply of gold from central banks was predictable at 500 tonnes per year, until the fiscal year, when sales dropped off noticeably. The suspected reason for this drop is very likely the credit crisis, as central bankers realize they need to hold onto gold to create the illusion that the paper and digital money they have issued is safe, since they have gold with which to back up all that paper. Never mind that gold is no longer used for that purpose.Demand for gold is very strong, especially at the investment level. Reports of shortages of coins and small bars have come in from all over the globe. Several Mints have stopped taking orders, and other mints are working overtime to fill orders. Dealers are paying a premium over bullion value in order to replace stock they sold earlier.
24Gold supply factors Inelasticity of Supply Supply inflation is about 1.5% a yearan anomaly“Gold Peak” TheoryToday, the overall level of global mine production is relatively stable. Supply from mine production has averaged approximately 2,602.2 tonnes per year over the last five yearsGold is produced from mines on every continent except Antarctica, where mining is prohibited. There are several hundred gold mines operating worldwide ranging in scale from minor to enormous. This figure does not include mining at the very small-scale, artisanal and often ‘unofficial’ level.Today, the overall level of global mine production is relatively stable. Supply from mine production has averaged approximately 2,602.2 tonnes per year over the last five years. The stability of production comes from the fact that when new mines are developed, they’re mostly serving to replace current production, rather than expanding global production levels.Gold production does experience comparatively long lead times, with new mines taking up to 10 years to come on stream. That means mining output is relatively inelastic, unable to respond quickly to a change in price outlook. Even a sustained price rally, as experienced by gold over the last 11 years, doesn’t translate easily into increased production.Recycled goldWhile gold mine production is relatively inelastic, the recycling of gold ensures there is a potential source of readily available supply when needed. This helps to cater for an increase in demand and keep the gold price stable. The high value of gold makes recovery economically viable, as long as the precious metal is in a form that is capable of being extracted, melted down, re-refined and reused. Between , recycled gold contributed an average 37% to annual supply flows.Central banksCentral banks and multinational organisations (such as the International Monetary Fund) currently hold just under one-fifth of global above-ground stocks of gold as reserve assets (amounting to around 29,000 tonnes, dispersed across circa 110 organisations). On average, governments hold around 15% of their official reserves as gold, although the proportion varies country-by-country. The advanced economies of Western Europe and North America typically hold over 40% of their total external reserves in gold, largely as a legacy of the gold standard. Developing countries, by contrast, have no such historical legacy and therefore have much smaller gold reserves, typically holding around 5% or less of their total external reserves in gold.There have been significant changes in official sector behaviour in recent years. While the sector as a whole has typically been a net seller since 1989, there has been a seismic shift in central bank attitudes towards gold. For two decades, the official sector was a net seller of a substantial quantity of gold to the private sector markets around the world. That period came to an end during 2009 and in 2010 was the first year of net buying by the official sector for 21 years. First, the economies of a number of emerging markets have been growing very rapidly and increasingly these countries are being identified as buyers of significant quantities of gold for their reserves. The primary reason for this has been a desire to move towards restoring a prior balance between foreign currencies and gold that has been eroded by the rapid increase in their holdings of foreign currencies. For this group, gold has also become an increasingly attractive means of diversifying their external reserves.Additionally, central banks across Europe have reduced their appetite for sales in the wake of the global financial crisis and ongoing difficulties in the euro zone. Since 1999, the bulk of sales from central banks have been regulated by a series of Central Bank Gold Agreements (CBGAs) which have stabilised sales from European central banks. However, from 2008 onwards these countries have shown a sharply diminished appetite for gold sales, to the extent that sales have virtually come to a halt over the past three years.The net result of these shifting dynamics in the official sector has been that, having been a source of significant supply to the gold market for two decades, central banks became net buyers of gold in 2010, with purchases totalling 77.0 tonnes. This commitment deepened in 2011, with purchases of 440 tonnes.The factors that motivated these purchases remain relevant for the foreseeable future and the official sector is unlikely to re-emerge as a source of significant supply as central banks remain committed to the importance of gold and its relevance in maintaining stability and confidence.For more on Central Bank gold holdings.Gold productionThe process of producing gold can be divided into six main phases: • finding the ore body • creating access to the ore body • removing the ore by mining or breaking the ore body • transporting the mined material from the mining face to the plants for treatment • processing • refiningThis basic process applies to both underground and surface operations.The world's principal gold refineries are based near major mining centres or precious metals processing centres worldwide. In terms of capacity, the largest is the Rand Refinery in Germiston, South Africa. On the basis of output, the largest is the Johnson Matthey refinery in Salt Lake City, US.Rather than buying gold and then selling it onto the market later, the refiner typically takes a fee from the miner.Once refined, the bullion bars (with a purity of 99.5% or higher) are sold to bullion dealers. These dealers then trade with jewellery or electronics manufacturers or investors. Avoiding large bilateral contracts between miner and fabricator, this dealer-based bullion market lies at the heart of the supply-demand cycle. It facilitates free flow of the precious metal, and underpins the free market for gold.Visit the Gold Bars Worldwide website for a wealth of information on the international gold bar market.Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run."There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London."Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970.The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday. The key driver over recent days has been the move by India's central bank to soak up half of the gold being sold by the International Monetary Fund. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.China has quietly doubled holdings to 1,054 tonnes and is thought to be adding gradually on price dips, creating a market floor. Gold remains a tiny fraction of its $2.3 trillion in foreign reserves.Gold exchange-traded funds (ETFs) – dubbed the "People's Central Bank" – have accumulated 1,778 tonnes, making them the fifth biggest holder after the US, Germany, France, and Italy.
25How about silver?Silver more volatile so better choice for younger investor. Gold better for those closer to retirement. Silver has 6 month worth of supply and gold about 4 years.Commodities and derivatives trading involves a substantial risk of loss and is not suitable for all investors. Past results are not indicative of future results.
26Silver uses Photography Silverware Electrical and Electronics Medical uses (antiseptics)electronics and photography and these new applications consume a large proportion of silver mined every year. A single ounce of silver can produce enough silver halides to take 5000 photographs. Light sensitive silver halides are the main ingredients used in the making of photographic films.While the photography industry is one of the largest consumers of silver, demand is gradually falling due to increased competition from digital imaging technology. Silverware is made of sterling silver, an alloy combining 92.5% silver with 7.5% other metal, usually copper. Sterling silver is ideal for making silverware as it possesses strength, malleability and an ability to attain a high degree of polish.Next to jewelry/silverware and photography, the third largest consumer of silver is in the electrical/electronics sector where silver solders and pastes are increasingly being used to make electronic circuits, contacts and chips. The rise of the information technology has led to a proliferation of consumer electronic products/gadgets such as digital cameras, personal digital assistants (PDA), cell-phones and mp3 players, resulting in explosive demand for electronic chips. Increased environmental concerns calling for lead-free solders to be used for consumer electronics products are also helping to fuel additional demand for silver in this area.Silver is one of humanity's first defense against bacteria. For centuries, the antiseptic properties of silver has been used by civilizations throughout the world. The ancient Roman legions wrapped thin silver foil around wounds received in the battlefield, preventing the wounds from becoming infected and thus enabling them to close rapidly. Kings and queens ate and drank from silver plates and silver goblets, not only to show off their wealth and power, but also as a protection against diseases. Back in the early 1900s, silver dollars were placed inside milk bottles to keep milk fresh.. The rise of antibiotics in the second half of the 20th century took the shine off silver's time-tested prowess as a versatile antiseptic. However, as time goes by, more and more bacteria are developing resistance to antibiotic drugs. Nowadays, researchers have returned to silver for another look, this time armed with nanotechnology.Using nanotechnology, scientists are able to coat medical instruments and devices with a microscopic layer of silver particles. Bacteria that come into contact with the silver particles have very little chance of survival. The silver ions released by the silver particles attack the bacteria by destroying the enzymes that transport cell nutrients, weakening the cell membrane and disrupting cell division and proliferation processes.The 5 Major Factors Driving Silver Pricing TodayChina and silverFactors affecting silver price volatilityFactors affecting gold price volatilityBecause of its dual role, silver has never faced greater demand than it does today. In 2010, total fabrication demand grew by 12.8% to a 10-year high of 878 million ounces, and use in industrial applications grew by 20.7% to million ounces. Although silver mine supply rose by 2.5% to 735 million ounces in 2010, the yearly amount of mined silver has been less than its demand for the last 15 years. There are very few pure silver producers; most silver is mined as a by-product of other metals. This could be problematic in the event of an economic slowdown. Currently Mexico leads the world in silver production, followed by Peru.
31Gold:Silver ratioSince 1687, the gold-to-silver ratio has ranged from to (see chart below). Over this period, the average gold-to-silver ratio was and today (March 8, 2012) the gold-to-silver ratio is The 200-year average for the gold to silver ratio sits around 37 to 1, said Insley, and the ratio now stands very close to that historic averageIf silver were to rise to bring the gold-to-silver ratio back to its long-term average, the silver price must rise to $61/oz. (Of course, gold (GLD) prices could also fall to lower the ratio. But let's assume gold is priced at fair value.)If the ratio were to return to the pre-1900 average of 16.13, the silver price would have to rise to about $105/oz.9:1 is the ratio of silver to gold annual mine production6:1 is the estimated ratio of economic gold to silver in the ground (USGS)5:1 is the estimated physical ratio of all silverware, silver/gold jewelry and other stocks above ground (according to CPM Group)1:1 is the year-to-date ratio of investment dollar demand.1:3 (more silver than gold) is the physical ratio of gold and silver coins/bullionThe clear lesson from history is that we can expect silver to drop faster than gold during a recession, and silver will rise faster than gold during a bull market in the metals.A simple application of this observation is to trade silver for gold in the middle of a recession, when a bull market in gold and silver is about to start, and to trade gold for silver at the top of a bull market in precious metals.
33Platinum http://www.gold-eagle.com/analysis/platinum.html Platinum is the rarest of the precious metals and its price reflects this. It takes approximately 10 tons of ore and six months of mining to produce a single ounce of platinum. Platinum is 30 times rarer than gold. Unlike gold and silver, which are mined in almost all areas of the world, most of the world's platinum comes from only two countries—Russia and South Africa. All the platinum ever mined would occupy as space of approximately 25 cubic feet.Since 1997, demand for platinum has exceeded mine production and global platinum demand continues to grow to record highs. Unlike gold, there are no large above-ground supplies of platinum. Currently, South Africa accounts for 80% of the world's annual production of platinum and contains 88% of the world's platinum reserves. This is one reason why platinum prices can be more volatile than either gold or silver prices—they are especially sensitive to political unrest in South Africa. Platinum has far more industrial uses than gold or silver. Unlike gold, over 50% of the platinum produced is consumed (destroyed) in industrial applications. Platinum is indispensable for many industrial uses, such as catalytic converters in diesel engines. As the oil price increases, demand for diesel engines increases, and so does demand for platinum.
34Platinum Uses Auto catalysts & Fuel cells Hard disks LCD and high tech opticsPetroleum refiningSilicone productsMedicalJewelryThe reason why platinum is today the most valuable of precious metals is because it is required in so many industrial applications. It is estimated that one-fifth of everything we use either contains platinum or requires platinum in its manufacture. Among all the known modern uses of platinum, most of the annual production is consumed by two dominant categories - catalytic converters and fine jewelry. Together, these two applications consume more than 70% of the world's supply of platinum.Fuel cells generate electrical power using hydrogen and oxygen as fuel. As they have no moving parts, a fuel cell generate power silently, emitting only pure water as a by-product. Hence, they do not contribute to either air or noise pollution and are a promising new breed of power source for the automobile industry.Autocatalysts convert over 90 per cent of hydrocarbons, carbon monoxide and oxides of nitrogen from gasoline engines into less harmful carbon dioxide, nitrogen and water vapour. Autocatalysts also reduce the pollutants in diesel exhaust by converting 90 per cent of hydrocarbons and carbon monoxide and 30 to 40 per cent of particulate into carbon dioxide and water vapour.Many chemical processes employ platinum catalysts but the most significant in terms of platinum demand is the manufacture of speciality silicones. Addition of a platinum compound to the silicone mixture catalyses the cross-linking or ‘curing’ process which results in the formation of a silicone product with the desired properties. In 1949, Universal Oil Products pioneered the use of platinum catalysts as the active agent in the upgrading of low octane petroleum naphtha to high-quality products.Platinum has the ability, in certain chemical forms, to inhibit the division of living cells. The discovery of this property in 1962 led to the development of platinum-based drugs to treat a wide range of cancers. Cisplatin, the first platinum anti-cancer drug, began to be used in treatment in Testicular cancer was found to be susceptible to treatment with cisplatin and there were other successes with ovarian, head and neck cancers.
35Platinum usage by sector -- An Introduction --PLATINUM: THE RICH MAN'S GOLDWHY IS PLATINUM SO PRECIOUS AND CONSIDERED THE RICH MAN'S GOLD?It is simply a matter of relative scarcity. Per the Platinum Guild International, platinum is the "most precious" of the precious metals for the following reasons:(1) The annual supply of platinum is only about 130 tons - which is equivalent to only 6% (by weight) of the total Western World's annual mine production of gold - and less than one percent of silver's yearly mine production. Another amazing platinum trivia is the fact that more than twice as much steel is poured in the U.S. in only one day than the total world's platinum production in one year - indeed scarce!(2) Approximately 10 tons of ore must be mined - sometimes almost a mile underground at temperatures greater than 120 degrees Fahrenheit - to produce one pure ounce of the "so-called white gold." Furthermore, the total extraction process takes six long months.(3) All the platinum ever mined throughout history would fill a basement of less than 25 cubic feet.(4) Although its relative weight does not contribute to its value, platinum is even heavier than gold - one cubic foot weighs a little more than 1,330 pounds, about 11% denser than gold. THAT'S WELL MORE THAN HALF A TON. Expressing platinum's weight differently, a six-inch cube of the white metal weighs about as much as an average man!(5) Relative to volume mined, platinum has many more industrial uses than either silver or gold. In fact more than 50% of the yearly production of platinum is consumed (read destroyed) by industrial uses - unlike gold!(6) Also unlike gold, there are no large inventories of above-ground platinum. Therefore, any breakdown in the two major supply sources would catapult the price of platinum into orbit.EXTREMELY LIMITED SOURCES OF SUPPLYUnlike nearly all metals and crude oil which are found throughout the world, important platinum deposits are limited to basically two areas of the world. Naturally, platinum is produced as a by-product in several areas of the world, but this production source is very insignificant. Only South Africa and the CIS (formally known as the USSR) have been blessed with what might be termed deposits of "industrial quantities" of the "Rich Man's Gold." And South Africa is far and away the most important of the two as it accounts for approximately 80% of the total world's annual mine production - AND MUCH MORE IMPORTANTLY 88% OF THE WORLD RESERVES OF PLATINUM. An interesting aside is the fact that South Africa controls more platinum reserves than ALL THE ARAB NATIONS CONTROL CRUDE OIL RESERVES. I say approximately 80% of world production, because that estimate is the consensus of the various sources. The CIS accounts for about 10%, the remainder is scattered around the world. Therefore, it is readily obvious to all observers that any political instability and/or labor turmoil in South Africa - and to a lesser extent in the CIS - would have an absolutely draconian impact upon platinum prices. As I mentioned previously, a general strike in South Africa would cause gold to soar, but it would take Jean Luk Picard (Star-Trek) at Warp 9.9 to catch up with zooming platinum prices.In light of the metal's EXTREME scarcity, it is NOT surprising that more than 90% of the world's platinum production comes from only four mines: three in South Africa and one in the CIS. South Africa's prodigious platinum production comes mainly from Rustenburg(RPATY), Impala (IMPAY) and Lonrho (LNROY). And nearly all the CIS production comes from the Norlisk mine in Siberia. Interestingly, Rustenburg and Impala market prices have risen this year, despite the declining trend of gold and silver stocks. Currently, Rustenburg is up 33%, and Impala up about 20% from their 1997 lows. That type of relative strength usually portends much greater appreciation, once the precious metals begin their bull move.PLATINUM PRODUCERS OUTSIDE SOUTH AFRICAAbout three years ago I did some research on platinum. I discovered that a number of publicly owned companies produced platinum as a by-product. An example is the giant nickel producer in Canada, INCO. However, the financial fly in the ointment is that INCO's income from platinum production gets lost in their income statement, in that it represents such a minuscule amount relative to their other production. In fact my research only turned up one pure platinum play outside of South Africa. It is Stillwater Mining (PGMS) of Montana. Until about 1995 it was totally owned by Chevron Resources and the Manville Corporation. For whatever reasons the two giant corporations sold it to the public at about $14 per share, after which it roared to almost $29, when it corrected to support in the $15 area. In recent weeks renewed mutual fund interest in the stock has trampolined the price to about $24.To my knowledge it is the only pure platinum play not subject to possible political instability and/or labor strife. I would be grateful if readers of this report would share any current platinum research and opinions they may have. Some sources estimate that Stillwater Mining accounts for about 3% of the annual supply of platinum.Apart from the platinum producers already mentioned, there is one potentially interesting platinum play located in Zimbabwe, Africa. It is an Australian gold, platinum and diamond producer called Delta Gold (DGD). During the last few years Delta Gold has been exploring properties with platinum potential in Zimbabwe via a joint-venture with BHP Minerals. Though modest, actual platinum production has already begun in the Hartley Platinum Complex in Zimbabwe.WORLD CONSUMPTION OF PLATINUMAlthough an exhaustive analysis of the supply/demand dynamics of the white metal is beyond the scope of this report, this researcher would be remiss NOT to make some mention in this respect. Platinum supply/demand dynamics are tight - and getting tighter every month. While the western world's industrial demand is understandably a function of economic growth - which obviously increases at a moderate rate - emerging countries demand for platinum is literally exploding. For example, China. It is a well-known statistic that the Sino-behemoth has enjoyed the highest percent of annual economic growth of any nation in the world during the last 10 years. And there doesn't seem to be any slowing forecasted in the foreseeable future. China's platinum consumption has grown apace with its annual industrial production increases. The reader must be aware we are talking a dynamic society of more than 1.2 billion strong population. China's future platinum demand ALONE will tax current production capacity of the four major mines.Annual platinum consumption is divided into three categories: 50% industrial uses; 40% jewelry manufacturing and 10% for investment purposes. Inscrutably, the Japanese account for 95% of the platinum jewelry demand.PLATINUM'S INVESTMENT PROSPECTSHistorically, platinum prices run in tandem with the precious metals group (gold, silver, platinum and palladium). However, there are a couple of distinguishing characteristics to the "Rich Man's Gold." Platinum usually leads the other metals in any valid new bull move - albeit accompanied by palladium. Additionally, platinum is much more volatile on the upside and downside than is gold. Whereas during normal periods of rising precious metals prices, platinum enjoys a few dollars premium over gold, the platinum/gold spread widens considerably when the group is in a strong bull posture. In fact the platinum/gold spread has reached more than $200 occasionally during the last two decades. No one can foresee the future, but in the next precious metals bull market, it may well repeat the performance.Whether a person should take the bullion investment approach, or the shares of the three South African platinum mining companies, or the North-American stock, Stillwater Mining, or the Australian Delta Gold, or even platinum coins - is a personal decision dependent upon numerous factors, and one's tolerance for risk. Unfortunately, discussion of these factors is beyond the scope of this report. Nevertheless, this researcher believes all will do well, once the bull market in precious metals begins its cycle anew.Internet sources of some general platinum information:
40Conslusion / Q&A , global wealth stands at €82 trillion. If people would only put 5% of thatinto the form of gold, it would be equal to130,000 tonnes of gold, which is quite a largenumber. Today, physical holdings stand atroughly 30,000 tonnes. Add a few thousandtonnes in the form of ETFs and that leaves a lotof room for growth