Gold Market Fundamentals Jewelry = 57% of gold demand Investments = 32% of demand Two-thirds of Q1 2011 demand growth investment- related Mining is keeping pace with core demand, not investment demand Gold recycling fills the difference Gold is never destroyed – unlike oil, the total world gold supply keeps on rising over time Demand ('05-'10 5yr avg) Supply ('05-'10 5yr avg)
Gold, Inflation, and Crises - Gold responds to higher inflation, as expected - But gold has a mixed record in responding to crises USSR Collapse, Gulf War I 9/11, Gulf War II
Silver vs Gold, 1960-2011 Silver moves with gold, but with higher volatility Has outperformed gold during precious metals rallies
Oil, Gold, S&P: Correlation Trends Diversification? Oil, gold, and equities are thought to be non-correlated, but in fact their relationships widely vary over time.
Oil, Gold, S&P: Correlation Trends Since financial crisis, oil, gold, and the S&P all highly correlated Correlation broke down in recent correction If gold – oil correlation is breaking down, which is overpriced, and which is underpriced?
Oil – Gold Ratio, 1960-2011 Ratio has been as high as 34, and as low as 7, with Mean at 15.5 Currently near 20 – above average but not overextended Oil Barrels Per Ounce of Gold
Present Gold Surge – 2 months old The surge has just begun Bullish Case for Gold: QE 3 succeeds = more asset inflation Euro Zone situation further deteriorates Bubbles last a long time (JP Morgan target $2500)
Bearish Scenarios for Gold QE3 Fails: Liquidity Trap Deflation: US Becomes Japan Gold Crash (via economic recovery)