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Gfms News Issue 33

1. Quarterly Newsletter September 2009 - Issue 33 Fundamental Shift: Net Official Purchases Support the Price by Philip Klapwijk, Executive Chairman, GFMS Ltd. Junlu…
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  • 1. Quarterly Newsletter September 2009 - Issue 33 Fundamental Shift: Net Official Purchases Support the Price by Philip Klapwijk, Executive Chairman, GFMS Ltd. Junlu Liang, Metals Analyst, GFMS Ltd. In its just released Gold Survey 2009 The shift to the buy-side in the Looking ahead, as indicated above, - Update 1 GFMS suggested that the second quarter owed much to a GFMS expect central banks in official sector in aggregate became sharp fall in sales from the Central aggregate will continue buying gold a net buyer in the second quarter of Bank Gold Agreement (CBGA) on a net basis in the second half. 2009 and forecast that the second signatories, as combined sales from There are two main reasons for this. half of the year would see further the group over the period amounted First, sales from CBGA members are net purchases. This represents a to a mere 14 tonnes, well under the expected to remain at extremely remarkable change of direction for quarterly average of around 100 low levels. The cut in the annual a market that has been used to tonnes that had been sold up to then limit in the third Agreement from absorbing substantial volumes of under the soon-to-expire second 500 to 400 tonnes reflects the fact gold sold by central banks over the Agreement. Modest purchases by that there is a lack of appetite to last decade. others were therefore sufficient to sell among major bullion holders swing the official sector overall onto the buy-side. Fundamental Shift: Net Official Purchases Support the Price 1 (Continued on next page) NEW AT GFMS Gold Mine Economics Production Costs Margins & Cash Flows to 2030 - a New Service from GFMS 3 NEWS FROM THE FIELD Gold Purity Slips Further in Indonesia 5 PUBLICATIONS AND PRODUCTS GFMS Releases Gold Survey 2009 - Update 1 6 The Ages of Gold – “Magisterial Compendium” 7 GFMS Released the 6th Issue of its Precious Metals Forecasting Monthly 8 New Report by GFMS - the Base Metals Forecasting Monthly 8 GFMS Quarterly 3-Year Precious Metals Forecasts 9 GFMS Quarterly 3-Year Base Metals Forecasts 9 GFMS Mailing List: World Gold Analyst Releases its Special Report on Ontario & Quebec 10 The GFMS quarterly newsletter is a free publication distributed by email EVENTS only. If you are not on our mailing list and would like to receive a copy Gold Survey 2009 - Update 1 Launch, 14th September 2009 12 regularly, please contact Forthcoming Gold Survey 2009 - Update 2 Launch, 13th January 2010 13 Elena Patimova at or GFMS is Sponsoring Commodities Week Europe 2009 13 register on line at MARKET COMMENTARY Published by GFMS Ltd Hedges House Global Gold Mining Revival in H109…but Can it Last? 15 153-155 Regent Street London, W1B 4JE, UK What Kind of Economic Recovery? 16 tel: +44 (0)20 7478 1777 fax: +44 (0)20 7478 1779 The Gold Markets a Year on from Lehman 18 email: web: Base Metals: Passing on the Baton 20 Steel Market Jumps on the Bandwagon 21 The GFMS Team 23
  • 2. GFMS Quarterly Newsletter OS Sales within the group. Indeed, as the Net Official Sector Sales new Agreement approaches, none 800 of the signatories have made official statements specifying their future 600 sales’ plans, apart from Switzerland, which confirmed it has no intention 400 to sell any gold over the medium Tonnes term. Although we believe further 200 sales from Europe under the third CBGA are probable, these could be 0 rather more occasional than the regular sales pattern seen under the -200 previous two Agreements. -400 Second, we believe there is some 1980 1985 1990 1995 2000 2005 Source: GFMS scope for more buy-side interest to emerge. Already in the past an important change in trend from Philip Klapwijk is the two years we have seen the world the one prevailing between 1989 and Executive Chairman of outside the CBGA become net 2008 when central banks were major GFMS. In his capacity as purchasers of bullion, with most of net suppliers of gold to the market, an analyst, he continues the metal sourced quietly in local according to our data at an average to cover the official gold markets. Recently, there is annual rate of just under 400 tonnes, sector, investment and evidence that a growing number of equivalent to a hefty 11% of total fabrication demand in official institutions are showing a supply over the twenty year period. North America, Latin America and much of greater interest in gold, mainly for Europe. Philip holds degrees in economics portfolio diversification purposes Over the next year or two this new from the London School of Economics but also as an outright currency trend may be obscured somewhat and a Master’s degree from the College of hedge. No doubt gold’s strong by the planned sales of 403 tonnes Europe in Bruges. Philip was appointed performance over the past few years of IMF gold, assuming, of course, Group Economist at CGF in 1987, where in contrast to (in many cases) losses that there is no off-market transfer he was responsible for developing the on central banks’ US dollar holdings of some or all of this bullion to an group’s economic scenarios as well as have contributed to some degree official sector buyer, something we participating in the work for the annual of rethinking about gold. Such think improbable but by no means Gold Survey. He has worked for GFMS as developments have been given an impossible. Once the IMF sales part of the gold research team since 1989. additional stimulus by the financial programme is completed, however, turmoil experienced over the past we would expect the official sector year and increased concerns over as a whole to have a broadly neutral the long-run stability of the US dollar impact on the market. This would given America’s huge fiscal deficits represent a return to the situation and the willingness of the Federal prevailing in the 1970s and 1980s Junlu Liang, Reserve to monetize a significant when the official sector was a net Junlu joined GFMS in proportion of these. buyer in some years and a net seller October 2008. She in others. Besides the obvious is primarily working We forecast, therefore, that the supply/demand implications for gold, with Philip Klapwik official sector will generate net such a change from net sales to on official sector as demand of more than 20 tonnes in something close to ‘neutrality’ would well as investment the second half, resulting in net sales be highly positive for gold prices, as research. She is also responsible for for the full year of just 16 tonnes, it ought to provide a major boost market research in China. Junlu holds an which would be the lowest annual to sentiment and confidence in the MSc Economics from the London School of total in over two decades. Moreover, yellow metal. Economics. this could represent the beginning of 2 Issue 33 September 2009
  • 3. GFMS Quarterly Newsletter NEW AT GFMS Gold Mine Economics Production Costs Margins & Cash Flows to 2030 - a New Service from GFMS The objective of this new service from GFMS is to deliver high quality insights into the economics of mine production, across a broad range of metals and minerals. The GFMS team working on the project and managed by Mark Fellows is growing rapidly, and already has nearly forty years of combined mine cost analysis experience. This service provides gold miners, financial institutions, governments and other industry stakeholders with detailed forward-looking insights into • What gold prices are needed for Besides an in-depth production cost the underlying drivers of gold mine projects to generate acceptable breakdown, revenues, margins and economics. financial returns? forward-looking cash flows are presented for each operation. The study provides high quality • Which mines and projects independent support to investment/ present the best growth and profit GFMS is undertaking a programme of lending decisions, risk/reward opportunities? global mine visits in order to gather analysis, peer group comparisons the technical and operating data and mine benchmarking. Research based on highly detailed, included in this study. rigorous mine-by-mine analysis of Background production costs, broken down to Main Features Despite high gold prices, the gold $/tonne mining, ore processing and • Global coverage: Analysis of over mining industry still faces very on-site administration costs, plus two hundred operating gold mines, significant challenges. Output benchmarking of fuel, power, labour each with annual gold production continues to stagnate and production productivity and other key inputs. greater than 50,000 oz, plus around costs remain high, as established The study includes forecasts of gold one hundred projects at prefeasibility mines mature and exploration fails to mine production, operating costs and stage or later fill the gap. cash flows to 2030. • Mine-by-mine analysis to 2030: This study clearly identifies and Methodology Detailed reserves/resources, quantifies: Based on a stringent methodology production, operating cost, capital • Which mines are profitable under for analysing mine economics, the cost and cash flow analysis different market outcomes? analysis in this study is derived from “bottom-up” investigation of mine • Global Analysis: Distilling the mine- • What is the impact of different productivity, energy use, mining and by-mine data into analysis of global price outcomes and input cost processing costs, making it ideal for trends; production and industry cost scenarios on the future production asset benchmarking purposes. structure, cost and margin curves, profile? competitive analysis (Continued on next page) 3 Issue 33 September 2009
  • 4. GFMS Quarterly Newsletter • Electronic Product: Web-based, Mine-by-Mine Profiles Highly detailed analysis Forecasts to 2030 mine and project profiles and notes available to download. Flexing model allowing clients to assess the impact of different exchange rate, input cost and gold price scenarios on mine economics. All analysis delivered via website For further information please contact Mark Fellows at or Charles de Meester at Cost curves and cost leagues • Benchmarking (SWOT) analysis • Flexing models • Global trend analysis and commentary Analysis updated quarterly, or when significant events occur GFMS willLaunches a New Website to Provide an Industry Forum GFMS believe that a renewed industry debate into mine production cost reporting is now vital. Main Features The former Gold Institute last revised its cost standard in early 2002. GFMS is embarking upon a high profile initiative to engage gold miners and financial analysts in a dialogue about cost reporting, with a view to creating a widely accepted, credible gold industry cost standard which is actively promoted and maintained. The website will be available for the discussions in the middle of October 2009. Please log on to to participate in this dialogue. >> If you would like to participate in this dialogue, please log on to or contact Elena Patimova at for further information 4 Issue 33 September 2009
  • 5. GFMS Quarterly Newsletter NEWS FROM THE FIELD GFMS are unique in terms of time and effort spent on research worldwide. This section “News From the Field” has been included in the Newsletter in order to provide you with the latest updates and news from GFMS’ research trips. Gold Purity Slips Further in Indonesia by Cameron Alexander, Senior Metals Analyst, GFMS Ltd. Australia A recent research visit to Indonesia to sell it back as funds are required. funds to be channelled into other by Australian based GFMS analyst However, this year with domestic consumer items. Cameron Alexander provided a prices so high many felt the risk clearer perspective of the hardships of downwards price movement Interestingly, demand for low carat being experienced by the jewellery outweighed potential gains, and were jewellery has yet to penetrate industry in the South East Asian therefore reluctant to “invest” in gold Indonesia’s larger cities where nation and outlined current and jewellery at the perceived top of the traditional plain 17-carat and stone future consumption trends. market. set 18-carat jewellery remain the preferred styles. Demand in Indonesian jewellery consumption In perhaps the most interesting Jakarta and Surabaya is dominated is estimated to have declined by development in recent years, and by fashion driven designs with more than 20% in the first half one that has had a considerable little regard for the perceived poor of 2009 as higher gold prices and impact on Indonesia’s annual fine quality of low purity gold jewellery. rising economic uncertainty has led gold consumption, has been the However, several traders who met to a major slow down in domestic migration to low carat plain jewellery. with GFMS believe that this trend retail sales. A weaker currency, This segment, once only accepted will likely change over time and particularly in the first quarter, in some parts of the country, is even these key urban markets will saw the average local gold price today considered mainstream across slowly shift to low purity jewellery for the period surge 20% year-on- much of east and central Java, with especially should higher gold prices year compared to the 0.5% dollar fabrication of low purity jewellery prevail. gold price gain. This price related now topping 50% of total Indonesian pressure, coupled with rising anxiety jewellery production for the domestic over the global financial crisis and market. Initially it was 9 and 10- Cameron Alexander is the potential domestic ramifications carat jewellery that dominated retail an Australian based saw many urban consumers rein in sales but price pressures and greater Analyst with GFMS discretionary spending, with gold acceptance of this jewellery style and is responsible for jewellery often regarded as a luxury had led to demand for even lower research in South-east or an unnecessary expenditure item. purity, with Indonesia’s three largest Asia, Australasia and fabricators now adding 7 and 8-carat the Gulf States in the As is the case in many developing products to their range of jewellery. Middle East. Prior to his joining GFMS in countries, gold jewellery in Indonesia In addition, gold plated costume December 2005, Cameron worked for over is regularly regarded as a quasi jewellery is beginning to gain in seven years with precious metals refiner investment tool, with consumers popularity as this low-end product AGR Matthey. (particularly in rural areas) often offers the end-user the “look” of a purchasing the precious metal after more elaborate gold designs without the annual harvest, with the intent the associated cost, and allows their 5 Issue 33 September 2009
  • 6. GFMS Quarterly Newsletter PUBLICATIONS AND PRODUCTS GFMS Releases Gold Survey 2009 - Update 1 GFMS released Gold Survey 2009 Supply Highlights © Image copyright GFMS £250 - Update 1, their latest report on Mine supply in the first half of US$460 Gold Survey 2009 €350 the gold market, at a launch in 2009 increased by 7% year-on- London on the 14th September and, year. Producer cash costs remained U pd at e 1 simultaneously and in association almost flat in the first half, halting the with the Denver Gold Group, at an trend of strong cost inflation of recent event in that US city. years. About Gold Survey 2009 - Update 1 Net official sector sales in the first Gold Survey 2009 - Update 1 provides half contracted sharply, by almost a comprehensive interim analysis 75% year-on-year to total around 40 of the most recent economic, socio- tonnes. political and market-specific issues Implied net investment rose facing the gold market. Global scrap supply surged to a markedly in the first half to reach record high of almost 900 tonnes in over 990 tonnes, an increase of more The report considers the main supply/ the first half of 2009. The majority than five times over the first half of demand fundamentals for the first half of the action took place in the first 2008. Most of the inflows occurred of 2009 as well as the outlook for the quarter of the year, in reaction to high in the first quarter, as investors second half of 2009. gold prices which reached record local sought refuge in gold when fears levels in several instances. over counterparty risk and the global Main Features economy remained rampant. • Supply and demand statistics for the Demand Highlights first half of the year and second half Jewellery offtake fell by almost 25% Net de-hedging slumped in the first forecasts. in the first half of 2009 to around 760 half to around 30 tonnes, leaving the tonnes. Losses were recorded across book at end-June standing at just • Review of main developments in the board of key jewellery fabricators, below 460 tonnes. mine production, costs, hedging, with India and Turkey registering fabrication, investment and central the sharpest falls. China proved the bank activities. exception, as its fabrication rose by >> For further information, 7%. Industrial fabrication slumped multiple copy discounts, multi- • Commentary on price movements by a similar extent to jewellery user network licences, electronic and indications on what to expect consumption. versions, or back copies please looking forward. contact Elena Patimova at GFMS’ SURVEYS 2009-2010 RELEASED: COMING SOON: PRE-ORDER YOUR COPIES Gold Survey 2009 - Update 1 Gold Survey 2009 - Update 2 Online: Gold Survey 2009 Hindi / Chinese / Gold Survey 2010 Arabic / Russian World Silver Survey 2010 Platinum & Palladium Survey 2009 Platinum & Palladium Survey 2010 By Fax: World Silver Survey 2009 Click here to download Gold Survey 2009 (English) the order form 6 Issue 33 September 2009
  • 7. GFMS Quarterly Newsletter The Ages of Gold – “Magisterial Compendium” “Timothy Green, author of the Emperor Nero for a record gold re- three decades, focusing on the magisterial compendium The Ages coinage in AD 64, the Venice Mint, Middle East, India and the Far East. of Gold, has spent a lifetime on whose high quality ducat endured for the trail of gold,” said BBC World 500 years, Sir Isaac Newton for the Service presenter Nick Rankin, gold standard of 1717, which lasted introducing him in a three-part radio two hundred years, and the Central documentary “Gold” in August. Bank Gold Agreement of 1999 which limited their gold sales to usher in Highlighting themes in gold’s history, the higher prices of the last decade. Tim described how early gold coins underpinned the empires of Overall, The Ages of Gold is earning Alexander the Great and Rome. In its BBC World Service accolade as a contrast, the Incas in Peru perceived “magisterial compendium”. it as a beautiful metal, symbolising the sun, which goldsmiths crafted About the author Specifications into magnificent ornaments. Their Tim Green is a well known author in > Index Spanish conquerors, however, saw the gold market, having written The > 12 maps gold as monetary wealth, and melted World of Gold, The Gold Companion > 32 pages of illustrations vast quantities down. The metal and The Millennium in Gold. Tim > ISBN 978-0-9555411-1-7 was shipped to Europe, where it also worked as a consultant on the > 480 pages sustained the Spanish empire as annual Gold Surveys of Consolidated > Hardback coin, and was soon also dispatched Gold Fields and Gold Fields Mineral > Price £33 (+ postage) to India to pay for diamonds, silk Services (now GFMS) for almost > Published 14th November 2007 and spices, fuelling the historic To purchase this book or for further information please contact Elena Indian love affair with gold that Patimova at continues to this day. Others About The Ages of Gold The Ages of Gold is also featured in the new edition of Roy Jastram’s
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