Gold Price Outlook September 2014

1
The Gold Price Outlook

Bullish/Bearish Factors
Dr. Martin Murenbeeld
September 16, 2014
Presented at the Denver Gold Forum 2014
-70
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-10
0
10
Change from previous week, tonnes
What Went Wrong in 2013?
An orgy of ETF sales 881 tonnes in 2013!
2013-Q1 2013-Q2
2013-Q3
Source: Bloomberg, World Gold Council, DCM Economics
| DUNDEE CAPITAL MARKETS 2
2013-Q4
600
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900
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1100
1200
1300
1400
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1600
1700
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1900
2000
2100
350
475
600
725
850
975
1100
1225
1350
1475
1600
1725
1850
1975
2100
2225
What Went Wrong in 2013?
Investors went to equities !!
Daily data
Last date: September 12, 2014
2008 2007 2012 2010 2009
Gold
2011 2014
S&P 500
Source: Thomson Reuters Datastream, London Bullion Market Association
2013
Massive negative
correlation in 2013: -.88
-100
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0
50
100
150
200
250
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Last month: July 2014
What Went Right in 2013?
Chinese net imports from HK set record!
Source: Thomson Reuters Datastream, Hong Kong Census, DCM Economics
2012: 557 tonnes
2013: 1158 tonnes
Chinese Gold Imports from Hong Kong
(monthly tonnes)
Chinese Gold Re-Exports to Hong Kong
(monthly tonnes)
2
Bearish Factors for 2014-15
1. The Fed must inevitably tighten policy
The Fed is currently tapering
QE will end late 2014
And the Fed will raise rates in 2015
2. US dollar will remain firm in 2014-15!?
3. The world economy is sluggish
Gold typically weakens during recessions
Inflation pressures remain subdued
There is often a need for liquidity
4. Equity markets will continue to draw investment
interest away from gold
5. Investors still have gold to sell and technicals
bearish
300
600
900
1200
1500
1800
2100
2400
2700
3000
3300
3600
3900
4200
4500
4800
Jan-08 Jun-08 Dec-08 May-09 Nov-09 Apr-10 Oct-10 Mar-11 Sep-11 Feb-12 Aug-12 Jan-13 Jul-13 Dec-13 Jun-14 Nov-14
Bearish: (1) Fed Ends QE
The Fed balance sheet must inevitably decline
US Treasuries
Other Assets Currency
Swaps
Commercial
Paper Market
Other Credit
Extensions
Securitization Market
(support for mortgages)
Agency Debt
Total assets have
quintupled!
Liquidity
to Banks
Total Assets
$ billions
Source: Federal Reserve
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1
2
3
4
5
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
And real rates will have to rise - but before 2016?
Last month: August 2014
Gold prices
often stall
when real
rates rise
above 2%!
US real short term
interest rate
Real rates below zero are
very positive for gold
Real rates
not above
zero before
2016 ??
Source: US Bureau of Labor Statistics, Federal Reserve
0
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750
1000
1250
1500
1750
2000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
US real rates rose in 2013 taper tantrum
GOLD
Source: LBMA, US Bureau of Labor Statistics, Federal Reserve
10-year TIPS
29%
3
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24
36
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00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-1.0
-0.5
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1.0
1.5
2.0
2.5
3.0
But gold may have fully discounted rising yields !
GOLD
% year-on-year
Source: US Bureau of Labor Statistics, Federal Reserve
10-year TIPS
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20
30
40
50
60
00 02 04 06 08 10 12 14
Model
Real 10-year yields
US dollar index - change
Source: London Bullion Market Association, Federal Reserve, Bureau of Labor Statistics, WSJ
GOLD
% year-on-year
Correlation = .67
Model: gold has fully discounted Fed actions!?
What do the Models say specifically?
Assuming a severe
scenario, including a
rise of 250 basis
points in real interest
rates and a 1000
point rise in the US
dollar index, the
models suggest that
gold may decline
anywhere from 18%
to 29%!
But gold has already
declined by nearly
30% ???
REAL INTEREST RATE* US DOLLAR**
MODEL 1969-2014 -5.656% -1.219%
(R-squared =.362)
MODEL 1989-2014 -3.839% -1.235%
(R-squared =.475)
MODEL 2000-2014 -1.691% -1.513%
(R-squared =.454)
*Di fference between 10-year Treasury yi el d and consumer pri ce i nfl ati on (y-o-y)
** Dol l ar i ndex i ncl udes Cdn$, Yen, Pound, Euro (pre-1999: DM, Li ra, FF)
***A 100-poi nt ri se i n the real rate i s 100 basi s poi nts
***A 100 poi nt ri se i n the US dol l ar i s a ri se i n the i ndex from, say, 75.00 to 76.00
IMPACT ON GOLD OF 100-POINT RISE***
| DUNDEE CAPITAL MARKETS
Bearish: (2) Dollar Strengthens
The dollar rises others devalue against dollar
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85
90
95
07 08 09 10 11 12 13 14 15
500
750
1000
1250
1500
1750
2000
Latest week: September 12, 2014
Correlation since 2006: -.80
Gold
Corr: -.90 Corr: -.84 Corr: -.77 Corr: -.48 Corr: -.29 Corr: -.80
Dollar Index includes: Canadian dollar, Aussie dollar, euro, yen, Swiss Franc, pound, rupee, RMB/yuan
Corr: -.58
Source: Wall Street Journal, London Bullion Market Association, Dundee Capital Markets calculations
Corr: -.38
to date
US Dollar
(eight currencies)
4
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10
20
30
40
50
82 84 86 88 90 92 94 96 98 00 13 13 13 13 13 12 14
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-21
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0
7
14
21
Last quarter: 2014-Q2
Bearish: (2) Dollar Strengthens
Gold/US dollar correlations always negative
Gold - %
US dollar index
(four currencies)
US dollar index
(eight currencies)
Correlation: -0.59
Correlation: -0.64
US Dollar - %
Source: Wall Street Journal, Dundee Capital Markets calculations
500
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900
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
J an 07 J ul 07 Feb 08 Sep 08 Apr 09 Nov09 J un 10 J an 11 Aug 11 Mar 12 Oct12 Apr 13 Nov13 J un 14
Gold daily p.m. fix
Data through September 12, 2014
Bearish: (3) Global Economy Sluggish
Recessions always a major headwind for gold
Eurozone
Recession/Depression
US recession
30%
37%
Source: London Bullion Market Association
Billion US$
IMF forecast: 3.4%-2014 and 4.0%-2015
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0
2
4
6
8
10
12
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
-2
0
2
4
6
8
10
12
14
16
18
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
(e)
(e)
Source: IMF World Economic Outlook, July 2014
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1
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3
4
5
6
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
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4
5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
World GDP (%) China GDP (%)
India GDP (%)
EU GDP (%)
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1
2
3
4
5
6
7
8
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
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30
40
US recession
CRB and BoC commodity price indices are inflation-
adjusted and highly correlated with world growth
World GDP %
Bank of Canada Index
CRB Index
Source: IMF, Bank of Canada, Thomson Reuters Datastream, DCM Economics
Commodities decline when world growth < 4%
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300
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400
450
500
90 92 94 96 98 00 02 04 06 08 10 12 14
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-60
-30
0
30
60
90
120
150
180
US recessions
% year-over-year
Copper
US cents/lb
China Joins WTO
Nov 2001
Copper prices weakened in recent quarters
Source: Wall Street Journal
150
190
230
270
310
350
390
430
470
90 92 94 96 98 00 02 04 06 08 10 12 14
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12
24
36
48
And commodity prices generally are down
US recessions
CRB INDEX: 19 commodity prices - Energy 39%, Agriculture
41%, Precious Metals 7%, Industrial Metals 13%
% year-over-year
Thomson
Reuters/Jeffries
CRB Index
China Joins WTO
Nov 2001
Source: Wall Street Journal
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0
1
2
3
4
5
6
7
90 92 94 96 98 00 02 04 06 08 10 12 14
Headline inflation is going nowhere fast !
Core CPI
Headline CPI
US recessions
%YoY
Feds PCE
Source: US Bureau of Labor Statistics, US Bureau of Economic Analysis
0
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400
600
800
1000
1200
1400
1600
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2000
1986 1990 1994 1998 2002 2006 2010 2014
Recycled/Scrap Gold
Source: World Gold Council Gold Demand Trends - Full Year 2013
Thomson Reuters GFMS
Scrap supply elevated when liquidity needs rise
tonnes
Asian
Financial
Crisis
Great
Recession
6
0
25
50
75
100
125
150
175
J an- 03 J an- 04 J an- 05 J an- 06 J an- 07 J an- 08 J an- 09 J an- 10 J an- 11 J a n- 12 J an- 13 J an- 14
India: import barriers to preserve liquidity
INDIA
Gold Imports
(monthly tonnes)
12-month MA
Source: Thomson Reuters Datastream, DCM estimates
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
2100
300
425
550
675
800
925
1050
1175
1300
1425
1550
1675
1800
1925
2050
2175
Bearish: (4) Equity Markets Rally Further
Monetary factors also help equities!
Daily data
2008 2007 2012 2010 2009
Gold
2011
Monetary Reflation!
2014
S&P 500
2013
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60
120
180
240
300
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0
12
24
36
Weekly data
2009
Specs net long
2007 2014 2010 2011
Gold Price
(quarterly % change)
2008 2012
Bearish: (5) Gold for Sale
COMEX specs net-long position still significant
607.7
tonnes
Source: US CFTC, Comex
2013
09/02 Net-Long: 301 Tonnes
295.9
tonnes
0
250
500
750
1000
1250
1500
1750
2000
2250
2500
2750
Apr-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
Tonnes
Other
SPDR Gold ETF
Source: ExchangeTradedGold.com, Bloomberg
Bearish: (5) Gold for Sale
ETF holdings still substantial !
1715 Tonnes
2633 Tonnes
7
950
1050
1150
1250
1350
1450
1550
1650
1750
1850
1950
Bearish: (5) Technical Picture
Gold - $/oz
2012
50-day MA
2010 2011 2014
200-day MA
Death Cross!
$1895
$1614
$1419
$1469
$1540
$1795
$1694
$1385
2013
$1242
$1192
$1340
Bullish Factors for 2014-15
1. ETF supply down dramatically in 2014-15
2. Asian physical demand will continue to expand
3. Central banks will continue to buy gold
4. Global debt crisis will require ongoing monetary
reflation
5. Global imbalances will remain unresolved until
the dollar declines significantly
6. The commodity cycle will run many more years
7. Geopolitical crises will multiply
8. Gold price not expensi ve by normal measures
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0
10
20
Change from previous week, tonnes
2013-Q1 2013-Q2 2013-Q3
Source: Bloomberg, DCM Economics
2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4
Bullish: (1) Gold Supply
Massive sales not to be repeated in 2014-15
-48 tonnes
2014 to date
-869 tonnes
2013
Billion US$
0
300
600
900
1200
1500
2009 2010 2011 2012 2013 2014
0
300
600
900
1200
1500
2009 2010 2011 2012 2013 2014
(e)
0
300
600
900
1200
1500
2009 2010 2011 2012 2013 2014
Net Mine Supply + Scrap Supply
Net Mine Supply + Scrap CB Demand
Net Mine Supply ( supply less dehedging)
Lower gold prices will
curtail some mine output!
Rising Modestly
Stable
Stable
Tonnes Tonnes
Tonnes
Bullish: (1) Gold Supply
Indeed, supply to jewelers/investors unlikely to rise
8
0
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1
RoW
China
India
51%
tonnes
Source: World Gold Council Gold Demand Trends Second Quarter 2014
data tabulated by Thomson Reuters GFMS
Bullish: (2) Consumer Demand*
India/China becoming richer LT demand positive
*Consumer demand = jewelry plus
bar/coin/medal investment demand
0
50
100
150
200
250
300
350
400
2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1
30
Bullish: (2) India Consumer Demand*
Demand down in 2014-H1 (YoY) but trend positive
Source: World Gold Council Gold Demand Trends Second quarter 2014
0
50
100
150
200
250
300
350
400
2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1
31
Bullish: (2) China Consumer Demand
Down in 2014-H1 - but trend very positive
Source: World Gold Council Gold Demand Trends Second quarter 2014
0
10
20
30
40
50
60
70
80
09 10 11 12 13 14
Source: Shanghai Gold Exchange, Sharelynx Gold, DCM Economics
Shanghai deliveries in clear uptrend!
12-week MA
Shanghai Gold Deliveries
(tonnes weekly totals)
Date: Sept 12, 2014
9
0
400
800
1200
1600
2000
2400
09 10 11 12 13 14
Source: Shanghai Gold Exchange, Sharelynx Gold, DCM Economics
Shanghai Gold Deliveries
(cumulative tonnes)
Cumulative Shanghai deliveries on trend!
Date: Sept 12, 2014
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0
50
100
150
200
09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1
Central Bank Gold Purchases
tonnes
Source: World Gold Council Gold Demand Trends - First Quarter 2014
Thomson Reuters GFMS
Bullish: (3) CBs Buying Gold
CB demand will continue for years
Global FX reserves are excessive (62% in $s)
A number of central
banks like the fact
that gold is not a
liability of the Federal
Reserve/US Treasury
RUSSIA
CHINA
OIL EXPORTERS
Source: IMF International Financial Statistics, July 2014
bn$ bn$
China 3993.2 India 289.3
Japan 1210.0 Algeria 191.6
Saudi Arabia 741.7 Mexico 181.1
Switzerland 505.5 Thailand 160.8
Taiwan 423.7 Malaysia 127.3
Russia 409.6 Turkey 109.9
Brazil 367.0 Indonesia 105.4
Korea 355.8 Libya 104.3
Hong Kong 320.8
TOTAL 9596.9
Addendum: Fuel Exporters $1839 bn
Foreign Exchange Reserves
(countri es over $100 bn)
China wants the CNY to be used more actively in Chinese
and SE Asian trade; indeed many countries want the US
dollar to be replaced in global trade and global reserves.
To encourage other countries to hold CNY balances (and
as reserve currency) the CNY must have:
Deep capital markets, which allows the CNY to
be readily banked around the world and
therefore acceptable for transactions
Some form of guarantee to enhance
acceptability in the initial phase of
internationalization (historically this included
some form of gold convertibility)
Other currencies vying to become reserve currencies
10
0
10
20
30
40
50
60
70
1970 1975 1980 1985 1990 1995 2000 2005 2010
Annual data (last year 2013)
US Budget:
Percent of total outlays
Bullish: (4) Global Debt Crisis
Entitlements are killing Western economies
Entitlements
Defense
Interest on Debt
Other
Source: Bureau of Economic Analysis
0
10
20
30
40
50
60
70
80
2010 2015 2020 2030 2050
Japan
Western Europe
Canada
US
Population Ratio: 65+/15-64
Source: United Nations Department of Economic and Social Affairs
Source: United Nations Department of Economic and Social Affairs
Super-aged
And developed economies are aging
0
50
100
150
200
250
Japan Greece Ital y Portugal US Spai n France UK Canada
2003 2009 2015
Source: IMF Fiscal Monitor April 2014
General Government Debt
% of GDP
Over 90%
spells trouble
(Reinhart/Rogoff)
Which leads to ever higher debt/GDP ratios
For debt ratio
to decline
A+B > C !
As it stands
only Germany
will really
reduce its
Debt/GDP ratio
in 2014 !
Pr imary Nominal 5-year
Balance GDP Gr owth Bond Yi el d
A B C A+B-C
Greece 1.5 -5.8 5.0 -9.3
Japan -7.6 1.0 0.2 -6.8
Spain -4.3 -0.6 0.7 -5.6
Ireland -3.4 0.1 0.5 -3.8
Portugal -0.7 0.3 1.6 -2.0
US -4.1 3.4 1.7 -2.4
Canada -2.6 3.3 1.6 -1.0
Italy 2.0 -0.4 1.0 0.6
Germany 1.7 2.7 0.2 4.1
Sour ces:
Pr i mar y Bal ance - IMF Fi scal Moni tor , Apr i l 2014
Nomi nal GDP - IMF Wor l d Economi c Outl ook, Apr i l 2014
Yi el ds as of Sept ember 5, Thomson Reut er s Dat aSt r eam (Gr eece: Apr i l 10 bond sal e)
RED: Debt/GDP ratio to rise further!
Estimates for 2013
Unless growth and inflation can be boosted !
11
0
1
2
3
4
5
6
7
1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-13
Average US real GDP growth rate
Source: Bureau of Economic Analysis
Robert Gordon, NBER WP 18315, August 2012
But growth appears to be in secular decline !
Robert Gordon: There is no guarantee that
growth will continue indefinitely
Government Choices:
Austerity:
Cut services and raise taxes
Deflate and accept
depression
Reflation:
Go for growth: Inflate-devalue
Default/financial repression
What will governments do about debt/entitlements?
Bad for gold
Good for gold
0
200
400
600
800
1000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
People's Bank of China
Bank of England*
Federal Reserve
European Central Bank
Bank of Japan
J anuary 2000 =100
Set to 100
*Bank of England June 2706 = 130
All balance sheets expanding ECB soon too!
Source: Thomson Reuters Datastream
80
85
90
95
100
105
110
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
REAL GDP
Q4 2007 = 100
United States
Eurozone
Eurozone in desperate need of growth/inflation
Source: US Bureau of Economic Analysis, Eurostat, DCM Economics calculations
12
200
350
500
650
800
950
1100
1250
1400
1550
1700
1850
82 84 86 88 90 92 94 96 98 00 12 12 12 12 10 12 14
0.0
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
13.5
15.0
16.5
Global Liquidity
Gold
(month average)
Global Liquidity: FX Reserves + US MBase
Source: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve
Liquidity is important to gold
Last month:
Gold August 2014
Liquidity June 2014
Oversold in 2013?
Gold often rises and falls with liquidity
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0
12
24
36
48
60
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
-14
-7
0
7
14
21
28
35
42
Global Liquidity
Gold
Global Liquidity: FX Reserves + US MBase
Correlation: .62
% %
Oversold in 2013?
Liquidity in one form or another
-36
-24
-12
0
12
24
36
48
60
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
-36
-24
-12
0
12
24
36
48
60
Gold
G-6 M2 Money Supply: US, China, EU, Japan, UK, Canada
Correlation: .49
Global Liquidity
G-6 money supply - M2
%
Gold oversold
in 2013?
60
70
80
90
100
110
120
130
140
150
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Bullish: (5) Dollar Fundamentally Overvalued
US dollar in long-term downtrend
US Dollar Indices
Fed Major (March 1973=100)
Murenbeeld-EFXR0 (Jan 1999=100)
Murenbeeld-NEFXR(Jan 1999=100)
US recession
Source: Wall Street Journal, Federal Reserve, DCM Economics
??
13
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-900
-800
-700
-600
-500
-400
-300
-200
-100
0
The US trade deficit has declined recently
US trade
balance
(Goods and Services)
12-month
total
$billion
12-month
total
(goods only)
$billion
Source: US Census Bureau
on back of rising US energy production
-500
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
-5000
-4500
-4000
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
Balance
12 mo total
Last month: June 2014
Million barrels/month
6.2 million barrels/day
12.7 million barrels/day
Million barrels/year
Source: US Energy Information Administration
Billion US$
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-900
-800
-700
-600
-500
-400
-300
-200
-100
0
World
51
bn$
12-month
total bn$
Billion US$
-35
-30
-25
-20
-15
-10
-5
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-350
-300
-250
-200
-150
-100
-50
0
China
bn$
12-month
total bn$
Billion US$
-16
-14
-12
-10
-8
-6
-4
-2
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-160
-140
-120
-100
-80
-60
-40
-20
0
EU
bn$
12-month
total bn$
Billion US$
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
Japan
bn$
12-month
total bn$
But deficits with most countries much too large
Billion US$
Bullish: (5) RMB Fundamentally Undervalued
While China has huge trade surpluses
(e)
0
25
50
75
100
125
150
175
200
225
95 98 01 04 07 10 13
0
90
180
270
360
450
540
630
720
810
World
52
bn$ 4-quarter total bn$
Billion US$
0
10
20
30
40
50
60
70
80
90
100
95 98 01 04 07 10 13
0
40
80
120
160
200
240
280
320
360
400
US
0
10
20
30
40
50
60
70
80
95 98 01 04 07 10 13
0
40
80
120
160
200
240
280
320
EU
0
3
6
9
12
15
18
95 98 01 04 07 10 13
0
10
20
30
40
50
60
Japan
bn$
4-quarter total bn$
14
Some Asian currencies undervalued by 30%+
Some Asian currencies
would appear to be
seriously undervalued
even the Euro is
undervalued by some 25%
against the US dollar!
This table is based on the
PIIEs FEER analysis,
modified to target zero
current account balances.
Dol l ar Dol l ar
Country Overval uati on Country Overval uati on
Singapore 48.2 UK 15.9
Taiwan 42.2 Russia 15.7
Sweden 34.6 Poland 11.7
HongKong 34.1 Indonesia 8.2
Switzerland 33.2 Venezuela 7.3
China 29.8 Chile 4.8
Malaysia 28.3 Australia 2.7
Japan 27.8 Argentina 2.0
Euroarea 25.4 India 1.1
Philippines 24.1 UnitedStates 0.0
Korea 23.1 Mexico 0.0
Israel 20.3 Canada 1.6
Czech 20.1 SouthAfrica 3.7
Thailand 19.7 Turkey 9.2
Norway 19.3 NewZealand 11.0
SaudiArabia 17.3 Colombia 11.2
Hungary 16.8 Brazil 17.9
Source: PIIE Estimates of Fundamental Equilibrium Exchange rates, May 2014;
Reworked by DCM Economics to force zero current account balances
50
100
150
200
250
300
350
400
450
500
550
600
650
700
1850 1875 1900 1925 1950 1975 2000
10-year MA
Real Copper Price
2013 cents/lb
Shortest cycle 16 years
*despite reversals which are common in all long cycles
Source: Wall Street Journal, DCM Economics
Bullish: (6) Commodity Cycle
The shortest copper cycle lasted 16 years*
0
200
400
600
800
1000
1200
1400
1600
1800
1800 1825 1850 1875 1900 1925 1950 1975 2000
Shortest bull-cycle
10 years
10-year MA
Real Gold Price
2013$/ounce
Correction
Source: Thomson Reuters Datastream, LBMA, DCM Economics
The shortest gold cycle lasted 10 years
5.25
5.50
5.75
6.00
6.25
6.50
6.75
7.00
7.25
7.50
1800 1825 1850 1875 1900 1925 1950 1975 2000
Shortest bull-cycle
10 years
10-year MA
LN (Real Gold Price)
2013$/ounce
Correction
Source: Thomson Reuters Datastream, LBMA, DCM Economics
And log data suggests a correction was overdue
US Civil
War
Gold set
at $35
15
0
100
200
300
400
500
600
700
800
900
70 71 72 73 74 75 76 77 78 79 80 81
The 1970 Bull Market - Price Corrections
London Daily PM Fix
70
-14% 60
-29% 90
127
129
180
-28%
-47%
104
195
154
137
-11%
190
168
-12%
-20%
243
193
-17%
426
354
850
482
-43%
US recession
Bull market
ends
Mid-Cycle
Correction
(more than 86 weeks)
Geopolitical Crisis!
Bullish: (7) Geopolitical
The biggest geopolitical crisis to date
200
300
400
500
600
700
800
900
Iranian hostage crisis and
Russia in Afghanistan
Cyclical peak in gold
about $400
(or 100%)
IRAN
Gold Price: Jul 30/79 to May 29/80
1979 1980 1981
But there have been others
340
350
360
370
380
390
400
410
420
Counterstrike commences;
US bombs Iraq
about $30
Gold Price: Jul 2/90 to Jun 28/91
1990 1991
Oil peaks at $40
Iraq
invades
Kuwait
IRAQ
about $40
Some boosted gold by more than 10% - most not!
260
270
280
290
300
310
320
330
340
350
360
370
380
390
about $25
2001 2002
Attack
on WTC
9/11
about $70
US attacks
Iraq on 3/20
2003
IRAQ
AL QUEDA
Gold Price: Jun 23/01 to May 8/03
16
The Ukraine/Crimea crisis added $100 in 2014-Q1
1150
1200
1250
1300
1350
1400
Gold Price: Oct 01/13 to date
2013 2014
Ukraine/Crimea
about $100
0
200
400
600
800
1000
1200
1400
1600
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Bullish: (8) Gold Not " Expensive"
The NASDAQ was a real bubble not gold
Everything
set to 100
NASDAQ 1990-2009
GOLD: 2001/03/30 to date
Years
SILVER: 2001/11/23 to date
Source: Thomson Reuters Datastream, DCM Economics
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
1934 1944 1954 1964 1974 1984 1994 2004 2014
To back US money supply higher prices needed
Price of gold to cover US M2
(Cover ratio = .24)
Price of gold to cover US M1
(Cover ratio = .38) $3700
$9800
Cover ratio as determined in 1934 when gold was revalued to $35
0
5000
10000
15000
20000
25000
30000
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Gold Price
Updated through 2013-Q4
Price of gold to cover
$US FX reserves
35% of $US FX reserves
US debt held by world
To back US$ reserves higher prices needed
17
0
5
10
15
20
25
30
35
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Gold close to long-term average versus oil
Barrels of oil per
ounce of gold
1970 to date
average:
15.12
0
100
200
300
400
500
600
700
800
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Gold close to long-term average with copper
Pounds of copper per ounce of gold
1970 to date
average: 349.8
15
30
45
60
75
90
105
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
And gold/silver ratio close to long-term average
Ounces of silver per
ounce of gold
1970 to date
average: 55.0
Gold Price Scenarios
Forecast Update: June/Sept 2014
2014-avg 2014-end 2015-avg
Scenario A: p =25% $1257 $1120 $1075
Scenario B: p =50% $1283 $1295 $1355
Scenario C: p =25% $1302 $1385 $1525
_______________________________________________
Weighted $1283 $1274 $1335
18
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The author(s) is an economist with Dundee Capital Markets, a division of Dundee Securities Ltd. (Dundee). The author(s) is
not a research analyst or an investment advisor. Dundee, may have an investment banking, financial advisory or other
relationships with some or all of the issuers mentioned herein and may trade in any of the securities mentioned herein, either
for their own account of for the accounts of their customers, or provide advice in respect of or conduct research on such
securities.
The comments in this report are solely those of the author. The information contained in this report (including any opinions or
opinions and estimates) is current as of the date of publication and has been prepared from publicly available information,
internally developed data and other sources believed to be reliable, but that have not been independently verified. The
information in this report is subject to change without notice and are provided in good faith but without legal responsibility. The
views expressed should not be considered a recommendation to buy or sell nor should they be relied upon as investment
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Gold Price Outlook September 2014

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Gold Price Outlook September 2014

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