Download The Gold Price Outlook

What Went Wrong in 2013?
An orgy of ETF sales – 881 tonnes in 2013!
10
Change from previous week, tonnes
0
-10
The Gold Price Outlook
-20
Bullish/Bearish Factors
-30
-40
-50
-60
September 16, 2014
Presented at the Denver Gold Forum 2014
| DUNDEE CAPITAL MARKETS
What Went Wrong in 2013?
What Went Right in 2013?
Investors went to equities …!!
Chinese net imports from HK set record!
2100
250
2225
2000
2100
Gold
S&P 500
1850
1700
1725
1600
1600
1500
1475
1400
1350
1300
1225
1200
1100
1100
Massive negative
correlation in 2013: -.88
1000
900
Chinese Gold Imports from Hong Kong
1975
1800
800
600
2013: 1158 tonnes
150
2009
2010
2011
2012
2013
50
975
0
850
725
-50
| DUNDEE CAPITAL MARKETS
Chinese Gold Re-Exports to Hong Kong
(monthly – tonnes)
475
Last month: July 2014
-100
Jan-10
2014
Jan-11
Jan-12
Jan-13
Jan-14
Source: Thomson Reuters Datastream, Hong Kong Census, DCM Economics
Source: Thomson Reuters Datastream, London Bullion Market Association
3
2012: 557 tonnes
100
350
2008
(monthly – tonnes)
200
600
Daily data
Last date: September 12, 2014
700
2007
2013-Q4
2013-Q3
Source: Bloomberg, World Gold Council, DCM Economics
2
1900
2013-Q2
2013-Q1
-70
Dr. Martin Murenbeeld
4
| DUNDEE CAPITAL MARKETS
1
Bearish: (1) Fed Ends QE
Bearish Factors for 2014-15
The Fed balance sheet must inevitably decline …
4800
The Fed must inevitably tighten policy
1.
•
•
Total assets have
quintupled!
4200
The Fed is currently “tapering”
QE will end late 2014
And the Fed will raise rates in 2015
•
Total Assets
$ billions
4500
3900
3600
3300
3000
US dollar will remain firm in 2014-15!?
The world economy is sluggish
2.
3.
2400
•
•
5.
1500
900
Currency
Swaps
600
Other Assets
US Treasuries
300
Jan-08 Jun-08 Dec-08 May-09 Nov-09 Apr-10 Oct-10 Mar-11 Sep-11 Feb-12 Aug-12 Jan-13
Last date: September 10, 2014
6
| DUNDEE CAPITAL MARKETS
Bearish: (1) Fed Ends QE
US real rates rose in 2013 – “taper tantrum” …
5
US real short term
interest rate
2000
-1.0
1750
-0.5
3
29%
1500
2
1
0
0.0
GOLD
Real rates
not above
zero before
2016 …??
Real rates below zero are
very positive for gold
-1
Jul-13 Dec-13 Jun-14 Nov-14
Source: Federal Reserve
And real rates will have to rise - but before 2016?
Gold prices
often stall
when real
rates rise
above 2%!
Liquidity
to Banks
1200
Bearish: (1) Fed Ends QE
4
Agency Debt
Securitization Market
(support for mortgages)
1800
Equity markets will continue to draw investment
interest away from gold
Investors still have gold to sell – and “technicals”
bearish
4.
Commercial
Paper Market
2100
Gold typically weakens during recessions
Inflation pressures remain subdued
There is often a need for “liquidity”
•
Other Credit
Extensions
2700
1250
0.5
1000
1.0
750
1.5
500
2.0
-2
-3
250
-4
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
00
15
Source: US Bureau of Labor Statistics, Federal Reserve
7
Last month: August 2014
0
-5
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2.5
10-year TIPS
Last month: August 2014
01
02
03
04
05
06
07
08
09
10
11
12
13
3.0
14
Source: LBMA, US Bureau of Labor Statistics, Federal Reserve
8
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2
Bearish: (1) Fed Ends QE
Bearish: (1) Fed Ends QE
But gold may have fully discounted rising yields …!
60
Model: gold has fully discounted Fed actions!?
-1.0
60
-0.5
50
10-year TIPS
48
GOLD
% year-on-year
36
Correlation = .67
GOLD
% year-on-year
40
0.0
30
24
0.5
12
1.0
0
1.5
-12
2.0
20
10
0
-24
Model
-10
2.5
-20
3.0
-30
Real 10-year yields
US dollar index - change
Last month: July 2014
Last month: August 2014
-36
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
00
02
04
06
08
10
12
14
Source: US Bureau of Labor Statistics, Federal Reserve
Source: London Bullion Market Association, Federal Reserve, Bureau of Labor Statistics, WSJ
9
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10
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Bearish: (1) Fed Ends QE
Bearish: (2) Dollar Strengthens
What do the Models say specifically?
The dollar rises … others devalue against dollar
65
2000
Corr: -.90
IMPACT ON GOLD OF 100-POINT RISE***
MODEL 1969-2014
REAL INTEREST RATE*
US DOLLAR**
-5.656%
-1.219%
-3.839%
-1.235%
(R-squared = .362)
MODEL 1989-2014
(R-squared = .475)
MODEL 2000-2014
-1.691%
-1.513%
(R-squared = .454)
*Difference between 10-year Treasury yield and consumer price inflation (y-o-y)
** Dollar index includes Cdn$, Yen, Pound, Euro (pre-1999: DM, Lira, FF)
***A 100-point rise in the real rate is 100 basis points
***A 100 point rise in the US dollar is a rise in the index from, say, 75.00 to 76.00
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%!
Corr: -.84
70
Corr: -.77
Corr: -.48
Corr: -.29
Corr: -.80
Corr: -.58
Corr: -.38
to date
1750
US Dollar
(eight currencies)
75
1500
80
1250
85
1000
Gold
90
750
Correlation since 2006: -.80
But gold has already
declined by nearly
30% …???
Latest week: September 12, 2014
95
07
08
09
10
11
12
13
14
500
15
Dollar Index includes: Canadian dollar, Aussie dollar, euro, yen, Swiss Franc, pound, rupee, RMB/yuan
Source: Wall Street Journal, London Bullion Market Association, Dundee Capital Markets calculations
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12
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3
Bearish: (2) Dollar Strengthens
Bearish: (3) Global Economy Sluggish
Gold/US dollar correlations always negative
Recessions always a major headwind for gold …
50
-35
Gold - %
2000
US Dollar - %
40
1900
-28
Gold daily p.m. fix
Data through September 12, 2014
1800
1700
30
-21
Correlation: -0.59
Correlation: -0.64
20
1600
US recession
1500
-14
10
-7
0
0
37%
1400
1300
1200
1100
Eurozone
Recession/Depression
1000
-10
30%
900
7
800
-20
US dollar index
US dollar index
(four currencies)
(eight currencies)
700
14
600
-30
500
21
82
84
86
88
90
92
94
96
98
00
13
13
13
13
13
12
Jan 07 Jul 07 Feb 08 Sep 08 Apr 09 Nov 09 Jun 10 Jan 11 Aug 11 Mar 12 Oct 12 Apr 13 Nov 13 Jun 14
14
Source: London Bullion Market Association
Source: Wall Street Journal, Dundee Capital Markets calculations
13
Last quarter: 2014-Q2
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14
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Bearish: (3) Global Economy Sluggish
Bearish: (3) Global Economy Sluggish
IMF forecast: 3.4%-2014 and 4.0%-2015
6
Commodities decline when world growth < 4%
8
18
World
GDP
Billion
US$(%)
5
14
4
CRB and BoC commodity price indices are inflationadjusted and highly correlated with world growth
China GDP (%)
16
7
12
40
30
CRB Index
10
3
6
8
20
Bank of Canada Index
2
6
(e)
1
4
5
10
4
0
3
-10
2
0
0
-1
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
-2
80
12
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
5
4
India GDP (%)
10
2
6
1
2
(e)
3
8
0
4
-20
1
-30
World GDP %
-1
0
-2
2
-40
-3
-4
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
US recession
EU GDP (%)
0
-2
-1
-5
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
-50
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
Source: IMF World Economic Outlook, July 2014
Source: IMF, Bank of Canada, Thomson Reuters Datastream, DCM Economics
15
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16
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4
Bearish: (3) Global Economy Sluggish
Bearish: (3) Global Economy Sluggish
Copper prices weakened in recent quarters …
500
And commodity prices generally are down …
470
180
US recessions
150
430
400
120
390
350
90
Nov 2001
60
250
30
200
0
150
50
90
92
94
96
98
00
02
04
06
08
10
12
350
12
310
0
270
-12
-24
Thomson
Reuters/Jeffries
CRB Index
-36
Last month: August 2014
150
-90
90
14
92
94
96
98
00
Source: Wall Street Journal
Source: Wall Street Journal
17
24
190
-60
Last month: August 2014
| DUNDEE CAPITAL MARKETS
18
04
06
08
10
12
-48
14
CRB INDEX: 19 commodity prices - Energy 39%, Agriculture
41%, Precious Metals 7%, Industrial Metals 13%
Bearish: (3) Global Economy Sluggish
Headline inflation is going nowhere fast …!
Scrap supply elevated when liquidity needs rise
2000
Last month: July 2014
% YoY
02
| DUNDEE CAPITAL MARKETS
Bearish: (3) Global Economy Sluggish
7
36
Nov 2001
230
-30
Copper
US cents/lb
China Joins WTO
% year-over-year
% year-over-year
300
100
48
US recessions
China Joins WTO
450
tonnes
6
Great
Recession
1800
Headline CPI
5
Recycled/Scrap Gold
1600
Core CPI
4
1400
3
Asian
Financial
Crisis
1200
2
1000
1
800
0
Fed’s PCE
600
US recessions
-1
400
-2
200
-3
90
92
94
96
98
00
02
04
06
08
10
12
0
14
1986
Source: US Bureau of Labor Statistics, US Bureau of Economic Analysis
19
| DUNDEE CAPITAL MARKETS
1990
1994
1998
2002
2006
2010
2014
Source: World Gold Council “Gold Demand Trends - Full Year 2013”
Thomson Reuters GFMS
20
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5
Bearish: (3) Global Economy Sluggish
Bearish: (4) Equity Markets Rally Further
India: import barriers to preserve liquidity
Monetary factors also help equities!
175
2100
INDIA
Gold Imports
150
2175
2000
1900
(monthly – tonnes)
125
100
12-month MA
75
2050
Gold
S&P 500
1925
1800
1800
1700
1675
1600
1550
1500
1425
1400
1300
1300
1175
1200
1050
1100
50
925
Monetary Reflation!
1000
800
900
25
675
800
550
Daily data
Last date: September 12, 2014
700
0
600
J a n- 0 3
J a n- 0 4
J a n- 0 5
J a n- 0 6
J a n- 0 7
J a n- 0 8
J a n- 0 9
J a n - 10
J a n - 11
J a n - 12
J a n - 13
Last month: August 2014
Source: Thomson Reuters Datastream, DCM estimates
21
2008
2009
2010
2011
2012
2013
2014
Source: Thomson Reuters Datastream, London Bullion Market Association
| DUNDEE CAPITAL MARKETS
22
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Bearish: (5) Gold for Sale
Bearish: (5) Gold for Sale
COMEX “specs” net-long position still significant
300
425
300
2007
J a n - 14
ETF holdings still substantial …!
2750
36
Weekly data
Last date: September 2, 2014
Gold Price
2500
(quarterly % change)
240
24
180
12
2633 Tonnes
Tonnes
Last date: September 11, 2014
2250
2000
120
0
1250
1000
-12
“Specs” net long
Other
1500
607.7
tonnes
295.9
tonnes
60
1715 Tonnes
1750
SPDR Gold ETF
750
0
-24
-60
-36
500
250
2007
2008
Source: US CFTC, Comex
23
| DUNDEE CAPITAL MARKETS
2009
2010
2011
2012
2013
2014
0
Apr-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
Source: ExchangeTradedGold.com, Bloomberg
09/02 Net-Long: 301 Tonnes
24
| DUNDEE CAPITAL MARKETS
6
Bearish: (5) Technical Picture
Bullish Factors for 2014-15
1950
Gold - $/oz
$1895
1850
$1795
1.
$1694
2.
$1614
3.
$1540
4.
1750
1650
1550
50-day MA
1450
200-day MA
$1469
1350
Death Cross!
1250
$1419
$1385
$1340
5.
$1242
6.
$1192
7.
1150
8.
1050
ETF “supply” down dramatically in 2014-15
Asian physical demand will continue to expand
Central banks will continue to buy gold
Global debt crisis will require ongoing monetary
reflation
Global imbalances will remain unresolved until
the dollar declines significantly
The commodity cycle will run many more years
Geopolitical crises will multiply
Gold price not “expensive” by normal measures
Last date: September 16, 2014
950
2010
2013
2012
2011
2014
Source: London Bullion Market Association
25
| DUNDEE CAPITAL MARKETS
Bullish: (1) Gold Supply
Bullish: (1) Gold Supply
Massive sales not to be repeated in 2014-15
Indeed, supply to jewelers/investors unlikely to rise
20
Change from previous week, tonnes
1500
10
Net Mine
Supply
Billion
US$ ( supply less dehedging)
1500
Net Mine Supply + Scrap Supply
Tonnes
Tonnes
Rising Modestly
1200
1200
0
-10
-20
-48 tonnes
2014 to date
-30
900
900
600
600
300
300
0
Stable
0
2009
2010
2011
2012
2013
2014
2009
2010
2011
2012
2013
2014
Net Mine Supply + Scrap – CB Demand
1500
-40
-50
-869 tonnes
2013
(e)
Tonnes
1200
Lower gold prices will
curtail some mine output!
900
-60
2013-Q1 2013-Q2 2013-Q3
2013-Q4 2014-Q1
600
2014-Q2 2014-Q3 2014-Q4
Stable
-70
300
0
2009
Source: Bloomberg, DCM Economics
27
| DUNDEE CAPITAL MARKETS
28
2010
2011
2012
2013
2014
| DUNDEE CAPITAL MARKETS
7
Bullish: (2) Consumer Demand*
Bullish: (2) India Consumer Demand*
India/China becoming richer … LT demand positive
Demand down in 2014-H1 (YoY) but trend positive
1400
1300
400
tonnes
RoW
China
India
1200
1100
350
300
1000
900
250
800
700
200
600
150
500
400
100
300
51%
200
50
100
0
2007-Q1
0
09-Q1
10-Q1
11-Q1
12-Q1
Source: World Gold Council “Gold Demand Trends – Second Quarter 2014”
data tabulated by Thomson Reuters GFMS
29
13-Q1
14-Q1
*Consumer demand = jewelry plus
bar/coin/medal investment demand
2008-Q1
2009-Q1
2010-Q1
2011-Q1
2012-Q1
Source: World Gold Council “Gold Demand Trends – Second quarter 2014”
data tabulated by Thomson Reuters GFMS
30
| DUNDEE CAPITAL MARKETS
2013-Q1
2014-Q1
*Consumer demand = jewelry plus
bar/coin/medal investment demand
| DUNDEE CAPITAL MARKETS
Bullish: (2) China Consumer Demand
Bullish: (2) China Consumer Demand
Down in 2014-H1 - but trend very positive
Shanghai deliveries in clear uptrend!
400
80
350
70
300
60
250
50
200
40
150
30
100
20
50
10
Shanghai Gold Deliveries
0
2007-Q1
(tonnes weekly totals)
12-week MA
0
2008-Q1
2009-Q1
2010-Q1
2011-Q1
2012-Q1
2013-Q1
09
2014-Q1
10
11
12
13
14
Date: Sept 12, 2014
Source: World Gold Council “Gold Demand Trends – Second quarter 2014”
data tabulated by Thomson Reuters GFMS
31
| DUNDEE CAPITAL MARKETS
Source: Shanghai Gold Exchange, Sharelynx Gold, DCM Economics
*Consumer demand = jewelry plus
bar/coin/medal investment demand
32
| DUNDEE CAPITAL MARKETS
8
Bullish: (3) CB’s Buying Gold
Bullish: (2) China Consumer Demand
CB demand will continue for years …
Cumulative Shanghai deliveries on trend!
200
2400
tonnes
2000
150
Shanghai Gold Deliveries
(cumulative tonnes)
1600
100
1200
50
800
0
400
-50
0
-100
Central Bank Gold Purchases
09
10
11
12
13
14
09-Q1
10-Q1
11-Q1
12-Q1
13-Q1
14-Q1
Date: Sept 12, 2014
Source: Shanghai Gold Exchange, Sharelynx Gold, DCM Economics
33
Source: World Gold Council “Gold Demand Trends - First Quarter 2014”
Thomson Reuters GFMS
34
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| DUNDEE CAPITAL MARKETS
Bullish: (3) CB’s Buying Gold
Bullish: (3) CB’s Buying Gold
Global FX reserves are excessive … (62% in $’s)
Other currencies vying to become reserve currencies
Foreign Exchange Reserves
(countries over $100 bn)
bn$
China
3993.2 India
Japan
1210.0 Algeria
Saudi Arabia 741.7 Mexico
Switzerland
505.5 Thailand
Taiwan
423.7 Malaysia
Russia
409.6 Turkey
Brazil
367.0 Indonesia
Korea
355.8 Libya
Hong Kong
320.8
TOTAL
bn$
289.3
191.6
181.1
160.8
127.3
109.9
105.4
104.3
9596.9
Addendum: Fuel Exporters $1839 bn
A number of central
banks like the fact
that gold is not a
liability of the Federal
Reserve/US Treasury
RUSSIA
CHINA
OIL EXPORTERS
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)
Source: IMF International Financial Statistics, July 2014
35
| DUNDEE CAPITAL MARKETS
9
Bullish: (4) Global Debt Crisis
Bullish: (4) Global Debt Crisis
Entitlements are killing Western economies …
70
60
And developed economies are aging …
80
US Budget:
Percent of total outlays
Population Ratio: 65+/15-64
Entitlements
Japan
Western Europe
Canada
US
70
60
50
50
“Super-aged”
40
40
30
Defense
30
Interest on Debt
20
20
10
10
Other
0
Annual data (last year 2013)
1970
1975
0
1980
1985
1990
1995
2000
2005
2010
2010
Source: Bureau of Economic Analysis
37
2015
2020
2030
2050
Source: United Nations Department of Economic and Social Affairs
Source: United Nations Department of Economic and Social Affairs
| DUNDEE CAPITAL MARKETS
38
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Bullish: (4) Global Debt Crisis
Bullish: (4) Global Debt Crisis
Which leads to ever higher debt/GDP ratios …
Unless growth and inflation can be boosted …!
250
Estimates for 2013
General Government Debt
% of GDP
200
Primary
Nominal
Balance GDP Growth
A
B
Greece
Japan
Spain
Ireland
Portugal
US
Canada
Italy
Germany
150
2003
2009
2015
Over 90%
spells trouble
(Reinhart/Rogoff)
100
50
Greece
Italy
Portugal
US
Spain
France
UK
-5.8
1.0
-0.6
0.1
0.3
3.4
3.3
-0.4
2.7
A+B-C
5.0
0.2
0.7
0.5
1.6
1.7
1.6
1.0
0.2
-9.3
-6.8
-5.6
-3.8
-2.0
-2.4
-1.0
0.6
4.1
Sources:
Primary Balance - IM F Fiscal M onitor, April 2014
Nominal GDP - IM F World Economic Outlook, April 2014
Yields as of September 5, Thomson Reuters DataStream (Greece: April 10 bond sale)
0
Japan
1.5
-7.6
-4.3
-3.4
-0.7
-4.1
-2.6
2.0
1.7
5-year
Bond Yield
C
Canada
For debt ratio
to decline
A+B > C !
As it stands
only Germany
will really
reduce its
Debt/GDP ratio
in 2014 !
RED: Debt/GDP ratio to rise further!
Source: IMF Fiscal Monitor April 2014
39
| DUNDEE CAPITAL MARKETS
40
| DUNDEE CAPITAL MARKETS
10
Bullish: (4) Global Debt Crisis
Bullish: (4) Global Debt Crisis
But growth appears to be in secular decline …!
What will governments do about debt/entitlements?
7
Average US real GDP growth rate
Government Choices:
6
Robert Gordon: “There is no guarantee that
growth will continue indefinitely”
5
Austerity:
•
•
4
3
2
Cut services and raise taxes
Deflate and accept
“depression”
Bad for gold
Reflation:
1
• Go for growth: Inflate-devalue
• Default/financial repression
0
1940-49
1950-59
1960-69
1970-79
1980-89
1990-99
2000-09
2010-13
Good for gold
Source: Bureau of Economic Analysis
Robert Gordon, NBER – WP 18315, August 2012
41
42
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Bullish: (4) Global Debt Crisis
Bullish: (4) Global Debt Crisis
All balance sheets expanding – ECB soon too!
Eurozone in desperate need of growth/inflation
1000
110
January 2000 = 100
105
800
People's Bank of China
Bank of England*
Federal Reserve
European Central Bank
Bank of Japan
600
REAL GDP
Q4 2007 = 100
100
United States
95
400
Eurozone
90
Set to 100
200
85
Last quarter: 2014-Q2
Last month: July 2014
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
80
14
00
*Bank of England June 2706 = 130
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: US Bureau of Economic Analysis, Eurostat, DCM Economics calculations
Source: Thomson Reuters Datastream
43
| DUNDEE CAPITAL MARKETS
44
| DUNDEE CAPITAL MARKETS
11
Bullish: (4) Global Debt Crisis
Bullish: (4) Global Debt Crisis
Liquidity is important to gold …
Gold often rises and falls with liquidity …
1850
60
16.5
Oversold in 2013?
1700
15.0
1550
13.5
1400
12.0
1250
10.5
1100
9.0
950
%
%
48
42
35
Global Liquidity
Gold
36
28
24
21
12
14
7.5
Global Liquidity
800
Gold
650
(month average)
0
6.0
4.5
500
7
-12
0
Oversold in 2013?
3.0
Last month:
Gold – August 2014
Liquidity – June 2014
350
200
-24
1.5
84
86
88
90
92
94
96
98
00
12
12
12
12
10
12
82
14
Global Liquidity: FX Reserves + US MBase
Source: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve
45
Last month: August 2014
-36
0.0
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
-14
14
Global Liquidity: FX Reserves + US MBase
Source: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve
| DUNDEE CAPITAL MARKETS
46
| DUNDEE CAPITAL MARKETS
Bullish: (5) Dollar Fundamentally Overvalued
Bullish: (4) Global Debt Crisis
US dollar in long-term downtrend …
… Liquidity in one form or another …
60
%
48
60
150
48
140
US recession
Global Liquidity
G-6 money supply - M2
36
-7
Correlation: .62
US Dollar Indices
Fed Major (March 1973=100)
Murenbeeld-EFXR0 (Jan 1999=100)
Murenbeeld-NEFXR (Jan 1999=100)
130
36
120
24
24
12
12
110
100
0
0
-12
-12
-24
Gold
Gold oversold
in 2013?
Correlation: .49
Last month: August 2014
-36
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
80
-24
70
-36
60
Last month: August 2014
73
14
| DUNDEE CAPITAL MARKETS
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
Source: Wall Street Journal, Federal Reserve, DCM Economics
G-6 M2 Money Supply: US, China, EU, Japan, UK, Canada
Source: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve
47
??
90
48
| DUNDEE CAPITAL MARKETS
12
Bullish: (5) Dollar Fundamentally Overvalued
Bullish: (5) Dollar Fundamentally Overvalued
The US trade deficit has declined recently …
… on back of rising US energy production
0
0
0
$billion
US trade
balance
-10
(Goods and Services)
-20
-30
-100
-50
-200
-100
12-month
total
Million barrels/year
-500
Balance
12 mo total
-1000
-150
-300
-40
0
Million barrels/month
-1500
6.2 million barrels/day
-200
-2000
-250
-2500
-300
-3000
-350
-3500
-400
-50
-500
-60
-600
-70
12-month
total
-700
-80
(goods only)
-800
-450
-900
-500
-400
-4000
12.7 million barrels/day
-4500
$billion
Last month: July 2014
-90
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Last month: June 2014
-5000
14
82
Source: US Census Bureau
49
50
0
0
Billion US$
-100
-200
-30
-300
-5
Billion US$
-40
-400
-50
-500
-60
World
98
-90
-900
Billion US$
-20
World
-100
-15
100
720
90
630
80
540
-150
125
450
-20
-200
100
360
75
270
-25
-250
50
25
China
-30
12-month
total bn$
-35
-300
-350
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
0
bn$
-4
08
10
12
14
0
-1
bn$
0
Billion US$
-20
-3
-30
01
04
07
10
160
120
80
90
10
-50
40
160
-100
-6
-60
30
120
20
80
10
40
-16
-8
-160
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: Thomson Reuters Datastream
-7
-9
50
-70
Japan
12-month
total bn$
-10
200
EU
-80
-90
0
-100
0
95
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
98
01
04
07
Source: Thomson Reuters Datastream
Last month: July 2014
52
01
04
07
18
10
13
4-quarter total bn$
(e)
15
60
50
240
-40
-140
0
98
bn$
280
-5
-120
40
0
95
-4
12-month
total bn$
240
20
-80
-10
280
180
320
60
360
320
US
60
4-quarter total bn$
bn$
70
4-quarter total bn$
Billion US$
70
13
80
-10
-2
98
400
bn$
200
-60
| DUNDEE CAPITAL MARKETS
06
30
-8
EU
04
40
0
95
-40
-14
02
50
-6
-12
00
810
4-quarter total bn$
Billion US$
150
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
51
96
175
-700
-800
bn$
200
-600
12-month
total bn$
-80
0
94
225
-50
-10
-2
92
While China has huge trade surpluses …
0
bn$
-20
-70
90
Bullish: (5) RMB Fundamentally Undervalued
But deficits with most countries much too large …
-10
88
| DUNDEE CAPITAL MARKETS
Bullish: (5) Dollar Fundamentally Overvalued
bn$
86
Source: US Energy Information Administration
| DUNDEE CAPITAL MARKETS
0
84
10
13
12
40
Japan
9
30
6
20
3
10
0
0
95
98
01
04
07
10
13
Last quarter: 2014-Q1
| DUNDEE CAPITAL MARKETS
13
Bullish: (5) Dollar Fundamentally Overvalued
Bullish: (6) Commodity Cycle
Some Asian currencies undervalued by 30%+
The shortest copper cycle lasted 16 years*
700
Dollar
Overvaluation
Country
48.2
42.2
34.6
34.1
33.2
29.8
28.3
27.8
25.4
24.1
23.1
20.3
20.1
19.7
19.3
17.3
16.8
Singapore
Taiwan
Sweden
Hong Kong
Switzerland
China
Malaysia
Japan
Euro area
Philippines
Korea
Israel
Czech Thailand
Norway
Saudi Arabia
Hungary
Country
Dollar
Overvaluation
15.9
15.7
11.7
8.2
7.3
4.8
2.7
2.0
1.1
0.0
0.0
‐1.6
‐3.7
‐9.2
‐11.0
‐11.2
‐17.9
UK
Russia
Poland
Indonesia
Venezuela
Chile
Australia
Argentina
India
United States
Mexico
Canada
South Africa
Turkey
New Zealand
Colombia
Brazil
Shortest cycle – 16 years
650
This table is based on the
PIIE’s FEER analysis,
modified to target zero
current account balances.
600
Real Copper Price
550
2013 cents/lb
500
450
Some Asian currencies
would appear to be
seriously undervalued …
400
350
300
250
… even the Euro is
undervalued by some 25%
against the US dollar!
200
150
10-year MA
100
50
1850
1875
1900
1925
1950
1975
2000
*despite reversals – which are common in all long cycles
Source: PIIE Estimates of Fundamental Equilibrium Exchange rates, May 2014;
Reworked by DCM Economics to force zero current account balances
Source: Wall Street Journal, DCM Economics
53
| DUNDEE CAPITAL MARKETS
54
| DUNDEE CAPITAL MARKETS
Bullish: (6) Commodity Cycle
Bullish: (6) Commodity Cycle
The shortest gold cycle lasted 10 years
And log data suggests a correction was overdue …
1800
7.50
1600
7.25
LN (Real Gold Price)
Real Gold Price
1400
Shortest bull-cycle
– 10 years
2013$/ounce
1200
1000
Shortest bull-cycle
– 10 years
6.75
US Civil
War
6.50
Correction
800
6.25
600
6.00
400
Correction
Gold set
at $35
5.75
10-year MA
200
10-year MA
5.50
0
5.25
1800
1825
1850
1875
1900
1925
1950
1975
2000
1800
Source: Thomson Reuters Datastream, LBMA, DCM Economics
55
2013$/ounce
7.00
| DUNDEE CAPITAL MARKETS
1825
1850
1875
1900
1925
1950
1975
2000
Source: Thomson Reuters Datastream, LBMA, DCM Economics
56
| DUNDEE CAPITAL MARKETS
14
The 1970 Bull Market - Price Corrections
Bullish: (7) Geopolitical
900
The biggest geopolitical crisis to date …
850
London Daily PM Fix
800
Bull market
ends
900
IRAN
700
800
Geopolitical Crisis!
600
700
about $400
(or 100%)
Cyclical peak in gold
US recession
500
400
600
-43%
Mid-Cycle
Correction
482
426
500
-17%
(more than 86 weeks)
354
300
Iranian hostage crisis and
Russia in Afghanistan
400
243
195
200
180
127
100
70
154
-28%
90 -29%
-14%
60
190
104
-47%
193 -20%
-12%
300
168
137
129
-11%
Gold Price: Jul 30/79 to May 29/80
200
1979
0
70
71
72
73
74
75
76
77
78
79
80
81
1980
1981
Source: London Bullion Market Association
Source: London Bullion Market Association
57
| DUNDEE CAPITAL MARKETS
58
| DUNDEE CAPITAL MARKETS
Bullish: (7) Geopolitical
Bullish: (7) Geopolitical
But there have been others …
Some boosted gold by more than 10% - most not!
420
390
Oil peaks at $40
410
400
390
Iraq
invades
Kuwait
IRAQ
380
Counterstrike commences;
US bombs Iraq
IRAQ
370
360
about $40
350
340
about $70
AL QUEDA
330
380
320
310
370
360
350
340
300
about $30
US attacks
Iraq on 3/20
290
280
Gold Price: Jul 2/90 to Jun 28/91
1990
| DUNDEE CAPITAL MARKETS
Gold Price: Jun 23/01 to May 8/03
270
260
1991
2001
2002
2003
Source: London Bullion Market Association
Source: London Bullion Market Association
59
Attack
on WTC about $25
9/11
60
| DUNDEE CAPITAL MARKETS
15
Bullish: (7) Geopolitical
Bullish: (8) Gold Not "Expensive"
The Ukraine/Crimea crisis added $100 in 2014-Q1
The NASDAQ was a real bubble … not gold …
1600
1400
Ukraine/Crimea
1400
1350
NASDAQ 1990-2009
1200
SILVER: 2001/11/23 to date
GOLD: 2001/03/30 to date
1000
1300
800
1250
600
about $100
Everything
set to 100
400
1200
200
Gold Price: Oct 01/13 to date
0
1150
2013
2014
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Years
Source: Thomson Reuters Datastream, DCM Economics
Source: London Bullion Market Association
61
62
| DUNDEE CAPITAL MARKETS
| DUNDEE CAPITAL MARKETS
Bullish: (8) Gold Not "Expensive"
Bullish: (8) Gold Not "Expensive"
To back US money supply higher prices needed
To back US$ reserves higher prices needed
30000
11000
Gold Price
10000
$9800
Price of gold to “cover” US M2
(Cover ratio = .24)
9000
25000
Price of gold to cover
$US FX reserves
8000
20000
7000
Price of gold to cover
US debt held by world
6000
15000
5000
Price of gold to “cover” US M1
(Cover ratio = .38)
4000
$3700
10000
Price of gold to cover
35% of $US FX reserves
3000
2000
5000
1000
Updated through 2013-Q4
0
0
1934
1944
1954
1964
1974
1984
1994
2004
2014
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
“Cover ratio” as determined in 1934 when gold was revalued to $35
Source: Thomson Reuters Datastream, DCM Economics
Source: Thomson Reuters Datastream, DCM Economics
63
| DUNDEE CAPITAL MARKETS
64
| DUNDEE CAPITAL MARKETS
16
Bullish: (8) Gold Not "Expensive"
Bullish: (8) Gold Not "Expensive"
Gold close to long-term average versus oil
Gold close to long-term average with copper
35
800
30
700
Pounds of copper per ounce of gold
600
1970 to date
average:
15.12
25
500
20
400
15
300
10
5
100
Last month: August 2014
0
Last month: August 2014
0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: Thomson Reuters Datastream, London Bullion Market Association
65
1970 to date
average: 349.8
200
Barrels of oil per
ounce of gold
Source: Thomson Reuters Datastream, London Bullion Market Association
| DUNDEE CAPITAL MARKETS
66
Bullish: (8) Gold Not "Expensive"
| DUNDEE CAPITAL MARKETS
Forecast Update: June/Sept 2014
And gold/silver ratio close to long-term average
105
90
Gold Price Scenarios
Ounces of silver per
ounce of gold
75
60
Scenario A: p = 25%
Scenario B: p = 50%
Scenario C: p = 25%
45
1970 to date
average: 55.0
30
2014-end
2015-avg
$1257
$1283
$1302
$1120
$1295
$1385
$1075
$1355
$1525
_______________________________________________
Weighted
Last month: August 2014
15
2014-avg
$1283
$1274
$1335
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: Thomson Reuters Datastream, London Bullion Market Association
67
| DUNDEE CAPITAL MARKETS
68
| DUNDEE CAPITAL MARKETS
17
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18
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
advice. No representation or warranty is made regarding the use or the results of the information contained herein in terms of
its completeness, correctness, accuracy, timeliness, reliability, or otherwise, and do not accept any responsibility for any loss or
damage that results from such use.
©Dundee Securities Ltd. Any reproduction or distribution in whole or in part of this research report without permission is
prohibited.
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