Growing Asian Demand In
Physical Gold And Its Impact
On Gold Prices
Minerals Council of Australia
Gold Forum
2 June 2015
Market Maker of the year 2014 COMMODITY RISK SURVEY COMMODITY RISK SURVEY Market Maker of the year 2013 Market Maker of the year 2012 Precious metals house of the year2014 No 1. ranking in precious metals 2013 No 1. ranking in precious metals 2012
•Sydney, Singapore, London and New York
Trading Desks
•Largest lender to the Natural Resources Industry in Australia
Lending
•Active in Precious Metals derivatives
Derivatives
•Active in trading over 10% of global supply
Physical Gold
•Significant supplier to Asia: 20% of China’s imports
Asia
•Largest foreign trader on the Shanghai Gold Exchange
Shanghai Gold Exchange
•First foreign bank to be awarded the license
Import License in China
Awards At a Glance
ANZ Precious Metals at a Glance
Miners Refiners Wholesalers Jewellers Fabricators
Project
Financing Pipeline Loans Consignments LoansMetal
Inventory Loans
ANZ Finances the Total Supply Chain in Precious Metals
11
Full Service for Investment Clients
Custody
•Clients will be able to access secure vaults in which to store their Gold
•ANZ has vaults in Perth and Singapore.
Transportation •ANZ has agreements in
place with secure transport companies
•Armoured vehicles and armed guards are available for transport to and from vaults
Trading
• Clients can buy and sell Gold through ANZ
• 24 Hour Coverage
• Spot, Swaps and Options
Appraisal
• ANZ can pick up and ‘assay’ any metal the client wants to sell and or have held in ANZ vaults
Sth Africa Europe Indonesia Russia Ghana India Peru Australia Canada Mexico US Thailand Vietnam China Turkey Middle East
Source: GFMS, WGC, ANZ Commodity Strategy
Global Supply & Demand Heat Map
The key East Asia and the Middle East markets
account for 53% of global gold demand
Supply Demand
Discussion Outline
14
Is NOW a good time to invest in gold?
1
Difference between past and future
3
Asia’s impact on future gold demand
Discussion Outline
15
Is NOW a good time to invest in gold?
1
Precious metals the outperformer of the commodity complex
16
Source: Bloomberg, ANZ Research
•
The ANZ-China Commodity Index is down 30% over the past 18 months•
Precious metals are the shining beacon in the commodity worldPrecious metals don’t look so bad, do they?
•
In some currencies, gold is still in a bull market•
In Euro terms, gold is up nearly 25% in the past 18 months•
Australian, Canadian and Japaneseconsumers/producers have seen prices rise by 10-15%
Gold looks even better in local currency terms
40 50 60 70 80 90 100 110 120
Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15
PM Agri Industrials ANZ CCI Energy Bulks 90 95 100 105 110 115 120 125 130
Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15
In d ex, Ja n 201 4 = 10 0 EURJPY CAD AUD GBP CHF INR Gold
What does the big dollar mean for gold?
17
Source: Bloomberg, ANZ Research
40 50 60 70 80 90 100 100 110 120 130 140 150 160
Oct 80 Oct 81 Oct 82 Oct 83 Oct 84
USD Gold (RHS)
Higher USD, Lower Gold
100 110 120 130 140 150 160 170 180 50 60 70 80 90 100
Mar 85 Mar 86 Mar 87 Mar 88
USD Gold (RHS)
Lower USD, Higher Gold
USD bull markets = gold bear markets… but the reverse is also true
60 70 80 90 100 110 90 100 110 120 130 140
Oct 11 Oct 12 Oct 13 Oct 14 Oct 15
USD Gold (RHS)
Higher USD, Lower Gold 60 70 80 90 100 110 90 100 110 120 130 140
Aug 95 Aug 96 Aug 97 Aug 98 Aug 99 Aug 00 Aug 01
USD Gold (RHS)
Higher USD, Lower Gold
100 120 140 160 180 200 65 70 75 80 85 90 95 100
Feb 02 Feb 03 Feb 04 Feb 05 Feb 06
USD Gold (RHS)
Lower USD, Higher Gold
USD Gold (RHS)
Lower USD, Higher Gold 1980 to 1988 1995 to 2006 2011 to
----Market Trend #1 - China
18
Source: ANZ Research
-300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300 -500 -400 -300 -200 -100 0 100 200 300 400 500 09 10 11 12 13 14 15 Me tr ic to n n es Met ri c ton n es
Supply Demand Physical Stock Change (RHS)
Eyes too big for stomach…
… imports are still too high
•
Onshore stocks have increased by over 500 tonnes over the past 12 months•
This is likely to create problems with oversupply of physical metal•
Gold jewellery demand down 10% y/y in the first quarter of 2015•
Our Physical Demand barometer showed a sharp pickup in Q2 imports•
This will continue to exacerbate the physical oversupply issues onshore•
Physical premiums and spreads will remain soft this year-0.1 0.0 0.1 0.2 0.3 0.4 0.5 0 20 40 60 80 100 120 140
Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15
V al u e Me tr ic to n n es
Market Trend #2 - India
19
Source: Bloomberg, Haver Analytics, ANZ Research
No more supply shortage!
Import channels now wide open
•
Since the Reserve Bank of India removed import restrictions, supply has been ample•
Physical market premiums have done little more than trade around par•
Gold imports have picked up since import controls were relaxed in June 2014•
But volume remains below the “bull market” run in 2013 -50 -25 0 25 50 75 100 125 150 175 200 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15
US D/ oz US D/ oz
Premium (RHS) MCEX (net)
RBI restricts
imports 20/80 schemeimplemented RBI relaxesimport
restrictions RBI removes 80:20 -100 0 100 200 300 400 500 600 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15
Y/Y % c h an ge US D bi lli on
Gold Imports y/y % change (RHS)
April
Market Trend #3 - Investors
20
Source: Bloomberg, ANZ Research
From a flood to a trickle
“Sentiment ship” is slowly turning
•
Overall positioning looks much more balanced•
Exchange-traded funds not liquidating en-masse, in fact holdings have declined only marginally in the past 18 months•
But we’re not there yet•
Speculative positioning is bordering on neutral, reflecting the lack of a “consensus” view on gold 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 0 400 800 1,200 1,600 2,000 2,400 2,800 05 06 07 08 09 10 11 12 13 14 15 US D/ oz metr ic to n n es•
Gold will rise once the USD has had its run•
China/India physical demand is soft, “rush to buy” is not there•
Investors are sidelined by low convictionDiscussion Outline
21
Is NOW a good time to invest in gold?
1
Asia’s impact on future gold demand
2
Accumulate!
• Asia’s ascension will be led by 10 economies – China, India, Indonesia, Japan, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam
• These 10 economies could account for 50% of global GDP by 2050
0% 10% 20% 30% 40% 50% 60% 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Percenta ge of W or ld G DP Cur rent Pri ces Asia 10 Euro Zone USA
Source: CEIC, ANZ Research projections
23
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
0
10,000
20,000
30,000
40,000
50,000
gr
ams
pe
r
capi
ta
GDP per capita (2005 USD)
USA
GER
CAN
FRA
JPN
KOR
THA
CHN
RUS
MAL
VNM
IND
IDN
PHL
Global gold demand intensity (2012)
Source: Thomson Reuters GFMS, CEPII, ANZ Research
The income effect: rising wealth in Asia
Financial reform and the substitution effect
Economic development can have a negative impact on gold demand
24
Other emerging Asian nations will follow China’s example of
liberalisation over the decades ahead
Less precautionary gold holdings More investment opportunities Higher/free-market deposit rate Greater participation in equity markets Less shadow banking
Financial reform and Asia’s new fund managers
Institutional asset base of Asia 10 countries to continue growing
25
Projected size of institutional assets (% of GDP)
0
50
100
150
200
250
300
350
400
Ch
in
a
In
d
ia
In
d
on
esia
Ja
p
an
So
u
th
K
o
re
a
Ma
la
ysia
Ph
ili
p
p
in
es
S
in
g
ap
o
re
Th
ai
lan
d
Vi
et
n
am
A
sia
1
0
%
o
f
G
DP
2009
2030
2050
Source: World Bank, ANZ Research
Total retail and institutional gold demand to double by 2050
An increase to 5,000 annually, from 2,500 tonnes currently
26
Asia 10 projected annual gold investment demand
RETAIL CONSUMPTION (gm/capita) 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 0.5 1,841 2,024 2,208 2,391 2,575 2,758 2,941 3,125 3,308 3,492 0.6 2,209 2,392 2,576 2,759 2,943 3,126 3,310 3,493 3,677 3,860 0.7 2,577 2,760 2,944 3,127 3,311 3,494 3,678 3,861 4,045 4,228 0.8 2,945 3,129 3,312 3,495 3,679 3,862 4,046 4,229 4,413 4,596 0.9 3,313 3,497 3,680 3,864 4,047 4,231 4,414 4,598 4,781 4,964 1.0 3,681 3,865 4,048 4,232 4,415 4,599 4,782 4,966 5,149 5,333 1.1 4,049 4,233 4,416 4,600 4,783 4,967 5,150 5,334 5,517 5,701 1.2 4,418 4,601 4,785 4,968 5,152 5,335 5,518 5,702 5,885 6,069 1.3 4,786 4,969 5,153 5,336 5,520 5,703 5,887 6,070 6,254 6,437 1.4 5,154 5,337 5,521 5,704 5,888 6,071 6,255 6,438 6,622 6,805 1.5 5,522 5,706 5,889 6,072 6,256 6,439 6,623 6,806 6,990 7,173 1.6 5,890 6,074 6,257 6,441 6,624 6,808 6,991 7,174 7,358 7,541 1.7 6,258 6,442 6,625 6,809 6,992 7,176 7,359 7,543 7,726 7,910 1.8 6,626 6,810 6,993 7,177 7,360 7,544 7,727 7,911 8,094 8,278 1.9 6,995 7,178 7,362 7,545 7,728 7,912 8,095 8,279 8,462 8,646 2.0 7,363 7,546 7,730 7,913 8,097 8,280 8,464 8,647 8,830 9,014 % OF INSTITUTIONAL HOLDINGS BY 2050
Discussion Outline
27
Is NOW a good time to invest in gold?
1
Difference between past and future
3
Asia’s impact on future gold demand
2
•
Gold will rise once the USD has had its run•
China/India physical demand is soft, “rush to buy” is not there•
Investors are sidelined by low conviction•
Annual gold demand in Asia to double to 5,000 tonnes by 2050•
Higher incomes boosting consumption - “Income” effect•
“Substitution” effect initially negative, ultimately positive for demandAccumulate!
The pattern of gold production has changed in recent decades
China is both the world’s largest producer and consumer
28
135
Ultimately, the producer cost-curve should underpin prices
20% of world production is not profitable on a cash-cost basis
29 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 0 250 500 750 1,000 1,250 1,500 1,750 2,000 Cash Co st (US D/ oz )
Cumulative Production (tonnes) 2014 average price
Source: Wood Mackenzie, US Geological Survey, Bloomberg, ANZ Research
Gold mining is not cheap… Long-term, the cost-curve will underpin prices
•
China may only have 5 years of domesticsupply left
•
Australia and South Africa are some of the highest-cost producers•
Historically, the 75thpercentile has provided a good guide to long-term price levels92 94 96 98 00 02 04 06 08 10 12 14 16 U S D/ oz ( log scal e)
Gold Price Weighted Average 75th Percentile 90th Percentile
200 400 600 1,200 1,600 2,000 800 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1,000 2,000 O th er Au str al ia So u th Afr ica R u ss ia Ch ile Un it ed St at es In d on esia Brazil Peru Ch in a Uz b ek istan G h an a Me xic o PN G Can ad a to n n es
Annual Mine Production
Below Ground Reserves
But the years ahead could look different…
Producer hedging was common practice during the 1990’s
But the impact of this is now much smaller
30
Producer hedging activity in the gold market
Source: Thomson Reuters GFMS, Bloomberg, ANZ Research
(500) (250) 0 250 500 90 92 94 96 98 00 02 04 06 08 10 12 14 to n n es Hedging De-hedging 0 250 500 750 1,000 1,250 1,500 1,750 0 500 1,000 1,500 2,000 2,500 3,000 90 92 94 96 98 00 02 04 06 08 10 12 14 U SD /o z to n n es
Central banks no longer net sellers of gold
After liquidating holdings for most of the past 25 years
31 (800) (600) (400) (200) 0 200 400 600 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 to n n es
Central bank activity in the gold market
Some should be holding more gold
0 10 20 30 40 50 60 70 80 90 P e rc e n t o f to ta l F X r e se rv e s Upper middle-income
High-income Lower middle-income Low income Source: World Gold Council, World Bank, Bloomberg, ANZ Research
•
Central banks became net accumulators of gold since the global financial crisis•
Most of the buying has been from emerging market central banks, particularly Russia, Turkey and Kazakhstan•
“High-income” countries hold an average 20% of FX reserves in gold, though this is heavily skewed by western European countries and the U.S.•
Countries in the other income brackets hold gold comprising less than 10% of reserves, on averageCONCLUSIONS
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