bullion: beginning or end of the bubble? cisi jersey 4 th june 2013 toby birch managing director...

Bullion: Beginning or End of the Bubble?

CISI Jersey4th June 2013

Toby BirchManaging Director

Guernsey Gold Limited

© Guernsey Gold Limited www.guernsey-gold.com

Introduction

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• The Historic Role of Precious Metals as a Currency

• The Fundamentals of the Boom

• Where do we Stand on the Bubble Trajectory

• Precious Metal Products and Pitfalls


Introduction

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Introduction

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Introduction

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Introduction

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Introduction

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Moving into the Modern Era

• Victorian Gold Standard ‘poverty amongst plenty’

• Wizard of Oz (1901), a parody of precious metals

• 1930’s: Depression, gold confiscation, $ devalues, currency war

• Bretton Woods, fixed exchange rates to cut conflict

• Vietnam War end of Gold Exchange Standard, De Gaulle’s call

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Debasement over Decades

Chart 22


Part II: The Fundamentals of the Boom

• Why did prices rise

• What is the demand

• Who is buying

• What are they buying

• What are the supply dynamics

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Why did prices rise? (i) increased money supply

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Why did prices rise? (ii) negative correlation with US$

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What is the demand by volume and value?

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Who is buying? Jewellery demand shifts West to East

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What are they buying? Change in gold demand last decade

Chart 6


Supply dynamics; central banks are now buyers, not sellers

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Physically-backed ETFs increased substantially since 2003

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Supply dynamics; dramatic change in geographical mining

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© Guernsey Gold Limited www.guernsey-gold.com Chart 27

Supply dynamics: rising costs, diminishing discoveries


Supply dynamics: above-ground stock of gold

Source: GFMS, WGC

Total above ground stocks = 165,600 tonnes (US$6.67 trillion)

Official sector28,900t17.5%

Jewellery83,700t50.5%

Private investment29,600t17.9%

Oth

er fabricatio

n 19,800t 12%

20.45m

20.45m

Below ground stocks 26,300t




Total above-ground stocks = 165,600 tonnes (US$6.67 trillion)

Dimensions would be 20.5m x 20.5m

Only 26,300 tonnes left below ground

Just a 15% increase over 15 years

Source: GFMS, WGC


Part III: Where do we Stand on the Bubble Trajectory

• George Soros was misquoted in Davos; he doubled his gold position

• Long-term perspective is the trend of real versus financial assets

• Jim Rogers ‘Hot Commodities’ highlights 17-year average cycle

• Paper money pattern of inflation, devaluation, debt trap, default

• Back to ‘beggar thy neighbour’, protectionism, commodity conflicts

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The current bull market in perspective

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Evolution of a bullion bubble

• Prices reflect the reality of exponential debt and dollar dilution

• Past comparisons suggest we are 2/3 through a bubble

• 2011 intervention via futures margins just fiddling the thermometer

• Classic behavioural traits of cynicism, acceptance, fever: taxi-driver talk

• Evolution from boom to exponential prices then leverage by public

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Price targets

• Precious metal price targets missing the point; indicates loss of faith

• Symptom of a failing philosophy and mutated monetary system

• If commodity cycle runs its historic average then $5,000/oz is feasible

• Author James Turk called $8,000 on 1:1 Dow/Gold ratio reversion

• Gold Standard re-introduction could herald $10,000 plus

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Part IV: Precious Metal Products and Pitfalls

• Artificial: futures, options, structured products, metal accounts

• Physical: though bullion dealers and private banks – caveat emptor

• Gold ETFs: transparency concerns unanswered on a minority of Funds

• Clarification by FSA in 2011 re regulation of clearing, pricing, custody

• Shortages of physical supply at Comex, silver decoupling from spot price

• FATCA - physical holdings are specifically excluded from disclosure

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Macro threats

• Aggressive ‘Volcker’ style interest rate rises like the early 1980’s

• Bond yield surge through inflation, loss of confidence, QE reversal

• Tight coupling and correlation as per 2008: 33% peak-to-trough drop

• Speculative attack, GATA accusations of price suppression

• Central bank sales, Gordon Brown sold ½ UK’s gold, bottom of market

• US confiscation1933–74, asset freezing, exchange controls, bank collapse


Show me the metal

• Is the gold ‘allocated’ to you specifically or fractionally owned by many

• FATCA shows fractionality and leverage is worse than thought

• Storage, insurance, inspection, accounting or trustee auditing

• Proof of ownership; some banks now disallow collection or delivery

• Re-sellable brand, good delivery standard 999.9, chain of integrity

• Avoid ‘discount’ offers & large, regular flows = up-front payment fraud


1 kilo gold bar with matching certificate


Final words...

Lord Rees-Mogg

“Governments lie, bankers lie, sometimes even auditors lie;

but gold tells the truth.”


Bullion: Beginning or End of the Bubble?

CISI Jersey4th June 2013

Toby BirchManaging Director

Guernsey Gold Limited

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Risk warning

bullion: beginning or end of the bubble? cisi jersey 4 th june 2013 toby birch managing director...

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