gold as a strategic tool to address the challenges
TRANSCRIPT
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Gold as a strategic tool to address the challenges investors face
APRIL 2021
Gold is a global market
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Source: IMF, Metals Focus, Refinitiv GFMS, World Gold Council
*Based on 10-year average demand estimates ending in 2020. Includes jewellery, bars, coins, ETF demand, and technology demand. Excludes over-the-counter transactions, and central bank purchases. Developed and emerging market categorisations are taken from the IMF World Economic Outlook World Economic Outlook: https://www.imf.org/external/pubs/ft/weo/2020/02/weodata/groups.htm#ae
Rest ofAsia and
Australasia
11%
Greater China
28%
Indian Subcontinent
22%
Middle East
7%
Europe inc. Russia
12%
USA & Canada
8%
Other
12%
Emergingmarket demand*
72% 28%
Developedmarket demand*
Demand
World Gold Council
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Global authority on the gold market for 30+ years
Market development organisation founded in 1987 with
the unique mission of stimulating and sustaining
demand for gold
World Gold Council members include leading global
gold mining firms representing mining operations in
over 45 countries
Recognized for delivering robust, high quality research,
analytics and consulting to investors seeking to better
understand the potential impact of gold in their
portfolios.
Data Analytics Research Market
knowledge
Policies Infrastructure
China Market Expansion
Played key role in evolution of the Shanghai Gold Exchange; currently working towards enabling insurance companies to invest in gold.
Responsible Gold Mining Principles
Worked with mining company members, developed a framework setting out expectations for consumers, investors and the downstream gold supply chain as to what constitutes responsible gold mining.
Gold Valuation Framework
Developed an academically endorsed methodology to help investors understand how macroeconomic scenarios might impact gold demand, supply and long-term performance.
Gold-backed ETFs
Launched first gold-backed ETF in the US in partnership with State Street Global Advisors.
Goldhub.com
Created largest open access site for gold research, data and analytics.
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Strategic case for gold
Key barrier to investment: understanding gold’s attributes
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Common perceptions
• Mostly a tactical hedge
• No different from commodities
• Better ways to protect against inflation
• Only preserves capital
Underlying concern
What is gold’s role in portfolios?
Solution
Strategic case
for gold
Why gold?
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Portfolio challenges
• Funded status
• Capital preservation
• Market volatility
• Liquidity risk
Gold’s characteristics
• Returns
• Diversification
• Liquidity
• Portfolio impact
Strategic case for gold: returns
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Source: Bloomberg, ICE Benchmark Administration, World Gold Council
*As of 31 December 2020. Computations in US dollars of total return indices for US Cash: ICE 3-month Treasury, US Bond Agg: Bloomberg Barclays US Bond Aggregate, MSCI US, EAFE and EM indices, BBG Commodities: Bloomberg Commodity Index and Gold: spot for LBMA Gold Price PM. Average annual return is computed by taking the average of each annual (year-on-year) percentage change over the specified period.
Average annual return of key global assets in US dollars*
Strategic case for gold: diversification
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Source: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*As of 31 December 2020. Correlations computed using weekly returns based on the Bloomberg Commodity Index and the LBMA Gold Price PM since January 1971. The middle bar corresponds to the unconditional correlation over the full period. The bottom bar corresponds to the correlation conditional on S&P 500 weekly return falling by more than two standard deviations (or ‘σ’) respectively, while the top bar corresponds to the S&P 500 weekly return increasing by more than two standard deviations. The standard deviation is based on the same weekly returns over the full period.
Correlation between gold and US stock returns in various environments of stocks’ performance (since 1971)*
Strategic case for gold: liquidity
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Source: Bloomberg, Bank for International Settlements, UK Debt Management Office (DMO), Germany Finance Agency, Japan Securities Dealers Association, Nasdaq, World Gold Council; Disclaimer
*Based on estimated one-year average trading volumes as of 31 December 2020, except for currencies that correspond to March 2019 volumes due to data availability.**Gold liquidity includes estimates on over-the-counter (OTC) transactions and published statistics on futures exchanges, and gold-backed exchange-traded products. For methodology details visit the liquidity section at Goldhub.com.
Average daily trading volumes in US dollars*
Strategic case for gold: portfolio impact
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Source: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer
*Based on performance between 31 December 2010 and 31 December 2020. The hypothetical average US pension fund portfolio is based on Willis Tower Watson Global Pension Assets Study 2019 and Global Alternatives Survey 2017, which assumes a 0% allocation to gold. It includes annually-rebalanced total returns of a 42% allocation to stocks (27% MSCI USA Net Total Return, 15% MSCI ACWI ex US), 27% allocation to fixed income (21% Barclays US Aggregate, 3% Barclays Global Aggregate ex US, 1% JPMorgan EM Global Bond Index and 3% short-term Treasuries), and 30% alternative assets (13% FTSE REITs Index, 8% HFRI Hedge Fund Index, 8% S&P Private Equity Index and 1% Bloomberg Commodity Index). The allocation to gold comes from proportionally reducing all assets. Risk-adjusted returns are calculated as the annualised return/annualised volatility. See important disclaimers and disclosures at the end of this report.
Performance of an hypothetical US pension fund (PF) average portfolio with or without gold*
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QaurumSM
Powered by the Gold Valuation Framework
Gold has a dual nature
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Source: Metals Focus, Refinitiv GFMS, World Gold Council
*Based on 10-year average annual net demand estimates ending in 2020. Includes: jewellery and technology net of recycling, in addition to bars & coins, ETFs and central bank demand which are historically reported on a net basis. It excludes over-the-counter demand. Figures may not add to 100% due to rounding. US dollar value computed using the 2020 annual average LBMA Gold Price PM USD.** Net jewellery and technology demand computed assuming 90% of annual recycling comes from jewellery and 10% from technology. For more details, see: https://www.gold.org/goldhub/research/market-primer/recycling
Jewellery** Investment
17%
Central banksTechnology**
Expansion Uncertainty Both
Average annual net demand ≈ 3,100 tonnes* (approx. US$177bn)
34% 7% 42%
What is the Gold Valuation Framework?
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A methodology that allows investors to understand the drivers of gold and their impact on price performance, based upon different hypothetical market scenarios
Based on market equilibrium
Provides investors the potential to determine gold’s long-term return
PriceMacro
Drivers Derivatives
investment
Physical
investment
Supply
Consumption
For more information see Description and Methodology of the Gold Valuation Framework
QaurumSM
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*The most current scenarios, provided by Oxford Economics, are based on their Global Economic Model using data as of Q4 2020. Oxford Economics is a leader in global forecasting and quantitative analysis and specialises in modelling. Their fully-integrated and transparent Global Economic Model provides a rigorous and consistent framework that enables them to evaluate the effects of different assumptions on the global economy.
See Important Information and Disclosures at the end of this presentation.
Powered by the Gold Valuation Framework
Utilises hypothetical third-party independent macroeconomic forecasts that can be selected or customisable by users*
Estimates expected supply and demand based on users’ selections
Calculates implied long-term gold returns based on the users’ selections
For more information visit QaurumSM
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Gold was one of the best performing assets of 2020 and with one of the lowest drawdowns
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Source: Bloomberg, ICE Benchmark Administration, World Gold Council
**As of 31 December 2020. Returns based on the LBMA Gold Price, Bloomberg Barclays US Treasury Index and Global Treasury Index ex US, Bloomberg Barclays US Corporate and High Yield Indices, MSCI EM Index, Bloomberg Commodity TR Index, MSCI EAFE Index, S&P 500 & NASDAQ Indices, and Bloomberg Oil TR Index. Maximum drawdown computed relative to the 2020 initial value for each respective index.
Annual returns and maximum drawdowns of select assets*
-100% -80% -60% -40% -20% 0% 20% 40% 60%
Oil
Commodities
EAFE stocks
US HY
US Treasuries
US Corporates
Global Treasuries
EM stocks
S&P 500
Gold
NASDAQ
ReturnAnnual return Maximum drawdown
Outlook 2021: demand and supply dynamics
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See Gold Outlook 2021, January 2021, for more details.
Mine production
Recovery to revert
to historical drivers with
COVID-19 disruptions
behind us
Demand
Investment Central bank
Possible boost from
EM economic
recovery
Moderate net
purchases likely
to continue
Potential support
from low rates and
lingering risks
Consumer
Supply
Outlook 2021: key portfolio risks
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See Gold Outlook 2021, January 2021, for more details.
COVID-19 continues to compound existing risks and produce new ones, creating an attractive environment for gold
Higher allocations
to risk assets
Inflationary
pressures
Ballooning
budget deficits
Market corrections amid already high equity valuations
Goldhub.com
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DataPower your investment decisions with best-in-class data sets.
ResearchAccess to a wealth of material on the role and performance of gold.
AnalyticsVisualise and build your ownanalyses with interactive tools.
Important informationand disclosures
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© 2020 World Gold Council. All rights reserved. World Gold Council and the Circledevice are trademarks of the World Gold Council or its affiliates.
All references to LBMA Gold Price are used with the permission of ICE BenchmarkAdministration Limited and have been provided for informational purposes only. ICEBenchmark Administration Limited accepts no liability or responsibility for the accuracyof the prices or the underlying product to which the prices may be referenced. Othercontent is the intellectual property of the respective third party and all rights arereserved to them.
Reproduction or redistribution of any of this information is expressly prohibited withoutthe prior written consent of World Gold Council or the appropriate copyright owners,except as specifically provided below. Information and statistics are copyright © and/orother intellectual property of the World Gold Council or its affiliates (collectively,“WGC”) or third-party providers identified herein. All rights of the respective owners arereserved.
The use of the statistics in this information is permitted for the purposes of review andcommentary (including media commentary) in line with fair industry practice, subject tothe following two pre-conditions: (i) only limited extracts of data or analysis be used;and (ii) any and all use of these statistics is accompanied by a citation to World GoldCouncil and, where appropriate, to Metals Focus, Refinitiv GFMS or other identifiedcopyright owners as their source. World Gold Council is affiliated with Metals Focus.
WGC does not guarantee the accuracy or completeness of any information noraccepts responsibility for any losses or damages arising directly or indirectly from theuse of this information.
This information is for educational purposes only and by receiving this information, youagree with its intended purpose. Nothing contained herein is intended to constitute arecommendation, investment advice, or offer for the purchase or sale of gold, any gold-related products or services or any other products, services, securities or financial
instruments (collectively, “Services”). This information does not take into account anyinvestment objectives, financial situation or particular needs of any particular person.
Diversification does not guarantee any investment returns and does not eliminate therisk of loss. The resulting performance of various investment outcomes that can begenerated through allocation to gold are hypothetical in nature, may not reflect actualinvestment results and are not guarantees of future results. WGC does not guaranteeor warranty any calculations and models used in any hypothetical portfolios or anyoutcomes resulting from any such use. Investors should discuss their individualcircumstances with their appropriate investment professionals before making anydecision regarding any Services or investments.
This information contains forward-looking statements, such as statements which usethe words “believes”, “expects”, “may”, or “suggests”, or similar terminology, which arebased on current expectations and are subject to change. Forward-looking statementsinvolve a number of risks and uncertainties. There can be no assurance that anyforward-looking statements will be achieved. WGC assumes no responsibility forupdating any forward-looking statements.
Information regarding QaurumSM and the Gold Valuation Framework
Note that the resulting performance of various investment outcomes that cangenerated through use of Qaurum, the Gold Valuation Framework and otherinformation are hypothetical in nature, may not reflect actual investment results and arenot guarantees of future results. WGC provides no warranty or guarantee regarding thefunctionality of the tool, including without limitation any projections, estimates orcalculations.
www.gold.org
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Thank you
Andrew Naylor, Head of APAC (ex China)
+65 8749 5758
10 Collyer Quay, Level 37 Ocean Financial Centre, Singapore