gold investment pitch
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BASIC MATERIALS
Ryan Shelley Bill McCarran Thao Truong
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AGENDA
Current Holding Sub-Industries Sector Leaders Materials Outlook Deere & Co (DE) Alcoa (AA) SPDR Gold Trust (GLD) Recommendations Q&A
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Current Holdings
Alcoa (AA) Purchased 9/14/11 283 shares @ $10.44
Deere & co (DE) Purchased Feb 25th 2011 25 Shares @ $90.49
S&P Basic Materials Weighting: 3.7%
Atkins Basic Materials Weighting: 5.3%
Purchase: 2.2%8/31/11: 2.2%YTD: 23.75%Purchase: (1.99%)8/31/11: 9.8%YTD: 14.41%
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SPDR Gold Trust Gold Spot: $1,736
GLD: $168.50Mkt Cap: 71.46 BExpense: .4%
Beta: .11Inst own: 42%1 GLD= 1/10 an ounce
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Who Holds gold
1. U.S. - $418 billion 2. Germany $174.7
billion 3. IMF $144.76 billion
4. Italy $ 126.12 billion
5. France $125.28 billion
6. SPDR Gold ETF $72 billion
20%
50%
18%
12%
World Gold Holdings
CBs
Jewlery
Investments
Industrial
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Gold investment rationale
1. Demand > Supply
2. Increasing Global MS
3. Low Real Int Rates
4. Weak Dollar
5. Econ/Political uncertainty
6. Portfolio diversification
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Gold Supply
2011: 2% Driven by
recycled Min-ing60%
Re-cy-
cled40%
China 14%
Australia 10%
US 9%
Africa 8%
Russia 8%
1. Demand > Supply
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Gold Demand
2011: 6% Investment driven: 33% yoy Central Banks buying
1. Demand > Supply
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Central Banks
Central Banks purchases were up 200% Signaling concerns about weak currency China: moving from Treasuries to Gold: +30%
YoY WGC predicts purchases to continue for 2012
Negative Real rates: continue to diversify to Metals
Gold as % of foreign reserves Developed nations: 70%
Brazil
.5%
Russia
8.2%
India 8.5%
China
1.6%
Japan
3%
1. Demand > Supply
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Today’s World
Global debt crisis Devalue vs Default 1. Devalue:
Target Int rates Increase MS Weak currency
2. Default: Ugly
Debt/GDP
10yr bond
Greece
140% 25.11%
Italy 119% 7.26%
Ireland
96% 7.88%
US 100% 1.95%
Spain 60% 5.77%
Portugal
180% 15.22%
2. Global Money Supply
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Global MS &Gold
Loose Global Monetary Policies QE programs: US, JAPAN, UK ECB LTRO to inject liquidity
2. Global Money Supply
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United States
US Debt to GDP 100% Fed promises low int rates and
possible QE3
Stocks P/B: 2.05
Graph: Monetary policy & stocks1. Rates low to mid 20132. Operation Twist3. US $ liquidity4. ECB LTRO5. China stimulus6. Rates low to mid 2014
2. Global Money Supply
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Europe & ECB
ECB initiates LTRO 3 yr loans to help fund $960B in debt due next
yr
2. Global Money Supply
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Europe Crisis
Gold coin: “Heads I win, Tails you lose”
Bond Purchases
Est $2.5 Trillions
Italy+France+Greece
$5 Trillion Debt outstanding
3,4 times Feds QE
Currency break up
Greece returns to Drachma
Capital controls
Gold as currency?
No Resolution
Faith disappears
2. Global Money Supply
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Japan
Debt-GDP: 220% 10yr yield .98%
60% debt to roll over in next 5 yrs More borrowing
April: $566 bill to fund budget 2011 first trade deficit- Needs weaker YEN
Sustainable? What’s the Trigger
S&P warn of a downgrade Europe default: Greece, Portugal?
QE boosted to $715B this Oct.
2. Global Money Supply
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US Real Interest Rates
1. Implies poss. inflation
2. Investors seek alt. investments
3. Implies weak economy
Gold inverse relationship with real int rates
10 yr yield: 2% Real int rate: -.2%
Fed promise to keep rates low
Limited downside risk
3. Low Real Int Rates
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Dollar Index & Gold
Weak dollar performance Debt, Feds weak $ policy, & Trade imbalance
4. Weak US $
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Portfolio Diversification
Risk management Low Volatility Low Correlation Superior risk adjusted
return
6. Diversification
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Gold Performance charts
Morgan: $2200
BofA: $2000 Barclays:
$1975
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Risks
Stronger economy no QE3 Strong Dollar India demand CME Margin Hikes Further correction
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Highlights
Physical Demand > supply China and India Miners quit hedges Global MS outpacing gold prices
Monetizing Debt More to liquidity to come
Falling Real interest rates Political stand still: EU, US Diversification benefits
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Recommendations
Option 1: HOLD DEERE SELL ALCOA BUY SPDR GLD
Option 2: HOLD DE & AA
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Q & A
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Fear
Correlation to VIX
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Gold and MS2. Global Money Supply
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ETF VS MINING
Cutting out the middle man Geographical & Political risks
Africa High Energy Cost
Hurting Margins Top 4 Miners coming up empty handed
More $ chasing less Gold
Graph??????? Vs mining