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Source: Bloomberg, LGT CM

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LGT Capital Management Ltd., Schtzenstrasse 6, CH-8808 Pfffikon, Phone +41 55 415 92 11, Fax +41 55 415 94 80, E-mail [email protected], Internet www.lgt.com.

Bayram Dincer

2 October 2012

Please refer to our disclaimer on the last page for important legal information.

3.88%2,100.00Aluminium

7.80%8,200.00Copper

-21.50%1,100.00Rhodium

2.20%640.00Palladium

19.60%1,670.00Platinum

24.26%34.80Silver

14.60%1,775.00Gold

% YTDCurr. PriceMetals

670.00650.00Palladium

1,725.001,700.00Platinum

38.0037.00Silver

1,825.001,800.00Gold

Q1 2013Q4 2012LGT Forecasts

0.7235.00All time low

49.801,920.00All time high

26.151,550.00Low 2012

37.451,790.00High 2012

29.951,650.00Avg. Q3

29.451,615.00Avg. Q2

32.651,690.00Avg. Q1

30.701,655.00Avg. 2012

SilverGoldKey figures

Gold price 2012

Source: LGT CM

US: Zero Interest Rate Policy to 2015

Source: LGT CM

LGT Gold Price Forecasts for 2013

Review of Q3 2012: Monetary Policy and the Gold Price

The price of gold consolidated in Q3, remaining mostly within a bandwidth betweenUSD 1,550 and USD 1,650 from July to August. Gold profited at times from theanticipation of a third round of quantitative easing from the US Federal Reserve (QE3),and also from Mario Draghis announcement of intervention measures by the EuropeanCentral Bank (ECB). Subsequent events have shown that gold market participantsdoggedly held expectations with regard to monetary policy have paid off in the form ofa higher gold price, and this even earlier than we had expected.

In his speech to the Jackson Hole Symposium at the end of August, Fed Chairman BenBernanke highlighted the positive effects the two previous monetary policy measures(QE1 and QE2) had had on the economy, as well as their impact on the current situation

on the job market. However, he did not give any specific or additional details on theactual mechanisms by which this is taking place, and the timing for QE3 was also leftopen. Interpreting this as fresh hope, market participants subsequently began pricing ina higher likelihood for this third round of easing being implemented at the next meetingof the Open Market Committee (FOMC) on September 13, 2012. Gold was able tobreak through strong resistance points on the back of this, and settled close to USD1,700 in the trading days that followed.

On September 6, the gold price received further support from the European CentralBank, which announced an unlimited bond-buying program via the European StabilityMechanism (ESM). Under this program, governments will be able to seek assistance fromthe bailout fund subject to set conditions, and the ESM would then actively buygovernment bonds with maturities of up to three years. The intention is for these bondpurchases to be completely neutralized and have no net impact on money supply.

On September 13, following the two-day meeting of the FOMC, Ben Bernankeannounced the next chapter of the monetary policy experiment. In the form of QE3, theFed is seeking to counter weak economic activity with purchases of mortgage-backedsecurities (MBS) of some USD 40 billion a month. With these supporting moves, it is alsoaiming to bring down unemployment from the current rate of 8.2%. Surprisingly, theFed stated that its bond purchases would be unlimited until the situation on the jobmarket improves, and confirmed that it would leave its current zero interest rate policyunchanged through to mid-2015 at least.

Conclusion: With these measures, the Federal Reserve has changed its reaction functionto such an extent that, in its dual mandate, it is affording a higher weighting tounemployment and economic activity than to price stability. Given that reducing thelevel of unemployment is a long-term process, higher inflation as measured by theconsumer price index will certainly be tolerated for a time, and the Fed will continue tohold off on countermoves even when economic activity starts to recover. The US centralbank has thus implicitly raised the minimum price for gold. With this new monetarypolicy stance of QE3 for an unlimited period, it will also exert a long-term influence onthe gold price. Gold has since been trading above the USD 1,750 mark, which is higherthan the price target of USD 1,725 we had previously envisaged for Q4. As isappropriate in light of this changed monetary policy environment, we have updated ourshort-term price forecast and expect the positive price trend to continue over the comingyear.


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Bayram Dincer

2 October 2012


Intact global gold fundamentals

Source: GFMS, LGT estimates blue

Global mine supply


Jewelery fabrication demand


Official sector demand


Global gold fundamentals: key supply & demand figures

At the beginning of September, the precious metals specialists at GFMS published theirstatistics for H1 2012. Based on these aggregated figures for the global supply anddemand for physical gold, we can ascertain a positive interim result for the first half of2012.

Global mine production: On the price-inelastic supply side, mining companiesproduced 1,366mt of newly mined gold in H1. We expect an increase in gold productionto 1,514mt in H2. In light of the current situation in South Africa, with ongoing mineworker strikes at various gold mines, we expect to see a drop in the supply volume fromSouth Africa. For the year as a whole, we have adjusted our mining supply figure toaround 2,880mt.

Scrap and recycled gold: Supply from this category came in at 768mt in H1. Fears on

the market that the physical gold market would be flooded with recycled gold proved tobe unfounded. We see this as a positive development, and for the immediate future wedo not expect to see any increase in supply volumes that would have a significant impacton the price of gold. We expect an increase of 920 mt in H2, and a marginal change inoverall supply at 1,688 mt.

Jewelry demand: As regards volumes, the most important figure on the demand side isthe jewelry fabrication category. The first half of the year was weak in terms of volumes,with demand at just 932mt. As we have reported several times already, the decline injewelry demand is mostly connected to events in India. That said, fears of a furtherincrease in gold transaction taxes have led to higher physical demand from Indianconsumers and dealers in some instances. We expect to see stronger demand volumes inH2, at 968mt. Our estimate for global jewelry demand remains unchanged at 1,900mt.

Other fabrication: The industry, electronics and coins sub-sectors which are broughttogether in this demand category each saw consumption volumes stagnate, withdemand coming in at a total of 376mt in H1. We expect this stagnation in demand tocontinue in H2, with volumes at 374mt. Our demand estimate for the year as a wholetherefore remains unchanged at 750mt.

Official sector: On a net basis, the central banks accumulated 273mt of gold in the firsthalf of the year. We expect the central banks and especially those from the emergingmarkets to continue with their purchases in H2 as well, with a net demand volume of277mt. We are revising our forecast for the official sector as a net buyer, and nowestimate a net volume of 550mt.

Investment in physical gold bars: Demand in this category came in at 504mt in H1.

We expect investment activity to be higher in H2 at 596mt, putting overall investment ataround 1,100mt.

Implied investment: This category contains all gold transactions not covered by thedemand categories above. This residual amount which balances out the model stoodat just 40mt in H1. We estimate implied investment in H2 at 219mt, giving a figure of259mt for the year as a whole.

Conclusion: We need make only marginal adjustments to our previously announcedestimates for the second half of the year, and we can therefore confirm that theframework and environment for the physical gold market remain intact.


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Bayram Dincer

2 October 2012


US Unemployment 1990-2012

Source: LGT CM

US GDP QoQ

Source: LGT CM

US Fed asset balance sheet

Source: LGT CM

Investments and average gold price

Source: LGT CM

Outlook: monetary policy and LGTs gold price forecast

In the short term, market participants will be focusing their attention on the upcomingUS presidential election. Another key issue for gold investors will be the impending fiscalcliff in the US, with a whole series of tax increases and austerity measures set to enterinto force automatically in January 2013. The price of gold should also profit from thisheightened uncertainty.

Looking at the long term, we see the continuation of the monetary policy experiment inthe US as being a positive price-determining factor. The unlimited quantitative easingprogram that has been announced, tied as it is to full employment, is a long-termstructural process. Critics are already voicing initial doubts over the effectiveness of thisprogram, and accordingly its future success. We do have some misgivings here, becausein our opinion this third monetary policy move has implicitly paved the way for additionalmeasures.

A simple example highlights our concerns. The long-term average US unemploymentrate from 1990 to 2012 was 6.0%. The current rate is 8.2%, i.e. around two percentagepoints higher than the long-term norm envisaged by the members of the FOMC. Let usoptimistically assume that the monthly USD 40 billion purchases of MBSs lower theunemployment rate by 0.1% on average. The result after 22 months (around Q3 2014)and USD 880 billion in bond purchases would then be an unemployment rate of around6.0%. It is questionable whether the measures implemented will actually bring aboutthis desired result. Investors therefore believe it is probable that we will see yet furtherunorthodox monetary policy decisions. In the scenario outlined above, the Feds currentbalance sheet of USD 2,823 billion would be further inflated. A doubling of this figurewould represent a critical level.

In addition to the Federal Reserve, numerous other central banks are seeking tostimulate economic activity via monetary policy. With a fully functioning transmissionmechanism, this expansion in central bank balance sheets would have an inflationaryimpact in the real economy. The fears that this increase in money supply could result in aphase of higher inflation rates in excess of 2% p.a. are justified. Furthermore, thecurrencies involved would be devalued. With its qualities as a stable real asset and as analternative currency, gold thus offers investors an opportunity for diversification.

In our baseline scenario, we expect a consolidation phase over the short term in Q4,with the price of gold tending slightly higher through to the end of the year.Accordingly, we recommend using any temporary price weakness as buyingopportunities to increase strategic gold allocations. As we have argued several timesalready, the fundamental environment for the global physical gold market remainsintact. We therefore do not expect to see any noteworthy changes in the marketfundamentals over the coming year that would have a negative impact on the price ofgold. We remain of the opinion that both the traditional and macroeconomic argumentsin favor of gold investments next year point to an even higher gold price.

We have made a slight upward correction in LGTs gold price forecast for Q4 toUSD 1,800. That said, we do not expect any new nominal record prices aboveUSD 1,925 before the end of the year. In our view, a new price regime with gold pricesabove USD 1,900 would be realistic only from next year onwards.

LGT Gold Price Forecast to 2013:

Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

USD 1,800 USD 1,825 USD 1,850 USD 1,900 USD 1,950


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General Disclaimer

We disclaim without qualification all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may beincurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits itsdistribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall thereforebe obliged to find out about any restrictions that may apply and to comply with them. It is up to potential investors to obtaincomprehensive information and appropriate advice in their home country, country of residence or country of domicile about theapplicable legal requirements and any tax consequences, foreign currency restrictions or foreign exchange controls and any other aspectsthat are of relevance prior to any decision to subscribe to, purchase, own, exchange or redeem such investments, or enter into any othertransaction in relation to same. The securities and rights mentioned in this document may not be purchased or held by investors or for

investors domiciled in the USA and/or with US citizenship, nor may such securities and rights be transferred to them.

IMPORTANTINFORMATION

Risks

Source of data and

forecasts

Country-specific

important

information

This document is intended solely for the recipient and may not be duplicated, distributed or published either

in electronic or any other form without the prior written consent of LGT Capital Management AG.

This publication is for your information only and is not intended as an offer, solicitation of an offer, public

advertisement or recommendation to buy or sell any investment or other specific product. Its content has

been prepared by our staff and is based on sources of information we consider to be reliable. However, we

cannot provide any undertaking or guarantee as to it being correct, complete and up to date.

The circumstances and principles to which the information contained in this publication relates may change

at any time. Once published, therefore, information shall not be understood as implying that no change has

taken place since its publication or that it is still up to date.

The information in this publication does not constitute an aid for decision-making in relation to financial,

legal, tax or other consulting matters, nor should any investment or other decisions be made on the basis of

this information alone. It is recommended that advice be obtained from a qualified expert.

Investors should be aware that market conditions can change and the value of investments can fall as well as

rise. Positive performance in the past is therefore no guarantee of positive performance in the future.

Forecasts are not a reliable indicator of future value developments. The risk of price and foreign currency

losses and of fluctuations in return as a result of unfavourable exchange rate movements cannot be ruled

out. There is a possibility that investors will not recover the full amount they initially invested.

Data and forecasts are sourced from Bloomberg (www.bloomberg.com), Datastream

(http://thomsonreuters.com), LGT Capital Management (www.lgt.com), or other source as stated

Germany: This document is intended solely for sophisticated investors.

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