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GOLD SURVEY 2013Prepared by Thomson Reuters GFMS

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The cover of the Gold Survey 2013 features: twelve 500 gramme Tanaka cast bars, twenty nine 50 gramme Tanaka minted bars, nine 500 gramme Valcambi minted bars, nine 50 gramme Valcambi CombibarsTM and fifteen 50 gramme Valcambi minted bars.

Cover designed by Russell Miller and Matt Cleveland, photography by Henrik Andersen

TANAKA PRECIOUS METALS Tanaka Precious Metals is Japan’s leading precious metals refiner and manufacturer. Although best known internationally for its high specification industrial products, used in various applications ranging from semiconductors to communications, the company is also a producer and trader of a wide range of gold bullion bars and coins. Tanaka bars are acceptable “good delivery” on the London gold market.

The cover of Gold Survey 2013 is sponsored by the following companies:

Valcambi is a leader in precious metals refining and operates one of the world’s largest and most efficient integrated precious metals plants situated on a 33 hectare site, at Balerna, Switzerland.

We are also one of the world’s largest manufacturers of minted ingots. Reacting to the demands of investors in different markets around the globe we continuously carefully developing within the size range from 0,5 g to 1000 g, gold, silver, platinum and palladium minted bars in different forms and new designs. For our clients, according to their wishes we customize individually obverse and reverse of the bars, certificates and tailored packaging solutions.

All products produced in our foundry and minting facilities are certified by our laboratory, carefully inspected by our operators, individually packed and controlled before shipment. The Hallmark is not only a guarantee for quality of Swiss workmanship, it guarantees also the fineness of the most sought after bars in the world, desired by precious metals connoisseurs and investors alike.

A Valcambi manufactured bar is not only sold at an outstanding price but is synonymous with unique craftsmanship, guaranteed fineness, transparency and reliability.

GOLD SURVEY 2013

BY:

Neil Meader, Head of Precious Metals Research & ForecastsWilliam Tankard, Research DirectorPeter Ryan, Senior AnalystCameron Alexander, Senior AnalystRhona O’Connell, Senior AnalystJunlu Liang, Senior AnalystMatthew Piggott, Senior AnalystMarcin Szczypka, Senior AnalystJohann Wiebe, Senior AnalystGeorge Coles, AnalystSaida Litosh, AnalystSudheesh Nambiath, AnalystJanette Tourney, Analyst

CONSULTANTS & OTHER CONTRIBUTORS:

Emma Hastings Vitaly BorisovichJadwiga Zajac

PUBLISHED APRIL 2013 BY THOMSON REUTERS GFMS

The Thomson Reuters Building, 30 South ColonnadeLondon, E14 5EP, UKSwitchboard: +44 (0) 207 250 1122Direct: +44 (0) 207 542 1682E-mail: [email protected]: www.gfms.co.uk

Intro-pages_13 JZ New.indd 1 21/03/2013 12:22:51

THOMSON REUTERS GFMS GRATEFULLYTHE FOLLOWING COMPANIES FOR THIS

www.pamp.com www.gold.org

www.cmegroup.com

www.pretivm.comwww.goldcorp.com

Italpreziosi SPA

www.moro.si

ACKNOWLEDGE THE GENEROUS SUPPORT FROMYEAR’S GOLD SURVEY AND ITS TWO UPDATES

TANAKA PRECIOUS METALS

Barrick Gold Corporation www.standardbank.com/cib

www.igr.com.trwww.randrefinery.com

www.cyplus.com

TABLE OF CONTENTS1. Summary and Price Outlook 8 • Supply 10 • Demand 10

2. Gold Prices 13 • Introduction 13 • Statistical Overview 14 • Price Commentary and Outlook 16

3. Investment 21 • Overview 21 • Implied Net Investment 26 • Exchange Listed Structured Products 28 • Activity on Commodity Exchanges 28 • OTC Market 31 • Physical Bar Investment 33 • Official Coins 36 • Medals and Imitation Coins 38

4. Mine Supply 39 • Mine Production 39 • Production Costs 52 • Producer Hedging 57

5. Supply from Above-Ground Stocks 59 • Overview 59 • Official Sector 60 • Scrap Supply 66

6. Gold Bullion Trade 74 • Europe 74 • North America 76 • Middle East 77 • Indian Sub-Continent 79 • East Asia & Oceania 80

7. Fabrication Demand 83 • Carat Jewellery 83 • Electronics 105 • Dentistry 107 • Other Industrial and Decorative Uses 108

8. Appendices 110

FOCUS BOXES

• A Review of Price Volatility in 2012 15 • Gold Price Correlations 18 • Investment in Commodities 24 • Exchange Traded Funds 27 • Corporate Activity in 2012 51 • The New World of Central Bank Gold Purchases 63 • CBGA: Sales Remained Tiny in 2012 64 • Negative Net Consumption in Western Jewellery Markets 90 • Westernisation’s Potential Impact on Emerging Market Jewellery Consumption 94


© THOMSON REUTERS 2013. ALL RIGHTS RESERVED.

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Whilst every effort has been made to ensure the accuracy of the information in this document, the content of this document is provided without any guarantees, conditions or warranties as to its accuracy, completeness or reliability. It is not to be construed as a solicitation or an offer to buy or sell precious metal, related products, commodities, securities or related financial instruments. To the extent permitted by law, we, other members of our group of companies and third parties connected to us hereby expressly exclude:

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ISBN: 978-0-9568286-5-1ISSN: 1471-2814

FORTHCOMING PUBLICATIONS

• WORLD SILVER SURVEY 2013: 24th April 2013 • PLATINUM & PALLADIUM SURVEY 2013: 2nd May 2013 • GOLD SURVEY 2013 - UPDATE 1: September 2013• GOLD SURVEY 2013 - UPDATE 2: January 2014

ACKNOWLEDGEMENTS

The estimates shown in Gold Survey for the main components of mine production, scrap, fabrication and investment demand are calculated on the basis of a detailed supply/demand analysis for each of the markets listed in the main tables. In the vast majority of cases, the information used in these analyses has been derived from visits to the countries concerned and discussions with local traders, producers, refiners, fabricators and central bankers. Although we also make use of public domain data where this is relevant, it is the information provided by our contacts which ultimately makes Gold Survey unique. We are grateful to all of them.


UNITS USED

troy ounce (oz) = 31.103 grammes

tonne = 1 metric tonne, 32,151 troy ounces

carat = gold purity in parts per 24

• Unless otherwise stated, US dollar prices and their equivalents are for the PM fix of the London Bullion Market.

• Unless otherwise stated, all statistics on gold supply and demand are expressed in terms of fine gold content.

• Throughout the tables, totals may not add due to independent rounding.

TERMINOLOGY

“-” Not available or not applicable.

“0.0” Zero or less than 0.05.

“dollar”, “$” US dollar unless otherwise stated.

“Implied Net Investment” Implied net investment is the residual from combining all of the other Thomson

Reuters GFMS data on gold supply/demand as shown in the Summary Table.

As such, it captures the net physical impact of all transactions not covered by

the other supply/demand variables. For more on this see Chapter 3.

“Physical Bar Investment” Identifiable net investment in physical gold in bar form. The bars may or

may not conform to ‘London Good Delivery’ status but will be in a form

that is commonly traded in the country of origin.

“World Investment” The sum of implied net investment, physical bar investment and all coins.

“Jewellery Consumption” Fine gold content of all new jewellery (i.e. does not include exchanged or second-

hand pieces) sold at the retail level. It is calculated as being equal to jewellery

fabrication, plus imports less exports (i.e. the net inflow of jewellery). An

adjustment is also made for retail stock movements.

NOTES


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1. SUMMARY AND PRICE OUTLOOKThere are some in the gold market who feel that the bull run in place since 2002 has witnessed its death-throes and that a sustained bear market has begun. Such a belief is certainly not without merit. From a technical perspective, gold’s failure three times at $1,800 and the fact that it is now languishing below its 200-day moving average are scarcely bullish. From a broader investment perspective, patchy but still positive economic news also calls into question the value of safe havens. When looking at actual gold investment, we also saw the fuller emergence of a new factor, satiation (namely, those investors considering gold already having bought all they deemed sufficient). Furthermore, the weight of money story (the concept of only a minute slice of institutional funds switching into precious metals and causing a major rally) is starting to look a little tired; conditions of a near “perfect storm” have been with us for several years and the involvement by mainstream funds remains modest.

All that leads us to be more restrained in our medium term outlook for gold, but this has done little to alter our belief in the potential for one last flourish. This centres on likely problems in resolving the industrialised world’s

sovereign debt; we saw a fair sized uplift when Cyprus hit the headlines in mid-March and, so should any strife hit the US markets, we could readily see a gold price move akin to August 2011 when the first US downgrade occurred. We could also easily see support from growing inflation fears, if markets view governments as likely to only slowly unwind lax monetary policies after private sector credit returns to more normal levels. Such a backdrop and the return of speculative buying could then push gold safely north of the $1,800 mark.

Of course, gold still has to deal with a hefty fundamental surplus and this could prove larger in 2013 than in 2012. Nonetheless, there were several positive points to emerge from last year’s results. Firstly, supply posed little threat in that it fell last year, chiefly as a result of near-market stock depletion curtailing scrap, and we would need a strong price rally for total supply to materially rise this year. On the demand side, official sector buying proved buoyant and that should continue this year. Lastly, jewellery buying provided good support on price dips and producer hedging remained trivial last year, and both should be repeated in 2013.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Supply

Mine production 2,631 2,504 2,560 2,495 2,498 2,430 2,612 2,739 2,838 2,861

Net official sector sales 620 479 663 365 484 235 34 - - -

Old gold scrap 991 881 902 1,133 1,005 1,350 1,735 1,723 1,669 1,616

Net producer hedging - - - - - - - - 11 -

Total Supply 4,241 3,864 4,126 3,994 3,986 4,015 4,381 4,462 4,517 4,477

Demand

Fabrication

Jewellery 2,484 2,616 2,719 2,300 2,423 2,304 1,816 2,020 1,975 1,893

Other 519 564 586 658 680 723 703 767 785 721

Total Fabrication 3,003 3,180 3,305 2,958 3,103 3,027 2,518 2,787 2,760 2,613

Net official sector purchases - - - - - - - 77 457 532

Bar hoarding 177 215 251 233 240 622 498 886 1,197 998

Net producer de-hedging 289 438 92 434 436 357 234 106 - 40

Implied net investment 772 31 477 369 207 10 1,130 607 103 294

Total Demand 4,241 3,864 4,126 3,994 3,986 4,015 4,381 4,462 4,517 4,477

Gold Price (London PM, US$/oz) 363.32 409.17 444.45 603.77 695.39 871.96 972.35 1,224.52 1,571.52 1,668.98

Source: Thomson Reuters GFMS Totals may not add due to independent rounding. Net producer hedging is the change in the physical market impact of mining companies’ gold loans, forwards and options positions. Implied net investment is the residual from combining all other Thomson Reuters GFMS data on gold supply/demand as shown in the Summary Table. As such, it captures the net physical impact of all transactions not covered by the other supply/demand variables.

TABLE 1 - WORLD GOLD SUPPLY AND DEMAND (TONNES)

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Table 1A above presents our statistics on supply and demand in a different way to Table 1 on the preceding page for two key reasons. Firstly, it provides greater detail on the five non-jewellery areas of fabrication. Secondly, the above format aims to present figures on a gross basis. It should not be forgotten that some areas of supply and demand are shown overleaf on a net basis. This is the case for the official sector, where confidentiality often rules out full disclosure of gross sales and purchases.

It is also worth highlighting that the jewellery line has been labelled ‘consumption’ rather than fabrication. At a global level and over time, these two can be taken as one and the same, although for individual countries and on a quarterly basis the two will diverge. Good examples would be jewellery fabrication exceeding consumption in export-focused countries like Italy or Malaysia and a fabrication-supportive stock build in western countries in advance of a consumption-boosting Christmas sales period.

Our choice of the elements of investment to include is largely determined by the existence, or not, of quantifying statistics. A figure for ETF holdings can be

readily used as most funds publish hard data. Exactly which of these funds to include can be a grey area but those whose classification is debatable tend to be off a lesser importance. Our figures indicate that gold ETFs saw another robust increase in 2012. In the middle would be investment in physical bars. For some countries, reliable bullion trade data can make our estimates solid. However, if a sizeable proportion of bullion flows are unofficial, we tend to rely more on commentary from our research contacts. Even then, however, conjecture is likely to be needed, particularly if the business in any one country is highly fragmented.

More opaque are the figures on the net ‘investor’ long on the Comex as the precise weekly statistics in the commitment of traders reports unfortunately bear a fairly elastic link to their physical metal impact and so they are excluded here. At the bottom end of the spectrum would be over-the-counter (OTC) investment, where data is in essence absent, sometimes even from those working within the principal bullion banks. Nonetheless, an impression of activity can still be established in this area. Our information indicates that in 2012 the OTC market saw modest net selling for the year as a whole.

TABLE 1A - END-USE GOLD CONSUMPTION (TONNES)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Jewellery Consumption 2,484 2,616 2,719 2,300 2,423 2,304 1,816 2,020 1,975 1,893

Industrial & Dental 386 419 438 468 476 461 410 465 452 407

Electronics 237 266 286 316 322 311 275 326 320 285

Other Industrial & Decorative 82 85 90 92 96 95 82 91 89 84

Dentistry 67 68 62 61 58 56 53 48 43 39

Identifiable Investment 350 493 608 683 698 1,204 1,414 1,569 1,715 1,590

Physical Bar investment 177 215 251 233 240 622 498 886 1,197 998

Official Coins 107 116 112 130 136 192 234 213 245 200

Medals & Imitation Coins 26 29 37 59 68 70 59 88 88 113

Investment in Exchange Traded 39 133 208 260 253 321 623 382 185 279

Funds and Related Products*

Total 3,220 3,528 3,765 3,451 3,597 3,970 3,640 4,055 4,142 3,890

* Including: Gold Bullion Securities (both traded at LSE and ASX), SPDR Gold Shares, NewGold Gold Debentures, Central Fund of Canada and Central Gold Trust, iShares Comex Gold Trust, ZKB Gold ETF, Goldist, ETF Securities, ETFS Physical Gold, Xetra Gold, Julius Baer, Claymore Gold Bullion ETF, ETFS-Swiss Gold, Sprott Physical Gold, Dubai DGX, ETFS Precious Metals Basket Trust, Mitsubushi Tokyo, ETFS Asian Gold Trust, Claymore Gold Bullion ETF (Non-Hedged), DB Physical Gold ETC (EUR), DB Euro Hedged, DB Physical Gold ETC, DB Physical Gold SGD Hedged ETC, DB Physical Gold GBP Hedged ETC, Source Physical Gold ETC, iShares Gold Bullion Fund, Indian ETFs and Royal Canadian Mint.

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SUPPLY IN 2012

— Mine production increased only fractionally in 2012, by 0.8%, but still achieved a record, of 2,861 tonnes. — Global scrap supply fell by 3.1% to 1,616 tonnes last year due primarily to close to market stock depletion. — Total supply of gold, at 4,477 tonnes, was 0.9% lower year-on-year.

Global mine production was almost flat year-on-year in 2012, having edged up by less than 1% or by 22 tonnes. Nevertheless, it represented an all-time high for global mine production volumes, at 2,861 tonnes. This outcome was more modest than our expectation for the year at the start of 2012, which was for a production growth rate similar to that of 2011. That another year of decisive production growth was not fully realised was attributable to a combination of slower than anticipated ramp-ups at a small handful of projects and unforeseen disruption events. In the case of the latter, the starkest was the disruptive strikes to have engulfed the South African mining industry in the latter part of last year.

Looking at the regional trends, the stand-out performers were Asia and the CIS, where respective production grew by 18 and 12 tonnes. Both results were largely down to higher volumes from the regions’ largest producers, China and Russia, and in the case of Asia this robust result was in spite of heavy losses once again in Indonesia. European output was modestly higher thanks primarily to increased output from Finland. Production from the Americas was, in aggregate, flat. In Africa the heavy fall in South Africa prevailed over higher production from much of west Africa, while a 10 tonne loss in Oceania was brought about by lower volumes from Australia and, to a lesser extent, New Zealand.

Producers’ costs continued to escalate apace in 2012, having risen by more than 10% year-on-year for both Total Cash Costs and Thomson Reuters GFMS’ All-in Costs metric, to average $738/oz and $1,211/oz respectively.

Last year, scrap supply fell for the third consecutive year, dipping 3.1% to 1,616 tonnes but still contributing 36% of total supply. A fall may surprise given the 6% rise in the dollar gold price last year. However, close to market stock depletion and expectations of a return to higher prices left consumers reluctant to liquidate gold assets. In contrast, scrap flows from India surged by more than 90% last year as a weaker rupee and legislative changes saw supply approach record levels; if we exclude India from the global total, scrap fell a more telling 7% in 2012.

Scrap supply from the industrialised world saw modest falls last year following several years of consecutive records flows, with a drop in close to market stocks offsetting further flows motivated by distress selling. In the Middle East, scrap dipped just 3%, although this outcome was supported by a strong recovery in supply from Egypt, with double-digit declines commonplace elsewhere. Similarly, supply from East Asia saw material falls, led by a sharp drop in Japanese recycling.

DEMAND IN 2012

— Total demand fell by 0.9% in 2012 as losses in physical bar investment and fabrication outweighed the jump in official sector purchases and the return to modest de-hedging. — Jewellery demand dropped by 4.2%, mainly due to losses in India, while all other areas of fabrication, save unofficial coins, registered declines. — Implied net investment almost tripled in 2012, due to

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a major recovery in demand for gold ETFs. — Physical bar investment dropped by a hefty 17% to just below 1,000 tonnes last year. — Net official sector purchases grew by 75 tonnes to 532 tonnes in 2012. — Producer de-hedging returned, with a modest 40 tonne reduction to the global hedge book in 2012.

Total fabrication fell by 5.3% in 2012, chiefly due to losses in jewellery demand, which dropped by 4.2%. It is worth stressing that this decline last year was assisted by broad stability in Chinese demand. If we exclude China from the global total, demand elsewhere dropped by a slightly more noteworthy 5.7%. In terms excluding scrap, the fall for full year global demand in 2012 was more pronounced at 7.7%. However, if in this instance we remove India, offtake for the remainder was essentially flat year-on-year.

The bulk of losses last year can be attributed to lower demand in India, which represented close to 50% of the year’s total gross losses (if we exclude the country, jewellery offtake in the rest of the world dropped by a modest 2.6%). Indian jewellery fabrication declined for the second consecutive year, falling by 7.3% to 618 tonnes. This result was mainly driven by the 24% year-on-year increase in the rupee gold price, a patchy monsoon and the imposition of a new customs duty at an ad valorem rate. A lack of a clear gold price trend, coupled with a weaker economic environment, saw Chinese jewellery fabrication rise by a mere 0.6%. To put this into perspective, jewellery offtake in China posted an average annual growth rate of around 10% over the last decade. That said, last year’s offtake reached a historical high of 498 tonnes. Robust demand in China helps to explain why the drop for East Asian jewellery offtake in total was limited to just 1.0%; if we exclude China, the region’s demand dropped by a more notable 5.8%. While

the chief culprit of this poor performance was the impact of high and volatile prices, poor western consumption also undermined offtake for the region’s exporters.

Elsewhere, given its historical price sensitivity, it may seem surprising that demand in the Middle East dropped by a modest 2.5% last year. This result was down to strong gains in Egypt on the back of the improving political situation, which partially offset significant losses elsewhere in the region. A combination of higher gold prices and a still challenging economic backdrop in many industrialised countries continued to weigh heavily on the western gold jewellery market. US jewellery offtake posted a double-digit percentage decline as a result of the ongoing substitution away from gold to silver jewellery. European jewellery fabrication fell by 7% last year, primarily driven by losses in Italy, where jewellery offtake continued to decline, chiefly in response to higher gold prices. Swiss and German jewellery fabrication posted more modest losses, thanks to strong results in the top end jewellery and watch segments. An actual increase was recorded in Russia, where jewellery offtake continued to approach pre-crisis levels.

Other fabrication fell by 8.2% to 721 tonnes in 2012. However, if we exclude all coins, the rise was a more robust 9.8%. Much of that was driven by the 11.1% drop in electronics demand, hit by the weaker economic backdrop and price-led substitution losses. Higher gold prices resulted in the 5.1% decline in other industrial & decorative demand, while dental demand posted a double-digit decrease due to ongoing substitution.

Investment demand remained solid last year. Despite a modest 1.8% decline, at 1,605 tonnes, World Investment (the sum of implied net investment, physical bar investment and all coins) remained elevated by historical standards. In value terms, the picture is brighter, with

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WORLD GOLD DEMAND JEWELLERY FABRICATION AND WORLD INVESTMENT

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the approximate equivalent value of this demand still growing as it rose to a fresh high of $86 billion. The fall in the tonnage figure was largely attributable to a heavy drop in purchases of physical bullion products by retail investors. For instance, physical bar investment dropped by 17% to 998 tonnes last year, although the total remained the largest component of World Investment and the second highest basis our records. A similar fall in percentage terms was recorded by official coin minting with volumes hitting a four-year low of 200 tonnes. A good portion of these losses was offset by a recovery in implied net investment, almost entirely driven by a major rebound in investor interest in gold ETFs. Furthermore, demand for medals & imitation coins jumped to a record high in 2012, although its net contribution to total investment was modest.

Key to such robust investment demand last year was the persistence of negative real short-term interest rates and a new round of monetary easing in many countries, especially in the United States where the Fed indicated that it would be prepared to tolerate higher rates of inflation to reduce high unemployment. Not only did these ultra-loose monetary policies keep the cost of carry on bullion negligible, but they also provided an important stimulus to investment demand for gold as a safe haven. Other key factors that encouraged gold investment in 2012 included the underlying fragility of the global economic recovery and a lack of sufficient progress in fiscal consolidations in many European countries and the United States. Consequently, with the credibility of some sovereign debt brought into question, gold was felt to offer a good form of insurance against outright default or an ultimate currency hedge.

That said, investment also faced a series of headwinds last year. First and foremost, gold was not immune from several bouts of heavy investor sell-offs across the board amid heightened market uncertainty when a need to

raise cash saw those with a short-term outlook sell their liquid assets rapidly. Meanwhile, as investors that would like to keep gold as a means of wealth preservation perhaps had already built up sufficient stocks in previous years, there were few new entrants coming into the market, especially given an absence of intense concerns over the Eurozone debt problem. Finally, a lack of long-term clear price trends certainly kept many investors waiting on the sidelines.

Net official sector purchases jumped to a 48-year high of 532 tonnes in 2012, with their contribution to total gold demand rising to 12%. The overwhelming majority of last year’s central bank buying was accounted for by the developing world, especially from countries with substantial foreign exchange reserves and a low share of gold holdings. This clearly highlighted their growing desire to diversify their reserve portfolio away from the major international currencies, the dollar in particular, in response to a new round of monetary loosening by the major central banks and a further drop in yields on top-rated sovereign bonds during 2012. Meanwhile, gold’s appeal was further enhanced by the metal’s impressive price performance in recent years and its unique property as a vehicle that carries no default risk. Finally, it is of note that the high net purchase figure was also boosted by the ongoing absence of major sales from signatories to the Central Bank Gold Agreement in 2012.

Producers collectively de-hedged 40 tonnes of gold last year, representing a return to the ‘demand side’ to leave the outstanding book at 123 tonnes. Having been close to neutrality for much of the year, as existing hedges matured at a comparable rate to new hedging being established (mostly as a condition of debt financings), de-hedging picked up in the latter part of the year: Minera Frisco actively reduced hedge cover and Great Basin Gold’s hedges were retired as part of insolvency proceedings.

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2. GOLD PRICES• The annual average gold price in 2012 reached a record $1,668.98, as it rose for the eleventh year in a row, although the increase at 6.2% was the slowest of this multi-year rally.

• After a strong rally to late February, the gold price saw a sharp fall from the start of March to mid-May when it posted a low for the year of $1,537.50. This was followed by three months in a relatively narrow range either side of the $1,600 mark, building a springboard for the sharp recovery in August and September that took gold to its high for the year (basis the fix) of $1,791.75 on 4th October.

• Gold price volatility contracted over 2012 to the lowest

quarterly level since the third quarter of 2005 as post-QE3

investor euphoria waned and then as investors were unnerved

by protracted Congressional wrangling over the budget deficit.

• The 1980 nominal price record of $850, when expressed in 2012 dollars, remained unchallenged at the equivalent of $2,369. Similarly, the 1980 real average was higher than last year’s at an equivalent of $1,712.

• The annual average gain in dollar terms in 2012 was amongst the weakest of the major currencies, two others performing similarly being the increase in Australian dollars at 6% and in the renminbi at 4%. In marked contrast, the euro gold price saw a 15% lift, gold in rand rose 20% and the increase in rupee terms was 24%. This meant no clear distinction between producer and consumer currencies.

• Prices were also helped by fundamental supply being restrained in 2012, with mine production rising by less than 1% and scrap sales contracting. Jewellery demand also slipped by just 4%, while net official sector purchases were extremely buoyant, helping to put a floor under the gold price during the year.

INTRODUCTION

The annual average gold price in 2012 was 6.2% higher than in 2011, although the spot price did not approach the daily records of 2011. Continued unsettled economic conditions again reduced demand in jewellery and other sectors, while bar hoarding also contracted, especially in the middle part of the year. This latter element helped to inform the comparative price weakness mid-year, but there was an important difference between 2012 and the year before; whereas record bar hoarding in 2011 was an important price driver, the price swings in 2012 were a partial cause of reduced bar investment. Early price strength was driven by hedging against economic and financial risk, while US monetary policy became an increasingly significant driver of sentiment over the year. The downswing in March to May was triggered by fading expectations for QE3 and a loss of investor appetite for risk, while the rally in August and September stemmed from renewed anticipation of more monetary easing. The final quarter price fall was triggered by disappointment at the failure at $1,800 and extended by the lack of agreement over US debt management.

GOLD PRICES

%change y-o-y 2012 2011 2012 average intra-year

US$/oz 1,571.52 1,668.98 6.2% 3.7%

Euro/kg 36,355 41,755 14.9% 2.4%

Yen/g 4,017 4,278 6.5% 16.4%

Yuan/g 326.59 338.51 3.7% 2.7%

Rand/kg 368,623 440,575 19.5% 9.5%

A$/oz 1,524 1,610 5.7% 3.7%

Rouble/g 1,487 1,667 12.1% -1.8%

TL/g 84.78 96.34 13.6% -1.5%

Rps/10g 24,003 29,730 23.9% 12.1%

Rph/g 442,525 502,315 13.5% 9.4%

Source: Thomson Reuters GFMS

US$

/oz


1000

1200

1400

1600

1800

2000

MarJan-13NovSepJulMayMarJan-12

Gold Price

Trade WeightedDollar

Standard & Poor’s downgrades 9 Eurozonenations, 14 put onnegative outlook

Fed says interest rates to stay low

until at least 2014

Fed Chairman Bernankefails to mention QE3

ECB launches second round of LTRO

Greek default avoided FOMC minutes

released, no sign of QE3

Francois Hollandeelected as

French President

Fed minutes lowerhopes of QE3

Spain seeksbanking rescue

Fed extends “Operation Twist”

until year-end

Moody’s changesGermany’s outlook

to negative

Fed minutes promptincreased hopes of QE3

ECB announces “unlimited”bond-buying scheme

German court ratifiesEurozone permanentrescue fund

Fed launches QE3 and anticipates lowinterest rates through mid-2015

S&P cuts Spain’scredit rating

Barack Obama re-electedas US President

Fed announcesQE4 package

President Obama signs

bill to avoid “fiscal cliff”

Greece bailout funds approved

Mario Draghi pledgesto do “whatever it takes”

to save euro

Feb Apr Jun Aug Oct Dec Feb

President Obama signs sequester which cuts

$85bn from US budget

Haruhiko Kuroda

appointed as head of BoJ


1800 released, no sign of QE3 credit rating to do “whatever it takes”

-110

-105

-100

-95

-90

Trade Weighted D

ollar (Inverted, 3rd Jan=100)

GOLD PRICE AND TRADE-WEIGHTED DOLLAR (INVERTED) - DAILY

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STATISTICAL OVERVIEW

PRICE SUMMARY

Gold’s annual average of $1,668.98 in 2012 was just 6.2% higher than that of 2011. While this was the eleventh consecutive annual gain in price, it was also the smallest, being substantially below the annual average increase of 19.5% from 2002 to 2011 inclusive.

The result of the swings between bull and bear phases during the year was that 2012 was the third successive year in which the intra-year gain, at 3.5%, was smaller than that of its predecessor (the increases in 2010 and 2011 respectively had been 25.3% and 10.3%). In terms of absolute price ranges, 2012 had the narrowest band since 2001 at 16%; the range in 2001 had been 15% and the average from 2001-2012 inclusive was 31%.

The price did not reattain the record highs of 2011, with a high p.m. fix for the year of $1,791.75 on 4th October, 5.4% below the September 2011 record of $1,895.00. In real terms, the average gold price in 2012 was a 32-year high, although 1980 still holds the record high average, at the equivalent of $1,712 in 2012 dollars. Similarly, the nominal peak of $850 in 1980 equated to $2,369 in 2012 dollars and so this record has also not been surpassed. Even so, in real terms, the dollar gold price rose by a factor of five over the decade 2002-2012.

The oscillation between bull and bear phases during the year meant that the bull trend that started in late 2008 came under test on several occasions. This trend was breached towards end-December, and although it was regained before year-end, 2012 ended on a cautious note and the trend was broken in early 2013.

PRICES IN OTHER CURRENCIES

The variations in annual average price changes in 2012 meant that there was no clear distinction between producer and consumer currencies. The gain in the average price in China was one of the smallest at 4% as the renminbi held to a narrow range against the dollar, although it was allowed to edge higher in the second half of the year. Several other nations important on the producer side saw only modest increases; Australian dollar prices, for example, only gained 6%, while Canadian dollar prices rose 7%. The real stand out was the gain in rand terms at 20% as labour strife in particular contributed to the pressure on the South African currency. Other producers also benefited from stronger price gains, with the rouble gold price averaging 12% more than in 2011 and the rupiah price gaining 14%.

The dollar-denominated price stood towards the bottom of the international range with an increase of 6%, while persistent Eurozone problems meant that the rise in the average euro price was near the other end of the scale, at 15%. The dollar’s strength against the euro for much of 2012 also meant that gold’s four-year bull market was not tested in euro terms until December. The price declined in Swiss francs (albeit by less than 1%), reflecting the currency’s role as a safe haven. The rupee price, though, was 24% higher, helping to contribute to India’s reduced demand in 2012. Turkish prices posted gains of 14% year-on-year.

US$

/oz


High

AverageLow

0

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800

1200

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2000

201020052000199519901985198019751970 100

170

240

310

380

450

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08Jan-07Jan-06

Inde

x, 4

th Ja

nuar

y 20

06=

100

Source: Thomson Reuters

dollar

rupee

yen

euro

REAL GOLD PRICES IN 2012 DOLLARS

ANNUAL GOLD PRICES GOLD PRICES IN MAJOR CURRENCIES

1982 1992 2002 2012

Annual 893.20 562.71 395.27 1,668.98

Maximum 1,144.74 588.31 445.84 1,791.75

Minimum 706.24 540.46 354.52 1,540.00

Range/Average 49.09% 8.50% 23.10% 15.08%


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OTHER COMMODITIES

After the large average annual price gains that were posted in 2011 by the majority of metals, the changes in 2012 were more modest. The direction of change was also different; in 2012, the only metal to rise on an annual average basis was gold. The price declines in March to May, by way of illustration, were heavier among the base metals than gold. With the exception of platinum and zinc, gold was the strongest performer over the first five months of the year (i.e. to the end of the sharp bear phase), laying the foundation for a better annual average performance than the rest.

On an intra-year basis, the picture was different, as confidence started to seep into the markets with respect

to the US economy, and fears about the outlook for China were partly (and temporarily) dispelled. Gold gained 8% over the year, but was outshone by platinum and palladium, as well as lead and zinc. Platinum is slightly anomalous in that its price gains revolved largely around a supply risk premium, while palladium benefited from investment in anticipation of a developing shortfall. Platinum traded at a discount to gold for the vast majority of 2012, although it regained a premium in the first quarter of 2013. This again reflects supply issues, this time geared more to longer-term risk than shorter-term disruption. Lead and zinc prices were both lifted towards end-2012 by improved economic confidence, while lead was also boosted by a tightening in availability and zinc was further lifted by technical financing issues.

Silver, historically the most closely related metal to gold, posted an annual average in 2012 some 11% lower than in 2011. A 26% drop in price between end-February and late May reflected silver’s high volatility and deterred investors in the second quarter, but their appetite returned in the third quarter to help towards an intra-year gain of 6%, a rise that could have been higher but for lingering memories of the April/May 2011 slump. Silver is a thin market, with relatively weak fundamentals that include largely price-inelastic supply. The August price recovery, driven by gold’s strength, was followed by a sharp reversal in the final quarter, notably in December, as the markets retreated in the face of protected budget wrangling in Washington. Due to its volatility, silver is a geared proxy for gold and attracts short-term traders accordingly, which means that this volatility can be self-fulfilling, leading to wide price swings.

A REVIEW OF PRICE VOLATILITY IN 2012

Gold’s price volatility in the final quarter of 2012 was the lowest

since the third quarter of 2005 as post-QE3 investor euphoria

waned and then as investors were unnerved by Congressional

wrangling over the budget deficit. Previously, volatility in the

third quarter of 2011 had been the highest since the first quarter

of 2009 (when it was retreating from very high levels after the

Lehman collapse). High volatility persisted in the first half of

2012 as the late 2011 rally ran to late February 2012, before an

abrupt reversal occurred through to late May.

Price volatility can have a clear impact on physical gold

demand, but 2012 was slightly anomalous. High volatility in the

first half-year contributed to year-on-year declines in jewellery

fabrication, but falling volatility did not really help fabrication

in the second half year, as the weak global economy and lack

of clear price trend were more influential. As for the annual

numbers, gold’s 2012 volatility was 17%, and so higher than the

long-term average. It was, however, lower than a number of

other assets; silver’s volatility, for example, was 28%, oil stood

at 25% and copper, 19%. The S&P 500’s volatility was below

that of gold, in contrast, at 13%.

Q1 Q2 Q3 Q4

2011 12.9% 13.7% 29.4% 23.5%

2012 19.3% 19.0% 13.0% 11.7%


QUARTERLY PRICE VOLATILITY

ANNUAL HIGHS/LOWS & TRADING RANGES

2007 2008 2009 2010 2011 2012

US$/oz 841.10 1,011.25 1,212.50 1,421.00 1,895.00 1,791.75

608.40 712.50 810.00 1,058.00 1,319.00 1,540.00

33.5% 34.3% 41.4% 29.6% 36.7% 16.3%

Rand/kg 184,202 276,780 324,690 322,735 468,817 506,434

141,802 185,415 232,031 258,374 296,075 402,433

26.9% 39.8% 35.4% 19.9% 46.9% 25.8%

Euro/kg 18,410 21,390 25,857 34,573 43,403 44,515

15,063 17,015 19,910 24,668 31,041 39,028

20.5% 22.9% 26.5% 33.3% 34.0% 14.1%

A$/oz 950.89 1,373.98 1,543.63 1,523.73 1801.96 1,750.72

756.38 908.48 1,126.74 1,197.71 1,313.79 1,517.90

23.5% 45.1% 33.8% 24.5% 32.0% 15.3%

Yen/g 3,049 3,313 3,442 3,792 4,698 4,622

2,324 2,134 2,337 3,040 3,489 3,909

27.6% 40.6% 37.9% 21.8% 30.1% 18.2%

Rps/10g 10,715 14,105 18,220 20,780 29,275 32,640

8,520 10,650 12,905 16,055 19,745 27,320

23.5% 28.2% 34.9% 25.8% 39.7% 13.3%


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The rationale behind the use of a consumption and

production-weighted series, as shown opposite, is that much

of the world’s gold is produced and consumed in countries

where currencies are not tied to the US dollar. This can

reduce the impact of dollar price movements on production or

consumption decisions. The two series are weighted based on

production and consumption relative to the size of the overall

market. In 2012, the consumption-weighted index fractionally

under-performed the dollar price while the production index

was the strongest of the three. The absolute changes were all

very small, however, with the producer index gaining just 1.2%

and the consumer index, 0.2% (basis monthly averages).50

75

100

125

150

175

200

Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08

Inde

x, 2

nd Ja

nuar

y 20

08 =

100


Production Price

Real Gold Price

Consumption Price

PRICE COMMENTARY AND OUTLOOK

Gold traded in a range of $252 or 15% during 2012, with a net gain of 6%. Over the year, there were a number of changes in sentiment, mainly down to investor responses to shifts in economic and financial policy, which produced wide price swings during the year. Price falls were regularly met by bargain hunting in the physical market and buying from the official sector, with the result that a body of support developed between $1,540 and $1,600. On the upside, the price approached $1,800 in both February and October, but on each occasion it failed to pierce this important psychological level.

The outlook for the global economy was uppermost in the minds of gold investors over the year and the shifts in the focus of the United States’ monetary policy became increasingly dominant. Among other significant areas of influence, signs of distress from, or improvements in, the Eurozone had intermittent impacts. This was mainly with respect to sovereign debt risk, as fears for the region’s banking sector generally receded during the year. Changing economic signals from China were also an important element affecting sentiment.

There was a subtle shift during 2012 in the way investors reacted to changes in financial policy. In 2011 and early 2012, gold had tended to respond positively to shifting fragilities in the US and Eurozone economies in particular and also to any perceived stagnation in political efforts to resolve different financial crises. By the final weeks of 2012, however, the market had almost developed a fatigue towards perceived see-sawing in policy and, more specifically, protracted political negotiations, especially as regards the US “fiscal cliff”. In addition, increasingly public reservations in late 2012 and early 2013 among some FOMC members about the longer-term ramifications of the easing programme and when (and how) to effect an exit strategy meant some investors took fright and liquidated gold holdings in the belief that the potential for an inflation premium was losing relevance.

Gold opened 2012 at $1,598 and rose to fix at $1,781 at the end of February (a level not seen since mid-November 2011) amid a range of economic and financial uncertainties. In Europe especially, evidence abounded of intensifying problems. Spain raised its projections

0

100

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300

400

500

Jan-13Jan-12Jan-11Jan-10Jan-09

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Silver

Platinum

0

5

10

15

20

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30

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2011200820052002199919961993

Gol

d/O

il Pr

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PRODUCTION AND CONSUMPTION-WEIGHTED GOLD PRICES

PRECIOUS METALS PRICES GOLD/OIL PRICE RATIO

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for the size of its 2012 deficit, there was heavy domestic bank borrowing from the “marginal lending facility” at the European Central Bank (ECB) and in mid-January Standard & Poor’s downgraded the credit ratings of nine European nations. Later in January, with the Eurozone in the throes of a credit crunch, the statement from the United States’ Federal Open Market Committee (FOMC) projected the likely need for ultra-low interest rates until late 2014. This further fuelled gold’s rally as a result of safe haven investment, illustrated by inflows into ETFs and strong gains in investor longs on Comex. This investment momentum was sustained until the end of February, with Moody’s downgrading some European nations and putting others onto a negative outlook, while progress on a Greek bail-out was slow.

The flow of supportive news slowed in the latter part of February. By the end of the month, gold’s self-fulfilling upward momentum, which had been helped by chart-related technical factors, had left the price overbought and ripe for a correction.

This reversal was triggered by Dr. Bernanke’s bi-annual Congressional testimony on 29th February, which helped to usher in a period of nervousness for the metals markets. Gold, which had touched $1,790 on an intra-day basis on the day of the testimony, then fell sharply, posting a range of more than $102 (almost 6%) on that same day as the markets took Dr. Bernanke to imply that QE3 was in some doubt, even though high long-term unemployment remained, in his words, “particularly troubling”. Price slippage continued through to mid-May, when gold traded at $1,527 (intra-day), which subsequently proved to be the low for the year.

There were other influences at work during this March-May period that helped to keep sentiment in the commodities sector under pressure. In early March, the Chinese government cut its economic growth forecast

to 7.5% for 2012; this was the first time in eight years that growth had been projected at below 8%. In Europe, Greece’s debt restructuring agreement in mid-March was met with caution as the economy was not believed to be strong enough to grow out of its remaining debt. Spain slipped into recession in the first quarter, while the Spanish and Italian bond markets started to send out distress signals in April and a German bond auction in mid-April was not fully covered. The ECB continued its refinancing operations, but refrained from any overt stimulus, while tacitly pressuring politicians to accelerate crisis negotiations. Across the Atlantic, US economic indicators were generally improving and the dollar and Treasuries acted as the safe haven assets in the markets.

During this period, gold traded more as a commodity than as a risk hedge, with sales pervading the market from March through to May (the month in which investment only properly began to recover). Exchange traded products, the over-the-counter (OTC) market and investors on Comex all reduced their gold exposure and bar hoarding demand slowed, while short-side traders on Comex increased their positions substantially. Gold did experience bouts of physical demand as buyers took advantage of lower prices, which helped to bolster the market during March and April, and support at $1,620 started to look as if it would contain the weakness. Net official sector buying was also strong in May, partly reflecting opportunistic reserve diversification. The further price downturn in the first half of May came as the markets focused on sovereign debt and, particularly, over whether Greece would have to leave the Eurozone. The ensuing breach of $1,600 prompted a swift drop to the year’s low. Even so, gold proved to be the most defensive metal during the broader sector’s fall, with a price decline of 10% between end-February and mid-May.

A gradual return of investor interest helped to support the price between $1,550 and $1,600 in May and June,

500

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1100

1400

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Jan-13JulJan-12JulJan-11JulJan-10

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/oz


Gold price

0

100

200

300

400

500

600

700

800


Spanish CDS price

Italian CDS price

Credit Default Sw

ap price, 5 year (US$)

GOLD PRICE & SPANISH, ITALIAN, CREDIT DEFAULT SWAPSGOLD PRICE & THE MISERY INDEX

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Jan-13Jan-11Jan-09Jan-07Jan-05Jan-03Jan-01

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Gold price

Misery Index

3

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12

15


Misery Index

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GOLD PRICE CORRELATIONS

Thomson Reuters GFMS believes the study of correlation

coefficients to be highly useful, not only as an indication of

underlying themes that may influence the market, but also to

confirm economic theory with empirical evidence. It must be

noted, however, that the existence of either a positive or inverse

correlation between two assets is not sufficient in itself to

establish direct causality.

The table to the right illustrates daily-log return correlations

between gold and a number of asset classes. It should come as

little surprise that the relationship with silver is the strongest

among those under scrutiny, given the historical closeness

between the two metals. For much of 2012, the gold:silver

relationship was stronger in comparison with gold’s correlation

with other assets, with silver remaining generally dependent

on gold rather than the other way around. It should be noted,

though, that silver, with its higher volatility and lower unit price,

often leads any change in price trends in the two metals.

Gold’s relationship with the dollar:euro rate was generally

re-affirmed in 2012 after a looser period in 2010 and 2011. This

occurred despite the dollar also assuming a safe haven role for

certain periods, as a result of sentiment towards the Eurozone

being cautious for much of the year. In the second quarter,

gold’s correlation with the dollar:euro rate even eclipsed that

with silver. It was during this period that the markets reacted

to a growing belief that QE3 might not be implemented and

the historical interplay between the dollar and gold as hedges

against risk thus brought the correlation with the dollar:euro

rate to the fore, with the dollar in demand.

Gold’s relationship with the commodities sector as a whole

became closer during the second quarter as investors’ risk

appetite was reduced, leading to falls in all major metals’ prices.

In the third quarter of the year, this correlation weakened, as

investment pressure started to build in gold, leading to the

strong August-September rally. In the fourth quarter, the

markets focused increasingly on developments within the

United States, with particular respect to the budget deficit; this

kept gold quiet and under some pressure, while also weakening

the dollar against the euro in the final weeks of the year.

The correlation between gold and the S&P 500 remained

loose for much of 2012, as, despite some bouts of nervousness,

sentiment became increasingly positive towards the US

economic outlook and investors increased equity holdings.

Gold’s role as a diversifier of risk within an equity portfolio

appeared to have little concomitant impact on price, suggesting

that some investors were already positioned accordingly. Gold’s

relationship with oil was generally in mid-range in 2012 among

the assets under consideration. Oil’s influence on inflationary

pressures is now less marked than in the 1990s and so the

gold:oil ratio relationship is less closely monitored than used

to be the case. It can, however, become important when

geopolitical tensions are an issue.

-0.50

-0.25

0.00

0.25

0.50

0.75

201120072003199919951991

Corr

elat

ion

Coef

ficie

nt


CRB Index

US$/Euro S&P 500

75

90

105

120

135

150

Jan-13JulJan-12JulJan-11

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y 20

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GoldOil

CRB

$:Euro

2011 2011 2012 2012 2012 2012Quarterly Q3 Q4 Q1 Q2 Q3 Q4

US$/Euro Rate 0.07 0.43 0.56 0.61 0.53 0.23

US$/Yen Rate 0.16 0.17 0.25 0.07 -0.07 0.18

Silver 0.67 0.65 0.71 0.46 0.69 0.49

Oil (WTI) -0.03 0.14 0.28 0.39 0.24 0.26

GSCI Index 0.01 0.30 0.30 0.43 0.32 0.36

CRB Index 0.12 0.40 0.08 0.22 0.12 0.19

S&P 500 -0.25 0.28 0.09 0.15 0.27 0.11

Annual 2007 2008 2009 2010 2011 2012

US$/Euro Rate 0.51 0.50 0.37 0.26 0.27 0.51

US$/Yen Rate -0.10 0.21 0.25 0.16 0.14 0.12

Silver 0.54 0.60 0.63 0.58 0.63 0.60

Oil (WTI) 0.15 0.21 0.20 0.32 0.13 0.30

GSCI Index 0.23 0.25 0.22 0.40 0.20 0.36

CRB Index 0.21 0.23 0.28 0.23 0.21 0.15

S&P 500 0.09 -0.10 0.07 0.17 -0.03 0.16


GOLD PRICE CORRELATIONS

CORRELATIONS WITH THE GOLD PRICE GOLD, THE CRB, OIL AND THE DOLLAR:EURO RATE

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2008 2009 2010 2011 2012

US TW$ 107 112 108 102 104

Gold 227 253 319 409 434

annual averages, 1995 = 100;


although the buying was largely professional. “Grass roots” support was thinner, especially with Indian buyers deterred by poor pre-monsoon rains, concerns for the monsoon as a whole and the lack of a clear price trend.

The extension to the fiscally-neutral Operation Twist in June saw gold dip towards $1,550. The subsequent European Summit reached an unexpected degree of agreement on measures to address the region’s crisis, rejuvenating interest in commodities and prompting substantial euro short-covering, thus supporting dollar gold prices. While gold was essentially neutral in dollar terms over June, it trended downwards in euro terms. Increased central bank buying developed in July and dollar gold prices remained steady, in ever-narrowing ranges, through to mid-August. Investment grew in the exchange traded products and on Comex (along with short-covering), while healthy implied investment levels for the September quarter reflected a swelling of interest in the OTC market, all helping to build support between $1,560 and $1,600. This formed the springboard for the rally from the $1,600 region in mid-August to over $1,790 in early October, which was driven predominantly by an investor response to fresh loosening in monetary policy.

Part of the build-up of gold investment pressure in early September was in anticipation of QE3, especially after a weak August non-farm payroll number and the Jackson Hole investment conference in early September, at which Dr. Bernanke effectively telegraphed further easing. The announcement of QE3 came in mid-September and the ultra-low interest rate policy was extended “at least through mid-2015”, as opposed to the previous target of late-2014. It was in this period that gold’s focus on US economic announcements was starting to shift towards the unemployment rate, rather than the employment figures in the non-farm payrolls, and this changed focus has persisted into 2013. Meanwhile, there were already differences in September 2012 among FOMC members as to the likely efficacy of QE3. This was a key to gold’s price decline in the first quarter of 2013, but did not seem to affect investor attitudes in September last year.

Gold’s early-October challenge of the end-February high was driven by several factors. Positive sentiment was augmented by news that influential investment funds

had increased their gold exposure in the June quarter. Grass roots demand was also strengthening, while the run was boosted by ECB President Draghi’s re-affirmation of the Bank’s determination to act as buyer of last resort for Eurozone states’ bonds. This helped gold as the euro:dollar rate strengthened and gold’s correlation tightened with this rate as investors hedged dollar risk.

Gold’s rally reversed as physical demand started to struggle in the face of high prices and as monetary easing became increasingly discounted into the price. There was a knock-on effect here, in that the brinkmanship in Washington in December over the fiscal cliff talks kept potential investors away from gold. By year-end, the price had unwound 57% of the August-October rally, despite the announcement of a further round of stimulus in November. The outcome of the US presidential election was neutral, but disappointing economic figures from China and the IMF’s cut in its forecast for East Asian growth helped put pressure on gold. Some support came from official sector news, with Brazil emerging as a new buyer and Korea continuing its purchases.

For the full year, official sector net purchases rose by 16% to 532 tonnes, which we feel important in helping to put a floor under prices. The jewellery sector behaved in a similar fashion; not only did its demand fall by only 4%, but this also partly reflects very strong Indian demand in the first quarter of 2011. Stripping this out leaves jewellery demand broadly unchanged, despite higher overall prices and poor economic conditions. As for the impact of other fundamentals, prices were also assisted by mine supply proving flat in 2012, despite the overall price rise and instead largely reflecting lower grades, often due to reserve husbandry. The turmoil in South African mining, critical for platinum, in contrast had limited impact on the gold market. Prices were, in addition, assisted by producer hedging staying trivial, reflecting positive price expectations and miners’ continued aversion to this. This meant that total supply actually fell, as scrap dropped for the third year in a row.

Gold closed 2012 at $1,657.50 and entered 2013 on the defensive, notably on a growing belief of an improving US outlook, perhaps reducing systemic risk. The impact of this on our price outlook is examined overleaf.

2008 2009 2010 2011 2012e

World GDP 2.8 -0.6 5.1 3.8 2.1

Inflation 6.0 2.4 3.7 4.9 4.0

Source: IMF, World Economic Outlook

TRADE WEIGHTED DOLLAR & GOLD PRICE INDEX REAL GDP GROWTH AND INFLATION (%)

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2012 Average: $1,668.981980 Average: $1,677.49

Period Average, 1970 - 2012: $696.57

OUTLOOK

Gold has already faced a number of headwinds in late 2012 and early 2013, and undoubtedly has more challenges ahead of it. Furthermore, we feel that a secular bear market is eventually in prospect, but a number of elements in the current environment suggest that it is premature to argue that this is already established. The weak price performance from October 2012 to March 2013, for example, suggests that the “professional” market is already pricing in a negative fundamental outlook and is not making much allowance for any potential economic derailments in the months to come.

REAL GOLD PRICE

In addition, the strengthening of physical demand in response to lower prices, and the continued reserve diversification in the official sector, point to a reasonably stoutly defended underside. While there are lingering short term risks for the gold price, the background environment offers scope for a further bout of strength before a bear cycle starts to develop towards year-end.

A key element is that the prospects for the US economy, or more specifically for the management of the country’s debt position, remain unclear. The “fiscal cliff” vote in Congress in January merely postponed the resolution of the issue, by deferring an increase in the debt ceiling. There subsequently appeared to be some pragmatism developing over how to handle the issue of the debt ceiling and budget cuts, but there is still a legacy of politically-driven intransigence that is clouding the position and the risk of a fiscal crisis has not been averted. The markets are also finely attuned to any nuances from the FOMC. Gold price moves related to FOMC developments were negative in early 2013 as expectations grew for an early end to monetary easing. Within the Committee, however, there is a wide diversity of views over the unemployment outlook, which has direct implications for the duration of the programme and for the exit strategy. This could well serve to weaken the dollar in the medium term. Any deterioration in US unemployment, or dovish modification of FOMC members’ stances, could precipitate fresh gold buying.

There is also a lack of clarity in Europe. The Italian elections produced political gridlock and undermined the Eurozone’s economic progress; Fitch has downgraded Italy’s credit and the spectre of further ratings downgrades hovers over the region. The ECB’s role as a lender of last resort has helped to ease tensions in the financial markets, but soaring unemployment is now a pivotal area of difficulty. Further, disagreement over

the proposal to allow the European Stability Mechanism to invest directly in domestic banks is compounding concerns over the financial outlook. Broader Eurozone stresses may not be directly bullish for gold as they are to some extent discounted, but the possibility for fresh shocks, such as recent developments in Cyprus, and more general persistent uncertainty, will maintain concerns.

Meanwhile, the governor of the People’s Bank of China (PBOC) has now declared inflation control to be a priority. China’s CPI reached a ten-month high of 3.2% in February 2013 and the PBOC now intends to implement neutral monetary policies, after a period of comparative looseness. This may lead to some domestic uncertainty as the government adjusts to a new, neutral policy, thus underpinning an already vibrant domestic gold market.

At a fundamental level, economic sluggishness is likely to weaken global jewellery demand in 2013, with the exception of major consumers India and China. It should also bolster scrap return, especially into price strength and the gap between jewellery and scrap could be almost eradicated in 2013. With mine supply posting gains and bar investment likely to be steady, official sector purchases are again expected to be a key support for gold this year although purchase volumes may slip compared with 2012. Global inflationary expectations are also likely pick up this year, fuelling fresh interest in gold.

Professional investment in gold has been pared substantially in early 2013, and any intensification of sovereign debt risk or other financial dislocation is likely to generate fresh buying. This, with steady interest at the grass roots level and in the official sector, will help gold towards a test of $1,850 in late 2013. We do feel, however, that this will herald the onset of a bear market as economic stability gains traction, bringing with it higher yields and improved confidence.

GS 2013 CH2.indd 20 21/03/2013 15:33:19

21

INVESTM

ENT

GOLD SURVEY 2013

3. INVESTMENT• World Investment eased 2% to a four-year low of 1,605 tonnes in 2012, but the tonnage figure remained elevated by historical standards, with its share of total gold demand standing at 36%.

• In value terms, World Investment still managed to rise for the fifth consecutive year, hitting a new record high of approximately $86 billion last year.

• Investor interest was fuelled by gold’s appeal as a safe haven, in the wake of the continued sovereign debt crisis in Europe, further monetary loosening by the major central banks and growing fears about high inflation in the future.

• The persistence of deeply negative real short-term interest rates in many countries kept the cost of carry on gold at trivial levels, while a shaky global economy also undermined investor confidence in conventional assets.

• Nevertheless, the scale of gold investment last year seems to have been restrained by a number of factors, including a relatively strong dollar, periods of directionless gold prices and the metal’s failure to break through psychologically important resistance levels. These all contributed to a fall in speculative activity in 2012.

• Similar to previous years, the bulk of net investment inflows went directly into physical bullion products last year; despite a 14% decline, combined demand for gold bars and coins amounted to 1,311 tonnes in 2012, accounting for 82% of World Investment on a net basis.

• After a major slowdown in 2011, the pace of net inflows into gold ETFs picked up somewhat last year. With a healthy rise of 279 tonnes or 12% in 2012, total ETF holdings amounted to 2,691 tonnes by year-end.

• By contrast, investor activity in the OTC and futures markets remained broadly neutral on a net basis for 2012 as a whole, although their positions fluctuated dramatically over the course of the year.

• Investment demand for gold weakened notably in the first quarter of 2013, primarily as a result of a lack of fresh monetary stimuli, an absence of imminent inflationary pressure and gold’s recently lacklustre price performance. Meanwhile, a recovery in risk appetite also encouraged some investors to shy away from the yellow metal and to move back to so-called risky assets, such as equities.

OVERVIEW

World Investment in gold in 2012 was at a very similar level to that of 2011, at 1,605 tonnes compared with 1,634 tonnes. This was a drop of just 1.8%. While this was the fourth consecutive year in which investment declined, it was nonetheless high by historical standards and the equivalent approximate value still rose by 4% to $86bn.

Bar hoarding was again the largest investment element, although its dominance was reduced, at 62% of the total; in 2011, bar hoarding had been exceptionally high, accounting for 73% of World Investment, having averaged just 41% of the total in the preceding five years. Bar hoarding in 2012 was the second highest on record. Uptake was 19% lower in the middle two quarters of the year than in the first and last quarters, as some potential investors were deterred by the price fall of early March to mid-May plus the lack of a clear price trend through the middle of the year. This latter factor was particularly significant in parts of East Asia and the Middle East. Gold’s failure to breach the psychological resistance at $1,800 also undermined more speculative interest.

WORLD INVESTMENT (TONNES)

2008 2009 2010 2011 2012

Implied Net Investment* 10 1,130 607 103 294

Physical Bar Investment 622 498 886 1,197 998

Official Coins 192 234 213 245 200

Medals & Imitation Coins 70 59 88 88 113

WorldInvestment 893 1,921 1,794 1,634 1,605

IndicativeValueUS$(bn)** 25 60 71 83 86

* Implied Net Investment is the residual from combining all the other GFMS data on gold supply/demand as shown in Table 1. By definition, it therefore captures the net physical market impact of all transactions not covered by the other supply/demand variables. ** Indicative value calculated on an annual basis using annual average gold prices. Source: Thomson Reuters GFMS

GS 2013 CH3.indd 21 21/03/2013 11:50:43

22

INVES

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T

GOLD SURVEY 2013

WORLD INVESTMENT

Bar hoarding was also influenced by government policy, with the government in India, for example, making efforts to reduce physical gold purchases as part of a programme to reduce the trade deficit. There was also the Vietnamese government’s intervention in the market that put domestic hoarding levels under pressure in the second half of the year. Reduced growth in the Chinese economy also saw local bar hoarding growth falter.

Implied net investment, at 294 tonnes, was almost three times as high as in 2011, but substantially below the heady levels of 2009 and 2010 when the financial crisis held the world markets in its grip. Variations in implied net investment tend to be much wider than the fluctuations in bar hoarding, as the former is a much more fluid sector than the latter. Indeed, disinvestment flowed through the market in March following Dr. Bernanke’s Congressional testimony that was interpreted by some as meaning that QE3 was increasingly unlikely. In contrast to bar hoarding activity, implied net investment strengthened considerably in the second and third quarters of the year, driven by the intensified stresses in the Eurozone along with some bargain hunting in response to lower gold prices. The momentum waned towards year-end, however, especially in December in response to the sclerosis in Washington over the treatment of debt, which kept a considerable number of investors on the sidelines of the gold market in favour of cash and Treasuries.

Monetary policy across the globe was a key determinant of sentiment during 2012, with investors becoming increasingly attuned to any shifting nuances of policy in the United States in particular. However, although the United States commanded increasing attention as the year wore on, it was not the only driving force. While the strong rally in the gold price in January and February was attributable in part to the pledge from the Federal

Reserve to maintain ultra-loose monetary policy until at least late 2014, for example, liquidity injections from the ECB were also a key element encouraging gold investment in the first weeks of the year.

Geopolitical risk was again an influence in the market, although to a lesser extent than 2011, when the Arab Spring was a significant force. Distress selling was a notable factor in Syria, while Iranian demand remained strong on the back of high domestic inflation.

Investor assessment of “risk” overall was another key element during 2012. For much of 2012, gold’s short-term response to changing appetite for risk was that of a commodity. On the whole, this meant that when investors became nervous, gold fell with the rest of the metals markets, while the US Treasury markets in particular benefited from risk aversion. Over a longer period, however, gold proved to be relatively defensive within the sector. Thus, during the metals markets’ bear phase from end-February 2012 through to May, and the neutral period that ensued through to mid-August, gold staged the smallest loss among the major metals, albeit that its fall was still reasonably substantial, at 10%. This compares with an (unweighted) average fall across the major base and precious metals of 19% over the period.

While gold was defensive during this phase, in keeping with its long-term history as a hedge against risk, there was a shift in sentiment over the latter part of 2012 and into the first months of 2013, largely reflecting increased optimism for the US economy in particular. As the metals markets staged a gradual recovery, gold came under pressure, partly reflecting the reduction in inflationary expectations over the course of 2012, the receding of systemic risk and, in December especially, some concern about the prospects for political co-operation over budget cuts and tax changes in the United States. Gold’s

0

400

800

1200

1600

2000

20112009200720052003

Tonn

es

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS*Official coins and medals & imitation coins


0

500

1000

1500

2000

Real Gold Price

Coins*

Bar Investment

Implied Net Investment

0

20

40

60

80

100

US$

/oz


VIX

Gold Price

0

400

800

1200

1600

2000


VIX

GOLD AND THE VIX

GS 2013 CH3.indd 22 21/03/2013 11:50:45

23

INVESTM

ENT

GOLD SURVEY 2013

US FISCAL DEFICIT GOLD AND YIELD CURVE

relative lack of performance then helped to inform the investor sell-off that developed in January and especially February 2013.

As for the pattern of gold investment patterns over the course of 2012, the first few weeks of the year saw investment boosted by the FOMC statement that economic conditions would warrant exceptionally low interest rates “at least through late 2014”. Fed Chairman Bernanke also pointed to the crisis in the Eurozone, stating that it was putting the US recovery under pressure and that the Fed would do all in its power to avoid contagion. He also insisted that the Fed would not tolerate higher inflation. In Europe, meanwhile, the ECB’s marginal lending facility (a funding mechanism for emergency borrowing) met exceptionally strong demand, while European commercial banks were active in the covered bond market as it remained almost impossible to sell unsecured debt. European nervousness was exemplified by the fact that a German bond auction in January produced negative yield as investors sought safe havens.

The IMF also warned that Europe posed “large and tangible” risks to the Chinese economy. Chinese economic figures early in 2012 (and for much of the rest of the year) were disappointing and the government cut domestic banks’ reserve requirement ratio in February. A liquidity squeeze had developed in China in early 2012, which the government eased with a reverse repo operation in February that the market took to mean that China would aim for a gradual monetary easing over the year, rather than an aggressive policy.

Gold investment in the first two months of 2012 was strong on Comex, with the investor long position reaching near six-month highs at the end of February, while ETF investment was positive, albeit somewhat flaccid.

Dr. Bernanke’s bi-annual Congressional statement on 29th February reduced investor hopes for QE3, triggering very heavy gold liquidation on Comex, although ETF investors were more sanguine. Dr. Bernanke had noted positive developments in the labour market and that the decline in the unemployment rate had been more rapid than might have been expected; expectations for QE3 thus receded. It is arguable that the markets over-reacted, especially as he had said in a question session in the Senate that high long-term unemployment was “particularly troubling”. With interest rates on Treasuries remaining at historically low levels, corporate bonds met high demand over this period as investors sought yield.

In Europe, Greece signed a debt swap in early March with a number of its creditors, which the International Swaps and Derivatives Association declared to be a “credit event”, triggering a discounted pay-out on Credit Default Swaps. In mid-month, Eurozone members signed off on Greece’s bail-out with a programme amounting to €130bn, while at month-end the Spanish government announced a new austerity plan. Retail gold investors in Europe were relatively quiet over this period, not really accelerating their purchases of investment bars until mid-year, when fears about Spain became more marked.

May saw the Chinese government cut the domestic banks’ reserve ratio requirement for the third time in six months in an effort to arrest the slowing in economic growth; then in June the Chinese benchmark interest rate was cut by 25 basis points, taking the one-year lending rate to 6.31% and the one-year deposit rate to 3.25%. This was the first Chinese rate cut since December 2008. Chinese gold investment remained lacklustre, however, with investors partly deterred by the metal’s price performance, while inflation was largely on a downward tack. In June, for example, Chinese inflation was just 2%, compared with well above 6% in mid-2011.

-12

-10

-8

-6

-4

-2

0

2

4

2010200520001995199019851980

US

Fisc

al D

efici

ts a

s a

% o

f GD

P

Source: Congressional Budget Office, Thomson Reuters GFMS


0

500

1000

1500

2000

Real Gold Price

500

1000

1500

2000

%


Benchmark curve(2yr-10yr spread)

Gold Price

The Benchmark yield curve reflects inflationary expectations

1.0

1.4

1.8

2.2

2.6

3.0

Jan-13Jan-12Jan-11Jan-10

US$/oz

GS 2013 CH3.indd 23 21/03/2013 15:34:45

24

INVES

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T

GOLD SURVEY 2013

INVESTMENT IN COMMODITIES

The positions in index instruments rose by $39 billion or 87%,

to the end-2012 level of $84 billion. However, markets were

fickle through the year, whilst funds made a rapid entry and

exit depending on the prevailing macro economic situation. To

get this in perspective, the aggregate value of net positions had

jumped by 114% to $95 billion in the first quarter from the end of

2011. However, the recovery soon proved to be short-lived and

nearly 40% of the value was shed in the second quarter alone.

That was then followed by a rise in long positions to a record

of $121 billion by end-September before a another fall was

recorded in the fourth quarter to close 2012 at $83 billion.

Looking at key macro-economic and geopolitical events that

shaped these erratic moves in each of the quarters in 2012, the

initial trigger was the dovish comments from the FOMC meeting

in January where they had decided to maintain rates near

zero through to 2014, thus keeping the dollar trending lower.

Alongside, escalating tension between the West and Iran over

the latter’s nuclear programme and with the EU planning to

push for an embargo from mid-2012, heightened fears of supply

tightness in the crude oil market. These factors helped oil price

rally to post-2008 peak of $128 per barrel, thereby increasing

net long positions by near two fold in the first quarter.

The crisis in Greece, tepid growth numbers from China, not so

encouraging job numbers from United States and the Fed’s

lack of commitment to a third round of quantitative easing

shifted focus to the dollar’s role and demand-side economics in

second quarter This led to sharp liquidations dragging net long

positions in crude oil to just $9.6 billion. Easing inflationary

concerns saw gold post losses, leading to liquidations of $10

billion in the second quarter. Copper was a notable casualty too,

as net short positions were the highest ever in a quarter, raising

alarms about the state of the world economy.

That was followed by a new round of easy monetary policy

action from major central banks. This also coincided with

a weaker tone in the dollar, resulting in a rebound in long

positions in gold by $24 billion, silver by $7 billion and crude

oil by $14 billion. Even copper returned to positive territory and

platinum saw an addition of $2 billion in investment. However,

as fiscal talks in the United States started to weigh on investor

sentiment in the fourth quarter, funds turned cautious on

commodities thus trimming bets by end of December. Most

affected were agricultural commodities whose positions

declined from $35 billion as of end-September 2012 (the highest

ever in six quarter) to $15 billion.

Rising investor interest in agricultural commodities last year

makes us visit that sector separately. 2011 ended with the share

of agricultural commodities in total investment at a meagre

one percent. Later from mid-January 2012, the focus shifted

to the growing drought situation in North America and more

specifically the yields of corn and soybean crops. As the drought

situation turned grim, the allocation to agricultural commodities

rose by 41% by end-June, with soybean complex and corn

altogether accounting for 31% of all investment in the second

quarter. After supply concerns eased a little, their share of

investment also dropped to around 25% by end-September.

A look at the first quarter of 2013 shows that combined net

investor long positions as on 5th March 2013 ended at $67

billion, down 19% from the fourth quarter of 2012, primarily led

by liquidations in gold which shed nearly $10 billion in holdings.

Interest in gold has been waning since the beginning of 2013,

on increasing hopes for a recovery in the US economy and on

expectations that, as inflation fails to materialise as a threat,

demand for gold as a natural hedge would decline. Also fears

of a demand slowdown from India, the largest consumer of gold

continued to bear heavily on the price.

Looking ahead, commodity prices are likely to perform better

upon return of ‘risk-on’ investment. However, rallies could be

undermined by concerns of increased regulatory oversight and

also its fall out on the economy’s growth. That said, prices are

still likely to trend north, but more so at a slow and steady pace.

-20

0

20

40

60

80

100

120

140

-20

0

20

40

60

80

100

120

140

Q1-13**Q1-12Q1-11Q1-10Q1-09Q1-08

US$

Bill

ion

Source: Thomson Reuters GFMS*Other includes soft, agricultural and dairy commodities, platinum, palladium and copper; ** includes early March 2013 data

Gold

Silver

Energy

Livestock

Other*

VALUE OF SPECULATIVE POSITIONS IN 22 COMMODITY FUTURES

0

50

100

150

200

250

Q1-12Q1-11Q1-10Q1-09

US$

Bill

ions

Source: CFTC

GLOBAL COMMODITY INDEX INVESTMENTS

GS 2013 CH3.indd 24 21/03/2013 11:50:47

25

INVESTM

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GOLD SURVEY 2013

GOLD PRICE AND OTHER INVESTMENT INDICATORS

2011 2012 Change Average Average y-o-y Intra-year

Gold Price (US$/oz) 1,571.52 1,668.98 6% 4%

US$ Libor (3-month annualised) 0.34% 0.43% n/a n/a

Contango (3-month annualised) 0.41% 0.45% n/a n/a

GSCI Index 669 653 -2% -3%

CRB Index 539 487 -10% 0%

S&P 500 Index 1,267 1,379 9% 12%

XAU Index 205 172 -16% -13%


Global over-the-counter (OTC) investment strengthened considerably in the second and third quarters of 2012. By contrast, ETF and Comex saw disinvestment in July. Once again, monetary policy was a primary driver for OTC investment, while gold’s stagnant price prompted liquidation on the exchanges. Weak US figures, especially non-farm payrolls, started to rekindle expectations for QE3, especially with Operation Twist due to expire at end-June. The Governing Council of the ECB warned of further risks to the European economy, while affirming that it would continue to stand in the market with refinancing operations. This was taken as a nudge from ECB President Draghi to politicians to accelerate efforts to resolve the crisis. At the European Summit in June, European leaders did agree on measures to address the Eurozone’s problems, but this harmony soon ran into headwinds. The Bundesbank disagreed with the proposal for fresh bond purchases so the ECB moderated its position, saying that it would not start bond purchases unless member governments committed to rescue fund programmes of their own.

Investment in gold in the third quarter included fresh institutional interest, as the FOMC extended its time horizon for ultra-loose monetary policy to “at least though mid 2015”, while the IMF noted that the United States had room to ease its policy further. QE3 was announced in mid-September, Operation Twist was extended and the time horizon for exceptionally low interest rates was pushed out again, this time to mid-2015. Policy was amended further in mid-December with the target for interest rate changes moving to an unemployment rate of 6.5%.

Although the European banking sector was entering calmer waters during this period, the European economy slipped into recession in the third quarter, while uncertainty persisted over whether Spain would ask for a rescue programme. Standard & Poor’s downgraded Spanish debt in October; then in the fourth quarter,

although fears receded slightly over Spain, Moody’s and Standard & Poor’s cut France’s rating, citing concerns over France’s indebtedness (with public debt in excess of 90% of GDP) and the uncertain fiscal outlook. Meanwhile economic indicators in China in the third quarter led to some suggestions that the government could implement fresh stimulus polices, but in the fourth quarter the figures started to improve; in the first quarter of 2013 the government moved to a neutral stance from positive, citing inflation concerns.

There was a fresh shift in the complexion of gold investment as the year drew towards its close. OTC investment eased as investors were concerned about the political brinkmanship over the fiscal cliff, and (especially with year-end approaching) preferred not to commit their funds. Bar purchases increased, partly for seasonal reasons (especially ahead of the Chinese New Year) and partly because Indian dealers were expecting another increase in import tariffs in January. The falling price contributed to liquidation on Comex, and, while ETF investors increased their holdings to reach a record at end-year, some fissures were starting to appear.

The failure of Congress to address the fiscal cliff issue properly in December saw the markets move into “risk-off” mode that triggered investor selling early in 2013. Subsequently, a more bullish mood enveloped the markets, especially with respect to the US economy, and, with gold already in a negative mood, this extended the gold selling momentum as investors rotated into equities. This selling, on Comex and in the ETFs in particular, was exacerbated by technical (chart-related) factors. Although confidence had also improved in Asia, economic concerns had by no means been fully dispelled in the region and there was a positive undercurrent in the retail markets with respect to gold. Uncertainty also persisted in Europe and the proposal to levy a tax on bank savings accounts in Cyprus prompted a rally to attack $1,600.

GS 2013 CH3.indd 25 21/03/2013 11:50:47

26

INVES

TMEN

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GOLD SURVEY 2013

0.0

0.5

1.0

1.5

2.0

2.5


%


EURIBOR - OIS Spread

500

800

1100

1400

1700

2000

US$

/oz


S&P 500 Index

Gold Price

0

400

800

1200

1600

2000


S&P 500 Index

IMPLIED NET INVESTMENT

— Substantial gains in gold ETFs, combined with increases in investor positions on Comex for the year as a whole, led to a notable rise in implied net investment in 2012.

Thomson Reuters GFMS’ implied net (dis)investment figure, featured in Table 1 on page 8 as well as in the table on page 21, is not an independently calculated statistic. It is essentially a residual balance that brings all other elements of our supply and demand analysis into equilibrium. This residual is understood to broadly reflect the net impact of all investor activities (not accounted for by bar and coin investment numbers) on the physical market. Being a balancing item, implied net (dis)investment should not be viewed as a precise tonnage equivalent of net investor activity, but rather as an indication thereof. There are instances when this residual captures the impact of activity that would not, strictly speaking, be classified as investment.

One added complication is the timing of transactions and their impact on the physical market, information on which is often unknown. This can affect the size of the residual balance and the way in which it ties into information provided by market participants. For instance, a transaction that takes place in the latter part of a period could theoretically elude our implied (dis)investment figure. Such issues are of course less pronounced over longer periods for which data are aggregated. Despite the above caveats, the implied net (dis)investment figure usually acts as a good indicator of investment activity, both in terms of direction and magnitude. Using publicly available data and information collected through our extensive network of contacts and field research, Thomson Reuters GFMS apply a “reality check” to the implied figures, which generally tends to confirm them.

Last year saw a marked increase in the implied net investment figure, which rose to 294 tonnes, up by 184% from the previous year’s level. A close analysis of quarterly developments suggests that last year’s robust performance was, in part, due to a lower disinvestment figure in the first three months of 2012 compared with the corresponding period in 2011. After the gold price rally ran out of steam in late February, not surprisingly, the futures and OTC markets saw a sharp bout of profit-taking. Nevertheless, strong investment demand for gold ETFs in the first quarter, which saw inflows of some 53 tonnes over the period, helped to reduce the level of net disinvestment to just 31 tonnes, which was 86% lower year-on-year. Once the implied net figure moved back into positive territory for the rest of the year, a substantial rise in investment activity in the third quarter, driven by fresh monetary injections from several countries, accounted for the bulk of the year’s total gains.

It is interesting to examine how the implied figure compares to information on activity on the different arenas of gold investment over the year (although given aforementioned limitations in this information, it is not possible to disaggregate accurately implied net investment to these components). Due to the nature of gold ETFs and other similar products, we are certain the 279-tonne inflow into ETF holdings had a one-to-one impact on implied net investment. The picture is somewhat more opaque when it comes to the futures and OTC markets. As for the former, non-commercial and non-reportable net positions in Comex futures registered a robust increase of some 77 tonnes over 2012, which also helped to explain the higher implied figure. However, it is hard to estimate the precise magnitude of its physical market impact. Turning to the OTC market, our information indicates that this saw modest net selling for the year as a whole.

INTEREST RATE SWAP SPREADGOLD AND THE S&P 500

GS 2013 CH3.indd 26 21/03/2013 11:50:50

27

INVESTM

ENT

GOLD SURVEY 2013

EXCHANGE TRADED FUNDS

In 2012, gold exchange traded funds (ETFs) posted another

strong increase. Combined holdings of the ETFs and Canadian

funds grew by 12% or 279 tonnes over the year, closing 2012 at

2,691 tonnes, a new record high. In value terms, the increase

was even more pronounced at 21%, with total holdings at

year-end amounting to $143 billion. The greatest inflows took

place in the established entities; the largest fund, SPDR Gold

Shares, saw the biggest increase of 96 tonnes, whilst iShares

COMEX Gold Trust, Source Physical Gold ETC and ETF Securities

registered growth of 45, 30 and 21 tonnes respectively.

Demand for physically backed gold accelerated in early 2012,

initially fuelled by lower gold prices, and then supported by

escalating fears over any Greek default. ETF holdings grew by

70 tonnes in the first three months of 2012, to a new record high

of 2,482 tonnes on 19th March. In tonnage terms, the chief

beneficiary of the increased interest in physical gold was SPDR

Gold Shares; its holdings rose by 39 tonnes over the period.

This was followed by a period of net selling, primarily driven by

profit-taking, which saw holdings fall back by nearly 60 tonnes,

to around the 2,400-tonne level by mid-May. In addition,

some investors may also have switched from ETFs to less costly

allocated gold accounts. During that period, the SPDR Gold

Shares fund registered the biggest decline at 28 tonnes.

From this low level, the period between mid-May and early July

saw investors gradually move back, driven by renewed concerns

about the European sovereign debt crisis and the global

economic slowdown, taking ETF holdings to 2,468 tonnes

by 6th July. The bulk of last year’s increase was, however,

concentrated in the period between August and early October,

when ETFs experienced a substantial rise in investment demand

on the back of a series of announcements about fresh stimulus

measures from major central banks. Combined holdings soared

by 190 tonnes over the period, which represented more than

two-thirds of the year’s total gains.

After reaching a reported peak of 2,642 tonnes on 12th October,

investor interest in gold ETFs continued to rise for the rest of

the year, albeit at a slower pace, posting successive record

highs. Much of this robust performance was attributed to

growing concerns over the sovereign debt situation in many

industrialised countries, particularly the United States.

Holdings in gold ETFs grew by another 49 tonnes in the final

three months of 2012, to a fresh record high of 2,691 tonnes

by end-December. Looking at individual funds’ performance,

iShares COMEX Gold Trust and SPDR Gold Shares saw double-

digit tonnage growth during this period.

After five consecutive months of growth, gold ETFs posted their

first monthly decline in January this year, with total volumes

dropping by nearly 20 tonnes from the end-year figure in 2012,

to 2,672 tonnes by end-month. ETF holdings continued to

decline in February, registering a steep fall of 110 tonnes over the

month. The chief reason behind the fall at the start of the year

was growing fears that the Fed might end its bond purchase

programme earlier than previously expected on continued signs

of improvement in the world’s largest economy. In addition, the

pace of investment, driven by safe-haven considerations, began

to abate somewhat on easing concerns over the debt crisis in

the Eurozone and reduced inflationary pressures in advanced

economies. This translated into heavy outflows from gold ETFs,

with total volumes tumbling to 2,545 tonnes on 11th March,

which was 148 tonnes below the start of the year. The largest

decline over that period was recorded by SPDR Gold Shares,

which saw an outflow of 111 tonnes, representing close to 75% of

the period’s total losses.

(tonnes) end-2011 end-2012

SPDR Gold Shares 1,254.6 1,350.8

ZKB Gold ETF 224.3 235.7

iShares COMEX Gold Trust 172.5 217.7

ETF Securities 140.1 161.3

GBS LSE 120.8 139.2

Julius Baer 104.9 111.7

Xetra Gold 51.0 51.0

Sprott Physical Gold 38.0 50.3

NewGold Gold Debentures 41.0 45.2

Central Fund of Canada 52.7 21.7

Claymore Gold Bullion ETF 10.5 10.8

Others 201.6 295.9

Total 2,412.1 2,691.1*Other includes DB Euro Hedged, GBS ASX, Royal Canadian Mint, DB Physical Gold ETC (EUR), ETFS - Swiss Gold, iShares Gold Bullion Fund, Mitsubishi Tokyo, DB Physical Gold ETC, ETFS Precious Metals Basket Trust, Goldist, ETFS Asian Gold Trust, Claymore Gold Bullion ETF (Non-Hedged), Dubai DGX, DB Physical Gold SGD Hedged ETC, DB Physical Gold GBP Hedged ETC, Central Gold Trust, Source Physical Gold ETC, Indian ETFs; Source: Respective issuers

GOLD ETFS & OTHER SIMILAR PRODUCTS

Tonn

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Source: Thomson Reuters GFMS, collated from respective ETF issuers’ data

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GLOBAL ETF HOLDINGS

(end-period) Tonnes US$bn Tonnes US$bn Tonnes US$bn Tonnes US$bn

10.Q1 1,851 66.38 10.Q2 2,147 85.86 10.Q3 2,197 92.32 10.Q4 2,227 100.63

11.Q1 2,166 100.22 11.Q2 2,220 107.47 11.Q3 2,308 120.19 11.Q4 2,412 118.73

12.Q1 2,465 131.77 12.Q2 2,465 126.70 12.Q3 2,603 148.63 12.Q4 2,691 143.41

Source: Respective issuers

EXCHANGE LISTED STRUCTURED PRODUCTS

— Investor interest in exchange listed structured products remained lacklustre in 2012.

Exchange listed structured products on gold are standardised, normally cash-settled, derivatives on the metal that are listed on stock exchanges around the world. Warrants are essentially standardised vanilla products. As indicated by their name, knockout warrants are barrier options that are active up to the point in time when the gold price reaches a set level, from which point they are deemed worthless. Certificates include all other exchange listed structured products, such as price trackers, discount and quanto certificates and fixed income-type products on the metal. Due to their low entry level and the relative cost disadvantage to the futures and OTC markets, certificates tend to be used by smaller retail investors.

Exchange listed structured products on gold can and usually do have an impact on the physical market through the process of issuers hedging against their counterparties’ positions. This hedging is done on the physical, futures and OTC markets for gold.

Investor activities in exchange listed structured products once again turned out to be relatively quiet in 2012, with their contribution to overall investment, and hence the gold price, remaining tiny throughout the year.

Consistent with the trend seen in previous years, the investor interest that there was largely concerned to the ongoing sovereign debt crisis in the euro area, especially in the second quarter of the year when fears about a disorderly Greek default intensified and worries about the health of the European banking sector surged. While such a deteriorating situation tended to favour gold purchases, the overwhelming bulk of these investment inflows went directly into physical bullion bars, coins and gold ETFs. By contrast, demand for warrants and certificates in fact dropped amid heightened market

uncertainty, as these products, although linked to gold, failed to provide the direct exposure and security sought by risk averse investors. For 2012 as a whole, investor activity in exchange listed structured products seems to have been further restrained by a fall in gold price volatility and periods of rangebound trading, which also reduced speculative interest.

Not surprisingly, given high market uncertainty and a generally cautious attitude towards leveraged paper products, less complicated products such as plain vanilla calls and price trackers remained the most popular choice for investors.

ACTIVITY ON COMMODITY EXCHANGES

— Major commodity exchanges posted a double-digit decline in 2012.

— Other exchanges registered a robust performance last year, with a substantial rise in trading volumes reported by the Dubai Gold and Commodity Exchange.

COMEX

Following a robust increase in 2011, turnover in gold futures traded on Comex dropped by 11% last year. Total volumes reached 43.9 million contracts, equivalent to a nominal 136,522 tonnes and to an average daily turnover of 542 tonnes. Open interest stood at 427,991 contracts at end-2012, equivalent to 1,331 tonnes, up by a small 2% from the previous year’s level. The fall in turnover last year was in part due to a sharp drop in interest at end-March, when volumes fell from a high of 379,099 contracts on the 28th to 97,189 contracts by 9th April. Last year’s decline can also be explained by a period of lacklustre investment activity during the summer, when the average turnover from June through to August fell well below the annual average. Despite a partial recovery in early September and November, turnover on

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COMEX INVESTOR NET POSITIONSCOMEX VOLUME & OPEN INTEREST

NET ‘INVESTOR’ POSITIONS ON COMEX

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(end-period) 2007 2008 2009 2010 2011 2012

Futurescontracts 238,412 142,773 278,942 259,770 163,932 188,659

- equivalent in tonnes 742 444 868 808 510 587

- value US$ (bn) 19.9 12.4 30.6 36.5 26.1 31.6

Optionscontracts 15,846 14,056 22,389 17,812 9,627 1,236

- equivalent in tonnes 49 44 70 55 30 4

- value US$ (bn) 1.3 1.2 2.5 2.5 1.5 0.2

Source: CFTC (Non-Commercial and Non-Reportable Net Positions)

the Comex dropped again to close the year at 96,449 contracts, 26% below the level seen at the start of the year. Investor activity in Comex options, on the other hand, fell by a modest 4% year-on-year to 9.1 million contracts. The year-end open interest in options was 967,197 contracts, down by 3% from the end-2011 level.

An analysis of the data published by the CFTC in its weekly reports on non-commercial and non-reportable net positions in Comex futures and options provides a proxy for investor activity on the exchange. It should, however, be noted that CFTC reports are an imperfect gauge of investor/speculator activity, as there can be a degree of investment hidden within the commercial side and vice-versa.

As illustrated in the accompanying graph, net positions in Comex futures generally followed movements in the gold price. At end-2012, net positions stood at 188,659 contracts, up by 15% on their end-2011 level. In value terms, the increase was even more pronounced at 21%.

Looking at the intra-year trends in the futures market, the year started on a bullish note, driven by lower gold prices and a return of risk appetite on the back of improving US

economic data and easing concerns over the Eurozone debt crisis. From 161,843 contracts at the start of the year, the net investor long climbed by an impressive 52% to 245,351 contracts by end-February. This resulted in a dramatic recovery in the gold price, with it rising by nearly $190/oz from early January through to February. After the gold rally ran out of steam in late February, a sharp bout of profit-taking then ensued, which saw net positions correct sharply to the year’s low of 130,709 contracts by the final week of May. This resulted in a steep fall in the gold price, which fell 14% over the period to $1,540/oz, the lowest level for the year, by month-end.

After a period of rangebound trading in the early summer, investor positions saw a notable increase of 87% during the period from mid-August through to early October, to reach a high for the year of 269,270 contracts on 2nd October. Fresh stimulus measures from major central banks, coupled with a return of risk appetite, were chiefly responsible for the strong recovery in investor interest over the period. Thereafter, as the gold price rally faltered in October, a heavy sell off materialised, which despite a partial recovery in November, left the year-end net position at 188,659 contracts.

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TOCOM VOLUME & OPEN INTEREST

Looking briefly at this year, investor interest continued to trend lower through to early March, largely driven by growing speculation that the Fed might withdraw its asset purchase programme at a faster pace than it was previously expected. Net positions dropped by a quarter from the start of the year to 133,798 contracts on 5th March. This resulted in a steep decline in the gold price, it falling by more than $100/oz over the same period.

NYSE LIFFE

Turnover on the Liffe platform continued to trend lower over 2012, with trading volumes falling by over a half over the year, to a nominal equivalent of 1,126 tonnes. Meanwhile, end-year open interest at a nominal seven tonnes was down by over 27% on the previous year’s level. The lack of interest for the exchange’s 100-ounce contracts remained chiefly responsible for the subdued investor activity last year. In 2012, total volume of 100-ounce futures dropped by a sharp 84% to 16,595 contracts, equivalent to a nominal total of just 52 tonnes. Open interest also tended to decline last year, reaching 754 contracts or two tonnes by end-December, nearly 57% below the end-2011 figure. Demand for the 33.2-ounce “mini-gold” contract dropped by 46% year-on-year, to 1.0 million contracts or a nominal 1,075 tonnes. End-year open interest stood at 4,155 contracts, up by 15% on the end-year figure in 2011.

TOCOM

The Tokyo based exchange offers one kilogramme gold futures and options contracts, for which the price is quoted in yen. Following a robust increase in 2011, trading volumes registered a poor performance in 2012, with the full year total dropping below 12 million

contracts, which was down by a notable 22% year-on-year. In part, this was due to a period of low investment during the summer lull, with the daily trading volume from June through to August averaging 37,608 contracts, well below the annual daily average. Since then investor interest rebounded strongly, driven by the announcement of additional stimulus plans by the Bank of Japan, which impacted positively on market sentiment. Indeed, trading volumes on the Tocom more than doubled in the final four months, rising from around 45,000 contracts at end-August to over 96,000 contracts by the end of the year, up by 40% on the end-year figure in 2011. Open interest in gold futures ended the year at 145,738 contracts, up by 18% on the end-year figure in 2011.

Net investor positions in Tocom gold futures can be used as a proxy for speculative activity on the exchange. After starting the year at 38,774 contracts, the speculative long fell heavily through to end-February. From this low level, net positions quickly recovered to hit a high for the year of over 62,000 contracts in mid-September. The rest of the year saw a declining trend in net positions, with the year-end net position falling back to levels similar to those at the start of the year.

0

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COMEX, NYSE LIFFE & TOCOM FUTURES

(total volume in nominal tonne equivalents) Change 2010 2011 2012 y-o-y

Comex 139,125 152,937 136,522 -11%

Tocom 12,198 15,194 11,895 -22%

NYSE Liffe 3,623 2,318 1,126 -51%

*N.B.: Includes the 100-ounce and 33.2-ounce contracts


SHFE VOLUME & OPEN INTEREST

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OTHER EXCHANGES

Over recent years, market liberalisation and related developments in certain countries, coupled with growing investor interest in commodities, has led to the launch of a number of new commodity exchanges around the world, with several of these seeing a gradual expansion in activity as well as wider participation.

Since October 2002, the ShanghaiGoldExchange (SGE) has been China’s only legal source of VAT free gold and platinum. Although at its inception the exchange only offered spot gold products in one kilogramme contracts, over the years the SGE has expanded its product range to include spot products of different sizes as well as a deferred delivery service within the spot trading format. Due to the semi-closed nature of the Chinese gold market, the gold price quoted on the SGE is often at a premium or discount to the international price.

Turnover for the spot contract registered a robust performance in 2012, with combined volumes for the two purities of spot gold contracts (Au9995 and Au9999) reaching a historical high of 1,901 tonnes, although up by a mere 1% year-on-year. Looking at the premium of the SGE price over the London a.m. fix, this averaged $6/oz last year, down by 18% from that recorded in 2011, broadly in line with the decline in volatility in international gold prices in 2012. It is of note that the premium soared earlier this year to reach an average of $13/oz in the first two months, reflecting strong physical demand ahead of the Chinese New Year, coupled with a bullish investor sentiment towards the yellow metal in the country.

Turning to the SGE’s AU(T+D) futures contracts, total volume for the year recorded 4,226 contracts in 2012, down by a notable 21% year-on-year. At end-2012, open interest stood at 145 tonnes, up from 134 tonnes at the end of the previous year. Continuing with China, it is worth discussing here the ShanghaiFuturesExchange (SHFE), which launched a gold contract on

9th January 2008 (with a standard trading unit of one kilogramme/lot, a daily price limit of 5% either side of the previous day’s settlement price and a minimum margin requirement of 7%). Total volumes traded on the SHFE remained at robust levels in 2012 of 11.8 million contracts, down by 18% year-on-year. At the end of 2012, open interest on the SHFE totalled 111,424 contracts, up by 9% from the figure recorded at end-December 2011.

There are currently a number of commodity exchanges in India that offer gold futures contracts, the leading one being MultiCommodityExchange (MCX). MCX has continued to remain the dominant exchange for trading gold in India through to last year. Total volume on MCX gold futures fell steadily from a peak of 2,659 tonnes (on a monthly basis) in September 2011 to just 756 tonnes in April 2012, generally following movements in the gold price. Despite a partial recovery in the second half, total volumes at year-end still fell short of its peak level, registering 969 tonnes in December. Over the course of 2012, total turnover for the year reached 12,604 tonnes, down by 18% year-on-year. A drop in arbitrage activities between the MCX and Comex, as a result of a sharp depreciation in the Indian rupee against the US dollar, was chiefly responsible for last year’s decline.

Since the launch of the exchange in November 2005, gold futures have also been available on the DubaiGoldandCommodityExchange (DGCX). Despite the strategic location and organisation of the exchange (it is backed by, amongst others, the Dubai Multi Commodities Centre and the MCX, and offers contracts priced in US dollars), activity on the exchange remained very limited over the past few years. That said, total volume in gold futures listed on the DGCX totalled 552 tonnes last year, up by a notable 42% on the 2011 figure.

OTC MARKET

— The OTC market witnessed a small scale of net disinvestment in 2012.

The over-the-counter (OTC) market trades a variety of products linked to the gold price, including spot and forward products, metal accounts, as well as vanilla options and other derivatives, which can be tailor-made to suit particular investment purposes. The OTC market tends to be largely populated by institutional investors, who are attracted to the flexibility inherent in products traded therein, the relatively low transaction costs and discrete nature of operations. In contrast, the high entry level costs inherent in the market make it inaccessible

OTHER EXCHANGES

(total volume in nominal tonne equivalents) Change 2010 2011 2012 y-o-y

SGE Spot 1,604 1,881 1,901 1%

SGE Au(T+D) 4,111 5,354 4,226 -21%

SHFE 6,794 14,444 11,834 -18%

MCX 13,577 15,382 12,604 -18%

DGCX 490 389 552 42%

Source: relevant exchanges

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to retail players (with the exception of high net worth individuals).

Investors in the OTC market, in aggregate, were net sellers in 2012, albeit of a limited magnitude. This net disinvestment figure was largely due to several bouts of heavy long liquidation, although part of these selling was offset by a further rise in demand for metal accounts from long-term investors and buoyant bargain hunting on major price dips.

The main driver of fluctuations in investor positions, particularly for those towards the more speculative end of the spectrum, was the gold price itself. We thus saw some decent buy-side interest in the early months of the year before a sharp price retracement at end-February triggered a wave of profit taking and stop-loss selling. While investor confidence recovered somewhat in the second quarter, growth in their positions seems to have been restrained by the metal’s uninspiring price performance and periods of a flight to ‘quality’ amid a renewed European sovereign debt crisis. It is not until the mid-summer that a major rise in long side interest emerged, due to growing expectations of further monetary easing ahead of the ECB and Fed’s September policy meeting. However, such a resurgence in buying was more tactical and speculatively driven, and a good part of these long investments would have been closed out prior to end-September.

In addition, the latter part of the year saw a sizeable number of players exit the OTC market. For instance, the hedge fund community is believed to have largely shunned gold in the latter part of the year, mostly basis a view that the metal’s potential upside is limited. Falling interest in gold could also be partly explained by a hefty drop in profits from broader commodity trades (oil in particular) last year, which encouraged many funds to shift to other assets. The unwinding of these OTC long positions therefore is understood to have contributed to several sessions of heavy price falls in late 2012. However, anecdotal information also suggest that this selling was often followed by strong bargain hunting, which helped to stabilise the price quickly.

Furthermore, it is worth stressing that, in spite of a growing exit by institutional players in late 2012, a large amount of core long positions are thought to have been still held by reasonably firm hands by year-end. Indeed, unlike short-term players, investors with a medium to long perspective continued to expand their long positions in 2012, especially from those who were seeking refuge in gold from a deteriorating economic outlook, including the

lack of progress in resolving budget issues in both Europe and the United States, and a growing risk of a major rise in inflationary pressure in the future. Nevertheless, volumes of fresh inflows failed to match those seen in the previous years, due to the fact that investors that were inclined to purchase gold may have already accumulated sufficient bullion stocks since the onset of the financial crisis. This is of course not to say that the group were altogether absent from the market. Comparing demand to that seen in 2011, for instance, healthy growth in allocated metal accounts is suggested by market participants, reflecting investors’ growing desire to eliminate counterparty risk, while allocated gold’s lower costs were also important to certain investors.

Even though western players continued to dominate the OTC market, the last few years have seen growing participation by financial institutions and high net worth investors from East Asia and the Middle East. In part, this has been largely driven by a general rise in investor interest in gold investment in these markets, and the process has also been facilitated by rapid market liberalisation. For instance, in China, in its latest efforts to develop Shanghai into a major financial hub in Asia, the country’s central bank launched interbank trading later last year in order to boost gold trading volumes and these have already grown rapidly in recent years.

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LONDON BULLION MARKET (LBM) AND COMEX TURNOVER*

LBM LBM Comex LBM/ Numberof Turnover Turnover Comex Transfers Tonnes Tonnes Ratio

2008 2,060 694 472 1.5:1

2009 1,674 636 438 1.5:1

2010 1,734 571 553 1.0:1

2011 2,296 644 607 1.1:1

2012 2,678 616 542 1.1:1

* daily averages, Source: LBMA and Thomson Reuters

TURNOVER ON THE LONDON BULLION MARKET

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In Turkey, still new to the general public, gold deposit accounts offered by local commercial banks continued to enjoy rapid growth in 2012, as the amount of gold held by investors under these accounts jumped by almost 45 tonnes last year.

PHYSICAL BAR INVESTMENT

— 2012 saw a 17% drop in physical bar investment, although the global total remained the second highest basis our records.

— Losses were widespread across much of the major markets last year, led by Europe and India.

Physical bar investment slipped by 17% or 200 tonnes to 998 tonnes last year, although it should be emphasised that this is against an exceptionally high base in 2011. Bearing that in mind, the global total in 2012 was the second highest basis our records and remained by far the largest component of World Investment. Last year’s drop was partly attributed to notably weaker demand in Europe, concentrated in German-speaking areas, reflecting less acute concerns about the sovereign debt problem especially in the latter part of the year. India also witnessed a heavy fall last year, due to volatile local gold prices, a major slowdown in GDP growth and its government’s ongoing efforts to curb speculative gold trading. In China, investment stalled in 2012 following an extraordinary rise in previous years. Elsewhere, losses were reported across much of East Asia and the Middle East, as gold’s relatively narrow trading range and its persistent failure to breach the $1,800 mark undermined speculative interest.

EUROPE

European retail investment in 2012 fell a hefty 29%, although the volume achieved, 274 tonnes, was of a similar order of magnitude to those in the years immediately after interest had exploded in the wake of Lehman’s collapse. Within that figure, investment in bar form remained the dominant element and interest in coins fell more sharply.

The chief reason for 2012’s fall was the absence of bouts of intense concerns over the Eurozone’s sovereign debt. This is apparent in our quarterly statistics on retail investment: in 2012, the ratio of the busiest to the quietest three month period was just 1.2:1, whereas for 2009-11 the quarter of greatest investment was at least twice the size of the smallest. The fact that volumes were still high historically was also due to the sovereign debt situation in that it was perceived as being far from resolved. Another political factor to consider was the absence of any real response in France to the election of a socialist president, in this case Hollande. This stood in marked contrast to the slightly panicked action of investors when Mitterand took office in 1981.

Many investors also felt that longer term price trends were less clear and this led to some investors, mainly at the high net worth end of the spectrum, jobbing the market, according to their own take on short term price trends. However, even if that led to bouts of profit taking, particularly during the September rally, there were few signs of any mass liquidation of positions, again helping explain why net volumes remained relatively high.

ANNUAL RETAIL INVESTMENT DEMAND

(Thomson Reuters GFMS estimates, tonnes) 2007 2008 2009 2010 2011 2012

Germany 36 115 134 127 159 110

Switzerland 13 89 97 93 116 81

Austria 5 20 19 14 16 10

Belgium-Luxembourg -3 0 15 23 30 24

France -22 -3 1 1 7 3

Other Europe 6 18 27 40 56 46

TotalEurope 36 238 293 299 383 274

TotalNorthAmerica 18 88 122 110 89 55

Source: Thomson Reuters GFMS Caveat: The above estimates should be regarded as broadly indicative rather than truly definitive given the subject’s opaque nature Definition: Retail investment includes physical bullion as defined by the EU, individuals’ paper transactions with a direct physical counterpart plus OTC activity and changes in metal account holdings where measurable and retail-targeted. It excludes all forms of jewellery and fund purchases. Country divisions are basis bullion location and not nationality of ownership.

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RETAIL INVESTMENT

Many contacts feel that there was a drop in press coverage of gold investment last year, due to less acute Eurozone problems and lower price volatility, and this was felt to have cut interest from smaller investors. However, the latter look to have become relatively more important, due to the reported satiation of many larger players, and there was a drop in average bar size. That said, bar size was not a perfect guide to class of investor as the rise in the euro gold price pushed larger bars above limits for anonymous purchase, encouraging some larger investors to switch to higher margin smaller bars.

Another factor sustaining levels was the ongoing introduction of new products and entry of new players. This is suggested by the geographic split; the traditional core of German-speaking countries continued to dominate investment but other countries’ share rose, even if their absolute investment figure still fell. However, we would caution that new dealers have the ability to distort statistics as their building of stocks will create one-off but not sustained demand.

NORTH AMERICA

North American retail investment fell by a hefty 38% last year to just 55 tonnes. Within that, the drop for bars, as opposed to coins, was somewhat smaller, although coins continue to clearly dominate the overall picture. This marks the third consecutive year of losses, with the 2012 volume less than half the 2009 peak. This ongoing slide is chiefly felt due to there having been no shocks akin to the collapse of Lehmans and therefore being sufficient to sustain interest; the Eurozone’s problems, for example, are seen as too remote. The drop in 2012 was steeper than in prior years, however, and we would ascribe that to the lack of a clear price trend, which fed through to increased profit taking. There was in contrast little sign of cannibalisation by other arenas of investment.

INDIAN SUB-CONTINENT

Indian bar hoarding in 2012 declined by nearly by one-third from 2011’s record level to 206 tonnes (please note that this marks an upward revision from the 181 tonne figure published in Gold Survey - Update 2).

As for intra-year developments, hoarding dropped by more than half in the first two quarters, with the drop in the second quarter largely attributable to dishoarding by traders as they readjusted their inventories. These losses were then followed by an 8% decline in third quarter. However, as prices stabilised above Rs. 30,000/10g, investor interest improved on positive price expectations, with traders expecting the price to test Rs. 35,000 before Diwali in November.

The price’s subsequent failure to do so led to gradual destocking through November, but as expectations grew ripe for another increase in the import duty, re-stocking began in mid-December, and more heavily from 2nd to 21st January (2013), thanks to the early warning from the Finance Minister. The indication of a possible duty hike helped lift the forward premiums, which contributed to 4.4 tonnes of deliveries against the Multi-Commodity Exchange of India’s February futures, the highest ever since 2008.

Last year’s decline in hoarding has also been attributed to efforts by the government to cut the force of speculation in the gold trade. The government wanted banks to ensure that any lending to bullion dealers and jewellers would meet their working capital requirements and not go to speculative trades, but seldom this could be ensured due to the vagueness of the law. Further restrictions came into effect from February 2013 and this has currently kept retail demand on hold. Prior to this, demand at the retail level was higher for 50 gramme and 100 gramme bars. Looking ahead, we see such restrictions as likely to keep the demand for bars lower as it will not be easy to shift from a cash-centric business to a fully transparent way of functioning overnight.

Investment in bars were reported to be strong in Bangladesh and Nepal in 2012. Investment in the latter last year was said to have increased by 15% on back of a weakening currency and higher price expectations, and demand in the first half of this year is projected to rise by perhaps as much as another 15%. Bar hoarding in Bangladesh more than doubled last year, if only to a still modest 0.8 tonnes.

Q1-12Q1-11Q1-10Q1-09Q1-08-50

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table 2 - physical bar investment

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Western Countries

europe -5.9 -45.0 -15.7 -7.0 -2.3 192.2 211.2 215.2 312.8 231.5

north america 2.1 2.7 2.1 4.1 2.0 30.8 37.9 22.4 15.4 18.5

Total Western Countries -3.8 -42.3 -13.6 -3.0 -0.3 223.0 249.0 237.6 328.2 250.0

Latin America

mexico 1.0 0.8 0.6 0.8 0.8 0.7 1.7 2.5 3.0 3.3

Other countries -6.2 -0.9 -4.3 -3.6 -2.0 -0.6 2.6 2.3 2.5 2.5

Total Latin America -5.2 -0.1 -3.7 -2.8 -1.2 0.1 4.3 4.8 5.4 5.8

Middle East

iran 12.0 12.8 11.9 12.0 20.2 30.6 15.8 33.8 40.4 44.2

saudi arabia & yemen 4.9 5.2 7.3 8.0 9.0 13.5 10.9 14.5 17.4 16.3

United arab emirates 6.7 6.9 10.3 8.6 7.9 10.0 6.4 8.1 11.1 9.9

iraq & syria 0.7 0.8 1.2 1.3 1.1 1.0 0.7 0.7 6.1 -10.6

Kuwait 2.2 2.2 2.0 1.5 1.6 1.6 -0.2 1.6 1.9 1.7

Other countries 4.8 5.5 5.0 5.3 7.0 6.2 2.9 7.3 16.4 11.7

Total Middle East 31.3 33.4 37.8 36.6 46.8 63.0 36.5 66.0 93.2 73.1

Indian Sub-Continent

india 65.6 76.2 102.8 139.8 148.6 159.9 117.5 266.3 288.0 205.9

pakistan 3.5 3.1 3.4 2.1 2.6 -4.4 -19.4 7.0 14.6 12.3

Other countries 1.9 2.4 1.9 1.1 1.2 1.0 0.4 0.3 1.8 2.5

Total Sub-Cont. 71.0 81.7 108.1 143.0 152.3 156.6 98.5 273.6 304.4 220.7

East Asia

china 2.0 6.7 9.0 10.1 21.0 60.8 102.3 178.6 250.3 249.3

thailand 0.9 11.7 28.0 15.9 4.6 42.6 -10.1 63.0 103.6 77.9

vietnam 36.0 39.2 34.0 69.5 56.1 96.2 58.2 67.0 87.8 65.4

indonesia 1.6 5.0 3.0 -1.0 0.3 2.9 -6.0 15.3 24.8 22.1

malaysia 0.3 0.7 0.7 0.1 0.1 1.2 4.4 5.6 12.3 8.8

Japan 42.0 61.0 37.0 -47.0 -56.4 -39.4 -30.8 -41.0 -47.2 -10.5

Other countries -1.7 8.5 7.2 7.1 11.4 7.5 -17.1 2.0 16.3 17.7

Total East Asia 81.1 132.9 118.9 54.7 37.1 171.7 100.9 290.5 447.8 430.7

Oceania

australia 1.3 1.4 0.7 0.8 1.0 2.9 4.4 10.2 15.5 14.8

Total Oceania 1.3 1.4 0.7 0.8 1.0 2.9 4.4 10.2 15.5 14.8

CIS

russia 1.6 8.2 2.5 2.6 3.0 2.9 3.4 1.9 2.1 2.1

Other countries - - 0.8 1.0 1.2 1.5 1.5 1.2 0.7 0.6

Total CIS 1.6 8.2 3.3 3.6 4.2 4.4 4.9 3.1 2.8 2.7

World Total 177.2 215.1 251.4 233.0 239.9 621.6 498.5 885.7 1,197.4 997.7

source: thomson reuters GFms

EAST ASIA

bar investment demand in China last year reached 249.3 tonnes, which, while an impressive figure, represents a 0.4% drop, ending a decade of gains. the trend in gold prices over the last decade was one of the major drivers behind the explosive long run growth in demand. this appetite for physical bars then became particularly acute from 2008 due to investors’ wish to diversify their assets in a highly inflationary environment of a rapidly growing economy. Within that period, cpi reached a record high of 8.7% in February 2008, eroding wealth and producing

a negative real interest rate environment. alongside the popularity of investment products there grew a supply network of investment bars dealers. this included retail banks with their large branch network, allowing access to gold to an even wider public.

last year however, a combination of factors halted this growth. Firstly, the range bound gold price performance left investors disenchanted as it tarnished the belief in gold as an invincible investment. additionally, inflation last year eased significantly from the highs of 6.5% in July 2011 to 1.70% in October 2012.

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Thomson Reuters GFMS estimate that Vietnam’s bar hoarding volumes declined by as much as a quarter last year, sliding to a three-year low of 65 tonnes. Demand in the first half was almost 20% stronger year-on-year as market speculation about further devaluation of the country’s currency and uncertainty surrounding gold ownership saw consumers look to gold as a safe haven asset. In May, the government of Vietnam introduced new legislation (Decree No.24) on the management of gold trading activities which essentially placed the production, import and export of gold, and trading of gold bars/bullion in the hands of state-appointed organisations. This attempt to limit gold as a medium of exchange had a significant impact on bar sales in the second half of the year, driving consumption lower by over 45% year-on-year as the supply of investment bars was controlled by a single state-run company. Not surprisingly, this opened the door for a rise in unofficial imports with the black market again flourishing.

Following record levels in 2011, bar hoarding in Thailandfell by almost 25% last year, slipping to 78 tonnes. The healthy investment demand witnessed in the second half of 2011 carried over to the early stages of last year as lower gold prices followed by a rising gold price trend encouraged restocking and speculative purchases. However, after several months of healthy retail activity, demand stalled in mid-May as the gold price peaked then gave up most of its gains over the next few months, limiting trading opportunities and tying up cash flow for those that bought at the peak and waited for a return to higher prices before liquidating. Net demand in the second half slumped over 45% year-on-year as consumer expectations of a return to previous highs waned, leaving some speculators looking for the exit in the final quarter. That said, a rising price trend, coupled with a volatile market during that period provided the opportunity for some Thai traders to re-enter the market to capitalise on the rising price environment.

As in 2011, the Japanese market continued to see dishoarding last year, albeit on a much reduced scale, as selling back dropped by nearly 80% to the lowest level since the trend began in 2006. The decline was largely caused by the depletion of near market stocks, following the aggressive dishoarding of 2011, as well as expectations of higher gold prices. The flow of bars was uneven last year, with the strong first quarter followed, interestingly, by a period when the amount of bars bought by the public was higher than sold back to the trade, an abnormality caused by a near 15% price drop in the gold price in local currency terms. Dishoarding then grew in the second half of 2012, largely following the domestic gold price trend.

MIDDLE EAST

Following a surge in investment demand to an all time high in 2011, demand across the Middle East declined by over a fifth to 73 tonnes last year. Despite this sizable drop, investment in the region remained at its second highest level recorded in our statistics. Iran again accounted for the majority of offtake, with investment in gold products there rising 9% to over 44 tonnes (a new record) as consumers looked to the yellow metal as a safe haven in an environment of substantial inflation (rising to an estimated 27% in late 2012) and economic uncertainty as the UN sanctions impacted on the daily life of the county’s citizens. These factors, coupled with the slump in the value of domestic currency (the Iranian rial lost more than half its value and hit record lows in 2012) saw demand for gold accelerate. Elsewhere, investment demand declined as expectations of higher levels limited speculative purchases. The largest falls were seen in Syria, which moved into a net dishoarding environment on the back of heavy distress selling.

OFFICIAL COINS

— Global official coin minting slumped by 19% last year, primarily driven by a hefty decline in Turkey and a notably weaker performance in western markets.

In 2012, world official coin fabrication dropped by a heavy 19% or 46 tonnes to a four-year low of 200 tonnes. That said, offtake remained elevated by historical standards last year, as the global total comfortably exceeded the average from 2001–2008 by some 60%. On a regional basis, double-digit losses were reported in many key markets, in particular Turkey and North America. The only bright spot worth mentioning is China, where demand continued to grow.

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TABLE 3 - OFFICIAL COINS (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Turkey 47.2 47.0 52.0 56.7 56.7 53.1 30.9 35.6 58.9 39.5

United States 16.1 18.0 14.0 27.5 19.0 31.8 50.9 45.2 37.6 28.0

China 5.0 4.9 3.6 6.9 11.2 7.9 10.7 12.7 20.5 24.9

Canada 6.7 8.8 10.2 8.3 9.0 27.6 38.2 35.0 36.2 24.2

South Africa 2.9 3.5 1.5 2.4 6.8 8.7 23.2 20.4 24.1 23.7

Austria 6.5 8.0 7.2 4.4 5.3 24.9 33.4 18.5 21.7 12.8

Australia 3.4 5.2 4.4 5.3 5.6 9.6 11.0 9.5 11.0 10.3

Iran 4.8 4.6 4.2 4.0 4.5 5.3 7.6 9.4 9.6 9.2

UK 3.0 3.2 3.3 3.5 3.4 4.3 4.7 4.4 5.8 6.9

Germany 6.2 6.2 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5

Russia 1.0 1.4 0.9 1.6 4.3 5.7 6.5 5.6 4.6 4.5

Mexico 1.0 1.3 1.9 1.4 1.2 2.5 3.4 3.8 1.9 2.3

Other Countries 3.6 3.7 2.7 2.4 3.2 5.3 8.2 7.5 8.0 8.0

WorldTotal 107.3 115.7 111.7 130.0 135.6 192.1 234.1 213.0 245.2 199.6


The largest decline occurred in Turkey where coin minting dropped by a third or almost 20 tonnes to 39 tonnes last year. However, it should be note that demand in 2011 was exceptionally high and that, if anything, last year’s fall to a large extent only represents a return to normality. In the wake of widespread losses elsewhere, the country retained its position as the largest coin manufacturer in 2012.

The chief cause of Turkey’s year-on-year decline stemmed from a sizeable fall in investment related buying. In essence, this reflected less bullish investor sentiment towards gold after the price posted a downward trend in the first half of the year and then remained largely rangebound over much of the summer. This was in stark contrast to 2011 when a marked price rally prompted a surge in buy-side interest in physical gold. Despite a brief price recovery in September, the metal’s failure to surpass its 2011 peak soon prompt a further fall in investment buying in late 2012, although there was some decent bargain hunting on major price corrections. By contrast, coin demand related to weddings and religious events held up well last year, only falling by 3%, thanks to a less volatile gold price and growing price acceptance. In local currency value terms, gift related purchases were in fact up by a healthy 12% in 2012.

Heavy losses were also recorded in western markets. Starting with NorthAmerica, our propriety quarterly bullion coin survey shows that demand for newly minted coins dropped by 26% in the region. Much of the losses were concentrated in the first nine months of the year, as an uninspiring gold price and a lack of imminent inflationary pressure not only restrained fresh buy-

side interest but also prompted a small rise in selling back in the secondary market. Meanwhile, anecdotal information also points to a modest shift in preference towards small bars at the retail level, due to their low premiums compared with bullion coins.

Nevertheless, it is of note that demand for bullion coins rebounded strongly in the final quarter of the year, thanks to growing inflation expectations following the announcement of QE3 by the Fed, plus rising worries about the “fiscal cliff” and its potentially destabilising effects on the country’s economy.

Turning to Europe, consistent with the trend in the bar segment, the notable 18% drop in coin purchases was largely attributed to the relative calming of the sovereign debt crisis compared with 2011 (or at least as perceived by investors), coupled with somewhat rangebound gold

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prices. That said, demand for coins remained well in excess of the pre-crisis level and profit taking was fairly limited, as an uncertain economic backdrop continued to encourage fresh purchases of physical gold. This also helps to explain a rapid pick-up in buying in the middle part of the year when the risk of a Greek default intensified and contagion fears spiked. Even though demand eased later in the year, there were still decent volumes, primarily driven by rising worries about future inflation following the ECB’s OMT programme. On a regional basis, German-speaking Europe continued to dominate the market in 2012, but these countries were also almost entirely responsible for the dramatic decline. By contrast, demand in eastern European countries saw some decent growth, albeit from a very low base.

Finally, coin minting in China posted a healthy 12% increase to a new record of 23 tonnes in 2012. This performance was due to resilient general investor interest in gold, which was reinforced by the Year of the Dragon being considered the most auspicious since this in turn meant that interest in lunar zodiac coins from collectors was particularly strong. Nevertheless, despite such a robust performance, the absolute level seems to have been restrained by coins’ high premiums.

Turning to this year, following a recovery in late 2012, early 2013 saw a continuation of buoyant interest in bullion coins, concentrated in North America. For instance, total sales of US Eagle and Buffalo gold coins stood at close to 10 tonnes through to end-February, up by a massive 87% year-on-year. In Turkey, after a slump in the second half of 2012, demand has also started to improve since the start of 2013, as weaker prices have not only helped the gifting segment but have also attracted some bargain hunting. By contrast, demand for physical bullion products (both bars and coins) has remained relatively quiet in Europe, in German-speaking areas in particular. In spite of falling gold prices, especially in euro terms, they have failed to draw fresh interest from bargain hunters, reflecting a growing satiation among potential investors.

MEDALS AND IMITATION COINS

— Indian offtake rose to a record 106 tonnes in 2012, partly at the expense of jewellery.

Indian offtake, which constitutes the bulk of demand in this sector, rose by one-third in 2012, with demand in the second half rising to the highest on record. One factor leading to this surge was the growing interest in coins as an investment instrument when prices crossed the Rs. 30,000/10g level. Gradually, as positive price expectations grew with people targeting Rs. 35,000/10g, retail buying became busier in the third quarter of 2012. The fact that it coincided with the start of the wedding and festival seasons further fuelled buying interest in the latter half of the fourth quarter. Traditionally, coin has been a source of investment for lower income groups and, since 2008 financial crisis, many have developed a disciplined way of systematically accumulating every month or quarter in tamper proof packages, by buying 0.5 gram or 1 gramme of gold irrespective of the price. This practice is followed by people in order to protect their investment portfolio and also to provide a better average price level when exchanging against jewellery.

Separately, worth mentioning here is the re-launch of the manufacturing (on this occasion by MMTC-PAMP) and the sale of authentic Royal Mint commemorative sovereign coins in India after nearly 100 years. Whilst it was a historic moment for India, the time required for the market to absorb the 50,000 piece limit that has been set for an initial rollout will say much about the potential for such coins in India.

Looking ahead, as the price has been languishing below Rs. 30,000/10g for much of the first few months of the year, there is an increasing likelihood for investors to stay away. However, occasion based buying like ‘Akshaya Trithiya’ and gifting for weddings will help drive sales for a brief period. However, overall demand for first half is expected to remain slack and possibly decline by 13%.

TABLE 4 - MEDALS AND IMITATION COINS (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

India 20.7 24.3 32.8 55.8 64.7 63.5 53.5 82.6 80.0 106.3

Other Countries 5.0 5.2 4.2 3.6 3.7 6.2 5.4 5.7 7.8 7.1

WorldTotal 25.7 29.5 37.0 59.4 68.4 69.7 58.9 88.3 87.8 113.4


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4. MINE SUPPLY• In 2012 global mine production was almost flat, rising by a mere 0.8%, or 22 tonnes. Output rose to a third successive all-time high, of 2,861 tonnes.

• Increases came from a broad base of mines. For example, the top five gains totalled just 26 tonnes.

• Losses were more concentrated among a few of the world’s largest gold producing properties; the top five drops accounted for 45 tonnes of lost output.

• Labour unrest accounted for at least 20 tonnes of lost output in South Africa alone, as the industry was hit by widespread strike action in the second half of the year.

• Global annual average total cash costs rose by 12%, or $80/oz, to total $738/oz for the year. The main drivers were a reduction in processed grade, and a rise in the cost of labour.

• Global All-in Costs, which include all cash and non-cash costs, sustaining capital expenditure, indirect costs and overheads, rose by a similar percentage, to $1,211/oz.

• Producer de-hedging was recorded at 40 tonnes, leaving the outstanding producer hedge book at 123 tonnes at end-December. Much of the activity was concentrated in the fourth quarter.

• Looking to 2013, pending a recovery at several operations and expected new starts elsewhere, mine production is expected to continue to grow.

• Producer hedging is expected to remain on the periphery of supply and demand, given the limited size of the outstanding hedge book at end-2012.

MINE PRODUCTION

INTRODUCTION

Representing a change from the recent trend of notable growth, mine supply rose only marginally in 2012, by 22 tonnes, or 0.8%. Regionally, growth came from Asia (+18t) and the CIS (+12t), with strong gains in China and Russia, while Latin American production also increased (+3t). North American output was down (-1t), output from Oceania also fell (-10t), while growth in west Africa was outweighed by losses in South Africa, leading to an overall fall in African production (-4t).

From an expected position of growth at end-2011, this flat outcome for global supply came about as anticipated additions in 2012 either failed to materialise, or did so later than expected, while elsewhere the industry experienced a spate of operating interruptions at established properties. For example, geotechnical issues caused large losses at Kumtor (-8t), where pit instability and ice movement caused delays in accessing high-grade areas of the pit, and at Goldex (-4t), where ground water inflow forced the premature closure of the mine late in 2011. At Newcrest’s Cadia Valley operations (-5t) we had anticipated a faster ramp-up of the Cadia East mine,

GLOBAL GOLD PRODUCTION

TOP 20 GOLD MINING COUNTRIES

Rank Production(t)2012 2011 2011 2012

1 1 China 371.0 413.1

2 2 Australia 258.5 250.1

3 3 United States 233.0 231.3

4 4 Russia 215.6 230.1

5 6 Peru 187.6 185.0

6 5 South Africa 202.0 177.8

7 8 Canada 107.7 108.2

8 9 Ghana 91.0 95.8

9 10 Mexico 88.6 95.3

10 7 Indonesia 120.1 89.0

11 11 Uzbekistan 71.4 73.3

12 12 Brazil 67.3 67.3

13 13 Papua New Guinea 63.5 56.5

14 14 Argentina 59.1 54.6

15 17 Mali 43.5 50.3

16 15 Tanzania 49.6 49.1

17 16 Chile 44.5 48.6

18 19 Philippines 37.1 41.0

19 20 Kazakhstan 36.7 40.0

20 18 Colombia 37.5 39.1

Rest of World 452.9 465.0

WorldTotal 2,838.1 2,860.6


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and at Veladero (-6t), equipment availability issues were partially responsible for lower gold output. Globally, instances of operational disruption built on a backdrop of declining grades, which fell by 7% year-on-year, to 1.33g/t, although part of this decline can be ascribed to the start and ramp up of large-scale, lower grade operations within the population of producing mines.

Labour disruption played a significant part in holding growth back in 2012, with the most significant strikes seen in South Africa. The unrest began in the platinum industry, although this soon spread to the country’s gold mining operations. Elsewhere, a significant loss was seen at Grasberg (-19t), where unrest early in 2012 was responsible for a meaningful portion of this lost output.

The severity of these disruptions has further heightened awareness amongst commentators of the issue of the social and economic contributions of mining (South Africa being a notable example). Through activities under the umbrella of corporate social responsibility programs, local skills training and local infrastructure investments, mining companies seek to return to countries benefits in excess of the “tax take”. Mining often contributes a significant portion of GDP (particularly in smaller and developing countries) and is a significant foreign exchange earner and employment creator. Nevertheless, over 2012, a trend has continued

whereby governments continue to seek a “bigger slice of the pie”. This is evidenced across various jurisdictions such as Mali and Ghana, by reviews of precious metal royalty rates, proposals for corporate tax rate increases or windfall profits taxes, and reviews of license laws. 2012 has also seen the expropriation of gold assets in Venezuela, import/export controls in Argentina, legal challenges to mining agreements in Egypt and attempts at investment agreement negotiations in Kyrgyzstan, Mongolia and, recently, Dominican Republic for example. Correspondingly these events signify an increase in the general level of political and operational risk globally.

These moves towards increased sharing of mining profits have also encouraged debate about the rising cost of production, the all-encompassing cost of mining an ounce of gold, and how this is reported by the industry. Production costs increased once again in 2012: total cash costs (a useful measure of mine site profitability, if somewhat open to distortions) rose by 12% year-on-year, to $738/oz, and All-in Costs (a Thomson Reuters GFMS metric designed to fully reflect the costs of sustaining gold mining activities) grew by a similar amount, up to a weighted average of $1,211/oz (an increase of $133/oz). Contrast this with the annual average gold price, which grew by only $97/oz. The primary drivers of the cost increase last year were falling head grades, and the rising cost of labour globally. Since Gold Survey 2010, when we

MINE PRODUCTION WINNERS AND LOSERS, 2012 VERSUS 2011


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began analysing costs on an all-in basis, this measure of industry costs has risen by 69% from the period 2009-2012.

Of note is that many of the globally significant producers have, in 2012, begun to move to adopt a similar metric in their reporting in 2012, eventually to be based on a standard devised by the World Gold Council, which is planned to be finalised this year, which aims to promote homogeneity and transparency in producers’ reports. We welcome this growing trend of increased reporting transparency and, perhaps, granularity.

Development costs to fund the new generation of projects have also continued to escalate. There were several prominent capital cost estimate hikes in 2012, for projects under development, which when combined with heightened funding challenges have led to a refocusing of miners’ priorities. Out are bumper M&A deals, replaced by the rationalisation of portfolios. Out is the focus on production volumes, in is an increased emphasis on cost containment and efficiency. These progressive changes in attitude over the year carry some implications for long term mine supply. If producers are focusing on what they already have in development, and placing more early stage projects on the back burner, we could see mine supply falter further down the line. However, with regard to 2013, many of the developments in the immediate pipeline already have the vast majority of construction capital committed, and we therefore do not expect supply growth in the next year to be derailed. While 2012 has brought some additional challenges and further cost pressure to the fore, the evolution of the industry landscape over the last year has also brought an additional degree of pragmatism to capital allocation and investment priorities.

AFRICA

Output in Africa fell back by 1% last year to buck a three year trend of growth, as sharply lower output from South Africa and softer production from Burkina Faso and Eritrea prevailed over solid gains among the western and central African countries of Ghana, Mali, Sudan and the Democratic Republic of the Congo.

SouthAfrican output tumbled lower again last year, by 24 tonnes, to slip to the position of sixth largest global gold producer. Exceptional strike events, amid inter-union warring between the National Union of Mineworkers (NUM) and Association of Mineworkers and Construction Union (AMCU) in the second half of the year, and fourth quarter in particular, were a major driver of the fall, but far from the only cause. Woeful year-on-year production levels were also evident in the first half, partly due to a hangover of heightened issuances of Section 54 notices by the Mines Inspectorate. Nevertheless, the systemic propagation of labour unrest through over half of the country’s gold assets is charted below, as an expression of production capacity taken offline.

Losses were widespread across the country’s largest operations as a function of AMCU’s apparent aim to create maximum impact by targeting many of the most high profile operations. The country’s largest gold mining complex, KDC, proved comparatively resilient, given the challenges it faced (a fire at Ya Rona in June and July led to a drawn-out shaft closure as well as temporary suspensions of adjacent shafts). Output at KDC ‘only’ contracted by 15% but still represented the largest fall in tonnage terms. Localised seismicity at Mponeng and development bottlenecks at Moab Khotsong and Kopanang adversely impacted extraction rates which, coupled with labour unrest, led to a combined eleven tonne fall between the three mines.

SOUTH AFRICAN MINE PRODUCTION

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(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Europe

Finland 1.7 1.3 1.2 1.1 1.5 1.7 3.8 5.6 6.4 8.9

Sweden 5.6 6.6 6.1 6.7 5.0 4.9 5.5 6.3 5.9 6.0

Bulgaria 2.3 2.4 2.3 2.8 2.9 2.8 3.3 2.5 3.4 4.3

Spain 5.7 4.0 1.4 2.2 0.5 0.0 0.0 0.0 0.4 1.5

Romania 1.3 1.2 1.1 0.7 0.6 0.5 0.4 0.4 0.4 0.4

Greenland 0.0 1.6 2.5 2.7 1.8 1.7 0.9 0.0 0.1 0.1

Other 3.0 2.4 1.8 2.1 3.4 3.6 3.3 2.7 2.0 2.0

Total Europe 19.6 19.6 16.4 18.3 15.8 15.2 17.2 17.5 18.7 23.2

NorthAmerica

United States 280.8 260.3 262.3 251.8 238.0 233.6 221.4 229.7 233.0 231.3

Canada 140.5 128.5 119.5 103.5 102.2 95.0 96.0 103.5 107.7 108.2

Total North America 421.3 388.8 381.8 355.3 340.2 328.6 317.4 333.2 340.8 339.5

LatinAmerica

Peru 178.3 181.2 217.8 213.5 183.6 195.5 201.4 184.8 187.6 185.0

Mexico 20.4 21.8 30.6 39.0 43.7 50.8 62.4 79.4 88.6 95.3

Brazil 43.0 42.9 44.5 49.2 58.1 58.7 64.7 67.5 67.3 67.3

Argentina 29.7 28.5 27.8 43.4 42.5 40.3 48.8 63.5 59.1 54.6

Chile 38.0 40.0 39.6 40.4 41.5 39.2 40.8 38.4 44.5 48.6

Colombia 25.3 23.6 24.8 26.0 26.0 26.0 27.0 33.5 37.5 39.1

Venezuela 23.6 20.5 21.1 26.5 24.3 24.3 24.8 24.9 25.5 24.5

Suriname 7.5 16.3 18.2 16.9 16.1 17.9 20.4 20.5 20.2 19.9

Ecuador 8.6 10.8 11.9 14.0 14.0 14.0 14.0 17.2 17.6 17.8

Guyana 15.7 15.2 10.1 8.4 9.7 10.5 11.9 12.8 14.4 14.4

Nicaragua 2.8 4.5 3.9 2.9 3.1 2.9 2.6 4.9 6.3 6.8

Guatemala 0.0 0.0 0.7 5.2 7.7 8.0 9.0 9.4 12.1 6.6

Bolivia 9.9 4.8 8.0 9.6 8.8 8.4 7.2 6.4 6.5 6.4

Dominican Republic 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.5 0.5 4.1

Panama 0.1 0.1 0.1 0.1 0.1 0.1 0.9 1.8 2.1 2.3

Honduras 4.5 5.7 4.4 3.9 3.1 1.9 2.6 2.4 1.9 1.9

Other 5.8 5.2 6.8 8.0 8.1 6.4 6.0 5.6 5.7 5.9

Total Latin America 413.2 421.0 470.2 507.0 490.7 505.0 545.0 573.6 597.4 600.6

Asia

China 210.6 217.3 229.8 247.2 280.5 292.0 324.0 350.9 371.0 413.1

Indonesia 163.7 114.2 167.0 114.1 149.5 95.9 160.5 140.1 120.1 89.0

Papua New Guinea 70.4 76.1 70.9 61.7 61.7 70.3 70.6 69.7 63.5 56.5

Philippines 33.6 31.7 33.3 36.1 38.8 35.6 37.0 40.8 37.1 41.0

Turkey 5.5 5.0 5.1 8.1 10.1 11.4 14.5 16.6 24.1 29.6

Mongolia 11.1 19.2 18.4 18.9 18.4 16.5 14.1 13.9 12.4 12.8

Laos 5.2 4.4 6.7 6.5 4.5 4.7 5.4 5.5 4.4 6.9

Japan 8.1 8.3 8.3 8.9 8.9 6.9 7.7 8.5 8.7 6.7

North Korea 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3

Malaysia 5.7 5.2 5.7 4.9 4.3 3.8 4.2 5.2 5.0 5.3

Thailand 5.2 5.3 5.2 4.3 3.3 2.5 5.4 4.2 3.2 5.2

Saudi Arabia 8.8 8.2 7.5 5.2 4.5 4.0 5.1 4.5 4.6 4.7

Vietnam 2.2 2.3 2.4 2.5 2.7 2.7 3.1 3.4 3.7 3.9

India 3.5 3.5 3.0 2.5 2.9 2.6 2.1 2.8 2.3 1.7

Other 4.0 5.3 4.8 4.3 4.3 4.3 4.6 4.6 4.6 6.1

Total Asia 543.8 512.3 574.4 531.7 600.8 559.4 664.7 677.1 671.0 688.7

Africa

South Africa 398.3 363.3 315.1 295.7 269.9 233.8 219.8 202.9 202.0 177.8

Ghana 68.9 57.6 62.8 69.9 77.3 80.4 90.3 92.4 91.0 95.8

Mali 47.2 39.6 46.7 56.9 51.9 47.0 49.1 43.9 43.5 50.3

WORLD GOLD MINE PRODUCTION

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South Deep was one of the stand-out large assets to avoid a meaningful production drop, remaining steady year-on-year at over eight tonnes, amid a longer term ramp-up. Somewhat perversely, South Africa’s strongest gain at the mine level was recorded at Burnstone, which commenced in January 2011 and had been ramping up, but was suspended in September as working capital requirements could not be met by Great Basin Gold.

Output in Ghana rose by 5%, to 96 tonnes, with a full year of operation from two new mines, Edikan and Nzema, the main influence behind this outcome. Edikan contributed an additional five tonnes, while at Nzema production increased by 18%, to three tonnes. Recommissioning activities at Bibiani continued throughout the year with the mine contributing modestly to production. Although the plant is operational, commercial production levels have yet to be achieved. Other gains included a one tonne increase at Bogoso as the result of the recommissioning of its oxide plant in early 2012, that saw overall processing rates rise by two-

fifths, while production at Chirano increased by one tonne due to improved head grades and process recoveries.

At the country’s two largest producers, Tarkwa and Ahafo, production was flat year-on-year, at 22 and 17 tonnes respectively. In the case of the latter, this was despite the closure of the high cost South Heap leach operation in the fourth quarter. Meanwhile, output declined at Damang, by two tonnes, as the milling rate was moderated to ensure plant reliability. Upgrades to increase the feed size and crushing rate are ongoing and expected to be completed towards the end of 2013. Output from both Obuasi and Iduapriem was around 10% lower year-on-year. Lower processed grade was behind the fall at Iduapriem, while at Obuasi mining rates deteriorated due to inadequate underground development, that led to a shift from a mining contractor to owner-operator model.

In Mali, gold production increased by 16% in 2012, to 50 tonnes. Significant growth came from Syama and

WORLD GOLD MINE PRODUCTION

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tanzania 44.6 47.9 49.3 44.8 40.1 35.6 40.9 44.6 49.6 49.1

Burkina Faso 1.5 1.6 1.7 2.1 2.9 6.9 13.8 25.3 34.1 31.3

Sudan 5.6 4.7 5.6 3.6 3.1 2.7 4.0 10.1 22.5 27.9

Dem. Rep. of the Congo 4.8 5.1 5.3 5.6 6.5 7.2 10.0 17.0 22.0 26.1

Zimbabwe 20.6 24.3 19.5 17.2 13.5 8.9 9.8 16.3 19.0 19.7

Guinea 16.8 13.4 14.3 16.6 18.0 23.9 22.5 20.4 19.7 18.4

Côte d’Ivoire 3.5 2.5 3.0 3.0 3.0 5.3 8.6 7.3 13.4 14.0

Ethiopia 4.8 4.6 3.8 4.0 3.9 3.8 5.5 6.6 11.5 12.0

Eritrea 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 12.8 10.2

Mauritania 0.5 0.5 0.5 0.6 1.9 6.8 8.4 9.1 8.7 8.2

Egypt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.7 6.3 8.2

Senegal 0.1 0.1 0.1 0.1 0.1 0.1 5.2 4.5 4.3 6.8

Other 11.3 12.8 20.0 18.2 20.3 23.1 21.1 23.5 23.1 23.9

Total Africa 629.0 578.4 548.4 538.9 512.9 486.0 509.3 529.1 583.4 579.8

Oceania

Australia 283.4 258.1 262.2 246.8 247.4 215.2 223.5 260.8 258.5 250.1

New Zealand 9.3 10.2 10.6 10.6 10.6 13.4 13.4 12.2 11.2 9.7

Solomon Islands 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.7 2.0

Fiji 3.6 4.0 2.9 1.5 0.1 1.1 1.1 2.1 1.6 1.6

Total Oceania 296.3 272.3 275.7 259.0 258.2 229.9 238.2 275.2 273.1 263.4

CIS

Russia 182.4 181.6 175.4 172.8 169.3 188.7 205.2 203.4 215.6 230.1

Uzbekistan 80.0 83.7 75.5 74.1 72.9 72.2 70.5 71.0 71.4 73.3

Kazakhstan 13.0 15.0 19.2 21.8 22.6 22.0 22.5 29.9 36.7 40.0

Kyrgyzstan 22.7 22.1 16.6 10.6 10.5 18.4 17.0 18.5 19.7 11.3

Tajikistan 4.1 3.9 2.4 2.3 2.3 2.9 2.6 3.2 3.4 3.4

Other 5.2 5.2 4.2 3.6 1.6 1.6 2.6 7.3 7.1 7.2

Total CIS 307.4 311.5 293.4 285.2 279.2 305.9 320.3 333.3 353.8 365.4

WorldTotal 2630.6 2504.0 2560.3 2495.4 2497.8 2429.9 2612.0 2739.0 2838.1 2860.6


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the Loulo-Gounkoto complex, with lesser increases from Kalana, and Tabakoto. At Syama, both grade and throughput rose year-on-year. Meanwhile, Gounkoto continued to ramp up production following commissioning in June 2011, and Loulo saw increased production on higher grades, compensating for lower throughput last year. These production gains were sufficient to outweigh decreases at Morila, Sadiola and Yatela. Lower grades led to reductions in production at Morila and Sadiola, whilst fewer tonnes stacked at Yatela prevailed over higher mined grades.

After strong growth in 2011, gold production in Côted’Ivoire increased again, by 5%, to 14 tonnes. This was thanks to a one tonne increase in production from Bonikro and a half tonne increase from Ity. Counteracting some of these gains, Tongon’s production declined by over one tonne due to a drop in head grade and recovery rates. Senegalese production increased by 59%, or three tonnes, in tandem with sharply higher output at Sabodala, primarily a result of mining progressing to higher grade sections of the pit. In addition, a mill expansion was completed mid-year, lifting throughput.

Elsewhere in west Africa, a number of countries recorded lower production year-on-year. In BurkinaFaso output dropped by 8%, or three tonnes, due to a combination of small losses at Essakane, Inata, Kalsaka and Mana. Inata experienced equipment availability issues that inhibited its waste stripping programme, with a consequent knock-on to planned mining of higher grade sections of the pit. Output in Guinea fell by 6%, to 18 tonnes, as production declined at Lefa and Siguiri by a combined one tonne, while supply from Mauritania fell by 6%, as lower grades led to reduced output at Tasiast.

Turning to the rest of the continent, in Tanzania output was essentially flat in 2012, at 49 tonnes. Losses collectively totalling three tonnes were seen at

Bulyanhulu, Buzwagi, Golden Pride and Tulawaka. At Golden Pride, the mine is approaching the end of its life, with plant maintenance during the fourth quarter constraining throughput. Among the other three operations, lower grades were the common factor leading to reduced production. These losses were partially offset by growth at Geita and North Mara. At Geita, while grades fell, this was offset by higher throughput. The increase in production at North Mara was due to mining of higher grade zones in the Gokona pit and a consequent reduction in processing of ore from lower grade stockpiles. Another slight offset was provided by New Luika, where production began in August 2012, adding modestly to the country’s total.

We estimate that artisanal and small-scale gold mining activity continued to increase in several African countries, many of whose formal gold industries remain in a state of comparative infancy, including the DemocraticRepublicofCongo(DRC) and Sudan. There were also reports of higher small-scale mining activity in the more established gold producer, Mali. Sudanese output is estimated to have risen further, although the assumed rate of the increase is more moderate than that seen in 2011. The country’s main formal mine, Hassaï, had reported steady year-on-year production until the time of its acquisition by a privately owned investment vehicle and we assume output remained stable in the second half. In the DRC, the country’s first formal large scale gold mining operation, Twangiza, commenced production in late 2011 and declared commercial operations in August 2012, with two tonnes produced in the year.

In Egypt, in spite of a series of administrative challenges, output from Sukari grew by two tonnes thanks to a 26% increase in tonnes processed, in part due to increased volumes from the underground mine. Production in Eritrea declined as output at Bisha fell by two tonnes due to the start of the exhaustion of the gold rich oxide cap, the mining of which is expected to conclude during 2013.

NORTH AMERICA

North American gold production fell slightly last year, with a decrease of one tonne. This decrease, following two successive years of increases, was due to lower output from the United States.

Mine supply in the UnitedStates fell by 1% to 231 tonnes. Central to this decline were substantial decreases in annual gold production at the Bingham Canyon copper-gold operation, Ruby Hill and Cortez, of a combined 10 tonnes. At the former two mines, lower grade was the

OTHER AFRICAN MINE PRODUCTION

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Ghana

Tanzania

Mali

Burkina Faso

Other

Sudan

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significant factor, down by 38% in the case of Bingham Canyon, which also experienced a decline in throughput. At Ruby Hill, a greater proportion of lower grade heap leach ore was processed during 2012. At Cortez, a change in the type of ore processed was also responsible for a decrease in gold production, although in this case the overall head grade was slightly higher than that in 2011. At Newmont’s Nevada complex, the largest producer in the United States, 2012 production was largely unchanged year-on-year.

There were, however, meaningfully stronger outcomes at a number of other operations. In general, increased production during 2012 was attributable to higher volumes through expanded processing facilities. At Goldstrike for example, production increased by three tonnes due to higher throughput following the installation of an additional mill, whilst at Bald Mountain pit developments completed in late 2011 led to higher grades mined and increased leach stacking. Expansion of leach pad capacity led to an increase in production of almost a tonne at Hycroft, and installation of a new leach pad at Rochester in late-2011 enabled 2012 production to increase by almost a tonne. An exception to this broad theme was Golden Sunlight, where higher grades were responsible for the increase in production. Beyond Nevada, processing of higher grade ore was led to a two tonne rise in production at Fort Knox in Alaska.

In Canada, production increased marginally last year. Whilst the net increase in production was small, a number of new projects, or recently commissioned mines that are still in the process of ramping up to full capacity contributed new supply to counter decreases elsewhere. For example, a substantial increase in production of six tonnes was seen at Canadian Malartic, which was commissioned in 2011. A number of new mines commenced operations during 2012; significant examples include Young-Davidson and New Afton,

which added two tonnes and one tonne of production respectively. The LaRonde mine saw an increase in gold production of almost 30% during 2012, as lower throughput was countered by an increase in grade as production transitions to operations from the lower mine extension, which achieved commercial production in late 2011. An increase of almost three tonnes was achieved at Meadowbank, as a result of improvements in operating efficiencies and equipment availability that were achieved following the implementation of a significantly revised mine plan in early 2012. This facilitated a 28% increase in throughput rate during the year.

These increases were sufficient to offset production losses at various mines. Notable examples include Red Lake, Canada’s largest gold mining operation, where a near four tonne decrease in output was attributed to an 18% decrease in head grade. Furthermore, Goldex remains suspended following excessive ground water ingress in 2011 and the subsequent write-down of the operation, reflecting a four tonne year-on-year shortfall.

LATIN AMERICA

Gold production from Latin America increased slightly in 2012, to a total of 601 tonnes. Across the region, gains from new projects and recently commissioned mines compensated for falls seen at other operations as a consequence of lower grades and reduced throughput.

The largest production increase in percentage terms was in the DominicanRepublic, where two large scale gold projects entered production during 2012. The larger of these, Pueblo Viejo, produced over three tonnes, whilst Las Lagunas provided a more modest addition to supply.

Mexican gold production increased by 8% in 2012, due in large part to supply from new projects and recently commissioned mines still in the process of ramping up. New projects commissioned during 2012 included Noche Buena and La Colorada, both located in Sonora state, which together added three tonnes, while the Peñasquito sulphide operation which commenced production in 2010, continued to ramp up to full capacity, with both throughput and head grade having increased last year. Meanwhile, Mercedes achieved its first full year of production in 2012.

Mulatos and Pinos Altos both saw improvements over 2011 production levels. Whilst the grade of heap leach ore decreased slightly at Mulatos, tonnage stacked increased and production was further enhanced by the addition of a mill facility to process ore from the high

NORTH AMERICAN MINE PRODUCTION

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grade Escondida zone. Higher production at Pinos Altos was due to higher gold grades, in both the heap leach and milled ore. Decreases in production were seen at a number of Mexican operations last year, including El Sauzal, Palmarejo and Soledad-Dipolos, each of which attributed the fall in production to lower grades. At El Sauzal, the decrease was attributed to lower throughput as well as a 15% fall in grade. Palmarejo also experienced lower production on reduced gold grades, whilst at Soledad-Dipolos, the decrease in production was attributed to lower grades and consequently lower recovery and processing rate.

Production inChile increased by 9% in 2012. A number of projects contributed to this outcome, most notably Esperanza, which produced an additional three tonnes in its first full year of production. Other mines that saw significant production increases in 2012 included El Toqui and La Coipa. At El Toqui, production shifted last year to ore from higher-grade gold ore bodies, rather than zinc ore bodies. At La Coipa, throughput, head grade and recovery were all up on those of 2011. These increases in output were more than sufficient to compensate for the fall in gold production at Escondida.

Elsewhere, a supply increase of half a tonne was seen in Nicaragua, with both the Limon and La Libertad mines achieving higher production due to improved recoveries and gold grades, while we estimate that Colombian output grew modestly again last year, with gains in both the formal and informal mining sectors.

In Peru, Latin America’s most significant gold producer, output was down 1% last year, to 185 tonnes. Contributing to this outcome were operations including La Zanja, Orcopampa and Pierina. Lower tonnage processed was responsible for the falls in production at both Pierina and La Zanja, whilst lower grades led to lower production at Orcopampa. Significant increases

in production were recorded elsewhere in Peru last year. The La Arena operation continues to ramp up following commissioning in May 2011, with six tonnes produced in 2012. At Yanacocha, Peru’s largest gold mine, production was up slightly on last year due to higher grades and improved recovery.

Brazilian gold production remained unchanged year-on-year, at 67 tonnes. Fazenda Brasileiro, AngloGold Ashanti Mineração, Paracatu and Sao Francisco all saw increased production last year, collectively adding almost three tonnes to Brazilian mine supply. At Fazenda Brasileiro, grade, recovery and throughput were all higher, whilst at AngloGold Ashanti Mineração and Paracatu, higher throughput compensated for falls in head grade. In the case of Paracatu, project expansion in the form of a third ball mill enabled this increase in processing capacity, whilst new projects and expansions added supply elsewhere in the country. For example, at Tucano, the first gold was poured in December 2012, following commissioning of the new SAG mill in November, and the Salobo copper-gold mine was also commissioned last year, producing half a tonne. The Aurizona mine, which commenced operations in 2010, continues to expand towards full capacity and contributed over two tonnes of gold last year. Decreases in production elsewhere in Brazil balanced other gains, with lower grades being the common factor behind lower output at Chapada, Serra Grande and Andorinhas.

Argentinian mine supply decreased by 8% in 2012, to 55 tonnes. The principal driver of this decrease was a fall in production of almost six tonnes at Veladero, due to lower grades as well as a reduction in throughput, attributed to equipment availability issues. Decreases in production due to lower grades were also seen at Manantial Espejo and at Gualcamayo, which underwent a planned transition between mining phases, as a consequence of which production was mainly from

REST OF LATIN AMERICAN PRODUCTIONMAJOR LATIN AMERICAN PRODUCTION

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Peru

Mexico

Brazil

Argentina

Chile Colombia

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Suriname

Ecuador

Guyana

Guatemala Other

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stockpiled material during the fourth quarter. Delays in licencing and construction of a heap leach pad during early 2012 were also cited as a reason for the fall in production at Gualcamayo. Partially countering the overall decrease in supply were increases in production from Alumbrera, Casposo and Cerro Vanguardia. At Alumbrera, higher throughput and slightly improved recoveries were sufficient to counter the slight decline in gold grade. Production at Casposo increased as problems encountered in 2011 during commissioning of the dry tailings filters were overcome, with the facility achieving design throughput in the fourth quarter. At Cerro Vanguardia, there were improvements in both grade and throughput.

Production from Guatemala fell by almost 50% due to the reduction in output from the Marlin mine, where operations at the open pit were concluded in late-2011. The mine plan included processing of lower grade material from stockpiles subsequent to completion of the open pit. In Venezuela we estimate output fell modestly last year. Although we estimate the large scale sector has held up in the wake of 2011’s part-nationalisation of the mining industry, reports of clamp-downs on unlicensed small scale miners by the army is thought to have reduced output.

OCEANIA

Gold production in Oceania declined to 263 tonnes last year, down from 273 tonnes in 2011. Australianproduction dropped by eight tonnes, or 3%, to 250 tonnes. Despite this decline in output Australia remained the second largest gold producing country, behind China. Production from Cadia Valley and the Kalgoorlie Super Pit fell by around four tonnes each; the main driver of this was a decline in the grade of ore processed which fell by 28% and 14% year-on-year at the two operations. Production from Ernest Henry fell by three tonnes year-on-year, owing largely to the completion of mining from a low cost open pit mine in December 2011, with the operation now in the process of ramping up production from the underground mine. At Telfer, production declined 9% year-on-year, to 16 tonnes as plant recovery rates were adversely impacted by the more refractory nature of feed from the West Dome pit that started production in the second quarter.

Providing a partial offset to these losses was new production from a number of sources as projects ramped up. Regis Resources commissioned Garden Well in August 2012, adding two tonnes, while a full year of production from the Ballarat mine, which was

recommissioned in 2011, added one tonne. Yilgarn South also saw production rise by two tonnes or 22%, year-on-year, thanks to both increased tonnes processed (+16%) and higher grades (+4%). At Mount Monger and Mount Magnet production also rose by over a tonne at each operation.

Production from Boddington, the country’s largest producing mine, was flat at 23 tonnes as a small drop in grades processed and recovery rates was countered by a 5% increase in tonnes processed. At Sunrise Dam production was marginally higher at eight tonnes; an increase in underground production rates helped pull the average grade of ore treated up by 11%, which more than compensated for an overall 6% fall in tonnes treated.

Gold production from NewZealand continued to decline in 2012, falling by 14% to 10 tonnes. Lower production was recorded across all three of the country’s major operations. In particular output at Waihi fell by a tonne on the back of a near-two-thirds drop in tonnes milled, activities at the open pit continued to focus on waste stripping activities during the year. Elsewhere, production in the SolomonIslands was marginally higher thanks to higher production at Gold Ridge, while inFijiproduction was flat year-on-year.

ASIA

In 2012 Chinese mine production rose for the thirteenth successive year, up by 11%, or 42 tonnes: the largest gain globally. The lift came mainly from domestic primary gold mining and smelting operations, which grew by a total of 24 tonnes, but additionally from gold produced as a by-product of the non-ferrous metal smelting industry, which accounted for a further four tonne increase.

AUSTRALIAN MINE PRODUCTION

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Looking first at the country’s listed miners, however, production from their own vertically integrated mining/refining enterprises was lackluster. Zijin Mining reported an increase of just under two tonnes of “mine produced gold” during the first nine months of 2012, but when excluding its acquisition of Norton Goldfields, output was essentially flat. Elsewhere, Zhaojin Mining reported growth from its own mining operations of just 2% in the first half of 2012. Eldorado Gold’s Chinese assets all saw production fall last year, most notably at Jinfeng, where output fell by 39%, or two tonnes, due to waste stripping activities and pit wall instability impacting mining rates from the open pit. Real Gold saw challenging geological conditions in 2012 which resulted in additional dilution to ore grades; in the first half output fell by one tonne at the Shirengou-Naintazi processing plant. Full-year throughput also fell markedly because of capacity constraints caused by interruptions to electricity supplies.

There was, however, some positive news among this group. Production from China Gold International’s CSH mine increased by 4% in 2012, to total four tonnes. Lingbao Gold saw an increase of 8%, or half a tonne, in the first half of 2012, while work in 2012 progressed on the company’s new gold refinery in Xijiang Uyghur in northwest China. In relation to the country-wide increase, however, these gains were limited.

The top ten gold producing companies produced half of total Chinese output last year, but growth continues at the smaller and mid-sized stages of the Chinese industry, as evidenced by rising output from the country’s gold smelting industry, which toll treats ores on behalf of other producers, and which rose by 20 tonnes. The biggest year-on-year gain was seen at Zhaojin Mining’s smelting business, where refined output increased by 23% over the full year, or seven tonnes. Shandong Henbang also saw output rise, by five tonnes, realising gains from the refurbishment of several processing

facilities. These gains were the primary drivers behind the net increase of 10 tonnes, or 18%, in Shandong province; both the biggest gain and the largest producing province in China in 2012. Overall, the general thrust of Chinese growth remains continued investment in the development of new resources, the modernisation of technology and the consolidation of smaller resources and operating units to achieve greater efficiencies within the primary gold space.

Output from the country’s nonferrous smelters, which produce gold as a by-product from the mining of other metals such as copper, grew by 6% in 2012, or four tonnes. Of these smelters, the largest gain was in Gansu, at Jinchuan Nonferrous Metals, where output more than doubled, to eight tonnes. A 23% rise in gold output was reported at Yunnan Copper, where output recovered by over one tonne following smelter downtime in the first half of 2011. Daye Nonferrous Metals saw a similar rise in gold output, due to a streamlining of production processes, such as the implementation of continuous production, combined with an increase in metallurgical recoveries. Daye also commenced commissioning of a precious metal production facility in the third quarter.

Outside of China, aggregate output from Asia was lower year-on-year. Production from Indonesia hit a multi-year low of just 89 tonnes, down from a recent high of 161 tonnes in 2009. Output fell by 31 tonnes, or 26%, which represented the heaviest global country loss for a third consecutive year. Output at the country’s largest producer of gold, Grasberg, fell by 40% to 27 tonnes. This was firstly due to mine sequencing and geotechnical factors which led to lower gold grade ore being mined from the open pit. Gold head grade fell by 37%. This was also exacerbated by the impact of labour unrest in the first quarter, and the consequent interruption to processing activities, which resulted in an estimated four tonnes of production lost. Production at Batu

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Grasberg

Grasberg's Share ofTotal Production (%)

Other50

30

60

42

64

54

50

38

58

42

38

CHINESE MINE PRODUCTION

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Hijau fell by 78%, to just two tonnes. Mining continued to focus on a waste stripping phase and the consequent processing of lower grade stockpiled ore. Average processed gold grades fell to just 0.1g/t from 0.4g/t in 2011. Gosowong’s output contracted by 4%, due in part to continuing challenges with soft ground conditions impeding access to higher grade ore in the Gosowong open pit and the Kencana underground mine.

Gold production in PapuaNewGuinea contracted for the third successive year, by 11%, to total 57 tonnes. Production at both Lihir and Porgera, the country’s two largest operations, fell by two tonnes each. At Lihir, a combination of both lower grade ore and throughput led to a 10% drop in production. At Porgera, output was down by 13% due to pit wall remediation activities, which prevented mining in higher grade zones of the pit, power supply interruptions, labour issues and a decrease in underground mining activity. Gold output from the Ok Tedi copper mine was 3% lower year-on-year. The current mine is scheduled to close during 2013, however a feasibility study is currently underway which would see the mine’s life extended out to 2022. At Hidden Valley gold production fell by 23%, to five tonnes, as a result of the processing of lower grade ore. Grades dropped by nearly one quarter year-on-year but this was partially off-set by an increase in tonnes processed.

Turning to the increases, Turkish gold production grew by six tonnes, or nearly one quarter. This growth is wholly attributable to new mining operations, from the ramp up of operations at Kaymaz and Efemçukuru, which began in 2011, combined with the Tepeköy project, where precious metal production began in January 2012. Output from the Philippines also increased, by 11%, or four tonnes. Behind this gain the primary driver was increased production at Masbate, which saw output rise by two tonnes due to a recovery in throughput following the failure of the SAG mill in the second half of 2011.

Artisanal production is also estimated to have increased slightly, although we estimate that this flow has shifted from central bank buying stations to less formal distribution routes, following the enactment of a tax on sales to buying stations in 2011.

Elsewhere, mine supply from Thailand rose, by two tonnes, thanks to higher output from Chatree where throughput continued to ramp up following completion of the Chatree North plant expansion. Output in Laos was boosted by the start of commercial production at Ban Houayxai on 1st June 2012; the mine produced two tonnes. Phu Kham also had a strong finish to the year with record throughput thanks to the recently commissioned process plant upgrade project, which has increased plant capacity from 12 million to 16 million tonnes of ore per annum.

COMMONWEALTH OF INDEPENDENT STATES

Production in the CIS rose by a total of 12 tonnes, or 3%; the fifth successive annual increase. A 15 tonne gain in Russia was the primary driver, with output lifted by a series of new starts coupled with the first full-year of operations, and continued ramp-up, at properties which commenced in 2010-11. Among the increases were Albyn and Albazino, at three tonnes apiece, and a gain of just under one tonne at Asacha. 2010’s project starts also continued to contribute, with a total of five tonnes of additional output from Kubaka, Blagodatnoye, Verninskoye and Malomir. For all these operations, the key theme was an increase in throughput. Turning to the more established operations, Olympiada saw a three tonne gain from improvements in the flotation and bio-leaching circuits, allowing gold recovery rates to rise to 74%, while higher throughput rates at Kuranakh drove its output up by 19%, or half a tonne. Elsewhere, volumes of gold recovered as a by-product from the country’s base metal mines also rose, by 21%, or three tonnes.

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The most significant loss, of one tonne, came from Kupol, where production was sharply lower in the first half of 2012, due to lower gold grades. For the full-year, processed grade was down by an average of 10%.

Output in the second largest producer in the region, Uzbekistan, is estimated to have risen modestly, by 3%, or two tonnes. 2012 saw the first full year of operation of a conveyor in the open pit at Muruntau, which led to increased productivity through shorter haul times, and the completion in late-2012 of a bio-oxidation facility to enable increased processing of refractory ores. Navoi MMC has also been pursuing a policy of expansion and modernization of the haul fleet, and commenced construction of a new explosives plant to support expanded blasting activities.

Kazakh mine supply grew for a fourth successive year, setting a new record high at 40 tonnes. The bulk of this gain can be attributed to Kazzinc, where production from the company’s own mines rose by just under three tonnes, thanks to a second full year of output from Altyntau, which did not reach full capacity in 2011. While total refined output from Kazzinc rose by a larger amount, this simply reflected in the main a change in metal flows. In 2011 a bill was passed granting the National Bank of Kazakhstan the right to purchase domestically produced mine output. Furthermore, import/export controls on gold bearing material were enacted late in 2011, and VAT on domestic gold sales to the National Bank was abolished in January last year. These have led to domestic gold producers shipping their material to one of the two refineries in-country, rather than abroad for refining, as has been the case historically.

Small gains were also recorded at Suzdal, Varvarinskoye and Sekisovskoye, although these totalled less than one tonne. Conversely, the other major refiner in the country, Kazakhmys, saw its gold output fall by one tonne as a

result of the cessation of mining at Central Mukur mid-year, and the resultant move to stockpile processing.

Providing a partial offset to the region’s gains, production in Kyrgyzstan fell markedly last year, by 42% or eight tonnes, as output from Kumtor contracted sharply. Glacial creep continued to cause geotechnical issues and problems with opening up access to further high grade areas of the pit, necessitating a revision to the mine plan.

EUROPE

Production from Europe rose by 24% last year, to 23 tonnes, and much of this can be attributed to supply from new mining projects in Finland. Kittila continued its trend of increasing annual production since commissioning in 2008, with 2012 output over a tonne higher than that of 2011. New and recently commissioned projects also contributed to the increased production, including the Laiva mine, which began operating in November 2011 and scaled up production significantly last year, to almost one tonne. Pampalo was also commissioned during 2011 and saw an increase in output during 2012. New projects Kevitsa and Kylylahti, both commissioned during 2012, collectively added minor volumes.

Spanishproduction more than tripled, thanks to the ramping up, and full year of production at the re-commissioned El Valle operation that was mothballed in 2006. Sweden remains Europe’s second most important gold producer after Finland, with a total output of six tonnes in 2012, marginally higher than that of 2011. Increases in production at Bjorkdal and Boliden Area were sufficient to counter Aitik’s half tonne fall in production due to lower grades. Bulgarianproduction increased by almost a tonne last year, on increased supply from Chelopech. Whilst grade was down slightly on 2011, throughput was considerably higher.

EUROPEAN MINE PRODUCTIONOTHER CIS MINE PRODUCTION

0

5

10

15

20

25

20112009200720052003

Tonn

es


Finland

Sweden

Bulgaria

Spain

Other

0

20

40

60

80

100

120

140

160

20112009200720052003

Tonn

es


Uzbekistan

Kyrgyzstan

Kazakhstan

Other

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CORPORATE ACTIVITY IN 2012

The prominence of gold-focussed M&A activity at the large-

cap end of the scale was more moderate in 2012. After a

swathe of multi-billion dollar transactions undertaken in the

gold industry over the past couple of years, the largest deal

completed last year was Eldorado Gold Corp’s acquisition of

European Goldfields Ltd for around US$2.4bn. A distant second

has been the more recently proposed combination of B2Gold

Corp and CGA Mining, approved by shareholders in December

2012 and completed in February 2013 in an all shares deal

that values CGA at around C$1.1bn. To put these transactions

in perspective, 2011 was the year that saw Barrick Gold Corp’s

C$7.3bn acquisition of Equinox Minerals (a copper play) and,

in 2010, the takeover of Lihir Gold (for A$9.5bn) and Red Back

Mining Inc. (for US$7.4bn), by Newcrest Mining and Kinross Gold

Corp respectively.

This apparent slow-down in ‘blockbuster deals’ over the past

year or so has been influenced by decreasing confidence

around the sustainability of a commodities ‘super cycle’ as

well as a widespread (and growing) list of earlier acquisitions

that with hindsight appear regrettable, from the perspective

of strategic value addition through synergies or reserve upside

that have led to frequent disappointment when it has come to

project execution. Furthermore, the growing number of case

studies where the sharply escalating capital development

costs of the next generation of organic growth serves as a

sobering benchmark for companies eyeing growth through the

acquisition of large, undeveloped deposits.

These factors have played a key role in the downward valuation

of the carrying value of many acquired assets. In turn this has

been a major influence that has precipitated a wave of senior

management changes that has been a clear theme in the

resources industry over the past year, spreading far beyond just

the gold miners, and furthermore motivated a stronger call by

shareholders for reduced spending and enhanced returns.

Nevertheless, it has been a much busier year at the small-to

mid-cap level, with a flurry of deals valued in the order of half

a billion dollars; many of which were motivated by regional

expansion plans or local consolidation. At the upper end of

this scale was the announcement of AuRico Gold Inc’s sale of

much of its Mexican portfolio to Minera Frisco, S.A.B. de C.V.

for US$750M in cash, which included the operating Ocampo

mine and adjacent Venus and Los Jarros exploration projects,

all proximal to Frisco’s El Concheño project that will be

commissioned this year. In September Australian-focussed St

Barbara Ltd closed its US$650M cash & share acquisition of

Allied Gold Mining Plc, expanding St Barbara’s footprint into

the South Pacific with the Gold Ridge (Solomon Islands) and

Simberi (PNG) mines.

A theme of regional consolidation was present in several mid-

sized deals that included in Latin America, Yamana Gold Inc’s

acquisition of Extorre Gold Mines Ltd, to gain control of the

Cerro Moro gold-silver project in Argentina, while Endeavour

Mining Corp. continued to expand its West African footprint

through the takeover of Mali-focussed Avion Gold Corp; both

deals were valued at over US$400M.

Other important deals that were tabled in 2012 have been the

(since abandoned) bid for African Barrick Gold by China National

Gold Group in the second half of the year, and more recently

the plan announced by Gold Fields Ltd to spin-out its KDC and

Beatrix assets in South Africa to a separate vehicle, Sibanye

Gold, whose shares commenced trading on 11th February. More

recently, a hostile bid for Aurizon Mines Ltd. by Alamos Gold Inc

was followed by a bid by Hecla Mining Co, favoured by Aurizon’s

board, valuing the company at around C$800M.

GOLD EQUITIES VERSUS GOLD AND THE S&P 500

2012 TOP 10 GOLD PRODUCERS

Rank Output(t) 2012 2011 2011 2012

1 1 Barrick Gold 238.8 230.8

2 2 Newmont Mining 160.7 154.8

3 3 AngloGold Ashanti 134.7 122.6

4 4 Gold Fields 102.0 95.9

5 7 Kinross Gold 1 72.7 76.2

6 5 Goldcorp 78.2 74.5

7 8 Navoi MMC 1 66.5 68.0

8 6 Newcrest Mining 76.9 64.5

9 9 Polyus Gold 46.5 52.2

10 10 Harmony Gold 40.9 39.31 Estimate

Source: Company Reports; Thomson Reuters GFMS

50

60

70

80

90

100

110

120

130

Jan-13Oct-12Jul-12Apr-12Jan-12

Inde

x, 3

rd Ja

nuar

y 20

12 =

100


S&P 500

Gold

HUI Gold BUGS Index

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PRODUCTION COSTS

• Global average gold mine total cash costs increased in 2012, rising by 12%, or $80/oz, to $738/oz.

• Average total cash margins increased, by just $17/oz, from $914/oz to $931/oz, despite average gold prices being $97/oz higher for the year at $1,669/oz.

• Total production costs (including depreciated capital expenditure) increased by 11%, up $92/oz to average $928/oz.

• All-in costs, which include all cash and non-cash costs, sustaining capital expenditure, indirect costs and overheads rose by 12% year-on-year, to $1,211/oz.

• Mine site input cost inflation continued to put upward pressure on costs, with labour, energy and consumable costs all increasing.

• Upward cost pressure was once again exacerbated by lower processed ore grades with the average grade dropping by 7% year-on-year.

• Over the balance of the year, cost inflation was partially offset by favourable exchange rate moves.

WORLD TOTAL CASH AND ALL IN COST CURVES

PRODUCTION COST REPORTING

Total cash costs and total production costs, as referred in this report, conform to the Gold Institute standard for cost reporting. Where data reported by miners does not conform, adjustments, and in some cases estimates were made. Readers should note that cost analysis undertaken in Gold Survey 2013 draws on annual data within our Gold Mine Economics service, and incorporates both data for primary gold mines and significant gold producing by-product gold producers (costed on a co-product accounting basis). Earlier data has been restated to reflect this change, from analysis which in the past has been presented for primary gold mines only. Co-product costs are derived by multiplying the total cash cost by the percentage revenue contribution from gold. This is in contrast to by-product costing, whereby non gold revenue is netted off as a credit against the total cash cost. The co-product analysis method has been employed where gold represents 65% or less of a mine’s revenue.

Totalcashcost comprises mine site cash expenses (mining, ore processing, on-site general and administrative costs), refining charges, royalties and production taxes, net of by-product credits.

Totalproductioncost is total cash costs, plus depreciation, amortisation and reclamation cost provisions.

All-incost is a proprietary Thomson Reuters GFMS cost parameter, designed to reflect the full marginal cost of gold mining. In addition to total production costs, it includes ongoing capital expenditure, indirect costs and overheads.

US$/oz

0

400

800

1200

1600

2000

US$

/oz

Source: Thomson Reuters GFMS0 10 20 30 40 50 60 70 80 90 100

0

400

800

1200

1600

2000

2011 Average Gold Price ($1,571.52/oz)

2012 Average Gold Price ($1,668.98/oz)

2011 All-in Cost

2011 Total Cash Cost

2012 Total Cash Cost

2012 All-in Cost

Cumulative Production %

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YEAR-ON-YEAR COST CHANGES

Global average gold mine production costs rose during 2012, by an average 12%, year-on-year. Once again the impact of declining head grades was the largest individual influence on costs, followed by labour, which also continued to be a dominant factor. Other mine site costs, including fuel, electricity and consumables continued to rise, albeit at a slower pace.

Based on the detailed mine-by-mine analysis in Thomson Reuters GFMS’ Gold Mine Economics service, the main drivers of year-on-year changes in $/oz mine production costs can be isolated and quantified, in the form of a year-on-year variance analysis.

The first step in the variance analysis process is to quantify the effects of exchangerate changes, by calculating the extent to which mine site production costs would have changed from one year to the next in dollar terms, were exchange rates the only driving factor. The net effect of exchange rate changes over the period was a $21/oz drop, in total cash costs, on a production-weighted basis.

Of the key producing countries the sharpest exchange rate-driven cost driver was experienced in South Africa, where the rand weakened by 13% relative to the US dollar. The next largest exchange rate movement of the major producers was experienced in Russia where the rouble declined by 6% over the year. Both, the Canadian dollar and Australian dollar were flat year-on-year against the US dollar. In contrast the Papua New Guinean kina was one of the few currencies to strengthen against the US dollar strengthening by 12%.

The largest factor pushing costs higher during 2012 was once again falling processedoregrades. Average grades (weighted by ore tonnage processed) dropped by nearly 7% year-on-year, to 1.33g/t, which effectively applied $41/oz of upward pressure to total cash costs. Miners continue to maximise throughput and reduce cut-off grades, in order to take advantage of the historically high gold prices, processing higher volumes of lower grade ore at the expense of higher $/oz costs. Among the larger mines, grades were significantly lower at Tasiast, Alumbrera, Veladero, Newmont Nevada, Olympiada and Kupol, with higher grades at Cortez and Yanacocha.

GOLD PRODUCERS’ CURRENCIES AGAINST THE US$

TOTAL CASH COST VARIANCE, 2012 VERSUS 2011

US$

/oz


620

640

660

680

700

720

740

760

780

FX

Gra

des

Labo

ur Strip

Rat

ios

Fuel

Roy

altie

s

Pow

er

By-

Prod

uct C

redi

ts

Proc

ess

Rec

over

y

Mis

cella

neou

s

658

738

+41

+22+5

+3 +1

+22 -21

+2+2+3

2011 2012

90

100

110

120

Jan-13Jul-12Jan-12Jul-11Jan-11

Inde

x, 3

rd Ja

nuar

y 20

11 =

100


MXN

AUD

CAD

75

90

105

120

135

Jan-13Jul-12Jan-12Jul-11Jan-11

Inde

x, 3

rd Ja

nuar

y 20

11 =

100


PNG Kina

Rand

Rouble

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On a global basis, labourcosts (which in our analysis includes contractor costs, ‘on-costs’ such as bonuses, sick pay, insurance), account for around $240/oz, or 34%, of mine site cash costs; making it by far the largest mine site cost item. During 2012 labour costs continued to push mine site costs upward, with labour cost inflation amounting to $22/oz on a global average basis, an increase on the $18/oz recorded in 2011. African Barrick reported that labour costs were 5% higher in 2012, mainly as a result of year-on-year inflationary increases and increased national employee headcount.

Average WTI crude oil prices were marginally lower year-on-year, averaging $94/bbl in 2012, compared to $95/bbl in 2011. On a global average basis however gold mine cash costs increased by $5/oz, with fuel comprising $75/oz, or just under 11% of mine site cash costs in 2012. Centamin Egypt was hit by the decision that a fuel subsidy of $150/oz of production would be removed and mining at the Sukari mine was also temporarily suspended during December following a dispute over a retrospective claim from the Egyptian General Petroleum Corporation for $65M.

Royaltypayments are mostly based on a gold price-related formula, and as such vary in step with the gold price. Accordingly, royalties rose by $3/oz on an industry average basis in 2012. The average royalty paid on an ounce of production globally during 2012 was $50/oz, an 8% increase year-on-year. The trend of increasing state royalty and tax rates also continued; the Ivory Coast parliament, for example, approved a new tax on gold profits during December, coming into force during the 2012 tax year. In Tanzania, African Barrick agreed in May to an increase of 1% in the royalty rates paid, to 4%. Royalty rates on gold production in Zimbabwe were increased from 4.5% to 7%, with effect from 1st January

2012. In Peru and Ghana the effect of increased royalties, brought in during 2011, were realised for the full year.

Stripratios increased by just 1% during 2012; this caused upward cost pressure of $2/oz in 2012. As with falling head grades, higher strip ratios are made possible by higher gold prices, as miners revise mine plans, expanding ultimate pit sizes or developing satellite pits, and in the process moving more waste while maintaining healthy margins.

Power (electricity) costs caused a slight upward pressure ($3/oz) on costs in 2012, as they did in 2011. Widespread, long term tightness in electricity supplies is expected to continue as an ongoing issue. Power disruptions in Tanzania during the first half of the year, resulted in lower hoisting capacity at Bulyanhulu, African Barrick’s energy and fuel expenses increased by 31% over 2011, driven primarily by increased fuel usage for self generation of power and increased Tanesco rates.

Average processplant(millandheapleach)goldrecoveries fell during 2012, to 86.0% from 86.3%, increasing total cash costs by $2/oz.

By-productcredits declined by $1/oz on average in 2012, to an average $26/oz credit for the year. This was due to declining metal prices, silver and copper prices were 11% and 10% lower than the prior year and accounted for the bulk of the decline.

Of the drivers which pushed costs up in 2012, the remainder falls into the miscellaneouscategory. This $22/oz of cost inflation compares with $4/oz of miscellaneous cost pressure in 2011. In carrying out a variance analysis of this type, a remnant cost category of this sort is unavoidable, as some cost drivers cannot be

2012 GLOBAL AVERAGE ALL IN COST BREAKDOWN


Ore Processing

Mining

General & Admin

Smelting & Refining

Royalties

Depreciation/Amortisation& Inventory Changes

Corporate Admin& Interest

Extraordinary Costs

Sustaining Capex

By-ProductCredits

(-$26/oz)

$/ozAu

Mining 346 Ore Processing 231 General & Administration 122

MineSiteCashCost 699

Smelting and Refining 15 By-Product Credits -26 Royalties 50

TotalCashCost 738

Depreciation/Amortisation, Inventory Change 190

TotalProductionCost 928

Corporate Administration, Interest 59 Extraordinary Costs 89 Sustaining Capital Expenditure 135

AllinCost 1,211

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satisfactorily dissected. There has also been consistent mention of rising reagent prices, higher mine site consumables and increasing maintenance costs inside producer’s reporting literature.

Much of the impact of costs associated with strike action falls into the miscellaneous category by default. The most prominent being the labour unrest in South Africa where strikes started in the platinum industry in August and quickly spread across the mining sector. In Egypt two bouts of labour unrest occurred at the Sukari mine as a result of a breakdown in on-going discussions involving general salary increases and other benefits.

GOLD MINE PROFITABILITY: KEY ISSUES

Although total cash cost is a useful gauge of competitiveness at the mine-by-mine level, it does not account for a substantial portion of the cost required to develop and sustain gold mining operations. Therefore, its utility as a measure of ‘real’ industry margins, or the long term gold price required to incentivise gold mine production growth is limited. With this in mind, Thomson Reuters GFMS developed its ‘all-in cost’ parameter. In addition to total production costs, all-in cost includes corporate administrative costs (head office overheads), interest charges, mine site exploration expense, extraordinary charges (such as retrenchment costs, asset carrying value write-downs), plus sustaining/on-going capital expenditure. This ‘stay-in-business’ capital cost is that expenditure necessary to maintain current production rates. The global average all-in cost for 2012 was $1,211/oz, up a substantial $133/oz or 12% on 2011.

Lagunas Norte was once again one of the lowest cost mines with all-in costs of $467/oz, Kisladag, at $633/oz was also one of lowest cost producers, as was

Pinos Altos ($682/oz). Of the population covered, 28% of the mines had all-in costs of below $1,000/oz, these mines represented 46% of gold production. The number of mines analysed that had all-in costs above the annual average gold price increased to 13% from 10%, this represented 7.4% of gold production. Several large write-downs occurred during 2012, this once again skewed the overall average all-in costs higher. Most notable was the non-cash goodwill impairment at Tasiast of $3.1 billion, which caused the mine’s all-in cost to exceed $20,000/oz. An impairment of $907.7 million was also recorded at the Meadowbank mine, which pushed all-in costs to $4,029/oz. At Tulawaka a non-cash impairment charge of US$44.5 million pushed all-in costs up to $3,003/oz. If Tasiast and Meadowbank are removed from the global population, the global average all-in cost would have been $1,121/oz.

REGIONAL TRENDS

Of the key producing regions, Latin America remained the lowest cost region in 2012, with total cash costs averaging $614/oz, up a substantial 15%. Part of the reason that cost inflation was above the industry average increase of 12% is that many mines in the region benefit from by-product credits, which declined year-on-year.

North American cash costs rose by an average of 12% year-on-year, to $639/oz. Canadian average total cash costs rose strongly, for the third year, up by 13% to $742/oz, this was in part because of higher costs at LaRonde where costs rose due to fewer processed tonnes, as well as general cost pressures and significantly lower by-product revenue. A full year of production at the relatively high cost Canadian Malartic (909/oz) also contributed to higher average costs. Meadowbank however, bucked the trend thanks to record production

2012 ALL-IN COST CURVE

Total Cash Costs Variance

Depreciation & Amortisation

Sustaining Capex, Indirect costs & Corporate Overheads

Total Cash Costs


US$

/oz

2500

0

500

1000

1500

2000

0 20 40 50 60 70 803010 90 100Cumulative Production (%)

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being recorded during the year with total cash costs falling from $1000/oz to $913/oz.

In the United States, average costs increased by 11% from $519/oz to $574/oz. Total cash costs from the largest operating unit Newmont’s Nevada and Goldstrike the country’s third largest producer rose by 6% to $638/oz and $541/oz respectively. This was thanks to higher mill throughput at both operations and higher average processed grades by 4% at Goldstrike. At Cortez total cash costs rose from $245/oz to $282/oz, due in part to the lower throughput (14% lower than 2011), this was partially mitigated by the processing of higher grade ore (10% higher than 2011).

In South Africa producers continued to struggle to control costs, this was in spite of the depreciation of the South African rand by 13% year-on-year against the US dollar. Total cash cost rose by 12% year-on-year-to $1,029/oz. The fourth quarter was also hit by strike action, at its peak in mid October a little over 55% of the gold mining industry was offline. During the fourth quarter AngloGold Ashanti’s total cash costs were $1,009/oz; they estimated that without the strike the costs would have been $852/oz. Total cash costs at South Africa’s largest producing mine, the Kloof Driefontein Complex, rose by 14% to $1078/oz.

Australian cost inflation was 6% year-on-year, with costs rising to $857/oz. Part of the cost pressure came from the introduction of a carbon tax in July; the tax levies a A$23 per tonne of greenhouse gasses emitted by major industrial businesses. The Jundee mine was the lowest cost mine with total cash costs of $536/oz an increase of 28% year-on-year. This was in part due to processing of lower grade ore which pushed unit costs higher. At Boddington costs applicable to sales increased by 33% per ounce, due to a higher strip ratio, higher mill maintenance costs and the impact of the carbon tax.

Tanzania continued to experience high cost inflation, with year-on-year total cash costs increasing by 24%, to $791/oz. Costs rose at Buzwagi, North Mara, Tulawaka and Bulyanhulu due to increased maintenance and G&A costs, increased fuel and energy costs in particular at Buzwagi due to the increased self generation of power and increased Tanesco rates. This was all compounded by falling processed grades.

Of the top twenty largest producing countries, Peru was the best performing country, with total cash costs down by 3%, the main driver was Yanacocha where costs decreased 10% due to higher production and lower mining costs. Total cash costs rose sharply in Argentina, by 36%, production declined once again at Veladero due to the processing of lower grade ore which pushed unit costs higher by 51%.

GOLD PRODUCTION COSTS

COMPANY REPORTED QUARTERLY TOTAL CASH COSTS COMPANY REPORTED ANNUAL TOTAL CASH COSTS

US$

/oz


200

400

600

800

1000

1200

1400

1600

1800

12.Q111.Q110.Q109.Q108.Q1

World

South Africa

Australia

Latin America

North America

Gold Price

US$

/oz


0

200

400

600

800

1000

1200

1400

1600

1800

201220102008200620042002

Total Cash Costs

Gold Price

2011 2012

NorthAmerica Total Cash Costs 570 639

Total Production Costs 749 823

LatinAmerica Total Cash Costs 533 614


Australia Total Cash Costs 807 857


SouthAfrica Total Cash Costs 922 1,029

Total Production Costs 1,114 1,232

Other Total Cash Costs 638 740


World TotalCashCosts 658 738

TotalProductionCosts 836 928

All-inCosts 1,078 1,211


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PRODUCER HEDGING

• The outstanding delta-adjusted hedge book fell by 40 tonnes in 2012, with cuts concentrated in the fourth quarter.

In 2012 gold mining companies retained a cool attitude toward hedging, as the volume of gold delta-hedged against producer’s hedge positions fell by nearly one quarter. This left the outstanding hedge book at just 123 tonnes at end-December, and confirms the view that 2011 was a temporary hiatus in an ongoing trend of reduction, as the volume of deliveries and options maturing outweighed new hedges.

The continued unfavourable attitude towards hedging is also evidenced by the drop in the nominal (number of contracts) volume of the hedge book, which fell by one third year-on-year to total 205 tonnes. This provides us with an idea of the degree of producers’ price protection relative to production, with a total of 155 tonnes of future output protected to some degree against downward price movements, through forward sales or the purchase of put options. Correspondingly, 150 tonnes of future production also has some exposure to price upside capped, through the same forward sales or through written call options. But these figures represent only 5% of one year of annual mine supply, a low level indeed.

An examination of the strike prices of these respective contracts shows that the hedge book is operating more as a cap to price upside than as materially effective

price protection, given the distribution of the respective contract prices around the gold spot price.

During 2012 a total of 36 companies saw reductions to their positions, while 14 entered into new hedges. The most significant reduction in hedge cover came from Minera Frisco, which saw a drop of 24 tonnes. The bulk of the cut came from a 17 tonne fall in its forward sales position, which the company had retired completely by end-February. Second came Great Basin Gold, which saw a series of collar option structures closed out following the insolvency of the company in the fourth quarter. Sumitomo Metal Mining’s delta-adjusted position fell by an estimated five tonnes, as its collar option structures matured throughout the year. St Barbara and Teranga Gold both saw their positions decline by four tonnes, as St Barbara’s option positions matured, and Teranga began to deliver and repurchase its forward sales.

COMPOSITION OF THE DELTA-ADUSTED HEDGE BOOK

(tonnes, end-period) 2012 11.Q4 12.Q1 12.Q2 12.Q3 12.Q4 yoy

Fwd. Sales & Gold Loans 119 120 120 117 100 -16%

Options 43 41 33 36 36 -15%

Total 163 161 153 155 123-24%


NOMINAL COMPOSITION OF THE PRODUCER HEDGE BOOK

DISTRIBUTION OF OPTION HEDGE COVER BY STRIKE PRICE

WEIGHTED AVERAGE STRIKE PRICES OF HEDGE CONTRACTS


* Bought puts, less sold puts** Sold calls, less bought calls

Net Puts *

Forward Sales

Net Calls **

Total nominal position atend-Q4 2012: 205 t

(weighted by number of contracts, end-2012) USD AUD

Bought Puts $1,108 $1,471

Sold Calls $1,878 $1,637

Bought Calls $1,300 $2,100

Forward Sales $1,217 $1,586


30 20 10 0 10 20 30

30 20 10 0 10 20 30

701-800801-900

901-1,0001,001-1,1001,101-1,2001,201-1,3001,301-1,4001,401-1,5001,501-1,6001,601-1,7001,701-1,8001,801-1,900

1,901-2,0002,001-2,1002,101-2,2002,201-2,300

tonnes30 20 10 0 10 20 30

701-800801-900

901-1,0001,001-1,1001,101-1,2001,201-1,3001,301-1,4001,401-1,5001,501-1,6001,601-1,7001,701-1,8001,801-1,900

1,901-2,0002,001-2,1002,101-2,2002,201-2,300

US$

/oz

US dollar denominated strikes


Bought Put Options

Sold Call Options

6 4 2 0 2 4 6

6 4 2 0 2 4 6

701-800801-900

901-1,0001,001-1,1001,101-1,2001,201-1,3001,301-1,4001,401-1,5001,501-1,6001,601-1,7001,701-1,8001,801-1,900

1,901-2,0002,001-2,1002,101-2,2002,201-2,300

tonnes6 4 2 0 2 4 6

701-800801-900

901-1,0001,001-1,1001,101-1,2001,201-1,3001,301-1,4001,401-1,5001,501-1,6001,601-1,7001,701-1,8001,801-1,900

1,901-2,0002,001-2,1002,101-2,2002,201-2,300

A$/

oz

Australian dollar denominated strikes


Bought Put Options

Sold Call Options

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Other de-hedgers during the year included Boliden, New Gold, Gold One International and Evolution Mining, which removed a total of nine tonnes between them.

Significant additions to the global hedge book were few in number, with the most prominent activity being an 11 tonne forward sale by Crocodile Gold, as a condition of securing a credit facility. The company also purchased call options covering six tonnes of production to return some upside potential for half its hedged production. By end-year Crocodile had begun to deliver into these, resulting in a net delta-adjusted addition of nine tonnes to the global hedge book.

Saracen Mineral Holdings entered into six tonnes of forward sale contracts connected to a finance facility for the company’s expansion at Whirling Dervish. Beadell Resources and Millennium Minerals also entered into hedges, with Beadell having added a net three tonnes of forward sales and options by end-year associated with the extension of its Tucano project finance facility, and Millennium Minerals entering into forward sales covering three tonnes of output from Nullagine. Millennium also purchased put options covering 10,500 ounces of production; these had expired by year-end. Other

hedgers included Reed Resources, Lonmin, Straits Resources and Veris Gold, which added a combined eight tonnes between them.

In tandem with the net cuts to the outstanding global hedge book, the aggregate marked-to-market liability of producers’ hedge positions contracted in 2012, by 36%, to negative $0.79 billion. This came despite the 6% increase in the end-year gold price, used to value the contracts, and represented the lowest value since our quarterly records began in 2002.

Our database of hedge positions indicates that, as currently structured, approximately half of the hedge book is due to mature in 2013. That said, with current industry talk centring around the issue of cost reporting and cost inflation, and when coupled with a gold price which has disappointed so far in 2013, if prices fail to increase sufficiently on a year-on-year basis, it is conceivable that producers could become more amenable to the concept of hedging within the year. We would suggest the probability of this to become a 2013 story to be low, given strong shareholder pressure against the idea and, with our price forecast taken into account, we therefore do not expect a meaningful return to hedging during 2013. Instead, we expect a limited level of de-hedging to persist given the small size of the outstanding book and ongoing project finance/lending related hedging. Producer hedging will therefore remain on the periphery of the supply/demand balance.

DELIVERY PROFILE AS AT END-2012

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TOP HEDGING ACTIVITY IN 2012

(delta-hedging) %ofGross: ChangeCompany Hedging (tonnes)

Crocodile Gold 29% 9

Saracen Mineral Holdings 21% 6

Beadell Resources 10% 3

Millennium Minerals 10% 3

Company De-hedging (tonnes)

Minera Frisco 34% -24

Great Basin Gold 7% -5

Sumitomo Metal Mining 7% -5

St Barbara 6% -4

Note: Delta-adjusted volumes are calculated on the basis of published company data. As such disclosures are not exhaustive, the GFMS calculated position may not exactly correspond to the delta position reported by the company. In addition, GFMS values the contracts on a spot delta basis, whereas some companies report positions on a forward delta basis. This can lead to minor discrepancies between the calculated and reported delta-adjusted volumes. Where published data was unavailable, an estimate based on the scheduled expiry of contracts has been made.


EVOLUTION OF THE GLOBAL HEDGE BOOK

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5. SUPPLY FROM ABOVE-GROUND STOCKS• Above-ground stocks, by definition cumulative historical mine production, grew by 1.7% to around 174,100 tonnes by end-2012.

• Stocks of fabricated products (excluding all coins) rose by 684 tonnes on a net basis in 2012 to approximately 105,800 tonnes by year-end. This was equivalent to 61% of total above-ground stocks.

• Accounting for the bulk of stocks of fabricated products, jewellery increased by a net 277 tonnes last year. At end-2012, these stocks stood at almost 84,600 tonnes, or roughly one half of all above-ground stocks.

• Combined bullion stocks held by the official and private sectors expanded by 2,177 tonnes to 64,700 tonnes by end-2012, equal to over 37% of total above-ground stocks. Private holders accounted for 54% of these bullion stocks.

• Official bullion stocks, excluding bullion lent to the market, rose by 572 tonnes in 2012, due to buoyant net official sector purchases of 532 tonnes coupled with modest net producer de-hedging of 40 tonnes.

• Investors’ stocks of bullion recorded a robust net increase of 1,605 tonnes in 2012, taking the total amount of bullion bars and coins held by private individuals and non-official institutions to 34,700 tonnes by end-2012, equivalent to an approximate $1,849 billion.

• Last year, there was 1,616 tonnes of supply from above-ground stocks, accounting for 36% of total supply and coming solely from scrapped fabricated products.

OVERVIEW

Supply of gold into the market can be sourced either from new mine production or from the recycling or mobilisation of existing above-ground stocks of metal. The former (as well as producers’ hedging activities) is discussed in detail in Chapter 4 of this Gold Survey, while the latter is covered in this chapter, where we start by looking at changes in gold bullion stocks held by the official sector and then go on to examine the recycling of scrapped fabricated products. The other possible source of supply from above-ground stocks of gold, namely bullion held by private individuals and non-official institutions, is discussed in Chapter 3, although the investor side of the market was, on a net basis, once again a major source of demand last year.

The table on the next page provides a summary of annual supply to the market from mine production and above-ground stocks (the latter divided into its bullion and fabricated products components) over the 2010-2012 period. As illustrated in this table, overall supply from above-ground stocks dropped in 2012 by a modest 3% or 52 tonnes year-on-year, against a small increase of 22 tonnes in mine production. Above-ground stocks’ contribution to total gold supply therefore fell slightly to 36% last year from 37% in 2011.

This lower supply from above-ground stocks was largely attributable to a continued fall in scrapped fabricated products, although a return to net producer de-hedging was also important to the outcome. Meanwhile, for the third year in a row, central banks as a whole remained net buyers of gold bullion during 2012, with their contribution

GOLD TRANSFERS (NET) TO AND FROM GLOBAL ABOVE-GROUND STOCKS, 2012


Above-ground Stocks, end-2012 = 174,100t

Mine Production(2,861t)

Transformed/Transferred(4,437t)

*Includes bar investment, implied net investment and coins** Excluding gold lent or supplied*** Includes changes in lending from both the official and private sectors

Old Scrap (mostly jewellery)(1,616t)

To Stocks(4,437t)

Other Fabrication(407t)

Official Holdings**(30,100t)

Private Investment*(34,700t)

Jewellery(84,600t)

Jewellery(1,893t)

Unaccounted(3,600t)

Other Fabrication(21,200t)

Private Investment*(1,605t)

Official Sector Purchases (532t)

Changes in lending***(40t)

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to total gold demand rising to the highest level since mid-1960s.

Looking at each component, in spite of a further rise in the average annual gold price, scrap supply slipped by 3% to a four-year low last year, although the total remained elevated by historical standards. The decline was a largely a result of bullish price expectations and the depletion of near-market stocks, particularly in the industrialised world. The main exception is India, where scrap grew strongly thanks to record prices in Indian rupee terms. Turning to the official sector, last year witnessed a growing appetite for the yellow metal from central banks in the developing world. This, combined with the continued absence of major sales from signatories to the Central Bank Gold Agreement (CBGA), sent net official sector purchases to a 48-year high of 532 tonnes in 2012.

For the second consecutive year, producer hedging activity remained on the sidelines in 2012, largely due to the small outstanding hedgebook coupled with continued anti-hedging sentiment among mining companies. At the moment, our estimate shows that net producer de-hedging amounted to 40 tonnes last year, as deliveries into contracts and maturing option positions outweighed any fresh project hedges.

Turning to this year, total supply from above-ground stocks is set to recover lost ground. This forecast is based on the assumption that scrap supply should rebound strongly later this year in response to renewed strength in the gold price, with the global total likely to exceed its 2009 peak. By contrast, the official sector once again is expected to remain on the buy side of the gold market, as central banks in emerging market economies will continue to accumulate bullion holdings in order to diversify their foreign exchange reserves. Furthermore, a favourable gold price outlook limits the scope for strategic hedging from gold mine producers. Modest net de-hedging will therefore persist during 2013. Taking into account a further rise in mine production, total gold supply is forecast to hit a fresh record of well above 4,600 tonnes this year.

OFFICIAL SECTOR

— Net official sector purchases jumped by 16% in 2012, rising to a 48-year high of 532 tonnes. — The outstanding amount of bullion lent to the market by the official sector remained broadly flat in 2012.

Thomson Reuters GFMS’ estimates for official sector transactions are based on a combination of publicly available information, such as the statistics regularly published by the IMF and information extracted from individual central banks’ websites, plus our own proprietary data on undeclared central bank activity, compiled using information collected through field research. Due to the lag that often exists between activity taking place and being identified, it is possible that our estimates will be revised in the future.

Last year witnessed strong central bank interest in gold. Net official sector purchases are estimated to have totalled 532 tonnes in 2012, up by 16% against 2011 and a level last visited in 1964. From 2010, when central banks in aggregate switched to become net buyers for the first time in over two decades, they added a net 1,066 tonnes

SUPPLY OF GOLD TO THE MARKET

WORLD OFFICIAL SECTOR SALES AND PURCHASES

2010 2011 2012 tonnes share tonnes share tonnes share

Mine Production 2739 61% 2,838 63% 2,861 64%

Above-Ground Stocks 1723 39% 1,680 37% 1,616 36%

- Net Official Sector Sales - - - - - -

- Net Producer Hedging - - 11 0.2% - -

- Net Implied Disinvestment - - - - - -

- Sub Total Bullion - - 11 0.2% - -

- Fabricated Products (Scrap) 1,723 39% 1,669 37% 1,616 36%


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to their bullion holdings through to end-2012, with their contribution to total gold demand rising to 12% last year.

In assessing the impact on the gold price of such a jump in central bank purchases, we would argue that investors seem to have become increasingly accustomed to growing buy-side interest from the official sector. News and announcements on fresh purchases therefore appeared to have a less profound immediate impact on investor sentiment, and hence the dollar gold price, in 2012 than that seen in previous years. Having said that, it should be borne in mind that central banks as a whole were persistent sellers from 1989 to 2009, with their sales reaching a peak of 663 tonnes in 2005. With a swing of almost 1,200 tonnes in gold’s supply/demand equation within just seven years, such buoyant buy-side interest has undoubtedly helped to lighten investors’ burden to absorb a massive surplus in the gold market (defined as mine production plus scrap less non-coin fabrication). Furthermore, unlike some investors who can tend to switch their gold positions quickly, reserve managers typically maintain a much longer horizon and therefore are less price-sensitive to short-term price developments. Official sector interest helped to provide a firm floor for the yellow metal in 2012, particularly during heavy investor sell-offs.

Turning to reasons behind robust central bank purchases, the key driving force remained the growing desire by emerging nations to diversify their huge foreign exchange reserves. Given a lack of material improvements in fiscal consolidation and a new round of aggressive monetary easing in many advanced economies, it is not surprising that some developing countries chose to convert a small portion of their reserves into gold last year. Moreover, gold’s impressive performance over the last decade and its safe haven appeal certainly drew fresh interest from countries that had historically maintained a very low level of bullion holdings. Indeed, apart from countries that had already made gold purchases in the past, last year also witnessed a couple of countries making their first strategic gold purchases in almost a decade.

Last year’s high net purchase figure was also boosted by a further drop in gross sales, as disposals from signatories to the third CBGA remained trivial and

interest in opportunistic sales outside the CBGA bloc was lacklustre.

Looking ahead, central banks in the developing world are expected to continue their moves into gold. Despite a lack of fresh easing from major central banks in the near term, monetary policies are likely to remain ultra-loose for a while. In addition, we would argue that the sovereign debt situation in Europe is far from being resolved while budget deficits in the United States and Japan are likely to remain elevated for an extended period. The yellow metal will therefore remain a useful means of reserve diversification and a hedge against currency debasement. On the other hand, with the peripheral European sovereign bond market still vulnerable to further shocks, sales from the current CBGA group are set to remain tiny this year. As such, it is probable that gold purchases by the official sector will continue at a similar pace to that seen in 2012, at roughly 100-150 tonnes per quarter, throughout this year.

SALES

Last year represented the fifth consecutive year of declines in gross official sector sales. From an already depressed level in 2011, total disposals are estimated to have fallen by over 60% to 23 tonnes last year, a mere 3% of that seen in 2005.

As mentioned in previous Gold Surveys, the marked decline in total sales over last few years was primarily driven by a collapse in sales from CBGA members. Consistent with the trend since the start of the third CBGA in September 2009, Germany remained the only country within the CBGA group to cut gold reserves in 2012. The five-tonne fall in the country’s bullion holdings is believed to have been related to its ongoing official coin minting programme.

NET OFFICIAL SECTOR GOLD PURCHASES/SALES

ANNUAL NET OFFICIAL SECTOR PURCHASES (TONNES)

2008 2009 2010 2011 2012

-235 -34 77 457 532


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CBGA*

Rest of World**

IMF on-market sales

Net Sales

Net Purchases

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Elsewhere, a good part of gross sales came from some countries that have been active in trading gold on both sides of the market in recent years. For instance, SriLanka sold a combined nine tonnes in January, February, August and September, but the country was also a modest bullion buyer during periods of price weakness, mainly concentrated in the second quarter. The balance of total sales emerged from a limited number of changes in reserves of trivial amounts.

PURCHASES

After a major rise in 2011, gross official sector purchases continued to grow in 2012, albeit at a slower pace. At the moment, our estimate shows that total sales amounted to 555 tonnes in 2012, up by 7% on a year-on-year basis.

Russia was the largest announced buyer last year. Through a series of monthly purchases (concentrated in the domestic market via acquisitions of local mine production), the Russian central bank lifted its gold holdings by 75 tonnes during 2012. At year-end, the country’s official gold reserves stood at 958 tonnes, accounting for 9.5% of its total international reserves at the market price. While this was already very close to the medium-term target of 10% previously set by the government, the First Deputy Chairman of the central bank confirmed early in 2013 that the country would continue buying for reserve diversification purposes.

Smaller purchases were also reported by a number of CIS countries. Kazakhstan bought 33 tonnes in 2012, in line with the country’s plan to raise gold’s share of its reserves to 20%. The country also launched the construction of a new gold refinery in mid-2012, adding enough capacity to ensure that it can refine all of its gold output for supply to the central bank. Elsewhere, Ukraine, Belarus and Tajikistan also built up their gold reserves in 2012, by seven, five and two tonnes respectively.

Three major bullion buyers in 2011, namely thePhilippines, SouthKorea and Mexico, continued to build up their gold holdings over the course of 2012.

The Philippines boosted its gold reserves by 34 tonnes last year, of which 32 tonnes was acquired in March. While the country tends to buy gold from local mines, the scale of such purchases suggests that at least part of these transactions took place in the open market.

South Korea expanded its gold holdings by 30 tonnes in 2012. Furthermore, it is worth noting that the country’s central bank recently confirmed another purchase of 20 tonnes in February 2013. Since South Korea’s first strategic gold acquisition since 1997 in mid-2011, its bullion holdings had grown by 90 tonnes through to end-February 2013.

Mexico, the biggest bullion buyer in 2011, slowed its pace of gold accumulation last year. By end-year, the country’s total bullion reserves amounted to 125 tonnes, up by more than 19 tonnes year-on-year.

GOLD AND OTHER RESERVES (END - 2012)

OFFICIAL SECTOR DEVELOPMENTS AND QUARTERLY NET PURCHASES IN 2012

Gold Total % Reserves Reserves Heldin (tonnes) (US$bn)* Gold*

United States 8,134 572.57 75.7%

Germany 3,391 248.15 72.8%

IMF 2,814 n/a n/a

Italy 2,452 181.16 72.1%

France 2,435 184.01 70.5%

China, P.R.: Mainland 1,054 3,387.29 1.7%

Switzerland 1,040 531.08 10.4%

Russia 958 537.62 9.5%

Japan 765 1,267.93 3.2%

Netherlands 612 54.69 59.7%

Source: IMF

*Gold valued using market prices

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THE NEW WORLD OF CENTRAL BANK GOLD PURCHASES

A central bank ‘supply shock’ was one of the key features of

the market in the 1990s and early 2000s. This had obvious

consequences for gold prices, not only because of the additional

volume of bullion that had to be absorbed, but also because

of the impact that these sales had on investor sentiment. The

past few years, however, have seen the pendulum swing all the

way from heavy net central bank selling to significant purchases

on a regular basis. Such a fundamental change has not only

given investor sentiment a strong boost, but has also helped

to provide a solid floor for the gold price over the last couple

of years, particularly at times when investor buying moderated

while jewellery demand remained lacklustre.

As discussed in the Overview, an increasing desire by emerging

market countries to diversify their huge foreign exchange

reserves has remained the dominant driver behind rising central

bank buying. Benefiting from a decade of high commodity

prices and trade surpluses generated by booming export

sectors, foreign exchanges reserves held by the developing

world have swollen to successive record highs in recent years.

Over the same period, given that most of these reserves

have been invested in US dollar assets, a marked fall in the

American currency means that accumulating reserves has

become increasingly costly for many countries. In addition, the

reluctance of the US government to cut huge fiscal deficits and

the willingness of the Fed to monetise a significant proportion of

these deficits have also raised growing worries about the long-

run stability of the US dollar.

While there was a gradual shift towards the euro over much

of the last decade, this process seems to have stalled more

recently in response to a rapidly worsening sovereign debt

situation in the region. Meanwhile, the scope for a major move

to other traditional currencies, such as the yen and the Swiss

franc, is also limited, as many countries now adopt a “weak”

currency policy in order to keep their export sectors competitive.

Under such circumstances, it is not surprising that gold has

drawn increasing interest from reserve managers, given its

impressive price performance over the past decade. Such

developments have been given an additional stimulus by the

financial turmoil and then the sovereign debt problems in major

economies. The traditional view of gold as the ultimate asset

has been clearly gained weight, as bullion not only provides

a currency hedge, but carries no default risk. Furthermore,

various empirical studies show that in the very long run a

portfolio containing gold could reduce volatility over several

business cycles, which also enhance the metal’s appeal as an

excellent diversification for currency assets.

Looking ahead, yields will remain abysmal on traditional

reserve currencies. This means that any reserve managers

keen to boost returns will continue to diversify away from the

major international currencies. Furthermore, concerns about

the sovereign debt problem in mature economies will remain

supportive of a continued move into gold. Despite improving

sentiment towards the euro since last summer, recent political

woes in Spain and Italy with a rise in both countries’ bond yields

clearly indicates that the region’s debt crisis is still far from

resolved. Moving across the Atlantic, the threat of a further

US credit downgrade also remains real. Even though such a

development is unlikely to trigger heavy selling of US Treasuries,

this will at least encourage certain countries to divert a portion

of their holdings into other assets, such as the yellow metal.

Nevertheless, it is worth emphasising that the scale of

purchases by central banks in aggregate is unlikely to be well

above the current pace (100-150/tonnes per quarter) in the

short term. One important reason for our caution is that the

gold market is far too small to allow many developing countries,

especially China, make more than a very modest diversification

of its foreign exchange reserves. We would expect, instead,

further discreet and modestly sized operations to be carried out

in the international market, coupled with the purchase of local

mine supply by some countries where domestic mine production

is available.

MAJOR FOREIGN HOLDERS OF US TREASURY SECURITIES

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COMPOSITION OF WORLD OFFICIAL RESERVES

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Foreign Exchanges

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CBGA: SALES REMAINED TINY IN 2012

Sales from signatories to the Central Bank Gold Agreement

(CBGA) in 2012 were entirely accounted for by Germany where

five tonnes were released to provide gold for the country’s

ongoing official coin programme. From the start of the third

CBGA in September 2009, cumulative sales from the group

(excluding the IMF on-market sales) through to end-2012 stood

at 16 tonnes, dominated by Germany. Not only is this massively

below the 400-tonne annual quota, but it is only a tiny fraction

of the amount of gold sold under the previous two CBGAs, when

sales averaged over 390 tonnes per Agreement year.

As has been discussed in previous Gold Surveys, the recent lack

of interest among CBGA members in launching new gold sales

should be viewed within the context of the considerable decline

in the bloc’s bullion holdings since the late 1990s. Indeed, we

would argue that those who were inclined to cut gold reserves

may have already done so in the last decade. Meanwhile, gold’s

price performance in recent years has also seen certain central

banks become more gold-friendly. This is in stark contrast to

the late 1990s and early 2000s when anti-gold sentiment was

prevalent following an extended gold bear market, particularly

given the metal’s non-interest bearing characteristics. In

addition, the absence of significant CBGA sales over 2010-12

could also be explained by a worsening sovereign debt situation

in the Eurozone, as some central banks may have decided

to postpone sales plans in order to avoid putting additional

pressure on government bond yields.

Looking at this year, the recent election gridlock in Italy clearly

indicates that a full recovery in the region’s debt problem is still

far away. With a gloomy economic outlook, investor sentiment

in the peripheral sovereign bond market should remain fragile.

We would therefore not be surprised if total CBGA sales remain

subdued for the rest of 2013.

As we are in the penultimate year of the third CBGA, there

is already some discussion about whether the Agreement

should be renewed after the current programme expires next

year, especially given very low levels of sales in recent years.

However, it is of note that many countries within the group

are still arguably “overweight” in gold. Once the region’s

debt situation stabilises, it is possible to foresee a recovery in

strategic disposals from certain countries and an upper annual

sales limit should remove market uncertainty. Those arguing for

a renewal of the CBGA will have seen their case still enhanced.

SALES UNDER CBGA

Turning to new buyers in 2012, after keeping its gold reserves essentially flat from early 2002 onwards, Brazil launched its first strategic, albeit modest, gold acquisition in September last year and further major purchases were announced in the following two months. With an increase of 34 tonnes, the country nearly doubled its gold holdings in late 2012, though the yellow metal’s share of its total reserves remained tiny at end-2012.

Perhaps more surprisingly, Iraqrevealed a rise of 24 tonnes in its gold reserves in August last year, its first purchase since at least 2004, which took its total bullion holdings to 30 tonnes by end-year. The balance of central bank buying in the public domain in 2012 consisted of small increases in gold reserves. These

included an eight-tonne increase in Paraguay’s reserves and a rise of less than one tonne from a few countries including Jordan, Mongolia and Greece.

As with previous years, a significant portion of gross purchases were accounted for by undeclared activities in 2012, details of which cannot be given due to confidentiality. At the moment, our estimate shows that around 300 tonnes of gold were bought quietly by certain central banks, either via open-market transactions or accumulations of domestic gold mine output. Regarding the drivers behind these purchases, part of these were related to sagging confidence in the major international currencies, while others reflected growing concerns over geopolitical risk.

(tonnes) AmountSold end-2012 %Held UnderCBGA1&2 GoldReserves inGold

Austria 127 280 55.0%

Belgium 30 227 39.5%

Cyprus1 - 14 62.2%

Estonia1,2 - 0 4.4%

Finland - 49 23.7%

France 589 2,435 70.5%

Germany 61 3,391 72.8%

Greece1 - 112 82.4%

Ireland - 6 18.7%

Italy - 2,452 72.1%

Luxembourg - 2 12.1%

Malta1 - 0 2.4%

Netherlands 399 612 59.7%

Portugal 224 382 90.3%

Slovakia1,2 - 32 67.4%

Slovenia1 - 3 17.8%

Spain 242 282 29.7%

Sweden 60 126 12.8%

Switzerland 1,550 1,040 10.4%

United Kingdom2,3 352 310 15.7%

ECB 272 502 32.8%

Total 3,906 12,259 40.9%

*Hyphen indicates zero or less than 0.5t. 1 not a signatory to CBGA1; 2 not a signatory to CBGA2; 3 not a signatory to CBGA3; Source: IMF, Thomson Reuters GFMS

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Finally, it is worth stressing that the IMF statistics showed a massive rise of 164 tonnes in Turkey’s official gold holdings in 2012. However, instead of fresh purchases, this reflected a change in the country’s legislation in late 2011, which allowed local commercial banks to store gold at the central bank’s account. The increase is therefore not included in our estimates for gross official sector purchases for 2012.

MOBILISATION

At end-2012, outstanding gold liquidity lent by the official sector remained under the 700-tonne mark, little changed on a year-on-year basis, as a slowdown in withdrawal of liquidity from the official sector was broadly offset by a rise in very short-dated gold lending from some countries.

The dominant drivers behind the ongoing decline in traditional lending were the persistence of depressed leasing rates and a flattening yield curve. Central banks have been increasingly reluctant to engage in new long-term lending, with fresh interest only appearing on the very short-term end of the time spectrum in order to earn some extra yield. Moreover, concerns about counterparty risks seem also to have deterred many countries from entering the gold lending market. Illustrative of this trend was the decision by the Bundesbank to repatriate a large portion of its gold holdings stored in overseas vaults. However, a reasonably high proportion of outstanding loans are on a multi-year basis and so a relatively small percentage is maturing in any given year.

The marked drain on gold liquidity from the official sector over the last decade or so has not helped to prevent a sharp fall in leasing rates (notwithstanding the spike in late 2008 following the collapse of Lehman Brothers). In part, this is related to the rapid increase in supply of liquidity from unallocated long positions held by the private sector, which has partly offset the ongoing decline in central banks’ aggregate lending book.

Of greater importance though was lacklustre demand for borrowing gold by jewellery fabricators in recent years, especially in western markets, itself a result of elevated and volatile gold prices, weak consumer spending and a limited access to financing capital by the jewellery trade. In Italy, for instance, increasingly tight credit lines offered by commercial banks mean that borrowing gold is no longer worthwhile for local fabricators when making jewellery. Fresh producer hedging activity, another major end-user of borrowed gold, also remained muted in 2012, as expectations for a strong gold price outlook gave mining companies little incentive to lock in future revenues against their output. Going forward, given that these unfavourable demand-side conditions are likely to persist in the short term, we believe that leasing rates are set to remain at very low levels for a while.

SUPPLY OF GOLD LIQUIDITY FROM THE OFFICIAL SECTORLEASING RATES

AVERAGE GOLD LEASING RATES

1-mth 3-mth 6-mth 12-mth

2010 -0.08% -0.05% 0.05% 0.34%

2011 -0.15% -0.07% 0.06% 0.32%

2012 -0.15% -0.02% 0.17% 0.45%


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SCRAP SUPPLY

— Global scrap supply declined 3.1% last year to a four-year low of 1,616 tonnes, as bullish price expectations and price acclimation saw heavy falls in several markets, although scrap in the Indian Sub-continent surged to near record levels.

Last year, global scrap supply defied expectation to record a surprise drop of 3.1% to reach 1,616 tonnes, in a somewhat counter-intuitive outcome given the 6% rise in the dollar gold price, and not forgetting that the rise in the dollar price was often far exceeded in many countries in local currency terms. In addition, the decline last year occurred against a fragile economic backdrop in several regions. Despite the drop, recycling levels remained at historically higher levels, slipping only 7% from the record highs seen in 2009.

The drop in scrap supply in 2012 was by no means uniform with sizeable falls in some key markets countered by a sharp rise in others. Supply from the industrialised world, which has witnessed almost uninterrupted growth over the last six years on the back of the fractured economic environment and firm prices, saw supply ease in 2012. Scrap receipts from Europe recorded a smaller drop in supply of 3%, as ongoing flows motivated by distress selling were apparent. Across the industrialised world, price appeared not to be the primary catalyst (the Euro gold price rose 15% last year), with a depletion of near market stocks the main driver for the decline in these countries.

In contrast, supply from India surged by more than 90% last year to fall just short of the 2009 record level. Price activity was the chief culprit, with the strong performance underpinned by surging rupee prices, which rose by over a third (in average terms) in the first half on a year-on-

year basis. In addition, supply from this key market was boosted by legislative changes that saw ratios on gold loans lowered, encouraging consumers to liquidate gold assets. If we exclude the Indian anomaly from the global total, world scrap supply dropped a more pronounced 6% last year.

Elsewhere in the developing world, scrap supply eased, slipping 3% in the Middle East, with sizeable flows from Egypt (following the near cessation of flows during the crisis in 2011), offsetting significant falls across the majority of the region. In East Asia, scrap supply dropped by over 13% last year, led lower by a sharp drop from Japan, although significant falls were widely spread across the region, largely due to a depletion of close to market stocks and, to a lesser extent, expectations of a return to higher levels.

EUROPE

Scrap supply in Europe dipped by 3% in 2012, although the volume achieved, 388.9 tonnes, was still the second highest on record and almost five times that seen a decade earlier. Furthermore, the region’s share of the global total remained steady at 24%.

It might surprise that scrap should fall in a year when the euro price of gold set a record daily high (October’s €44.5/g) and the annual average rose by 15% (the average sterling price went up a less interesting 7%). It is certainly clear that price strength assisted volumes and this becomes apparent if we look at quarterly volumes; scrap rose by a little over 10% in the first quarter with its year-on-year gain of 27% in the euro gold price but fell in the fourth quarter by around 15% when the gold price increased by just 6%.

ABOVE-GROUND JEWELLERY STOCKS BY REGION


Other

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It might also surprise that scrap should fall in a year when the EU’s GDP contracted by 0.3% and at a time when the economic outlook was still so uncertain. Again, this is not to say that economic distress selling had no role to play as there were ongoing gains in the likes of Italy and Spain, while German scrap fell.

Nonetheless, that still leaves us seeking answers to why the full year’s scrap trended differently to the gold price and economic developments. One possibility actually concerns the price; several contacts felt that the drop in price volatility was a contributor to less press coverage, which in turn meant fewer reminders to individuals about the possibility of selling back old pieces.

Another and more important factor is the stock of old jewellery. This fell in 2012 as scrap exceeded consumption and so other factors would be required to lift the percentage of this stock being sold back in order to raise the absolute volume of scrap being generated. However, our calculations suggest that the rate of return held stable last year in comparison to 2011 (with both years seeing levels well in excess of historic norms). The fact that this rate failed to rise despite higher prices and a recession we feel was largely due to much of the scrap nearest to market (broken or old-fashioned pieces, single earrings and so forth) having already come out and this depletion certainly helps explain the above noted swing for year-on-year changes in quarterly volumes. We would therefore arguably need yet more interesting prices or renewed hardship for this ratio to rise, although it would be a mistake to assume that volumes of loosely held material were now trivial.

Another sector to consider is remelt by the trade, since selling back by retailers and wholesalers can prove significant even if overall flows are dominated by sales coming from individuals. The former typically try to avoid scrapping as margins on slow selling product should

still be higher if sold via novel channels such as online or television discount operators. Nonetheless, the ongoing weakness of consumption and the rise in the euro gold price sustained the attraction of the remelt option, particularly for pieces several years old where a profit was still possible, and this was felt by some to have proved material in southern Europe.

However, any possible rise from the trade overall looks to have been outweighed by losses in France. These were a product of the rapid swing in that country from 18 to 9-carat pieces which fed through to many in the trade there selling back stocks of the former to fund similar or at times higher stocks of the latter. This process was marked in late 2011 but fell away rapidly over the course of 2012, thereby helping explain both why France saw the largest decline throughout Europe in its scrap last year and some of the region’s overall quarterly patterns.

A final consideration relates to rising consumer knowledge of what is possible and the share of the gold price they can expect to receive from a collector. Some contacts have noted that several aggressive players (some postal operators for instance) have suffered of late as consumers awoke to such collectors’ high margins. This in turn was said to have led to a period of reluctance to sell as individuals sought out alternative collectors who might pay a price deemed fairer.

NORTH AMERICA

Last year, old scrap supply generated in the United States is believed to have fallen by a hefty 17%, ending six consecutive years of increases. We are certainly confident that a drop of substance occurred as significant declines were invariably reported by our contacts at pawnbrokers and independent retailers, the two most important supply routes for the recycling of old jewellery. However, the picture is complicated by inflows of scrap from Latin America, and such receipts are understood to have held at more stable levels.

The absolute level attained for US scrap, 128.5 tonnes, was still, however, the second highest ever registered basis our records and still more than twice the volume seen in 2005. That said, the scale of the rise over prior years and the total reached are notably smaller than is the case for Europe. This partly reflects the fact that the United States has a far smaller pool of plain, high carat jewellery (the pieces most likely to be recycled), even though the total pool of jewellery is not dissimilar in size.

SCRAP SHARE OF TOTAL SUPPLY

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Scrap Share of Total Supply

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(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Europe

Italy 42.8 38.1 46.7 53.5 57.1 61.0 78.0 98.0 116.5 122.6

UK 4.3 4.2 4.5 10.7 11.7 38.7 59.4 69.8 76.0 69.0

Germany 5.8 5.9 7.6 11.4 18.8 24.4 32.7 44.1 45.5 40.3

Spain 5.5 4.1 3.7 6.1 5.8 10.6 20.1 31.9 32.7 36.0

France 6.2 8.6 12.1 18.6 16.8 21.2 24.9 29.2 40.3 33.5

Belgium 1.9 1.9 1.6 3.4 3.3 4.6 7.6 10.2 11.4 10.8

Poland 2.9 2.8 2.6 3.2 2.9 3.0 3.8 4.4 7.9 7.7

Austria 3.7 3.6 3.4 3.9 3.7 4.7 6.4 7.9 8.0 7.6

Switzerland 3.7 3.9 3.8 4.8 4.8 5.3 6.5 6.3 6.5 6.2

Yugoslavia (former) 2.2 2.3 2.2 2.6 2.2 2.4 3.3 3.9 3.9 3.8

Czech & Slovak Republics 1.7 1.8 1.9 2.1 2.1 2.2 4.2 3.5 3.6 3.5

Other Countries 8.4 8.5 9.7 16.4 15.8 17.1 22.6 38.1 49.0 48.1

Total Europe 89.1 85.7 99.8 136.5 144.8 195.2 269.3 347.4 401.2 388.9

NorthAmerica

United States 67.6 62.2 60.4 81.0 84.5 93.5 124.0 143.0 155.6 128.5

Canada 5.7 5.4 5.0 7.5 6.3 6.9 9.2 11.1 10.8 9.8


LatinAmerica

Mexico 6.0 5.7 7.2 12.0 17.6 28.1 50.3 58.0 66.7 62.5

Brazil 9.0 6.6 4.3 6.8 6.4 7.5 11.4 16.1 22.2 24.6

Colombia 3.6 3.7 3.8 4.1 4.3 5.1 6.6 8.1 8.7 9.5

Venezuela 2.8 3.3 3.7 4.3 5.7 6.0 7.1 8.3 8.7 8.1


Argentina 3.9 5.0 3.6 5.1 4.4 4.4 5.9 5.6 5.8 6.1

Other Countries 4.4 4.2 4.6 6.1 7.9 9.2 16.1 21.9 20.7 20.4


MiddleEast

United Arab Emirates 16.3 12.9 28.2 34.0 43.8 59.4 70.6 110.0 71.4 73.4

Turkey 64.0 62.0 67.7 82.5 71.5 199.0 217.2 122.0 78.0 72.3

Egypt 98.0 71.3 72.7 77.5 56.5 35.8 65.0 48.0 47.6 53.6

Saudi Arabia & Yemen 94.0 84.0 92.5 133.7 56.4 69.4 57.3 44.1 37.1 33.5

Iraq & Syria 11.5 11.5 14.4 23.9 19.0 21.9 35.6 36.7 36.0 33.0

Iran 15.8 13.4 16.1 21.9 23.1 26.0 32.2 32.7 32.4 32.9

Lebanon 7.5 6.0 6.6 9.9 4.9 6.2 15.1 19.7 14.9 12.7

Jordan 7.5 5.5 4.6 8.7 7.0 5.6 9.2 12.7 10.8 9.7

Kuwait 14.4 11.9 12.4 21.8 9.8 10.2 10.4 8.5 7.7 6.1

Israel 7.6 7.1 5.2 11.4 5.0 6.1 6.6 8.3 7.0 5.6

Oman & Qatar 3.6 2.3 3.1 6.1 5.7 6.4 7.3 6.7 5.4 4.9

Bahrain 1.7 1.9 1.8 3.8 3.8 3.8 4.7 4.5 4.0 3.5


IndianSub-Continent

India 132.0 107.0 94.0 80.0 73.0 89.5 115.5 81.0 58.5 113.0

Pakistan & Afghanistan 34.3 32.5 30.9 33.4 31.7 35.5 53.9 50.4 42.7 47.2

Bangladesh & Nepal 3.9 3.3 3.2 5.1 4.2 4.5 4.9 4.5 4.3 4.0

Other Countries 1.8 1.8 1.8 2.3 2.8 3.0 2.7 2.4 2.3 2.3

Total Indian Sub-Cont. 172.0 144.7 129.9 120.8 111.7 132.5 176.9 138.3 107.8 166.5

EastAsia

China 28.5 34.7 41.7 44.6 41.6 70.3 116.3 133.2 124.7 119.7

Indonesia 71.8 63.8 67.0 71.9 68.0 72.5 79.9 64.9 58.3 49.0

Thailand 50.1 19.0 12.4 19.1 37.4 51.7 66.0 44.7 52.4 43.6

TABLE 6 - SUPPLY OF GOLD FROM FABRICATED OLD GOLD SCRAP

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(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Japan 24.6 28.6 24.5 27.0 25.9 53.6 35.3 43.9 55.1 42.2

Vietnam 6.6 5.9 7.8 8.3 9.0 12.2 51.5 49.8 41.1 36.4

Malaysia 9.9 11.5 11.0 19.1 16.4 18.4 19.3 22.2 19.2 17.0

Taiwan 10.9 16.1 13.0 18.4 18.5 33.6 34.9 27.5 19.5 15.4

South Korea 22.3 26.2 17.5 30.7 13.7 20.5 21.3 18.1 17.4 13.9

Singapore 4.1 3.5 3.3 4.2 5.0 5.4 6.1 5.8 8.9 7.4

Hong Kong 8.3 7.8 6.5 7.1 7.5 8.0 8.4 8.0 7.6 6.8

Philippines 1.8 1.2 1.1 1.1 1.1 1.4 2.2 1.9 1.7 1.5

Other Countries 1.8 1.7 2.0 2.4 2.2 2.3 2.5 3.3 3.1 2.4

Total East Asia 240.6 219.9 207.8 253.8 246.3 349.7 443.7 423.1 408.9 355.2

Africa

Libya 3.7 4.0 4.6 9.7 9.5 10.4 13.4 15.8 16.6 14.4

Morocco 6.3 5.3 5.9 6.3 6.3 6.4 9.7 9.3 12.0 11.3

Algeria 2.5 2.5 2.7 2.8 3.4 3.6 5.8 6.1 7.9 7.6

Other Countries 4.0 4.5 4.5 11.0 8.5 8.9 12.2 12.7 14.7 14.2

Total Africa 16.5 16.3 17.7 29.8 27.6 29.2 41.1 43.8 51.2 47.4

Oceania

Australia 2.6 2.4 1.9 1.5 1.5 2.0 3.1 6.8 12.0 10.2

Total Oceania 2.6 2.4 1.9 1.5 1.5 2.0 3.1 6.8 12.0 10.2

CIS

Russia 18.6 18.1 18.9 19.3 20.7 21.4 28.7 26.4 23.5 24.2

Other Countries 4.8 4.6 4.6 4.8 4.7 5.3 6.6 6.4 6.6 7.0

Total CIS 23.4 22.7 23.5 24.0 25.4 26.7 35.3 32.8 30.1 31.2

WorldTotal 991.0 881.4 902.4 1,132.8 1,004.9 1,350.1 1,735.2 1,723.2 1,668.5 1,616.1


TABLE 6 - SUPPLY OF GOLD FROM FABRICATED OLD GOLD SCRAP (TONNES)

Another key factor behind generally lower volumes than in Europe is that the United States has suffered far less economic trauma. However, improvements last year in the US economy were slight, with unemployment staying stubbornly high, and so it would be wrong to ascribe too much to this as a factor in explaining the marked fall in scrap supply.

We would instead apportion more of the explanation to the depletion of near-market reserves, typically those pieces, often inherited, that are no longer considered desirable and those that are broken. The depletion argument is certainly not undermined by scrap supply reportedly turning weak as we moved into the fourth quarter (with volumes staying weak in the first quarter of 2013). The stock of old jewellery would certainly have continued falling last year, as scrap continues to outpace the accumulation of reserves through jewellery consumption, although the dip in stocks for 2012 in isolation at around 20 tonnes cannot explain much of the drop in scrap. It was instead the decrease in the percentage of this stock of jewellery coming back that explained more of the decline.

One factor behind this is the continued absence of notable remelt by the US distributive trades. This in turn largely reflects many years’ destocking across the retail chain caused by the relentless decline in jewellery consumption. This was reinforced by the absence of a price shock, as witnessed in prior years, due to the gold price, basis the annual average, only rising by 6% and as a result of price volatility falling. This too would have moderated the incentives for consumers to sell, and is in stark contrast to other markets, with the euro price rising by 15% and the rupee price by 24%. A final apparent driver of the decline is less intensive advertising by scrap collectors.

MIDDLE EAST

In Turkey, scrap supply retreated for the third year in succession, declining over 7% to an estimated 72.3 tonnes, an outcome almost 145 tonnes below the record levels witnessed in 2009. Although most markets within the region posted lower recycling volumes (with the

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exception of Egypt and Iran), there were two key reasons why Turkey’s performance was somewhat unexpected. First, local gold prices rose by 14%, comfortably exceeding the 6% lift in dollar gold. However given that Turkish lira (TL) prices failed to surpass the record level set in September of 2011, consumers, while still bullish on their price expectations, appeared willing to wait for a return to these previous highs before liquidating remaining gold assets.

Secondly, 2012 saw the introduction of a formal gold buy back scheme by several local banks (in conjunction with local refineries) that set out to mobilise the metal (mainly coins and old jewellery) by encouraging consumers to place items into gold deposit accounts. This involved heavily promoted gold buy back days at local branches that offered a lower discount on recycled gold than that available from their local jewellery retailer. Research meetings last year found that, while scrap flows from this source are rapidly increasing (from a low base), volumes to this point remain relatively modest.

Not surprisingly, Turkish scrap supply closely mirrored the trend of the lira gold price. Following a broadly sideways trading pattern in January, the domestic gold price briefly surpassed TL 100/g in late February. This short-lived incursion delivered a brief wave of recycling that soon abated as gold lost momentum, trending down thereafter and limiting gold recycling for the remainder of the half. To this end, scrap supply in the first six months, according to our estimates, slumped by almost a quarter on the previous year. In contrast, the second half saw scrap flows pick up as gold tracked higher, again breaching the TL 100/g level in early September. This time, the elevated price level was not just a brief spike and consumers were able to capitalise, liquidating assets accumulated earlier during the year at lower prices. Despite a decline in the final quarter, as gold again lost

ground, scrap supply in the second half increased by almost 20% year-on-year.

Egyptian scrap flows rose by 13% or almost 6 tonnes in 2012 to 53.6 tonnes. This was the largest percentage gain in the region, with the average for the remainder of the Middle East (excluding Egyptian flows) declining by 6% year-on-year. This counter trend outcome can be explained by the near collapse of the Egyptian gold market during the first half of 2011 as the political uprising there saw most in the gold trade temporality close operations. While the impact of these closures were not as severe on the scrap buyers as those in retail, it certainly impacted on annual recycling volumes and, with 2012 returning to a more stable political landscape, scrap flows picked up and were driven more by an 8% jump in the Egyptian pound gold price than distress selling, as was case the previous year.

SaudiArabian scrap supply was down by 10% last year to a four-year low, taking the 2012 level 75% below the peak reached in 2006. The hefty decline since the record flows may appear counter-intuitive given the gold price has risen by more than $1,000/oz from this period. However, a large proportion of close to market gold assets was liquidated during first wave of higher gold prices and, due to declining jewellery consumption, the supply chain has never been fully restocked. Secondly, there remained an expectation of yet higher prices so consumers have held on to gold assets, with prices above $1,800 required (in the case of last year) to tease out further liquidations. In the first six months of the year, there was a marked drop in scrap receipts, with supply falling by 15% during this period. However, in the second half, as gold prices pushed higher, there was indeed a price related rise in recycling, though compared to previous price spikes recycling remained at moderate levels.

WORLD SCRAP SUPPLY

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Indian scrap supply doubled last year to a new record of 113 tonnes (although we have revised downwards this figure by 19 tonnes since the release of Gold Survey-Update 2). Last year’s sales were mainly seen in a Rs.30,000-Rs.30,500/10g range, thus pushing scrap to 30 and 34 tonnes in the second and third quarters respectively. However, as prices continued to rally, selling interest waned on expectations that prices would test Rs.35,000/10g and this largely explains the drop in sales during the fourth quarter. Discussions with dealers and refiners revealed that people largely sold old jewellery that was either clearly out of fashion or damaged, and most of the pieces were at least a decade old.

The drought that hit Indian agriculture added to scrap as farmers sold their holdings for survival and to trim debts. Also, a legislative change in March 2012 by the Reserve Bank of India (RBI) reduced the options for poorer households; the RBI reduced the cap on loan-to-value ratios for gold jewellery applicable to non-banking finance companies from 90% to 60%. With loan interest rates of around 18-21%, together with only modest price expectations, the lower cap encouraged consumers to sell back old jewellery, rather than take a loan to make up the shortfall created by the new legislation.

Looking ahead, there are growing consumer expectations of an eventual fall in prices and this could result in a rise in scrap on any brief rally in prices. Another factor on the radar is the proposal by the RBI to monetise the gold holdings in the hands of the public, the success of which will largely depend on the scale of household gold added to supply.

EAST ASIA

East Asian scrap supply declined by an estimated 13% in 2012, slipping for the third year in succession to 355.2 tonnes. The fall may appear counter-intuitive given the 6% rise in the dollar gold price. However, the price rise was largely offset by a shrinking pool of available near market stocks in some countries and expectations in many markets that prices would return to previous highs, which saw many consumers postpone recycling. Scrap receipts in the first half of the year were down only marginally, with a modest drop in China ruling out a greater decline. The second half delivered a drop of 20% year-on-year as weaker prices in the main saw scrap volumes decline with only the brief foray above $1,770

in mid-September teasing out some of the tightly held assets. Thereafter, scrap flows were muted as consumers waited for the next opportunity to profit from a return to higher prices.

Looking firstly at Japan, we estimate scrap flows fell by 23% last year to an estimated 42.2 tonnes (the largest percentage drop in the region). Importantly, this followed record levels in 2011, which may well have exhausted the available pool of close to market supply. Similar declines of close to a fifth were recorded in SouthKorea and Taiwan while scrap volumes in Thailand declined by an estimated 17% last year. For the latter, a drop of almost 25% year-on-year in the second half dragged down the annual total as declining prices in the final quarter generated a sharp fall in consumer recycling.

Elsewhere, Indonesian scrap volumes retreated for the third year in succession, declining by an estimated 16% last year to a ten-year low. Moreover, the declining pool of high carat jewellery, which is a function of the rapid migration to low purity jewellery across the country, is now impacting on the fine gold volumes derived from scrap. In Vietnam, Thomson Reuters GFMS estimate scrap volumes fell 11% last year. Despite the official dong gold price rising 6% and black market prices by significantly more than this, consumers were reluctant to take advantage of higher prices to liquidate their gold assets; uncertainty surrounding the domestic currency and rumoured gold ownership legislative changes saw many consumers hold on to their gold.

Despite the 4% increase in local gold prices, Chinesescrap, largely dependent on jewellery recycling, declined by 4%, reaching a total of 119.7 tonnes. The rising gold price in the first quarter generated a healthy 5% year-on- year increase in recycling as the price exceeded RMB 350 per gramme. However, with prices easing and remaining range bound, scrap supply weakened as consumers waited for a return of higher prices. Scrap volumes began to grow again in the third quarter, delivering a brief surge in profit taking when gold traded well above RMB 350/g. As the price dropped at the end of the year, scrap volumes fell in tandem with it.

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Melted gold flows out of a smelter at an Austrian Gold and Silver Separating PlantREUTERS/Lisi Niesner


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6. GOLD BULLION TRADE• Last year saw the emergence of an interesting new bullion flow, that of supplies going into Turkey (whose registered imports doubled), prior to shipment to Dubai as part of Iran’s ‘gas for gold’ deals.

• Swiss bullion imports look to have fallen marginally last year, with the United States remaining the largest reported supplier. Exports are thought to have been stable despite reduced shipments to India, Hong Kong and Thailand.

• Misleading or absent official data makes analysis complex, but it is understood that UK bullion imports rose notably last year, while exports fell heavily.

• Despite total fabrication demand falling and scrap supply increasing, official Italian bullion imports rose 11% last year. This resulted in Italy continuing to supply the world market with gross exports increasing to 194 tonnes.

• US bullion imports fell markedly, primarily owing to lower cross-border trade with both Canada and Mexico, whereas exports rose to a fresh all time high on the back of firmer shipments to the Middle East, India and East Asia.

• Canadian exports of gold bullion dropped 15%, following two years of exceptional strength. Imports retreated by almost 10% chiefly on account of lower inflows from South America.

• Gross Indian bullion imports fell 11% to a three-year low of 1,071 tonnes despite the contribution from the re-start of unofficial flows.

• The above meant that bullion imports into the Middle East continued to increase in 2012 mainly due to higher volumes going into Turkey and Dubai. Bullion exports firmed as well mainly on strong shipments to Switzerland.

• Strong Chinese imports dominated bullion flows in East Asia, while weaker fabrication demand and investment stalled imports elsewhere. A drop in surplus scrap supply pushed regional bullion exports down.

• In Australia, bullion exports to India fell 30% last year

to 58 tonnes while exports to mainland China surged 300% to over 105 tonnes, suppressing shipments to the United Kingdom.

EUROPE

— Swiss bullion imports are believed to have fallen marginally last year, while exports were stable. — UK bullion imports are estimated to have risen notably while exports fell considerably. — Strong scrap and weak fabrication demand meant Italy remained a global net supplier.

The rise in scrap and continuing slide in fabrication, which has been largely due to the collapse in Italian jewellery offtake, has resulted inEurope ceasing to be less major structural deficit area. Indeed, without the approximate 200-tonne contribution from bar hoarding, a notional surplus would have risen in 2012 as scrap almost hit 390 tonnes (compared to just 89 tonnes in 2003) and total fabrication demand fell 9% to 253 tonnes (compared to 586 in 2003).

Despite the above, bullion imports into Europe remain substantial since it is home to both the London terminal market and to some of the world’s largest refineries. The latter means that in addition to refined output (mainly from the CIS and South Africa), Europe takes in sizable volumes of doré (mainly from west Africa and the Americas) and scrap (largely from the Middle East and East Asia). The resultant surplus supplies often then ends up as loco-London investment or exports to fabrication centres such as Turkey or India.

Swiss bullion imports as reported by origin increased marginally (by less than 1%) in 2012, reaching 1,215 tonnes on a gross weight basis. However, if we look at the figures on a calculated basis, volumes increased by 3% to around 770 tonnes. Part of the gap between

ITALIAN OFFICIAL BULLION IMPORTS’ SEASONALITY

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these two weights can be explained by imports of silver-containing doré from the likes of Argentina and Peru. Much of the increase was due to higher inflows from Italy but the origin supplying the greatest volume, however, remained the United States at almost 250 tonnes. However, as ever, not all countries report or fully disclose bullion shipments and we feel true inflows were most likely far higher, perhaps double the above calculated number. Sizeable volumes of material in scrap form is likely to have been received from East Asia and the Middle East, with indications that these grew in scale.

Bullion exports on a calculated basis from Switzerland are estimated to have made a significant plunge of 15% to around 900 tonnes last year on the back of reduced shipments to such destinations as India, Hong Kong and Thailand. However, as is the case with import statistics, real exports are likely to be considerably higher than official figures indicate, mainly due to the exclusion of several destinations from the trade statistics. We therefore estimate that when taking this under-reporting into consideration, Swiss export volumes most likely stayed stable in 2012 at a substantially higher number than the above 900 tonnes.

Last year official UKimport data showed a largely flat total reaching 32 tonnes. However, if we look at exports to the United Kingdom as reported by origin, the picture changes considerably. Indeed, on a calculated basis, imports fell 10% year-on-year, but to a volume 15 times larger of around 490 tonnes. In regards to the composition of suppliers, the picture remains fairly similar to the year before, with the United States and Canada supplying the bulk (around three-quarters) of the material. Volumes from Germany, Spain and Mexico all recorded significant improvements, with inflows of material from the latter increasing by almost 60% last year. However, volumes coming from those countries

that do not disclose bullion movements are understood to have been considerable, perhaps to the extent of generating a rise in UK imports last year.

Trade data in regards to UK exports again showed a divergence between volumes reported by the UK authorities and by those in the metal’s various destinations; the former’s figures, for instance, show just four tonnes (down 62%), whereas the latter (on a calculated basis) show 42 tonnes (up 9% on 2012). The bulk of this material went to Canada and Hong Kong. With such information on trade patchy and contradictory, it is difficult to draw too much by way of conclusion from the above. However, industry sources suggest that true inflows are more likely to have fallen considerably.

Basis calculated weights, official Italian bullion imports in 2012 rose by 11% to 97 tonnes. This outcome might surprise given that total fabrication demand fell by 7%. In addition, with domestic scrap rising by 5% to 123 tonnes, a clear apparent surplus is created, with fabrication only reaching 96 tonnes and investment having been limited. This clearly necessitated sizeable exports, which rose by 18% to 194 tonnes and in the process kept Italy as a net supplier of bullion to the world market.

This all stands in marked contrast to the situation a decade or so ago when Italy’s net imports stood at well over 400 tonnes. This turnaround in the main reflects the painful contraction in its jewellery industry, but it also reflects the success of its refining industry. This is shown by the substantial and growing volume of scrap that is imported into the country. Clues to this are that the gross weight of imports (110 tonnes in 2012) is notably higher than the fine weight and that the third, fourth and sixth most important origins are Spain, Poland and Portugal respectively; none of these have mine production of consequence nor widely traded bullion brands (the origin

ITALIAN OFFICIAL BULLION IMPORTS AND EXPORTS CIS BULLION EXPORTS

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Italian official bull imp and exports

Source: ISTAT

Imports Exports

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can get recorded basis a bar or coin’s stamp, rather than its immediate country of provenance). Some 75% of exports go to Switzerland, often as a result of imported scrap needing to be re-exported for VAT to be reclaimed. None of the above figures are believed to be materially affected by shifts to or from the unofficial sector as the latter’s volumes are said to have remained modest.

Turning to Russia, last year saw local gold supply (mine production combined with recycling) rise by 6% year-on-year to almost 209 tonnes. This total comfortably exceeded domestic fabrication, which posted a 9% year-on-year increase, with volumes rising to 49 tonnes. Nevertheless, our information indicates that Russian exports of gold bullion saw a modest drop last year, primarily due to a marked decline in shipments to Europe, most notably Italy. This suggests that much of the excess metal was absorbed within the country. Indeed, it appears that a large share of the surplus bullion was accounted for by official sector purchases.

NORTH AMERICA

— US bullion exports edged up to a fresh all time high, mainly on the back of firmer shipments to the Middle East, India and East Asia. Imports slid fractionally, primarily owing to lower cross-border trade with both Canada and Mexico. — Canadian exports of gold bullion dropped 15% following two years of exceptional strength. Imports fell back by almost 10% chiefly on account of lower inflows from South America.

From the record levels of North American gross bullion trade seen in 2011, flows eased by around 4% in 2012, on both the imports and exports side, with reduced inbound and outbound shipments from Canada behind much of the weakness year-on-year.

In the UnitedStates, reduced volumes from neighbouring Mexico and Canada, which were roughly one-tenth and one-third lower respectively, was the overriding influence behind a modest contraction in the country’s gross imports in 2012. Nevertheless shipments from Mexico, which spiked in 2009 coinciding with a drawn-out production stoppage at the Met-Mex refinery in Torreón, have remained at historically elevated levels subsequent to the restart of operations. This in our view has been reflective of growing supplies of mine doré as well as rising scrap volumes from Mexico in recent years. Providing a large offset to the above-mentioned weakness, US imports benefited modestly from both the increased capture of mine doré and re-routing of doré trade with a number of Latin American countries, most notably Colombia and Peru. We also understand that a fair volume of scrap from South America was shipped to the United States for refining.

The United States’ exports of bullion were fractionally higher in 2012, setting a new record volume, but, at the country level, flows were mixed. Firmer shipments to the main demand centres, India and Hong Kong, lifted the country’s outbound shipments into positive

US OFFICIAL BULLION EXPORTS* US OFFICIAL BULLION IMPORTS*

CANADIAN OFFICIAL BULLION EXPORTS

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Source: Thomson Reuters GFMS*Calculated quantities based on reported export values.

Other

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*Calculated quantities based on reported import values.

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growth territory. Exports to Hong Kong, itself often a proxy for underlying Chinese demand, rose by 14%, while shipments to India from the United States more than doubled year-on-year. We believe part of this strength can be attributed to a routing of low grade mine doré trade through the United States from third party countries, coupled with higher formal flows ahead of India’s widely anticipated gold import duty hikes in early 2013. Shipments to the United Arab Emirates (UAE) doubled last year, albeit from a comparatively low base. Offsetting much of the above-mentioned strength was a 20% drop in exports to the United Kingdom and a sharp fall in shipments to Thailand after a strong year in 2011.

Imports into Canadafell back by around one-tenth in 2012, chiefly as several key Latin American gold trade partners lowered shipments to Canada (including Peru, Argentina and Chile). These collectively exported around one-fifth less bullion to Canada year-on-year. In the case of Argentina, this appears to be associated with a drop in mine production. However, providing some offset to these lesser flows, imports from the United States increased markedly and, in spite of continued challenges in exporting mined doré from Egypt, Canada’s inflows from there were higher, which ties in with production continuing to ramp up at Sukari.

Gold exported from Canada fell comparatively sharply, by almost one-sixth, including lower shipments to the terminal market in the United Kingdom and to Switzerland. However, the stand-out contributor to the fall was lower dispatches to the United States, which were one third lower than in 2011 and the lowest since at least the mid-1990s. This coincided with elevated net outflows of gold from the United States last year, the vast majority of which went to Europe and the key consumer markets of Hong Kong, India and the UAE (mainly Dubai).

MIDDLE EAST

— Total Middle East bullion imports continued to increase in 2012 mainly due to higher volumes going into Turkey and Dubai. — Bullion imports into Turkey surged last year primarily driven by the indirect use of gold to pay for gas imports from Iran.

Last year, Turkish bullion imports jumped by an estimated 17% to 147 tonnes (on a calculated basis). Shipments registered at the Istanbul Gold Exchange (IGE) almost doubled to 120 tonnes, with the disparity due to the imports of lower purity gold being captured in the former number while being excluded from the IGE figure as the shipments were below 995 purity.

Given Turkish fabrication demand was broadly stable last year there remained another central reason that explains the sizable inflows. Looking back, the jump in imports was generated by the much publicised ‘gas for gold’ transactions that saw Turkey pay for its imported natural gas from Iran in Turkish Lira (TL) because sanctions prevented it from paying in dollars or euros. These funds were then used to buy gold in the domestic market, fuelling demand for the yellow metal, before being shipped mainly (and largely hand carried) to Dubai to be sold for dirhams or dollars with these funds then allegedly returned to Iran.

In terms of key origins, shipments from the UAE, at an estimated 60 tonnes, dominated supply at over 40% of the total, replacing Switzerland as the primary source of 995 investment bars. Moreover, deliveries from Zurich, while easily remaining in second position, declined 18 tonnes from the previous year. Finally, imports from South Africa saw a marked decline, retreating by almost two-thirds.

MIDDLE EAST BULLION IMPORTS TURKISH BULLION IMPORTS AND EXPORTS

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Source: Thomson Reuters GFMS*excludes round tripping and scrap related import

Saudi Arabia

Turkey

Dubai*

Egypt

Other

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Ch6 Turkey Bullion Imports and Exports


Imports

Exports

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The bullion outflows last year were even more impressive, augmented by the aforementioned Iranian trade and subsequent exports. According to available customs data, Turkish bullion exports jumped by more than 225 tonnes in 2012, reaching an estimated 257 tonnes. Based on this trade data, direct exports to Iran surged to 125 tonnes. However, field research last year indicated much of this material may have been incorrectly categorised and was more likely to have been shipped to the UAE. The official export figure to the UAE (chiefly Dubai) was almost 90 tonnes, though this figure could have perhaps been underreported. Elsewhere, shipments to Switzerland surged on the back of these flows as surplus gold was purchased in the domestic market and redirected to refineries in Zurich (often in large bars), while direct shipments to the United Kingdom doubled.

Looking at this year, tighter US sanctions that limit what Iran can purchase with the proceeds of their gas sales have seen bullion flows into and out of the country subside from the heady volumes witnessed last year. Trade in Turkish hallmarked bars in Dubai is already drying up with many traders reluctant to take these bars, wishing to avoid any risks associated with this trade.

Egyptian bullion imports recovered in 2012 following the near collapse of the fabrication industry in 2011 at the height of the political unrest. Despite the healthy rise in inbound shipments, Egypt remained a net exporter of gold last year as a significant rise in the level of domestic scrap supply easily serviced the requirements of the recovering jewellery fabrication sector, limiting the need for fresh bullion imports.

Most metal flows associated with Egypt were primarily on the export front as the 8% increase in the Egyptian pound gold price teased out tightly held gold assets. Scrap volumes are estimated to have risen almost 13%

in 2012, surging on several occasions as prices peaked. The resultant surplus metal was largely exported to the UAE and South African refineries. In addition to these spasmodic flows, gold shipments from the Centamin owned Sukari gold mine increased last year as production from this operation increased by over a fifth to 8.2 tonnes, with this metal also shipped to foreign refineries.

Bullion shipments into the UnitedArabEmirates (UAE), chiefly Dubai as the entrepôt for the Middle East, recorded a surge in imports last year, largely on the back of flows emanating from Turkey. Thomson Reuters GFMS estimate genuine imports (excluding scrap, mine supply, and the arbitrage linked medallion trade) jumped almost three fold in 2012, reaching a record level. Given both jewellery fabrication and investment demand in the region were largely weaker and, for the most part, Indian demand was restrained, most of this additional flow was redirected back to Switzerland or the United Kingdom.

In addition to the jump in the imports of good delivery bars it’s worth mentioning the significant inflows of scrap and supply from artisanal origins across Africa. In the last few years, these flows have surged, driven mainly by couriers hand carrying less the twenty kilograms per trip. It was common place to see these traders lined up in the gold souk, each carrying a suitcase of alluvial or artisanal gold waiting to sell. The largest of these flows last year was probably those from Sudan, though considerable imports from Tanzania, Ghana, and Suriname also contributed to a total of several hundred tonnes.

The genuine bullion shipments (built around the estimated 85 tonnes from Turkey) were of course interwoven with scrap gold, the above-mentioned artisanal supply, and the round tripping flows from India and Pakistan. Thomson Reuters GFMS estimate that these round tripping or arbitrage flows from India

DUBAI BULLION IMPORTS*TURKISH BULLION IMPORTS’ SEASONALITY

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Gold Price

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exceeded 170 tonnes last year (a slight decline on 2011 levels). In previous years, healthy demand in India saw most of this material returned from its origins. However, a significant drop in Indian demand in 2012 saw most of this gold redirected to Zurich or to lesser extent Turkey.

Touching briefly on exports, we estimate shipments to Switzerland exceeded 275 tonnes in 2012, while deliveries to India fell 30% year-on-year to 185 tonnes. The only other major destination from the UAE was Turkey with exports to this market estimated to have exceeded 60 tonnes last year.

A healthy rise in investment demand coupled with a material fall in scrap supply explains the jump in bullion imports to SaudiArabialast year. Thomson Reuters GFMS estimate that fresh bullion imports rose by more than 45%. Direct shipments from Switzerland jumped almost 50% last year, while kilobar deliveries from Dubai were also sharply higher. In contrast, exports (a combination of scrap and bullion) were again weaker as any available scrap supply was largely recycled and consumed by the kingdom’s jewellery fabricators, with exports to Dubai and Swiss refineries at negligible levels.


— India’s gross bullion imports fell by 11% to 1,071 tonnes while unofficial imports re-emerged. — Around 8% of supply destined for India’s domestic consumption came from imported and refined doré.

India’s gross bullion imports reached an estimated 1,071 tonnes last year, down 11% from 2011; this was despite a 24% rise in the domestic gold price. However, the fact that it held above 1,000 tonnes for the third consecutive year, consuming almost 40% of the metal mined globally last year, itself suggests resilience in the market.

Detailing Indian bullion imports can be a useful exercise only if we strip out the round tripping and genuine jewellery exports as it helps derive net imports. Last year round tripping was estimated at 170 tonnes, down from 189 tonnes in 2011. The drop in this trade was a result of a legislative clause, which forced firms importing metal without an export order to first pay duty outright, export the product and then place a claim on the duty paid by producing a proof of export Holding back this portion impacted profitability on this already thin margin trade. That said, genuine exports in the form of jewellery rose by 15% in 2012 to 44 tonnes, with the United States and Middle East being the largest markets.

Moving to net imports, these declined by 13% to 857 tonnes in 2012; this includes unofficial imports of 102 tonnes- a topic discussed later in this chapter. Moreover, the drop last year was largely a result of two increases in customs duty. Firstly, to 4% of imported value during the first quarter of 2012, followed by another hike to 6%, which came into effect in January 2013. The fact that it happened in a scenario of a weakening rupee and the shift in duty structure to an ad valorem rate, furthered the holding risk for a bullion trader and stockists.

Looking at the monthly import trend (excluding unofficial flows), imports were highest in January and December at 81 tonnes due chiefly to the anticipation of a customs duty hikes which resulted in increasing the forward premium. As traders got acquainted to the two-phased rise in duty during the first quarter of 2012, it resulted in offloading of stocks by bullion dealers and jewellers thus keeping the imports at a meagre 129 tonnes in second quarter, to the extent that imports in June fell to just 25 tonnes, the lowest since March 2009. Imports improved in the third quarter, thus taking flows above 180 tonnes, boosted by an uptick in doré imports. This was followed by a rise to nearly 228 tonnes in the fourth quarter,

GROSS INDIAN BULLION IMPORTS*GROSS INDIAN BULLION IMPORTS*

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Constant 2012 Rupees/10g (thousands)

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*including replenishment schemes, excluding exports

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Rupees/10g (thousands)

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35Gold Price

OGL

Other Imports

*including replenishment schemes, excluding exports

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largely as a result of seasonal demand. Looking briefly to this year, January demand surged as it reacted to a warning by the Finance Minister of a possible duty hike or quantity restriction, leading to heavy stocking. However, volumes more recently are reported to be tepid despite a price decline, driven by de-stocking.

In another important development, refining of gold doré commenced in India. According to field research findings there are around twenty registered refiners, but not more than three are currently contributing 90% of the supply that is estimated at 65 tonnes. That said, doré enjoys a differential duty structure (4% customs and 1% excise) versus gold bars (6%). This year it is projected to cross 100 tonnes according to industry contacts.

Writing about India’s bullion trade in 2012 is incomplete without a summary of the unofficial imports; at 102 tonnes, it contributed 12% of net imports. Looking at the quarterly trends last year reveals these flows peaked in the third quarter at 43 tonnes which was followed by a sharp fall in the fourth quarter after heavy seizures. With India’s new duty structure of 6%, the incentive is Rs. 174,000 (~$3,200) a kilo. As a result, we have raised our unofficial import estimates for 2013 by 10%.

Analysing Pakistan’s bullion flows is a complex task given the quantity of unofficial flows that enter and exit the country. Thomson Reuters GFMS estimate that two-way bullion shipments rose significantly last year as a result of a sharp rise in round tripping flows. As is often the case between the India and the UAE, traders in Pakistan also took advantage of a currency arbitrage opportunity that on occasion saw significant volumes of gold bullion enter the country but exit as rough jewellery which is later refined in Dubai and returned in a continuous loop. Moreover, these increased flows mask what was a softer domestic market last year, with genuine demand for fresh bullion weaker due to falls in both investment and jewellery offtake, and a rise in local scrap supply.

EAST ASIA & OCEANIA

— Bullion flows to East Asian markets were dominated by a surge in imports by China, while weaker investment and fabrication demand saw imports elsewhere mainly decline.

Strong demand in China dominated bullion flows across East Asia last year, with the country recording a surge in imports. Moreover, bullion exports from Australia and Hong Kong rose sharply as a result. Elsewhere, weaker jewellery fabrication and a drop in consumer sentiment which saw investment demand falter (particularly in the second half of the year) delivered a fall in fresh bullion demand in several markets. Furthermore, the reduction in two way speculative trading and a further drop in surplus scrap supply saw bullion exports in most markets in the region decline last year.

SouthKorean bullion imports dropped 11% in 2012 to an estimated 22 tonnes (on a calculated basis). Looking back, the decline resulted from weaker industrial demand, falling jewellery offtake, and an increase in domestic output from base metal smelters, which when combined limited the need for fresh metal. Inflows were dominated by an increase in shipments from Switzerland, replacing Hong Kong as the single largest trade partner. Supply from Japan was largely unchanged while imports from Australia were notably weaker.

According to Thomson Reuters GFMS’ analysis, Singapore’s bullion imports fell 12% last year to just below 140 tonnes. A notable slow down in Thai investment demand, coupled with the cessation of official flows to Vietnam explain most of the decline. Imports were dominated by deliveries from Switzerland (at around 40% of the total), with Australia, Japan, and South Korea accounting for the majority of the remaining share. On the export front, we estimate bullion flows (a combination of investment bars and scrap) fell by over 18% to 125 tonnes as demand outstripped supply with disinvestment and scrap often recycled and sold back into the domestic market.

GROSS INDIAN BULLION IMPORTS*

tonnes 2005 2006 2007 2008 2009 2010 2011 2012

Gross Imports* 808 753 862 880 779 1,123 1,211 1,071

Local Price (Rs./10g) 6,454 8,912 9,345 12,256 15,233 18,304 23,899 29,730

* including Direct Imports (imports by premier trading houses), NRI Imports, Export Replenishments for 2009 to 2012; 2012 also includes unofficial imports.


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Gold bullion imports into Chinabroke yet another record last year driven by healthy demand and weaker supply from scrap. Analysing gold imports to the Chinese mainland poses a challenge as official imports statistics are not readily available leaving the analysis of Hong Kong’s imports as a proxy for Chinese metal flows. The trade flow between these two markets is often inter-related, given the fact that neighbouring Shenzhen is the major hub for gold jewellery fabrication as well as the largest entry point for gold destined for the Shanghai Gold Exchange’s vaults and Hong Kong is the regional centre for precious metals logistics, refining and financing, and is in most cases the final stop for the metal before its entrance to mainland China.

As in the past, the flow of gold from Hong Kong to China dwarfed direct imports to China from other countries. Thomson Reuters GFMS estimate that China’s total imports almost doubled last year, reaching an extraordinary 892 tonnes. Imports peaked in the first quarter before easing in the second and third quarters only to surge to another record of 114 tonnes in December, in the run up to the Chinese New Year holidays.

It is worth noting, however, that these gross import volumes were highly inflated by large scale round tripping of gold between Hong Kong and the mainland. This involves gold jewellery being exported from China to Hong Kong (as bullion exports are barred), reprocessed into investment bars in Hong Kong and re-exported to China as a part of complex financial operations based on foreign exchange and/or interest rates arbitrage. In our cautious estimation this type of bi-directional flow was in excess of 370 tonnes in 2012, lowering the true net Chinese bullion import figure to approximately 520 tonnes.

Looking at HongKong’s trade statistics in isolation reveals a significant uptick in imports last year. Thomson Reuters GFMS estimate that gold imports jumped almost 80% to over 912 tonnes on a calculated basis which includes official flows, round tripping or arbitrage related imports, and estimates for hand carried trade. Not surprisingly, the sizable jump in imports was attributable to the draw down on foreign supplies for mainland China, with most of this metal transhipped to this demand hungry market. Apart from the imports associated with arbitrage related flows from China imports were dominated by shipments from Zurich (which were down slightly year-on-year), the United States, and Australia, with the latter surging to over 100 tonnes. Turning to exports, these were of course dominated by China at almost 90% of the total, with gross exports to the mainland exceeding 860 tonnes on a calculated basis. Elsewhere, deliveries to India jumped more than three-fold (from a low base) and shipments to Zurich and Thailand retreated 15% and 12% respectively.

Taiwanesegold imports contracted 16% last year reaching an estimated 14 tonnes (on a calculated basis) as demand for retail physical investment products

SHANGHAI GOLD EXCHANGE PREMIUM/DISCOUNTHONG KONG OFFICIAL BULLION IMPORTS AND EXPORTS

ORIENTAL GOLD GAUGE*

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50

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Source: Thomson Reuters GFMS*Imports into Turkey, Dubai, Singapore, Hong Kong & Taiwan

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(either OTC or gold Pass Book products offered by banks) declined, particularly in the second half of the year. Demand for industrial applications and stable offtake from the wedding jewellery segment underpinned the need for new metal as the flow of scrap eased noticeably. Imports last year were dominated by shipments from Switzerland (at almost half), Hong Kong and Japan.

A marked slowdown in the level of investment driven demand saw Thailand’s bullion imports decline by over 35% last year to a calculated quantity (a combination of both official and unofficial flows) of 183 tonnes. Shipments from Switzerland remained the largest source of supply, with a notable rise in deliveries from both Japan and South Africa. Direct shipments from Australia were notably weaker, declining by almost 70% last year. Turning to exports, Thomson Reuters GFMS estimate that bullion flows (which include scrap deliveries) slipped 12% in 2012. The fall in speculative trading last year reduced the volume of bullion being returned to the market and, coupled with further losses in scrap supply, meant most surplus gold was recycled and consumed internally. Switzerland again featured as the main destination for Thai exports at close to 50% of the total, with Hong Kong and Australia the other main official trade routes.

Analysing Vietnam’s bullion imports remains a difficult assignment given the State Bank’s strict control on the gold market where it has essentially created a monopoly, controlling all official trade into and out of the country and the volume of investment bars produced. Officially, there were no bullion imports into the country last year, though anecdotal evidence gathered from field research in Vietnam and the across the region last year again discovered that unofficial flows from neighbouring countries were still rampant. That said, there was no doubt this hand carried trade slowed in the second half of the year as policy was tightened as only one mint

was authorised to produce bars. Based on our analysis of these unofficial flows, we estimate that imports of close to 50 tonnes entered Vietnam in 2012 (mostly in the first half of the year), with the main sources being Cambodia, Laos, and China. Exports were also tightly controlled with no bullion deliveries last year, though there remained a low level of scrap shipments (less than five tonnes).

Reviewing Australia’s bullion flows can provide a reliable indication of demand trends across East Asia and India as historically the majority of bullion exports (mainly kilo bars) are destined for these markets. Moreover, when demand for fresh imports declines in these countries, due to a lack of demand or surplus scrap, this material is often redirected to the United Kingdom in large bars. Bullion exports to India fell by 30% last year to 58 tonnes though this drop was offset by a surge in shipments to Mainland China which jumped 300% to over 105 tonnes, taking a third of all exports. Elsewhere, weaker investment demand in Thailand saw deliveries there fall sharply to just 17 tonnes, while Singapore recorded a modest 7% rise in shipments. Given the strength of Chinese demand it is little surprise that large bar shipments to the United Kingdom subsided, falling by almost a fifth last year to 72 tonnes on a calculated basis.

Japan’s bullion exports suffered a drop of almost a third last year, declining to an estimated 84 tonnes. This sharp contraction supported our field research findings of a significant drop in dishoarding and jewellery scrap flows in 2012 as consumers waited for a return to higher prices before liquidating gold assets. Moreover, while exports to traditional destinations such as the United Kingdom, Thailand, and Singapore all declined last year, shipments to Hong Kong grew substantially, making it the main destination for Japanese outflows.

THAI BULLION IMPORTSAUSTRALIAN GOLD EXPORTS

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7. FABRICATION DEMAND• World gold fabrication in 2012 fell for the second year in a row, slipping by 5.3% last year to reach 2,613 tonnes.

• The bulk of the fall came from a 4.2% drop in global jewellery fabrication which took its offtake to 1,893 tonnes. This was led primarily by sizable falls in India and Europe, although declines were registered in most markets.

• Jewellery production, excluding the use of scrap, reveals a greater fall, declining 7.7% to 1,278 tonnes.

• Despite a significant slowdown last year, China maintained its tenth consecutive increase, recording a 0.6% rise in jewellery fabrication and setting a new record of 498 tonnes.

• In contrast, Indian jewellery fabrication fell to a three-year low, as a weaker domestic currency accentuated the rise in the dollar gold price, driving fabrication in the first half down by over 30% year-on-year.

• Jewellery fabrication in the Middle East declined by 2.5% last year, with a recovery in Egyptian offtake (following the crisis of 2011) offsetting significant falls in most other regional markets.

• The impact of the fragile economic environment and substitution losses saw electronics fabrication slip over 11% to a three-year low of 285 tonnes.

• Dental demand suffered from further substitution gains to non-precious metals, ceramics and palladium, slipping 10% last year to a multi-decade low.

• Other industrial and decorative uses eased by 5.1% last year, led by a heavy fall in India.

CARAT JEWELLERY

EUROPE

— European jewellery fabrication fell by 7%, chiefly as a result of Italian losses.

Jewellery fabrication in Italy fell by 8% to 86.2 in 2012, continuing a downtrend that has been in place since 1999 and cutting last year’s volumes to just 16% of the earlier high. Despite that, the country is still managing to hang on to its third position in global rankings, even if the gap with India and China is now wide.

A key factor in both the historic slide and last year’s losses in isolation was high and still volatile gold prices. To an extent, this was apparent during the course of 2012 as the fall in prices from last February’s levels in the high $1,700s to a summer around the $1,600 mark was accompanied by a swing in exports from heavy year-on-year losses in early 2012 to notable gains from May onwards. This responsiveness was certainly noticeable in shipments to Italy’s largest single market, the United Arab Emirates, as these roughly doubled in the second quarter in comparison to the first.

That said, we would argue that such elasticity is often more of a short term event and that, at current levels and given current trends, the gold price is more detrimental for exports to the industrialised world; we certainly need an explanation for why outflows to the UAE rose by around a fifth last year, while exports to the EU-25 and North America fell by 16% and 11% respectively. This we believe to be the case as buyers of low margin quasi-investment pieces in emerging markets may well continue acquiring jewellery in the face of robust prices.

WORLD GOLD FABRICATION JEWELLERY’S SHARE OF TOTAL FABRICATION DEMAND

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Electronics

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TABLE 7 - WORLD GOLD FABRICATION (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Europe

Italy 333.9 312.5 290.2 235.9 228.4 186.7 134.6 126.3 103.3 95.9

Switzerland 42.6 53.6 55.5 60.7 62.2 58.2 37.5 40.8 47.9 45.5

Germany 54.5 56.9 51.8 51.3 51.4 49.0 38.6 41.3 39.6 36.9

Austria 8.0 9.4 8.5 5.7 6.5 26.3 34.6 19.7 22.9 14.1

UK 33.6 32.9 28.6 24.4 16.9 15.6 15.2 13.9 15.5 15.3

France 28.3 18.6 16.4 14.4 14.0 13.0 11.0 11.1 10.1 8.5

Spain 35.0 31.7 27.4 24.2 23.6 19.8 13.6 8.4 7.1 6.3

Poland 5.8 6.0 5.9 5.8 5.4 4.6 4.5 5.0 4.9 4.7

Greece 10.6 9.8 8.6 7.8 8.5 7.4 6.2 6.2 4.5 4.0

Portugal 9.3 8.9 7.2 5.3 6.7 6.1 4.9 4.6 3.2 3.0

Sweden 2.0 2.0 1.9 1.7 1.4 2.2 2.7 2.6 2.8 2.8

Czech & Slovak Republics 3.2 3.2 3.1 2.9 2.8 2.6 2.5 2.9 2.9 2.8


Netherlands 5.8 5.5 5.5 5.3 4.2 3.3 2.9 3.0 2.8 2.6

Other Countries 9.8 9.9 10.1 8.8 8.9 8.6 7.5 8.3 8.1 7.7

Total Europe 586.4 565.0 525.0 458.4 445.1 407.3 319.7 297.4 278.3 252.6

NorthAmerica

United States 224.9 224.0 218.8 210.9 179.0 175.2 173.4 179.9 167.8 147.4

Canada 25.2 26.0 26.8 22.0 22.2 40.1 48.4 44.7 45.3 32.7


LatinAmerica

Brazil 17.9 22.0 23.7 20.0 22.1 22.9 21.1 26.3 23.1 22.9

Mexico 38.8 34.3 35.4 28.5 25.3 23.0 22.0 19.7 14.9 14.3

Chile 4.2 4.2 4.3 3.9 3.6 3.2 2.8 2.9 2.2 2.2


Colombia 2.3 2.5 2.5 2.1 2.0 1.6 1.4 1.3 1.4 1.3

Venezuela 2.4 3.0 3.2 3.3 3.1 2.6 1.7 1.4 1.1 1.0

Bolivia 3.6 3.8 3.7 2.9 2.5 1.7 1.5 1.3 1.0 0.9

Other Countries 9.8 10.5 10.9 9.7 8.1 6.8 4.8 4.8 4.1 3.9


MiddleEast

Turkey 260.5 285.4 303.4 242.0 276.8 236.7 111.3 109.0 136.3 113.7

Egypt 64.6 67.5 70.8 50.3 56.5 64.5 44.9 43.3 30.2 38.7

Iran 35.6 37.3 40.7 36.2 40.7 41.0 37.6 39.3 37.4 36.9



Iraq & Syria 21.1 20.6 21.8 20.6 23.0 20.1 15.8 15.4 12.2 9.3

Israel 12.7 12.1 11.9 9.9 9.0 8.7 7.2 6.3 5.5 5.1

Oman & Qatar 10.2 11.0 11.3 9.9 10.3 8.7 6.6 5.9 5.2 4.8

Jordan 5.6 6.0 6.9 4.5 4.7 4.7 5.6 5.9 5.2 4.6

Bahrain 10.9 10.8 11.4 9.6 9.9 8.7 6.5 5.7 5.1 4.5

Kuwait 13.8 12.7 12.3 9.7 8.9 8.4 5.6 4.8 4.1 3.7

Lebanon 7.4 8.0 7.6 5.4 5.5 4.8 3.4 2.6 2.1 1.9


IndianSub-Continent

India 538.4 621.1 695.2 633.8 684.4 708.1 571.0 783.4 761.0 736.0



Sri Lanka 6.8 6.3 6.2 5.1 5.2 4.5 3.8 3.7 3.2 3.1

Other Countries 0.9 1.0 1.0 0.9 0.9 0.8 0.7 0.6 0.5 0.5


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TABLE 7 - WORLD GOLD FABRICATION (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

EastAsia

China 215.0 239.9 262.6 278.3 339.8 378.8 427.7 508.6 585.8 590.5

Japan 151.3 159.3 164.4 175.0 177.8 163.7 140.5 157.5 147.2 126.1

South Korea 84.8 82.0 83.3 82.3 86.1 77.5 65.0 68.1 62.2 53.4

Indonesia 86.3 90.8 86.5 64.8 63.2 61.4 46.0 38.9 35.3 36.1

Malaysia 56.9 69.7 74.3 58.0 61.0 56.3 45.0 43.8 36.4 33.6

Taiwan 24.7 28.5 31.9 30.7 29.7 27.5 23.1 26.1 24.0 22.5

Singapore 21.7 24.2 30.0 28.7 29.5 27.6 23.3 25.5 23.8 22.0

Thailand 61.0 64.1 68.5 52.7 47.5 40.3 25.2 22.0 18.7 17.0

Hong Kong 11.3 14.0 14.6 14.9 15.4 15.6 14.7 15.8 16.5 14.8

Vietnam 24.2 26.8 28.3 22.6 21.6 19.6 14.7 13.5 12.4 10.7

Philippines 2.6 2.9 3.2 2.8 2.5 2.2 1.7 1.6 1.5 1.3

Other Countries 8.1 8.7 7.8 7.0 6.9 6.1 4.8 4.2 3.7 3.6

Total East Asia 747.9 810.9 855.2 817.7 880.9 876.5 831.7 925.6 967.4 931.6

Africa

South Africa 12.5 12.8 10.0 10.3 14.0 16.4 28.3 24.9 27.8 27.2

Morocco 13.6 13.9 13.8 10.6 10.3 9.5 7.6 7.0 6.8 6.6

Libya 4.5 4.8 5.0 4.9 5.2 4.8 3.9 3.5 2.4 2.3

Algeria 3.8 3.9 3.9 3.0 3.4 3.1 2.5 2.4 2.1 2.1

Other Countries 6.2 6.5 6.7 6.0 6.3 5.9 5.3 4.9 4.9 4.7

Total Africa 40.6 41.8 39.3 34.7 39.2 39.6 47.6 42.7 43.9 42.7

Oceania

Australia 9.3 11.1 9.9 10.3 10.5 14.0 14.6 13.1 14.3 13.6

Total Oceania 9.3 11.1 9.9 10.3 10.5 14.0 14.6 13.1 14.3 13.6

CIS

Russia 50.2 55.3 61.1 65.2 79.4 76.0 57.5 61.2 66.1 70.3

Other Countries 18.2 20.1 21.1 23.5 29.0 27.4 20.6 23.2 24.8 23.6

Total CIS 68.4 75.4 82.2 88.7 108.4 103.4 78.1 84.4 90.9 93.9

WorldTotal 3,003.0 3,180.0 3,305.4 2,957.5 3,103.1 3,027.3 2,518.5 2,786.8 2,759.8 2,613.5

In contrast, high gold prices have pushed the industrialised world’s high margin jewellery pieces far above key retail price thresholds, triggering heavy thrifting and substitution to silver, non-precious metals and alternative materials. A clear example of this was exports to France, which fell by around a quarter as high gold prices have led to a massive swing from 18 to 9-carat pieces in order to restrain retail prices but with major consequences for the fine weight of sales. High prices have also caused problems in Italy’s domestic market as this has led to a marked swing to silver and other alternatives such as brass and bronze.

The view that prices could be the dominant factor receives support from the fact that Italian exports to almost all destinations in the industrialised world saw losses, irrespective of economic performance. That said, economic issues were clearly at work in the declines of over a third for shipments to Greece and Portugal in comparison to the drop of 6% for Germany. Caution on occasion needs to be applied to the changes in official

Italian export data; some destinations, often the more troubled ones, are witnessing a shift from unofficial to official consumption as tax authorities crack down on the former and this could lift the visible, official component of trade. Not only does this apply to the totality of Italian exports, but this also appears to have been the case as regards sales within Italy. Much centres on the introduction of a cash purchase limit of €1,000 and this fits with reports of city centre retail chains seeing fair results whilst independents in smaller towns had a very difficult year.

Another consequence of high gold prices is that retailers may well not have sufficient credit to finance gold inventory and have simply failed to replace pieces when sold. Such de-stocking at the trade level can therefore occur even if customers might have been willing to buy the gold pieces in question and this explains why sometimes restrained losses for consumption at the retail level mask a more brutal picture for manufacturers.

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JEWELLERY CONSUMPTION * (INCLUDING SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

IndustrialCountries

Jewellery Fabrication 753.5 714.1 677.5 572.9 539.3 457.3 344.2 332.7 301.8 278.3

Electronics 209.2 235.3 253.4 277.8 279.5 261.3 218.4 261.7 250.9 218.6

Dentistry 63.5 64.1 58.8 57.1 54.2 52.2 49.5 45.2 39.8 35.6

Other Industrial 50.0 49.3 49.2 51.2 54.5 53.5 45.5 49.2 47.3 44.8

Official Coin 44.2 51.6 46.2 55.9 49.1 106.8 149.1 121.6 121.4 93.3

Medals 1.7 1.8 1.5 1.6 1.6 1.6 1.6 1.7 3.1 2.1

Subtotal 1,122.2 1,116.1 1,086.6 1,016.4 978.2 932.8 808.2 812.2 764.4 672.7

DevelopingCountries

Jewellery Fabrication 1,730.9 1,902.3 2,041.4 1,726.9 1,884.2 1,846.8 1,471.6 1,687.4 1,673.3 1,614.6

Electronics 27.3 30.7 32.2 38.3 42.2 49.8 56.6 64.3 69.0 66.0

Dentistry 3.5 3.5 3.6 3.6 3.4 3.5 3.1 3.1 3.0 2.9

Other Industrial 32.1 35.6 40.5 40.4 41.8 41.0 36.7 41.7 41.6 39.6

Official Coin 63.1 64.1 65.6 74.1 86.6 85.3 85.0 91.4 123.8 106.4

Medals 23.9 27.7 35.5 57.9 66.9 68.2 57.3 86.7 84.7 111.3

Subtotal 1,880.8 2,063.9 2,218.8 1,941.1 2,125.0 2,094.5 1,710.2 1,974.7 1,995.5 1,940.8

WorldTotal 3,003.0 3,180.0 3,305.4 2,957.5 3,103.1 3,027.3 2,518.5 2,786.8 2,759.8 2,613.5

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

India 441.7 517.2 573.5 516.4 557.8 599.8 471.4 657.6 618.3 552.0

China 201.0 224.1 241.4 244.7 302.2 340.6 376.3 451.8 515.1 518.8

United States 354.5 350.5 349.0 306.1 257.9 188.1 150.3 128.6 115.5 108.4

Russia 49.6 55.6 64.3 70.1 85.7 92.4 56.7 60.1 64.7 69.6

Turkey 163.6 185.7 194.9 165.3 188.1 153.2 75.2 67.4 70.1 61.5

UAE 81.7 89.3 96.4 92.4 99.8 100.0 74.6 69.6 58.1 49.8

Saudi Arabia 128.2 136.2 147.4 106.3 122.0 110.9 81.8 71.6 55.7 47.1

Egypt 66.1 73.0 75.3 60.0 67.8 74.3 56.7 53.4 33.8 45.7

Iran 40.5 43.3 47.8 41.5 47.4 45.8 37.5 37.4 35.1 35.8

Indonesia 82.0 83.9 78.0 57.7 55.2 55.9 41.0 32.8 30.2 30.8

Brazil 24.2 30.6 33.3 29.2 30.7 29.8 26.8 29.4 26.6 26.8

Hong Kong 12.0 15.8 16.0 15.1 18.2 17.0 16.4 20.6 27.8 26.5

Italy 82.0 77.2 71.0 64.8 57.4 49.1 41.4 34.9 27.6 22.3

Pakistan 56.2 59.8 65.1 54.7 51.8 45.5 30.9 27.3 23.1 21.5

UK 73.1 70.2 59.4 52.5 50.3 37.2 31.8 27.3 22.6 21.1

Mexico 47.1 44.0 42.4 37.1 34.9 28.5 26.4 23.8 19.9 18.3

Japan 31.6 34.6 33.5 32.8 31.7 31.2 22.3 21.3 16.6 17.5

Canada 29.7 29.6 30.1 27.4 24.7 22.3 18.6 17.5 16.3 15.5

France 39.8 38.2 35.1 30.7 28.9 26.1 23.6 20.2 18.2 14.2

Vietnam 22.8 26.1 26.9 22.1 21.4 19.6 15.1 14.4 13.0 11.4

*Fine gold content of all new jewellery sold at the retail level (excluding the exchange of old for new jewellery), calculated by taking jewellery fabrication, plus imports less exports and adjusting for retail stock movements. This list only includes those countries for which GFMS has supplied consumption data to the World Gold Council for use in its publications. GFMS’ database, however, covers a much longer list of countries, for which consumption is measured, than that shown in the table above.

© Copyright Thomson Reuters GFMS

TABLE 7A - GOLD FABRICATION IN INDUSTRIAL AND DEVELOPING COUNTRIES (INCLUDING THE USE OF SCRAP)

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A final feature of industrialised world markets worth singling out is the top end continuing to outperform the mass market. However, while this may do much to support the value of jewellery sales, its contribution to the fine weight of gold sold is less significant.

This differentiation by price sector might appear supported by the reported rise of 5% in the gross weight of shipments to Switzerland, that country frequently operating as a global distribution centre for the top end brands. Such flows will have no doubt contributed to a relatively robust outcome but industry contacts told us on many an occasion that a fair portion of that would represent scrap still in jewellery form, rather than a crude bar, travelling cross-border and destined for a Swiss refinery. If we make an allowance for this, true exports look to have fallen, although we would cite lower trans-shipments of mainstream pieces as the prime driver of that. One piece of evidence for that view is the visible drop in shipments to Turkey, much of which are en route to Russia or central Asia. (This is shown in the fair size drop for ‘Other Europe’ in the graph below.)

A factor of similar importance in explaining Italy’s long term decline and the drop in exports last year is market share loss to rival producers. As illustrated in the graph on page 93, Italy’s share of US imports, for example, has been steadily falling, down from over 40% in 1998 to 12% last year. (This was mirrored in Italy’s own exports, with the US share of those dropping from just over a third at the turn of the millennium to a mere 8% last year.) In the case of the United States, duty disadvantages have played a significant role but losses more generally have been the result of the low labour costs and the improving quality of other producers, such as China. Unsurprisingly therefore, another region where market share loss is readily apparent is East Asia. For instance, Italian exports to China/Hong Kong fell by a few percent last

year at the same time as the mainland’s consumption of 18-carat pieces increased a fraction. One bright spot in that region, however, was Japan, with Italian exports to that country rising in line with its 6% rise in jewellery consumption as a partial recovery from 2011’s natural disasters took place.

Another area enjoying a recovery was North Africa, with exports to all five constituent countries seeing substantial percentage gains, as activity resumed either late 2011 or during the course of 2012. It is these gains that explain much of the rise for the ‘Other’ category in the graph below. The volumes achieved, however, remain far below the levels recorded before the onset of political problems. Developments in Sub-Saharan Africa are also worth mentioning; some wholesalers in Italy reported poor direct business due to African customers facing visa problems in travelling to Italy and that instead these buyers would have travelled to Dubai. It is possible therefore that some of the rise in Italian exports to that emirate was down to this re-routing.

There are several in the Italian industry who feel fabrication would have fallen by far more than our figure of 8%. It is certainly true that some producers faced a very difficult year, if exposed to those markets that were weak. However, some contacts noted stability and others even year-on-year gains, typically those serving more buoyant official export markets or the top end, and their results help mitigate overall losses. We have to acknowledge, however, that there is less clarity today for overall volumes as the traditional yardstick of bullion imports has ceased to provide a meaningful guide, given that the rise in domestic scrap and imported scrap has made Italy a net bullion exporter.

As for 2013, we may well see further losses for Italian fabrication, given expectations of medium term price

ITALIAN JEWELLERY FABRICATION AND EXPORTSITALIAN OFFICIAL JEWELLERY EXPORTS BY REGION

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EU-25

Source: Thomson Reuters GFMS; Calculations based on Italian export data.Shows only the direct flow of finished pieces. *incl Russia & Turkey

Tonnes25

100% OPACITY

2011

2012

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(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Europe

Italy 323.8 302.4 279.0 224.4 215.3 172.6 123.3 116.0 93.8 86.2

Switzerland 24.7 27.4 32.2 35.8 36.0 35.0 20.1 21.1 29.4 28.6

Germany 20.4 21.7 21.3 19.9 19.9 19.0 14.8 15.1 15.4 14.7

France 19.5 17.5 15.3 13.4 13.0 12.0 10.1 10.2 9.2 7.6

UK 29.3 28.1 23.8 19.6 12.2 10.0 9.2 8.2 6.9 6.7

Spain 33.8 29.9 25.6 22.4 21.8 17.6 12.3 7.4 6.2 5.4

Greece 10.2 9.4 8.2 7.4 8.1 7.0 5.8 5.8 4.1 3.7

Poland 5.2 5.3 5.3 5.2 4.4 3.9 3.5 3.8 3.5 3.3

Portugal 9.0 8.3 7.1 5.3 6.6 5.9 4.8 4.5 3.1 2.9


Other Countries 14.5 14.4 14.3 12.8 11.8 10.5 9.0 9.2 9.0 8.7

Total Europe 494.0 468.1 436.1 369.8 352.9 297.0 215.7 204.0 182.8 169.8

NorthAmerica

United States 143.3 131.9 130.0 108.0 94.5 77.0 63.0 66.0 60.3 53.7

Canada 18.0 16.7 16.2 13.3 12.8 12.1 9.8 9.3 8.7 8.2


LatinAmerica

Brazil 15.9 20.2 21.7 17.5 18.6 19.2 17.7 22.6 19.4 19.3

Mexico 36.2 31.5 32.2 25.9 22.7 18.9 17.3 14.4 11.5 10.6

Chile 4.2 4.2 4.3 3.9 3.6 3.2 2.8 2.9 2.2 2.2


Colombia 2.1 2.3 2.3 1.9 1.6 1.4 1.2 1.1 1.2 1.1

Bolivia 3.6 3.8 3.7 2.9 2.5 1.7 1.5 1.3 1.0 0.9

Venezuela 2.3 2.9 3.1 3.2 3.0 2.5 1.6 1.3 1.0 0.9

Other Countries 9.5 10.2 10.6 9.4 7.8 6.5 4.5 4.5 3.8 3.6


MiddleEast

Turkey 213.0 238.0 251.1 184.9 219.7 183.2 80.0 73.0 77.0 73.8

Egypt 64.6 67.5 70.8 50.3 56.5 62.4 44.0 42.1 28.7 37.5


Iran 30.8 32.7 36.5 32.2 36.2 35.7 30.0 29.9 27.8 27.7


Iraq & Syria 20.6 20.0 21.2 20.0 22.4 19.6 15.1 14.7 11.5 8.7

Oman & Qatar 10.2 11.0 11.3 9.9 10.3 8.7 6.6 5.9 5.2 4.8

Jordan 5.6 6.0 6.9 4.5 4.7 4.7 5.6 5.9 5.2 4.6

Israel 12.1 11.5 11.3 9.3 8.4 8.1 6.6 5.7 4.9 4.5

Bahrain 10.9 10.8 11.4 9.6 9.9 8.7 6.5 5.7 5.1 4.5

Kuwait 13.6 12.5 12.3 9.7 8.9 8.4 5.6 4.8 4.1 3.7

Lebanon 7.4 8.0 7.6 5.4 5.5 4.8 3.4 2.6 2.1 1.9


IndianSub-Continent

India 496.7 572.2 634.0 550.9 594.7 623.2 503.4 685.0 667.0 618.2



Sri Lanka 6.8 6.3 6.2 5.1 5.2 4.5 3.8 3.7 3.2 3.1

Other Countries 0.9 1.0 1.0 0.9 0.9 0.8 0.7 0.6 0.5 0.5


EastAsia

China 194.0 216.8 239.0 244.8 297.1 329.6 363.6 432.3 495.6 498.4

Indonesia 85.9 90.4 86.0 64.3 62.7 60.8 45.6 38.4 34.8 35.5

TABLE 8 - CARAT JEWELLERY (INCLUDING THE USE OF SCRAP)

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TABLE 8 - CARAT JEWELLERY (INCLUDING THE USE OF SCRAP)

strength and still shaky economic confidence. However, a positive message has emerged in the form of consumers in many markets expressing good interest in the gold look; gold-plated silver and base metals remain reportedly strong and gold accents are felt to have grown in popularity in the branded, mass market segment.

French jewellery fabrication in 2012 fell by 17%, the steepest rate in Europe as the fine weight was hit by the rapid shift from 18 to 9-carat for domestic consumption and as importers took market share in the lower purity segment. All this was compounded by overall consumption being weak, falling by 7%*. It would be incorrect to heavily blame economic factors here as sales of silver jewellery rose by 1%* and those of watches by

4%* (*value terms, source: Société 5). The country’s top end brands also had a good year (as evidenced by export growth), but much of their contained metal is derived from imported semi-manufactured items.

Jewellery fabrication in Germany contracted in 2012, chiefly in response to domestic consumption falling by 10%. The latter result was largely due to still high gold prices whose impact was made worse by economic uncertainty. Exports of finished jewellery also fell a few percent. The drop in fabrication, however, was kept to a modest 4% as much is 18-carat semi-manufactured material destined for luxury brands based in other countries, and German exports of this were notably more robust than implied by the 11% drop in the trade data.

UK jewellery fabrication eased by 4% in 2012, chiefly in reflection of an ongoing decline in domestic consumption and destocking at the retail level. Much of this was caused by the high gold price, as this continued to encourage a shift to lighter weights, and to silver and

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Malaysia 56.7 69.5 74.1 58.0 61.0 56.2 45.0 43.7 36.2 33.4

Thailand 59.0 61.9 66.0 50.2 44.8 37.5 22.7 19.3 16.0 14.3

Japan 21.9 22.3 22.3 21.1 19.0 17.5 14.4 14.3 12.9 13.3

South Korea 52.6 46.8 44.5 36.4 36.1 30.3 23.4 20.3 16.7 13.2

Hong Kong 8.5 11.1 11.5 11.6 11.8 12.2 11.6 12.2 12.8 11.4

Vietnam 24.2 26.8 28.3 22.6 21.6 19.6 14.7 13.5 12.4 10.7

Singapore 11.5 12.5 11.2 9.9 10.9 10.2 7.9 8.9 9.7 10.4

Taiwan 13.3 14.6 16.1 12.3 10.3 9.1 5.8 5.3 4.6 4.6

Philippines 2.6 2.9 3.2 2.8 2.5 2.2 1.7 1.6 1.5 1.3

Other Countries 8.1 8.7 7.8 7.0 6.9 6.1 4.8 4.2 3.7 3.6

Total East Asia 538.3 584.2 610.0 540.8 584.6 591.3 560.9 613.9 656.7 650.2

Africa

Morocco 13.6 13.9 13.8 10.6 10.3 9.5 7.6 7.0 6.8 6.6

South Africa 9.2 8.9 8.1 7.5 7.0 7.4 5.1 4.5 3.7 3.5

Libya 4.5 4.8 5.0 4.9 5.2 4.8 3.9 3.5 2.4 2.3

Algeria 3.8 3.9 3.9 3.0 3.4 3.1 2.5 2.4 2.1 2.1

Other Countries 6.2 6.5 6.7 6.0 6.3 5.9 5.3 4.9 4.9 4.7

Total Africa 37.3 37.9 37.4 31.9 32.2 30.6 24.4 22.2 19.8 19.0

Oceania

Australia 5.3 5.3 5.0 4.5 4.4 4.0 3.2 3.2 2.9 2.8

Total Oceania 5.3 5.3 5.0 4.5 4.4 4.0 3.2 3.2 2.9 2.8

CIS

Russia 34.6 38.3 44.4 47.6 58.5 53.2 34.9 39.4 45.1 49.2

Other Countries 15.8 17.6 18.6 20.9 26.3 24.8 18.2 20.8 22.3 21.2

Total CIS 50.4 55.9 63.0 68.5 84.8 78.0 53.1 60.2 67.4 70.4

WorldTotal 2,484.4 2,616.4 2,718.9 2,299.8 2,423.5 2,304.1 1,815.8 2,020.2 1,975.1 1,892.9

(Index based on units with 2006 = 100) 2007 2008 2009 2010 2011 2012

101 104 60 63 88 106

Source: BCCMP

SWISS WATCH CASE HALLMARKING

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NEGATIVE NET CONSUMPTION IN WESTERN JEWELLERY MARKETS

The long run slide in western jewellery consumption in weight

terms is a key development within the global gold market as it

has robbed the latter of around 450 tonnes of demand in the

space of a decade (basis numbers for North America and the top

five EU markets). At the same time, we have seen scrap surge,

with these same countries supplying roughly an extra 300

tonnes to the market if we compare 2012 volumes with those a

decade earlier. With almost all old scrap coming from jewellery,

this has therefore pushed the West’s jewellery sector into a

position of net supply to the global market for the last few years.

Similar developments have also been witnessed in East Asia,

with Japan a ‘net supplier’ since 2008.

This has important consequences, particularly if this net

supply is being generated by non-price factors and if such a

phenomenon were to spread to other countries, in particular

China and India. The news in that sense is mixed. Looking

firstly at the demand-side, the enduring nature of the fall in

consumption is strongly indicative of structural forces being

at work, and here we would cite the shift from plain, simple,

unbranded pieces to gemset, high design branded items.

Another factor are the losses suffered by all jewellery to new,

often better promoted discretionary areas, such as technology

goods. That said, the pace of decline accelerated in recent years

as gold prices rose and economic hardship emerged and so a

reversal for these two should provide support to gold jewellery

sales.

Scrap supply has also been boosted of late by high gold prices

and distress selling, and so any sustained fall in the gold price

and an uplift in economic prospects should curtail volumes.

Indeed, in most developed countries, scrap is already falling but

this is chiefly as a result of a third factor, namely the depletion

of near-market supplies. The scale of the ultimate retreat in

scrap, however, may well prove more restrained than might be

supposed, firstly as prices are like to remain well above the lows

seen in the early 2000s, due to greater consumer awareness of

recycling opportunities and lastly far better developed collection

facilities.

Scrap’s stock-led slip has already led to the ‘surplus’ contracting

last year and this curtailment of supply should continue when

looking ahead, but it may be several years yet before we return

even to neutrality as the above non-price factors restrain net

demand. If that sounds gloomy to some, it is worth pointing out

that, as referenced in the feature box on page 94, it looks likely

to be many more years yet before the jewellery sectors of most

emerging markets start to materially resemble those of the

industrialised world.

WESTERN JEWELLERY CONSUMPTION AND SCRAP*

other forms of jewellery. However, it is of note that the decline in fabrication was restrained, which itself largely reflects much of the structural change behind longer term losses having already occurred.

Swiss jewellery fabrication fell a fraction despite support from strong gains in the watch industry in 2012 as much of that sector is supplied by imported semi-manufactured items. The country’s watch case hallmarking data reveals that the use of gold by luxury watch manufacturers rose by 20% last year, with the full year total surpassing the peak levels achieved in 2007-08. Last year’s growth was led by a strong rise in watch exports, particularly during the first half of the year, with evident growth on most of the main markets. Figures produced by the Federation of the Swiss Watch Industry reveal that exports of gold

timepieces in value terms rose by 20.5% over the year, whilst bi-metallic watches recorded a more moderate growth of 5.3%. The uptrend in Swiss watch exports continued into 2013, adding to optimism about the industry’s growth potential this year. In January, exports of gold watches in unit terms rose by nearly 13% year-on-year. To put it into value terms, the increase was even more pronounced at 20%, with strong gains recorded in Hong Kong and Europe.

Following a major collapse in 2009, gold jewellery fabrication in Russia experienced a period of uninterrupted gains through to last year. To put this into perspective, jewellery offtake increased by over 40% between 2009 and 2012, to a little over 49 tonnes last year. That said, the full year total still remained well

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GLOBAL JEWELLERY FABRICATION, 2012GLOBAL JEWELLERY FABRICATION, 2003

below the pre-crisis level of 2008. Similar to the trend in previous years, last year’s strong performance was primarily driven by a rise in income and a growing desire for luxury goods as a symbol of social status from the burgeoning middle class in the country.

Nevertheless, although the jewellery market in Russia has enjoyed a secular increase in recent years, the pace of the growth abated somewhat in 2012. Volume of jewellery fabrication rose by 9% last year, compared with a 15% increase in 2012. This was largely due to a softer economic environment (real GDP growth slowed down from 4.3% in 2011 to 3.4% in 2012), which to some extent has restrained growth in discretionary spending.

Meanwhile, a modest depreciation in the rouble against the US dollar also resulted in even higher gold prices in local currency terms. It is of note that rapidly rising gold prices in recent years have resulted in a notable shift in consumer preference in favour of lighter weight jewellery pieces. Local fabricators indicated that the average weight of gold pieces has been reduced from 3.7 to 1.4 grammes over the past few years.

Looking ahead, we expect a further modest increase jewellery fabrication in 2013. Despite a forecast recovery in gold prices, this is not expected to dampen significantly Russian fabrication growth, as the current strong appetite for gold jewellery is likely to persist for a while, thanks to solid GDP growth along with an ongoing rise in disposable income.

NORTH AMERICA

— US jewellery consumption in 2012 suffered its 11th consecutive fall but at a far slower pace of 6%.

US gold jewellery consumption in 2012 fell for the 11th year in succession, reaching a level representing just 28% of the peak volume in 2001. That figure of 108.4 tonnes still leaves it as the third largest globally, although the gap with the two biggest, India and China, is now considerable and the difference with fourth placed Russia is rapidly narrowing as the latter continues to enjoy gains. It is also sobering to note that (total) US scrap was some 20 tonnes larger than its jewellery consumption in 2012.

That we saw another decline in 2012 was due to some long standing trends, such as a shift from plain to gemset, and also some drivers that have more recently joined the fray, such as high gold prices. The impact of the latter was felt in a variety of ways, including a shift to silver as implied by double-digit percentage gains last year for silver jewellery imports, while gold jewellery imports fell by 5%. The white metal continues to find favour, especially among the independents, as its lower price facilitates attractive margins, particularly through the rising share of gemset silver and growth of private labels, and keeps retail prices below key thresholds, although the switch does have the side effect of lowering turnover. It appears less the case that the shift is fashion led, given the growth for gold-plated silver items.

HALLMARKED UK JEWELLERY FABRICATION AND IMPORTS HALLMARKED RUSSIAN JEWELLERY FABRICATION AND IMPORTS

(tonnes, fine)

2007 2008 2009 2010 2011 2012

32.3 22.5 17.4 15.6 12.4 11.7

Source: Birmingham Assay Office, British Hallmarking Council

(tonnes, gross)

2007 2008 2009 2010 2011 2012

121.8 134.0 73.5 80.5 88.2 93.4

Source: Assay Office

Global Jwl Fab 11


Other133 t

East Asia650t

Italy86t

Indian Sub-Continent650t

Other Middle East155t

Turkey74t

North America62t

Other Europe84t

Global Jwl Fab 03


Other173 t

East Asia538t

Italy324t

Indian Sub-Continent576t

Other Middle East329t

Turkey213t

North America161t

Other Europe170t

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(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Europe

Italy 281.0 264.3 232.3 170.9 158.2 111.6 90.3 70.0 49.8 46.2

Switzerland 24.7 27.4 32.2 35.8 36.0 35.0 20.1 21.1 29.4 28.6

Germany 16.4 17.6 16.3 13.9 14.2 13.3 9.8 10.0 10.4 9.7

France 13.8 13.0 12.8 11.4 11.0 10.0 8.1 7.7 6.2 4.6

UK 26.5 25.3 21.2 14.1 7.1 4.4 4.8 3.4 2.4 1.7

Portugal 8.4 7.8 6.6 4.4 5.8 5.0 3.5 2.9 1.5 1.3

Netherlands 1.2 1.1 1.1 1.1 1.0 0.9 0.7 0.8 0.8 0.8

Poland 2.4 2.4 2.7 2.5 1.8 1.2 0.6 0.9 0.9 0.7

Greece 9.1 8.3 6.9 5.8 6.7 5.1 2.8 2.5 0.8 0.6


Spain 28.3 25.8 21.9 16.3 16.3 11.1 3.7 0.5 0.5 0.1

Other Countries 7.3 7.3 7.2 4.4 4.3 3.8 2.9 2.6 2.2 2.0

Total Europe 421.4 402.7 364.0 282.7 264.9 203.6 148.7 123.2 105.2 96.5

NorthAmerica

United States 116.5 107.3 106.6 84.0 72.0 57.0 41.0 39.5 32.7 22.1

Canada 13.3 12.3 12.2 7.8 8.3 7.6 5.3 4.6 4.2 4.6


LatinAmerica

Brazil 6.9 13.6 17.4 12.2 13.0 12.6 8.1 9.3 6.7 6.5

Chile 3.7 3.7 3.8 3.3 2.8 2.3 2.1 2.1 1.3 1.3

Mexico 30.2 25.8 25.0 19.4 14.1 7.8 4.0 0.4 0.2 1.1

Other Countries 16.6 16.2 15.6 11.3 7.8 5.3 2.8 1.9 2.1 1.8


MiddleEast

Turkey 162.0 189.0 197.9 117.4 164.7 100.2 24.8 18.5 29.0 30.8



Iran 20.1 22.4 24.0 14.0 17.9 15.3 10.7 12.1 10.3 11.7

Egypt 4.8 4.6 12.1 7.8 18.0 28.4 6.5 15.1 3.9 5.1

Jordan 2.1 2.5 5.4 2.6 2.9 3.0 4.7 4.5 3.8 3.2

Bahrain 9.6 9.2 10.0 6.4 6.7 5.5 3.0 2.8 2.5 2.4

Oman & Qatar 7.2 9.3 8.9 5.4 6.1 4.1 2.8 2.6 2.4 2.4

Iraq & Syria 13.5 10.5 11.9 6.5 10.9 5.9 2.9 5.0 3.2 1.5

Other Countries 12.3 14.0 15.0 10.1 10.7 8.4 4.1 3.0 2.7 3.0


IndianSub-Continent

India 364.7 465.2 540.0 470.9 521.7 533.7 444.9 604.0 608.5 505.2



Other Countries 5.9 5.5 5.5 3.6 3.2 2.3 1.8 1.9 1.5 1.4


EastAsia

China 166.0 182.8 198.0 201.6 257.0 264.9 262.7 322.6 399.5 406.6

Malaysia 53.5 64.2 68.3 49.4 53.5 48.6 36.0 35.2 29.0 26.7

Indonesia 43.1 46.3 34.5 26.0 25.8 29.5 16.8 15.6 12.5 18.0

Singapore 8.6 9.8 8.7 6.6 6.8 5.8 3.4 5.0 5.5 6.9

Hong Kong 0.7 4.1 5.6 5.3 5.2 5.2 4.4 5.5 7.0 6.1

Vietnam 17.6 20.9 20.5 14.3 12.6 11.1 3.3 3.3 5.5 4.8

Thailand 41.5 50.2 54.5 36.7 28.8 21.0 6.1 6.1 3.5 4.0

South Korea 40.6 35.6 33.8 24.2 24.3 18.3 7.6 7.3 5.0 4.0

Taiwan 3.0 2.6 6.7 1.8 2.7 2.9 1.1 1.2 1.5 2.7

TABLE 8A - CARAT JEWELLERY (EXCLUDING THE USE OF SCRAP)

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UNITED STATES JEWELLERY IMPORTSUNITED STATES FABRICATION

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Japan 7.6 9.7 11.8 9.7 6.4 4.2 3.1 0.7 0.0 2.4

Other Countries 7.1 8.7 7.9 6.2 6.1 5.0 3.0 2.7 2.3 2.4

Total East Asia 389.3 434.8 450.3 381.6 429.0 416.5 347.3 405.1 471.2 484.4

Africa

South Africa 7.9 7.7 7.0 6.2 5.8 6.0 3.8 3.2 2.1 2.0

Morocco 9.6 9.9 9.2 5.6 6.0 4.9 1.1 1.7 0.9 0.7

Other Countries 8.6 8.8 8.5 6.4 5.9 3.9 2.5 2.3 1.8 2.0

Total Africa 26.1 26.3 24.7 18.2 17.6 14.8 7.4 7.1 4.8 4.6

Oceania

Australia 4.5 4.5 4.3 3.8 3.7 3.3 2.2 1.7 0.6 0.4

Total Oceania 4.5 4.5 4.3 3.8 3.7 3.3 2.2 1.7 0.6 0.4

CIS

Russia 28.1 30.8 36.0 38.8 49.0 43.2 21.2 27.4 34.6 38.2

Other Countries 13.2 14.9 15.8 18.0 23.5 21.7 14.5 17.2 18.7 17.5

Total CIS 41.3 45.7 51.8 56.8 72.5 64.9 35.7 44.6 53.3 55.7

WorldTotal 1,756.2 1,937.9 2,040.3 1,621.2 1,791.7 1,593.7 1,159.4 1,348.8 1,384.6 1,278.0

TABLE 8A - CARAT JEWELLERY (EXCLUDING THE USE OF SCRAP)

Silver was not the sole beneficiary of substitution as base metals continued to gain traction at the bottom end of the market. Examples here include cobalt, tungsten and brass, and again it appears more a price than a fashion-led shift as a fair portion of these pieces are plated with gold or silver. Nor can we ignore the reported growing adoption of other materials, such as resin. Within gold, efforts to reduce prices continued through a shift to yet lighter weights and a move to lower caratages, although the latter trend remained restrained due to some retailers’ desire to avoid any perceived lowering of the quality of their product offering. We should neither ignore the economic backdrop; GDP may have grown by 2.2% but uncertainty and still high unemployment led to stagnation in overall retail expenditure.

If the above sounds relentless gloomy, it is worth noting that, in crude value terms (the fine weight multiplied by the annual average gold price), consumption essentially

held stable at the previous highs set in 2006 and 2011. In addition, 2012’s drop in consumption of 6% was far smaller than the average annual drop for the prior five years of 18%. There was an element of ‘bottoming out’ for the longer term trend, but also of significance were gold prices rising at a slower pace (basis the annual average) and being more stable. This meant retailers were often able to keep price tickets unchanged. More positively, consumers and retailers’ attachment to gold looks to remain strong, as suggested by one retailer at the lower end re-introducing a gold offering, having previously exited from the metal. Consumption also looks to have been boosted by the reported success for novel distribution channels, most obviously on-line sales.

The above elements of resilience meant that the pace of decline in gold jewellery imports slowed to the earlier noted figure of 5%, from an annual average rate of just over 20% for the preceding five years. Furthermore,

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WESTERNISATION’S POTENTIAL IMPACT ON EMERGING MARKET JEWELLERY CONSUMPTION

In most emerging markets, jewellery is often purchased with

investment as the rationale. This largely explains why the vast

majority of gold jewellery sold in these markets takes the form

of high carat plain pieces, with a low labour cost and mark-up.

Such pieces are therefore quite different to the high margin,

more intricate and often branded pieces to be found in the West.

However, in recent years, many developing nations have seen

the emergence of designs more similar to those in the West and

this focus box reviews some of the possible implications of this.

Starting with India, jewellery designs in the country are deeply

influenced by its diverse culture and religious beliefs. However,

many of these traditional styles are no longer considered

fashionable for daily wear by many urban women, for whom

elegance and perceived value may count more than intrinsic

value. This has already led to a shift towards jewellery,

often gemset, that is lighter in weight if still never less than

18-carat. Our estimates are that in 2012 on a fine weight basis

this category could have accounted for just over 55 tonnes of

total consumption’s 552 tonnes. It therefore only commands

a small market share but this is rising fast; it might have only

just exceeded 35 tonnes in 2010 when total consumption

stood at 658 tonnes. Future growth is also firmly based as

much rests upon strong trends such as a rising young, urban

population and higher disposable incomes amongst women.

Some contacts have suggested that this could translate into

an average of five grammes additional consumption in this

segment from each new customer during these initial years

of heady growth. There would no doubt, however, be some

cannibalisation of traditional jewellery consumption.

These fashion-oriented pieces have more of an aspirational

value than an emotional value (unlike traditional or heirloom

jewellery). However, this should not lift their likelihood of being

scrapped as our research shows that such pieces are far more

likely to be exchanged for the latest design with the original

retailer; seldom are they sold to raise cash because of the higher

markups. As this churn of stock takes place therefore, we could

see more of an incremental increase in expenditure each year,

rather than rapid growth in fresh metal needs.

Jewellery consumption in East Asia has already demonstrated

growing signs of maturity, with clear signals that consumers

are looking to more western style designs. A rising gold price

has been the central pillar in encouraging this move in recent

years, although a change in taste among the general public

and a rapidly emerging middle-class have also accelerated the

migration away from traditional plain heavy, high-carat and low

labour markup pieces.

Looking forward, we would expect fine gold consumption in

the region to be impacted by these changes, as item weights

are reduced, jewellery purity is lowered and designs of a more

intricate nature (attracting a greater labour charge component)

are introduced. As such, even though expenditure on jewellery

may continue to rise, due in part to the change in the markup

structure and a further increase in incomes, the acquisition of

fine gold is not guaranteed to follow a similar path.

Taking China as an example, what was almost exclusively a

plain 24-carat market has seen uptake of 18-carat designs

gain market share in first tier cities since the mid-2000s. The

18-carat sector has certainly behaved very differently in a

rising price environment; total Chinese jewellery consumption

has risen by almost 40% over the last three years whereas

18-carat consumption has almost flatlined over the same period

as its budget constraints have undermined sales, whereas

investment-motivated 24-carat pieces have performed well.

This should not necessarily be seen as a negative since, should

we find ourselves in a bear market, the lower purity designs

could outperform, helping sustain the total.

We could always see the emergence of what are in effect

hybrid styles. Up to now we have used the term ‘western’ since

industrialised Asia has jewellery on offer that remains priced

by weight according to the prevailing bullion price, the most

obvious being Japan’s kihei chain. Should similar product come

to be offered elsewhere, that could do much to sustain demand.

A final point to consider is per capita consumption. At its peak,

jewellery consumption in Italy reached around 2g/capita, whilst

Indian and Chinese levels today are under 0.5g. Should these

two giants therefore fully adopt western styles, there is clearly

still room for substantial growth in fine weight terms.

Clockwise from top: white gold chain by

Kuwayama; yellow gold & diamond bangle

by Gitanjali Gems & Jewellery, yellow

and rose gold necklace and earrings by

Shenzhen Yuehao, yellow gold earrings

with diamond by Diti Jewellery of Shrenuj .

Illustrations of Western-style

Designs

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imports in both the third and fourth quarters rose modestly year-on-year. The overall losses for the two largest suppliers, India and China, were yet more modest at a respective 2% and 1%. Once more the country bearing much of the brunt of the decline was Italy, with a drop of 9%, as it continued to suffer such factors as a duty disadvantage. That said, it is possible that indirect flows of Italian fabricated product actually rose year-on-year, albeit by an amount insufficient to offset the drop in direct shipments. Imports from one of Italy’s key rivals, Turkey, were essentially unchanged year-on-year, which is a stronger result than may be implied, as several of Turkey’s key exporters had made the decision not to actively target the US market. Imports overall were also supported by the fact that domestic jewellery fabrication fell at a faster rate of just over 10%. One explanation for this was the notable destocking down the distribution chain, which meant that consumption at the wholesale level fell more steeply than it did at the retail level.

LATIN AMERICA

— Total jewellery fabrication dropped by 3% in 2012, chiefly as a result of higher gold prices.

A 3% fall in Latin American jewellery fabrication in 2012 left the full year total at just 40 tonnes, the lowest level since 2000. Last year’s decline was the result of weaker demand in both domestic and key export markets, with higher gold prices accounting for much of the drop. In Mexico, jewellery consumption continued to weaken last year, dropping 8% to just 18 tonnes. The decline was mainly driven by rising peso gold prices, which encouraged further substitution away from gold to silver jewellery. The slowdown in economic growth also impacted negatively on consumer sentiment. In contrast, despite disappointing economic growth and the weakness of the local currency, Brazilian jewellery consumption remained broadly flat last year, thanks

to growing demand amongst the burgeoning middle class. That said, despite lower jewellery consumption elsewhere, resilient demand from Brazil helped to limit the region’s decline in 2012.

MIDDLE EAST

— Jewellery fabrication in the Middle East declined by 3% in 2012, with strong gains in Egypt offset by significant falls in most other regional markets.

Turkish jewellery fabrication declined by just over 4% last year, in the process giving up most of the gains realised in 2011. Last year, gold bullion imports jumped by over 25% to exceed 150 tonnes. This marked a four year high, though this impressive outcome still fell short of the near 180 tonnes of inbound deliveries witnessed in 2008. In past years the level of imported bullion has provided a clear barometer of the health of the jewellery industry. However, last year this was not the case as the much publicised “gas for gold” trade with Iran inflated bullion flows (for more on this see chapter 6) and muddied the true picture of jewellery fabrication.

Higher gold prices and the delicate state of the economy were twin drivers for the modest fall in jewellery consumption last year. A drop in the domestic currency against the dollar saw gold in local lira terms jump 14% in 2012 impacting on domestic offtake. Furthermore, after watching GDP growth top 8% in 2010 and 2011, Turkey saw its economic advancement ease (growing at just 3%) amid a slowdown in expansion, both globally and in the Eurozone, the impact of civil war in Syria (a main conduit to Middle East markets) and the raising of interest rates throughout the year. Added to this, has been rising inflationary pressures which hit double figures in the first half of 2012 although it averaged 8.9% for the full year according to data published by the Turkish Statistics Institute (TurkStat).

A sharp fall in fabrication demand at the start of the year as a result of heavy snow which limited consumer access to the market was buoyed by stronger demand in the second quarter as a weakening trend in Turkish lira (TL)gold prices encouraged greater retail activity. Despite the more active market during this period, fabrication demand in the first half declined by almost 14% year-on-year. Healthy consumption demand returned in the early stages of the third quarter before giving way to another bout of soft retail trade as local prices exceeded TL100/g in September for the first time since February. Despite the slow down at the end of the quarter, fine gold demand jumped 18% year-on-year, and when combined

LATIN AMERICAN JEWELLERY CONSUMPTION

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with a modest drop in the final quarter delivered an 11% increase for the final six months of the year.

From a product point of view, demand for 14-carat jewellery was the greatest casualty last year, giving up ground to 8-carat gemset jewellery (often plated to provide the appearance of higher purity styles). Demand for 22-carat jewellery was also impacted by the higher gold price. Diamond jewellery, which has enjoyed a rapid rise in popularity in recent years, commanding almost 10% market share, recorded only modest gains in 2012, suggesting it may be nearing saturation point. Interestingly, another factor negatively impacting Turkish retailers last year was the decision by several of the country’s banks to start collecting scrap gold from consumers in an attempt to mobilise the metal. This was problematic as it in turn infuriated gold traders who have typically relied on scrap purchases in high price environments when sales demand is weak.

Turning to export markets, shipments to the United Arab Emirates remained the largest destination for Turkish product in 2012 with shipments (mainly 22-carat chain) increasing more than two-fold. This was followed by Russia and Iraq, which both registered healthy gains and generated a rise in fabrication of 14-carat and 21-carat pieces respectively. In fact, of the top five destinations, only Kazakhstan and the United States declined last year, with the latter down by some 12% year-on-year.

Feedback from research contacts also suggested demand in Europe remained moribund thanks to the economic malaise. However, demand picked up for low purity jewellery (mainly for 8-carat in Germany and 9-carat in France). Exports via the informal hand carry or luggage trade, centred around Laleli district in Istanbul, weakened last year. This was mainly the result of tighter border security control in key export locations, with this crack down mainly impacting flows to Russia and Iran.

Turning to 2013, initial indications point to a solid start, with both domestic consumption and export demand buoyed by weaker gold prices. However, a return to elevated gold prices later in the year will certainly limit growth prospects, as would a further slowdown in the Turkish economy.

SaudiArabian jewellery fabrication continued its declining trend, slipping for the fifth year in succession, with a further fall of 12% last year to a new record low of 32.5 tonnes. To appreciate the extent that the jewellery industry has deteriorated over the last decade, it is worth considering that, at the start of the millennium, Saudi fine gold jewellery fabrication offtake exceeded 150 tonnes per annum. Over the last decade, Saudi jewellery fabrication has therefore plummeted by almost 80% or a staggering 120 tonnes.

The primary driver of the long term steep fall, and indeed for the ongoing slide last year, has been the impact of high and volatile gold prices on local consumption. The Saudi market, like most in the region, was previously characterised by high purity, heavy plain jewellery. However, the impact of higher prices has limited the ability of average consumers to afford these styles and has instigated a significant change in the product offered in the domestic market. While the average consumer expenditure on jewellery may have remained at a relatively constant level across the decade, the average domestic gold price has surged almost 500% in the last 10 years, significantly reducing fine gold demand.

The Saudi jewellery market has been forced into a process of transformation by this rapidly declining consumption. Faced with a shrinking market and rising gold prices, fabricators have looked to lower carat items (18-carat now commands a fifth of the market), lighter items (using stamping and hollow designs) and an increase in the use of stones in jewellery (predominately cubic zirconia) to lower the fine gold content and reduce the retail price point. In addition, an increase in more western styles, including diamond and higher margin lightweight stoneset jewellery, has been boosted by the increase in shopping mall outlets which are increasingly catering for the middle classes.

Turning briefly to this year, demand in early 2013 has been robust with retailers indicating during recent field research that consumer interest had returned and sales were moderately improved on the corresponding period in 2012. Lower gold prices appear to be the main driver for the uptick in consumption with expectation of a return to higher price levels spurring retail activity at

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the perceived bottom of the market. If the gold price as expected should revisit higher price levels later in the year then further erosion of the domestic market is likely. In the interim at least, the supply chain is enjoying a brief period of growth after succumbing to heavy losses for several years though for how long this will last depends on the price trajectory over the remainder of the year.

Jewellery consumption in the UnitedArabEmirates (UAE) is estimated to have dropped by more than 14% last year to just under 50 tonnes. The significant drop in demand was due to a combination of weaker domestic fabrication and a material slowdown in imports, with the 6% rise in the gold price and subsequent weakness across the region, the main drivers for the hefty fall.

Jewellery demand last year was driven lower by the absence of sales destined for the Iranian market which are largely hand carried from Dubai. In the last few years, it has been demand from this key market (mainly for 18-carat jewellery) that has helped offset sizeable losses elsewhere. However, at the start of the year, the re-introduction of tough economic sanctions on Iran saw pressure applied on banks across the UAE to reduce available credit for trade to Iran, crippling trade between the two countries.

In addition, demand for 22-carat jewellery (a mainstay of sales in Dubai) was also impacted by external factors as sales to Indian expatriates fell sharply. Price was the key motivator in the first half, though a crackdown by Indian custom authorities on the quantity of jewellery imports by consumers had a material impact on tourist purchases in Dubai in the second half of the year. Looking to this year, consumption in the first few months has been very strong, with reports of healthy double-digit growth on the back of lower gold prices and a solid sales performance during the Dubai Shopping Festival.

Fabrication demand in Iran remained largely unchanged in 2012, slipping less than 1% year-on-year. While recording a modest drop (the fourth in succession), demand in Iran remained one of the more resilient markets in the region, providing healthy retail activity on any pullback in the price. This apparent stability was mainly built on a platform of safe haven purchases as the country’s high inflation, economic turmoil, and political uncertainty saw consumers look to protect assets by shifting to gold, both in jewellery and investment products. A crack down on jewellery imports by Iranian authorities in the second half of the year saw domestic fabrication benefit, with demand for locally produced products offsetting some of the price related attrition.

Following the virtual collapse of the Egyptian jewellery fabrication sector in 2011 due to the country’s political unrest, demand picked up some lost ground last year (increasing by over 30% on a year-on-year basis). However, last year’s volumes remained well short of pre-crisis levels. At the height of the protests in 2011, most of the larger fabricators closed their operations or simply maintained a skeleton staff and, where possible, moved stock outside of Cairo for protection.

Turning to 2012, an improved though not entirely resolved political landscape in Egypt saw life return to normal for most citizens by the start of the year, providing some comfort to fabricators and across the jewellery supply chain. Retailers reopened outlets which led to restocking, boosting fabrication demand in all sectors. In the first half of 2012, Thomson Reuters GFMS estimate offtake jumped by over a quarter (from a reduced base) as consumers bought into a rising Egyptian pound gold price. This healthy rate of recovery was exceeded in the second half, augmented by a sharp jump in demand in the final quarter. Price remained a limiting factor, however, with the domestic gold price rising 8% last year, as did migration to light weight and gemset items which curtailed fine gold consumption gains.

Fabrication demand in Israel recorded a near 8% drop in demand in 2012 as a weak export sector (US exports are estimated to have fallen 13% last year) and soft domestic offtake saw the market drift lower. Competition from silver and plated fashion jewellery continued to erode gold’s market share and looks set to deliver further losses this year. A stronger gold price, coupled with migration to light weight and stone-set items accounted for the near 12% fall in Jordan. Lebanese fabrication fell for the fifth consecutive year, declining a further 11% last year, in a market hit by the impact of the elevated gold price, coupled with political and economic uncertainty.

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*GCC: Saudi Arabia, UAE, Oman, Bahrain, Kuwait, QatarSource: Thomson Reuters GFMS

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— Indian jewellery fabrication fell by 7% in 2012, chiefly as a result of the 24% rise in the rupee gold price. — Other negative factors were, however, numerous and included a retail strike, drought, lower GDP growth, a shift to coin and bars, higher jewellery imports and the broad end to a build-up in trade stocks. — Jewellery fabrication in Pakistan in 2012 fell by a similar amount, again chiefly due to the price rise.

Last year, jewellery fabrication in India slipped by 7% to 618 tonnes. This is higher than our estimate for 2012 in Gold Survey - Update 2, reflecting a more rapid than expected re-stocking by the jewellery trade towards year-end in anticipation of a further duty hike. Another contributing factor to this upward revision was slightly higher than expected purchases ahead of the busy wedding season in early 2013. Nevertheless, despite some improvements in the latter part of the year, 2012 still marked the second consecutive year of decline in the country’s jewellery fabrication, with volumes almost 70 tonnes below the peak reached in 2010.

Looking at 2012 as a whole, the Indian jewellery industry undoubtedly faced a series of challenges. First was a dramatic rise in the local gold price, due in part to the marked fall in the rupee against the dollar, which clearly had a significant negative impact on jewellery demand. This was exacerbated by a rise in the customs duty to 4% in early 2012, a three-week nationwide strike by the jewellery industry against the excise duty (on unbranded jewellery) in March and a slowdown in GDP growth.

Other important factors also need to be taken into account. Firstly, purchases of gold jewellery from a quasi-investment perspective (particularly among low income groups) suffered in rural areas as a result of a drop in income due to severe drought. Secondly, there was a continued shift in preference by the general public in favour of small bars or imitation coins. Thirdly, the yellow metal faced stiff competition from alternative quasi-investment options, diamonds in particular. Thanks to more intensive marketing campaigns by major retailers, diamond-set jewellery continued to gain popularity among high-income women in urban areas, with the development assisted by weaker diamond prices.

In addition, fabrication was undermined by growing jewellery imports, especially from Thailand. Following the announcement of the duty increase on bullion,

anecdotal information suggests that not only did unofficial bullion imports rise, so too did inflows of jewellery. In particular, jewellery imports from Thailand were reported to have jumped by more than 50% last year. This is due to the fact that jewellery imported from Thailand only attracted a 1% concessional duty under a bilateral trade agreement (compared to 10% on imported pieces from other countries). The assessment of volumes is made complex as the trade was not always fully official as several traders decided not to adhere to the requirement of these imports having a minimum of 20% added value. That said, the Indian government has already started to investigate this trade and is said to be negotiating an increase in the import duty.

Lastly, the rapid expansion in number of new jewellery outlets in previous years that entailed a marked rise in jewellery stocks held by the value chain came to a halt last year. Prior to 2012, many jewellery shops took advantage of rising gold prices to boost the book value of their firms, which in turn gave them access to easy capital financing. However, given a volatile price environment, they found that this strategy became increasingly risky. As such, a number of major chain stores that we spoke to indicated that they were only rotating their jewellery stocks from one store to another. Even for new retail shops in 2012, only 40 to 60% of starting inventory was sourced from jewellery fabricators, with the rest being supplied from their existing stores.

Jewellery’s call on the bullion market was also affected by a considerable rise in exchange activity, which itself was the result of a series of record highs for the rupee price and consequential budget constraints. Our feedback from retailers shows that nearly one third of their sales last year were motivated by the exchange of old jewellery. This was particularly apparent in wedding jewellery purchases. In some cases, consumers also showed their willingness to stretch budgets to exchange

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old jewellery for diamond-set 18-carat pieces, which in turned reduced the fine gold weight per item.

The broader market was also affected by the heavy margin pressure on retailers, which forced many smaller participants to exit the business, leading to heavy de-stocking in 2012. With a volatile price, the rise in customs duty and a change in ad valorem rate, even well-established retailers decided to adopt a more cautious inventory management strategy. For instance, many independently-owned jewellery stores reduced the inventory to sales ratio to 1:2. Also, regional chain stores simply kept only necessary stocks on display, with any excess items (less popular designs) being re-melted and then upgraded to the latest designs.

Looking ahead, jewellery fabrication is currently projected to drop by another 10% in the first half of this year, which would take volumes to a four-year low. This is expected to occur primarily as a result of heavy de-stocking by the jewellery trade, following another import duty hike on gold to 6% earlier this year. Indeed, our field trips have suggested that there may have been a dramatic rise in stocks through the value chain in late 2012 and early 2013. This is evident from our estimate for gross bullion imports which jumped to an almost two-year high of 115 tonnes in January this year.

Also there are rumours of another round of nationwide strikes against the new government’s regulation that makes it mandatory for jewellers to collect a KYC (“know your customer”) document from every customer purchasing jewellery worth Rs. 50,000 or more (equivalent to around 15 grammes of gold at current prices). The law came into force in February under the auspices of the Anti-Money Laundering Act. For an industry where transactions are largely in the form of cash, this could have notable consequences.

By contrast, consumption should perform better, thanks to healthy yields from winter crops coupled with ongoing broader economic growth and growing remittances from non-resident Indians (basis a report released by the World Bank, India is estimated to have received a new record of $70 billion of such funds in 2012). More importantly, some contacts believe that many consumers have only indulged in exceptional buying and therefore that pent-up demand could prove considerable.

One consideration to bear in mind again relates to non-resident Indians, stemming from the government’s recent changes to the archaic rule on the maximum value of gold jewellery that can be brought home by a migrant worker or family. Basis the current price, the maximum weight that could be brought in was lifted to 30 grammes for men and 50 grammes for women, a significant rise from the three gramme limit that prevailed in the past.

Our contacts in the Persian Gulf countries report that, since the change, sales of jewellery to Indian workers have improved notably. It will therefore be interesting to see the extent to which these additional sales are covered by jewellery fabricated in India or in the Gulf. (For the record, these sales under our methodology would be allocated to consumption in the Gulf.)

Pakistan’sjewellery fabrication mirrored that of its larger neighbour, slipping almost 7% to just below 21 tonnes. The annual drop, the seventh in succession, was not solely a price driven affair. However, a weaker currency (the rupee fell over 7% against the dollar) delivered a 14% rise in the average rupee gold price and certainly played a central role in driving jewellery demand lower. In addition, Pakistan continued to face difficult macroeconomic challenges, a crippling energy crisis, and a progressively worsening security environment across much of the country. Not surprisingly, this fragile environment did little to encourage consumer spending, especially on perceived luxury goods like jewellery. That said, diamond and stone-set jewellery was less affected by the sharp rise in the gold price as the middle classes were still prepared to buy. In contrast, low wage earners looked to cheaper alternatives or held on to their savings.

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INDIAN JEWELLERY FABRICATION AND CONSUMPTION

(tonnes) 12.Q1 12.Q2 12.Q3 12.Q4

Fabrication 147 132 167 172

Consumption 138 125 136 153

Average Price (Rs.10/g) 27,969 29,241 30,471 31,274

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EAST ASIA

— Jewellery fabrication in East Asia dropped by 1%, thanks to solid demand in China. Excluding China, the decline was a more notable 6%. — Jewellery offtake remained resilient in China, although the pace of the increase slowed to 0.6% in 2012, the smallest gain in more than a decade.

Having witnessed an average annual increase of 9% over the last decade and a jump of 15% in 2011, growth in Chinese jewellery fabrication stalled in 2012, with total offtake only up by a mere 0.6% year-on-year. That said, at a fresh all-time of 498.4 tonnes, demand in China performed well compared with the majority of other key markets. As such, not only did China continue to consolidate its place as the second largest jewellery market, but the country’s role became increasingly important, with its jewellery demand accounting for more than 26% of the global total last year, compared with around 8% a decade ago.

Moreover, the significant rise in consumption witnessed over the last few years is all the more impressive given this rate of growth was achieved amid a high and volatile gold price environment. Indeed, in expenditure terms, the rise in the crude value of jewellery demand was a more promising 4% last year, with the total hitting a new record of close to RMB 170 billion, more than eight times that seen in 2003.

Nevertheless, demand over the course of 2012 was by no means persistently strong compared with 2011. Looking at intra-year developments, following an impressive increase in 2011, the start of 2012 saw a continuation of robust sales of gold jewellery, thanks to a softer local gold price (compared with the peak seen in September 2011) and a still buoyant local economy. Meanwhile,

2012, being the Year of the Dragon in Chinese culture, was an auspicious year to have babies or get married. Gift related purchases therefore soared during the new year period, helped by increasing promotional events by shops in order to boost sales.

Demand then started to ease from March onwards, mostly on a seasonal basis, but the drop appeared to be particularly acute last year. This subsequently resulted in the first, yet modest, year-on-year contraction since 2006 in jewellery demand in the second quarter of 2012, with a further decline recorded in the following three month period. In part, this was due to a major economic slowdown and growing worries of a possible “hard landing”, which hit consumer sentiment, with discretionary spending on jewellery or other luxury products facing increasing pressure. In addition, a lack of a clear gold price trend in the middle part of the year made many small retailers cautious about replenishing their jewellery stocks, especially in light of weak sales.

That said, the fall at the manufacturing level turned out to be more muted compared to the drop in retail sales. In essence, this reflected the ongoing expansion of new jewellery outlets across China. As outlined in previous Surveys, rapid urbanisation, along with fast-paced real estate development, has created thousands of massive new shopping centres in China. This has occurred in tandem with growing appetite from jewellery retailers to expand aggressively into third and fourth tier cities where competition is often less fierce and where scope exists for huge growth in consumer spending in the future.

As such, even though retail sales tapered off in mid-2012, competition for retail jewellery space in prime shopping locations remained strong. In addition, it is interesting to point out that while the expansion was initially driven by well-established Hong Kong jewellery brands, the last couple of years also saw a growing number of mainland Chinese jewellery fabricators and wholesalers expand into the retail business. Indeed, almost every major jewellery manufacturer we spoke to during our recent visit to China expressed interest in moving further up the jewellery value chain in order to improve their profit margins. These developments undoubtedly had an additional boost to jewellery production, as a significant amount of “start-up” jewellery stocks is needed for each new retail unit.

Returning to intra-year developments, offtake started to recover in the fourth quarter, although this was largely related to jewellery re-stocking ahead of the Chinese New Year. Interestingly, in spite of growing signs that

EAST ASIAN TOTAL DEMAND *

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the local economy had avoided a hard landing, there was a degree of cautiousness among retailers in response to a disappointing sales performance in mid-2012. In addition, the sharp gold rally in the late summer and the subsequent retracement kept many jewellers waiting on the sidelines for a clear price direction. Finally, anecdotal information also pointed to a softening in the gifting segment, largely following the change in leadership and a crackdown on extravagant spending by officials and state-owned companies in the latter part of the year. As such, jewellery demand only started to pick up in the final weeks of the year, with the total for the final quarter only improving marginally on a year-on-year basis.

Turning to the trend within the gold jewellery sector, the 24-carat (pure gold) segment continued to dominate the market and growth in this area had been most prominent in recent years. Indeed, once perceived as an old fashion item, 24-carat jewellery seems to have regained popularity. For instance, in the wake of staggering sales among the general public, many jewellery manufacturers decided to reallocate some of their capacity from palladium or platinum to the 24-carat segment in recent years, despite the fact that margins remained extremely thin on pure gold jewellery (typically a mere 1% at the manufacturing level).

As regards drivers behind robust demand for 24-carat pieces, gold’s impressive price performance in the last decade and the flexibility to cash in without significant losses at retail levels made pure gold jewellery an ideal quasi-investment vehicle among the general public. Another factor that came into play was inflationary pressure. Even though the official CPI fell sharply over the course of 2012, still heightened price pressure, reduced real purchasing power and negative returns from bank deposits in real terms continued to encourage allocations to hard assets such as bullion. While the

middle class and the newly rich in ‘first tier’ cities were increasingly purchasing gold bars for wealth preservation and as an alternative asset diversification option, the vast majority of consumers with limited budgets in rural regions turned to small pieces of 24-carat gold jewellery.

Moreover, new technologies and sophisticated workmanship have also allowed 24-carat gold jewellery to adopt more intricate and fashionable contemporary designs that previously were only available in 18-carat or PGM jewellery. These more attractive styles have gained increasing popularity among the younger generation who often consider traditional high purity gold jewellery styles as outdated and unfashionable.

Demand for 18-carat gold jewellery also held up well, particularly for imported high-end pieces. However, it is of note that, after a rapid increase following the introduction of this new segment to China in the mid-2000s, growth slowed notably in recent years. In a large part, this is due to the pricing methodology at the retail level. Unlike 24-carat jewellery which is sold on a weight basis, 18-carat items are often sold on a “per piece” basis with fairly high markups. It has proved difficult to persuade them to buy a more expensive item with less precious metals content. Sales of 18-carat jewellery are therefore largely confined to first tier cities.

Looking at this year, our feedback from research contacts points to a strong rebound in jewellery demand during the Chinese New Year, thanks to an improving economic outlook coupled with a relatively stable price. In addition, as sales turned out to be stronger than previously anticipated, a rapid fall in inventory held by the jewellery trade meant that stock replenishment after the new year lasted longer than in previous years. Indeed, during our trip to China in early March (almost one month after the start of the new year), many showrooms we visited

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still did not have sufficient stocks to meet demand from retailers, as manufacturers reached their production capacity. Going forward, we expect a healthy increase this year, stemming from the continued increase in incomes, the ongoing expansion of new jewellery stores and bullish price expectations.

Jewellery consumption in HongKong is estimated to have slipped 5% last year to less than 27 tonnes after recording impressive consecutive gains the two years previously. The principal driver for the decline appears to have been the softer mainland economy, though tourist numbers do not reflect a slowdown last year, with the Hong Kong tourism board estimating that visitor numbers rose 16% last year to over 48 million. Feedback from the retail trade suggests Chinese visitors (which jumped 24% last year) were more reluctant to spend given the tighter economic environment and expenditure per customer was down on previous years. Demand for 24-carat items dominated sales, though fell marginally, while the biggest casualty was 18-carat and gemset items, which both were notably weaker.

Indonesian jewellery fabrication reversed a seven-year trend of declines to register a modest 2% increase in 2012, rising to 35.5 tonnes. The drop in demand over the last few years can arguably be blamed on the rising and often volatile gold price so it was something of a surprise that demand was so resilient in the face of further gold price pressure. In domestic terms, a weaker currency saw the gold price based in rupiah jump 13% last year, adding strains to an already struggling retail (and export) sector.

It would be wrong to assume the market as a whole saw a sustained recovery last year. Demand in the first half of the year was indeed buoyant. A healthy economy (Indonesia’s GDP grew by 6.2% in 2012) and the absence of major flooding in Jakarta (an almost annual event in recent years) combined with a well timed pull back in the

gold price ahead of the key trading month of Ramadan saw demand in the first half stronger by 7% year-on-year.

While domestic consumption was recovering some lost ground the export sector continued to struggle as key markets remained moribund due to the fragile economic environment and elevated gold prices. Deliveries to Europe and the United States remained fragile and Dubai, which is often regarded as a last resort market due to the low markup structure, provided little relief as that market too was weak. The only home to offer support was Hong Kong, with shipments to this conduit for the Chinese market relatively steady for most of the year.

The second half of 2012 saw domestic demand slip marginally, declining 3% year-on-year, chiefly due to a near 10% drop in the third quarter as gold prices again picked up momentum. Competition from non-precious alternatives, primarily silver and gold plated brass, continued to erode gold’s market share and this has led several fabricators to move some or all their production away from carat jewellery. The migration to low carat jewellery continues unabated with this market segment now dominating fabrication volumes. Once widely accepted only in West Java, it is rapidly gaining momentum across the entire archipelago.

Looking to 2013, there has been some brighter news, with a stronger export sector combining with a healthy domestic market to boost fabrication volumes in the first few months of the year. Lower prices have encouraged retail stock building and consumers appear willing to buy at current levels. However, should gold prices return to the elevated levels witnessed previously then demand in Indonesia is again likely to fall.

In recent years, Malaysian jewellery manufacturing has fallen to new multi-year lows and 2012 was no exception, with the total falling by almost 8% to its lowest level

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since 1989. The decline was due to both easing domestic consumption and a significantly weaker export sector.

Turning firstly to the domestic scene, Malaysia’s economy grew at a healthy 5.6% in 2012 supported primarily by booming manufacturing and construction sectors. Moreover, Inflation was tightly controlled at under 2% and the unemployment rate remained at an impressive low of 3.2%. Given such a robust economy, it may seem counterintuitive that domestic jewellery demand failed to recover. There were several factors at play last year which helps explain the decline. Firstly, higher gold prices remained the chief culprit, with low carat jewellery, mainly 9-carat, benefiting from the need to lower retail price points, and gaining market share at the expense of 18-carat designs.

In addition, expenditure on diamond and gemset items fell markedly on the domestic front, as consumers looked to cheaper fashion alternatives or diverted funds to personal electronics goods (primarily mobile phones), branded clothing, or simply reduced their discretionary spending. Demand for plain gold (mainly 22-carat) was well supported by the Indian expatriate community during price dips, though overall even this market faced stiff head winds for much of the year.

The export sector, which consumes the bulk of Malaysia’s jewellery fabrication saw more closures in 2012 as fabricators struggled with dwindling sales, cost of inventory carry and tougher credit terms. Demand in Dubai, which was historically the main outlet for Malaysian product, was down heavily last year, driven lower by the cessation of trade with Iran which had previously consumed large quantities of 18-carat jewellery (mainly machine made chain).

The crackdown by Indian customs authorities, which limited the volume of jewellery tourists could bring

back to country, also negatively impacted on 22-carat jewellery wholesale demand in Dubai. The one market that did offer some support was Hong Kong, with Chinese demand for fine chain and lightweight gemset items performing well. However, due to the cost of retooling many chose not to pursue this market.

SouthKorean jewellery fabrication remained on its decade-long downward trajectory, falling by nearly 21% to 13.2 tonnes, a level last seen in 1986. Elevated gold prices in local currency terms coupled with weaker domestic sentiment negatively impacted consumer confidence and their discretionary spending.

The higher carat segment, which was dominated by wedding sets and gifting jewellery in rural areas, was largely responsible for last year’s hefty decline. Apart from high prices, demand was also hampered by a declining number of marriages as well as a shift in preference among younger generations in favour of low-carat jewellery or non-jewellery luxury products. By contrast, the 14-carat sector, performed relatively well, as light weight and more affordable designs continued to attract interest in urban areas.

In the wake of lacklustre sales and high gold prices, local jewellery fabricators continued to move to cheap alternatives such as stainless steel, titanium or gold plated silver. It is of interest to note that, given the long-term preference towards yellow gold among the general public, some fabricators introduced a gold resembling tombac (a metal alloy of copper and zinc), which began to make inroads into the jewellery market. In addition, skillful workmanship coupled with new fabrication techniques allowed for the traditional appearance while achieving significant reductions in gold usage per item.

Last year, Thailand’s jewellery fabrication is estimated to have fallen by around 11% to 14.3 tonnes. Much of the fall last year stemmed from further losses in domestic consumption with higher baht gold prices the chief architect for the lack of retail activity. Thompson Reuters GFMS estimate domestic consumption (in fine gold terms) fell by over a fifth last year as the 8% rise in the baht gold price and a notable decline in sentiment as gold failed to reach new highs saw jewellery demand lose further ground. Demand in the first half slipped just 7.4%, while the declining price trend towards the end of the year dragged demand down by more than 15% year-on-year in the final six months of the year.

On the economic front, Thailand rebounded strongly last year after being hit hard in 2011 as a result of

THAI JEWELLERY FABRICATION

0

20

40

60

80

20112009200720052003

Tonn

es


Fabrication for thedomestic market

Exports to the United States

Other exports

GS 2013 CH7.indd 103 21/03/2013 12:02:53

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the severe flooding experienced in the south of the country, recording annual GDP growth of 6.4%, with a headline inflation rate of 3% and unemployment dropping to an impressive 0.5% by the end of the year. Despite this healthy set of numbers, consumers were reluctant to divert funds to gold jewellery (often purchased as a quasi-investment option) given the lack of a clear directional price trend last year. As a result, investment driven purchases were well down on previous years. Demand remained for gift giving occasions but consumers were turning to smaller items.

Thai fabricators, struggling to survive in a weakening market, have also had to content with rising costs. In April last year minimum wages were raised 40% (still below $10 a day), with this increase severely impacting overheads and reducing profitability. During field research visits last year this issue was raised consistently as one of the toughest challenges facing the industry and, with further rises already in 2013, will again be a major issue this year.

Thailand’s jewellery exporters had another difficult year. Those heavily reliant on the economically troubled US and EU markets for the bulk of their trade saw orders continue to diminish and limit in size. Based on our analysis, shipment to the United States declined by more than 25% last year forcing many to look elsewhere. Exports to China (via Hong Kong) were notably stronger though it was a sharp jump in flows to India that helped offset some of the weaker markets. Indeed, with Thailand enjoying a 1% import duty in India (since increased to 6%) this led to a surge in demand for Thai product and even saw jewellery from other regional markets being transshipped via Thailand to benefit from the concessional duty.

Taiwan’s jewellery fabrication reported a 1% gain to reach 4.6 tonnes last year, a far cry from nearly 160 tonnes two decades ago. As with previous years, a large portion of Taiwanese gold consumption was related to wedding and gift buying in 2012. For example, those consumers committed to old traditions continued to buy heavy, five-piece wedding sets as well as small size (1-2 grammes) gift items destined for auspicious occasions and anniversaries. That said, the shrinking fashion jewellery market forced fabricators to introduce alternative materials, stainless steel in particular, in order to retain younger consumers. The combination of stainless steel with bold designs and small gold elements proved to be an attractive solution under the high gold price environment.

The jewellery manufacturing sector in Vietnamused an estimated 10.7 tonnes of fine gold in 2012, down by over 13%. The fall, the seventh annual drop in succession, saw first half offtake slip 12%, while demand in the second half declined by 15 % year-on-year. Higher gold prices remained the chief catalyst for the fall last year though there were other underlying factors that also featured.

Vietnam’s respectable sounding GDP growth of 5.1% in 2012 was in fact down from 5.9% in 2011 and marked its slowest pace in 13 years, limiting discretionary spending. The lack of available supply (due in part to the tight import regulations on gold bullion implemented by the State Bank) saw domestic gold prices soar above the world bench mark, regularly exceeding $150 an ounce or 3 million dong/tael. This elevated level of pricing, not surprisingly, had a negative impact on retail activity.

In addition, demand for low carat jewellery continued to gain momentum as fabricators looked to reduce the retail price points of their products. Low purity jewellery, predominately 10-carat therefore recorded growth at the expense of 18-carat designs. Moreover, selling of under-carat items was also widespread last year, as was the increased use of stones in jewellery designs to reduce the fine gold content of the items; both of these measures negatively impacted the level of fine gold consumption. The export sector also faced stiff head winds due to the widening gap between gold prices at home and abroad, a lack of unskilled workers, and increased competition from across the Asean zone.

A final impact last year, and one that is also eroding gold’s prevalence in other regional markets, has been the uptake of silver jewellery in the main urban markets. Traditionally Vietnamese consumers have shied away from silver due to a lack of a buy back scheme from retailers. However, it seems the younger generations are willing to forgo the investment driven motive to obtain

JAPANESE JEWELLERY FABRICATION

0

5

10

15

20

25

20112009200720052003

Tonn

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Source: Japan Chain Makers Association

White GoldPlatinum

Yellow Gold

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GOLD SURVEY 2013

low cost fashion jewellery. To this end there has been a rapid expansion of stand-alone silver jewellery outlets, often at the expense of gold showrooms.

Japanese jewellery fabrication posted a 3% increase in 2012. Nevertheless, it is of note that this was against a relatively low base in 2011 when the country was struck by a devastating earthquake and tsunami. Despite the modest recovery, underlying demand remained weak in Japan, primarily due to a still struggling local economy. Meanwhile, 18-carat gold jewellery demand also suffered from increasing competition from platinum jewellery, as the latter received a boost from a lower fine metal price. That said, there were some decent growth in sales of kihei gold chains, which were typically bought as a quasi-investment vehicle by the general public due to their lower markups. Information from research contacts suggests that demand for these items was notably stronger when the local gold price dropped towards the psychologically important level of ¥4,000/gramme. Elsewhere, there was a healthy increase in the low-carat segment, in particular for pink and yellow gold.

ELECTRONICS

— Gold used in electronics slumped 11% year-on-year in 2012, dragged down by the weaker economic environment and substitution losses.

Global electronics demand fell for the second year in succession, registering a hefty 11% drop last year to 284.5 tonnes. Weak consumer sentiment remained a driving force in dampening growth in this segment, with the European debt crisis, slowing growth in emerging markets and regional conflicts all impacting on demand as they limited spending on electrical and electronic appliances. In addition to this economical impact, the elevated gold price has also accelerated the substitution losses of the yellow metal within the electronic industry as gold’s market share of bonding wire is eroded primarily by plain copper and palladium coated copper wires. It is estimated that non-precious wires are now approaching 25% of the bonding wire market, with further attrition expected in coming years as copper and, more recently, aluminium alloy wires are introduced to higher end packages.

Significant falls in fine gold offtake were recorded in this segment across several fabricating countries, particularly Japan, Singapore and South Korea (the primary

fabrication markets for gold bonding wire - GBW). China, which has enjoyed uninterrupted growth since 2001, also faced stiff headwinds as a weaker domestic economy and migration to copper wires saw electronic demand there fall by 6% year-on-year.

According to the Semiconductor Industry Association (SIA), total sales of semi-conductors fell by only 3% last year, thanks to healthier sales in the final quarter which were supported by strong growth in smart phones, tablets, optoelectronics and memory applications. Looking at regional performance reveals the true impact of the European financial crisis with sales in Europe slumping almost 12% in 2012.

Looking to 2013, Thomson Reuters GFMS anticipate further attrition in gold bonding wire fabrication as the rate of migration to cheaper alternatives increases, placing further pressure on fine gold demand in the field of electronics. Recently released data suggests semi-conductor sales have returned to growth in early 2013, led by a healthy rise in US demand, however, it is the continued weakness in Japanese and European demand that is likely to shape the demand trends for the remainder of the year.

Last year, demand for gold in the Japaneseelectronics sector fell by 19% to reach 88 tonnes, a level last seen in the early 2000s. The main drivers behind the drop, were related to a fragile global economic backdrop which hampered growth in the electronics sector. Other contributing factors remained the elevated gold price environment which saw the rate of miniaturisation and substitution gather pace, forcing the industry to look for cheaper alternatives. Indeed, demand for palladium coated copper last year increased by nearly 50% in some components, while other variants such as silver bonding wire were introduced in several products.

A small loss was also recorded for electronics fabrication in the UnitedStates last year. Again, part of this is understood to be due to lower exports of GPC and other gold-bearing compounds. Sustained efforts to thrift on the use of the metal or replace it entirely are also of consequence, arguably more so. A key feature here are moves to switch to cheaper palladium-containing alternatives. The country’s decline at only 4%, however, was, like Europe’s, smaller than global losses, again reflecting less exposure to GBW fabrication. It may be too early, however, for the reported instances of ‘onshoring’ to lift offtake, as this has yet to be noted by our industry contacts as having raised their production.

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Chinese electronic demand was not immune to the weak economic environment in the industrialised world, with export demand hit heavily by the global slowdown. Negative sentiment at home, deriving from (relatively) weaker domestic economic conditions, particularly in the first three quarters of last year, also dampened domestic consumer spending. According to Thomson Reuters GFMS’ estimates, demand for gold used in electronics declined by 6% last year (the first drop in over a decade) to 48 tonnes. Demand in this sector is largely driven by GBW fabrication and this faced similar head winds to the other GBW producing countries in the region. Reduced export orders, coupled with the pressure to cut costs, accelerated the use of palladium coated copper bonding wires, which continued to gain market share at the expense of gold, particularly in lower end applications.

Gold use in the SouthKorean electronics sector suffered a 15% decline last year. A combination of factors including weaker export demand from traditional trading partners, sluggish GDP growth and weaker consumer spending at home all impacted on demand. In addition, miniaturisation, and the continuous drive to reduce retail prices of products pushed manufacturers to look for reductions in gold weightings per package, with this trend driven largely by the elevated price environment. In response to the market’s demand, production of high

grade copper wire or palladium plated copper wire rose significantly. New alternatives such as silver bonding wire or even gold plated copper wire have been tested and should be available on a commercial scale from next year. Some signs of an improvement in demand were detected already this year on the back of recovering economy in the United States as well as a growing domestic consumption in China.

Last year, Taiwanese electronics fabrication declined by 8% to reach 16.7 tonnes. Given Taiwan‘s heavy dependency on exports (primarily trade with the Chinese mainland), the slowdown in the economy there and broadly across the industrialised world saw end-user demand for finished goods decline. Higher gold prices added further pressure as chip manufacturers looked to reduce package costs, with substitution away from gold bonding wires to plain copper (and palladium coated wires) a key motivator for the annual decline.

European electronic demand fell by a little over 5% in 2012. As with the other industrial & decorative category, part of the reason is the decline in shipments of GPC to East Asia due to European producers’ market share losses or relocation. Another factor is growing use of imported assembled components. This development has done much to curtail end-use by the local automotive industry, which previously had been strong thanks to still robust output of high end vehicles, which typically have a far higher electronics component, and the migration of top end features to cheaper cars. Thrifting and substitution has also been all too apparent, particularly in the field of telecommunications. It is of note, however, that the region’s drop was smaller than the global average as Europe has little exposure to perhaps the most undermined field of GBW.

WORLD FABRICATION OF GOLD BONDING WIREGLOBAL SEMI-CONDUCTOR BILLINGS

0

100

200

300

400

20112009200720052003

Num

ber o

f shi

pmen

ts (m

illio

ns)

Source: SIA

Other Asia/Pacific

Europe

Japan

Americas

0

40

80

120

160

200

20112009200720052003

Tonn

es

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS, OECD

Industrial Production (2003 = 100)

60

80

100

120OECD Industrial Production

(semi-conductor shipments per year, millions)

World Americas Europe Japan Asia

2011 300.8 55.4 37.9 43.3 164.2

2012 291.1 54.0 33.4 41.4 162.3

Change -9.7 -1.4 -4.5 -1.8 -1.9

Change % -3% -3% -12% -4% -1%

Source: SIA

GLOBAL BILLINGS

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GOLD SURVEY 2013

DENTISTRY

— Demand for gold from the dental sector declined by 10%, to the lowest level in our data series going back to 1968. The losses were driven by the high gold price and the associated substitution to non-metallic substrates base metals and in places palladium.

Dental fabrication in Europe saw further losses in 2012, continuing a trend that has now been in place since 2005. It had once been supposed that this slide might slow as the bulk of structural changes became historical. However, the pace has if anything accelerated, with losses last year at over 20% and early indications for 2013 suggest similar weakness. Much of the long run drop has been price-related as people have switched to base metal alternatives, such as cobalt:chrome, particularly when state-funded dental care was curtailed. The cosmetically superior option of ceramics has also seen its costs fall as techniques have improved, with this material now often cheaper than gold. It is also now reportedly capable of replacing the metal in almost all areas, which has led to speculation by some contacts that the use of gold in dentistry might at some point virtually disappear.

Substantial, if not as marked, losses were also recorded in the UnitedStates, as any earlier conservatism about moving away from gold-bearing alloys continued to be pushed aside by high prices. One difference of note between the two regions is that palladium has fared relatively better in the US market, with some contacts reporting that the use of that metal in the country’s dental field is now greater than gold’s.

Last year demand from the Japanese dental industry eased by 5% and reached 19 tonnes. The precious metals dental alloy market in Japan is largely shaped by demand for Kimpala 12, a gold:palladium dental alloy subsidised by the Ministry of Health Labour and Wealth due to the alloy’s durability and a long term cost effectiveness. The correlation between subsidies, the level of which is fixed each quarter based on historical prices, and the current materials price can often be one of the factors impacting Kimpala’s demand from dentists. As the level of subsidies last year exceeded the material price, subsidies were responsible for the decline in gold demand. One of main reasons contributing to a gradual and long-term decline for gold (and palladium) in dentistry is the expansion of usage of non-metallic products such as porcelain, composite resins, modified glass ionomer cements and others, all of which not only offer affordable alternatives but more importantly provide more cosmetically pleasing results. Additionally, initiating prevention and better dental hygiene reduces the need for dental intervention.

TABLE 9 - ELECTRONICS (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Japan 100.4 108.0 112.4 123.6 128.4 116.0 94.5 115.0 108.0 88.0

United States 44.1 51.9 55.2 57.4 50.2 52.1 46.2 55.8 58.3 55.7

China 11.7 13.2 14.6 20.3 23.6 31.2 39.5 46.4 51.0 48.0

South Korea 23.4 26.2 28.0 32.9 35.6 33.3 28.8 33.4 31.6 27.0

Taiwan 10.4 12.8 14.6 17.1 18.1 17.1 16.1 19.4 18.1 16.7

Russia 11.1 11.9 12.0 12.1 12.6 13.1 12.3 12.4 12.5 12.6

Singapore 9.8 11.4 18.5 18.5 18.3 17.2 15.1 16.3 13.8 11.3

Germany 10.3 11.3 12.2 14.3 15.3 14.5 9.8 12.6 12.0 11.2

Switzerland 4.2 8.5 7.3 8.9 9.1 7.5 4.7 5.9 5.6 5.4

India 1.1 2.0 2.2 2.6 2.5 2.1 1.9 2.6 2.5 2.4

CIS (ex Russia) 2.0 2.1 2.1 2.2 2.2 2.2 2.0 2.0 2.1 2.0

Hong Kong 1.4 1.6 1.7 1.9 2.0 1.9 1.7 1.9 2.0 1.8

Other Countries 6.7 5.0 4.7 4.4 4.0 3.2 2.3 2.5 2.5 2.4

WorldTotal 236.5 266.0 285.6 316.1 321.7 311.2 274.9 326.0 319.9 284.5

DENTAL GOLD FABRICATION

0

20

40

60

80

20112009200720052003

Tonn

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Other

United States

Japan

Germany

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OTHER INDUSTRIAL AND DECORATIVE USES

— China continued to outperform by enjoying growth, defying the global trend of a 5% drop, while demand in India slipped by 21%, triggered by losses from plating and jari manufacturing.

Given a troubled economic backdrop, it might come as little surprise that Europe’sother industrial & decorative fabrication fell marginally last year. However, one important cause of this was the unrelated factor, shown in the graph opposite, of the ongoing fall in shipments of gold-containing compounds to East Asia. This chiefly occurred as these compounds, primarily gold potassium cyanide (GPC), are ever more sourced locally as the quality of East Asian suppliers improves and as western producers relocate capacity. Another factor contributing to the decline for this overall category was the drop in the plating of carat jewellery (its fabrication within Europe having fallen by 7% in 2012).

Losses for the total were, however, pared back by further strong gains for sales of plating salts to the luxury accessories industry. It had been feared that many of the brands producing these goods had built excessive stocks but these concerns have lifted, given such factors as China’s economy having avoided a hard landing. It is also reported that sales of plating salts to producers of silver jewellery were also strong as high gold prices boosted jewellery pieces that retained a link to gold and were still ‘precious’ but were cheaper. Lastly, there was an increase in the sale of GPC to those producing electro-formed jewellery (we record this here rather than as jewellery fabrication since the first point of transformation from bullion is the production of GPC). This in turn was largely the product of sales into the principal homes for this form of jewellery, North Africa and the Middle East, recovering, although volumes remain far below those achieved before the outbreak of political problems.

Other industrial & decorative use of gold in India fell over 20% last year, with losses mainly in the ‘other industrial’ segment. In addition to slower GDP growth and despite sharp currency depreciation, there was a loss of cost competitiveness compared to some neighbouring countries, which undermined offtake for plating purposes. Many of the firms operating in this sector are said to be diversifying away from the more industrial sphere to decorative end-uses.

This shift was reinforced by the growing popularity of plated jewellery in the northern and western regions of India, due chiefly to high gold prices. This most obviously affected the market through adaptations to new fashion trends while staying within personal budgets, particularly amongst younger women. Another evolving segment is older women, who are switching to plated jewellery due to a growing fear of being robbed of high value carat jewellery. Also, bridal collections in so called ‘one-gram’ gold jewellery are performing well in sections of lower income groups. The term ‘one-gram’ should not be taken in a literal sense as the weight can go as low as 100 milligrams of 22-carat gold, depending on the type of jewellery purchased.

TABLE 10 - DENTISTRY (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Japan 22.3 22.3 23.0 23.2 23.1 23.1 22.8 21.4 20.0 19.0

United States 13.8 14.1 13.9 13.4 12.1 11.4 10.8 9.8 8.5 7.4

South Korea 3.5 3.3 3.2 3.2 3.1 3.0 2.9 2.7 2.5 2.4

Germany 12.8 13.4 8.8 7.7 7.0 6.4 5.7 4.9 3.5 2.3

Russia 1.9 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.9

Switzerland 3.2 3.2 2.5 2.8 2.8 2.6 2.4 2.0 1.7 1.5

Netherlands 2.6 2.6 2.5 2.4 2.1 2.0 1.8 1.7 1.5 1.3

Italy 3.3 3.3 3.2 2.8 2.5 2.3 1.9 1.5 0.9 0.7

Other Countries 3.5 3.5 3.4 3.3 3.0 3.0 2.5 2.4 2.2 2.0

WorldTotal 67.0 67.6 62.4 60.7 57.6 55.7 52.7 48.4 42.9 38.6

OTHER INDUSTRIAL & DECORATIVE USES

0

20

40

60

80

100

120

20112009200720052003

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0

500

1000

1500

2000Real Gold Price

India

East Asia

Other Europe

Switzerland

Other

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The plated jewellery market is mostly in the hands of informal players, although a few branded producers are present, offering guarantees on the coating and purity for their products (normally done to a 22-carat and on occasions a 24-carat standard). It is, however, mainly offered under different brand names to avoid undermining the existing brand image. Also of note is that few of the regional retailers and those selling through the shop-in-shop format have been testing this space, even though this segment has been growing at a rate of nearly 30% over the last two years.

In contrast, the volume of jari (the thread used in the weaving of saris) has fallen significantly due to budget constraints. The volume of end-use has dropped to such an extent that the government of Tamil Nadu relaxed the usage of gold and silver in ‘Kancipuram silk saris’ (a brand that has a dominant market share in silk saris in south India) since December 2011; it was reduced to 40% silver and 0.5% gold from 57% and 0.6% respectively. In addition, the recycling of silk saris has boomed, especially for saris from before 2000, as the designs in jari being used then were often notably more elaborate.

Other industrial & decorative fabrication in EastAsia slipped 2% in 2012, the first decline in over a decade, as modest growth in China failed to offset falls elsewhere; if we exclude China from the regional total, the fall was more in line with the global average of a 5% decline. This sector of industry had enjoyed almost uninterrupted growth in recent years, largely as a result of the relocation of GPC production from western markets (mainly Europe) due to lower labour costs. In addition, demand from domestic markets has also grown sharply due to the rapid economic advancement of the region. This has in turn seen demand for plating salts rise on the back of growth within the accessories sector.

Looking briefly at the regional demand trends last year (and excluding China for the moment), demand for plated carat jewellery declined in several markets as both domestic and export demand faltered in response to the higher gold prices and a weaker economic environment. On the other hand, demand for plated costume jewellery was considerably stronger, with Indonesia and Thailand benefitting from this substitution.

China’s demand for gold use in the other industrial and decorative segment again defied the global trend to register a 2% rise, reaching a record 19.2 tonnes. Demand in this sector was largely driven by gains in plating salts (gold potassium cyanide) offtake which is widely used for electroplating of a wide range of luxury goods and accessories such as belt buckles, watch cases, and sunglasses. It is worth noting that this was the lowest growth in a decade reflecting weaker retail domestic sales which, having peaked during the traditionally strong first quarter, subsequently eased thereafter, only to recover some losses in the final months of the year.

TABLE 11 - OTHER INDUSTRIAL & DECORATIVE USES (INCLUDING THE USE OF SCRAP)

(tonnes) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

China 4.3 5.0 5.5 6.3 8.1 10.1 13.9 17.2 18.7 19.2

South Korea 5.2 5.6 7.6 9.8 11.3 11.1 10.0 11.8 11.4 10.8

Switzerland 10.0 14.0 13.4 13.1 14.2 12.9 10.1 11.5 10.8 9.8

India 19.9 22.6 26.2 24.5 22.5 19.3 12.2 13.2 11.5 9.1

Italy 5.6 5.6 7.0 7.8 9.7 10.9 8.6 8.0 7.7 8.2

Japan 6.5 6.5 6.3 6.7 6.9 6.7 6.5 6.4 5.9 5.4

Brazil 2.0 1.8 2.0 2.5 3.5 3.7 3.4 3.7 3.7 3.6

Germany 4.6 4.1 3.8 3.7 3.7 3.6 2.6 3.2 3.2 3.0

Thailand 1.8 2.0 2.4 2.5 2.6 2.7 2.4 2.6 2.5 2.6

United States 7.5 8.1 5.7 4.5 3.1 2.8 2.5 3.0 3.0 2.5

Hong Kong 1.3 1.3 1.4 1.5 1.6 1.6 1.5 1.7 1.7 1.6

Other Countries 13.5 8.4 8.5 8.8 9.2 9.3 8.6 8.8 8.9 8.8

WorldTotal 82.1 85.0 89.7 91.6 96.3 94.5 82.2 90.9 88.9 84.4

CHINESE IMPORTS OF GOLD COMPOUNDS

0

5

10

15

20

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20112009200720052003

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Taiwan

Japan

Other

Hong Kong

Europe

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8.APPENDICES

Appendix 1 - Gold Futures and Options Turnover (Comex and Tocom) 111

Appendix 2 - Official Sector Holdings and Other Reserves 112

Appendix 3 - Nominal Gold Prices in Various Currencies 1979-2012 113

Appendix 4 - Real Gold Prices in Various Currencies 1979-2012 114

Appendix 5 - Gold Prices and Annotated Graph 2003 115










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GOLD SURVEY 2013

APPENDIX 1 - GOLD FUTURES AND OPTIONS TURNOVER

Gold Contracts on COMEX Gold Contracts on TOCOM Gold Equivalent Futures Options Futures Options Futures Turnover1 Open Interest2 Turnover1 Turnover Turnover Turnover1 Open Interest2 (100 oz) (100 oz) (100 oz) (tonnes) (tonnes) (1kg) (1kg)

2003 12,228,189 279,381 4,310,318 38,033 13,406 26,637,897 377,870

2004 14,960,597 318,735 4,668,793 46,532 14,521 17,385,766 344,086

2005 15,890,617 323,247 2,886,183 49,425 8,977 17,958,240 299,973

2006 15,917,524 344,915 3,708,573 49,508 11,535 22,228,198 242,743

2007 25,060,440 541,854 3,555,038 77,945 11,057 18,202,949 177,089

2008 38,373,367 306,651 4,392,637 119,353 13,662 14,960,381 72,439

2009 35,136,388 489,779 4,850,111 109,285 15,085 11,913,502 134,163

2010 44,730,345 585,114 7,673,165 139,125 23,866 12,198,340 117,657

2011 49,171,091 419,154 9,477,081 152,937 29,477 15,193,602 123,688

2012 43,893,380 427,991 9,106,807 136,522 28,325 11,895,357 145,738

2011

Jan 4,724,586 463,700 836,501 14,695 2,602 1,011,846 130,185

Feb 2,740,447 509,724 737,821 8,524 2,295 868,189 123,033

Mar 4,512,310 497,625 695,706 14,035 2,164 1,268,032 97,494

Apr 3,145,214 531,882 647,036 9,783 2,012 1,171,559 111,095

May 4,955,279 501,400 753,929 15,412 2,345 1,199,330 123,424

Jun 3,078,861 491,065 596,182 9,576 1,854 1,158,002 126,257

Jul 4,278,165 518,850 749,985 13,306 2,333 1,266,848 131,615

Aug 6,406,493 502,784 1,548,134 19,926 4,815 2,581,114 126,040

Sep 5,297,035 439,874 942,007 16,475 2,930 1,931,203 123,081

Oct 3,025,717 440,335 661,727 9,411 2,058 1,248,463 127,700

Nov 4,105,135 430,118 622,466 12,768 1,936 267,845 45,071

Dec 2,901,849 419,154 685,587 9,026 2,132 1,221,171 123,688

2012

Jan 4,146,564 425,133 701,880 12,897 2,183 1,027,800 120,294

Feb 3,506,653 461,741 793,468 10,907 2,468 1,025,835 115,143

Mar 4,860,601 404,680 920,467 15,118 2,863 1,156,449 127,745

Apr 2,834,798 408,005 680,180 8,817 2,116 818,339 136,426

May 4,913,675 416,909 866,518 15,283 2,695 1,017,132 137,992

Jun 3,479,372 418,129 738,099 10,822 2,296 894,355 133,425

Jul 3,732,707 403,403 704,099 11,610 2,190 751,839 133,663

Aug 2,793,530 438,033 631,297 8,689 1,964 798,314 146,153

Sep 3,460,788 486,521 811,616 10,764 2,524 1,106,584 139,747

Oct 3,147,021 457,811 650,680 9,788 2,024 1,010,981 142,474

Nov 4,380,328 442,584 848,426 13,624 2,639 1,169,694 149,201

Dec 2,637,343 427,991 760,077 8,203 2,364 1,118,035 145,738

1. Turnover refers to period total 2. Open Interest refers to end-period

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APPENDIX 2 - OFFICIAL SECTOR GOLD HOLDINGS AND OTHER RESERVES

end-2003 end-2012 Gold Gold Other Other Reserves Reserves million oz tonnes $ billion1 $ billion2 $ billion million oz tonnes $ billion1 $ billion2 $ billion

United States 261.55 8,135 11.04 108.87 74.89 261.50 8,134 11.04 433.43 139.13

Germany 110.58 3,440 179.97 46.03 50.69 109.04 3,391 181.43 180.73 67.42

Italy 78.83 2,452 129.95 32.81 30.37 78.83 2,452 131.17 130.66 50.50

France 97.25 3,025 129.08 40.48 30.19 78.30 2,435 130.29 129.78 54.23

China, P.R.: Mainland 19.29 600 9.82 8.03 408.15 33.89 1,054 9.82 56.17 3,331.12

Switzerland 52.51 1,633 55.41 21.86 47.65 33.44 1,040 57.82 55.43 475.66

Russia 12.55 390 49.74 5.22 73.17 30.79 958 51.04 51.04 486.58

Japan 24.60 765 40.56 10.24 663.29 24.60 765 40.94 40.78 1,227.15

Netherlands 25.00 777 32.46 10.40 11.17 19.69 612 32.77 32.64 22.05

India 11.50 358 26.24 4.79 98.94 17.93 558 27.22 29.72 270.59

Taiwan 13.62 424 4.51 5.67 206.63 13.62 424 5.28 22.58 403.17

Portugal 16.63 517 20.27 6.92 5.88 12.30 382 20.46 20.38 2.20

Venezuela 11.47 357 18.91 4.77 16.03 11.76 366 19.82 19.49 6.67

Turkey 3.73 116 15.71 1.55 33.99 11.56 360 19.23 19.17 99.94

Saudi Arabia 4.60 143 0.41 1.91 22.62 10.38 323 0.41 17.21 656.46

United Kingdom 10.07 313 16.44 4.19 35.35 9.98 310 16.53 16.53 88.60

Lebanon 9.22 287 15.31 3.84 12.52 9.22 287 15.94 15.29 37.12

Spain 16.83 523 14.93 7.00 19.79 9.05 282 15.07 15.01 35.52

Austria 10.21 318 14.84 4.25 8.47 9.00 280 14.98 14.92 12.23

Belgium 8.29 258 12.06 3.45 10.99 7.31 227 12.17 12.12 18.60

Philippines 8.22 256 10.55 3.42 13.65 6.20 193 10.35 10.27 73.48

Algeria 5.58 174 0.30 2.32 33.13 5.58 174 0.30 9.25 189.25

Thailand 2.60 81 8.36 1.08 41.08 4.90 152 8.28 8.12 173.33

Singapore 4.10 127 0.21 1.70 96.03 4.10 127 0.21 6.79 259.09

Sweden 5.96 185 6.77 2.48 19.68 4.04 126 6.72 6.70 45.52

South Africa 3.98 124 6.68 1.65 6.50 4.02 125 6.70 6.67 44.00

Mexico 0.17 5 6.63 0.07 58.96 4.00 125 6.64 6.64 160.41

Libya 4.62 144 0.16 1.92 19.58 3.75 117 0.16 6.22 116.58

Kazakhstan 1.74 54 5.56 0.72 4.24 3.71 115 6.15 6.14 22.13

Greece 3.45 107 5.92 1.44 4.36 3.60 112 5.99 5.96 1.27

ECB 24.66 767 16.14 502

IMF 103.44 3,217 90.47 2,814

BIS 6.17 192 3.73 116

World 1,040.95 32,377 1,018.89 31,691

1 National valuation 2 Market valuation based on end-2003 and end-2012 gold prices respectively

Source: IMF and central bank websites

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APPENDIX 3 - NOMINAL GOLD PRICES IN VARIOUS CURRENCIES

Average, high and low US$ prices are based on the London PM fix. Except for the Mumbai price, other prices are calculated using the PM fix and London exchange rates. PM Fix Low High Mumbai US$/oz US$/oz US$/oz Euro/kg* SF/kg Yen/g A$/oz Rand/kg Yuan/g Rs/10 g

1979 304.69 216.85 512.00 9,187 16,324 2,189 274.76 8,279 15.23 1,043

1980 614.50 481.50 850.00 18,284 32,946 4,457 537.56 15,331 29.60 1,452

1981 459.24 391.25 599.25 17,000 28,997 3,247 399.71 12,863 25.17 1,705

1982 375.17 296.75 481.00 15,016 24,599 3,016 371.96 13,142 22.83 1,708

1983 423.61 374.25 509.25 17,752 28,564 3,238 470.00 15,162 26.91 1,821

1984 360.78 307.50 405.85 16,811 27,144 2,749 409.90 16,948 26.91 1,958

1985 317.26 284.25 340.90 15,314 24,982 2,429 453.70 22,855 29.95 2,106

1986 367.85 326.30 438.10 13,067 21,147 1,983 553.11 27,126 40.84 2,210

1987 446.22 390.00 499.75 13,181 21,383 2,073 636.24 29,217 53.40 2,891

1988 436.87 395.30 483.90 12,604 20,532 1,801 560.13 31,889 52.28 3,202

1989 380.79 355.75 415.80 11,770 20,021 1,688 481.25 32,063 46.10 3,185

1990 383.59 345.85 423.75 10,192 17,148 1,784 491.27 31,893 58.99 3,406

1991 362.26 344.25 403.00 9,885 16,707 1,567 465.03 32,154 62.00 4,033

1992 343.95 330.35 359.60 8,819 15,522 1,400 468.13 31,502 60.98 4,255

1993 359.82 326.10 405.60 9,793 17,103 1,282 530.13 37,880 66.66 4,384

1994 384.15 369.65 396.25 10,235 16,865 1,261 525.36 43,867 106.45 4,652

1995 384.05 372.40 395.55 9,042 14,589 1,160 518.50 44,787 103.12 4,799

1996 387.87 367.40 414.80 9,587 15,388 1,355 495.99 53,466 103.68 5,191

1997 331.29 283.00 366.55 9,429 15,457 1,286 445.02 48,993 88.30 4,556

1998 294.09 273.40 313.15 8,506 13,707 1,238 467.79 52,307 78.28 4,182

1999 278.57 252.80 325.50 8,405 13,450 1,018 431.84 54,764 74.14 4,327

2000 279.11 263.80 312.70 9,734 15,158 967 480.88 62,173 74.29 4,518

2001 271.04 255.95 293.25 9,737 14,714 1,058 524.53 74,842 72.13 4,462

2002 309.68 277.75 349.30 10,545 15,470 1,245 569.76 104,477 82.41 5,131

2003 363.32 319.90 416.25 10,328 15,704 1,352 558.35 88,008 96.68 5,620

2004 409.17 375.00 454.20 10,582 16,335 1,422 556.01 84,738 108.88 6,119

2005 444.45 411.10 536.50 11,521 17,839 1,577 583.36 91,114 117.09 6,454

2006 603.77 524.75 725.00 15,452 24,298 2,256 801.47 131,751 154.78 8,912

2007 695.39 608.40 841.10 16,294 26,775 2,628 828.48 157,352 169.85 9,345

2008 871.96 712.50 1,011.25 19,071 30,267 2,907 1,033.13 229,694 194.79 12,256

2009 972.35 810.00 1,212.50 22,402 33,834 2,919 1,235.22 261,600 213.98 15,310

2010 1,224.52 1,058.00 1,421.00 29,739 38,267 3,444 1,331.28 287,568 266.15 18,386

2011 1,571.52 1,319.00 1,895.00 36,328 57,426 4,017 1,524.33 368,623 326.59 24,003

2012 1,668.98 1,540.00 1,791.75 41,755 57,238 4,278 1,610.49 440,575 338.51 29,730

* Prior to 1999 Deutsche Mark prices have been converted into Euros at the official conversion rate

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APPENDIX 4 - REAL GOLD PRICES IN VARIOUS CURRENCIES (CPI DEFLATED - CONSTANT 2012 MONEY TERMS)

Average, high and low US$ prices are based on the London PM fix. Except for the Mumbai price, other prices are calculated using the PM fix and London exchange rates. PM Fix Low High Mumbai US$/oz US$/oz US$/oz Euro/kg* SF/kg Yen/g A$/oz Rand/kg Yuan/g Rs/10 g

1979 963.96 686.05 1,619.82 17,571 31,179 3,048 1,160.93 172,495 89.18 14,112

1980 1,712.72 1,342.02 2,369.10 33,170 60,493 5,757 2,062.49 281,036 161.19 17,639

1981 1,160.29 988.51 1,514.03 29,007 49,996 3,998 1,398.10 204,592 133.60 18,310

1982 892.87 706.24 1,144.74 24,340 40,144 3,615 1,170.57 182,341 118.76 17,011

1983 976.79 862.97 1,174.26 27,862 45,272 3,809 1,343.23 187,311 137.25 16,204

1984 797.49 679.70 897.10 25,765 41,803 3,163 1,126.97 187,741 133.59 16,081

1985 677.16 606.71 727.62 22,969 37,198 2,738 1,168.62 217,701 132.93 16,384

1986 770.83 683.75 918.02 19,623 31,256 2,222 1,306.03 217,761 169.36 15,823

1987 901.32 787.76 1,009.45 19,746 31,154 2,320 1,384.78 201,918 206.55 19,021

1988 848.43 767.69 939.76 18,645 29,361 2,002 1,136.91 195,409 170.32 19,165

1989 705.47 659.07 770.32 16,941 27,753 1,835 908.16 171,248 126.90 17,961

1990 674.25 607.91 744.84 14,285 22,557 1,881 864.22 149,000 157.58 17,625

1991 610.88 580.52 679.59 14,698 20,756 1,600 792.51 130,248 159.96 18,329

1992 562.96 540.70 588.57 12,479 18,534 1,406 790.01 112,058 147.95 17,299

1993 572.04 518.44 644.83 13,269 19,775 1,271 878.70 122,814 141.13 16,757

1994 595.21 572.74 613.96 13,497 19,334 1,242 854.61 130,554 181.41 16,135

1995 578.82 561.26 596.15 11,723 16,430 1,144 806.06 122,645 150.34 15,100

1996 567.92 537.95 607.36 12,251 17,189 1,334 751.43 136,382 139.54 14,989

1997 474.01 404.91 524.45 11,827 17,176 1,244 672.53 115,078 115.59 12,276

1998 414.34 385.19 441.20 10,570 15,229 1,190 700.96 114,955 103.35 9,949

1999 384.07 348.54 448.78 10,385 14,821 981 637.74 114,424 99.29 9,838

2000 372.25 351.83 417.05 11,854 16,449 939 679.75 108,625 99.23 9,874

2001 351.55 331.98 380.36 11,628 15,811 1,035 710.32 140,442 95.65 9,405

2002 395.39 354.63 445.98 12,417 16,517 1,229 749.08 179,595 110.13 10,362

2003 453.59 399.38 519.67 12,036 16,661 1,338 714.29 142,912 127.73 10,933

2004 497.50 455.96 552.26 12,131 17,193 1,408 695.01 135,721 138.47 11,469

2005 522.67 483.45 630.92 13,005 18,557 1,566 710.24 141,136 146.24 11,606

2006 688.02 597.97 826.16 17,171 25,012 2,234 942.79 195,107 190.53 15,105

2007 770.03 673.71 931.39 17,701 27,362 2,601 951.58 217,429 199.60 14,884

2008 930.52 760.34 1,079.16 20,188 30,198 2,838 1,137.28 284,636 216.23 18,020

2009 1,040.47 866.75 1,297.45 23,639 33,919 2,889 1,335.54 302,627 239.20 20,303

2010 1,289.20 1,113.88 1,496.06 31,029 38,098 3,433 1,399.68 319,085 287.98 21,766

2011 1,604.26 1,346.48 1,934.48 37,050 57,043 4,016 1,550.44 389,493 335.24 26,096

2012 1,668.98 1,540.00 1,791.75 41,755 57,238 4,278 1,610.49 440,575 338.51 29,730

* Prior to 1999 Deutsche Mark prices have been converted into Euros at the official conversion rate

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APPENDIX 5 - GOLD PRICES IN 2003

London London High Low AM fix PM fix PM fix PM fix Rupees/ US$/oz US$/oz US$/oz US$/oz Euro/kg SF/kg Yen/g A$/oz Rand/kg £/oz 10g

Annual Average 363.83 363.32 10,328 15,704 1,352 558.35 88,008 222.21 5,620

Maximum 417.25 416.25 11,342 17,082 1,472 646.63 103,874 240.58 6,210

Minimum 319.75 319.90 9,603 14,373 1,238 511.31 76,368 205.65 5,060

Range:Average 26.8% 26.5% 16.8% 17.2% 17.3% 24.2% 31.3% 15.7% 20.5%

Monthly Average

Jan 356.86 356.86 369.90 343.80 10,802 15,791 1,363 611.92 99,729 220.68 5,752

Feb 359.58 358.97 382.10 344.10 10,707 15,703 1,379 603.30 95,498 223.16 5,772

Mar 341.56 340.55 354.70 329.45 10,128 14,878 1,298 565.73 88,043 215.04 5,423

Apr 328.21 328.18 336.75 319.90 9,719 14,540 1,265 538.55 80,812 208.40 5,189

May 355.41 355.68 371.40 340.50 9,882 14,968 1,341 549.41 87,939 219.12 5,558

Jun 356.91 356.35 366.75 343.85 9,819 15,125 1,356 535.87 90,198 214.65 5,509

Jul 350.77 351.02 365.60 342.50 9,920 15,347 1,339 530.32 85,048 216.19 5,363

Aug 358.99 359.77 375.60 347.50 10,363 15,961 1,373 552.02 85,330 225.60 5,462

Sep 378.88 378.95 390.70 370.00 10,828 16,755 1,399 572.10 88,913 234.92 5,718

Oct 379.09 378.92 388.25 370.25 10,400 16,109 1,333 545.39 84,795 225.71 5,698

Nov 390.20 389.91 398.35 377.90 10,699 16,684 1,368 544.09 84,180 230.70 5,850

Dec 407.62 406.95 416.25 400.25 10,669 16,583 1,411 551.34 85,015 232.90 6,097

Quarterly Average

Mar 352.62 352.09 10,547 15,459 1,346 593.79 94,490 219.59 5,655

Jun 347.01 346.90 9,807 14,882 1,321 541.19 86,380 214.06 5,421

Sep 362.81 363.16 10,364 16,013 1,370 551.14 86,443 225.42 5,514

Dec 391.92 391.06 10,579 16,440 1,368 546.79 84,664 229.52 5,887

US$

/oz


250

300

350

400

450

US$/oz

Rand

Yen

A$

Euro

DecNovOctSepAugJulJunMayAprMarFebJan

US$/oz; other currencies reindexed to 2nd January


Banco de Potugalannounces 15t sale

US-led warbegins in Iraq

Banco de Portugalannounces 45t sale

US declaresend to Iraqi

hostilities

Terroristbombing

in Mumbai

Bank of Greeceannounces20t sale

Terrorist bombingof Jakarta Marriot

Newmont reports 109tQ2 hedge reduction

Swiss National Bankconfirms sales up to

and beyond end_September 04

SaddamHussein Captured

Iraqi gunboatfires on

Kuwaiti vessel

GOLD PRICES IN 2003, PM FIX DAILY

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116

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GOLD SURVEY 2013



Annual Average 409.53 409.17 10,582 16,335 1,422 556.01 84,738 223.38 6,119

Maximum 455.75 454.20 11,201 17,531 1,507 585.15 97,046 241.06 6,755

Minimum 373.50 375.00 10,152 15,436 1,351 511.62 76,599 210.33 5,600

Range:Average 20.1% 19.4% 9.9% 12.8% 10.9% 13.2% 24.1% 13.8% 18.9%

Monthly Average

Jan 414.50 413.79 425.50 399.75 10,540 16,505 1,414 536.94 92,565 226.97 6,183

Feb 404.73 404.88 416.00 393.25 10,298 16,204 1,388 520.87 87,831 216.83 6,019

Mar 405.98 406.67 423.70 390.50 10,658 16,685 1,418 542.46 86,408 222.66 5,987

Apr 404.85 403.26 427.25 386.00 10,816 16,823 1,397 543.17 85,374 223.93 5,914

May 383.95 383.78 393.60 375.00 10,280 15,830 1,385 545.50 83,638 214.70 5,741

Jun 391.78 392.37 404.25 384.85 10,388 15,775 1,380 565.14 80,983 214.72 5,862

Jul 398.44 398.09 406.50 387.30 10,433 15,930 1,400 556.09 78,420 216.10 6,055

Aug 400.13 400.51 410.60 390.85 10,556 16,241 1,420 562.55 83,137 219.91 6,124

Sep 405.40 405.28 415.65 396.30 10,670 16,466 1,435 577.17 85,149 226.13 6,166

Oct 420.21 420.46 429.15 411.25 10,817 16,685 1,471 573.09 86,383 232.76 6,361

Nov 439.06 439.38 453.40 423.50 10,865 16,529 1,479 569.93 85,275 236.16 6,549

Dec 442.97 442.08 454.20 434.00 10,629 16,316 1,477 577.14 81,760 229.22 6,444

Quarterly Average

Mar 408.38 408.44 10,507 16,476 1,407 533.90 88,873 222.25 6,064

Jun 393.63 393.27 10,495 16,136 1,387 551.82 83,250 217.73 5,839

Sep 401.34 401.30 10,553 16,212 1,418 565.31 82,221 220.72 6,112

Dec 434.16 433.80 10,777 16,517 1,476 573.21 84,573 232.88 6,453

US$

/oz


300

350

400

450

500

US$/oz

Rand

Yen

A$Euro


Source: Thomson Reuters GFMSDecNovOctSepAugJulJunMayAprMarFebJan

Dutch Central Bankto sell 100t over

next 5 years

Bundesbank considers600t of salesin new CBGA

New CBGAannounced

Banco de Portugalannounces 35t

of recent sale

Net fund positionson Comex atrecord high

Banque de Franceannounces potential

500-600t of sales

Swiss National Bankannounces 130t of remainingsales under new CBGA

Argentine Central Bankannounces July and

August purchases

China raisesinterest rates

US$ hits record lowagainst euro

South AsianTsunami


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APPEN

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GOLD SURVEY 2013


Annual Average 444.99 444.45 11,521 17,839 1,577 583.36 91,114 244.95 6,455

Maximum 537.50 536.50 14,431 22,422 2,070 710.76 109,323 310.39 8,100

Minimum 411.50 411.10 10,301 15,943 1,385 531.09 80,518 220.58 5,950

Range:Average 28.3% 28.2% 35.8% 36.3% 43.4% 30.8% 31.6% 36.7% 33.3%

Monthly Average

Jan 424.08 424.03 427.75 420.00 10,413 16,111 1,409 554.16 81,686 225.98 6,152

Feb 423.43 423.35 435.45 411.10 10,457 16,218 1,429 541.99 81,797 224.34 6,101

Mar 434.35 434.32 443.70 425.15 10,569 16,374 1,468 552.35 84,048 227.66 6,270

Apr 429.14 429.23 437.00 423.45 10,665 16,499 1,480 555.22 84,902 226.39 6,147

May 422.90 421.87 429.15 414.45 10,690 16,518 1,446 551.00 86,053 227.61 6,030

Jun 430.30 430.66 440.55 415.35 11,390 17,533 1,505 561.52 93,382 236.91 6,131

Jul 424.75 424.48 432.60 418.35 11,340 17,669 1,528 564.06 91,523 242.44 6,060

Aug 437.77 437.93 447.25 430.65 11,450 17,784 1,557 574.87 91,008 244.07 6,258

Sep 455.94 456.05 473.25 439.60 11,976 18,561 1,630 595.78 93,289 252.36 6,533

Oct 470.11 469.90 475.50 462.85 12,568 19,458 1,735 623.53 99,476 266.40 6,874

Nov 476.67 476.67 496.00 456.50 13,010 20,103 1,816 648.36 101,938 274.98 7,131

Dec 509.42 510.10 536.50 489.00 13,829 21,396 1,947 684.77 104,298 293.06 7,588

Quarterly Average

Mar 427.40 427.35 10,481 16,237 1,436 549.55 82,536 226.02 6,174

Jun 427.57 427.39 10,926 16,866 1,478 556.08 88,229 230.45 6,101

Sep 439.71 439.72 11,593 18,010 1,572 578.45 91,947 246.35 6,285

Dec 484.88 484.20 13,099 20,262 1,827 650.56 101,787 277.36 7,209


US$

/oz


350

400

450

500

550

600

650


US$/oz

Rand

Yen

A$

Euro



French vote“no” to EU

constitution

Iraqi election

Bank of Korea todiversify reserves

First Palestenianelection since 1996

Syria announces plansto withdraw from

the Lebanon

Swedish National Bankannounces 15t and a further 45t of sales under new CBGA Dutch vote “no”

to EU constitution

Chinese yuan revalued by 2.1%

Terroristattacks

on London

Katrinastrikesthe US

Gulf coast

Oil priceat record

high

US first time joblessclaims at 2-year high

Swedish National Bankannounces plans to sell 10tunder year two of CBGA 2

Paris riotsbegin

Gold at 24-yearhigh

Bank of Portugalreveals 10t of sales

over past month


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GOLD SURVEY 2013



Annual Average 604.34 603.77 15,452 24,298 2,256 801.40 131,719 327.68 8,913

Maximum 725.75 725.00 18,094 28,036 2,575 936.27 153,245 383.54 10,665

Minimum 520.75 524.75 13,952 21,568 1,955 702.64 103,939 298.90 7,620

Range:Average 33.9% 33.2% 26.8% 26.6% 27.5% 29.1% 37.4% 25.8% 34.2%

Monthly Average

Jan 549.43 549.86 568.75 524.75 14,588 22,599 2,041 733.38 107,510 311.21 7,918

Feb 555.52 555.00 572.15 538.75 14,949 23,298 2,102 748.55 109,141 317.66 8,029

Mar 557.22 557.09 584.00 535.00 14,895 23,384 2,101 767.30 111,928 319.53 8,059

Apr 611.85 610.65 644.00 586.50 15,985 25,174 2,296 828.35 119,414 345.23 8,957

May 676.77 675.39 725.00 642.25 16,996 26,450 2,424 883.77 137,326 361.14 9,969

Jun 597.90 596.15 641.80 567.00 15,140 23,617 2,196 805.91 133,553 323.44 8,943

Jul 633.09 633.71 663.25 605.70 16,060 25,203 2,357 842.14 144,470 343.54 9,568

Aug 631.56 632.59 654.40 613.40 15,873 25,040 2,356 828.74 141,141 333.90 9,546

Sep 600.15 598.19 637.75 573.60 15,113 23,889 2,252 791.84 143,017 317.15 8,975

Oct 586.65 585.78 608.50 560.75 14,931 23,741 2,235 777.19 143,957 312.32 8,704

Nov 626.83 627.83 646.70 614.10 15,662 24,938 2,367 812.79 146,267 328.37 9,141

Dec 629.51 629.79 648.75 614.00 15,319 24,423 2,368 801.36 142,593 320.77 9,132

Quarterly Average

Mar 554.13 554.07 14,811 23,099 2,082 750.31 109,607 316.22 8,002

Jun 629.17 627.71 16,028 25,052 2,304 839.34 130,680 342.85 9,294

Sep 621.76 621.67 15,685 24,716 2,322 821.03 142,849 331.57 9,361

Dec 613.61 613.21 15,302 24,363 2,320 796.77 144,410 320.46 9,015

US$

/oz


450

500

550

600

650

700

750

800


US$/oz

Rand

Yen

A$

Euro

US$/oz; other currencies reindexed to 3rd January


Hamas winsPalestinian

elections

Iran removes UNseals at the Natanzuranium plant

ECB announce 57-tonne gold sale

BT pension fund to invest3% in commodities

Silver ETFstarts trading

Gold at26-yearhigh

Banco de Portugalreveals 20 tonnes sale

Euro rises to 1.32against US dollar

Oil price at17-month low

israel attacksLebanon

N. Korea missile test

N. Korea conductsfirst nuclear test

Israel-Hezbollahconflict

Chinese central bankcomments on

reserve allocation


GS 2013 App 5-14.indd 118 21/03/2013 11:49:45

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APPEN

DICES

GOLD SURVEY 2013


Annual Average 696.43 695.39 16,294 26,775 2,628 828.48 157,352 346.98 9,345

Maximum 841.75 841.10 18,410 30,503 3,049 950.89 184,202 418.36 10,715

Minimum 608.30 608.40 15,063 24,242 2,324 756.38 141,802 314.34 8,520

Range:Average 33.5% 33.5% 20.5% 23.4% 27.6% 23.5% 26.9% 30.0% 23.5%

Monthly Average

Jan 630.35 631.17 651.75 608.40 15,622 25,235 2,444 806.34 145,906 322.24 9,078

Feb 665.10 664.75 685.75 645.70 16,337 26,486 2,575 849.24 153,416 339.42 9,585

Mar 655.89 654.90 670.40 636.75 15,899 25,647 2,470 825.87 154,830 336.27 9,368

Apr 680.01 679.37 691.40 658.25 16,141 26,442 2,597 820.08 155,142 341.37 9,329

May 668.31 666.86 688.80 652.65 15,863 26,185 2,590 807.95 150,515 336.31 8,884

Jun 655.71 655.49 671.50 642.10 15,707 25,990 2,585 778.16 150,842 329.87 8,713

Jul 665.27 665.30 684.30 648.75 15,587 25,828 2,598 767.08 149,158 327.08 8,755

Aug 664.53 665.41 675.50 657.50 15,704 25,728 2,497 803.62 154,562 330.97 8,824

Sep 710.65 712.65 743.00 672.00 16,471 27,158 2,636 841.85 162,798 352.92 9,322

Oct 754.48 754.60 789.50 725.50 17,049 28,490 2,811 839.32 164,058 368.93 9,696

Nov 808.31 806.25 841.10 778.85 17,663 29,119 2,875 900.72 174,059 389.36 10,341

Dec 803.62 803.20 833.75 784.25 17,729 29,422 2,900 920.81 176,124 397.28 10,291

Quarterly Average

Mar 649.99 649.82 15,941 25,767 2,494 826.46 151,320 332.43 9,314

Jun 667.62 666.84 15,896 26,198 2,590 801.47 152,069 335.67 8,975

Sep 679.19 680.13 15,903 26,209 2,575 803.00 155,278 336.49 8,950

Dec 787.57 786.25 17,453 28,969 2,858 883.45 170,915 383.95 10,107


US$

/oz


500

600

700

800

900


US$/oz

Rand

Yen

A$Euro

50

25

25



Cut in FedFunds rate,basis points

Dollar weakenson lower than

expected UStrade report

Lihir buybackrevealed

Iran detainsUK personnel

Global stockmarkets fall

Novartis pensionfund reveals 4%

move intocommodities

News emerges ofprospective Iranian

and US talks

SNB announcesplan to sell 250tover CBGA year

Bear Stearns provides$3.2bn in loans tobail out hedge fund

Slump inbond markets

Newcrest reveals2.3 Moz hedge

book cut

Turkish troopscross into

Iraq

EuroBenazir Bhuttoassassinated

Gold price at27-year high

ECB injects €95bnto reassure markets

Turkish forcesoccupy Iraqi

village


GS 2013 App 5-14.indd 119 21/03/2013 11:49:46

120

APPEN

DICES

GOLD SURVEY 2013



Annual Average 872.37 871.96 19,071 30,267 2,907 1,033 229,694 471.62 12,256

Maximum 1,023.50 1,011.25 21,390 33,263 3,313 1,374 276,780 607.45 14,105

Minimum 692.50 712.50 17,015 26,398 2,134 908 185,415 418.08 10,650

Range: Average 37.9% 34.3% 22.9% 22.7% 40.6% 45.1% 39.8% 40.2% 28.2%

Monthly Average

Jan 887.78 889.60 924.50 846.75 19,432 31,471 3,080 1,009.10 200,499 451.79 11,284

Feb 924.28 922.30 971.50 887.50 20,103 32,320 3,176 1,010.01 227,169 469.63 11,886

Mar 971.06 968.43 1,011.25 925.75 20,048 31,514 3,140 1,047.54 248,320 483.51 12,618

Apr 911.60 909.70 946.00 871.00 18,565 29,649 3,002 977.78 227,189 459.16 11,829

May 889.13 888.66 927.50 853.00 18,374 29,851 2,981 936.24 217,581 452.26 12,165

Jun 889.54 889.49 930.25 862.25 18,381 29,665 3,057 935.20 227,087 452.14 12,356

Jul 941.17 939.77 986.00 897.50 19,171 31,049 3,228 976.57 230,081 472.39 13,026

Aug 840.39 839.03 912.50 786.50 18,009 29,190 2,948 950.22 206,526 444.29 11,858

Sep 824.92 829.93 905.00 740.75 18,581 29,588 2,845 1,014.19 214,901 461.11 12,211

Oct 812.82 806.62 903.50 712.50 19,498 29,610 2,600 1,176.83 251,530 476.78 12,768

Nov 757.85 760.86 822.50 713.50 19,204 29,138 2,369 1,157.99 247,689 497.72 12,157

Dec 819.94 816.09 880.25 749.00 19,531 30,131 2,395 1,218.67 261,862 547.45 12,884

Quarterly Average

Mar 925.67 924.83 19,848 31,772 3,131 1,021.19 224,187 467.55 11,912

Jun 897.11 896.29 18,443 29,718 3,014 950.40 224,105 454.63 12,114

Sep 870.81 871.60 18,613 29,983 3,012 981.19 217,695 459.93 12,389

Dec 797.98 794.76 19,413 29,618 2,463 1,183.57 253,457 505.19 12,611

US$

/oz


500

600

700

800

900

1000

1100

1200

1300


US$/oz

Rand

Yen

A$

Euro



South Africanpowercrisis

50Collapse of BearStearns Dollar at record

low against euroBailoutof AIG

Collapse ofWashingtonMutual

Israeli/Gazaconflictbegins

75

5075

2550

75

Cut in FedFunds rate,basis points

Gold atrecord high

BT Pension Fundinvests £350minto commodities

Oil price atrecord high

Collapse of Lehman Brothers US interest

rates athistoric low


GS 2013 App 5-14.indd 120 21/03/2013 11:49:48

121

APPEN

DICES

GOLD SURVEY 2013



Annual Average 973.66 972.35 22,409 33,834 2,919 1,235.22 261,600 621.07 15,233

Maximum 1,218.25 1,212.50 25,857 38,963 3,442 1,543.63 324,690 729.97 18,220

Minimum 813.00 810.00 19,910 29,318 2,337 1,126.74 232,031 552.67 12,905

Range: Average 41.6% 41.4% 26.5% 28.5% 37.9% 33.8% 35.4% 28.5% 34.9%

Monthly Average

Jan 857.73 858.69 919.50 810.00 20,873 31,146 2,491 1,274.87 274,207 593.75 13,490

Feb 939.76 943.16 989.00 895.00 23,711 35,327 2,817 1,452.13 302,852 654.60 14,777

Mar 925.99 924.27 956.50 893.25 22,786 34,341 2,907 1,388.33 295,769 651.12 15,241

Apr 892.66 890.20 924.50 870.25 21,701 32,871 2,826 1,246.27 256,786 604.96 14,481

May 926.86 928.64 975.50 884.50 21,858 33,029 2,882 1,212.81 250,402 600.96 14,606

Jun 947.81 945.67 981.75 920.60 21,699 32,879 2,940 1,178.77 244,502 577.62 14,639

Jul 934.27 934.23 955.00 908.50 21,329 32,417 2,837 1,160.93 238,850 570.28 14,722

Aug 949.50 949.38 964.00 932.75 21,402 32,626 2,900 1,136.98 242,761 573.97 14,968

Sep 996.44 996.59 1,018.50 955.00 21,997 33,322 2,929 1,156.35 240,750 611.05 15,730

Oct 1,043.51 1,043.16 1,061.75 1,003.50 22,625 34,257 3,029 1,150.68 250,902 644.18 15,859

Nov 1,126.12 1,127.04 1,182.75 1,061.00 24,287 36,683 3,229 1,225.26 271,867 678.62 17,057

Dec 1,135.01 1,134.72 1,212.50 1,084.00 24,938 37,506 3,267 1,253.58 273,289 696.85 17,150

Quarterly Average

Mar 907.61 908.41 22,442 33,589 2,739.87 1,370.76 290,830 633.10 14,467

Jun 923.20 922.18 21,749 32,923 2,884.56 1,211.50 250,367 593.86 14,577

Sep 960.00 960.00 21,577 32,788 2,887.37 1,152.01 240,696 585.21 15,125

Dec 1,100.64 1,099.63 23,897 36,075 3,169.69 1,208.06 264,864 672.38 16,712

US$

/oz


500

600

700

800

900

1000

1100

1200

1300

Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan

US$/oz

Rand

Yen

A$

Euro

Record inflows into ETFs

FOMCbegins ‘debt

monetisation’

New CBGAannounced

US unemploymentat 26-year high

ECB cutsinterest rate by 50basis points

US consumerprices fall most

since 1955

China reveals a454-tonne increasein its gold reserves

Germany, Japanand France

exit recession Barrick announcesthe closure of allgold hedges

IMF approves goldsales of 403.3 tonnes

India buys200 tonnes ofgold from IMF

Suspension ofDubai World

debt repayment




GS 2013 App 5-14.indd 121 21/03/2013 11:49:50

122

APPEN

DICES

GOLD SURVEY 2013



Annual Average 1,226.66 1,224.52 29,739 38,267 3,443.66 1,331.28 287,568 790.98 18,304

Maximum 1,426.00 1,421.00 34,573 48,247 3,792.49 1,523.73 315,461 911.35 20,780

Minimum 1,052.25 1,058.00 24,668 32,111 3,040.31 1,197.71 258,374 668.89 16,055

Range: Average 30.5% 29.6% 33.3% 42.2% 21.8% 24.5% 19.9% 30.7% 25.8%

Monthly Average

Jan 1,119.58 1,117.96 1,153.00 1,078.50 25,185 36,733 3,276 1,223.52 267,977 691.54 16,704

Feb 1,095.80 1,095.41 1,119.00 1,058.00 25,747 34,588 3,176 1,236.24 270,322 701.11 16,531

Mar 1,115.55 1,113.34 1,136.50 1,090.75 26,376 33,560 3,248 1,220.21 265,304 739.05 16,604

Apr 1,148.48 1,148.69 1,179.25 1,123.50 27,532 34,561 3,452 1,239.14 271,686 748.31 16,682

May 1,204.32 1,205.43 1,237.50 1,165.00 30,982 34,304 3,566 1,388.40 297,049 824.96 18,084

Jun 1,232.38 1,232.92 1,261.00 1,203.50 32,447 35,237 3,599 1,445.96 303,046 836.15 18,732

Jul 1,196.00 1,192.97 1,234.00 1,157.00 29,990 36,414 3,356 1,362.26 289,175 779.94 18,287

Aug 1,213.46 1,215.81 1,246.00 1,187.50 30,294 37,606 3,338 1,351.46 285,102 776.53 18,493

Sep 1,271.46 1,270.98 1,307.50 1,240.50 31,214 40,849 3,448 1,353.89 290,863 816.11 19,087

Oct 1,343.19 1,342.02 1,373.25 1,313.50 31,040 44,554 3,527 1,366.99 298,077 846.21 19,481

Nov 1,371.78 1,369.89 1,421.00 1,337.50 32,278 44,761 3,635 1,384.60 307,132 858.71 20,134

Dec 1,393.51 1,390.55 1,420.00 1,363.00 33,827 46,040 3,732 1,403.69 305,888 890.93 20,508

Quarterly Average

Mar 1,110.56 1,109.12 25,798 36,117 3,234.21 1,226.35 267,746 711.92 16,615

Jun 1,196.13 1,196.74 30,369 34,732 3,540.10 1,359.75 290,794 800.55 17,826

Sep 1,227.18 1,226.75 30,503 38,300 3,381.48 1,355.94 288,431 791.08 18,605

Dec 1,369.53 1,366.78 32,333 45,083 3,628.36 1,384.49 303,684 863.91 20,044

US$

/oz


900

1000

1100

1200

1300

1400

1500

1600


US$/oz

Rand

Yen

A$

Euro



BIS announces it received 346 tonnesof gold in ‘swap’ operations

EU-IMF endorse Irish bailout

FOMC announces$600 billion QE2 package

Earthquakein Chile

Greece asks for EU-IMFfinancial rescue package

North Korea torpedoesSouth Korean ship

Eurozone sovereign debt crisis

IMF announces sale of 10 tonnesto the Central Bank of Bangladesh North Korea shells

South Korea

Anglogold Ashanti completes 95 tonnebuyback


GS 2013 App 5-14.indd 122 21/03/2013 11:49:52

123

APPEN

DICES

GOLD SURVEY 2013



Annual Average 1,573.16 1,571.52 36,355 57,426 4,017.36 1,524.33 368,623 981.23 23,899

Maximum 1,896.50 1,895.00 43,403 78,313 4,697.99 1,801.96 468,817 1,188.73 29,140

Minimum 1,316.00 1,319.00 31,041 44,673 3,488.92 1,313.79 296,075 822.83 19,660

Range:Average 36.9% 36.7% 34.0% 58.6% 30.1% 32.0% 46.9% 37.3% 39.7%

Monthly Average

Jan 1,360.48 1,356.40 1,388.50 1,319.00 32,639 45,517 3,606.50 1,363.50 302,589 858.51 20,218

Feb 1,371.31 1,372.73 1,411.50 1,328.00 32,328 46,437 3,645.73 1,361.18 316,975 850.73 20,333

Mar 1,422.85 1,424.01 1,447.00 1,400.50 32,676 49,811 3,740.14 1,408.63 315,893 881.20 20,811

Apr 1,474.43 1,473.81 1,535.50 1,418.00 32,845 52,653 3,952.21 1,396.16 319,014 902.39 21,484

May 1,512.19 1,510.44 1,541.00 1,478.50 33,947 55,555 3,940.13 1,417.05 333,859 925.50 22,148

Jun 1,528.38 1,528.66 1,552.50 1,498.00 34,160 58,534 3,954.84 1,441.56 333,895 943.63 22,330

Jul 1,568.53 1,572.81 1,628.50 1,483.00 35,422 61,506 4,009.88 1,459.74 343,419 972.55 22,634

Aug 1,759.50 1,755.81 1,877.50 1,623.00 39,434 72,392 4,344.52 1,673.33 400,230 1,070.91 25,980

Sep 1,780.65 1,771.85 1,895.00 1,598.00 41,384 65,502 4,375.60 1,730.72 429,747 1,122.95 27,481

Oct 1,667.89 1,665.21 1,741.00 1,617.00 39,022 59,770 4,103.12 1,641.11 425,959 1,055.86 26,617

Nov 1,735.98 1,738.98 1,795.00 1,681.00 41,245 61,574 4,333.29 1,721.75 455,619 1,100.54 28,526

Dec 1,652.73 1,652.31 1,752.00 1,531.00 40,292 57,008 4,134.39 1,633.17 435,424 1,060.24 28,096

Quarterly Average

Mar 1,386.69 1,386.27 32,552 47,337 3,666.58 1,378.77 311,950 864.32 19,660

Jun 1,506.80 1,506.13 33,687 55,730 3,949.05 1,419.40 329,343 924.27 20,745

Sep 1,704.96 1,702.12 38,798 66,543 4,246.92 1,623.75 391,866 1,057.86 21,585

Dec 1,686.85 1,688.01 40,199 59,605 4,195.36 1,667.85 439,449 1,073.26 25,915

US$

/oz


1000

1300

1600

1900

2200

2500


US$/oz

Rand

Yen

A$

Euro

US$/oz; other currencies reindexed to 4th January


Earthquake strikesnorth-east Japan

Portugal seeks EU bailout

Bond sales by Italy and Spain

Political tension in MENA

Osama bin Laden killed

IEA releases 600 millionbarrels of stockpiled oil

Greek governmentpasses austerity cuts

Standard & Poor’s downgrades US debt to ‘AA+’

SNB announces a ceiling for CHF against the Euro

Fed announces ‘Operation Twist’

Libyan leader Gadaffi killed

North Korean leaderKim Jong-il dies

Italian P.M Berlusconiresigns


GS 2013 App 5-14.indd 123 21/03/2013 11:49:54

124

APPEN

DICES

GOLD SURVEY 2013



Annual Average 1,668.86 1,668.98 41,755 57,238 4,278.04 1,610.49 440,575 1,052.96 29,730

Maximum 1,790.00 1,791.75 44,514 63,840 4,621.00 1,750.72 506,434 1,129.28 32,640

Minimum 1,537.50 1,540.00 39,028 50,765 3,909.00 1,517.90 402,433 968.45 27,320

Range:Average 15.1% 15.1% 13.1% 22.8% 16.6% 14.5% 23.6% 15.3% 17.9%

Monthly Average

Jan 1,656.10 1,656.12 1,744.00 1,598.00 41,309 56,724 4,098.00 1,590.99 426,739 1,066.84 27,694

Feb 1,743.10 1,742.62 1,781.00 1,711.50 42,333 61,433 4,400.00 1,623.28 428,052 1,102.60 28,247

Mar 1,675.06 1,673.77 1,714.00 1,635.50 40,746 58,934 4,435.00 1,590.30 409,467 1,057.93 27,979

Apr 1,648.54 1,650.07 1,677.50 1,621.00 40,288 58,033 4,309.00 1,592.55 415,533 1,031.25 28,719

May 1,585.11 1,585.50 1,664.00 1,540.00 39,869 54,275 4,061.00 1,590.63 416,470 997.47 28,923

Jun 1,595.63 1,596.70 1,635.00 1,558.50 40,934 53,609 4,076.00 1,595.06 430,127 1,024.47 29,951

Jul 1,592.78 1,593.91 1,622.00 1,556.25 41,708 52,435 4,047.00 1,547.97 422,715 1,021.84 29,588

Aug 1,625.68 1,626.03 1,668.00 1,597.00 42,155 53,983 4,113.00 1,552.14 431,987 1,034.69 30,336

Sep 1,741.93 1,744.45 1,784.50 1,690.00 43,579 59,707 4,383.00 1,678.06 463,411 1,082.18 31,778

Oct 1,746.35 1,747.01 1,791.75 1,706.50 43,291 60,242 4,436.00 1,696.78 485,875 1,086.93 31,156

Nov 1,724.35 1,721.14 1,750.50 1,683.50 43,139 58,903 4,482.00 1,654.17 487,328 1,078.15 31,728

Dec 1,687.34 1,688.53 1,720.00 1,650.50 41,431 58,845 4,529.00 1,610.57 468,349 1,046.07 30,967

Quarterly Average

Mar 1,691.16 1,690.57 41,452 59,029 4,313.00 1,601.35 421,232 1,075.79 27,969

Jun 1,608.53 1,609.49 40,339 55,207 4,145.00 1,592.64 420,582 1,016.33 29,241

Sep 1,650.70 1,652.00 42,446 55,240 4,175.00 1,590.06 438,620 1,044.52 30,471

Dec 1,721.27 1,721.79 42,727 59,384 4,478.00 1,658.02 481,585 1,072.61 31,274

US$

/oz


1000

1300

1600

1900

2200


US$/oz

Rand

Yen

A$

Euro

Standard & Poor’s downgrades 9 Eurozonenations, 14 put onnegative outlook

Fed says interest rates to stay low

until at least 2014

ECB launches second round of LTRO

Francois Hollandeelected as

French President

US$/oz; other currencies reindexed to 3rd January


Fed Chairman Bernankefails to mention QE3

Greek default avoided FOMC minutes

released, no sign of QE3Spain seeks

banking rescue

Fed minutes lowerhopes of QE3

Fed extends “Operation Twist”until year-end

Mario Draghi pledgesto do “whatever it takes”

to save euro

Moody’s changesGermany’s outlook

to negative

Fed launches QE3 and anticipates lowinterest rates through mid-2015

Fed minutes promptincreased hopes of QE3

ECB announces “unlimited”bond-buying scheme

German court ratifiesEurozone permanentrescue fund

S&P cuts Spain’scredit rating

Fed announcesQE4 package

Greece bailout funds approved

Barack Obama re-electedas US President


GS 2013 App 5-14.indd 124 21/03/2013 11:49:57

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INTERACTIVE MAP ON THOMSON REUTERS EIKON

THE NEXT GENERATION OF FUNDAMENTALS ANALYSIS

002948_Ad1_v1.indd 1 21/12/2012 11:17

The cover of the Gold Survey 2013 features: twelve 500 gramme Tanaka cast bars, twenty nine 50 gramme Tanaka minted bars, nine 500 gramme Valcambi minted bars, nine 50 gramme Valcambi CombibarsTM and fifteen 50 gramme Valcambi minted bars.

Cover designed by Russell Miller and Matt Cleveland, photography by Henrik Andersen

TANAKA PRECIOUS METALS Tanaka Precious Metals is Japan’s leading precious metals refiner and manufacturer. Although best known internationally for its high specification industrial products, used in various applications ranging from semiconductors to communications, the company is also a producer and trader of a wide range of gold bullion bars and coins. Tanaka bars are acceptable “good delivery” on the London gold market.

The cover of Gold Survey 2013 is sponsored by the following companies:

Valcambi is a leader in precious metals refining and operates one of the world’s largest and most efficient integrated precious metals plants situated on a 33 hectare site, at Balerna, Switzerland.

We are also one of the world’s largest manufacturers of minted ingots. Reacting to the demands of investors in different markets around the globe we continuously carefully developing within the size range from 0,5 g to 1000 g, gold, silver, platinum and palladium minted bars in different forms and new designs. For our clients, according to their wishes we customize individually obverse and reverse of the bars, certificates and tailored packaging solutions.

All products produced in our foundry and minting facilities are certified by our laboratory, carefully inspected by our operators, individually packed and controlled before shipment. The Hallmark is not only a guarantee for quality of Swiss workmanship, it guarantees also the fineness of the most sought after bars in the world, desired by precious metals connoisseurs and investors alike.

A Valcambi manufactured bar is not only sold at an outstanding price but is synonymous with unique craftsmanship, guaranteed fineness, transparency and reliability.

©2013 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. “Thomson Reuters” and the Thomson Reuters logo are trademarks of Thomson Reuters and its affiliated companies.

GOLD SURVEY 2013Prepared by Thomson Reuters GFMS

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