Growing Asian Demand In Physical Gold And Its Impact On Gold

The LBMA Bullion Market Forum 2015
25 June 2015
Growing Asian Demand In
Physical Gold And Its Impact
On Gold Prices
Minerals Council of Australia
Gold Forum
2 June 2015
ANZ Precious Metals at a Glance
Awards
At a Glance
Trading Desks
•Sydney, Singapore, London and New York
2014
Market Maker of
the year
2013
Market Maker of
the year
Lending
•Largest lender to the Natural Resources Industry in
Australia
Derivatives
•Active in Precious Metals derivatives
Physical Gold
2012
2014
Market Maker of
the year
Precious metals
house of the year
•Active in trading over 10% of global supply
Asia
•Significant supplier to Asia: 20% of China’s imports
COMMODITY RISK
SURVEY
COMMODITY RISK
SURVEY
2013
2012
No 1. ranking in
precious metals
No 1. ranking in
precious metals
Shanghai Gold Exchange
•Largest foreign trader on the Shanghai Gold Exchange
Import License in China
•First foreign bank to be awarded the license
10
Session 5 - John Levin
1
The LBMA Bullion Market Forum 2015
25 June 2015
ANZ Finances the Total Supply Chain in Precious Metals
Miners
Project
Financing
Refiners
Pipeline
Loans
Wholesalers
Consignments
Jewellers
Metal
Loans
Fabricators
Inventory
Loans
11
Full Service for Investment Clients
Custody
Trading
• Clients will be able to
access secure vaults in
which to store their Gold
• ANZ has vaults in Perth
and Singapore.
• Clients can buy and sell
Gold through ANZ
• 24 Hour Coverage
• Spot, Swaps and Options
Transportation
Appraisal
• ANZ has agreements in
place with secure transport
companies
• Armoured vehicles and
armed guards are available
for transport to and from
vaults
• ANZ can pick up and
‘assay’ any metal the client
wants to sell and or have
held in ANZ vaults
Session 5 - John Levin
2
The LBMA Bullion Market Forum 2015
25 June 2015
The key East Asia and the Middle East markets
account for 53% of global gold demand
Global Supply & Demand Heat Map
Russia
Canada
Europe
Turkey
Middle East
US
China
Mexico
India
Thailand
Ghana
Vietnam
Indonesia
Peru
Australia
Sth Africa
Supply
Demand
Source: GFMS, WGC, ANZ Commodity Strategy
Discussion Outline
1
Is NOW a good time to invest in gold?
2
Asia’s impact on future gold demand
3
Difference between past and future
14
Session 5 - John Levin
3
The LBMA Bullion Market Forum 2015
25 June 2015
Discussion Outline
1
Is NOW a good time to invest in gold?
15
Precious metals the outperformer of the commodity complex
Precious metals don’t look so bad, do they?
120
•
110
30% over the past 18 months
PM
100
•
90
Agri
80
Industrials
70
ANZ CCI
60
Energy
50
Bulks
40
Jan 14
Apr 14
Jul 14
Oct 14
Jan 15
130
commodity world
•
In some currencies, gold is still in a bull
market
125
EUR
Index, Jan 2014 = 100
Precious metals are the shining beacon in the
Apr 15
Gold looks even better in local currency terms
120
JPY
•
CAD
115
110
GBP
CHF
105
INR
100
Gold
In Euro terms, gold is up nearly 25% in the
past 18 months
AUD
•
Australian, Canadian and Japanese
consumers/producers have seen prices rise by
10-15%
95
90
Jan 14
The ANZ-China Commodity Index is down
Apr 14
Jul 14
Source: Bloomberg, ANZ Research
Session 5 - John Levin
Oct 14
Jan 15
Apr 15
16
4
The LBMA Bullion Market Forum 2015
25 June 2015
What does the big dollar mean for gold?
USD bull markets = gold bear markets…
1980
to
1988
40
100
150
50
90
140
60
130
70
120
80
Higher USD, Lower Gold
110
100
Oct 80
Oct 81
Oct 82
Oct 83
USD
1995
to
2006
70
90
60
100
50
Mar 85
Oct 84
100
110
120
130
140
150
160
170
180
Lower USD, Higher Gold
80
Gold (RHS)
Mar 86
USD
Mar 87
Mar 88
Gold (RHS)
140
60
130
70
120
80
85
140
110
90
80
160
Higher USD, Lower Gold
100
90
Aug 95
100
110
Aug 96
Aug 97
Aug 98
Aug 99
USD
2011
to
----
but the reverse is also true
160
Aug 00
Aug 01
100
100
95
75
180
70
65
Feb 02
Feb 03
Feb 04
USD
Gold (RHS)
140
60
130
70
120
80
110
120
Lower USD, Higher Gold
90
Feb 05
200
Feb 06
Gold (RHS)
Lower USD, Higher Gold
90
Higher USD, Lower Gold
100
90
Oct 11
100
110
Oct 12
Oct 13
Oct 14
USD
Oct 15
USD
Gold (RHS)
Gold (RHS)
17
Source: Bloomberg, ANZ Research
Market Trend #1 - China
Eyes too big for stomach…
500
300
400
250
50
0
0
-50
-100
-100
-200
Metric tonnes
100
100
-150
-300
-200
-400
-250
-500
-300
09
10
Supply
11
Demand
12
13
14
Onshore stocks have increased by over 500
tonnes over the past 12 months
150
200
Metric tonnes
•
200
300
•
This is likely to create problems with
oversupply of physical metal
•
Gold jewellery demand down 10% y/y in the
first quarter of 2015
15
Physical Stock Change (RHS)
… imports are still too high
140
0.5
120
0.4
80
0.2
60
Our Physical Demand barometer showed a
sharp pickup in Q2 imports
0.3
Value
Metric tonnes
100
•
•
This will continue to exacerbate the physical
oversupply issues onshore
0.1
40
0.0
20
0
Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15
Imports (CH)
Source: ANZ Research
Session 5 - John Levin
Imports (HK)
-0.1
•
Physical premiums and spreads will remain
soft this year
(RHS)
Demand Barometer (2m
fwd) (RHS)
18
5
The LBMA Bullion Market Forum 2015
25 June 2015
Market Trend #2 - India
No more supply shortage!
20/80 scheme
implemented
1,700
RBI relaxes
import
restrictions
1,500
•
175
Since the Reserve Bank of India removed
import restrictions, supply has been ample
150
RBI
removes
80:20
1,600
USD/oz
200
125
100
1,400
75
1,300
50
USD/oz
RBI restricts
imports
1,800
•
Physical market premiums have done little
more than trade around par
25
1,200
0
1,100
-25
1,000
Jul 12
-50
Jan 13
Jul 13
Jan 14
Jul 14
Premium (RHS)
Jan 15
MCEX (net)
Import channels now wide open
8.0
600
April
7.0
5.0
300
4.0
200
3.0
Gold imports have picked up since import
controls were relaxed in June 2014
400
Y/Y % change
USD billion
•
500
6.0
•
But volume remains below the “bull market”
run in 2013
100
2.0
0
1.0
0.0
Jul 12
-100
Jan 13
Jul 13
Jan 14
Gold Imports
Jul 14
Jan 15
y/y % change (RHS)
19
Source: Bloomberg, Haver Analytics, ANZ Research
Market Trend #3 - Investors
From a flood to a trickle
2,800
2,000
2,400
1,800
1,600
Overall positioning looks much more balanced
•
Exchange-traded funds not liquidating en-
1,400
1,600
1,200
1,200
1,000
800
masse, in fact holdings have declined only
USD/oz
metric tonnes
2,000
•
marginally in the past 18 months
800
400
600
0
400
05
06
07
08
Other ETFs
09
10
11
12
SPDR Gold Trust
13
14
15
Price (RHS)
“Sentiment ship” is slowly turning
•
But we’re not there yet
•
Speculative positioning is bordering on
neutral, reflecting the lack of a “consensus”
view on gold
Source: Bloomberg, ANZ Research
Session 5 - John Levin
20
6
The LBMA Bullion Market Forum 2015
25 June 2015
Discussion Outline
1
Is NOW a good time to invest in gold?
•
•
•
Gold will rise once the USD has had its run
China/India physical demand is soft, “rush to buy” is not there
Accumulate!
Investors are sidelined by low conviction
2
Asia’s impact on future gold demand
21
The ‘Asian Century’ – an economic perspective of the A10
•
•
Asia’s ascension will be led by 10 economies – China, India, Indonesia, Japan, South
Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam
These 10 economies could account for 50% of global GDP by 2050
Percentage of World GDP Current Prices
60%
Asia 10
50%
40%
30%
20%
10%
USA
Euro Zone
0%
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Source: CEIC, ANZ Research projections
Session 5 - John Levin
7
The LBMA Bullion Market Forum 2015
25 June 2015
The income effect: rising wealth in Asia
Global gold demand intensity (2012)
GER
1.8
1.6
USA
THA
grams per capita
1.4
CAN
1.2
KOR
1.0
VNM
JPN
CHN
0.8
RUS
IND
0.6
MAL
0.4
FRA
IDN
0.2
PHL
0.0
0
10,000
20,000
30,000
40,000
50,000
GDP per capita (2005 USD)
23
Source: Thomson Reuters GFMS, CEPII, ANZ Research
Financial reform and the substitution effect
Economic development can have a negative impact on gold demand
Less
precautionary
gold holdings
More
investment
opportunities
Greater
participation
in equity
markets
Higher/freemarket
deposit rate
Less shadow
banking
Other emerging Asian nations will follow China’s example of
liberalisation over the decades ahead
24
Session 5 - John Levin
8
The LBMA Bullion Market Forum 2015
25 June 2015
Financial reform and Asia’s new fund managers
Institutional asset base of Asia 10 countries to continue growing
Projected size of institutional assets (% of GDP)
400
350
% of GDP
300
250
200
150
100
50
2009
2030
China
India
Indonesia
Japan
South Korea
Malaysia
Philippines
Singapore
Thailand
Vietnam
Asia 10
0
2050
25
Source: World Bank, ANZ Research
Total retail and institutional gold demand to double by 2050
An increase to 5,000 annually, from 2,500 tonnes currently
Asia 10 projected annual gold investment demand
% OF INSTITUTIONAL HOLDINGS BY 2050
RETAIL
CONSUMPTION
(gm/capita)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0.5
1,841
2,024
2,208
2,391
2,575
2,758
2,941
3,125
3,308
3,492
0.6
2,209
2,392
2,576
2,759
2,943
3,126
3,310
3,493
3,677
3,860
0.7
2,577
2,760
2,944
3,127
3,311
3,494
3,678
3,861
4,045
4,228
0.8
2,945
3,129
3,312
3,495
3,679
3,862
4,046
4,229
4,413
4,596
0.9
3,313
3,497
3,680
3,864
4,047
4,231
4,414
4,598
4,781
4,964
1.0
3,681
3,865
4,048
4,232
4,415
4,599
4,782
4,966
5,149
5,333
1.1
4,049
4,233
4,416
4,600
4,783
4,967
5,150
5,334
5,517
5,701
1.2
4,418
4,601
4,785
4,968
5,152
5,335
5,518
5,702
5,885
6,069
1.3
4,786
4,969
5,153
5,336
5,520
5,703
5,887
6,070
6,254
6,437
1.4
5,154
5,337
5,521
5,704
5,888
6,071
6,255
6,438
6,622
6,805
1.5
5,522
5,706
5,889
6,072
6,256
6,439
6,623
6,806
6,990
7,173
1.6
5,890
6,074
6,257
6,441
6,624
6,808
6,991
7,174
7,358
7,541
1.7
6,258
6,442
6,625
6,809
6,992
7,176
7,359
7,543
7,726
7,910
1.8
6,626
6,810
6,993
7,177
7,360
7,544
7,727
7,911
8,094
8,278
1.9
6,995
7,178
7,362
7,545
7,728
7,912
8,095
8,279
8,462
8,646
2.0
7,363
7,546
7,730
7,913
8,097
8,280
8,464
8,647
8,830
9,014
Source: Thomson Reuters GFMS, World Bank, ANZ Research
Session 5 - John Levin
26
9
The LBMA Bullion Market Forum 2015
25 June 2015
Discussion Outline
1
Is NOW a good time to invest in gold?
•
•
•
Gold will rise once the USD has had its run
China/India physical demand is soft, “rush to buy” is not there
Accumulate!
Investors are sidelined by low conviction
2
Asia’s impact on future gold demand
•
•
•
Annual gold demand in Asia to double to 5,000 tonnes by 2050
Higher incomes boosting consumption - “Income” effect
“Substitution” effect initially negative, ultimately positive for demand
3
Difference between past and future
27
The pattern of gold production has changed in recent decades
China is both the world’s largest producer and consumer
135
Source: Thomson Reuters GFMS, ANZ Research
Session 5 - John Levin
28
10
The LBMA Bullion Market Forum 2015
25 June 2015
Ultimately, the producer cost-curve should underpin prices
20% of world production is not profitable on a cash-cost basis
•
Annual Mine Production
•
PNG
Canada
Ghana
Mexico
Uzbekistan
Peru
China
Brazil
Indonesia
Chile
United States
Russia
South Africa
•
Other
Australia and South Africa are some of the
highest-cost producers
Below Ground Reserves
Historically, the 75th percentile has provided a
good guide to long-term price levels
Gold mining is not cheap…
Long-term, the cost-curve will underpin prices
2,000
2,000
1,600
1,800
1,600
1,200
2014 average price
1,400
USD/oz (log scale)
Cash Cost (USD/oz)
China may only have 5 years of domestic
supply left
Australia
tonnes
But the years ahead could look different…
2,000
1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1,200
1,000
800
600
800
600
400
400
200
0
0
250
500
750
1,000
1,250
1,500
1,750
200
2,000
92
Cumulative Production (tonnes)
94
96
Gold Price
98
00
02
04
Weighted Average
06
08
10
75th Percentile
12
14
16
90th Percentile
29
Source: Wood Mackenzie, US Geological Survey, Bloomberg, ANZ Research
Producer hedging was common practice during the 1990’s
But the impact of this is now much smaller
Producer hedging activity in the gold market
tonnes
500
Hedging
250
0
(250)
De-hedging
(500)
92
94
96
98
00
02
04
06
08
10
12
14
1,750
2,500
1,500
1,250
2,000
1,000
1,500
750
1,000
500
500
USD/oz
tonnes
90
3,000
250
0
0
90
92
94
96
98
00
Global Hedge Book
Source: Thomson Reuters GFMS, Bloomberg, ANZ Research
Session 5 - John Levin
02
04
06
08
10
12
14
Avg. gold price (RHS)
30
11
The LBMA Bullion Market Forum 2015
25 June 2015
Central banks no longer net sellers of gold
After liquidating holdings for most of the past 25 years
Central bank activity in the gold market
600
•
400
Central banks became net accumulators of
gold since the global financial crisis
tonnes
200
•
0
Most of the buying has been from emerging
market central banks, particularly Russia,
(200)
Turkey and Kazakhstan
(400)
(600)
(800)
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
Some should be holding more gold
90
•
Percent of total FX reserves
80
“High-income” countries hold an average 20%
70
of FX reserves in gold, though this is heavily
60
skewed by western European countries and
50
the U.S.
40
•
30
20
Countries in the other income brackets hold
gold comprising less than 10% of reserves, on
10
average
0
High-income
Upper middleincome
Lower middleincome
Low income
31
Source: World Gold Council, World Bank, Bloomberg, ANZ Research
CONCLUSIONS
1
Is NOW a good time to invest in gold?
•
•
•
Gold will rise once the USD has had its run
China/India physical demand is soft, “rush to buy” is not there
Accumulate!
Investors are sidelined by low conviction
2
Asia’s impact on future gold demand
•
•
•
Annual gold demand in Asia to double to 5,000 tonnes by 2050
Higher incomes boosting consumption -“Income” effect
“Substitution” effect initially negative, ultimately positive for demand
3
Difference between past and future
•
•
•
Cost-curve is supportive of prices
Producer hedging is minimal and central banks net buyers
Gold prices forecast to reach USD2,400/oz by 2030
32
Session 5 - John Levin
12

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