Gold Survey 2013 Update 2: Prepared by Thomson Reuters GFMS

GOLD SURVEY 2013
UPDATE 2
Prepared by Thomson Reuters GFMS
The cover of Gold Survey 2013 Update 2 is sponsored by the following companies:
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GOLD SURVEY 2013
UPDATE 2
BY:
Rhona O’Connell, Head of Metals Research & Forecasts

William Tankard, Manager, Mining
Cameron Alexander, Manager, Regional Demand
Andrew Leyland, Manager, Regional Demand
Ross Strachan, Manager, Regional Demand
Matthew Piggott, Senior Analyst
Saida Litosh, Senior Analyst
Johann Wiebe, Senior Analyst
Ling Wong, Senior Analyst
Erica Rannestad, Senior Analyst
Samson Li, Senior Analyst
Sudheesh Nambiath, Analyst
Janette Tourney, Analyst
Ryan Cochrane, Analyst
Sara Zhao, Analyst
Natalie Scott-Gray, Analyst
Dante Aranda, Analyst
Beverley Salmon, Customer Relationship Manager

PUBLISHED JANUARY 2014 BY THOMSON REUTERS GFMS
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AR’S GOLD SURVEY AND ITS TWO UPDATES
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TABLE OF CONTENTS
1. Summary and Market Outlook 5
• Supply 6 • Demand 6 • Market Outlook 7
2. Gold Prices in 2013 8

• Price Outlook 10
3. Investment 11
• Implied Net Investment 12 • Investment in Exchange Listed Structured Products 13
• Exchange Traded Funds 13 • Commodities Exchange Activity 14
• Over the Counter Market 15 • Physical Bar Investment 16
• Official Coin Sales and Fabrication 17 • Medals and Imitation Coins 17
4. Mine Supply 18
• Mine Production 18 • Production Costs 22 • Producer Hedging 24
5. Supply From Above-Ground Stocks 25

• Official Sector 25 • Scrap Supply 27
6. Fabrication Demand 29
• Europe 29 • North America 31 • Middle East 32 • Indian Sub-Continent 34 • East Asia 35
7. Price Appendix 38
Focus Boxes
• Investment in Commodities 14 • Corporate Activity 21
• Gold Premia Soar in South Asia 26 • Industrial Demand 37
ACKNOWLEDGEMENTS
The estimates shown in this Update 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 this Update unique. We are grateful to all of them.
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GOLD SURVEY 2013 - UPDATE 2
1. SUMMARY AND MARKET OUTLOOK

As 2013 witnessed an end to the twelve year bull Total fabrication increased by 306 tonnes in 2013,
SUMMARY AND MARKET OUTLOOK

run in gold prices, 2014 is shaping up to be a year of driven by a surge in Asian demand in the second
consolidation for gold with the price drivers continuing quarter. The increase proved short-lived, however, and
to adjust from concerns over the health and stability of as prices stabilised so demand fell back. From July,
the global financial system and back towards physical Indian consumption was also subdued by a ramping up
fundamentals. This may well, in our view, see gold prices of import taxes and restrictions that saw China easily
enter oversold territory during 2014, putting some gold surpass the country as the world’s largest consumer. On
producers, at least temporarily, in the red. Ultimately, the supply side mine production increased by 118 tonnes,
however, we view physical demand for jewellery, bars, or 4%, but this was more than offset by a 219 tonne fall in
coins and industrial uses as being strong enough to scrap generation.
support average prices above the $1,200/oz level in 2014.
The defining factor for the year, however, remained the
There is also still a myriad of upside risks in the market investor sell off and subsequent price declines. The
including potential inflationary pressures, unresolved two most measurable indicators, ETF holdings and the
sovereign debt issues and prospective political crises, COMEX net speculative position, showed outflows of
to name but a few. Meanwhile, downside risk to prices 880 tonnes and 484 tonnes respectively, while numerous
appears more limited given current Asian and Middle other institutional exits were noted throughout the year.
Eastern responses to lower price levels. There is also, The duality of disinvestment in the developed world and
arguably, little economic incentive for a surge of above an increase in physical demand from Asia was witnessed
ground stocks to enter the market should most mine by the largest movement of gold, by value, in history as
supply begin operating at a loss. Average all-in costs, bars were shipped to Asia, often being melted down into
excluding write downs, are estimated around $1,200/oz smaller bars en route. The first half of 2014, by contrast,
in 2013, a level not far off our first half price forecast of is forecast to see less volatility in terms of both prices and
$1,233/oz in 2014. demand as gold consolidates into a new paradigm.
WORLD GOLD SUPPLY AND DEMAND
Change Change
(tonnes) 2012 2013E y-o-y 12.H1 12.H2 13.H1 13.H2E 14.H1F y-o-y
Supply
Mine production 2,864 2,982 4% 1,374 1,490 1,417 1,565 1,446 2%
Old gold scrap 1,591 1,371 -14% 772 819 663 708 628 -5%
Net producer hedging - - n/a - - - - 12 n/a
Implied net disinvestment - 383 n/a - - 613 - - n/a
Total Supply 4,455 4,736 6% 2,146 2,309 2,693 2,273 2,086 -23%

Demand
Fabrication
Jewellery 1,951 2,198 13% 944 1,007 1,175 1,023 989 -16%
Other 734 792 8% 369 365 452 340 354 -22%
Total Fabrication 2,685 2,990 11% 1,313 1,372 1,627 1,363 1,344 -17%
Net official sector purchases 544 359 -34% 281 263 211 147 132 -38%
Physical bar investment 1,007 1,338 33% 502 505 828 510 560 -32%
Net producer de-hedging 40 50 26% 9 30 27 23 - n/a
Implied net investment 179 - n/a 40 139 - 230 50 n/a
Total Demand 4,455 4,736 6% 2,146 2,309 2,693 2,273 2,086 -23%
London PM fix, US$/oz 1,668.98 1,411.23 -15% 1,651.34 1,686.34 1,523.29 1,301.81 1,233.00 -19%

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.
5
SUPPLY DEMAND
——With a 4% increase, mine production demonstrated ——Jewellery fabrication grew by 13% to a five-year high
its short term price inelasticity in 2013. of 2,198 tonnes in 2013.
——Scrap supply fell by 14% last year to 1,371 tonnes, ——Industrial fabrication remained broadly unchanged
primarily as a result of weaker gold prices. last year, at an estimated 405 tonnes.
——Producers continued to reduce hedge positions with
Global mine production increased in 2013, by 4% to an estimated 50 tonne hedge book cut.
total 2,982 tonnes, demonstrating the mining industry’s ——Net official sector purchases fell by 34% to
inelasticity to 2013’s dramatic fall in the gold price. Solid 359 tonnes, although this is still historically high.
production was noted across most regions, in particular ——World Investment slipped by 11% to 1,342 tonnes.
from Asia, Latin America and the Commonwealth of
Independent States (CIS). Africa was the outlier with Last year saw global jewellery fabrication increase for
an estimated 1% fall in aggregate production, in large the first time since 2010, by 13% to 2,198 tonnes, in the
part owing to a continued drop in output from South process contributing to 46% of total demand. In tonnage
Africa. The more clear response in the mining industry terms demand was at its highest level since 2008, all
to last year’s price action has been a global focus on the more remarkable as average annual prices were
cost management. Actions to contain operating costs still some 49% higher than 2008 in real terms. The
have been widespread and, where possible, capital bulk of the gains can be attributed to a surge in Chinese
expenditure is being scaled back or deferred, whilst to- jewellery demand, which posted the largest percentage
date mine closures have been limited. year-on-year increase since 1992. This additional
169 tonnes of demand also saw China become the world’s
Global scrap supply fell 14% to 1,371 tonnes last year, largest consumer of jewellery, surpassing India with
sliding to a five-year low as gold tumbled 29% over the 724 tonnes versus 613 tonnes. Indeed, excluding China
course of the year. The lower price environment and a from the global total reveals that jewellery demand in the
stronger economic performance reduced the incentive rest of the world grew by a relatively modest 5.6%.
for consumers to liquidate gold assets with sizable falls
recorded in all regions. Scrap receipts from the US and The growth in jewellery fabrication noted above was
Europe fell 10% and 17% respectively, as weaker gold largely driven by the sharp gold price correction,
prices and a more robust economic environment lifted particularly in the second quarter of the year, which
consumer confidence. It was a similar outcome for most boosted investment-related buying and attracted
of the price sensitive markets also, with the Middle East many new entrants into the market. As for India, while
recording the largest fall, retreating by over a fifth to a jewellery offtake posted a double-digit percentage
12-year low. South East Asia declined only 13%, though increase in the first half, weaker domestic demand and
a modest rise in Chinese supply helped offset hefty falls government curbs on imports in the second half of the
across most of the region. In contrast, scrap supply in year resulted in a broadly flat outcome for 2013.
India dipped by only 8% last year, as record gold prices
in rupee terms in the third quarter generated significant Elsewhere, jewellery fabrication in the Middle East
liquidations as consumers took profits. posted a sizable increase in 2013, which should be of
little surprise given the region’s historical price sensitivity.
GOLD PRICE AND TRADE WEIGHTED DOLLAR A declining price trend along with a modest economic
Ch1 Gold price and TW$
recovery saw United States jewellery offtake recover
2000 70
strongly last year. Turning to Europe, while the long-
Trade Weighted Dollar Index (H1.02=100, inverted)
running downtrend continued in 2013, losses were

1600
Trade Weighted Dollar 80 mitigated by lower gold prices, delivering a 2.4% drop.
US$/oz (period average)
1200
Gold Price Gold demand in industrial applications slipped by just
90
0.7% last year. The electronics industry saw offtake
800
ease by 0.7% year-on-year while gold used in dental
100 applications continued its long-term declining trend.
400
Finally demand for gold from the other industrial &
decorative segment saw a slight increase last year.
0 110
H1-02 H1-04 H1-06 H1-08 H1-10 H1-12
Source: Thomson Reuters GFMS
6
Producer de-hedging amounted to an estimated MARKET OUTLOOK

50 tonnes in 2013, to leave outstanding positions on a
delta-adjusted basis totalling around 73 tonnes at end- As we move into the first half of 2014, we are expecting
year. On balance producers’ hedging activity as the gold to see continued support from physical demand,

price fell has been either to allow hedges to mature as although the volume levels recorded after the sharp
scheduled or proactively to close out contracts for a profit price corrections in the first half of 2013 will prove
and use the proceeds to pay down debt. To date, fresh difficult to sustain. We are currently forecasting first
hedging in this lower price environment has remained half 2014 physical bar demand to reach 560 tonnes,
comparatively modest. up by almost 50 tonnes compared with the second half
2013 level, albeit significantly lower on a year-on-year
Net official sector purchases slumped by 34% in 2013, basis. While investment demand is expected to weaken
to 359 tonnes. However, this should be seen in the further next year, the metal’s improving supply/demand
context that the prior year total was the highest since the fundamentals should provide some support to the yellow
1960s and the 2013 figure still represents an historically metal. Following several consecutive years of increasing
high level. This level of buying was underpinned by the global mine production, growth is forecast to slow
continued desire of emerging economies to diversify over the next six months, to an estimated year-on-year
portfolios away from major currencies. That said, there increase of 2%. Meanwhile, after posting a 14% year-on-
was a discernibly slower, yet still positive, pace of net year decline in 2013, scrap supply is forecast to continue
purchases after the price falls of the second quarter as drifting lower, falling by an estimated 5% during the first
some central banks became wary of buying given the half of 2014. We therefore expect restrained supply to
perceived potential for further price declines. remain in place in H1 2014, falling by over 600 tonnes
compared with the same period of last year.
World Investment declined by 11% in tonnage terms in
2013 to 1,342 tonnes. The decline in value terms was On the demand side, jewellery fabrication in the first half
significantly larger, at a quarter, to just under $61 billion, of 2014 is currently forecast to fall by some 16% year-on-
which was the lowest level since 2009. It is worth year. Nevertheless, it is important to stress that the first
bearing in mind though that this is still double World half 2013 figure, at 1,175 tonnes, was exceptionally high.
Investment, even after adjusting for inflation, in any year That said, while the lower price environment along with
between 1990 and 2008. The overall picture of World an improving economic outlook should see solid gains in
Investment masks some vastly contrasting trends as the jewellery sector over the next year, we believe that, in
the decline was entirely a function of a sharp change the absence of much lower gold prices, a major upswing
in our implied net (dis-)investment series, which saw in emerging countries’ jewellery demand is unlikely.
very heavy selling in the first half of 2013. Driving this Meanwhile, although net official sector purchases are
change was the perception that US monetary policy was set to ease further, we expect central banks to remain a
set to change sooner rather than later, which, combined net buyer of gold in the first half of 2014. The underlying
with an apparent easing in concerns about European market surplus is therefore likely to narrow in 2014, albeit
sovereign debt, undermined prospects for the gold price. the fundamental position still suggests that the outlook
Accordingly, a number of major institutional players sold for the price remains largely in the hands of investors.
some or all of their positions in gold in the second quarter
of 2013, often by liquidating their ETF holdings, and as a
WORLD GOLD FABRICATION
result they sent the price sharply lower.
1500 2000
Old gold scrap
In contrast, this sharp price decline sparked a surge of Total physical demand* minus scrap
physical bar investment especially across Asia and the 1200
Gold Price
1600
Middle East. At the same time, retail investors in Europe **

and North America also saw lower prices as an opportune 900 1200
US$/oz
Tonnes
time to increase purchases of official coins. In the second

600 800
half of the year purchases of bars and coins returned to
lower levels, with Indian-based medal & imitation coin
300 400
demand being particularly hard hit by the difficulty in
importing metal to that country in the second half of the
0 0
year. Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14
*total fabrication (including coins) and physical bar investment
** forecast
7
GOLD PRICES, 2012-2013
2. GOLD PRICES IN 2013

% change
y-o-y 2013
2012 2013 average intra-year
• The annual average gold price fell for the first time US$/oz 1,668.98 1,411.23 -15.8% -29%
in twelve years in 2013, declining 16% to $1,411/oz. Two Euro/kg 41,755 34,196 -18.1% -32%
violent price drops in the first half pushed the metal down, Yen/g 4,278 4,412 3.1% -14%
to below $1,200/oz on two separate occasions. Yuan/g 338.51 279.18 -17.5% -31%
Rand/kg 440,575 433,964 -1.5% -13%
• The price action was reflected in COMEX activity, which A$/oz 1,610.49 1,454.85 -9.6% -16%
saw the accumulation of significant shorts on multiple Rouble/g 1,667.06 1,401.20 -15.9% -23%
occasions. ETF holdings fell by 33% or 880 tonnes which, TL/g 96.34 85.90 -10.8% -15%
Rps/10g 29,730 29,306 -1.4% -5%
however, were taken up by an Asian-led buying frenzy.
Rph/g 502,315 470,112 -6.4% -10%
Following a twelve year bull run, last year was not a good
year for gold. The yellow metal opened the year with an
am fix of $1,682/oz that soon turned out to be just shy was quickly steered towards doubt surrounding gold’s
of the annual high as gold started its long decent soon ability to stage yet another year of price increases.
thereafter. In fact gold had already started its decline in Some investors had been long of the metal for much of
October 2012, when it peaked at $1,792/oz on the 4th. the upturn and questioned if the clouds of the ‘perfect
GOLD PRICES
After that it trended down in a relatively narrow channel, macroeconomic storm’ were receding. After all, despite
meandering between support and resistance. It was Europe looking far from healthy, a long awaited default
not until mid-April that gold’s first violent move to the or exit by one of the member states remained absent and
downside occurred when it fell off a cliff, triggering many bad news about its troubled economies died down.
stop-losses along the way and plummeted by
$140/oz overnight. At around $1,378/oz a base was On the other side of the Atlantic, economic progress
formed at which bargain hunting emerged. From a turned out to be far more upbeat too, with, despite
technical point of view gold formed a cup-and-handle continued underlying fragilities, an improving economic
formation in which its intermediate high was recorded at climate, ranging from gains in consumer confidence,
the end of April. That level turned out to be the precursor better than expected GDP, rising employment and
of the next move to the downside which was eventually increasing equity markets. With gold trading sideways
more widespread over the month of June, reaching an for most of 2012 and unable properly to breach the
eventual low of $1,192/oz at month-end. The magnitude $1,800/oz mark on three separate occasions, including
of the decline was mainly due to macroeconomic events, one failed attempt at the end of 2011, investors decided
ranging from monetary issues to sovereign debt and to bank some of their paper profits and turn their focus to
fiscal concerns. higher yielding assets such as equities.
The year had started on a gold-positive note with the The underlying price action reflected the activity in
arduous progress of budget negotiations surrounding the futures market on COMEX. Unsurprisingly, net
the fiscal cliff in the US. However, the global debate long positions went through a similar downward trend
GOLD PRICE AND TRADE-WEIGHTED DOLLAR (INVERTED) - DAILY
Indian government Q3 U.S. GDP climbed

2000 Indian goverment raises Gold Price Import duty in 90
raises import duty India raised to 10% 2.8% annualised
import tax on gold and Trade Weighted to 8% vs. expected 2.0%
platinum from 4% to 6% Dollar Imports to India gets
1800 Sequester triggers linked to volume of exports US Fed reduces
EC suggests 95
US spending cuts Cyprus sell US government shuts bond buying
US economy shows
(Inverted, 3rd Jan=100)
Trade Weighted Dollar
€400mn worth down temporarily by $10 bn a month

better-than-expected
on budget impasse
1600 of gold housing data and
unemployment rate falls
US$/oz
100
1400
Fed will keep interest rate 105

1200 near zero until unemployment ECB cuts interest
falls below 6.5% Fed announces it could
rate to new low of
President Obama signs start slowing asset US: added 203,000 new jobs,
0.5% amid region’s
bill to avoid “fiscal cliff” purchases by end-2013 jobless rate fall to 7%
ongoing worries
1000 110
Jan-13 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-14
8
VOLATILITY (US$ SPOT)

particularly driven by the significant accumulation
of speculative shorts, which almost tripled between 2008 2009 2010 2011 2012 2013
January and July, when they reached their 2013 peak of 31.7% 21.4% 15.9% 21.1% 16.8% 22.0%
556 tonnes. Consequently, speculative net longs fell a 12.Q3 12.Q4 13.Q1 13.Q2 13.Q3 13.Q4
stunning 90% over the same period to just 59 tonnes; 14.3% 11.7% 11.1% 29.8% 22.5% 19.5%
the lowest since October 2002. But gold not just lost GOLD PRICE CORRELATIONS*
its shine in the paper market; physical material was also
shunned in the West and dumped en masse, mainly in 13.Q1 13.Q2 13.Q3 13.Q4
US $/Euro Rate 0.09 0.37 0.44 0.62
the form of ETF liquidations. Indeed, outflows in the first
Silver 0.51 0.78 0.63 0.54
half-year totalled 580 tonnes, or 22% of total holdings
Oil (WTI) 0.25 0.40 -0.05 0.02
with a 44% loss in value from $143bn to $81bn.
CRB Index 0.12 0.47 0.22 -0.03
S&P 500 0.11 0.31 0.16 0.05
This metal was not lost, however, quite the contrary,
COMEX ‘Investor’ Long 0.88 -0.15 0.35 0.68
it just needed to find a new home, which it did. In
Based on daily log-returns, save for non-commercial & non-
particular on the first price dip, an enormous buying reportable net COMEX positions where weekly.
frenzy from the Far East emerged, with demand Source: Thomson Reuters GFMS
for physical material destined for India and China
ballooning. As a consequence, UK-led ETF outflows participation rate was not. This, in combination with
found their way to Switzerland where refiners re-melted various indices continuously recording new highs, fuelled
GOLD PRICES
the metal into smaller bars and shipped them East in the rumour that the Fed would soon reduce its monetary
order to satisfy the surge in demand. Gold was not only support. Gold came under further pressure once Indian
hoarded by private individuals but also by various central inflows suffered a considerable dent due to a string
banks for reserve diversification. This led to a shortage of of import tariff hikes and restrictions (20% of imports
physical metal in the market, which raised refiners’ lead required to be set aside for re-export). Although ETF
times, increased premia in India and China and pushed outflows were slowing, total holdings were still declining
gold into backwardation; a phenomenon last witnessed (total holdings for the year fell 33% or 880 tonnes) and
in 1999. Consequently, a short covering rally on COMEX investors started to position themselves for the actual
developed, lifting the speculative net long position from taper announcement by the Fed. Speculative shorts on
the July low more than threefold to 288 tonnes by the COMEX once again accumulated from an end October
beginning of September, while the price revived by 12% low of 260 tonnes to as much as 466 tonnes at the
over the same period to a fix just above $1,400/oz. beginning of December, two weeks before Dr. Bernanke’s
final FOMC meeting as Chairman of the Fed. Those
The reversal looked promising, but shortly lost steam shorts sat comfortably once the Fed did indeed announce
driven by the continuing debate surrounding the Fed’s a $10bn/month reduction in its bond purchasing
potential end to the asset purchase program. Despite program, spread evenly between government bonds
that the US economy still looked fragile, the employment and mortgage backed securities. Consequently, gold
numbers, on which the Fed and BoE had based their continued its way down and closed the year 29% lower at
dual mandate, were improving, although the labour a fix of $1,205/oz.
PRODUCTION & CONSUMPTION-WEIGHTED GOLD PRICES DAILY GOLD PRICE VOLATILITY & LEASING RATES
200 50 1.0
Rolling 1-month volatility (%, annualised)
175
40 0.6
Index, January 2009 = 100
1-month Leasing Rate (%)
150 Leasing
30 Rate 0.2
125
20 -0.2
100
Real Gold Price
Consumption Price 10
75 -0.6
Production Price Volatility
50 0 -1.0
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Source: Thomson Reuters Source: Thomson Reuters
9
GOLD, OIL AND THE CRB INDEX Ch2 Gold

GOLD PRICEpriceAND
and US$/euro
US$/EURO
120 1700 1.40
110 1600
Index, 2nd January 2013= 100
1.35
100 1500
US$/oz
US$:€
90 1400 1.30
80 1300
Oil US$:€ 1.25
CRB
70 1200 Gold Price
Gold
60 1100 1.20
Jan-13 Apr Jul Oct Jan-14 Jan-13 Apr Jul Oct Jan-14
Source: Thomson Reuters Source: Thomson Reuters GFMS
PRICE OUTLOOK When putting all the pieces of the puzzle together we
have come up with the following price forecast for this
Looking forward, we expect physical demand to remain year. In the first quarter we envisage room for a price
solid in comparison to recent years but without a repeat improvement when those accumulated shorts on COMEX
GOLD PRICES
of the bargain hunting surge seen in the first half of unwind, pushing gold up to a high of $1,327/oz. However,
last year. Indian demand is also forecast to remain we do expect that rally to reverse through to a mid-year
constrained by import duties and restrictions until, at average low of around $1,180/oz in both the second and
least, after the election in the spring this year. In the US third quarters, as monetary stimulus further unwinds and
we expect the Fed to continue tapering this year as US the popularity of equity markets remains intact.
unemployment is expected to continue to fall; interest
rate guidance to emerge by late 2014. For the final quarter of the year we forecast gold to gain
some traction, despite continuous monetary stimulus, as
We expect therefore that equity and bond markets will yields on equity markets will start to slow and investors
remain more attractive than gold, although caution is start looking for other assets. This will be supported by
justified. Equity markets finished 2013 on a very solid continued loose monetary policy elsewhere, such as in
note, with the S&P 500 index delivering a return of Europe and Japan, where both central banks are eagerly
around 30% to investors once dividends are included. trying to fight the forces of threatening deflation. Despite
This optimism seems to be supported by robust economic the absence of near-term inflation, negative real interest
growth figures in the US of which the last years’ fourth rates in Europe could well spur savers to look for yields
quarter number posted a strong upwardly revised 4.1%. elsewhere, as banks will be inclined to pass the costs on
However, the big gains of 2013 were mainly caused to their customers. At the same time, various economies
by investors re-rating the equity markets rather than still look very fragile and capital flows continue to
by profit fundamentals as the former significantly remain constrained driven by, among other things, banks
outstripped the latter. Indeed, stocks on the S&P 500 persistent unwillingness in northern Europe to lend
were trading at a price/earnings (P/E) ratio well above capital to their southern counterparts.
the historic average in 2013; despite few of the listed
stocks are expected to have future earnings that are likely Therefore we remain of the view that there still remain
to significantly increase. enough macroeconomic threats on the horizon to prevent
gold from sinking below the 2013 low of $1,180/oz for any
Thus, monetary policy has been bolstering equity prolonged period this year. After all, at a fourth quarter
markets. Holding down both short-term rates and average of $1,253/oz, gold might look cheap to some
long term bond yields has been forcing investors to only costing around 10 barrels of oil compared to 23 in
turn elsewhere, particularly now that other historically the autumn of 2011. That certainly could absorb some
high yielding assets, such as gold, are in the doldrums. hot money looking for yield. For the year as a whole,
However, as the Fed has started to unwind its monetary however, we expect gold to average $1,225/oz, an annual
support and investors realise that shares look rather decline of 13%.
expensive with regards to their profit potential (P/E ratio),
they could well steer their focus back to the gold market.
10
3. INVESTMENT
• World Investment fell 11% in 2013 to 1,342 tonnes, had been expected. This, coupled with the absence of
accounting for 28% of total demand. The approximate imminent inflationary pressures in the key economies and
value of this demand was down by a quarter to $61 billion. diminished concerns about the sovereign debt situation
in Europe, significantly reduced gold’s safe haven appeal
• The decline was due to implied net disinvestment, and translated into aggressive selling from institutional
estimated at 383 tonnes last year. investors. Investor assessment of risk overall also played
an important role in driving gold market sentiment
World Investment is estimated to have been 1,342 tonnes during 2013. A continued recovery in risk appetite
last year, down by some 170 tonnes on the level seen throughout the year encouraged investors to move
in 2012. The decline in approximate value terms was further away from gold towards conventional assets, such
even more dramatic: from a total of $81 billion in 2012 as equities, in a search for higher yields.
to just under $61 billion last year. The 11% decline in
tonnage terms was primarily driven by a hefty drop in Another important factor further restraining investor
investment demand from institutional players. Indeed, interest in the yellow metal was a generally more
our implied net investment figure, which provides a proxy cautious attitude among investors towards the overall
for institutional investor activity, switched to negative commodities complex. The deceleration in economic
territory and totalled 383 tonnes in 2013, compared to growth in key emerging market economies, relative
positive demand of almost 180 tonnes in the previous dollar strength, as well as increased concerns about the
year. As for other elements of World Investment, physical imminent end of the commodity supercycle seemed to
bar investment increased by 33%, hitting a fresh high further undermine investor sentiment.
since our records began and remaining the largest
investment component. Official coin demand recorded On COMEX, the first half of 2013 was characterised by
a similar percentage increase, while the demand for heavy long liquidation along with a rapid expansion in
medals and imitation coins eased slightly year-on-year. gross short positions. The net investor position plunged
by almost 90% from the start of the year to below
The key themes driving gold investment during 2013 60 tonnes in early July, its lowest level since December
revolved around economic developments and the 2001. Meanwhile, the outright short reached a record
prospects for monetary policy in the United States. high of 556 tonnes on 9th July, an increase of 319 tonnes
INVESTMENT
After the “fiscal cliff” was avoided at the beginning of since the beginning of the year. Gold ETF investors
the year, the US economy started to gain momentum, redeemed almost 580 tonnes over the six-month
with some measurable recovery recorded in the housing period, and at end-June combined holdings were at its
market, substantial gains in equity prices and further lowest level since June 2010. Much of this decline was
improvement in labour market conditions. Growing concentrated in the second quarter, with over 400 tonnes
optimism towards the US economy, supported by the of outflows, the largest ever quarterly redemption since
upbeat economic data, fuelled expectations that the Fed the launch of the first gold ETF in 2003. While the first
would begin to unwind its stimulus efforts earlier than six months of the year witnessed significant selling from
WORLD INVESTMENT KEY MARKET INDICATORS
(tonnes) 12.H2 13.H1 13.H2E 14.H1F (end-period) Change

2011 2012 2013 y-o-y
Implied Net Investment* 139 -613 230 50
S&P 500 1,257 1,426 1,848 30%
Physical Bar Investment 505 828 510 560
CRB Index 480 484 456 -6%
Official Coins 102 177 106 120
XAU Index 181 166 85 -49%
Medals and Imitation Coins 64 69 35 32
US 30-year Bond 2.91% 2.94% 3.94% n/a
Total 810 461 881 762
Gold Price $/oz 1,531.00 1,657.50 1,204.50 -27%
Indicative Value US$ (bn)** 44 23 37 30
Contango (3-mth) 0.54% 0.35% 1.17% n/a
*Implied net investment is the residual from combining all of the
other Thomson Reuters GFMS data on gold supply/demand as US$ Libor (3-mth) 0.58% 0.31% 0.25% n/a
shown in the Summary Table. As such it captures the net physical Source: Thomson Reuters
impact of all transactions not covered by the other supply/demand
variables. **Indicative values calculated using average gold prices.
11
institutional players, demand for physical gold exploded IMPLIED NET INVESTMENT
in many key markets across Asia and the Middle East
during this period. The massive correction in the gold ——Heavy outflows from gold ETFs combined with
price in April triggered a new run on physical gold, while dramatic selling on COMEX resulted in implied net
local premia jumped considerably to record levels in disinvestment totalling 383 tonnes in 2013.
many markets. Despite a weaker response to the second
price correction in June, physical demand remained at The implied net (dis)investment figure is not
robust levels. Similarly, the significant price correction independently calculated, but derived as the item
in the second quarter of 2013 sparked a wave of interest which brings gold supply and demand into balance.
in physical bullion gold in western markets. As the gold The figure should therefore not be seen as an exact
price continued to weaken and more bearish sentiment tonnage equivalent, but instead an indication of
began to develop, physical demand subsided in the investment activity separate from retail bar and coin
second half of the year. Demand for gold bars softened demand. Additionally, although a substantial majority
to 510 tonnes, a 38% fall from the level seen in the prior of this tonnage will reflect such activity, implied net
six months, albeit marginally higher year-on-year. (dis)investment could also include other flows that,
technically, are outside the definition of investment. One
Turning to other components of World Investment, example is the impact of any central bank activity that
our implied figure turned positive in the second half of is not being picked up in our official sector figures and
2013, with net implied investment totalling 230 tonnes, that would, as a result, be absorbed within our implied
compared to over 600 tonnes of net disinvestment net (dis)investment category. Despite this caveat,
during the first six months. This was largely driven by implied net (dis)investment typically does provide a clear
the substantial increase in investment demand in the indication of the overall impact of investor activity on
OTC market, supported by the sustained weakness in the the market for the period discussed. Furthermore, using
gold price. After a sharp bout of profit taking in the first information collected through field research and publicly
half of the year, investor positions on COMEX began to available data, Thomson Reuters GFMS performs a
lengthen, supported by increased geopolitical tensions ‘reality check’ on these values.
revolving around the crisis in Syria and the two-week US
government shutdown. Having said that, the net investor Last year saw implied net disinvestment of 383 tonnes,
long at year-end was well below levels recorded at the a notable change from a year earlier when the market
beginning of the year. saw a positive figure of 180 tonnes. A close analysis of
quarterly developments suggests that this was largely a
INVESTMENT
The selling in gold ETFs continued for the rest of the result of a negative implied figure in the first half of 2013,
year, although the pace of outflows abated somewhat. which is estimated at 613 tonnes, a substantial change
The moderation can be explained by an improvement in from the same period of 2012, with some 40 tonnes of
investor attitude towards gold, as the bulk of aggressive positive demand. Having said that, the second quarter
selling related to QE-tapering and an improving of 2013 stands out as a period of particularly elevated
economic outlook had already been done in the second outflows, with our implied net disinvestment figure of
quarter. Full year ETF outflows were 880 tonnes taking 424 tonnes for the three months in question. The key
combined holdings to 1,811 tonnes, down by 33% from reason behind the selling was growing speculation
the record high at the start of the year. that the Fed could start to taper its asset purchase
WORLD INVESTMENT GOLD AND BENCHMARK YIELD CURVE

3.0 2000
2000 Coins** 2000
Gold Price
Physical Bar Investment
1600 1800
Implied Net (Dis)investment
Gold price 2.5
1200 1600 1500
Tonnes
Benchmark curve
US$/oz
*
800 1400
US$/oz
(2yr-10yr spread)
2.0
%
400 1200
1000
0 1000 1.5
-400 800
The Benchmark yield curve reflects
inflationary expectations
-800 600 1.0 500
H1-10 H1-11 H1-12 H1-13 H1-14 Jan-10 Jan-11 Jan-12 Jan-13
Source: Thomson Reuters GFMS Source: Thomson Reuters
*Forecast; **Official coins and medals & imitation coins
12
GOLD ETFS AND OTHER SECURITISED PRODUCTS

programmes sooner than had been expected on the back
3000 2000
of improving sentiment towards the US economy. This Other
weighed heavily on investor attitudes towards the yellow 2500 iShares Gold
1600
metal, translating into heavy redemptions from ETFs and SPDR Gold Shares
2000
aggressive selling on COMEX. NewGold
1200
GBS (LSE listed)
US$/oz
Tonnes
1500
It is interesting to examine how the implied figure 800
Gold Price
compares to information on activity within the different 1000
arenas of investment over the year (although given 400

500
aforementioned limitations in this information, it is not
possible to disaggregate accurately the implied figure 0 0
into these components). Due to the nature of gold ETFs Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
and similar products, we are reasonably certain the 880 Source: Thomson Reuters GFMS, collated from respective ETF issuers’ data
tonne outflow from ETF holdings had a broad one-to-one

impact on the volume of investment. redemptions in the first half of 2013 were nearly double
those in the second half with the heaviest outflows
The picture is somewhat more opaque when it comes concentrated in the second quarter. This was the largest
to the futures and OTC markets. As for the former, at quarterly outflow since the launch of the first gold ETF.
end-December, non-commercial and non-reportable net
positions in Comex futures were down by 484 tonnes The key driver behind the investor sell off was growing
on the end-2012 level. Turning to the OTC market, our speculation that the Fed might end its asset purchase
information indicates that this saw significant net buying programme sooner than expected as the US economy
for the year as a whole. continued to shows signs of improvement, reducing
gold’s safe haven appeal. However, despite the pace of
redemptions slowing considerably over the third quarter,
INVESTMENT IN EXCHANGE LISTED investors remained firmly on the sell side of the market
STRUCTURED PRODUCTS and by August ETF levels had reached the lowest since
June 2010.
——Demand for these products remained minimal in 2013
In the final quarter of the year, as expectations of US
Since the global financial crisis began interest in this area tapering increased (following the Fed unexpectedly
INVESTMENT
of the gold investment universe has dropped markedly announcing the continuation of QE in September), an
in both absolute terms and especially as a percentage of investor sell-off gained momentum resulting in end-2013
overall investment. Given that the single most important total ETF holdings of 1,811 tonnes.
factor driving this change had been the movement
towards physical bullion bars and coins, and to some Turning to individual funds’ performance, the bulk of
extent concerns about counterparty credit risk, the the decrease in holdings took place in the established
improvement in macroeconomic prospects might have entities. The biggest decrease last year was recorded by
been expected to lead to a revival in 2013. However, field SPDR Gold Shares, the largest gold ETF, which saw an
research indicates that there remains minimal appetite outflow of 553 tonnes or 41% over the year, 63% of the
for these products from retail investors. total outflows for the period. Other noteworthy decreases
were registered by iShares COMEX Gold Trust, ZKB Gold,
EXCHANGE TRADED FUNDS ETF Securities, Julius Baer and GBS LSE which each saw
losses of 40-60 tonnes in 2013.
——The year 2013 saw large redemptions in ETF
holdings, particularly in the second quarter. It is also worth noting that FinEx Group and the Moscow
Exchange have introduced Russia’s first gold-backed
Combined holdings of ETFs declined by 880 tonnes, exchange-traded fund in October, while China’s Guotai
or 33%, over the year from a record high of 2,698 Asset Management Co. and HuaAn Asset Management
tonnes at the start of 2013 to their lowest levels since Co. also launched China’s first two gold-backed
November 2009. In value terms, the net dollar outflow, exchange-traded funds. However, since the opening of
as calculated on a daily basis, over the year was $40bn. these three ETFs interest has been muted at best.
Although sales remained significant throughout the year,
13
INVESTMENT IN COMMODITIES Investors continued to build large positions in the energy sector,
as the US economic recovery continued to gain traction, along
Investments in commodities last year were lacklustre at best. A with a cold winter in North America that spurred the use of gas.
look at 22 commodities (as illustrated in the chart below) shows Geopolitical concerns lingering in the Middle East and Africa
that combined net investor long positions dipped 17% in 2013 to saw Brent crude trading at a double digit premium to WTI for
end the year at $57 billion. most of the year, but concerns over North Korea as well as the
increasing tension amongst Asian countries over the sovereign
Despite the FOMC increasing the amount of purchases rights in the South China Sea had also prevented oil prices from
from $40 billion to $85 billion per month starting January joining other commodities in their significant downside.
2013, unlike QE1 and QE2, commodities in general did not
gain strength following the commencement of QE3. In spite of As markets began to anticipate a start to tapering in the second
patchy economic data and corporate earnings for most of the half of the year, the value of gold and silver net positions
year, investors remained confident in the US recovery. Bullish plunged in the second quarter, to its lowest since 2001. Gold
technical signals pushed US stock markets to new highs, dropped below $1,500 without resistance in April. In spite of
and thus made commodities less attractive as investment aggressive physical buying from China and India, the gold price
instruments. The commodity complex deteriorated dramatically did not regain this level.
in the second quarter of 2013, as the market speculated over
the Fed’s tapering timetable. Market worries about a China Performance among the soft commodities was mixed. While the
slowdown also hampered investments in commodities. price of cocoa rose by 21% year-on-year, corn and wheat prices
fell dramatically. Market interest in livestock grew in 2013, with
VALUE OF NON-COMMERCIAL & NON-REPORTABLE NET the net investor long position surging by 88% to $4.9bn by the
POSITIONS IN 22 COMMODITY FUTURES CONTRACTS end of the year.
140 Other*
Livestock Looking forward, investors will continue to be wary of the
120
Energy commodities market, as emerging markets, especially China,
100 Silver
may continue to grow at a “slower” pace compared to the past
Gold
80 decade. Without strong economic growth from these emerging
US$ Billion
60 markets, commodities, especially industrial metals, may not

40 find it easy to break out from their recent lulls. The changing
of US monetary policy will also act as a deterrent. However,
20
it remains to be seen whether the US can continue to build on
INVESTMENT
0
the economic recovery after reporting strong data in the last
-20 two months of 2013, as well as the direction that Janet Yellen,
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13
Source: Thomson Reuters GFMS Bernanke’s successor as the Chair of the Federal Reserve Board
*Other includes soft, agricultural and dairy commodities, platinum, palladium
and copper of Governors, wants to take.
COMMODITIES EXCHANGE ACTIVITY investor activity on the exchange. The first half of 2013
was characterised by aggressive long liquidation in
——Trading volumes on major commodity exchanges addition to a rapid expansion in short positions, where
posted solid growth in 2013 with Chinese markets by end-June, net “investor” positions had fallen by 80%
leading the way. to below 110 tonnes (a level last recorded in September
2002), which was a driver behind the dramatic fall in gold
COMEX prices over the year.
The total volume of gold futures traded on COMEX The trigger behind this heavy sell-off was growing
last year increased by 8% year-on-year to 47 million speculation that the Fed could begin tapering its asset
contracts. This is equivalent to a nominal 152,046 tonnes purchase programme sooner than expected. This was
and to an average daily turnover of 584 tonnes. Open in light of an improving US economy, while a lack of
interest at 379,550 contracts by end-December was near term inflationary pressures and reduced concerns
down by a hefty 11% compared to end-2012. CFTC over the sovereign debt situation across Europe and the
reports on non-commercial and non-reportable net United States hit investor sentiment.
positions in COMEX futures can be used as a proxy for
14
COMEX, NYSE, LIFFE & TOCOM FUTURES GOLD TRADED ON OTHER EXCHANGES
(total volume in nominal tonne equivalents) (total volume in nominal tonne equivalents)
12.H1 12.H2 13.H1 13.H2 12.H1 12.H2 13.H1 13.H2
COMEX 73,845 62,679 83,707 68,339 SGE Spot 970 931 1,981 2,026
TOCOM 5,940 5,955 7,510 4,715 SGE AU(T+D) 2,176 2,049 3,055 3,639
NYSE Liffe* 652 513 735 416 SHFE 6,414 5,420 7,301 32,875
Total 80,437 69,187 91,952 73,470 MCX 6,562 6,055 7,033 3,546
*N.B.: Includes both the 100-ounce and 33.2-ounce contracts. DGCX 257 295 258 191
Source: Thomson Reuters Source: Respective commodity exchanges, Thomson Reuters
In the middle of the year, however, there was a short OTC MARKET
covering rally by investors leading to short positions
falling by 38% over August to November, falling to their ——The OTC market saw substantial net buying in
lowest levels since early February as gold prices rose in 2013, sparked in large part by lower prices causing
response to the two week long US shutdown in October. opportunistic buying.
However in the last few months of the year, as investors
appetite turned to riskier asset classes in light of the As mentioned above, an analysis of the components
imminent reduction in US monetary easing (which was of our implied investment series indicates that there
announced on 18th December), short positions once was significant net investment in the OTC market in
again surged, reaching historic levels. As a result, the net 2013. This may surprise readers who are aware that
“investor” position ended the year at 102 tonnes, 82% investor selling was a key element in the price decline,
below where it began the year. even more so if we consider that institutional investors,
who dominate the OTC market, were a major factor in
OTHER EXCHANGES sparking the second quarter price drop. However, this is
far from representative of all OTC activity across the year.
Looking at last year, China’s Shanghai Gold Exchange
(SGE) saw significant increases in trading volumes. In fact, even in the first half of 2013 when heavy investor
Turnover, for the spot contract (AU999 and AU9995) selling was occurring, the OTC market as a whole was a
more than doubled year-on-year to reach 4,007 tonnes. net buyer of gold. This was despite some institutional
Much of the increase was attributable to the dramatic investors being among the first to take the view that the
fall in gold prices in the first half of the year which in US monetary policy cycle was set to change direction
INVESTMENT
turn drove demand for physical gold to record levels. sooner rather than later and hence that this dented the
However, one exchange appeared to dominate the prospects for gold. The ensuing price decline was key
Chinese market in 2013, China’s Shanghai Futures to sparking interest from some investors who saw this
Exchange (SHFE), which saw trading volumes rise by an opportune time to make purchases. Indeed, LBMA
more than 240% year-on-year. The key driver behind the turnover surged higher in the second quarter and June
dramatic rise in trading volumes came as a result of the saw the highest turnover since February 2000.
introduction of night time trading in July, which allocated
an additional five and half hours to trading sessions. NON-COMMERCIAL & NON-REPORTABLE NET POSITIONS IN
Meanwhile, speculative interest was additionally elevated COMEX FUTURES
across the SGE’s AU (T+D), which also benefited from
new night time trading hours, posting a year-on-year Non-reportable Settlement price
350 2000
increase of 58%. Non-commercial
300
Net positions (contracts, thousands)
1750
India’s Multi Commodity Exchange (MCX) remained an 250
important commodity exchange for gold futures trading 200 1500
on a global basis in 2013 despite suffering a significant

US$/oz
150 1250
(24%) fall in volumes. The fall, which was mainly
100
concentrated in the second half of the year, followed a 1000
50
series of new regulations and tax increases imposed by
750
the Indian government on gold imports, limiting investors 0
ability to access the market. -50 500

Jan-10 Jul Jan-11 Jul Jan-12 Jul Jan-13 Jul
Source: CFTC, Thomson Reuters
15
The price decline in the second quarter also led to Indian investment demand surged 29% to 266 tonnes
a substantial shift in gold bullion often backed by last year. This reflects an upward revision of 27 tonnes
transactions in London. This saw large gold bars, often in the first half taking the total to 182 tonnes, equivalent
from redemptions of ETFs being shipped to Switzerland to 2012’s full year aggregate. Demand declined by more
for converting into small bars for the Asian and Middle than 50% in the second half of the year against the first
East markets. While this activity arguably peaked in six months as import restrictions turned away tactical
the second quarter it remained a major theme of OTC investors, while conventional retail investors were also
transactions throughout the year. Indeed this is also wary of accumulating gold stocks due to lower price
symptomatic of an eastward shift in the investment expectations and high premiums. That said, premia for
arena with demand in China and Turkey, for example, 100 gramme bars over kilo bars increased to more than
being encouraged by interest in gold deposit accounts. $20, due to a supply shortfall. To put this in perspective
Meanwhile, the shift from unallocated to allocated metal total imports of 100 gramme and smaller denominations
accounts, which had been encouraged by the global were just 78 tonnes in 2013 vs 217 tonnes in the previous
financial crisis, has hit the buffers. This is not due to a year. Imports of investment grade 9995/9999 purity
change in underlying investor interest but instead from bars fell from approximately 15 tonnes in 2012 to less
increasing attempts by banks to meet tightening balance than four tonnes in 2013.
sheet requirements, especially in Europe.
Investment demand in China soared by an extraordinary
PHYSICAL BAR INVESTMENT 47% in 2013, reaching a new record level of 366 tonnes.
The exceptional rise was due primarily due to the lower
——World bar investment increased by 33%, buoyed by price environment in the first half of 2013, especially
stunning emerging market demand. during the significant price correction in April, which
triggered hysteria as bargain hunters rushed to build
In the United States small bar market witnessed a gold assets. Moreover, demand in the first half surged
turbulent year in terms of total demand with significant a staggering 88% year-on-year. However, investment
peaks and troughs. The dominant trend was for larger demand subsided in the second half of 2013, declining
holders of bars to liquidate some of their holdings as 4% year-on-year; the modest fall being a function of
prices declined while smaller collectors bought into consumers having limited purchasing power (having
the price dip. There was also a major rise in 10g bar already invested earlier in the year), coupled with a
investment, in line with the rise in Asian demand. lack of confidence in the gold price with many investors
prepared to wait for further pullbacks in the price before
INVESTMENT
European net bar investment is estimated to have fallen entering the market.
by 7% in 2013. Europe once again illustrated varying
attitudes in the region, with demand for physical bars The lower price environment saw investment demand
on a country level varying strongly. Indeed, Germany, across the rest of South East Asia (excluding China)
for example, utilised the price drop as an opportunity for surge an impressive 58% in 2013 to a new record level.
bargain hunting, whereas investors in France, Italy and Thailand investment demand exploded in the second
the UK were far less optimistic and more sceptical about quarter as speculators rushed to buy any gold, with
gold’s ability to recover from its price slump. Bangkok’s China town traders running out of physical
metal and customers lining up for hours to make a
RETAIL INVESTMENT purchase. Thomson Reuters GFMS estimates Thai
700 investment demand soared 76% in 2013 to a new all time
Vietnam North America Other
600 India Europe China
high of 137 tonnes.
500
Vietnam bar hoarding also recorded a sizeable rise,
400
jumping 23% to just over 80 tonnes. Tight restrictions
Tonnes
300 on imports and investment products limited further

200 growth though unofficial imports helped alleviate some
100
of the additional demand. Elsewhere, Indonesia also
witnessed an impressive investment total, jumping 36%
0
to a 30-year high. After a slow start to the year, demand
-100
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13
surged in the second quarter following the sharp drop in
Source: Thomson Reuters GFMS the price, pushing premia on investment bars to a record.
16
WORLD PHYSICAL BAR INVESTMENT

Regional trends were generally similar. Coin minting
(tonnes) Change growth was exceptionally robust in the first two
2012 2013E y-o-y 13.H1 13.H2E 14.H1F
quarters of the year, thanks to the fall in the gold price
Western* 266 258 -2.9% 136 122 146
which rendered it more attractively priced. Gold coin
Middle East 84 113 34.7% 59 54 51
fabrication more than doubled in Turkey (from 39 tonnes
East Asia 443 659 48.6% 429 230 299
to 84 tonnes), and grew by 24% in the United States,
Indian S-C 221 294 33.4% 199 96 55
41% in Canada, 48% in Austria and 55% in Australia.
Other -6 14 N/A 5 9 8
Total 1,007 1,338 32.8% 828 510 560
While there were fewer commemorative gold coin
*Europe and North America. programmes in China in 2013 than in 2012, we believe
Source: Thomson Reuters GFMS the uptake in 2013 was higher in response to lower prices.
Indeed, surveys with regional dealers point to ‘panic
buying’ in April, culminating in inventory shortages at
Investment demand in Japan started the year in a similar one point as opportunistic buying activity surged.
fashion to that seen at the end of 2012 as record yen gold
prices in the first quarter encouraged further dishoarding The huge fall in the gold price did not only lead to
as investors took profits. Thereafter, demand returned to bargain hunting; some investors took advantage to
net demand (the first time since 2008) as the lower price liquidate their assets. In fact, the secondary market
pushed investors to swing back to the buy-side, with the saw a revival in the second half of the year after
trend in place for the remainder of the year. In addition sluggish activity in 2012. Some investors liquidated
to the gold price, the planned introduction of a higher their gold coin holdings upon a price rebound in July,
sales tax rate in April this year may have also encouraged which was then sold on to bargain hunters who would
purchases ahead of the planned change. otherwise purchase directly from primary markets. This
subsequently led to depressed primary coin sales from
OFFICIAL COIN SALES & FABRICATION key mintages in Q3 2013.
——Gold coin minting is estimated to have risen by 34% MEDALS & IMITATION COINS
to reach a record-high of 285 tonnes in 2013.
——Sales of coins in India declined in 2013 as record
We have revised China’s official coins figures upwards in premiums deterred investment interest.
Update 2 such that estimated official coin fabrication in
China is closer to the issued mintage of Panda coins and Indian coin demand in 2013 is estimated to have declined
INVESTMENT
various commemorative coin programmes as announced 9% from record levels in 2012 to 96 tonnes. Nearly 70%
by China Gold Coin Incorporation, the official distributor of annual demand emerged in the first half of 2013.
of official coins in China. This upward revision brings Thereafter, sales offtake slumped at an average pace of
Chinese official coin fabrication to 39 tonnes in 2012 almost 50% year-on-year in the subsequent quarters.
and 37 tonnes in 2013, making China the second largest This drop is largely attributable to record premiums as
official coin fabricating country globally, after Turkey. government reined in gold imports. That said, the higher
premiums helped institutions to offload the imported
Global gold coin minting in 2013 is estimated to have coins during the festive period of October and November.
risen by 34% year-on-year to 285 tonnes, an all-time-
high. In fact, gold coin minting in the past five years
TURKISH AND US GOLD BULLION COIN FABRICATION
(2009-2013) has averaged 236 tonnes, almost doubling
the average mintage of 137 tonnes in the preceding five 35
Turkey United States
years (2004-2008). The explosion in growth since 2009 30
was spurred by increased demand for safe haven assets
25
amid a recessionary backdrop when the gold price was
enjoying its upward trajectory. Interestingly, gold coin 20
Tonnes
sales rose further in 2013 despite assertions that the gold

15
bull market had come to an end as the global economic
outlook was improving. Much of the interest in 2013 10
came from bargain hunting when the gold price plunged 5

in April and again in June 2013.
0
Q1-10 Q1-11 Q1-12 Q1-13
Source: Turkish State Mint; United States Mint
17
TOP 20 GOLD MINING COUNTRIES
4. MINE SUPPLY
2012
Production (t)
2013E 13.H1
Change
13.H2E y-o-y
China 413.1 437.3 197.8 239.5 6%
• Global gold mine production is estimated to have risen
Australia 251.4 259.4 126.7 132.7 3%
by 4% during 2013.
Russia 230.1 237.8 90.4 147.4 3%
United States 231.3 226.9 110.1 116.8 -2%
• Producer de-hedging is estimated at 50 tonnes for
Peru 180.4 182.2 93.5 88.7 1%
2013, leaving the outstanding delta-adjusted hedge book at South Africa 177.3 168.8 87.3 81.5 -5%
just 73 tonnes. Canada 108.0 128.3 60.8 67.6 19%
Mexico 102.8 101.2 49.6 51.5 -2%
• Average total cash costs rose by 4%, to $768/oz, on a Ghana 95.8 97.8 51.9 45.9 2%
nine-month 2013 basis. Indonesia 89.0 94.8 42.6 52.3 7%
Uzbekistan 73.3 79.4 39.2 40.2 8%
MINE PRODUCTION Brazil 67.3 79.3 35.7 43.6 18%
PNG 57.2 62.9 31.2 31.7 10%
INTRODUCTION Chile 48.6 50.9 25.4 25.5 5%
Mali 50.3 50.2 23.9 26.4 0%
Global mine supply is estimated to have increased during Argentina 54.6 49.8 24.8 25.0 -9%
2013 by approximately 118 tonnes, or 4%, a significantly Kazakhstan 40.0 45.8 21.1 24.7 14%
higher rate of growth than that seen during the Tanzania 49.1 45.6 21.2 24.3 -7%
Philippines 41.0 40.5 19.9 20.6 -1%
preceding year. This increase in production, in the face
Colombia 39.1 40.4 20.1 20.3 3%
of growing pressure on producer margins, is the result
Rest of World 464.3 503.0 244.0 258.9 8%
of a combination of factors. Firstly, a large number of
World 2,864.0 2,982.2 1,417.2 1,565.0 4%
operations have reported higher year-on-year production
over the last couple of quarters. In some cases, such as
at Grasberg and Kumtor, this reflects a return towards
more ‘normal’ levels of output for these assets following the focus was on reducing non-essential capex, and
a period of lower production due to mine sequencing, more generally on a move away from the aggressive
geotechnical problems and local political issues. At acquisitions and expansions that have characterised
other operations, increased throughput, sometimes in the last few years. Junior and mid-tier producers have
combination with higher grades, has led to significant fewer options available to them, and consequently there
quarterly increases in mine supply. It may be that some have been examples of suspensions and closures of
producers are seeking to maintain revenue through some smaller operations at the higher end of the cost
higher production levels, but the sustainability of this curve. Although we have seen evidence over the last
approach is uncertain in cases where head grade has two quarters that producers are beginning to rein-in
been increased. However, some operations have raised costs, further decreases in the gold price will ensure that
yield, and hence production, through improvements to margins remain under pressure. Consequently, should
processing systems, for example at Obuasi. conditions remain difficult, it is probable that closures
and suspensions will become more widespread.
Secondly, supply from new operations has made an
important contribution towards the increase in global GLOBAL MINE PRODUCTION
production estimated for 2013. Last year encompassed

2000
the commissioning or ramp-up phases of several Australia
MINE SUPPLY
Russia Other
Other Africa Latin America Other Asia
significant new operations that had been in development
South Africa North America China
over the last few years. Several of these, for example 1500
Detour Lake, Canadian Malartic and Young-Davidson, are

situated in Canada, supporting a year-on-year increase
Tonnes
1000
of one-fifth in that country. Others, such as Pueblo Viejo,
Akyem, Kibali and Tropicana are expected to be globally
significant producers once at full capacity. 500
Generally, the industry-wide theme during 2013 was

0
one of cost-containment. For the major producers, H1 09 H1 10 H1 11 H1 12 H1 13
18
MINE PRODUCTION WINNERS AND LOSERS, 2013E VERSUS 2012
-9 t -6 t -3 t -0.5 t +0.5 t +3 t +6 t +9t

AFRICA lead and copper bearing sulphides and which is expected

to contribute limited gold in the future. Tanzanian
Total African production fell by 1.4% year-on-year, production fell by an estimated 7% or four tonnes year-
to 572 tonnes. In South Africa, output dropped by on-year where strong output gains at New Luika and
eight tonnes, representing a slower annualised rate North Mara were offset by significant losses at Tulawaka,
of decline. Underlying this, management of Sibanye Geita, Bulyanhulu and Golden Pride. Output in Guinea
Gold have made a push to drive throughput levels at and Zimbabwe continued to rise and collectively added
Kloof-Driefontein and Beatrix which has resulted in an one tonne.
estimated seven tonne, or 17% year-on-year rise in output
growth from these operations. In addition, although In Mauritania, increased throughput, head grade
2013 was a wage negotiation year, strikes have not been and recoveries at the Tasiast mine are estimated
nearly as severe as the latter half of 2012, which has to have resulted in a two tonne year-on-year gain.
partially offset the strong declining trend that underlies Elsewhere, Egypt saw a three tonne output gain due to
gold output in South Africa. Notable examples of this increased throughput at Sukari. Finally, we hear that
are seen with collective output gains estimated at three the persistently low gold price has done little to stem
tonnes from Kopanang, South Deep and Tautona, as informal activity in many areas, not least in Sudan and
fewer strikes allowed for higher productivity at these the Democratic Republic of Congo.
operations.
NORTH AMERICA
MINE SUPPLY
Mixed results were noted across the rest of the continent.

West African production saw strong year-on-year growth, Total mine production in the United States contracted
with Ghana and Burkina Faso spearheading the increase by four tonnes or 2% year-on-year to 226 tonnes. Lower
with a combined six tonne estimated gain. Significant processed ore grades at Newmont Nevada and Goldstrike
growth came from the Bissa-Zandkom mine in Burkina led to an estimated fall in production of eleven tonnes at
Faso which continues to ramp up to capacity. Output in these operations. Despite the ramp up in production at
Eritrea is estimated to have fallen seven tonnes year-on- Emigrant and Carlin North Area, and a consistent high
year as the gold enriched oxide cap of the Bisha ore body grade and throughput at Phoenix, production was offset
was exhausted. Mine planning has since transitioned by lower grades at other locations. A similar picture was
into the primary ore, which is dominantly composed of drawn at Bald Mountain and Round Mountain where
19
output is estimated to have fallen by three tonnes. At number of strikes, not to mention the first nationwide
Bald Mountain, the fall in production was a result of a strike in four years. A combined drop of nearly one tonne
decrease in tonnage treated due to a revised mine plan was registered at Orcopampa and Chipmo, as a result
to reduce the number of pits, and focus on the most of lower ore grade, tonnage treated, and a sixteen day
profitable ounces. These losses were partially offset by strike, coupled with the proposed closure of Pierina in
a two tonne output increase at Cortez, where a push the third quarter. Other losses were reported at Lagunas
for increased throughput led to output gains despite Norte and Yanacocha, where production dropped by
lower processed grades and recoveries. The fall was fifteen tonnes due to ore feed bottlenecks and lower
anticipated as specified in the mine plan, which led to a grades respectively. Nevertheless, the drop in output
substantial increase in tonnes processed. Further gains was offset by gains at Breapampa, which added just over
were reported at Fort Knox, Jerritt Canyon, and Hollister, two tonnes. Mexico saw a 2% year-on-year drop in gold
where output rose by a combined four tonnes. production to 101 tonnes, led by a contraction at Pinos
Altos and Peñasquito where output fell by three tonnes
Mine supply in Canada grew by 19% year-on-year to 128 due to variations in the proportion of heap leach ore to
tonnes, driven by increased output from new mining mill ore and water source challenges respectively. The
operations such as Detour Lake, Westwood, Young- other substantial drop was seen in Argentina, as gold
Davidson and Canadian Malartic. On an aggregate basis, production fell by 9% led by a fall in output at Alumbrera
these mines are estimated to have produced a total of and Veladero, both due to lower grades.
twenty seven tonnes in 2013. Production at Detour Lake
is estimated to have reached seven tonnes as the mine OCEANIA
continued to ramp up to nameplate capacity. Somewhat
offsetting the overall growth trend, production at the Mine supply from Australia is estimated to have grown
country’s largest gold operation, Red Lake, is estimated by nearly eight tonnes, or 3% year-on-year, to total
to have decreased by 8% driven by lower grades owing to 259 tonnes. A significant portion of this growth was
development work. attributed to an increase in production at Cadia Valley
and Tanami, and a ramp up at Garden Well. We estimate
LATIN AMERICA that these properties collectively added ten tonnes in
2013. Cadia East, one of the three mines that comprise
Total mine production in Latin America is estimated to the Cadia Valley Operations, commenced production
have reached 634 tonnes, an increase of 5% year-on- at the beginning of the year. At Tanami, higher mill
year. Much of the growth is attributed to the Dominican throughput offset lower grade ore processing and
Republic and Brazil, where supply grew by over twenty recoveries. Despite severe weather conditions, the
and twelve tonnes respectively. In the Dominican smooth ramp-up at Murchison Goldfield and the recently
Republic, the continued ramp-up to full production commissioned Tropicana added an estimated two tonnes.
at Pueblo Viejo added just over seventeen tonnes in Similarly, new supply came from Mount Carlton, where
the first nine months of 2013, with output estimated total output was almost two tonnes.
to reach north of twenty-five tonnes by year-end. In
Brazil, estimated gold production achieved an all-time Losses were seen at Jundee, where production fell by an
high figure of seventy nine tonnes, with this growth led estimated two tonnes due to lower processed grades.
primarily by Salobo and Tucano. The successful ramp-up Production at small to medium sized gold operations
of Salobo proved instrumental in raising gold production contracted further as the fall in gold prices resonated
as output increased by almost three tonnes, supported across producers causing properties such as Wiluna,
by a better than expected recovery rate. A continued Coyote, Laverton, Bronzewing and Southern Cross to be
MINE SUPPLY
ramp-up was seen at Tucano, where production increased put under care and maintenance. Aggregate production
by five tonnes due to higher head grade, throughput and at three of the country’s largest operations, Telfer,
plant recovery. Further gains were seen at Pau-a-Pique Boddington, and Super Pit, was flat year-on-year.
and Paracatu, countering losses at AngloGold Ashanti
Mineração and Jacobina where combined output fell by Gold production in New Zealand increased by an
two tonnes due to lower grade ore processing. estimated eleven tonnes, or 10%, year-on-year.
Production in the region was led by Waihi, where output
Elsewhere in Latin America, less significant changes reached three tonnes backed by higher processed grades.
were seen in output. Peruvian gold production grew by
1% year-on-year to 182 tonnes, limited by the elevated
20
CORPORATE ACTIVITY 2013E TOP 10 GOLD PRODUCERS
Change
Merger and acquisition activity in the gold mining sector (tonnes) 2012 2013E y-o-y
fell sharply last year, with the aggregate value of quantified Barrick Gold 230.8 223.9 -3.0%
deals completed during 2013 down more than one-third Newmont Mining 154.8 154.0 -0.5%
against 2012, and 75% lower than in 2011, based on data from AngloGold Ashanti 122.6 126.0 2.7%
Thomson ONE. These amounted to $9.3 billion in 2013. Goldcorp 74.5 82.4 10.6%
Kinross Gold 1 76.2 77.2 1.4%
Perhaps unsurprisingly in 2013 there appeared to be Navoi MMC 1 68.0 74.1 9.0%
more potential sellers in the market than buyers. Many Newcrest Mining 64.5 66.9 3.7%
of the transactions clearly reflected a strategy of portfolio Gold Fields 2 95.9 55.5 -42.2%
Polyus Gold International 52.2 50.9 -2.6%
restructuring and divestment, rather than one of aggressive
Sibanye Gold 2 n/a 44.2 n/a
takeovers, which was characteristic of 2010-11, when many
1
Estimate, 2 KDC & Beatrix consolidated as of 1st Jan 2013
‘blockbuster’ deals were completed at elevated valuations.
Source: Company Reports; Thomson Reuters GFMS
The largest deals to take place last year included the sale
of around one-third of Polyus Gold International’s equity by
Onexim Group, valued at $3.6 billion, to a private shareholder tended to be smaller companies looking to diversify modest
in February. The second largest deal last year was the listing portfolios, with the largest deals of this type being Hecla
of Sibanye Gold (also in February) from the spin-out of KDC Mining’s purchase of Aurizon Mines, in a deal valued at $700
and Beatrix by Gold Fields, valuing Sibanye at $1.1 billion. million, and New Gold’s acquisition of Rainy River Resources
for just under $300 million. As the market deteriorated several
A more conservative corporate stance has seen fewer proposed deals fell through or acquisition values were revised
companies exhibiting an appetite to grow through M&A, in lower, such as the purchase of a 50% stake in Turquoise Hill
addition to the sharp scaling back of project spending across Resources’ Kyzyl project by Sumeru Gold for $235 million, a
the industry last year. Those that were in the market to buy greater than 20% reduction on the initially tabled price.
ASIA previously one of the top five producing regions of China,

saw output fall by a significant 25%, or three tonnes.
Asian production is estimated to have risen year-on- The main driver was a reduction in output from Zijin
year by a significant 6%, or 44 tonnes, representing an Mining’s flagship domestic mining operation, Zijinshan.
acceleration of growth in the second half of the year from Processed grade fell by 21% along with downtime due
the first six months of 2013. The most significant gain to plant maintenance work and work to improve the
was seen in China, where output is estimated to have tailings facilities. Elsewhere, amongst the country’s
risen by just over 24 tonnes: the largest tonnage increase listed miners, output fell at Real Gold’s three operations
globally. in Inner Mongolia. Underlying this, the company
continued to experience difficulties in 2013 at the
Data for the first nine months of 2013 show that the Shirengou-Nantaizi processing plant regarding mined
volume of gold recovered from the country’s smelting grades and recovery rates, in addition to problems with
industry, which toll treats ores on the behalf of gold electricity outages between October 2012 and June 2013.
and nonferrous metal producers, was responsible Mined grade was also a key factor behind a 45% drop in
for continued Chinese growth. Among these, the production at the company’s Luotuochang operation.
most significant gains were seen at the gold smelting
divisions of Zijin Mining (+12 tonnes), partially due to Other Asian output is estimated to have increased by
MINE SUPPLY
the commencement of output at the Luoning Zijin Gold 20 tonnes, or 7% in 2013. Indonesian mine production
Refinery, and at Shandong Henbang (+4 tonnes). In the saw a strong third quarter, with supply from Grasberg
nonferrous industry, increases were recorded at smelters increasing to over nine tonnes, after several quarters of
owned by Tongling Nonferrous Metals (+1 tonne) and relatively depressed output. Martabe, commissioned
Jianxi Hefeng Copper (+1 tonne), and a doubling of during 2012, is estimated to have produced over eight
production at the Yanggu Copper Smelter. tonnes during 2013. These improvements in output
were more than sufficient to counter decreases at two of
In contrast, output from the country’s integrated mining Indonesia’s other major mines. Production at Gosowong
and refining operations remained flat or fell during the was down during Q3 due to scheduled mining of lower
first nine months, by 6% or eight tonnes. Fujian province, grade areas, meanwhile at Batu Hijau, lower grades and
21
recoveries resulted in 33% lower production over the first PRODUCTION COSTS
nine months of 2013 compared to the same period in
2012. On balance, production from Indonesia is expected ——Global total cash costs were estimated at US$735/oz
to have increased by six tonnes in 2013, largely on the in the third quarter of 2013, decreasing from a high of
strength of second half output. US$796/oz in the first quarter of 2013.
Production from Papua New Guinea is also expected During the first nine months of 2013, global total cash
to have risen by six tonnes during 2013, led by higher costs averaged $768/oz, compared to $740/oz during
output from Lihir, where a flotation plant expansion was the same period in 2012, a rise of 4%. This represents a
completed during 2013. In addition, Hidden Valley is slowing of the cost escalation seen in recent years, and
expected to have increased production as commissioning reflects industry-wide attempts to reduce production
of a crusher at the front of the overland conveyor enabled costs as margins continued to contract due to a
increased supply of higher grade mill feed from the combination of rising costs and a falling gold price. Total
upper open pit. Turkish output is expected to have risen cash costs averaged $747/oz in 2012, and continued to
by four tonnes in 2013, on higher supply from Çöpler, increase into 2013, reaching a peak of $796/oz in the first
Efemçukuru and Kişladağ. At Çöpler, plant modifications quarter. However, results from Q2 and Q3 indicate that
improved recoveries, contributing to record quarterly this upward trend has faltered, with slight falls in total
production in Q3 13. New supply also came from the cash costs, although much of this is likely attributable to
ramp-up of operations at Efemçukuru, and higher grades higher output and consequently lower unit costs.
led to higher output at Kişladağ over the first nine
months of 2013. Increased supply from Mongolia was Total production costs, which comprise depreciation and
due to the commencement of operations at Oyu Tolgoi, amortization in addition to total cash costs, showed a
where commercial production was declared during the similar trend, reaching $997/oz in the first nine months,
third quarter. a 5% year-on-year increase. A decrease was seen in
the second and third quarters. As the gold price has
COMMONWEALTH OF INDEPENDENT STATES continued to trend downwards, simple cash margins have
(CIS) AND EUROPE decreased from a peak of $1,032/oz in Q3 2011 to $591/
oz in Q3 13. Furthermore, the average all-in cost, a GFMS
Production in the CIS rose by 7%, or 25 tonnes, to proprietary metric that includes ongoing capital costs,
total 390 tonnes, lifted by gains at all of the main indirect costs and corporate costs, is estimated to have
gold producing countries across the region. Russia averaged approximately $1,350/oz in 2013, a 9% increase
contributed the bulk of the growth, adding an estimated on the all-in cost for 2012. We expect much of this
eight tonnes. Especially strong growth was noted in the increase to result from asset write-downs, reclamation
country’s Far East Khabarovsk region, where the ramp and remediation costs, as producers closed marginal
up of the Albazino-Amursk and Mayskoye operations operations. Excluding such factors, we expect the all-in
led to an estimated output gain of seven tonnes. In cost to be in the region of $1,200/oz. The full impact
Central Russia, gains at Olimpiada were offset by lower of asset closures will become apparent when year-end
output at Blagodatnoye. Flooding at Pioneer prevented results are reported, but it is clear that there will be no
the mining of a scheduled high-grade bench and respite from the pressure on producer margins.
resulted in the processing of low-grade stockpiles, which
QUARTERLY TOTAL CASH COSTS BY REGION
impacted output negatively. In Uzbekistan, output is
estimated to have risen by 8%, with the continued ramp World Gold Price Simple Margin
1800 (World)
up of Zarmitan, while at Muruntau, pit and hauling Australia
MINE SUPPLY
1600 South Africa

improvements contributed to small output gains. Output North America
in Kazakhstan rose by six tonnes year-on-year with the 1400 Latin America
continued ramp up of Altyntau. 1200
US$/oz
1000
In Europe, production rose by two tonnes, or 9%, as the
800
Olimpias mine in Greece continued its commissioning
phase and small output growth was observed in Spain, 600
Sweden and Bulgaria. 400
200
09.Q1 10.Q1 11.Q1 12.Q1 13.Q1
22
REPORTED TOTAL CASH AND PRODUCTION COSTS

Regionally, North America saw a small increase in
nine-month year-on-year cash costs, from an average of (US$/oz) 12.Q2 12.Q3 12.Q4 13.Q1 13.Q2 13.Q3
$656/oz in 2012 to an estimated $664/oz in 2013. This North America 681 658 635 689 662 640
was driven by increasing costs in the United States, as Latin America 563 571 585 600 639 612
over this period the total cash cost of Canadian gold Australia 868 891 907 956 864 750
South Africa 971 1,069 1,253 1,146 997 930
production decreased by an estimated $47/oz. Focusing
Other 768 791 786 827 828 815
on Canada’s largest operations, total cash costs at Red
World 744 762 766 796 773 735
Lake increased during 2013, due to lower production on
Gold price 1,609 1,652 1,722 1,632 1,415 1,326
falling grades. However, this has been outweighed by
Cash margin 866 890 955 836 643 591
lower costs at operations such as Meadowbank, where
Production cost 954 979 1,006 1,021 1,008 963
unit costs have decreased on higher production. New
Note: Weighted averages based on the Gold Institute reporting
supply from operations that have been ramping up standard. Does not include mines for which gold is not the primary
during 2013, such as Canadian Malartic and Young- source of revenue.
Davidson, has also helped to reduce the country average. Source: Thomson Reuters GFMS
Lower cash costs at Porcupine during the third quarter
were partly attributable to higher production, but with Pierina is an example of a mature operation no longer
contributions from a weakening Canadian dollar, as well deemed viable in the current price environment.
as lower contractor and employee costs, and a reduction
in spending on maintenance and consumables. South African dollar denominated total cash costs
remained flat, much of which is a consequence of
Latin America saw the largest year-on-year increase the rand weakening. In rand terms, total cash costs
in costs during the first nine months of 2013, of have risen by 17%. Nonetheless, some South African
approximately 12%. Consequently, Latin American operations have reduced their unit costs recently. For
average costs, while still the lowest, were only $28/ example, both Driefontein and Beatrix saw costs fall on
oz lower than those for the North American region in higher production due to improved yields during the third
the third quarter. At Latin America’s largest operation, quarter. Additionally, in 2013 the gold industry avoided
Yanacocha, cash costs increased primarily due to lower a repeat of the widespread strike action that impacted
production, as mining of some areas was completed output and costs during 2012.
during 2012. Costs also rose on lower production at
Lagunas Norte, due to a scheduled decrease in head The average total cash cost of Australian production
grade. These increases outweighed the benefits of remained fairly flat over the first nine months of 2013,
relatively low-cost new production from Pueblo Viejo, decreasing by 2% in US dollar terms, although this
as well as lower unit costs on higher production from translates to slight increase in costs when the effect of
Paracatu. The decision by Barrick to initiate closure of the weaking Australian dollar is accounted for.
WORLD TOTAL CASH COST CURVES
2000 2000
9-Month 2012 Average Gold Price ($1,650.69/oz)

1600 1600
9-Month 2013 Average Gold Price ($1,457.52/oz)
1200 1200
MINE SUPPLY
US$/oz
US$/oz
800 800
400 9M 2013 Total Cash Cost 400

9M 2012 Total Cash Cost
0 0
-400 -400
0 10 20 30 40 50 60 70 80 90 100
Source: Thomson Reuters GFMS Cumulative Production %
23
COMPOSITION OF THE DELTA-ADJUSTED HEDGE BOOK WEIGHTED AVERAGE STRIKE PRICES OF CONTRACTS
(tonnes, end period) Change (weighted by number of contracts, end-September 2013)

12.H2 13.H1 13.H2E y-o-y Contract Type USD AUD
Forwards & Loans 101 75 62 -39% Bought Puts $1,133 $1,373
Options 22 21 11 -48% Sold Calls $1,813 $1,678
Total 123 96 73 -41% Forward Sales $1,340 $1,559
Source: Thomson Reuters GFMS Source: Thomson Reuters GFMS
PRODUCER HEDGING contracts and collar structures which amounted to a

delta-adjusted hedge of five tonnes.
——An estimated 50 tonnes was removed from the hedge
book in 2013, as existing positions matured. The end-September gold price of $1,327/oz represented
a $135/oz rise quarter-on-quarter (on the basis of the
During the first nine months of 2013, the outstanding London p.m. fix). This left the weighted average strike
delta-adjusted hedge book shrank by 32 tonnes, or 26%. price of the US dollar denominated forward sales
During 2013, due to the sharp decline in gold prices by component of the book (the largest portion) at only $13
the end of June, the marked-to-market global hedge in excess of the spot price at end-September, reducing
book had swung from a net liability to a net asset for the the marked-to-market asset position of the industry’s
first time since our quarterly coverage began in 2002. collective hedge book. While the price lift led to an
This prompted a number of Australian producers to close increase in the outstanding volume of delta-hedging
out existing in-the-money contracts to pay down project against the sold call portion of the book, it also meant
debt. With many producers under considerable pressure that the bought put fraction of the book fell further out-
amidst persistently low gold prices, various market of-the-money, with a corresponding decrease in the level
commentators had speculated that a return to hedging of delta-hedging against these contracts. The resulting
would occur in order to shield producers from further amount of gold hedged against the options portion of
downside price risk. Evidence suggests the contrary the hedge book therefore decreased by 36% over the nine
however, a continued trend towards unhedged status. months.
The three largest reductions to the delta-adjusted book With the gold price having since dropped by year-end to
over the period involved cuts both to option positions $1,201.50/oz, we estimate that the fourth quarter saw
and forward contracts. The most significant de-hedge further opportunistic closing out of in-the-money hedges.
came from Crocodile Gold, which cut nine tonnes of In addition to this, the delivery profile indicated that there
outstanding forward contracts. Minera Frisco and were eighteen tonnes of contracts scheduled to mature
Sumitomo Metal Mining saw respective seven and five in the fourth quarter of 2013. Aside from a recent six
tonne reductions to their positions when adjusted for tonne hedge from OceanaGold, there is little evidence
option delta. Of the notable hedging activity during the so far to support speculation that widespread hedging is
period, Petropavlovsk had sold forward over eight tonnes underway in the industry. We therefore estimate that for
of production at a weighted average price of $1,571/oz the full year the market saw de-hedging of approximately
maturing in June 2014, and B2 Gold Corp added forward 50 tonnes.
DELIVERY PROFILE AT END-SEPT 2013 EVOLUTION OF THE GLOBAL HEDGE BOOK
40 800
MINE SUPPLY
Options
Forwards & Gold Loans Options
32
600 Forwards & Gold Loans
24
Tonnes
Tonnes
400
16
200
8
0 0
2013 2014 2015 2016 2017 08.Q1 09.Q1 10.Q1 11.Q1 12.Q1 13.Q1
24
5. SUPPLY FROM ABOVE-GROUND STOCKS

• Net official sector purchases remained at historically view that the loosening of US monetary policy was set to
high levels in 2013. However, the pace of central bank come to an end. This underpinned the renewed strength
SUPPLY FROM ABOVE-GROUND

buying did drop during the year, especially after the price of the US dollar, particularly against the yen and euro, as
decline in the second quarter. well as a recovery in US Treasury yields.
• Global scrap supply fell 14% last year driven by the drop In addition, despite market nervousness about the
STOCKS
in the gold price and lower stocks in some regions, pushing potential for major disposals from signatories to the
its share of total supply down to 29%. Central Bank Gold Agreement (CBGA), sales have
continued to be almost nonexistent.
OFFICIAL SECTOR
Looking ahead, we expect the official sector to continue
——Central bank buying is estimated to have declined by to be a net purchaser of gold in the first half of 2014 as
approximately 34% in 2013 to 359 tonnes. the rationale of portfolio diversification has remained
intact. However, the price decline has clearly shaken
Our estimates for official sector transactions are based some central banks’ belief that now is a good time to
on a combination of publicly available data found in IMF make additional purchases, especially as the prospects
statistics, central bank websites and the press, as well for alternatives such as the US dollar and Treasuries
as information collected through our field research. Due has improved. Consequently, net purchases are set to
to the lag that often exists between activity taking place be below the recent peaks despite sales remaining at
and being identified, it is possible that our calender-year negligible levels.
estimates will be revised in the future.
SALES
Thomson Reuters GFMS’ estimate shows that net official
sector purchases dropped by 34% year-to-year to 359 The year 2013 was the third consecutive year in which
tonnes in 2013, although the absolute level remained gross sales from the official sector remained minimal, at
high by historical standards. The overall level of net just ten tonnes. The largest seller, and the only country
official sector purchases is a symptom of simultaneous within the CBGA group to cut gold reserves, was as usual
decisions from two different types of countries. In the Germany. We estimate that Germany released just over
advanced economies, where many countries already have four tonnes for its official coin programme. Elsewhere,
very substantial gold holdings, this almost universally sales remained lacklustre with the majority of gross sales
centres around whether the central bank wishes to sell seeming to have been related to coin minting.
part of its holdings or not. Meanwhile, in developing
economies, who generally have both smaller holdings PURCHASES
of gold in tonnage terms and as a small percentage of
their reserves, there is an ongoing desire to diversify their Gross purchases are estimated to have totalled
reserves away from the major international currencies 369 tonnes in 2013, down by 31% year-on-year. As was
and especially the US dollar. This often leads to
NETCh3
OFFICIAL SECTOR PURCHASES/SALES
Retail investment
purchases of gold.
200
Rest of World**
As shown in the accompanying chart, the drop in net CBGA*
150
purchases in 2013 was due to a fall in acquisitions
100 Net Purchases
while sales remained at trivial levels. The slowdown in
purchases was in part related to gold’s disappointing 50
Tonnes
price performance, although in some cases this may be

0
more of a tactical delay rather than a long-term change
in policy. However, there was also a variety of other -50
factors that acted as a drag on fresh gold purchases, -100

Net Sales
not least as they made alternatives to gold in foreign

-150
exchange reserves appear more attractive than in recent Q1-09 Q1-10 Q1-11 Q1-12 Q1-13
years. These were primarily a function of an increasing Source: Thomson Reuters GFMS, IMF
*signatories to the Central Bank Gold Agreements and IMF (on-market)
** all other countries
25
GOLD PREMIA SOAR IN SOUTH ASIA that pushed the price to a discount of $24 on 30th August. As
India’s new import policies squeezed supply, premia again rose
South Asia accounts for more than 50% of global gold demand, sharply, reaching a high of $211 on 6th December. Premia then
emphasising its importance with respect to pricing. This was no slumped by nearly $45 reflecting poor offtake at the retail level
more evident than in 2013, and particularly following the acute and as supply emerged from other sources in the form of bars
price correction in mid-April that spurred a frenzy of physical and jewellery.

gold demand across markets in the region. Vietnam and
India were the highlights as premia crossed $200 in these two The Vietnamese market also attracts exceptionally high local
STOCKS
countries as metal supply tightness and expectation of a return premia over the international price, often exceeding $100 per
to higher prices saw demand surge for any available stocks. ounce given the tight rein on supply by the State Bank. During
the price collapse in April and again in June premia soared to
In India, sizeable premia are the norm and near $25 per ounce over $300 as demand significantly outstripped available supply.
is no surprise for retail customers. From the beginning of Despite a sharp rise in official imports during this period the
the year to 11th April gold was sold in the retail market at a surge of consumer demand led to a wave of unofficial flows into
premium in the region of $32 per ounce over the London spot the country as traders from neighbouring countries capitalised
prices. As the price plunged near the beginning of the peak on the premia to generate healthy profits.
demand season offtake surged, pushing premiums higher.
Later, as international supply eased, the premia also tapered. Premiums in China have generally been volatile. From a first
Thereafter, the sharp depreciation in the rupee drove a renewed quarter average of $13 an ounce, premia surged to $27 in
price rally to record levels in late August, leading to heavy sales the second quarter before falling to $20 and $12 in the third
and fourth quarters respectively; still comfortably above the
GOLD PREMIA AND PRICE 2012 average of $6.50. Premia initially surged to $41 in April,
reacting to the drop in local prices, which fell to the lowest
240 Indian Premium LHS Gold Price RHS 2000
Chinese Premium LHS since 2nd October 2011. After a period of stabilisation, a supply
220
200 shortage pushed domestic premia to a record high of $56 on
180 1700 13th May. However, this was followed by a fall to $7 on 6th
160
140
June; only to rise to $49 on 20th June as gold again tumbled.
120 1400 Thereafter, the differential fell to a discount by mid-October,
US$/oz
US$/oz
100
reflecting heavy inventory building in the previous weeks.
80
1100
60
40 Elsewhere, premia were also volatile during the peak demand
20 800 periods and often as odds with the paper market, topping $7 or
0
-20
2% in Singapore, Thailand $4, while in Hong Kong they reached
-40 500 a record $6 per ounce for kilobars.
Jan-12 Jul-12 Jan-13 Jul-13
Source:
Source: Thomson
Thomson Reuters
Reuters
the case in 2011 and 2012, it is important to emphasise These acquisitions are believed to have been made
that our gross figure does not include the reported net by SOFAZ, the country’s sovereign wealth fund, in the
increase in Turkish official reserves, as this is reflected in international market. Elsewhere, modest purchases were
changes in local commercial banks’ gold deposits with also reported by a number of countries predominantly
the central bank. in Asia, including Nepal and Sri Lanka. The largest
reported purchase by a central bank in any particular
Looking at the country-by-country split of announced month this year was by South Korea, which raised its
purchasers, Russia was the largest buyer, increasing its bullion holdings by 20 tonnes in March.
official gold holdings in the first ten months of the year by
57 tonnes. This was achieved via regular acquisitions of Apart from the aforementioned buyers, over 60% of
local mine production. In a similar vein, Kazakhstan also gross purchases or some 225 tonnes were accounted for
purchased 24 tonnes primarily by buying domestic gold by undeclared transactions, details of which cannot be
output throughout the year. released in respect of confidentiality. In some cases, gold
was added quietly in the local market.
Other CIS countries were also significant buyers in 2013,
with Azerbaijan purchasing a reported sixteen tonnes.
26
SCRAP became less dependent on gold assets as a source for

quick cash.
——Global scrap supply fell 14% year-on-year in 2013,
as regionally depleted stocks combined with a The US economy improved throughout the year, with
considerably lower gold price. unemployment falling from 7.8% in December 2012

to 6.7% by December 2013 and the housing sector
Global scrap supply fell 14%, or 219 tonnes, to an strengthening. Disposable incomes trended higher
estimated 1,371 tonnes in 2013. The decline was almost throughout the year and pawnbrokers and cash-for-gold
entirely driven by gold’s significant price drop during businesses continued to suffer from reductions in gold
STOCKS
the year, which motivated various scrap recyclers and scrap sales. Liquidation of unsold jewellery inventories
individuals to sell less of their holdings until the general came off, as retailers were able to leverage the declining
market sentiment in gold improved. gold price and apply steep rebates and discounts to last-
season styles. Sales of old jewellery held by consumers
Unsurprisingly, scrap supply across all regions showed and other gold products declined 15% in 2013 compared
considerable weakness with the drop in the Middle East to a 24% drop in 2012.
and Oceania particularly pronounced. Some refiners in
India were even forced to close their doors for a short Scrap supply in the Middle East was significantly weaker
period. However, in comparison to other regions, a last year, retreating by 20% to a 12-year low. A modest
decline of 10% in the Indian Sub-Continent was relatively 4% fall in the first quarter as a result of softer prices and
modest, which has been mainly driven by different a depletion of close to market gold assets was followed
dynamics at play in the second half of the year. Indeed, by a precipitous drop in supply in the second quarter
on the back of the price drop, large volumes of pawn gold in tandem with the violent correction in the dollar gold
jewellery turned up for sale. This was due to a sustained price. Not surprisingly, this impacted dramatically on
fall in prices that started in the third quarter of 2012 in recycling rates across the region as both consumers and
combination with lower household earnings, slowing industry waited for a return to higher prices before selling
economic activity and higher inflation. old stock.
A similar slump in scrap volumes developed in the Given the strong demand for fabricated product in
rest of East Asia in 2013, with the region’s total falling 2013 exports of surplus scrap to foreign refineries were
by 13%. If we exclude China the drop is even more very low and in several countries nonexistent. Aside
pronounced as China turned out to be the only country from a period in late August when dollar gold pushed
that actually registered an increase in scrap supply in through the $1,400 barrier, generating a brief uptick in
2013. This was mainly centered in the second half of the liquidations, scrap supply across the region continued to
year when prices briefly staged a recovery and people wane, slipping 26% in the second half of the year.
sold their material back to the market; a stark contrast to
developments elsewhere. Looking to individual countries in isolation reveals a
common trend across the region. Every market across
In Europe, meanwhile, following an already modest the Middle East recorded double-digit declines with most
reduction in 2012, scrap supply continued on that trend slumping to multi-year lows. Scrap supply from this bloc
last year with flows sold back to the market falling by
10% to 352 tonnes in Europe. Scrap witnessed the ABOVE-GROUND JEWELLERY STOCKS & % RETURN OF SCRAP
largest decline in the northern part of the continent

100 2.5
where recyclers refrained from selling material due to the
Above-ground Jewellery Stocks (000 tonnes)
drop in the gold price. However, in Southern Europe, the Scrap %

90 2.0
decline was less pronounced largely reflecting economic *
Scrap return rate (%)
weakness in those countries.

80 1.5
Scrap supply in the United States fell 16% to almost 108

70 1.0
tonnes in 2013. This was the lowest annual total since
2008 and followed a 17% fall in scrap flows in 2012. The Jewellery Stocks
60 0.5
decline in gold prices was the primary driver behind this
sharp reduction. Improved economic conditions and 0.0
50
expectations also weighed on scrap sales, as households 2003 2005 2007 2009 2011 2013
* Estimate
27
WORLD SCRAP SUPPLY WORLD SCRAP SUPPLY
800 1200 1900

Other
North America Gold Price
1000 1700
Indian SC
600
800
Developing Countries 1500
US$/oz
Tonnes
Tonnes
600 *
400 1300
Middle East
400 1100
STOCKS
200 East Asia

Industrialised Countries 200 900
Europe
0 0 700
H1-03 H1-05 H1-07 H1-09 H1-11 H1-13 H1-10 H1-11 H1-12 H1-13 H1-14
*Forecast
of countries has fallen sharply in recent years; indeed, last year to a six-year low, with China the only country
offtake last year was almost 50% below the peak seen in registering modest growth. Indeed, removing China from
2009. Saudi Arabia dropped almost 30% in 2013, while the regional total reveals the true impact of the price
Turkey eased 22%. Elsewhere, Egypt and Iran dipped drop, pushing scrap supply down by 23% year-on-year.
18% and 26% respectively, while most other markets
were within this range. A weaker yen pushed gold in domestic terms to record
levels in the first quarter helped to limit the decline in
As outlined above, Turkish scrap supply declined by a Japan’s scrap flows to a modest 12% fall, while all other
sizeable 22% in 2013, falling to a thirteen-year low as key markets recorded far greater declines in supply.
the Turkish lira (TL) gold price slipped 11% year-on-year. Indonesian scrap supply, for instance, slumped 26% to
Following a modest fall in the first quarter, scrap supply a level not seen in over a decade, while Thailand also
fell sharply as gold’s acute correction in mid-April saw fell a sizeable 29% year-on-year. In all cases it was a
gold in domestic terms drop to below TL80/g for the first combination of lower prices and depletion of near market
time in several years. Gold prices dropped to TL74/g in stocks that accounted for the fall.
June, limiting recycling opportunities, and aside from a
period in late August when gold rallied briefly consumers As mentioned, China was the outlier in the region
were reluctant to liquidate gold assets, willing to wait for recording a modest 5% rise in scrap supply last year to
higher prices to prevail, although this did not eventuate. an estimated 126 tonnes. Following a healthy 16% rise
in the first quarter, the plunge in the domestic gold price
Scrap supply in India is estimated to have declined 8% to below 300 rmb per gramme in mid-April saw scrap
to 104 tonnes in 2013. The modest decline is attributed slump 18% year-on-year as consumers waited for a return
to the surge in scrap sales during the third quarter as the to higher prices before liquidating. As prices tracked
price tested a new record high in rupee terms; this was higher from July scrap supply again emerged pushing
followed by moderation in the fourth quarter as the price supply in the second half higher by 10% year-on-year.
remained steady near Rs. 30,000/10g.
The second half of the year was different for scrap traders
as supply tightness incentivised sellers with higher prices. WORLD SCRAP SUPPLY
Separately, field research revealed that large volumes of
Change
pawned gold jewellery turned up for sale in the first half
(tonnes) 2012 2013E y-o-y 13.H1 13.H2E 14.H1F
of the year, resulting from payment default by borrowers. Europe 389 352 -10% 175 177 165
This was a result of the sustained fall in prices from the North America 138 115 -17% 60 56 47
third quarter of 2012 to the second quarter of 2013, and Latin America 112 105 -7% 54 50 41
it also coincided with lower household earnings and a Middle East 341 269 -21% 137 132 135
liquidity crunch due to slowing economic activity and Indian S-C 166 149 -10% 53 96 50
higher inflation. East Asia 355 308 -13% 148 160 153
Other 89 74 -17% 36 37 37
In concert with the violent correction in the dollar gold World Total 1,591 1,371 -14% 663 708 628
price, scrap supply from across East Asia slipped 13% Source: Thomson Reuters GFMS
28
6. FABRICATION DEMAND
• At 2,990 tonnes annual fabrication demand in 2013 is tonnes, a fall which impacted significantly upon total
estimated at its highest level since 2008 after witnessing global fabrication demand.
11.4% growth year-on-year. This is despite average real
prices still being 49% above 2008 levels. In the developed market, fabrication was not as quick
to react to lower prices. In Europe a combination of
• The second half did witness a modest 8.7 tonne decline sluggish growth and past substitution away from high-
year-on-year to 1,363 tonnes, however, due to slightly softer priced gold saw output broadly flat year-on-year. North
offtake from industrial and dental applications. America, however, fared considerably better as retailers
heavily discounted gold pieces, and as spending on
• Assuming an average H1 2014 price of $1,233/oz we luxury goods continued to increase with the economic
do not forecast another surge in demand akin to H1 2013 and stock market recovery. This brought global
given current sentiment in the market. Our forecast is for a fabrication to 2,990 tonnes in 2013, an increase of 305
17% decline in total fabrication demand in H1 2014 from an tonnes, with all of this coming in the first half of the year.
exceptional H1 2013.
Looking forward, it is forecast that the first half of 2014
FABRICATION DEMAND
INTRODUCTION will see total fabrication decline in year-on-year terms
from a H1 2013 high. Prices are expected to be more
The second half of 2013 witnessed a hangover from the stable, which will reduce the likelihood of another
surge in first half fabrication in price-sensitive markets, bargain-hunting surge such as that of Q2 2013, while
with an additional negative impact brought about by the Indian import restrictions will also continue to curb
ramp-up of the Indian government’s import restrictions international demand. Total fabrication is forecast at
from July 2013. 1,344 tonnes in the first half of 2014, a decline of 17.4%
year-on-year.
In China, following a growth rate of 30.4% in the first
half-year, fabrication demand slackened to a still EUROPE
impressive 20.4% in H2 2013, bringing total 2013
fabrication to 826.6 tonnes, up 166.7 tonnes or 25.3% ——Total European fabrication in 2013 remained broadly
from 2012 levels. Likewise in the Middle East, total unchanged, at 255 tonnes, as losses in jewellery
tonnage consumption of 360.6 tonnes represented a and electronics offtake were mitigated by a strong
27.3% increase for the full year, despite a slowdown increase in official coin minting.
witnessed in the second half. The major adverse impact
on growth came from India where first half growth of Jewellery fabrication in Italy is estimated to have fallen
30.7% or 101.4 tonnes was more than offset in the second by 3% in 2013, taking total volumes to less than a fifth
half. A 116.0 tonne year-on-year decline in the second of those recorded in the late 1990s. That said, while the
half brought total consumption for 2013 down to 721.4 relentless downtrend continued into the last year, the
WORLD GOLD FABRICATION WORLD JEWELLERY FABRICATION
Change Change
(tonnes) 2012 2013E y-o-y 13.H1 13.H2E 14.H1F (tonnes) 2012 2013E y-o-y 13.H1 13.H2E 14.H1F
Europe 254 255 0% 129 126 124 Europe 172 168 -2% 83 85 82
North America 179 211 18% 107 104 89 North America 62 76 23% 29 47 34
Latin America 48 53 11% 25 29 29 Latin America 40 45 11% 20 25 25
Middle East 283 361 27% 217 143 175 Middle East 229 260 13% 146 113 133
Indian S-C 767 757 -1% 452 305 288 Indian S-C 649 648 0% 380 268 255
East Asia 1,000 1,191 19% 616 574 560 East Asia 705 904 28% 468 436 410
Africa 43 47 8% 24 23 21 Africa 20 20 2% 10 10 10
Oceania 13 19 43% 10 9 9 Oceania 3 3 5% 2 1 1
CIS 96 96 1% 47 49 48 CIS 70 73 4% 36 38 37
World Total 2,684 2,990 11% 1,627 1,363 1,344 World Total 1,951 2,198 13% 1,175 1,023 989
29
EUROPEAN FABRICATION AND HALLMARKING SERIES

rate of decline slowed somewhat compared to previous
years. This slowdown was largely explained by the Italian Jewellery Fabrication
(Index based on Jan-Dec each year, with 2007 = 100)
weaker price environment, which buoyed demand from 2008 2009 2010 2011 2012 2013
key export destinations, helping somewhat to mitigate Home 83 57 51 40 31 26
the losses stemming from the continued weakness in the Export 79 57 54 44 41 40
domestic market.
Swiss Watch Case Hallmarking
(Index based on units for Jan-Dec period, with 2007 = 100)
Available data for the first nine months of 2013 suggest 2008 2009 2010 2011 2012 2013
there was a strong rebound of nearly 50% year-on-year 103 59 62 87 104 99
in jewellery exports. This was mainly thanks to stronger
deliveries to the United Arab Emirates (UAE), Italy’s Hallmarked UK Jewellery Fabrication and Imports
(January-September each year, tonnes)
largest destination, where shipments from Italy rose by 2008 2009 2010 2011 2012 2013
almost 70% in the January-September period. Price-led Total 16.2 11.7 11.0 9.1 8.6 8.3
gains were also seen for Jordan, the next largest Middle
East market, which together with exports to the UAE
explains much of the growth for the Middle East category in the volume of shipments to Algeria and South Africa
in the graph below. greatly explained a double-digit percentage rise for the
‘Others’ category illustrated in the graph below.
FABRICATION DEMAND
Similarly, the declining price trend explains much of

the gains for shipments to East Asia. Data for the first While the first nine months of 2013 witnessed an uptick
nine months of 2013 showed that deliveries of finished in demand from key export destinations, retail activity
jewellery were 35% higher year-on-year, thanks chiefly in the domestic market experienced a further decline,
to buoyant flows to China/Hong Kong. Turning to the with our estimate for the full year at a 9% decline year-
industrialised world, a robust recovery in US jewellery on-year. One significant factor behind the structural
consumption along with an improving economy helped decline in domestic consumption is the ongoing shift
to explain the near 30% increase in exports to the United within the industrialised world’s markets from plain to
States over the January-September period. gemset jewellery. This trend continued through last year.
Persistent economic weakness, coupled with increased
Italian shipments to the EU witnessed a 12% growth political uncertainty, were among other important factors
in the first nine months of 2013, largely assisted by that weighed significantly on consumer sentiment.
the lower gold price environment. The ‘Other Europe’ Moreover, Italian jewellery fabrication continued to suffer
category saw the largest percentage increase by region, from its market share loss to Asian fabricators, due to
thanks chiefly to strong deliveries to Switzerland such factors as higher labour costs, tight EU legislation
(operating as a global distribution centre for high-end and import duties in some markets.
jewellery) and to Turkey (mainly for re-export to Russia).
Elsewhere, Italian shipments to Latin America recorded In Germany, jewellery fabrication growth remained
an 18% rise and this was largely attributable to stronger stable, totalling 14.7 tonnes in 2013 with mixed
deliveries to Mexico and Panama. A sizeable increase performances among retailers. Some were reporting
solid sales levels domestically as well as from abroad,
ITALIAN OFFICIAL JEWELLERY EXPORTS whereas others tended to be struggling to turn a profit.
The main trend for the year was the continued rise into
Middle East
alternative materials, such as palladium and stainless
steel as well as the shift toward increased spending on
EU-25
electronic goods. Domestic demand for 18-carat pieces
East Asia and higher value brands held up relatively well last year
whereas100%
theOPACITY
lower carat segment of the market showed
Other Europe*
some considerable weakness.
N America
Jan - Sept
L America 2012 Jewellery fabrication in Switzerland is estimated to have
2013 fallen by 1% to almost 31 tonnes last year. Following
Others
three consecutive years of increases, Swiss hallmarking
0 4 8 12 16 20 24 numbers sketched an even more bearish picture by
Tonnes
Source: Thomson Reuters GFMS; Calculations based on Italian export data. falling 6% last year. However, the decline followed two
Shows only the direct flow of finished pieces. *incl Russia & Turkey
30
years of significant growth in hallmarked pieces whereas 2012. This marks the second annual increase in demand
at the same time retailers were more inclined to draw over the course of the past 13 years. The only other rise in
down stocks. annual demand came in 2010, when jewellery fabrication
rose 5% on the back of a recovering economy following
Of all the European countries, jewellery fabrication in the financial crisis. The 15% drop in the annual average
France suffered the most. Indeed, jewellery fabrication gold price combined with an improving US economy
fell a significant 14% last year to 6.5 tonnes, with demand provided the impetus for growth in gold jewellery
for middle-segment priced jewellery suffering the most. demand last year.
The high-end of the market continued to perform well, as
it is less price-sensitive and the lower segment held up Over the past decade US gold demand in volume terms
well, benefitting the most from the decline in gold prices. has suffered from higher and rising gold prices as well
Similar to other countries, nevertheless, the domestic as economically devastating events such as the dot-com
market continued to suffer from the shift towards bubble and the financial crisis of 2007/08. Over the
alternative materials such as silver, custom made and course of this time period, jewellers have coped with this
non-precious materials. adverse market environment by reducing the per-unit
gold content of their pieces in a variety of ways.
In the UK the general trend last year was noticeably
different compared to market developments elsewhere Jewellers have applied fashion styles that inherently
FABRICATION DEMAND
in Europe. Official hallmarking statistics showed a 1.1% require less gold, used plating and bonding techniques,
year-on-year drop in the number of articles hallmarked in and reduced caratage. Preserving price points has been
2013. However, the gold content of articles hallmarked the biggest theme in the jewellery market as retailers
actually increased 2.5%, indicating a rise in the average have had to combat constrained disposable incomes
gold content per article. When looking at the caratage among their consumer bases. Many retailers have
split in more detail, 22-carat and the 18-carat jewellery adjusted their business models by holding significantly
clearly stand out, as demand for both increased last lower inventory and focusing their sales on custom-made
year by 16% and 5% respectively in weight terms, pieces made to order.
whereas all other segments witnessed a notable decline.
Consequently, jewellery fabrication is estimated to have In 2013, jewellery manufacturers saw a long-awaited
risen by 6% to a little over 7 tonnes in 2013. improvement in margins, albeit modest, and retailers
were able to boost sales by offering attractive rebates
Jewellery fabrication in Russia is estimated to have and discounts. Most retailers did not mark down sticker
increased by 6% in 2013 to almost 52 tonnes. Similar to prices, which deterred some sales due to consumer shock
the trend in the previous years, last year saw jewellery with respect to jewellery prices compared to the market
fabrication benefit from a continued recovery in retail price for gold. This lag in sticker price reductions could
activity in the domestic market, with our estimate placing benefit jewellery consumption in 2014.
consumption growth at over 5% for the year. This was
chiefly thanks to robust demand for gold jewellery US jewellery store sales were up 9% in the first ten
from the growing middle class, supported by a rise months of 2013 relative to the same period in 2012,
in disposable incomes and lower gold prices. While
demand for jewellery fabrication enjoyed a period of US GOLD JEWELLERY IMPORTS
steady growth in the last few years, the estimated total
for 2013 looks to have remained slightly below the peak 2008
recorded in 2008. Looking ahead, we are expecting
to see another year of robust performance, assisted by 2009
further weakness in the gold price.

2010
100% OPAC
NORTH AMERICA 2011
Jan - Oct
——Price declines and an improving economy pushed US 2012
Italy
gold jewellery demand up 26% in 2013. Others
2013
US gold jewellery demand is estimated to have risen 0 10 20 30 40 50 60

Tonnes
to almost 68 tonnes in 2013, up 26% from 54 tonnes in Source: Thomson Reuters GFMS
31
according to US Census Bureau data. This compares In line with other markets in the region Turkey recorded a
to 4% growth in the same period in 2012. Most retail sizeable increase in jewellery fabrication in 2013, surging
companies reported healthy growth in the holiday 19% to a five- year high. It should come as no surprise,
season, which ran from the end of November through therefore, that bullion imports reflected this healthy
December, although some cited sticker shock as a rise; reaching a record level in excess of 300 tonnes.
limiting factor. That said, the average price point Looking back, jewellery fabrication was aided primarily
of jewellery sold in the US moved higher last year. by the lower gold price environment last year, which saw
Retailers reported anywhere from flat to 20% growth in local consumption and the export sector both record
total jewellery sales during this period. Gold demand sizable gains. In addition, domestic tourism, which also
benefited from this growth, but silver jewellery demand contributes to jewellery offtake across the country, was
growth arguably outpaced that of gold. Silver has also more robust and helped lift consumption.
gained share in the jewellery market and continues to
benefit in the branded jewellery segment due to its price The declining price trend in the first quarter provided the
advantage. market with a much needed boost, with both domestic
consumption and export orders picking up in those early
The growth in US jewellery consumption can be further months of the year. The second quarter saw explosive
supported by the growth seen in gold jewellery imports expansion as the market reacted immediately to the
last year. US gold jewellery imports are estimated to sharp gold price fall in April that saw gold in domestic
FABRICATION DEMAND
have increased 27% in 2013 through October from the terms fall below TL80/g (a level not seen since mid 2011),
same period in 2012. This compares to annual declines instigating a wave of demand for the yellow metal that all
ranging between 2% and 37% in gross imports since but wiped out available stocks across the supply chain,
2005. The top exporters of gold jewellery to the US last pushing premia for fresh bullion to record levels.
year were India, China, and Italy, all of which exported
more gold jewellery products to the US relative to the The driving force behind much of the surge in fabrication
previous year. The US imported a significantly larger during this period was demand for higher purity items as
amount of Italian gold jewellery products in 2013 relative consumers looked to these segments as a simple means
to 2012, rising over 30%. This was the first increase in of investment. Indeed, while all segments of the industry
gross imports from Italy since 1999. were buoyed by the lower price environment, it was plain
22-carat items (mainly bangles) that recorded the most
Gold demand for use in dentistry continued to decline, impressive gains as consumers looked to this segment
albeit at a slower pace relative to the past two years. for its low labour costs, mark up structure and savings
Demand for gold teeth has been declining for years, potential. Field research revealed jewellery fabrication
largely as a function of substitution from cheaper, more in the second quarter rallied an impressive 36% year-on-
natural-looking materials. Consumers generally prefer year, lifting first half offtake 23% over 2012 estimates.
aesthetic appeal over the longevity of gold teeth and
this trend is expected to persist. The somewhat slower Retail demand in the second half remained robust,
decline in demand in 2013 was largely reflective of though well below the heady level seen earlier in the
the drop in gold prices, which helped curb the rate of year as a rising price environment, particularly in the
contraction from this industry.
TURKISH BULLION IMPORTS
Gold demand for use in electronics rose 3.5% in 2013.
Gold is used mostly on printed circuit boards and as 60 125
bondwires. Electronics demand benefitted from lower
Gold Price
gold prices, which helped curb thrifting activity. Healthy 50
100
demand for these products used in mobile devices helped
40
to boost growth, after declining 4.5% in 2012.
Gold price (TL/g)
75
Tonnes
30
MIDDLE EAST 50
20
——Jewellery fabrication in the Middle East increased 10

25
13% in 2013, largely due to the price related
resurgence in the second quarter of the year. 0 0
Jan-10 Jan-11 Jan-12 Jan-13
32
third quarter, slowed retail sales. Another dip below Jewellery consumption in the United Arab Emirates
TL 80/g in late 2013 failed to generate the same level (UAE) rebounded strongly in 2013, increasing by an
of enthusiasm from consumers as sentiment had eased estimated 26% year-on-year as both domestic and
considerably and expectation of further downside regional demand surged on the back of the lower price
potential saw many waiting on the sidelines for a lower environment. Indeed, consumption in the second quarter
entry point. alone jumped almost 50% year-on-year as a result of the
acute drop in the dollar gold price during that period and
The jewellery export sector also posted healthy gains the retail frenzy that followed. Field research at the time
in 2013, with several key markets rebounding after found that parts of the supply chain struggled to meet
a sustained period of weakness. Within the region, demand, with several major traders suggesting that they
demand exploded in the second quarter, particularly could have generated even greater sales during this time
from Iraq and UAE, the latter a distribution point for had they had access to fresh inventory. Aside from the
most markets across the Middle East. In addition, we surge in demand from Iraq and GCC countries, which is
understand that demand from Russia was stronger, as predominately purchased then hand carried from Dubai,
were several key western and Asian markets which all demand from India and Indian sub Continent expatriates
recorded healthy year-on-year gains. also generated a wave of demand for 22-carat jewellery.
Jewellery fabrication in Saudi Arabia is understood to It was this segment in particular that provided the
FABRICATION DEMAND
have recorded a healthy 15% rise last year, reversing greatest fillip to jewellery offtake as consumers rushed to
six years of consecutive declines. Much was due to the purchase the plain high carat items (often purchased as a
surge in domestic demand witnessed in the first half after quasi investment option). While demand for these higher
gold prices fell sharply, instigating a run on the yellow purity designs picked up strongly in 2013 these gains
metal as consumers rushed to rebuild stocks after many were often at the expense of 18-carat diamond and gem
had previously liquidated assets at higher price levels. set items which declined after several years of healthy
Given that a large proportion of demand was driven by growth.
investment motives it was plain, higher purity (mainly
21-carat) items that dominated sales. Turning briefly to Iran, Thomson Reuters GFMS
estimates that jewellery fabrication demand rose 13%
The second half of the year delivered further gains, last year to a five-year high. Safe haven purchases were
though modest at 12%, after a weak Hajj sales period again to the fore, as the country struggled to reign in
(impacting consumption primarily on the west coast) and spiralling inflation and support its domestic currency
a crack down on the Saudisation policy which stipulates in an environment of economic sanctions, with any
that Saudi private companies allot job slots to Saudi retracement in the gold price followed by a significant
Arabians; this severely impacted on retail outlets across uptick in retail activity. The introduction of trade
the Kingdom which are dominated by foreign workers. sanctions on Iran has seen the collapse of jewellery
This led to many gold souk showrooms closing across imports from the UAE - which used to be the primary
the country and limited further potential consumption source of external supply. While imports from Turkey
growth. may have picked up some of this supply it appears that
local fabrication has also increased to meet the rise in
demand.
MIDDLE EAST NEW GOLD DEMAND
250 1800
Despite a 16% rise in fabrication demand in the first half
Gold Price of 2013 Egyptian fabrication demand rose less than 1%
200 1500 on an annual basis after the flailing industry was again
significantly impacted by the political violence that
1200
150 emerged after the Egyptian army overthrew president
US$/oz
Tonnes
900 Mohamed Mursi in early July. This instability severely

100 impacted tourism (which provides about 7% of the
600
country’s GDP and employs 12% of the population) and
50
300
was the chief catalyst for the drop of almost 25% year-
on-year in the third quarter.
0 0
H1-05 H1-07 H1-09 H1-11 H1-13
33
INDIAN SUB-CONTINENT That said, this material constitutes both jewellery

and investment demand. The import of gold into the
——Indian jewellery fabrication remained largely southern states of Tamil Nadu and Kerala together
unchanged in 2013, at an estimated 613 tonnes, with outperformed other regions, rising 29% year-on-year.
a surge in demand the first half offset by a sharp fall Whilst plain gold jewellery has dominated sales in these
in the latter six months of the year. regions, it is also important to note that many of the
——Store expansion and growth of the organised large jewellery retail chains in the country originate
jewellery market were less affected, assisting growth from these states and have wider presence in the
during the supply shortfall. neighbouring states of Andhra Pradesh and Karnataka.
Looking towards northern India, imports to the Delhi
Indian jewellery fabrication reached 613 tonnes in region surpassed the 2012 aggregate, but much of this
2013, almost unchanged from our 2012 estimates. This was related to bar hoarding. Interestingly, the scenario
stable outcome was largely the result of the surge in was quite different in the eastern and western regions
demand witnessed during the second quarter balancing where official imports slumped nearly 40%. This helps
out a weaker domestic market in both the third and to explain the flourishing unofficial trade that emerged in
fourth quarters of the year. Initially, consumption was these regions.
dominated by investment grade plain jewellery as
investors took advantage of the lower price levels to build Imports form a critical source of supply to the Indian
FABRICATION DEMAND
stock. However, this trend changed in the second half jewellery market. In 2013 this was tightened by fixing it
as gold prices rose due to a weak rupee and policies that to a quantum of exports, defined as the 80:20 principle.
limited official imports. After this came into effect, net official imports averaged
approximately seven tonnes a month from August 2013
Restrictions on bank credit, quantitative restrictions, and onwards. This is five times lower than India’s base load
higher customs duty increased the cost of procurement demand. However, unofficial supply, estimated to be in
across the supply chain, leading to sizable rises in excess of 20 tonnes a month since August (compared to
premia. Additionally, lower price expectations postponed an average of just nine tonnes a month in the first seven
discretionary purchases, with the latter largely attributed months), has partially bridged the gap between supply
to widely discussed bearish views on gold. Evidence of and demand. That said, unofficial supplies were not
this was a surge in scrap selling in the third quarter as just through cross-border shipments but also included
gold in rupee terms tested new highs. However, base seepage from units that were originally designated for
load jewellery demand was less affected, as it continued exports. Indeed, detailed trade analysis shows that
to clock more than 40 tonnes a month since August. This medallions and coins (which used to dominate this
puts the estimate for overall consumption at 607 tonnes, space), started losing out to rough cut plain jewellery.
up by 10% from the previous year, driven by surge of over This outcome resulted from the legislative change that
30% in the first half. took effect on the 3rd May that prohibited such exports
from Special Economic Zones. Part of that trade shifted
To understand demand on a regional basis, we need to Export Oriented Units, thereby resuming exports in
to look at official imports at specific locations as this the form of medallions. With that caveat in mind our
indicates metals absorption in those key regions. preliminary estimates suggest net imports in 2013 of
INDIAN BULLION IMPORTS* INDIAN JEWELLERY FABRICATION
180 40 300 Scrap used in Fabrication 35

Gold Price
Jewellery Fabrication
150 Gold Price 250 excluding Scrap 30
30
Rupees/10g (thousands)
Rupees/10g (thousands)
25
120 200
20
Tonnes
Tonnes
90 20 150
15
60 100
10
10
30 50
5
0 0 0 0
Jan-10 Jan-11 Jan-12 Jan-13 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13
*including re-exports, excluding replenishment
34
EAST ASIAN TOTAL DEMAND*

827 tonnes, only 30 tonnes short of the 2012 total. The
picture for the relative second half-year performances 1200
East Asian GDP** 200
is vastly different, however, as imports dropped by
GDP (US$bn) & Exchange Rate (Normalised)

Exchange Rate**
1000
a massive 55%. That said, our current estimate for
175
unofficial flows is still a little on the conservative side as 800
the opacity of this trade makes it difficult to ascertain the
Tonnes
full nature of this parallel trade. 600 150
400
The supply shortfall had a major impact on jewellery 125
retailers, reducing the carryover stock by at least 200
10% from 2012. Jewellers have started looking at
0 100
alternatives to replenish their inventories by importing H1-09 H1-10 H1-11 H1-12 H1-13
plain gold jewellery and using non-resident Indians Source: Thomson Reuters GFMS
*The sum of total fabrication and physical bar investment
(NRIs) as carriers to bring gold through official channels. **Weighted average: Indonesia, South Korea, Thailand
Anecdotal evidence suggests these flows have exceeded
two tonnes during the last two month of 2013. Chinese jewellery fabrication surged by 31% in 2013
to reach an estimated 724 tonnes, the largest year-
Pakistan’s jewellery industry rebounded in 2013, on-year tonnage gain since 1992. Jewellery offtake
FABRICATION DEMAND
recording its first annual rise since 2005 as weaker gold in the first quarter enjoyed a robust start, rising over
prices generated renewed interest in the yellow metal. 20% for the period, stimulated by the Chinese New
Following a poor start when demand slipped almost 10% Year sales coinciding with period of easing gold prices
in the first quarter, demand for gold jewellery surged in and expectations that prices would return to previous
the second quarter as a direct result of the acute collapse elevated levels. The acute gold price drop in April that
in the dollar gold price. Consumers across the country pushed the domestic gold price below RMB 270/g (the
rushed to replenish stocks at the perceived bottom of first time since September 2010) saw demand explode,
the market, boosting domestic fabrication and driving a with jewellery fabrication surging nearly 60% in the
significant rise in imported items as local stocks sold out. second quarter as consumers (mainly women) rushed
Most of the retail activity was investment driven, with in to accumulate gold for gifting, heirlooms, or as a
plain, higher purity, low margin jewellery the mainstay of simple quasi-investment tool. Indeed, many jewellery
domestic offtake. showrooms were cleared of all inventory, such was the
level of panic buying, and many were devoid of stocks for
EAST ASIA several weeks due to the unprecedented demand.
——East Asian jewellery fabrication surged 28% year-on- The gold frenzy in the second quarter attracted many
year as lower gold prices stimulated retail activity. new entrants into the jewellery retail business, which
——Chinese jewellery fabrication jumped an estimated in turn lifted gold fabrication. In July and August
31% in 2013 to reach a record high, taking the mantle alone, over 200 showrooms were opened in Shenzhen,
as the world’s largest jewellery fabricating nation. the southern city that houses almost 70% of the gold
jewellery business in China. The stocking and restocking
of these retail outlets, in tandem with the price-driven
CHINESE GOLD JEWELLERY FABRICATION purchasing activities of consumers, were the major
contributors for the fabrication hike of 35% year-on-year
200 400
Gold Price
in the traditionally weak third quarter.
160
300 Jewellery fabrication in the last quarter of 2013 remained
at healthy levels though there were initial signs of
120
Yuan/gramme
overstocking and periods of discounting. Demand finally

Tonnes
200
kicked in with fervour late in the year as the restocking
80
process ahead of the Spring Festival began lifting
40
100 demand across the supply chain, ending the quarter
with a 14% year-on-year increase, and in so doing lifting
0 0
China above India for the first time to become the world’s
Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 largest gold jewellery fabricating country.
35
One trend worth noting last year was the dominance of consumption was assisted by a weakening currency that
demand for purer forms of jewellery. Given investment maintained gold at a more affordable level. A notable
remains a key component of any purchase and so the feature of the lower price environment last year was the
24 carat variant dominated sales due to its lower mark decline in the rate of migration to lower carat jewellery.
structure and ease of reselling. Indeed, fabricators reported a healthy gain in higher
purity output as consumers looked to replenish previously
Turning briefly to industrial fabrication, modest growth liquidated gold assets.
within the electronics sector again drove the industry
higher. Robust domestic demand and a healthy recovery After a slow start Vietnam’s jewellery fabrication rose an
from key export markets (most notably the US) helped estimated 14% in 2013, reversing seven years of annual
lift fabrication output, though ongoing substitution of declines. The price fall in the second quarter drove
cheaper metals such as palladium and copper partially demand for high purity jewellery as consumers rushed to
offset the use of gold in bonding wire fabrication. replenish depleted gold stocks, and, with access to gold
bars limited due to tight State Bank control, investment
Jewellery consumption in Hong Kong surged by demand was largely satiated with 24-carat jewellery
over 30% last year as a result of the lower gold price (mainly tael rings). In contrast to most countries in the
environment and increased numbers of visitors from region, where average year-on-year growth was 28%,
the Chinese mainland. To the end of November tourist Vietnam’s modest increase may surprise; however, a soft
FABRICATION DEMAND
numbers were up 12% on 2012 and those crossing the economic performance last year (the emerging economy
border jumped by a sizable 17%, boosting demand for all grew at just 5.4%), coupled with further weakening of the
luxury products, with gold just one beneficiary. The price domestic currency, impacted consumer sentiment and
drop in April saw retail outlets wiped out of inventory as restricted non discretionary spending.
consumers (primarily mainlanders) rushed to purchase
gold, pushing offtake higher in the second quarter by a A marked rise in jewellery exports accounted for the 27%
staggering 75% year-on-year. jump in Malaysian demand in 2013, with shipments of
finished jewellery to the Middle East surging on the back
Benefitting from both a recovery on the domestic front of the acute price drop in April. Such was the frenzy in
and healthy gains to key export markets, Indonesian demand during this period that many fabricators were
jewellery fabrication rose 17% last year to an estimated unable to fulfil orders due to a lack of skilled labour;
42 tonnes. A weaker domestic currency (one of the having significantly reduced staff levels in recent years
worst performers in the world last year) saw gold in as the industry was impacted by the high gold price
rupiah terms fall just 3% (in contrast to the 16% drop environment. On the domestic front demand also picked
in the dollar price) limited further gains as did a benign up strongly, pushed higher by demand for higher purity
economy - that like many in the developing world failed items (mainly 22-carat) as consumers took advantage of
to meet expectations. Demand in the first half benefitted lower prices to restock on investment related products.
from the lower price environment and demand ahead
of key Ramadan sales period in the second quarter, Thailand jewellery fabrication demand was sharply
boosting offtake by 23% year-on-year. While demand higher on the back of stronger domestic demand and a
growth in the second half eased, rising by just 10%, healthy rise in exports, with full year offtake estimated
AUSTRALIAN GOLD BULLION EXPORTS THAI BULLION IMPORTS
60 175 125 35
East Asia Other Rupiah Other
UK India Baht Switzerland

50 30
100 Australia
Gold prices (Index, Jan -11 = 100)
150 Gold Price

Baht/Baht bar (thousands)
25
40
125 75
20
Tonnes
Tonnes
30
50 15
100
20
10
75 25
10
5
0 50 0 0
Jan-11 Jan-12 Jan-13 Q1-10 Q1-11 Q1-12 Q1-13
36
INDUSTRIAL DEMAND for much of the annual increase as the lower rupee gold price
encouraged higher consumption of the price sensitive jari
——Industrial demand declined less than 1% as weaker thread. Elsewhere, healthy demand for plating solutions
metal prices helps offset soft economic conditions (mainly gold potassium cyanide), which are largely used in
and substitution losses. decorative, giftware, and electronics, also benefitted from the
lower price profile, though demand for luxury plated products
Despite a stronger economic environment and a lower gold across Europe remained moribund due to the fragile economic
price gold used in industrial applications slipped 1% in 2013 to climate. Finally, gold used in dental applications continued
a 10-year low. Electronics, which dominates industrial demand its long term secular trend to record just a 1% decline last year.
at almost 70% of the total, was held to another modest decline The significant year-on-year drop in the average gold price
as stronger end-user demand was largely offset by further limited the rate of substitution away from gold to other cheaper
substitution losses in bonding wire fabrication. Indeed, gold alternatives (mainly cobalt:chrome, porcelain, and ceramics),
has now lost significant ground to more affordable alternatives and provided fresh interest to a segment of consumers who were
such as bare copper, palladium coated copper wires, and more previously priced out of the market.
recently, silver and aluminium wires. Other industrial and
decorative demand recorded a modest rise last year, buoyed Looking ahead, we expect to see little change in 2014; weaker
in part by the lower gold price environment that stimulated prices and a stronger consumer base will likely be offset by
retail activity and led to significant restocking. India accounted further substitution losses within the electronics segment.
FABRICATION DEMAND
WORLD FABRICATION OF GOLD BONDING WIRE GLOBAL SEMICONDUCTOR BILLINGS
80 110 200 Europe Other Asia Pacific 200

Americas Japan
Electronics Fabrication
Global electronics fabrication (tonnes)

Industrial Production (2010 = 100)
160 160
Number of shipments (millions)
60 Industrial Production 105

*
120 120
Tonnes
40 100
* 80 80
20 95
40 40
0 90 0 0
H1-10 H1-11 H1-12 H1-13 H1-07 H1-09 H1-11 H1-13
Source: Thomson Reuters GFMS,
GFMS OECD Source: SIA, Thomson Reuters GFMS
*Forecast
to have surged over 40% to a four-year high. While the Not surprisingly, the price drop in the second quarter
second half of 2013 delivered an impressive 25% rise it generated the healthiest year-on-year gains (rising over
was the first half of the year, and particularly the second 11% for the period as gold in yen terms fell below 3,800/g
quarter after the price fell below 18,000 baht per baht for the first time since May 2011) though demand was
bar for the first time since late 2010, that saw fabrication stronger across each quarterly period. On the industrial
demand surged as domestic consumers rushed to front, demand eased for the third year in succession as
replenish previously liquidated gold assets at the stronger consumer demand (both domestically and from
perceived discounted price. At the same time a similar key export markets) was offset by further substitution
pattern was emerging in other key markets instigating a losses away from gold.
rush in export orders, bringing a much needed boost to
an industry that had struggled in recent years, with the Despite an 18% drop in the won gold price last year,
re-emergence of demand from the United States, Hong South Korean jewellery fabrication failed to replicate
Kong, and UAE central to the significant rise in output. most other markets in the region, slipping an estimated
7% to a level not seen since the mid 1980’s. A fragile
Japanese jewellery demand rose by an estimated 8% last domestic economy saw spending on luxury products
year, assisted in the main by the lower price environment ease, impacting non discretionary spending and limiting
and a more robust economy that lifted consumer purchases of jewellery to mainly weddings and key gift
sentiment and encouraged greater retail activity. giving occasions.
37
7. PRICE APPENDIX
GOLD PRICES AND LEASING RATES IN LONDON AND EQUIVALENTS CONVERTED AT CLOSING DAILY EXCHANGE RATES
January-December 2013 London London 1-month 12-month

AM fix PM fix Euro/kg Yen/g Yuan/g Mumbai A$/oz Rand/kg Leasing Leasing
US$/oz US$/oz Rs/10g Rate % Rate %
Period Average 1,409.51 1,411.23 34,196 4,412 279.18 29,306 1,455 433,964 -0.11 0.44
Maximum 1,692.50 1,693.75 41,390 5052 339.27 33,590 1,623 489,799 0.69 0.55
Minimum 1,192.75 1,192.00 28,056 3,799 233.30 25,270 1,305 376,728 -0.11 0.29
Range:Average 35% 36% 39% 28% 38% 28% 22% 26%
Monthly Average
Jan 1,671.89 1,670.95 40,384 4,792 334.23 30,691 1,591 471,497 -0.09 0.36
Feb 1,630.69 1,627.59 39,231 4,872 326.16 30,091 1,579 463,485 -0.02 0.37
Mar 1,591.01 1,592.86 39,514 4,859 318.32 29,658 1,540 468,778 0.04 0.40
Apr 1,485.90 1,485.08 36,644 4,676 295.35 27,913 1,431 433,115 0.01 0.41
May 1,416.14 1,413.50 35,025 4,591 279.06 26,898 1,429 424,454 0.15 0.47
Jun 1,342.70 1,342.36 32,691 4,197 264.73 27,359 1,423 430,460 0.06 0.44
Jul 1,284.35 1,286.72 31,591 4,121 253.76 27,040 1,404 408,568 0.25 0.50
Aug 1,345.05 1,347.10 32,526 4,234 265.12 30,318 1,492 435,369 0.27 0.52
Sep 1,348.46 1,348.80 32,468 4,301
265.39 30,566 1,453
430,854 0.14 0.48
Oct 1,314.40 1,316.18 31,027 4,139 258.27 30,755 1,383 417,529 0.14 0.48
Nov 1,277.42 1,275.82 30,395 4,105 249.93 30,864 1,370 417,540 0.12 0.44
Dec 1,221.59 1,225.40 28,752 4,071 239.36 30,071 1,363 407,180 0.17 0.43
Quarterly Average
Mar 1,632.51 1,631.77 39,731 4,840 326.49 30,173 1,571 468,035 -0.02 0.38
Jun 1416.08 1,440.80 34,820 4,493 279.96 27,383 1,428 429,325 0.08 0.44
Sep 1,324.67 1,326.28 32,176 4,216 261.19 29,267 1,448 424,427 0.22 0.50
Dec 1,273.26 1,276.16 30,153 4,108 249.95 30,562 1,373 414,528 0.15 0.44
Monthly Maximum
Jan 1,692.50 1,693.75 41,390 4,912 339.27 30,970 1,613 489,799 -0.06 0.39
Feb 1,678.00 1,674.25 40,138 5,040 335.44 30,600 1,623 478,962 0.07 0.42
PRICE APPENDIX
Mar 1,611.50 1,613.75 40,327 4,962 322.42 29,925 1,554 481,251 0.07 0.42
Apr 1,597.75 1,583.50 39,718 5,052 315.57 29,800 1,516 468,528 0.03 0.43
May 1,476.50 1,469.25 36,162 4,735 290.79 27,480 1,464 456,194 0.19 0.52
Jun 1,410.00 1,404.00 34,487 4,500 276.60 28,350 1,477 451,719 0.12 0.49
Jul 1,340.00 1,335.00 32,516 4,303 263.36 28,640 1,464 419,562 0.30 0.55
Aug 1,425.50 1,419.50 34,217 4,455 279.32 33,590 1,588 473,527 0.31 0.54
Sep 1,403.75 1,399.50 34,168 4,480 275.39 32,800 1,552 462,780 0.20 0.51
Oct 1,351.00 1,361.00 31,745 4,290 266.28 32,054 1,429 431,039 0.20 0.51
Nov 1,317.00 1,320.50 31,418 4,186 258.89 31,339 1,389 433,404 0.23 0.48
Dec 1,255.25 1,266.25 29,589 4,186 247.14 30,890 1,393 419,776 0.19 0.44
Monthly Minimum
Jan 1,632.25 1,645.25 39,419 4,634 329.52 30,380 1,567 450,612 -0.11 0.34
Feb 1,568.50 1,576.50 38,434 4,681 316.01 29,360 1,528 448,321 -0.10 0.33
Mar 1,570.00 1,574.00 38,754 4,730 314.66 29,446 1,524 456,356 -0.04 0.37
Apr 1,378.00 1,380.00 33,791 4,327 274.31 25,670 1,328 402,668 -0.03 0.37
May 1,353.75 1,354.75 33,812 4,454 267.38 26,050 1,382 410,972 0.02 0.44
Jun 1,203.25 1,192.00 29,462 3,799 235.21 25,270 1,305 376,728 0.02 0.41
Jul 1,225.50 1,212.75 30,391 3,945 239.11 25,910 1,338 395,025 0.12 0.45
Aug 1,275.50 1,280.50 30,919 3,972 252.02 28,150 1,425 406,954 0.19 0.49
Sep 1,299.75 1,301.00 30,936 4,096 256.03 29,680 1,367 400,218 0.06 0.42
Oct 1,255.50 1,265.50 30,048 4,010 249.02 29,340 1,333 400,527 0.06 0.42
Nov 1,231.75 1,240.00 29,436 4,033 242.90 30,325 1,343 401,478 0.09 0.41
Dec 1,192.75 1,195.25 28,056 3,999 233.30 29,305 1,332 396,865 0.10 0.41
Source: Thomson Reuters. Lease rates are calculated, not market, values, hence the appearance of negative rates.
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GOLD SURVEY 2013

TANAKA PRECIOUS METALS

Rhona O’Connell, Head of Metals Research & Forecasts

PUBLISHED JANUARY 2014 BY THOMSON REUTERS GFMS

The Thomson Reuters Building, 30 South Colonnade

www.cmegroup.com Italpreziosi SPA

TANAKA PRECIOUS METALS

Barrick Gold Corporation www.standardbank.com/cib

2. Gold Prices in 2013 8

5. Supply From Above-Ground Stocks 25

© THOMSON REUTERS 2014.

DISCLAIMER OF WARRANTIES AND NO RELIANCE

1. SUMMARY AND MARKET OUTLOOK

SUMMARY AND MARKET OUTLOOK

WORLD GOLD SUPPLY AND DEMAND

running downtrend continued in 2013, losses were

Producer de-hedging amounted to an estimated MARKET OUTLOOK

SUMMARY AND MARKET OUTLOOK

Middle East. At the same time, retail investors in Europe **

time to increase purchases of official coins. In the second

GOLD PRICES, 2012-2013

2. GOLD PRICES IN 2013

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

Indian government Q3 U.S. GDP climbed

€400mn worth down temporarily by $10 bn a month

Fed will keep interest rate 105

VOLATILITY (US$ SPOT)

1-month Leasing Rate (%)

GOLD, OIL AND THE CRB INDEX Ch2 Gold

120 1700 1.40

WORLD INVESTMENT KEY MARKET INDICATORS

(tonnes) 12.H2 13.H1 13.H2E 14.H1F (end-period) Change

WORLD INVESTMENT GOLD AND BENCHMARK YIELD CURVE

GOLD ETFS AND OTHER SECURITISED PRODUCTS

arenas of investment over the year (although given 400

tonne outflow from ETF holdings had a broad one-to-one

60 markets, commodities, especially industrial metals, may not

important commodity exchange for gold futures trading 200 1500

on a global basis in 2013 despite suffering a significant

ability to access the market. -50 500

300 on imports and investment products limited further

WORLD PHYSICAL BAR INVESTMENT

sales rose further in 2013 despite assertions that the gold

came from bargain hunting when the gold price plunged 5

TOP 20 GOLD MINING COUNTRIES

production estimated for 2013. Last year encompassed

Detour Lake, Canadian Malartic and Young-Davidson, are

Generally, the industry-wide theme during 2013 was

MINE PRODUCTION WINNERS AND LOSERS, 2013E VERSUS 2012

-9 t -6 t -3 t -0.5 t +0.5 t +3 t +6 t +9t

AFRICA lead and copper bearing sulphides and which is expected

Mixed results were noted across the rest of the continent.

CORPORATE ACTIVITY 2013E TOP 10 GOLD PRODUCERS

ASIA previously one of the top five producing regions of China,

1600 South Africa

Sweden and Bulgaria. 400

REPORTED TOTAL CASH AND PRODUCTION COSTS

WORLD TOTAL CASH COST CURVES

9-Month 2012 Average Gold Price ($1,650.69/oz)