gold price outlook september 2014

1The Gold Price OutlookBullish/Bearish Factors

Dr. Martin MurenbeeldSeptember 16, 2014Presented at the Denver Gold Forum 2014

-70

-60

-50

-40

-30

-20

-10

0

10Change from previous week, tonnes

What Went Wrong in 2013?An orgy of ETF sales 881 tonnes in 2013!

2013-Q1 2013-Q2 2013-Q3

Source: Bloomberg, World Gold Council, DCM Economics

| DUNDEE CAPITAL MARKETS2

2013-Q4

600700800900

10001100120013001400150016001700

1800190020002100

350475600725

850975110012251350147516001725

1850197521002225

What Went Wrong in 2013?Investors went to equities !!

Daily dataLast date: September 12, 2014

20082007 201220102009

Gold

2011 2014

S&P 500


Source: Thomson Reuters Datastream, London Bullion Market Association

2013

Massive negative correlation in 2013: -.88

-100

-50

0

50

100

150

200

250

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Last month: July 2014

What Went Right in 2013?Chinese net imports from HK set record!

Source: Thomson Reuters Datastream, Hong Kong Census, DCM Economics


2012: 557 tonnes

2013: 1158 tonnes

Chinese Gold Imports from Hong Kong(monthly tonnes)

Chinese Gold Re-Exports to Hong Kong(monthly tonnes)

2Bearish Factors for 2014-15

1. The Fed must inevitably tighten policy The Fed is currently tapering QE will end late 2014 And the Fed will raise rates in 2015

2. US dollar will remain firm in 2014-15!?3. The world economy is sluggish

Gold typically weakens during recessions Inflation pressures remain subdued There is often a need for liquidity

4. Equity markets will continue to draw investment interest away from gold

5. Investors still have gold to sell and technicals bearish

300

600

900

1200

1500

1800

2100

2400

2700

3000

3300

3600

3900

4200

4500

4800

Jan-08 Jun-08 Dec-08 May-09 Nov-09 Apr-10 Oct-10 Mar-11 Sep-11 Feb-12 Aug-12 Jan-13 Jul-13 Dec-13 Jun-14 Nov-14

Bearish: (1) Fed Ends QEThe Fed balance sheet must inevitably decline

Last date: September 10, 2014

US TreasuriesOther AssetsCurrency

Swaps

Commercial Paper Market

Other Credit Extensions

Securitization Market (support for mortgages)

Agency Debt

Total assets have quintupled!

Liquidity to Banks

Total Assets $ billions


Source: Federal Reserve

-5

-4

-3

-2

-1

0

1

2

3

4

5

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Bearish: (1) Fed Ends QEAnd real rates will have to rise - but before 2016?

Last month: August 2014

Gold prices often stall when real rates rise above 2%!

US real short term interest rate

Real rates below zero are very positive for gold

Real rates not above

zero before 2016 ??


Source: US Bureau of Labor Statistics, Federal Reserve

0

250

500

750

1000

1250

1500

1750

2000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Bearish: (1) Fed Ends QEUS real rates rose in 2013 taper tantrum


GOLD


Source: LBMA, US Bureau of Labor Statistics, Federal Reserve

10-year TIPS

29%

3-36

-24

-12

0

12

24

36

48

60

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Bearish: (1) Fed Ends QEBut gold may have fully discounted rising yields !


GOLD% year-on-year


Source: US Bureau of Labor Statistics, Federal Reserve

10-year TIPS

-30

-20

-10

0

10

20

30

40

50

60

00 02 04 06 08 10 12 14

ModelReal 10-year yields

US dollar index - change

Source: London Bullion Market Association, Federal Reserve, Bureau of Labor Statistics, WSJ


GOLD% year-on-year

Correlation = .67


Bearish: (1) Fed Ends QE Model: gold has fully discounted Fed actions!?

Bearish: (1) Fed Ends QE What do the Models say specifically?

Assuming a severe scenario, including a rise of 250 basis points in real interest rates and a 1000 point rise in the US dollar index, the models suggest that gold may decline anywhere from 18% to 29%!

But gold has already declined by nearly 30% ???

REAL INTEREST RATE* US DOLLAR**

MODEL 1969-2014 -5.656% -1.219%(R-squared = .362)

MODEL 1989-2014 -3.839% -1.235%(R-squared = .475)

MODEL 2000-2014 -1.691% -1.513%(R-squared = .454)

*Difference between 10-year Treasury yield and consumer price inflation (y-o-y)** Dollar index includes Cdn$, Yen, Pound, Euro (pre-1999: DM, Lira, FF)

***A 100-point rise in the real rate is 100 basis points***A 100 point rise in the US dollar is a rise in the index from, say, 75.00 to 76.00

IMPACT ON GOLD OF 100-POINT RISE***

| DUNDEE CAPITAL MARKETS

Bearish: (2) Dollar Strengthens The dollar rises others devalue against dollar

65

70

75

80

85

90

9507 08 09 10 11 12 13 14 15

500

750

1000

1250

1500

1750

2000

Latest week: September 12, 2014Correlation since 2006: -.80

Gold

Corr: -.90 Corr: -.84 Corr: -.77 Corr: -.48 Corr: -.29 Corr: -.80

Dollar Index includes: Canadian dollar, Aussie dollar, euro, yen, Swiss Franc, pound, rupee, RMB/yuan

Corr: -.58


Source: Wall Street Journal, London Bullion Market Association, Dundee Capital Markets calculations

Corr: -.38to date

US Dollar(eight currencies)

4-30

-20

-10

0

10

20

30

40

50

82 84 86 88 90 92 94 96 98 00 13 13 13 13 13 12 14

-35

-28

-21

-14

-7

0

7

14

21

Last quarter: 2014-Q2

Bearish: (2) Dollar StrengthensGold/US dollar correlations always negative

Gold - %

US dollar index(four currencies)

US dollar index(eight currencies)

Correlation: -0.59Correlation: -0.64

US Dollar - %


Source: Wall Street Journal, Dundee Capital Markets calculations

500600700800900

100011001200

13001400150016001700180019002000

Jan 07 Jul 07 Feb 08 Sep 08 Apr 09 Nov 09 Jun 10 Jan 11 Aug 11 Mar 12 Oct 12 Apr 13 Nov 13 Jun 14

Gold daily p.m. fixData through September 12, 2014

Bearish: (3) Global Economy SluggishRecessions always a major headwind for gold

EurozoneRecession/Depression

US recession

30%

37%


Source: London Bullion Market Association

Billion US$

Bearish: (3) Global Economy SluggishIMF forecast: 3.4%-2014 and 4.0%-2015

-2

0

2

4

6

8

10

12

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

-2

0

2

4

6

8

10

12

14

16

18

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

(e)

(e)

Source: IMF World Economic Outlook, July 2014

-1

0

1

2

3

4

5

6

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

-5

-4

-3

-2

-1

0

1

2

3

4

5

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

World GDP (%) China GDP (%)

India GDP (%)

EU GDP (%)


-1

0

1

2

3

4

5

6

7

8

1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012-50

-40

-30

-20

-10

0

10

20

30

40

US recession

CRB and BoC commodity price indices are inflation-adjusted and highly correlated with world growth

World GDP %

Bank of Canada IndexCRB Index

Source: IMF, Bank of Canada, Thomson Reuters Datastream, DCM Economics


Bearish: (3) Global Economy SluggishCommodities decline when world growth < 4%

550

100

150

200

250

300

350

400

450

500

90 92 94 96 98 00 02 04 06 08 10 12 14-90

-60

-30

0

30

60

90

120

150

180


US recessions

% year-over-year

CopperUS cents/lb

China Joins WTONov 2001

Bearish: (3) Global Economy SluggishCopper prices weakened in recent quarters


Source: Wall Street Journal

150

190

230

270

310

350

390

430

470

90 92 94 96 98 00 02 04 06 08 10 12 14-48

-36

-24

-12

0

12

24

36

48

Bearish: (3) Global Economy SluggishAnd commodity prices generally are down


US recessions

CRB INDEX: 19 commodity prices - Energy 39%, Agriculture 41%, Precious Metals 7%, Industrial Metals 13%

% year-over-year

Thomson Reuters/Jeffries

CRB Index

China Joins WTONov 2001


Source: Wall Street Journal

-3

-2

-1

0

1

2

3

4

5

6

7

90 92 94 96 98 00 02 04 06 08 10 12 14

Bearish: (3) Global Economy Sluggish Headline inflation is going nowhere fast !


Core CPI

Headline CPI

US recessions

% YoY

Feds PCE


Source: US Bureau of Labor Statistics, US Bureau of Economic Analysis

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1986 1990 1994 1998 2002 2006 2010 2014

Recycled/Scrap Gold

Source: World Gold Council Gold Demand Trends - Full Year 2013Thomson Reuters GFMS

Bearish: (3) Global Economy Sluggish Scrap supply elevated when liquidity needs rise

tonnes

Asian Financial

Crisis

Great Recession


60

25

50

75

100

125

150

175

J a n- 0 3 J a n- 0 4 J a n- 0 5 J a n- 0 6 J a n- 0 7 J a n- 0 8 J a n- 0 9 J a n- 10 J a n- 11 J a n- 12 J a n- 13 J a n- 14

Bearish: (3) Global Economy Sluggish India: import barriers to preserve liquidity

INDIAGold Imports(monthly tonnes)

12-month MA

Last month: August 2014Source: Thomson Reuters Datastream, DCM estimates


600700800900

10001100120013001400150016001700

1800190020002100

300425550675

800925105011751300142515501675

1800192520502175

Bearish: (4) Equity Markets Rally Further Monetary factors also help equities!

Daily dataLast date: September 12, 2014

20082007 201220102009

Gold

2011

Monetary Reflation!

2014

S&P 500



2013

-60

0

60

120

180

240

300

-36

-24

-12

0

12

24

36Weekly dataLast date: September 2, 2014

2009

Specs net long

2007 20142010 2011

Gold Price (quarterly % change)

2008 2012

Bearish: (5) Gold for Sale COMEX specs net-long position still significant

607.7tonnes

Source: US CFTC, Comex


2013

09/02 Net-Long: 301 Tonnes

295.9tonnes

0

250

500

750

1000

1250

1500

1750

2000

2250

2500

2750

Apr-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

TonnesLast date: September 11, 2014

Other

SPDR Gold ETF

Source: ExchangeTradedGold.com, Bloomberg


Bearish: (5) Gold for Sale ETF holdings still substantial !

1715 Tonnes

2633 Tonnes

7950

1050

1150

1250

1350

1450

1550

1650

1750

1850

1950

Bearish: (5) Technical Picture

Last date: September 16, 2014

Gold - $/oz

2012

50-day MA

2010 2011 2014

200-day MA

Death Cross!

$1895

$1614

$1419$1469

$1540

$1795

$1694

$1385



2013

$1242

$1192

$1340

Bullish Factors for 2014-15

1. ETF supply down dramatically in 2014-152. Asian physical demand will continue to expand3. Central banks will continue to buy gold4. Global debt crisis will require ongoing monetary

reflation5. Global imbalances will remain unresolved until

the dollar declines significantly6. The commodity cycle will run many more years7. Geopolitical crises will multiply 8. Gold price not expensive by normal measures

-70

-60

-50

-40

-30

-20

-10

0

10

20Change from previous week, tonnes

2013-Q1 2013-Q2 2013-Q3

Source: Bloomberg, DCM Economics


2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4

Bullish: (1) Gold SupplyMassive sales not to be repeated in 2014-15

-48 tonnes2014 to date

-869 tonnes2013

Billion US$

0

300

600

900

1200

1500

2009 2010 2011 2012 2013 2014

0

300

600

900

1200

1500

2009 2010 2011 2012 2013 2014

(e)

0

300

600

900

1200

1500

2009 2010 2011 2012 2013 2014

Net Mine Supply + Scrap Supply

Net Mine Supply + Scrap CB Demand

Net Mine Supply ( supply less dehedging)

Lower gold prices will curtail some mine output!

Rising Modestly

Stable

Stable


Tonnes Tonnes

Tonnes

Bullish: (1) Gold SupplyIndeed, supply to jewelers/investors unlikely to rise

80100200300400500600700800900

10001100120013001400

09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1

RoWChinaIndia

51%


tonnes

Source: World Gold Council Gold Demand Trends Second Quarter 2014data tabulated by Thomson Reuters GFMS

Bullish: (2) Consumer Demand* India/China becoming richer LT demand positive

*Consumer demand = jewelry plus bar/coin/medal investment demand

0

50

100

150

200

250

300

350

400

2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1


30

Bullish: (2) India Consumer Demand*Demand down in 2014-H1 (YoY) but trend positive


Source: World Gold Council Gold Demand Trends Second quarter 2014data tabulated by Thomson Reuters GFMS

0

50

100

150

200

250

300

350

400

2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1 2014-Q1

31

Bullish: (2) China Consumer DemandDown in 2014-H1 - but trend very positive


Source: World Gold Council Gold Demand Trends Second quarter 2014data tabulated by Thomson Reuters GFMS



0

10

20

30

40

50

60

70

80

09 10 11 12 13 14

Source: Shanghai Gold Exchange, Sharelynx Gold, DCM Economics

Bullish: (2) China Consumer DemandShanghai deliveries in clear uptrend!

12-week MA

Shanghai Gold Deliveries (tonnes weekly totals)

Date: Sept 12, 2014

9| DUNDEE CAPITAL MARKETS33

0

400

800

1200

1600

2000

2400

09 10 11 12 13 14

Source: Shanghai Gold Exchange, Sharelynx Gold, DCM Economics

Shanghai Gold Deliveries (cumulative tonnes)

Bullish: (2) China Consumer DemandCumulative Shanghai deliveries on trend!

Date: Sept 12, 2014

-100

-50

0

50

100

150

200

09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1

Central Bank Gold Purchases


tonnes

Source: World Gold Council Gold Demand Trends - First Quarter 2014Thomson Reuters GFMS

Bullish: (3) CBs Buying Gold CB demand will continue for years

Bullish: (3) CBs Buying Gold Global FX reserves are excessive (62% in $s)

A number of central banks like the fact that gold is not a liability of the Federal Reserve/US Treasury

RUSSIACHINA

OIL EXPORTERS

Source: IMF International Financial Statistics, July 2014


bn$ bn$China 3993.2 India 289.3Japan 1210.0 Algeria 191.6Saudi Arabia 741.7 Mexico 181.1Switzerland 505.5 Thailand 160.8Taiwan 423.7 Malaysia 127.3Russia 409.6 Turkey 109.9Brazil 367.0 Indonesia 105.4Korea 355.8 Libya 104.3Hong Kong 320.8

TOTAL 9596.9

Addendum: Fuel Exporters $1839 bn

Foreign Exchange Reserves(countries over $100 bn) China wants the CNY to be used more actively in Chinese

and SE Asian trade; indeed many countries want the US dollar to be replaced in global trade and global reserves.

To encourage other countries to hold CNY balances (and as reserve currency) the CNY must have:

Deep capital markets, which allows the CNY to be readily banked around the world and therefore acceptable for transactions

Some form of guarantee to enhance acceptability in the initial phase of internationalization (historically this included some form of gold convertibility)

Bullish: (3) CBs Buying Gold Other currencies vying to become reserve currencies

10

0

10

20

30

40

50

60

70

1970 1975 1980 1985 1990 1995 2000 2005 2010

Annual data (last year 2013)

US Budget:Percent of total outlays

Bullish: (4) Global Debt Crisis Entitlements are killing Western economies

Entitlements

DefenseInterest on Debt

Other


Source: Bureau of Economic Analysis

0

10

20

30

40

50

60

70

80

2010 2015 2020 2030 2050

JapanWestern EuropeCanada US

Population Ratio: 65+/15-64


Source: United Nations Department of Economic and Social AffairsSource: United Nations Department of Economic and Social Affairs

Super-aged

Bullish: (4) Global Debt Crisis And developed economies are aging

0

50

100

150

200

250

Japan Greece Italy Portugal US Spain France UK Canada

2003 2009 2015

Source: IMF Fiscal Monitor April 2014

General Government Debt% of GDP

Over 90% spells trouble (Reinhart/Rogoff)


Bullish: (4) Global Debt CrisisWhich leads to ever higher debt/GDP ratios


For debt ratio to declineA+B > C !

As it stands only Germany will really reduce its Debt/GDP ratio in 2014 !

Primary Nominal 5-yearBalance GDP Growth Bond Yield

A B C A+B-CGreece 1.5 -5.8 5.0 -9.3

Japan -7.6 1.0 0.2 -6.8Spain -4.3 -0.6 0.7 -5.6

Ireland -3.4 0.1 0.5 -3.8Portugal -0.7 0.3 1.6 -2.0

US -4.1 3.4 1.7 -2.4Canada -2.6 3.3 1.6 -1.0

Italy 2.0 -0.4 1.0 0.6Germany 1.7 2.7 0.2 4.1Sources:Primary Balance - IM F Fiscal M onitor, April 2014Nominal GDP - IM F World Economic Outlook, April 2014Yields as of September 5, Thomson Reuters DataStream (Greece: April 10 bond sale)

RED: Debt/GDP ratio to rise further!

Estimates for 2013

Bullish: (4) Global Debt CrisisUnless growth and inflation can be boosted !

11

0

1

2

3

4

5

6

7

1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-13

Average US real GDP growth rate


Source: Bureau of Economic AnalysisRobert Gordon, NBER WP 18315, August 2012

Bullish: (4) Global Debt CrisisBut growth appears to be in secular decline !

Robert Gordon: There is no guarantee that growth will continue indefinitely

Government Choices:Austerity:

Cut services and raise taxes Deflate and accept

depressionReflation:

Go for growth: Inflate-devalue Default/financial repression

Bullish: (4) Global Debt CrisisWhat will governments do about debt/entitlements?


Bad for gold

Good for gold

0

200

400

600

800

1000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

People's Bank of ChinaBank of England*Federal ReserveEuropean Central BankBank of Japan

January 2000 = 100


Set to 100

*Bank of England June 2706 = 130

Bullish: (4) Global Debt CrisisAll balance sheets expanding ECB soon too!

Source: Thomson Reuters Datastream


80

85

90

95

100

105

110

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

REAL GDPQ4 2007 = 100


United States

Eurozone

Bullish: (4) Global Debt CrisisEurozone in desperate need of growth/inflation


Source: US Bureau of Economic Analysis, Eurostat, DCM Economics calculations

12

200

350

500

650

800

950

1100

1250

1400

1550

1700

1850

82 84 86 88 90 92 94 96 98 00 12 12 12 12 10 12 140.0

1.5

3.0

4.5

6.0

7.5

9.0

10.5

12.0

13.5

15.0

16.5

Global LiquidityGold

(month average)

Global Liquidity: FX Reserves + US MBaseSource: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve

Bullish: (4) Global Debt Crisis Liquidity is important to gold

Last month: Gold August 2014

Liquidity June 2014


Oversold in 2013?

Bullish: (4) Global Debt Crisis Gold often rises and falls with liquidity

-36

-24

-12

0

12

24

36

48

60

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14-14

-7

0

7

14

21

28

35

42

Global LiquidityGold

Global Liquidity: FX Reserves + US MBaseSource: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve

Correlation: .62Last month: August 2014

% %


Oversold in 2013?

Bullish: (4) Global Debt Crisis Liquidity in one form or another

-36

-24

-12

0

12

24

36

48

60

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14-36

-24

-12

0

12

24

36

48

60

Gold

G-6 M2 Money Supply: US, China, EU, Japan, UK, CanadaSource: London Bullion Market Association, IMF International Financial Statistics, Federal Reserve

Correlation: .49Last month: August 2014

Global LiquidityG-6 money supply - M2

%


Gold oversold in 2013?

60

70

80

90

100

110

120

130

140

150

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Bullish: (5) Dollar Fundamentally OvervaluedUS dollar in long-term downtrend


US Dollar IndicesFed Major (March 1973=100)

Murenbeeld-EFXR0 (Jan 1999=100)Murenbeeld-NEFXR (Jan 1999=100)

US recession


Source: Wall Street Journal, Federal Reserve, DCM Economics

??

13

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14-900

-800

-700

-600

-500

-400

-300

-200

-100

0

Bullish: (5) Dollar Fundamentally OvervaluedThe US trade deficit has declined recently


US trade balance

(Goods and Services)

12-month total

$billion

12-month total

(goods only)

$billion


Source: US Census Bureau

Bullish: (5) Dollar Fundamentally Overvalued on back of rising US energy production

-500

-450

-400

-350

-300

-250

-200

-150

-100

-50

0

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14-5000

-4500

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

Balance12 mo total

Last month: June 2014

Million barrels/month

6.2 million barrels/day

12.7 million barrels/day

Million barrels/year

Source: US Energy Information Administration


Billion US$


-90

-80

-70

-60

-50

-40

-30

-20

-10

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14-900

-800

-700

-600

-500

-400

-300

-200

-100

0

World

51

bn$

12-monthtotal bn$

Billion US$

-35

-30

-25

-20

-15

-10

-5

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14-350

-300

-250

-200

-150

-100

-50

0

China

bn$

12-monthtotal bn$

Billion US$

-16

-14

-12

-10

-8

-6

-4

-2

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14-160

-140

-120

-100

-80

-60

-40

-20

0

EU

bn$

12-monthtotal bn$

Billion US$

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

Japan

bn$

12-monthtotal bn$



Bullish: (5) Dollar Fundamentally OvervaluedBut deficits with most countries much too large

Billion US$

Bullish: (5) RMB Fundamentally UndervaluedWhile China has huge trade surpluses

(e)


0

25

50

75

100

125

150

175

200

225

95 98 01 04 07 10 130

90

180

270

360

450

540

630

720

810

World

52

bn$ 4-quarter total bn$Billion US$

0

10

20

30

40

50

60

70

80

90

100

95 98 01 04 07 10 130

40

80

120

160

200

240

280

320

360

400

US

0

10

20

30

40

50

60

70

80

95 98 01 04 07 10 130

40

80

120

160

200

240

280

320

EU

bn$ 4-quarter total bn$


0

3

6

9

12

15

18

95 98 01 04 07 10 130

10

20

30

40

50

60

Japan




14

Bullish: (5) Dollar Fundamentally OvervaluedSome Asian currencies undervalued by 30%+


Some Asian currencies would appear to be seriously undervalued

even the Euro is undervalued by some 25% against the US dollar!

This table is based on the PIIEs FEER analysis, modified to target zero current account balances.

Dollar DollarCountry Overvaluation Country OvervaluationSingapore 48.2 UK 15.9Taiwan 42.2 Russia 15.7Sweden 34.6 Poland 11.7HongKong 34.1 Indonesia 8.2Switzerland 33.2 Venezuela 7.3China 29.8 Chile 4.8Malaysia 28.3 Australia 2.7Japan 27.8 Argentina 2.0Euroarea 25.4 India 1.1Philippines 24.1 UnitedStates 0.0Korea 23.1 Mexico 0.0Israel 20.3 Canada 1.6Czech 20.1 SouthAfrica 3.7Thailand 19.7 Turkey 9.2Norway 19.3 NewZealand 11.0SaudiArabia 17.3 Colombia 11.2Hungary 16.8 Brazil 17.9

Source: PIIE Estimates of Fundamental Equilibrium Exchange rates, May 2014;Reworked by DCM Economics to force zero current account balances

50

100

150

200

250

300

350

400

450

500

550

600

650

700

1850 1875 1900 1925 1950 1975 2000

10-year MA

Real Copper Price 2013 cents/lb

Shortest cycle 16 years

*despite reversals which are common in all long cycles


Source: Wall Street Journal, DCM Economics

Bullish: (6) Commodity Cycle The shortest copper cycle lasted 16 years*

0

200

400

600

800

1000

1200

1400

1600

1800

1800 1825 1850 1875 1900 1925 1950 1975 2000

Shortest bull-cycle 10 years

10-year MA

Real Gold Price2013$/ounce

Correction


Source: Thomson Reuters Datastream, LBMA, DCM Economics

Bullish: (6) Commodity Cycle The shortest gold cycle lasted 10 years

5.25

5.50

5.75

6.00

6.25

6.50

6.75

7.00

7.25

7.50

1800 1825 1850 1875 1900 1925 1950 1975 2000

Shortest bull-cycle 10 years

10-year MA

LN (Real Gold Price)2013$/ounce

Correction


Source: Thomson Reuters Datastream, LBMA, DCM Economics

Bullish: (6) Commodity Cycle And log data suggests a correction was overdue

US Civil War

Gold set at $35

15

0

100

200

300

400

500

600

700

800

900

70 71 72 73 74 75 76 77 78 79 80 81

The 1970 Bull Market - Price Corrections

London Daily PM Fix

70-14%60

-29%90127

129

180

-28%-47%104

195

154137-11%

190168-12%

-20%243

193

-17%

426

354

850

482-43%US recession

Bull market ends

Mid-Cycle Correction

(more than 86 weeks)

Geopolitical Crisis!



Bullish: (7) GeopoliticalThe biggest geopolitical crisis to date

200

300

400

500

600

700

800

900

Iranian hostage crisis and Russia in Afghanistan

Cyclical peak in goldabout $400(or 100%)

IRAN

Gold Price: Jul 30/79 to May 29/80

1979 1980 1981



Bullish: (7) GeopoliticalBut there have been others

340

350

360

370

380

390

400

410

420

Counterstrike commences; US bombs Iraq

about $30

Gold Price: Jul 2/90 to Jun 28/91

1990 1991

Oil peaks at $40

Iraq invades Kuwait

IRAQabout $40



Bullish: (7) GeopoliticalSome boosted gold by more than 10% - most not!

260

270

280

290

300

310

320

330

340

350

360

370

380

390

about $25

2001 2002

Attack on WTC

9/11

about $70

US attacks Iraq on 3/20

2003

IRAQ

AL QUEDA



Gold Price: Jun 23/01 to May 8/03

16

Bullish: (7) GeopoliticalThe Ukraine/Crimea crisis added $100 in 2014-Q1

1150

1200

1250

1300

1350

1400

Gold Price: Oct 01/13 to date



2013 2014

Ukraine/Crimea

about $100

0

200

400

600

800

1000

1200

1400

1600

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Bullish: (8) Gold Not "Expensive"The NASDAQ was a real bubble not gold

Everything set to 100

NASDAQ 1990-2009

GOLD: 2001/03/30 to date

Years

SILVER: 2001/11/23 to date


Source: Thomson Reuters Datastream, DCM Economics

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

1934 1944 1954 1964 1974 1984 1994 2004 2014

Bullish: (8) Gold Not "Expensive"To back US money supply higher prices needed

Price of gold to cover US M2(Cover ratio = .24)

Price of gold to cover US M1(Cover ratio = .38) $3700

$9800

Cover ratio as determined in 1934 when gold was revalued to $35



0

5000

10000

15000

20000

25000

30000

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Gold Price

Updated through 2013-Q4

Price of gold to cover $US FX reserves

Price of gold to cover 35% of $US FX reserves

Price of gold to coverUS debt held by world

Bullish: (8) Gold Not "Expensive"To back US$ reserves higher prices needed



17

0

5

10

15

20

25

30

35

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14


Bullish: (8) Gold Not "Expensive"Gold close to long-term average versus oil

Barrels of oil per ounce of gold

1970 to date average:

15.12



0

100

200

300

400

500

600

700

800

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14


Bullish: (8) Gold Not "Expensive"Gold close to long-term average with copper

Pounds of copper per ounce of gold

1970 to date average: 349.8



15

30

45

60

75

90

105

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14


Bullish: (8) Gold Not "Expensive"And gold/silver ratio close to long-term average

Ounces of silver per ounce of gold

1970 to date average: 55.0



Gold Price Scenarios

Forecast Update: June/Sept 2014

2014-avg 2014-end 2015-avg

Scenario A: p = 25% $1257 $1120 $1075Scenario B: p = 50% $1283 $1295 $1355Scenario C: p = 25% $1302 $1385 $1525_______________________________________________

Weighted $1283 $1274 $1335


18

THANK YOU

To receive the Gold MonitorPlease contact your

Dundee representative


The author(s) is an economist with Dundee Capital Markets, a division of Dundee Securities Ltd. (Dundee). The author(s) is not a research analyst or an investment advisor. Dundee, may have an investment banking, financial advisory or other relationships with some or all of the issuers mentioned herein and may trade in any of the securities mentioned herein, either for their own account of for the accounts of their customers, or provide advice in respect of or conduct research on such securities.The comments in this report are solely those of the author. The information contained in this report (including any opinions oropinions and estimates) is current as of the date of publication and has been prepared from publicly available information, internally developed data and other sources believed to be reliable, but that have not been independently verified. The information in this report is subject to change without notice and are provided in good faith but without legal responsibility. The views expressed should not be considered a recommendation to buy or sell nor should they be relied upon as investment advice. No representation or warranty is made regarding the use or the results of the information contained herein in terms of its completeness, correctness, accuracy, timeliness, reliability, or otherwise, and do not accept any responsibility for any loss or damage that results from such use.Dundee Securities Ltd. Any reproduction or distribution in whole or in part of this research report without permission is prohibited.

gold price outlook september 2014

Documents

sluggish gold

qebut gold

gold prices

dundee capital markets3source

dundee capital markets7source

tonneschinese gold imports

world gold council

denver gold forum