Goldletter International 1 October 2017

Goldletter II NN TT EE RR NN AA TT II OO NN AA LL the in terna tional independent in formation and advice bul let in for gold and re lated inves tments

October 2017

Gold Market Outlook Marino G. Pieterse, publisher and editor

► Political unrest in Europe to affect Euro against US dollar After having reached a high of $ 1,350.90 on 8 September, the gold price weakened by 5% to a low of $ 1,282.55 on 27 September, due to the declaration of a war between the US and North Korea, and president Trump’s tax-plan well re-ceived by the financial markets. It is not recognized however that in Europe geo-political tensions have grown after the unfavora-ble election outcome for Chancellor Andrea Merkel. Although her CDU party still has a broad majority, the populist party AfD with 12.6% of the votes having succeeded to get access the Ger-man Parliament as a strong opponent. In addition, with the Social Democratic Party having decided to break the coalition with the CDU, for the first time no major coalition can be formed to rule the country. Growing conflicts with CDU sister party CSU of Bayern about Merkel’s soft refugee policy, will also weaken her position as Germany’s Chancellor, all this resulting in a good chance that Angela Merkel will not serve out her last full term of four years. Also considering growing political tensions in Spain growing out of control after the outcome of a not by the central government legally recognized referendum in the region of Catalonia, having resulted in an over-whelming majority to call for independence, is putting the EU on fire. In France, Emmanuel Macron losing his popularity, this also adds clear signals that it is not a question of if but when the EU will fall apart under its present legislation, enhanced by its decisions and guidelines not binding for the 27 members of the EU. From this perspective, my observation during a long time that the geopolitical power of Europe compared to that of the US is significantly overstated, is well-founded by the present developments. By saying so, there is no applicable fundamental reason for the weakening US dollar, thereby noticing that in the period since 2014 the US dollar outperformed all major currencies, including an increase of 17% against the euro, 7% against the yen and 9% against the yuan. With China having built up monetary reserves of more than US$ 3,000 billion, since it became a member of the World Trade Organization by the end of 2001 and emerged to the world’s second economy, “dual curren-cy” has been created through the yuan pegged to the US dollar. This has strengthened the position of the US dollar as the intangible key trading currency globally.

Goldletter International 2 October 2017

Enhanced by China’s growing role in the economic world order, this will weaken the position of the euro as the international second largest trading currency and the euro to be replaced by the Yuan in the next five years.

Gold not consistent hedge against the dollar

Year-to-year London Trading Change Period of Euro/US$ US$ value

2008 - 2017 in US$ in % change in %

2008 865 3 1.40 -11

2009 1,104 28 1.43 -2

2010 1,410 28 1.33 8

2011 1,571 11 1.29 3

2012 1,664 6 1.32 -2

2013 1,202 -28 1.38 -4

2014 1,199 0 1.21 14

2015 1,062 -11 1.09 11

2016 1,159 9 1.05 4

June 6, 2017 1,293 12 5 months 1.13 -7

June 30, 2017 1,242 -4 3 weeks 1.14 -1

July 11, 2017 1,211 -2.5 11 days 1.14 0

September 8, 2017 (high) 1,351 12 2 months 1.20 -5

September 30, 2017 1,283 -5 3 weeks 1.18 2

With the gold price having increased in September to an interim high of $ 1,351, the HUI-Index, which repre-sents the international leading gold producers, showed a gain of 7%, thereby benefitting from the leverage potential the gold equity markets are offering.

Comments: Having exceeded my first price target of $ 1,300 and still targeting a price level of $ 1,400 by year-end, it has to be recognized that this forecast is based on the impact of growing global geopolitical tensions, rather than on changing macro-economic funda-mentals, which I consider to be in balance for the time being. In this respect, it has to be considered that specifically ETF’s represent a speculative and volatile trading element and as such not an influential investment element.

Gold price Change HUI-Index Change

in % in %

2017

September 30 2017 1,283 -3 196.50 -7

September 8 (high) 2017 1,351 7 216.70 10

August 29 2017 1,319 4 210.49 7

July 31 2017 1,268 2 196.15 6

June 30 2017 1,242 -2 185.71 -4

May 31 2017 1,266 0 192.51 0

April 28 2017 1,266 2 191.93 -3

March 31 2017 1,245 -1 197.23 1

February 28 2017 1,256 4 196.09 -5

January 31 2017 1,213 5 207.45 14

Overview gold price versus HUI-Index

Goldletter International 3 October 2017

(in tonnes) H1 H1 Change 2014 2013 2012

2017 2016 2016 2015 2016/2015

Primary supply 2,186 2,204 4,551 4,340 211 4,289 4,345 4,551

of which:

Mine production 1,544 1,546 3,255 3,220 35 3,131 3,042 2,850

Recycling 642 658 1,296 1,120 176 1,158 1,303 1,701

Net hedging supply -26 76 33 13 20 -104 -30 -40

Total supply 2,160 2,280 4,584 4,353 231 4,185 4,315 4,511

Physical demand 1,865 1,625 3,722 4,404 -682 4,094 5,087 4,361

of which:

Jewellery fabrication 1,075 884 1,989 2,448 -459 2,242 2,470 2,036

Industrial 182 180 323 332 -9 285 296 303

Physisical investment 494 477 1,033 1,048 -15 1,101 1,790 1,356

(Bar hoarding, coins, medals)

Net central bank buying 114 84 377 576 -199 466 409 544

Market balance 295 655 862 -51 913 -156 -978 269

of which:

ETFs 144 569 532 -128 660 -157 -880 279

Net market balance 151 86 330 77 253 1 -98 -10

Total demand 2,160 2,280 4,584 4,353 231 3,938 4,109 4,630

LBMA average gold price ($/oz) 1,208 1,221 1,251 1,160 91 1,266 1,411 1,669

GOLD from a fundamental perspective

source: Thomson Reuters/GFMS The above statistics show the strong impact of ETF’s as a volatile speculative element in gold demand rather than from physical demand, which declined by 1,365 tonnes from 5,087 tonnes in 2013 to 3,722 tonnes in 2016, including a sale of 880 tonnes alone in 2013. This accounted for the fall from the annual average gold price from $ 1,669 in 2012 to $ 1,160 in 2015. In H1 2017 after net hedging of 13 tonnes in 2015 and 33 tonnes in 2016, a recovery of the gold price result-ed in de-hedging of 43 tonnes and 26 tonnes in the second half of 2016 and first half of 2017, respectively. While physical demand increased slightly from 477 tonnes in H1 2016 to 494 tonnes in H1 2017, Net Central Bank Buying increased by 30 tonnes to 114 tonnes, but since 2015 has shown a significant decline.

Wrong judgement of influential gold market watchers on the impact of ETF trading accounted for a fall of the gold price from an average $ 1,669 in 2012 to an average of $ 1,160 in 2012

Goldletter International 4 October 2017

1950 1965

World gold holdings (in tonnes) - - 33,375

11 Central Bank gold holdings 26,300 31,900 20,086 *(in tonnes)

Value of gold holdings 29.5 33.4 804 **

(US$ billion)

Value of non-gold holdings 34.0 45.8 1,020

(US$ billion)

Gold in % of total reserves 84 73 44

* 21 signatories to Central Bank Gold Agreement 4 (September 2014 - 2019)

including European Central Bank; plus United States

** based on gold price of US$ 1,244.85 per ounce (as at the end of March 2017)

May 2017

Western Central Bank gold holdings

compared to non-gold monetary reserves

Total monetary reserves and gold holdings of Western

countries compared to emerging countries

Monetary Gold Gold in %

reserves reserves monetary

March 2017 reserves *

21 signatories to CBGA 4 1,425 440 30.9

Euro area, incl. ECB 716 397 55.5

USA 399 300 75.1

Total 2,540 1,137

China 3,007 72 2.4

Russia 366 62 16.9

India 337 24 6.1

Total 3,710 158

in US$ million

* based on gold price of US$ 1,244.85 per ounce as at the end of March 2017

Goldletter International 5 October 2017

Shift of gold production from traditional to emerging countries(in tonnes)

Traditional countries (5) 2016 2006 Emerging countries (8) 2016 2006

Australia 287.3 247.2 China 463.7 247.2

United States 225.7 208.7 Russia 274.4 172.8

Canada 162.1 103.5 Peru 166.0 213.5

South Africa 165.6 205.7 Mexico 128.4 39.0

Indonesia 109.5 114.1

Total 840.7 765.1 Brazil 96.8 49.2

Ghana 95.6 69.9

Uzbekistan 86.7 24.1

Total 1421.1 929.8

World total 3255.4 2,496.7 World total 3255.4 2,496.7

Traditional countries Traditional countries

in % of world total 26 31 in % of world total 43 39

Historic course of gold price compared with silver

GOLD SILVER gold/silver

ratio

2017 September 29 1,283 16.86 76.1

2017 August 31 1,312 17.34 75.6

2017 July 31 1,268 16.76 75.6

2017 June 30 1,243 16.47 75.5

2017 May 31 1,266 17.31 73.1

2017 April 27 1,263 17.46 72.3

2017 March 31 1,245 17.98 69.2

2017 February 28 1,256 18.28 68.7

2017 January 31 1,213 17.29 70.2

2016 Year-end 1,159 16.24 71.4

2015 1,062 13.82 76.8

2014 1,199 15.97 75.1

2013 1,202 19.50 61.6

2012 1,664 29.95 55.6

2011 1,571 28.02 56.1

2010 1,410 30.45 46.3

2009 1,104 16.99 65.0

Goldletter International 6 October 2017

► China dictates course of the gold market Expecting the euro losing its position as the world’s second trading currency within the next five years to be replaced by the Chinese yuan. there is no obvious reason for China to couple its currency to the gold price as a hedge against the dollar, as demonstrated by gold only representing 2.4% of its total monetary reserves.. Also, it is to be observed that the volatility of the yuan against the dollar is relatively small over a longer period of time.

With China having passed South Africa in 2009 as the world’s largest gold producer and also the world’s sec-ond largest consumer next to India, the relatively big gap between demand and supply was supposed to have a positive impact on the gold price. However, in December 2014 China created an international gold fund of US$ 40 billion, named the Silk Road Fund, which not only shows the gap in supply, but also increased the influence of the yuan on gold pricing.

The Fund was established with investment from the State Administration of Foreign Exchange, China Invest-ment Corporation, Export-Import Bank of China and China Development Bank, which will invest in gold mining in countries along the ancient Silk Road which is connecting northwest China named the “Xinjiang” and the central part of the Euro-Asia Continent, and in the northeast bordered by Mongolia and in the northwest by Russia, Kazakhstan, Kyrgyzstan and Tajikistan. Xinjiang also borders with Pakistan, Afghanistan as well as India in its south. The total borderlines are 5,600 kilometres in length.

The initiative has been taken because China accounts for a small share of the international god trade and as such does not have a big say in gold pricing. Therefore, the Chinese government seeks to increase the influ-ence of the yuan in gold pricing by opening the domestic gold market to international investors.

The move to create the Fund could also be designed to secure a supply in gold in case another financial crisis led to restrictions on the flow of gold bullion from west to east seen in recent years and China having been a huge net buyer of gold. The fund, to be overseen by the Shanghai Gold Exchange (SGE) is estimated to raise US$ 40 billion in three phases. A first installment of US$ 40 billion is composed of US$ 7.5 billion contributed by the State Administration of Foreign Exchange (through Buttonwood Investment Holding Co.), US$ 50 billion by China Investment Co, US$ 1.5 billion by Export-Import Bank of China and US$ 500 million by China Development Bank (through China Development Capital Co.). Along the 65 countries along the route of the Silk Road Economic Belt and the 21st Century Maritime Silk Road, there are numerous Asian countries identified as an important reserve basis and consumers of gold. About 60 countries have invested in the Fund, which will in turn facilitate gold purchase for the central banks of member states to increase their gold holdings.

Goldletter International 7 October 2017

CALENDAR OF MINING EVENTS

Goldletter International, Uraniumletter International and Rare Earths & Strategic Metals Letter International as Media Partner

2017

October 9 – 10 * Mining Investment Middle East & Central Asia – Muscat, Oman

October 23 – 24 Mining Investment China - Shanghai November 26 – 27 Mining Investment London – London December 7 - 8 Mining Investment North America – Toronto, Canada

2018 January 25 – 26 Mining Investment West Africa – Accra, Ghana February 5 - 8 Investing in African Mining INDABA - Cape Town, South Africa February 15 – 16 Mining Investment South America – Buenos Aires, Argentina March 4 - 7 PDAC International Convention – Toronto, Canada April 10 – 11 Mining Investment Botswana – Gaborone, Botswana May-June 30 – 1 WAMPEX West African Mining & Power Conference, Accra, Ghana

*Marino G. Pieterse to be a speaker on October 9th

Goldletter International 8 October 2017

Goldletter International 9 October 2017

Goldletter International 10 October 2017

Goldletter International 11 October 2017

2018

Goldletter International ● a publication by Metal Commodities Investment Platform, the Netherlands ● Marino G. Pieterse, Publisher and Editor ● Information and investment comments are independently and thoroughly researched and believed correct. No guaranty of absolute accuracy can be given however. ● Investment decisions are fully made for own risk ● tel.: +31-251-828247 ● Chamber of Commerce 58330445 ● www.metalcommodities-ip.com ● e-mail: marino.pieterse@metalcommodities-ip.com