Gold Price: Jan - Dec 2012 US$ · new year, gold will be counted at 100 percent of its market value when a bank‟s assets are audited. Moreover, under Basel III, a bank‟s tier

DMCC Gold Bulletin

Issue 1.2, H2 2012

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Gold Price: Jan - Dec 2012 US$

Gold Price

Gold Price Movement (Jan – Dec, 2012)

Dear Colleagues,

Best wishes for the New Year! 2012 was a bright year for DMCC, having officially launched two versions of the “UAE

Gold Bullion Coin”, the introduction of DMCC‟s Guidelines on Responsible Sourcing of Precious Metals, and the

successful outcome of the inaugural Dubai Precious Metals Conference. We would like to thank you for your

continued support and participation in these initiatives that keep Dubai on the map as one of the world‟s leading gold

trading hubs and continues to position DMCC as one of the world‟s leading commodities centre.

Issue 1.2, H2 2012

(US$ per Oz)

Average price of gold for H1 2012 was US$1,651 which represents a 14% increase from H1 2011. The average price for H1 2011 was US$ 1,445

International Market News

How high will the implementation of Basel

III force the nominal price of gold?

Basel III is a global regulatory standard agreed upon by

the members of the Basel Committee on Banking

Supervision as an attempt to harden banks‟ balance

sheets against another financial meltdown. As of the

new year, gold will be counted at 100 percent of its

market value when a bank‟s assets are audited.

Moreover, under Basel III, a bank‟s tier one assets must

rise from 4 percent to 6 percent of its total assets.

The average price of gold from January to December

2012 was US$ 1,669 which is 7% more than the same

period last year.

Philip Klapwijk, Global Head of Metals Analytics at

Thomson Reuters GFMS has estimated the price of

gold to reach US$1,800 before the end of the year,

which is 5% less than the US$1,900 highs of 2011.

DMCC GOLD BULLETIN

This means that many banks are likely to replace

substantial portions of their mortgage-backed securities

and bond portfolios with gold. The more gold a bank

acquires, the more likely that bank will survive the next

wave of sovereign defaults, either through outright

inability to pay (such as Greece, as long as it retains the

Euro) or debt monetization (like the endless “quantitative

easing” programs of the U.S. Federal Reserve). Source:

Bullion Bulletin

We expect Basel III to be a big contributor to the rise in price of gold in 2013 and beyond.

Source: LBMA

DMCC Gold Bulletin

Issue 1.2, H2 2012

2

Gold demand remains resilient

The below chart shows the breakdown of gold demand at the price per ounce for various sectors:

It has been estimated that all the gold ever mined by the end of 2009 aggregates to 165,000 tonnes. That is barely enough gold to fill three Olympic-sized swimming pools.

World gold holdings (Source: World Gold Council)

Holding Percentage

Jewellery 52%

Central banks 18%

Investment (bars, coins)

16%

Industrial 12%

Unaccounted 2%

Global gold demand in Q3 2012 was 1,084.6 tonnes (t),

down 11% from the record Q3 2011 figure of 1,223.5t.

In comparison to the previous quarter gold demand was

up 10% and the Q3 2012 demand was above the five

year quarterly average of 984.7t therefore gold demand

remains resilient.

In value terms, gold demand in Q3 2012 was 14% lower

year on year at US$57.6bn and the average gold price

of $1,652/oz was down 3% from the record average Q3

2011 price.

Overall investment demand was 16% below the

exceptional levels in Q3 2011, which was led by a steep

drop of the coin and bar segment caused predominantly

because of the weak demand from western markets.

Demand from this category was 30% weaker year on

year at 293.9 tonnes. It is important to note Q3 2011

saw a record 422.1 tonnes of bar and coin demand

which was almost double the prevailing 5 year

quarterly average.

India was the strongest performing market in the third

quarter with year on year growth of 7% and 12% in

jewellery and investment segments respectively. The

market accounted for 30% of global consumer

demand at 223.1 tonnes.

Gold is trading at a lifetime high in India now in Rupee

terms. Gold prices shot up on account of the rise in

price in international markets as well as depreciation

of the local currency against the US dollar. In spite of

this in some regions a decent demand still persists

due to wedding season.

Source: World Gold Council

Q3'12 volume, tonnes Change - Q3'12 - Q3'11, tonnes Change - Q3'12 - Q3'11, %

-11%

-31%

56%

-30%

-6%

-2%

3

DMCC Gold Bulletin

Issue 1.2, H2 2012

Market Perspective

Dubai Gold Trade H1 2012

In H1 2012 the total amount of gold imported into Dubai

was at 421 tonnes valued at US$20.1 billion while export

volume was at 310 tonnes and valued at $16.3 billion.

Dubai‟s top trading partners were India, Switzerland, and

Turkey. These three countries make up ~50% of the

trade with Dubai. Dubai exported 103 tonnes of gold

valued at $7 billion to India; this is about 33% of Dubai‟s

total gold exports (in terms of weight). In the same period

Dubai received 33 tonnes from India valued at $2 billion

which represents 8% of Dubai‟s imported gold (in terms

of weight).

China in Review

China offers a massive gold market, albeit one that is

tightly controlled. The country is the world‟s biggest

gold producer and ranked as the No. 2 gold

consumer in the third quarter of this year. It has

official gold reserves of 1,054 metric tons, the world‟s

sixth-largest, World Gold Council data shows.

Since the 3rd

of December, 2012, China allows over-

the-counter gold trading between banks for the first

time, a significant financial reform for the world‟s

second-largest buyer of the precious metal.

The move reflects the Chinese government‟s latest

effort to develop Shanghai into a major gold trading

center, and mirrors similar developments in the

country‟s currency and oil markets.

“The introduction of interbank trading is intended to

develop China into a more liquid market such as

London, and demonstrates the government‟s

readiness to open the market to greater participation

by international banks” said Jeremy East, global head

of metals trading at Standard Chartered PLC.

Did You Know?

The DMCC Tradeflow platform now offers the gold trading community a way to make use of inventory stored in the UAE and turn these resources into assets.

Once traders have registered ownership of their gold in this way, DMCC Tradeflow provides several services from which warrant holders can draw benefit. First, a trader can electronically transfer ownership of gold to another trader, without the gold ever leaving the vault. A trader can also pledge the gold stated on the Warrant as underlying collateral to secure more favourable financing. This is essentially mortgaging stored gold in favour of financiers, to guarantee a working capital loan. The platform also provides an escrow service that enables trade between two entities with no prior business relationship, with DMCC acting as a neutral third party to ensure secure transfer of both gold and funds between the parties.

(Source: Dubai Customs Statistics Department)

421

20.1

310

16.3

Tonnes USD Value Billion

H1 2012 Dubai Gold Trade

Import

Export

DMCC Gold Bulletin

Issue 1.2, H2 2012

4

Dialogue with

Frederic Panizzuti, CEO, MKS Precious Metals DMCC

How do you see gold?

Gold is viewed an asset class

investment in its own right and also

functions as a sort of insurance

policy. I am going to stay away from

the word “safe haven” as a

terminology for gold. I say this

because there was a couple of

times gold lost 7-8% in the

afternoon and by night time it had

regained all that it had lost. This is

how an asset might react, but you

would not expect that to be the

action of a true “safe Haven” asset.

What is the price outlook on the yellow metal in 2013? I was speaking recently at the

Middle East Investment Summit

where I was asked to provide a

forecast for gold in 1 year as well as

in 5 years. My 1 year forecast was

US$2,050 and my five year forecast

was US$1,200. A relatively

provocative statement, but it served

for the participants to realise that

price developments are not a one-

way street and that expectations

change when the underlying

fundamentals of a market are

shifting.

My one year forecast is based on

the fact that the US will quickly

deal with the fiscal cliff; which is in

the political interest of both parties.

The US will also raise the debt

ceiling which will play a major role

in the price of gold and also take

care of other long term issues. The

low interest yielding environment is

here to stay for quite a while yet

and that should help to strengthen

gold‟s case as an asset class.

Most major Central Banks of the

world are busy trying to debase

their currency through major

stimulus programmes and that

might also prove to be helpful for

the evaluation of gold as a hard

“currency” asset.

The Euro sovereign debt crisis will

go on; the German election in

Sept. 2013 will lead to „sticking

plasters‟.

My engine for growth will be China

and the ASEAN region

(Association of Southeast Asian

Nations). The emergence of China

into the world economic scene as

a new leader in the gold market is

also bound to have an impact.

China and India are providing

potentially 40 per cent of the

worlds yearly physical offtake for

gold. The growing interest of the

Chinese population for gold,

coupled with the cultural affinities

of the Indian population for gold,

create a stable if not even stronger

base case scenario for future gold

price support.

I do believe there will be more of a

soft landing next year, with the US

and China leading the way, Europe

is lagging behind but 2 out of 3

aren‟t that bad.

For the longer-term view: Some of the drivers for gold, that

brought us to the current price

levels, will not be there anymore. If

you buy gold at $1,800 and in 3

years time you sell it at $1,300, you

should be happy, because you have

lost money on approximately 5 per

cent, maximum 10 per cent of your

portfolio. This is still good assuming

that the other 95% of your portfolio

would have done well. Investments

in Gold should, in the view of our

Bank, form 5 but maximum 10 per

cent of a prudently managed

portfolio.It is important to look at the

individual drivers that have led the

market to be in the current situation.

Should, over time, these drivers do

not exist or change fundamentally,

then we might see the gold price

potentially to drop in 5 years, e.g.

due to a significantly higher global

interest rate environment. The

positive news for gold prices in the

future are of course, that other fresh

drivers might appear, like for

example: strong inflationary

tendencies, new geo-political

tensions, continued risk

diversification from Central Banks

accumulating more gold as part of

their diversifed currency portfolios.

How does ENBD cater to the market on the gold front?

Our products are specially

structured for our Dubai market in

general and for our specific

customer needs in particular.. Dubai

is home to a very competitive and

vibrant physical market.

EmiratesNBD is actively providing

gold loans on a fixed, as well as

“unfixed” basis, gold savings

certificates and the digital Gold

investment account. We expect to

add loans against physical gold,

inventory financing for the

professional industry, loans against

the Gold savings Certificates and

Silver related products in the very

near future.

Dialogue with

Gerhard Schubert, Head of Precious Metals, Emirates NBD

5

DMCC Gold Bulletin

Issue 1.2, H2 2012

The Dubai Multi Commodities Centre issued its

international DMCC „Responsible Sourcing of Precious

Metals Review Protocol‟ in November 2012.

In June this year, DMCC made it a mandatory

requirement for Dubai Good Delivery („DGD‟) refineries

to implement all of the provisions of the DMCC Practical

Guidance for Responsible Sourcing of Precious Metals,

as a pre-requisite for DGD members to continue their

membership. DGD members are now self-implementing

the initial steps to be in a position to be audited and

publish reports on their level of conformity with the

DMCC guidance by June 2013.

The DMCC Review Protocol will provide guidance to

international audit firms for conducting assessments on

DGD member refineries‟ due diligence processes, as

well as ensure a level of conformity when implementing

DMCC‟s Practical Guidance for Responsible Sourcing

of Precious Metals.

Gautam Sashittal, Chief Operating Officer, DMCC, said:

“The „Dubai Good Delivery‟ standard is a world-class

robust international benchmark for the production of

gold and silver, and the Review Protocol will enable

DGD member refineries to implement the concluding

steps of DMCC‟s Practical Guidance by engaging the

services of DMCC-approved assurance providers

and/or auditing entities.

“Following the Organisation for Economic Co-Operation

and Development‟s (OECD) launch of its „Draft

Supplement on Gold in November 2011,‟ intended for

conducting due diligence for responsible sourcing of

gold, DMCC led the UAE precious metals industry in

introducing its 5-step Practical Guidance in April 2012.

The introduction of the DMCC Review Protocol is the

natural next step to ensuring responsible sourcing

throughout DGD accredited refiners‟ supply chain and

will serve as an international industry benchmark.”

DMCC continues to be a part of the OECD‟s interim

governance group for the implementation of their

guidance and has taken further steps to make

compliance with these guidelines a mandatory

requirement for all DGD-accredited refineries through a

host of activities, including practical workshops.

The first series of workshops were launched in July and

were primarily aimed at UAE-based gold trading

organisations to explain the DMCC Practical Guidance

for Responsible Sourcing of Precious Metals in detail,

and the related procedures that should be implemented

across the supply chain.

DMCC has also been in discussions with concerned

UAE governmental agencies to ensure that the Practical

Guidance for Responsible Sourcing of Precious Metals

is implemented across the UAE.

Hassan Nasser, Director, Compliance and Inspection,

DMCC, said:

“DMCC plays an integral role in ensuring that the UAE

provides precious metals industry participants a secure

and regulated environment with the right infrastructure

and practices that will continue to allow them to

participate in the global markets. As a major global

trading hub for gold and as a government authority,

leading the development and the implementation of the

OECD guidelines demonstrates the DMCC‟s

commitment to promote responsible and fair trade

practices in the UAE.”

Today, Dubai is one of the foremost gold centres in the

world, with trade totalling 1,200 tonnes ($56 billion in

value) in 2011. The Practical Guidance series of

workshops are currently being held at the Almas

Conference Centre in Almas Tower, Jumeirah Lakes

Towers, and those interested in participating can email

DMCC on [email protected].

DMCC issues International Responsible Sourcing of Precious Metals Review Protocol

DMCC Gold Bulletin

Issue 1.2, H2 2012

Almas Tower Level 2 PO Box: 48800 Dubai U.A.E T. +971 4 433 67 11 F. +971 4 375 18 96 [email protected]

Following the success of the inaugural Dubai Precious

Metals Conference (DPMC), we are pleased to share

that the second DPMC will be held from April 6-7, 2013

at Almas Tower, Jumeirah Lakes Towers, Dubai.

The inaugural Dubai Precious Metals Conference saw

over 230 delegates across 18 countries come together to

deliberate the future of the precious metals industry.

We have a great line-up planned for the next conference.

There will be presentations, debates and panel

discussions involving topical themes such as bullion

banking, platinum trends, jewellery markets and price

predictions.

Open discussions will include the critical issues affecting

the bullion trade and how Dubai has emerged as a

precious metals trading hub in the last 10 years. All with

an emphasis on world-class infrastructure and value

chain development.

DPMC is the region's most exciting precious metals

platform, featuring a diverse range of industry experts,

market commentators and key participants from across

the globe.

Visit us on www.dpmc.ae for more information.

DMCC Update

Second edition of the bullion coin

The second edition of the Gold Bullion Coins have been

launched, featuring a portrait of His Highness Sheikh

Mohammed bin Rashid Al Maktoum, Vice President and

Prime Minister of the UAE and Ruler of Dubai and a

rendering of Palm Jumeirah, the world‟s largest man-

made island.

The UAE Gold Bullion Coins are available in four

denominations weighing 1 oz, ½ oz, ¼ oz and 1/10 oz.

The 99.99 gold purity (24 karat) coins carry Argor-

Heraeus‟ stamp of quality and authenticity.

DGD update

Al Etihad Gold Refinery has achieved DGD accreditation for Gold and Silver.

The DGD Standard is the only globally accepted and

relevant standard for 1kg gold bars with a minimum of

995 fineness, as well as the physical delivery standard at

the Dubai Gold and Commodities Exchange ( DGCX ) for

futures contracts traded. DMCC also concluded its Dubai

Good Delivery ('DGD') renewal cycle for accredited

refineries this month which now stands at 19 refineries

across 13 countries represented.