Gold Rate: Explaining the Current Bull Market (2001 - )

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Explaining the 2001 - 2011Bull Market

Gold Rate

EXCLUSIVE

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$-

$500

$1,000

$1,500

US$ Per Ounce of GoldLondon PM Fixed Averages 2000 -

2011

1. BACKGROUND

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1. The beginning of the 21th century is witness of a long and mostly continuous rise in the gold rate from US$ 265 per ounce at the beginning of 2001 until more than US$ 1400 ten years later

2. This translates into a gain of 528%, which is a stark contrast to the previous 20-year long bear market.

1. BACKGROUND

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1. Which factors contribute towards the steady rise of the gold rate?

1. BACKGROUND

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1. First, a reduction of gold supply 2. From 2001 the global gold

production falls within a decade by 10%

3. Still, demand in jewelry and by industry continues to increase due to India’s and China’s economic performances

4. Additionally, at the end of the decade central banks began to step up their gold reserves

1. BACKGROUND

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1. Other important factors are the since 2001 increasing US national debt and the weakening of the US dollar relative to other currencies

2. The financial crisis of 2008, during which the US government nationalized the two biggest US mortgage lenders and the biggest US insurer, drove up demand for physical gold and exchange traded funds

1. BACKGROUND

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1. SPDR Gold Trust, the biggest ETF gold funds holds currently more gold reserves than the Chinese Central Bank

2. To stimulate the economy, the US Treasury reduced the federal funds rate to a mere 0.25 per cent

3. This low interest rate also made gold investments more attractive

1. BACKGROUND

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1. The Nine Eleven attacks had only a short-term direct effect on the gold rate

2. The London PM gold price experienced within this trading day an increase by more than 5%

3. Usually daily differences are 10 – 20 times lower

1. BACKGROUND

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1. In the long-term, the September 11 terrorist attacks had no direct effect on the gold rate.

2. It can be argued that the US engagement in Iraq and Afghanistan were a direct result of the terrorist attacks on America

3. This led to an increase of US national debt which finally resulted in a weakening US dollar and a higher gold price

1. BACKGROUND

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2. BACKGROUND

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2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$-

$500

$1,000

$1,500

US$ Per Ounce of GoldLondon PM Fixed Averages 2000 -

2011

1. 11. September 2001: On this date, the gold price experienced a spike of 5% within one trading day. Usually, price differences are between ten and twenty times smaller

2. TIMELINE

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1. 2004: Launch of SPDR Gold Shares (SPDR Gold Trust).

2. This exchange traded fund tracks the price of a tenth of an ounce of gold. With approx. 1,299 tons of gold held, SPDR Gold share is the sixth largest gold holder in the world, behind the central bank of France (2,435 tons) and ahead of China (1,054 tons)

2. TIMELINE

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1. 2005: Gold price for the first time since 1987 more than US$ 500 per troy ounce

2. 14. March 2008: At the New York Mercantile Exchange, gold was traded for more than US$ 1000 per ounce

2. TIMELINE

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1. September 2008: The US nationalizes the two biggest US mortgage banks, Fannie Mae and Freddie Mac. This led to sharp declines at global stock markets

2. After the insolvency of the investment bank Lehman Brothers and the nationalization of AIG, the biggest US insurer, the gold rate reaches in New York its highest daily increase in history, 11.8%

2. TIMELINE

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1. 2009: For the first time in two decades, central banks become net purchaser of gold

2. 2010: The London PM Fix reaches 35 successive heights

3. 2010: Several central banks announce plans to increase their gold reserves. These are, among others, the central banks of China, India and Russia

2. TIMELINE

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1. March 2011: Gold reaches in New York an all-time record of US$ 1440 per fine ounce. Seen from another perspective, the US dollar (and the Euro) is compared to gold as weak as never before

2. TIMELINE

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2. TIMELINE

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2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$-

$500

$1,000

$1,500

US$ Per Ounce of GoldLondon PM Fixed Averages 2000 -

2011

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