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GOLD SURVEY 2013UPDATE 2Prepared by Thomson Reuters GFMS

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GOLD SURVEY 2013UPDATE 2BY:

Rhona O’Connell, Head of Metals Research & ForecastsWilliam Tankard, Manager, Mining Cameron Alexander, Manager, Regional DemandAndrew Leyland, Manager, Regional DemandRoss Strachan, Manager, Regional DemandMatthew Piggott, Senior AnalystSaida Litosh, Senior Analyst Johann Wiebe, Senior AnalystLing Wong, Senior AnalystErica Rannestad, Senior AnalystSamson Li, Senior AnalystSudheesh Nambiath, AnalystJanette Tourney, AnalystRyan Cochrane, AnalystSara Zhao, AnalystNatalie Scott-Gray, Analyst Dante Aranda, Analyst Beverley Salmon, Customer Relationship Manager

PUBLISHED JANUARY 2014 BY THOMSON REUTERS GFMS

The Thomson Reuters Building, 30 South ColonnadeLondon, E14 5EP, UKE-mail: [email protected]: https://thomsonreuterseikon.com/markets/metal-trading/

www.pamp.com www.gold.org

www.cmegroup.com

www.pretivm.comwww.goldcorp.com

Italpreziosi SPA

www.moro.si

THOMSON REUTERS GFMS GRATEFULLY ACKTHE FOLLOWING COMPANIES FOR THIS YE

NOWLEDGES THE GENEROUS SUPPORT FROMAR’S GOLD SURVEY AND ITS TWO UPDATES

TANAKA PRECIOUS METALS

Barrick Gold Corporation www.standardbank.com/cib

www.igr.com.trwww.randrefinery.com

www.cyplus.com

TABLE OF CONTENTS1. 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 OUTLOOKAs 2013 witnessed an end to the twelve year bull run in gold prices, 2014 is shaping up to be a year of consolidation for gold with the price drivers continuing to adjust from concerns over the health and stability of the global financial system and back towards physical fundamentals. This may well, in our view, see gold prices enter oversold territory during 2014, putting some gold producers, at least temporarily, in the red. Ultimately, however, we view physical demand for jewellery, bars, coins and industrial uses as being strong enough to support average prices above the $1,200/oz level in 2014.

There is also still a myriad of upside risks in the market including potential inflationary pressures, unresolved sovereign debt issues and prospective political crises, to name but a few. Meanwhile, downside risk to prices appears more limited given current Asian and Middle Eastern responses to lower price levels. There is also, arguably, little economic incentive for a surge of above ground stocks to enter the market should most mine supply begin operating at a loss. Average all-in costs, excluding write downs, are estimated around $1,200/oz in 2013, a level not far off our first half price forecast of $1,233/oz in 2014.

Total fabrication increased by 306 tonnes in 2013, driven by a surge in Asian demand in the second quarter. The increase proved short-lived, however, and as prices stabilised so demand fell back. From July, Indian consumption was also subdued by a ramping up of import taxes and restrictions that saw China easily surpass the country as the world’s largest consumer. On the supply side mine production increased by 118 tonnes, or 4%, but this was more than offset by a 219 tonne fall in scrap generation.

The defining factor for the year, however, remained the investor sell off and subsequent price declines. The two most measurable indicators, ETF holdings and the COMEX net speculative position, showed outflows of 880 tonnes and 484 tonnes respectively, while numerous other institutional exits were noted throughout the year. The duality of disinvestment in the developed world and an increase in physical demand from Asia was witnessed by the largest movement of gold, by value, in history as bars were shipped to Asia, often being melted down into smaller bars en route. The first half of 2014, by contrast, is forecast to see less volatility in terms of both prices and 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.

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SUPPLY

— With a 4% increase, mine production demonstrated its short term price inelasticity in 2013. — Scrap supply fell by 14% last year to 1,371 tonnes, primarily as a result of weaker gold prices.

Global mine production increased in 2013, by 4% to total 2,982 tonnes, demonstrating the mining industry’s inelasticity to 2013’s dramatic fall in the gold price. Solid production was noted across most regions, in particular from Asia, Latin America and the Commonwealth of Independent States (CIS). Africa was the outlier with an estimated 1% fall in aggregate production, in large part owing to a continued drop in output from South Africa. The more clear response in the mining industry to last year’s price action has been a global focus on cost management. Actions to contain operating costs have been widespread and, where possible, capital expenditure is being scaled back or deferred, whilst to-date mine closures have been limited.

Global scrap supply fell 14% to 1,371 tonnes last year, sliding to a five-year low as gold tumbled 29% over the course of the year. The lower price environment and a stronger economic performance reduced the incentive for consumers to liquidate gold assets with sizable falls recorded in all regions. Scrap receipts from the US and Europe fell 10% and 17% respectively, as weaker gold prices and a more robust economic environment lifted consumer confidence. It was a similar outcome for most of the price sensitive markets also, with the Middle East recording the largest fall, retreating by over a fifth to a 12-year low. South East Asia declined only 13%, though a modest rise in Chinese supply helped offset hefty falls across most of the region. In contrast, scrap supply in India dipped by only 8% last year, as record gold prices in rupee terms in the third quarter generated significant liquidations as consumers took profits.

DEMAND

— Jewellery fabrication grew by 13% to a five-year high of 2,198 tonnes in 2013. — Industrial fabrication remained broadly unchanged last year, at an estimated 405 tonnes. — Producers continued to reduce hedge positions with an estimated 50 tonne hedge book cut. — Net official sector purchases fell by 34% to 359 tonnes, although this is still historically high. — World Investment slipped by 11% to 1,342 tonnes.

Last year saw global jewellery fabrication increase for the first time since 2010, by 13% to 2,198 tonnes, in the process contributing to 46% of total demand. In tonnage terms demand was at its highest level since 2008, all the more remarkable as average annual prices were still some 49% higher than 2008 in real terms. The bulk of the gains can be attributed to a surge in Chinese jewellery demand, which posted the largest percentage year-on-year increase since 1992. This additional 169 tonnes of demand also saw China become the world’s largest consumer of jewellery, surpassing India with 724 tonnes versus 613 tonnes. Indeed, excluding China from the global total reveals that jewellery demand in the rest of the world grew by a relatively modest 5.6%.

The growth in jewellery fabrication noted above was largely driven by the sharp gold price correction, particularly in the second quarter of the year, which boosted investment-related buying and attracted many new entrants into the market. As for India, while jewellery offtake posted a double-digit percentage increase in the first half, weaker domestic demand and government curbs on imports in the second half of the year resulted in a broadly flat outcome for 2013.

Elsewhere, jewellery fabrication in the Middle East posted a sizable increase in 2013, which should be of little surprise given the region’s historical price sensitivity. A declining price trend along with a modest economic recovery saw United States jewellery offtake recover strongly last year. Turning to Europe, while the long-running downtrend continued in 2013, losses were mitigated by lower gold prices, delivering a 2.4% drop.

Gold demand in industrial applications slipped by just 0.7% last year. The electronics industry saw offtake ease by 0.7% year-on-year while gold used in dental applications continued its long-term declining trend. Finally demand for gold from the other industrial & decorative segment saw a slight increase last year.

GOLD PRICE AND TRADE WEIGHTED DOLLAR

0

400

800

1200

1600

2000

H1-12H1-10H1-08H1-06H1-04H1-02

US$

/oz

(per

iod

aver

age)

Ch1 Gold price and TW$

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS

Trade Weighted D

ollar Index (H1.02=100, inverted)110

100

90

80

70

Gold Price

Trade Weighted Dollar

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Producer de-hedging amounted to an estimated 50 tonnes in 2013, to leave outstanding positions on a delta-adjusted basis totalling around 73 tonnes at end-year. On balance producers’ hedging activity as the gold price fell has been either to allow hedges to mature as scheduled or proactively to close out contracts for a profit and use the proceeds to pay down debt. To date, fresh hedging in this lower price environment has remained comparatively modest.

Net official sector purchases slumped by 34% in 2013, to 359 tonnes. However, this should be seen in the context that the prior year total was the highest since the 1960s and the 2013 figure still represents an historically high level. This level of buying was underpinned by the continued desire of emerging economies to diversify portfolios away from major currencies. That said, there was a discernibly slower, yet still positive, pace of net purchases after the price falls of the second quarter as some central banks became wary of buying given the perceived potential for further price declines.

World Investment declined by 11% in tonnage terms in 2013 to 1,342 tonnes. The decline in value terms was significantly larger, at a quarter, to just under $61 billion, which was the lowest level since 2009. It is worth bearing in mind though that this is still double World Investment, even after adjusting for inflation, in any year between 1990 and 2008. The overall picture of World Investment masks some vastly contrasting trends as the decline was entirely a function of a sharp change in our implied net (dis-)investment series, which saw very heavy selling in the first half of 2013. Driving this change was the perception that US monetary policy was set to change sooner rather than later, which, combined with an apparent easing in concerns about European sovereign debt, undermined prospects for the gold price. Accordingly, a number of major institutional players sold some or all of their positions in gold in the second quarter of 2013, often by liquidating their ETF holdings, and as a result they sent the price sharply lower.

In contrast, this sharp price decline sparked a surge of physical bar investment especially across Asia and the Middle East. At the same time, retail investors in Europe and North America also saw lower prices as an opportune time to increase purchases of official coins. In the second half of the year purchases of bars and coins returned to lower levels, with Indian-based medal & imitation coin demand being particularly hard hit by the difficulty in importing metal to that country in the second half of the year.

MARKET OUTLOOK

As we move into the first half of 2014, we are expecting to see continued support from physical demand, although the volume levels recorded after the sharp price corrections in the first half of 2013 will prove difficult to sustain. We are currently forecasting first half 2014 physical bar demand to reach 560 tonnes, up by almost 50 tonnes compared with the second half 2013 level, albeit significantly lower on a year-on-year basis. While investment demand is expected to weaken further next year, the metal’s improving supply/demand fundamentals should provide some support to the yellow metal. Following several consecutive years of increasing global mine production, growth is forecast to slow over the next six months, to an estimated year-on-year increase of 2%. Meanwhile, after posting a 14% year-on-year decline in 2013, scrap supply is forecast to continue drifting lower, falling by an estimated 5% during the first half of 2014. We therefore expect restrained supply to remain in place in H1 2014, falling by over 600 tonnes compared with the same period of last year.

On the demand side, jewellery fabrication in the first half of 2014 is currently forecast to fall by some 16% year-on-year. Nevertheless, it is important to stress that the first half 2013 figure, at 1,175 tonnes, was exceptionally high. That said, while the lower price environment along with an improving economic outlook should see solid gains in the jewellery sector over the next year, we believe that, in the absence of much lower gold prices, a major upswing in emerging countries’ jewellery demand is unlikely. Meanwhile, although net official sector purchases are set to ease further, we expect central banks to remain a net buyer of gold in the first half of 2014. The underlying market surplus is therefore likely to narrow in 2014, albeit the fundamental position still suggests that the outlook for the price remains largely in the hands of investors.

WORLD GOLD FABRICATION

0

300

600

900

1200

1500

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

Tonn

es

Source: Thomson Reuters GFMS

US$/oz

0

400

800

1200

1600

2000

Gold Price

Total physical demand* minus scrap

Old gold scrap

*total fabrication (including coins) and physical bar investment** forecast

**

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2. GOLD PRICES IN 2013• The annual average gold price fell for the first time in twelve years in 2013, declining 16% to $1,411/oz. Two violent price drops in the first half pushed the metal down, to below $1,200/oz on two separate occasions.

• The price action was reflected in COMEX activity, which saw the accumulation of significant shorts on multiple occasions. ETF holdings fell by 33% or 880 tonnes which, however, were taken up by an Asian-led buying frenzy.

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 of the annual high as gold started its long decent soon thereafter. In fact gold had already started its decline in October 2012, when it peaked at $1,792/oz on the 4th. After that it trended down in a relatively narrow channel, meandering between support and resistance. It was not until mid-April that gold’s first violent move to the downside occurred when it fell off a cliff, triggering many stop-losses along the way and plummeted by $140/oz overnight. At around $1,378/oz a base was formed at which bargain hunting emerged. From a technical point of view gold formed a cup-and-handle formation in which its intermediate high was recorded at the end of April. That level turned out to be the precursor of the next move to the downside which was eventually more widespread over the month of June, reaching an eventual low of $1,192/oz at month-end. The magnitude of the decline was mainly due to macroeconomic events, ranging from monetary issues to sovereign debt and fiscal concerns.

The year had started on a gold-positive note with the arduous progress of budget negotiations surrounding the fiscal cliff in the US. However, the global debate

was quickly steered towards doubt surrounding gold’s ability to stage yet another year of price increases. Some investors had been long of the metal for much of the upturn and questioned if the clouds of the ‘perfect macroeconomic storm’ were receding. After all, despite Europe looking far from healthy, a long awaited default or exit by one of the member states remained absent and bad news about its troubled economies died down.

On the other side of the Atlantic, economic progress turned out to be far more upbeat too, with, despite continued underlying fragilities, an improving economic climate, ranging from gains in consumer confidence, better than expected GDP, rising employment and increasing equity markets. With gold trading sideways for most of 2012 and unable properly to breach the $1,800/oz mark on three separate occasions, including one failed attempt at the end of 2011, investors decided to bank some of their paper profits and turn their focus to higher yielding assets such as equities.

The underlying price action reflected the activity in the futures market on COMEX. Unsurprisingly, net long positions went through a similar downward trend

GOLD PRICES, 2012-2013

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

US$

/oz


1000

1200

1400

1600

1800

2000

Jan-14DecNovOctSepAugJulJunMayAprMarFebJan-13

Gold PriceTrade WeightedDollar

Sequester triggers US spending cuts

ECB cuts interestrate to new low of

0.5% amid region’songoing worries

Indian governmentraises import duty

to 8%

Fed announces it could start slowing asset

purchases by end-2013

Imports to India gets linked to volume of exports

US government shuts down temporarily

on budget impasse

US: added 203,000 new jobs, jobless rate fall to 7%

Q3 U.S. GDP climbed 2.8% annualised vs. expected 2.0%

US economy shows better-than-expected

housing data and unemployment rate falls

Indian goverment raises import tax on gold and platinum from 4% to 6%

President Obama signs bill to avoid “fiscal cliff”

Fed will keep interest rate

near zero until unemployment falls below 6.5%

EC suggestsCyprus sell€400mn worthof gold

Import duty in India raised to 10%

US Fed reduces bond buying

by $10 bn a month


110

105

100

95

90

Trade Weighted D

ollar (Inverted, 3rd Jan=100)

%change y-o-y 2013 2012 2013averageintra-year

US$/oz 1,668.98 1,411.23 -15.8% -29%

Euro/kg 41,755 34,196 -18.1% -32%

Yen/g 4,278 4,412 3.1% -14%

Yuan/g 338.51 279.18 -17.5% -31%

Rand/kg 440,575 433,964 -1.5% -13%

A$/oz 1,610.49 1,454.85 -9.6% -16%

Rouble/g 1,667.06 1,401.20 -15.9% -23%

TL/g 96.34 85.90 -10.8% -15%

Rps/10g 29,730 29,306 -1.4% -5%

Rph/g 502,315 470,112 -6.4% -10%


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particularly driven by the significant accumulation of speculative shorts, which almost tripled between January and July, when they reached their 2013 peak of 556 tonnes. Consequently, speculative net longs fell a stunning 90% over the same period to just 59 tonnes; the lowest since October 2002. But gold not just lost its shine in the paper market; physical material was also shunned in the West and dumped en masse, mainly in the form of ETF liquidations. Indeed, outflows in the first half-year totalled 580 tonnes, or 22% of total holdings with a 44% loss in value from $143bn to $81bn.

This metal was not lost, however, quite the contrary, it just needed to find a new home, which it did. In particular on the first price dip, an enormous buying frenzy from the Far East emerged, with demand for physical material destined for India and China ballooning. As a consequence, UK-led ETF outflows found their way to Switzerland where refiners re-melted the metal into smaller bars and shipped them East in order to satisfy the surge in demand. Gold was not only hoarded by private individuals but also by various central banks for reserve diversification. This led to a shortage of physical metal in the market, which raised refiners’ lead times, increased premia in India and China and pushed gold into backwardation; a phenomenon last witnessed in 1999. Consequently, a short covering rally on COMEX developed, lifting the speculative net long position from the July low more than threefold to 288 tonnes by the beginning of September, while the price revived by 12% over the same period to a fix just above $1,400/oz.

The reversal looked promising, but shortly lost steam driven by the continuing debate surrounding the Fed’s potential end to the asset purchase program. Despite that the US economy still looked fragile, the employment numbers, on which the Fed and BoE had based their dual mandate, were improving, although the labour

participation rate was not. This, in combination with various indices continuously recording new highs, fuelled the rumour that the Fed would soon reduce its monetary support. Gold came under further pressure once Indian inflows suffered a considerable dent due to a string of import tariff hikes and restrictions (20% of imports required to be set aside for re-export). Although ETF outflows were slowing, total holdings were still declining (total holdings for the year fell 33% or 880 tonnes) and investors started to position themselves for the actual taper announcement by the Fed. Speculative shorts on COMEX once again accumulated from an end October low of 260 tonnes to as much as 466 tonnes at the beginning of December, two weeks before Dr. Bernanke’s final FOMC meeting as Chairman of the Fed. Those shorts sat comfortably once the Fed did indeed announce a $10bn/month reduction in its bond purchasing program, spread evenly between government bonds and mortgage backed securities. Consequently, gold continued its way down and closed the year 29% lower at a fix of $1,205/oz.

VOLATILITY (US$ SPOT)

PRODUCTION & CONSUMPTION-WEIGHTED GOLD PRICES DAILY GOLD PRICE VOLATILITY & LEASING RATES

GOLD PRICE CORRELATIONS*

2008 2009 2010 201120122013

31.7% 21.4% 15.9% 21.1% 16.8% 22.0%

12.Q3 12.Q4 13.Q1 13.Q2 13.Q3 13.Q4

14.3% 11.7% 11.1% 29.8% 22.5% 19.5%

13.Q1 13.Q2 13.Q3 13.Q4

US $/Euro Rate 0.09 0.37 0.44 0.62

Silver 0.51 0.78 0.63 0.54

Oil (WTI) 0.25 0.40 -0.05 0.02

CRB Index 0.12 0.47 0.22 -0.03

S&P 500 0.11 0.31 0.16 0.05

COMEX ‘Investor’ Long 0.88 -0.15 0.35 0.68

Based on daily log-returns, save for non-commercial & non-reportable net COMEX positions where weekly. Source: Thomson Reuters GFMS

Source: Thomson Reuters

1-month Leasing R

ate (%)

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10

20

30

40

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Jan-14Jan-13Jan-12Jan-11Jan-10-1.0

-0.6

-0.2

0.2

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vol

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LeasingRate

Volatility

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75

100

125

150

175

200

Jan-13Jan-12Jan-11Jan-10Jan-09

Inde

x, Ja

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09 =

100


Production Price

Real Gold PriceConsumption Price

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PRICE OUTLOOK

Looking forward, we expect physical demand to remain solid in comparison to recent years but without a repeat of the bargain hunting surge seen in the first half of last year. Indian demand is also forecast to remain constrained by import duties and restrictions until, at least, after the election in the spring this year. In the US we expect the Fed to continue tapering this year as US unemployment is expected to continue to fall; interest rate guidance to emerge by late 2014.

We expect therefore that equity and bond markets will remain more attractive than gold, although caution is justified. Equity markets finished 2013 on a very solid note, with the S&P 500 index delivering a return of around 30% to investors once dividends are included. This optimism seems to be supported by robust economic growth figures in the US of which the last years’ fourth quarter number posted a strong upwardly revised 4.1%. However, the big gains of 2013 were mainly caused by investors re-rating the equity markets rather than by profit fundamentals as the former significantly outstripped the latter. Indeed, stocks on the S&P 500 were trading at a price/earnings (P/E) ratio well above the historic average in 2013; despite few of the listed stocks are expected to have future earnings that are likely to significantly increase.

Thus, monetary policy has been bolstering equity markets. Holding down both short-term rates and long term bond yields has been forcing investors to turn elsewhere, particularly now that other historically high yielding assets, such as gold, are in the doldrums. However, as the Fed has started to unwind its monetary support and investors realise that shares look rather expensive with regards to their profit potential (P/E ratio), they could well steer their focus back to the gold market.

When putting all the pieces of the puzzle together we have come up with the following price forecast for this year. In the first quarter we envisage room for a price improvement when those accumulated shorts on COMEX unwind, pushing gold up to a high of $1,327/oz. However, we do expect that rally to reverse through to a mid-year average low of around $1,180/oz in both the second and third quarters, as monetary stimulus further unwinds and the popularity of equity markets remains intact.

For the final quarter of the year we forecast gold to gain some traction, despite continuous monetary stimulus, as yields on equity markets will start to slow and investors start looking for other assets. This will be supported by continued loose monetary policy elsewhere, such as in Europe and Japan, where both central banks are eagerly trying to fight the forces of threatening deflation. Despite the absence of near-term inflation, negative real interest rates in Europe could well spur savers to look for yields elsewhere, as banks will be inclined to pass the costs on to their customers. At the same time, various economies still look very fragile and capital flows continue to remain constrained driven by, among other things, banks persistent unwillingness in northern Europe to lend capital to their southern counterparts.

Therefore we remain of the view that there still remain enough macroeconomic threats on the horizon to prevent gold from sinking below the 2013 low of $1,180/oz for any prolonged period this year. After all, at a fourth quarter average of $1,253/oz, gold might look cheap to some only costing around 10 barrels of oil compared to 23 in the autumn of 2011. That certainly could absorb some hot money looking for yield. For the year as a whole, however, we expect gold to average $1,225/oz, an annual decline of 13%.

GOLD, OIL AND THE CRB INDEX GOLD PRICE AND US$/EURO

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3. INVESTMENT• World Investment fell 11% in 2013 to 1,342 tonnes, accounting for 28% of total demand. The approximate value of this demand was down by a quarter to $61 billion.

• The decline was due to implied net disinvestment, estimated at 383 tonnes last year.

World Investment is estimated to have been 1,342 tonnes last year, down by some 170 tonnes on the level seen in 2012. The decline in approximate value terms was even more dramatic: from a total of $81 billion in 2012 to just under $61 billion last year. The 11% decline in tonnage terms was primarily driven by a hefty drop in investment demand from institutional players. Indeed, our implied net investment figure, which provides a proxy for institutional investor activity, switched to negative territory and totalled 383 tonnes in 2013, compared to positive demand of almost 180 tonnes in the previous year. As for other elements of World Investment, physical bar investment increased by 33%, hitting a fresh high since our records began and remaining the largest investment component. Official coin demand recorded a similar percentage increase, while the demand for medals and imitation coins eased slightly year-on-year.

The key themes driving gold investment during 2013 revolved around economic developments and the prospects for monetary policy in the United States. After the “fiscal cliff” was avoided at the beginning of the year, the US economy started to gain momentum, with some measurable recovery recorded in the housing market, substantial gains in equity prices and further improvement in labour market conditions. Growing optimism towards the US economy, supported by the upbeat economic data, fuelled expectations that the Fed would begin to unwind its stimulus efforts earlier than

had been expected. This, coupled with the absence of imminent inflationary pressures in the key economies and diminished concerns about the sovereign debt situation in Europe, significantly reduced gold’s safe haven appeal and translated into aggressive selling from institutional investors. Investor assessment of risk overall also played an important role in driving gold market sentiment during 2013. A continued recovery in risk appetite throughout the year encouraged investors to move further away from gold towards conventional assets, such as equities, in a search for higher yields.

Another important factor further restraining investor interest in the yellow metal was a generally more cautious attitude among investors towards the overall commodities complex. The deceleration in economic growth in key emerging market economies, relative dollar strength, as well as increased concerns about the imminent end of the commodity supercycle seemed to further undermine investor sentiment.

On COMEX, the first half of 2013 was characterised by heavy long liquidation along with a rapid expansion in gross short positions. The net investor position plunged by almost 90% from the start of the year to below 60 tonnes in early July, its lowest level since December 2001. Meanwhile, the outright short reached a record high of 556 tonnes on 9th July, an increase of 319 tonnes since the beginning of the year. Gold ETF investors redeemed almost 580 tonnes over the six-month period, and at end-June combined holdings were at its lowest level since June 2010. Much of this decline was concentrated in the second quarter, with over 400 tonnes of outflows, the largest ever quarterly redemption since the launch of the first gold ETF in 2003. While the first six months of the year witnessed significant selling from

WORLD INVESTMENT KEY MARKET INDICATORS

(tonnes) 12.H2 13.H1 13.H2E 14.H1F

Implied Net Investment* 139 -613 230 50

Physical Bar Investment 505 828 510 560

Official Coins 102 177 106 120

Medals and Imitation Coins 64 69 35 32

Total 810 461 881 762

Indicative Value US$ (bn)** 44 23 37 30

*Implied net investment is the residual from combining all of the 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. **Indicative values calculated using average gold prices.


(end-period) Change 2011 2012 2013 y-o-y

S&P 500 1,257 1,426 1,848 30%

CRB Index 480 484 456 -6%

XAU Index 181 166 85 -49%

US 30-year Bond 2.91% 2.94% 3.94% n/a

Gold Price $/oz 1,531.00 1,657.50 1,204.50 -27%

Contango (3-mth) 0.54% 0.35% 1.17% n/a

US$ Libor (3-mth) 0.58% 0.31% 0.25% n/a


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institutional players, demand for physical gold exploded in many key markets across Asia and the Middle East during this period. The massive correction in the gold price in April triggered a new run on physical gold, while local premia jumped considerably to record levels in many markets. Despite a weaker response to the second price correction in June, physical demand remained at robust levels. Similarly, the significant price correction in the second quarter of 2013 sparked a wave of interest in physical bullion gold in western markets. As the gold price continued to weaken and more bearish sentiment began to develop, physical demand subsided in the second half of the year. Demand for gold bars softened to 510 tonnes, a 38% fall from the level seen in the prior six months, albeit marginally higher year-on-year.

Turning to other components of World Investment, our implied figure turned positive in the second half of 2013, with net implied investment totalling 230 tonnes, compared to over 600 tonnes of net disinvestment during the first six months. This was largely driven by the substantial increase in investment demand in the OTC market, supported by the sustained weakness in the gold price. After a sharp bout of profit taking in the first half of the year, investor positions on COMEX began to lengthen, supported by increased geopolitical tensions revolving around the crisis in Syria and the two-week US government shutdown. Having said that, the net investor long at year-end was well below levels recorded at the beginning of the year.

The selling in gold ETFs continued for the rest of the year, although the pace of outflows abated somewhat. The moderation can be explained by an improvement in investor attitude towards gold, as the bulk of aggressive selling related to QE-tapering and an improving economic outlook had already been done in the second quarter. Full year ETF outflows were 880 tonnes taking combined holdings to 1,811 tonnes, down by 33% from the record high at the start of the year.

IMPLIED NET INVESTMENT

— Heavy outflows from gold ETFs combined with dramatic selling on COMEX resulted in implied net disinvestment totalling 383 tonnes in 2013.

The implied net (dis)investment figure is not independently calculated, but derived as the item which brings gold supply and demand into balance. The figure should therefore not be seen as an exact tonnage equivalent, but instead an indication of investment activity separate from retail bar and coin demand. Additionally, although a substantial majority of this tonnage will reflect such activity, implied net (dis)investment could also include other flows that, technically, are outside the definition of investment. One example is the impact of any central bank activity that is not being picked up in our official sector figures and that would, as a result, be absorbed within our implied net (dis)investment category. Despite this caveat, implied net (dis)investment typically does provide a clear indication of the overall impact of investor activity on the market for the period discussed. Furthermore, using information collected through field research and publicly available data, Thomson Reuters GFMS performs a ‘reality check’ on these values.

Last year saw implied net disinvestment of 383 tonnes, a notable change from a year earlier when the market saw a positive figure of 180 tonnes. A close analysis of quarterly developments suggests that this was largely a result of a negative implied figure in the first half of 2013, which is estimated at 613 tonnes, a substantial change from the same period of 2012, with some 40 tonnes of positive demand. Having said that, the second quarter of 2013 stands out as a period of particularly elevated outflows, with our implied net disinvestment figure of 424 tonnes for the three months in question. The key reason behind the selling was growing speculation that the Fed could start to taper its asset purchase

WORLD INVESTMENT GOLD AND BENCHMARK YIELD CURVE

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The Benchmark yield curve reflects inflationary expectations

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Implied Net (Dis)investment

Physical Bar Investment

Coins**

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programmes sooner than had been expected on the back of improving sentiment towards the US economy. This weighed heavily on investor attitudes towards the yellow metal, translating into heavy redemptions from ETFs and aggressive selling on COMEX.

It is interesting to examine how the implied figure compares to information on activity within the different arenas of investment over the year (although given aforementioned limitations in this information, it is not possible to disaggregate accurately the implied figure into these components). Due to the nature of gold ETFs and similar products, we are reasonably certain the 880 tonne outflow from ETF holdings had a broad one-to-one impact on the volume of investment.

The picture is somewhat more opaque when it comes to the futures and OTC markets. As for the former, at end-December, non-commercial and non-reportable net positions in Comex futures were down by 484 tonnes on the end-2012 level. Turning to the OTC market, our information indicates that this saw significant net buying for the year as a whole.

INVESTMENT IN EXCHANGE LISTED STRUCTURED PRODUCTS

— Demand for these products remained minimal in 2013

Since the global financial crisis began interest in this area of the gold investment universe has dropped markedly in both absolute terms and especially as a percentage of overall investment. Given that the single most important factor driving this change had been the movement towards physical bullion bars and coins, and to some extent concerns about counterparty credit risk, the improvement in macroeconomic prospects might have been expected to lead to a revival in 2013. However, field research indicates that there remains minimal appetite for these products from retail investors.

EXCHANGE TRADED FUNDS

— The year 2013 saw large redemptions in ETF holdings, particularly in the second quarter.

Combined holdings of ETFs declined by 880 tonnes, or 33%, over the year from a record high of 2,698 tonnes at the start of 2013 to their lowest levels since November 2009. In value terms, the net dollar outflow, as calculated on a daily basis, over the year was $40bn. Although sales remained significant throughout the year,

redemptions in the first half of 2013 were nearly double those in the second half with the heaviest outflows concentrated in the second quarter. This was the largest quarterly outflow since the launch of the first gold ETF.

The key driver behind the investor sell off was growing speculation that the Fed might end its asset purchase programme sooner than expected as the US economy continued to shows signs of improvement, reducing gold’s safe haven appeal. However, despite the pace of redemptions slowing considerably over the third quarter, investors remained firmly on the sell side of the market and by August ETF levels had reached the lowest since June 2010.

In the final quarter of the year, as expectations of US tapering increased (following the Fed unexpectedly announcing the continuation of QE in September), an investor sell-off gained momentum resulting in end-2013 total ETF holdings of 1,811 tonnes.

Turning to individual funds’ performance, the bulk of the decrease in holdings took place in the established entities. The biggest decrease last year was recorded by SPDR Gold Shares, the largest gold ETF, which saw an outflow of 553 tonnes or 41% over the year, 63% of the total outflows for the period. Other noteworthy decreases were registered by iShares COMEX Gold Trust, ZKB Gold, ETF Securities, Julius Baer and GBS LSE which each saw losses of 40-60 tonnes in 2013.

It is also worth noting that FinEx Group and the Moscow Exchange have introduced Russia’s first gold-backed exchange-traded fund in October, while China’s Guotai Asset Management Co. and HuaAn Asset Management Co. also launched China’s first two gold-backed exchange-traded funds. However, since the opening of these three ETFs interest has been muted at best.

GOLD ETFS AND OTHER SECURITISED PRODUCTS

Tonn

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Source: Thomson Reuters GFMS, collated from respective ETF issuers’ data

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INVESTMENT IN COMMODITIES

Investments in commodities last year were lacklustre at best. A

look at 22 commodities (as illustrated in the chart below) shows

that combined net investor long positions dipped 17% in 2013 to

end the year at $57 billion.

Despite the FOMC increasing the amount of purchases

from $40 billion to $85 billion per month starting January

2013, unlike QE1 and QE2, commodities in general did not

gain strength following the commencement of QE3. In spite of

patchy economic data and corporate earnings for most of the

year, investors remained confident in the US recovery. Bullish

technical signals pushed US stock markets to new highs,

and thus made commodities less attractive as investment

instruments. The commodity complex deteriorated dramatically

in the second quarter of 2013, as the market speculated over

the Fed’s tapering timetable. Market worries about a China

slowdown also hampered investments in commodities.

Investors continued to build large positions in the energy sector,

as the US economic recovery continued to gain traction, along

with a cold winter in North America that spurred the use of gas.

Geopolitical concerns lingering in the Middle East and Africa

saw Brent crude trading at a double digit premium to WTI for

most of the year, but concerns over North Korea as well as the

increasing tension amongst Asian countries over the sovereign

rights in the South China Sea had also prevented oil prices from

joining other commodities in their significant downside.

As markets began to anticipate a start to tapering in the second

half of the year, the value of gold and silver net positions

plunged in the second quarter, to its lowest since 2001. Gold

dropped below $1,500 without resistance in April. In spite of

aggressive physical buying from China and India, the gold price

did not regain this level.

Performance among the soft commodities was mixed. While the

price of cocoa rose by 21% year-on-year, corn and wheat prices

fell dramatically. Market interest in livestock grew in 2013, with

the net investor long position surging by 88% to $4.9bn by the

end of the year.

Looking forward, investors will continue to be wary of the

commodities market, as emerging markets, especially China,

may continue to grow at a “slower” pace compared to the past

decade. Without strong economic growth from these emerging

markets, commodities, especially industrial metals, may not

find it easy to break out from their recent lulls. The changing

of US monetary policy will also act as a deterrent. However,

it remains to be seen whether the US can continue to build on

the economic recovery after reporting strong data in the last

two months of 2013, as well as the direction that Janet Yellen,

Bernanke’s successor as the Chair of the Federal Reserve Board

of Governors, wants to take.

COMMODITIES EXCHANGE ACTIVITY

— Trading volumes on major commodity exchanges posted solid growth in 2013 with Chinese markets leading the way.

COMEX

The total volume of gold futures traded on COMEX last year increased by 8% year-on-year to 47 million contracts. This is equivalent to a nominal 152,046 tonnes and to an average daily turnover of 584 tonnes. Open interest at 379,550 contracts by end-December was down by a hefty 11% compared to end-2012. CFTC reports on non-commercial and non-reportable net positions in COMEX futures can be used as a proxy for

investor activity on the exchange. The first half of 2013 was characterised by aggressive long liquidation in addition to a rapid expansion in short positions, where by end-June, net “investor” positions had fallen by 80% to below 110 tonnes (a level last recorded in September 2002), which was a driver behind the dramatic fall in gold prices over the year.

The trigger behind this heavy sell-off was growing speculation that the Fed could begin tapering its asset purchase programme sooner than expected. This was in light of an improving US economy, while a lack of near term inflationary pressures and reduced concerns over the sovereign debt situation across Europe and the United States hit investor sentiment.

VALUE OF NON-COMMERCIAL & NON-REPORTABLE NET POSITIONS IN 22 COMMODITY FUTURES CONTRACTS

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Q1-13Q1-12Q1-11Q1-10Q1-09Q1-08-20

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US$

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Source: Thomson Reuters GFMS*Other includes soft, agricultural and dairy commodities, platinum, palladium and copper

Gold

Silver

Energy

Livestock

Other*

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In the middle of the year, however, there was a short covering rally by investors leading to short positions falling by 38% over August to November, falling to their lowest levels since early February as gold prices rose in response to the two week long US shutdown in October. However in the last few months of the year, as investors appetite turned to riskier asset classes in light of the imminent reduction in US monetary easing (which was announced on 18th December), short positions once again surged, reaching historic levels. As a result, the net “investor” position ended the year at 102 tonnes, 82% below where it began the year.

OTHER EXCHANGES

Looking at last year, China’s ShanghaiGoldExchange (SGE) saw significant increases in trading volumes. Turnover, for the spot contract (AU999 and AU9995) more than doubled year-on-year to reach 4,007 tonnes. Much of the increase was attributable to the dramatic fall in gold prices in the first half of the year which in turn drove demand for physical gold to record levels. However, one exchange appeared to dominate the Chinese market in 2013, China’s ShanghaiFuturesExchange (SHFE), which saw trading volumes rise by more than 240% year-on-year. The key driver behind the dramatic rise in trading volumes came as a result of the introduction of night time trading in July, which allocated an additional five and half hours to trading sessions. Meanwhile, speculative interest was additionally elevated across the SGE’s AU (T+D), which also benefited from new night time trading hours, posting a year-on-year increase of 58%.

India’sMultiCommodityExchange(MCX) remained an important commodity exchange for gold futures trading on a global basis in 2013 despite suffering a significant (24%) fall in volumes. The fall, which was mainly concentrated in the second half of the year, followed a series of new regulations and tax increases imposed by the Indian government on gold imports, limiting investors ability to access the market.

OTC MARKET

— The OTC market saw substantial net buying in 2013, sparked in large part by lower prices causing opportunistic buying.

As mentioned above, an analysis of the components of our implied investment series indicates that there was significant net investment in the OTC market in 2013. This may surprise readers who are aware that investor selling was a key element in the price decline, even more so if we consider that institutional investors, who dominate the OTC market, were a major factor in sparking the second quarter price drop. However, this is far from representative of all OTC activity across the year.

In fact, even in the first half of 2013 when heavy investor selling was occurring, the OTC market as a whole was a net buyer of gold. This was despite some institutional investors being among the first to take the view that the US monetary policy cycle was set to change direction sooner rather than later and hence that this dented the prospects for gold. The ensuing price decline was key to sparking interest from some investors who saw this an opportune time to make purchases. Indeed, LBMA turnover surged higher in the second quarter and June saw the highest turnover since February 2000.

NON-COMMERCIAL & NON-REPORTABLE NET POSITIONS IN COMEX FUTURES

COMEX, NYSE, LIFFE & TOCOM FUTURES GOLD TRADED ON OTHER EXCHANGES

(total volume in nominal tonne equivalents) 12.H1 12.H2 13.H1 13.H2

COMEX 73,845 62,679 83,707 68,339

TOCOM 5,940 5,955 7,510 4,715

NYSE Liffe* 652 513 735 416

Total 80,437 69,187 91,952 73,470

*N.B.: Includes both the 100-ounce and 33.2-ounce contracts.


(total volume in nominal tonne equivalents) 12.H1 12.H2 13.H1 13.H2

SGE Spot 970 931 1,981 2,026

SGE AU(T+D) 2,176 2,049 3,055 3,639

SHFE 6,414 5,420 7,301 32,875

MCX 6,562 6,055 7,033 3,546

DGCX 257 295 258 191

Source: Respective commodity exchanges, Thomson Reuters

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The price decline in the second quarter also led to a substantial shift in gold bullion often backed by transactions in London. This saw large gold bars, often from redemptions of ETFs being shipped to Switzerland for converting into small bars for the Asian and Middle East markets. While this activity arguably peaked in the second quarter it remained a major theme of OTC transactions throughout the year. Indeed this is also symptomatic of an eastward shift in the investment arena with demand in China and Turkey, for example, being encouraged by interest in gold deposit accounts. Meanwhile, the shift from unallocated to allocated metal accounts, which had been encouraged by the global financial crisis, has hit the buffers. This is not due to a change in underlying investor interest but instead from increasing attempts by banks to meet tightening balance sheet requirements, especially in Europe.

PHYSICAL BAR INVESTMENT

— World bar investment increased by 33%, buoyed by stunning emerging market demand.

In the UnitedStates small bar market witnessed a turbulent year in terms of total demand with significant peaks and troughs. The dominant trend was for larger holders of bars to liquidate some of their holdings as prices declined while smaller collectors bought into the price dip. There was also a major rise in 10g bar investment, in line with the rise in Asian demand.

European net bar investment is estimated to have fallen by 7% in 2013. Europe once again illustrated varying attitudes in the region, with demand for physical bars on a country level varying strongly. Indeed, Germany, for example, utilised the price drop as an opportunity for bargain hunting, whereas investors in France,Italy and the UK were far less optimistic and more sceptical about gold’s ability to recover from its price slump.

Indian investment demand surged 29% to 266 tonnes last year. This reflects an upward revision of 27 tonnes in the first half taking the total to 182 tonnes, equivalent to 2012’s full year aggregate. Demand declined by more than 50% in the second half of the year against the first six months as import restrictions turned away tactical investors, while conventional retail investors were also wary of accumulating gold stocks due to lower price expectations and high premiums. That said, premia for 100 gramme bars over kilo bars increased to more than $20, due to a supply shortfall. To put this in perspective total imports of 100 gramme and smaller denominations were just 78 tonnes in 2013 vs 217 tonnes in the previous year. Imports of investment grade 9995/9999 purity bars fell from approximately 15 tonnes in 2012 to less than four tonnes in 2013.

Investment demand in China soared by an extraordinary 47% in 2013, reaching a new record level of 366 tonnes. The exceptional rise was due primarily due to the lower price environment in the first half of 2013, especially during the significant price correction in April, which triggered hysteria as bargain hunters rushed to build gold assets. Moreover, demand in the first half surged a staggering 88% year-on-year. However, investment demand subsided in the second half of 2013, declining 4% year-on-year; the modest fall being a function of consumers having limited purchasing power (having already invested earlier in the year), coupled with a lack of confidence in the gold price with many investors prepared to wait for further pullbacks in the price before entering the market.

The lower price environment saw investment demand across the rest of South East Asia (excluding China) surge an impressive 58% in 2013 to a new record level. Thailand investment demand exploded in the second quarter as speculators rushed to buy any gold, with Bangkok’s China town traders running out of physical metal and customers lining up for hours to make a purchase. Thomson Reuters GFMS estimates Thai investment demand soared 76% in 2013 to a new all time high of 137 tonnes.

Vietnam bar hoarding also recorded a sizeable rise, jumping 23% to just over 80 tonnes. Tight restrictions on imports and investment products limited further growth though unofficial imports helped alleviate some of the additional demand. Elsewhere, Indonesia also witnessed an impressive investment total, jumping 36% to a 30-year high. After a slow start to the year, demand surged in the second quarter following the sharp drop in the price, pushing premia on investment bars to a record.

RETAIL INVESTMENT

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India Europe China

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Investment demand in Japan started the year in a similar fashion to that seen at the end of 2012 as record yen gold prices in the first quarter encouraged further dishoarding as investors took profits. Thereafter, demand returned to net demand (the first time since 2008) as the lower price pushed investors to swing back to the buy-side, with the trend in place for the remainder of the year. In addition to the gold price, the planned introduction of a higher sales tax rate in April this year may have also encouraged purchases ahead of the planned change.

OFFICIAL COIN SALES & FABRICATION

— Gold coin minting is estimated to have risen by 34% to reach a record-high of 285 tonnes in 2013.

We have revised China’s official coins figures upwards in Update 2 such that estimated official coin fabrication in China is closer to the issued mintage of Panda coins and various commemorative coin programmes as announced by China Gold Coin Incorporation, the official distributor of official coins in China. This upward revision brings Chinese official coin fabrication to 39 tonnes in 2012 and 37 tonnes in 2013, making China the second largest official coin fabricating country globally, after Turkey.

Global gold coin minting in 2013 is estimated to have risen by 34% year-on-year to 285 tonnes, an all-time-high. In fact, gold coin minting in the past five years (2009-2013) has averaged 236 tonnes, almost doubling the average mintage of 137 tonnes in the preceding five years (2004-2008). The explosion in growth since 2009 was spurred by increased demand for safe haven assets amid a recessionary backdrop when the gold price was enjoying its upward trajectory. Interestingly, gold coin sales rose further in 2013 despite assertions that the gold bull market had come to an end as the global economic outlook was improving. Much of the interest in 2013 came from bargain hunting when the gold price plunged in April and again in June 2013.

Regional trends were generally similar. Coin minting growth was exceptionally robust in the first two quarters of the year, thanks to the fall in the gold price which rendered it more attractively priced. Gold coin fabrication more than doubled in Turkey (from 39 tonnes to 84 tonnes), and grew by 24% in the UnitedStates, 41% in Canada, 48% in Austria and 55% in Australia. While there were fewer commemorative gold coin programmes in China in 2013 than in 2012, we believe 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 one point as opportunistic buying activity surged.

The huge fall in the gold price did not only lead to bargain hunting; some investors took advantage to liquidate their assets. In fact, the secondary market saw a revival in the second half of the year after sluggish activity in 2012. Some investors liquidated their gold coin holdings upon a price rebound in July, which was then sold on to bargain hunters who would otherwise purchase directly from primary markets. This subsequently led to depressed primary coin sales from key mintages in Q3 2013.

MEDALS & IMITATION COINS

— Sales of coins in India declined in 2013 as record premiums deterred investment interest.

Indian coin demand in 2013 is estimated to have declined 9% from record levels in 2012 to 96 tonnes. Nearly 70% of annual demand emerged in the first half of 2013. Thereafter, sales offtake slumped at an average pace of almost 50% year-on-year in the subsequent quarters. This drop is largely attributable to record premiums as government reined in gold imports. That said, the higher premiums helped institutions to offload the imported coins during the festive period of October and November.

WORLD PHYSICAL BAR INVESTMENT

TURKISH AND US GOLD BULLION COIN FABRICATION

(tonnes) Change 2012 2013E y-o-y 13.H1 13.H2E 14.H1F

Western* 266 258 -2.9% 136 122 146

Middle East 84 113 34.7% 59 54 51

East Asia 443 659 48.6% 429 230 299

Indian S-C 221 294 33.4% 199 96 55

Other -6 14 N/A 5 9 8

Total 1,007 1,338 32.8% 828 510 560

*Europe and North America.


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Turkey United States

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4. MINE SUPPLY• Global gold mine production is estimated to have risen by 4% during 2013.

• Producer de-hedging is estimated at 50 tonnes for 2013, leaving the outstanding delta-adjusted hedge book at just 73 tonnes.

• Average total cash costs rose by 4%, to $768/oz, on a nine-month 2013 basis.

MINE PRODUCTION

INTRODUCTION

Global mine supply is estimated to have increased during 2013 by approximately 118 tonnes, or 4%, a significantly higher rate of growth than that seen during the preceding year. This increase in production, in the face of growing pressure on producer margins, is the result of a combination of factors. Firstly, a large number of 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 a period of lower production due to mine sequencing, geotechnical problems and local political issues. At other operations, increased throughput, sometimes in combination with higher grades, has led to significant quarterly increases in mine supply. It may be that some producers are seeking to maintain revenue through higher production levels, but the sustainability of this approach is uncertain in cases where head grade has been increased. However, some operations have raised yield, and hence production, through improvements to processing systems, for example at Obuasi.

Secondly, supply from new operations has made an important contribution towards the increase in global production estimated for 2013. Last year encompassed the commissioning or ramp-up phases of several significant new operations that had been in development over the last few years. Several of these, for example Detour Lake, Canadian Malartic and Young-Davidson, are situated in Canada, supporting a year-on-year increase 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.

Generally, the industry-wide theme during 2013 was one of cost-containment. For the major producers,

the focus was on reducing non-essential capex, and more generally on a move away from the aggressive acquisitions and expansions that have characterised the last few years. Junior and mid-tier producers have fewer options available to them, and consequently there have been examples of suspensions and closures of some smaller operations at the higher end of the cost curve. Although we have seen evidence over the last two quarters that producers are beginning to rein-in costs, further decreases in the gold price will ensure that margins remain under pressure. Consequently, should conditions remain difficult, it is probable that closures and suspensions will become more widespread.

GLOBAL MINE PRODUCTION

TOP 20 GOLD MINING COUNTRIES

Production(t) Change 2012 2013E 13.H1 13.H2E y-o-y

China 413.1 437.3 197.8 239.5 6%

Australia 251.4 259.4 126.7 132.7 3%

Russia 230.1 237.8 90.4 147.4 3%

United States 231.3 226.9 110.1 116.8 -2%

Peru 180.4 182.2 93.5 88.7 1%

South Africa 177.3 168.8 87.3 81.5 -5%

Canada 108.0 128.3 60.8 67.6 19%

Mexico 102.8 101.2 49.6 51.5 -2%

Ghana 95.8 97.8 51.9 45.9 2%

Indonesia 89.0 94.8 42.6 52.3 7%

Uzbekistan 73.3 79.4 39.2 40.2 8%

Brazil 67.3 79.3 35.7 43.6 18%

PNG 57.2 62.9 31.2 31.7 10%

Chile 48.6 50.9 25.4 25.5 5%

Mali 50.3 50.2 23.9 26.4 0%

Argentina 54.6 49.8 24.8 25.0 -9%

Kazakhstan 40.0 45.8 21.1 24.7 14%

Tanzania 49.1 45.6 21.2 24.3 -7%

Philippines 41.0 40.5 19.9 20.6 -1%

Colombia 39.1 40.4 20.1 20.3 3%

Rest of World 464.3 503.0 244.0 258.9 8%

World 2,864.0 2,982.2 1,417.2 1,565.0 4%


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AFRICA

Total African production fell by 1.4% year-on-year, to 572 tonnes. In SouthAfrica, output dropped by eight tonnes, representing a slower annualised rate of decline. Underlying this, management of Sibanye Gold have made a push to drive throughput levels at Kloof-Driefontein and Beatrix which has resulted in an estimated seven tonne, or 17% year-on-year rise in output growth from these operations. In addition, although 2013 was a wage negotiation year, strikes have not been nearly as severe as the latter half of 2012, which has partially offset the strong declining trend that underlies gold output in South Africa. Notable examples of this are seen with collective output gains estimated at three tonnes from Kopanang, South Deep and Tautona, as fewer strikes allowed for higher productivity at these operations.

Mixed results were noted across the rest of the continent. West African production saw strong year-on-year growth, with Ghana and BurkinaFaso spearheading the increase with a combined six tonne estimated gain. Significant growth came from the Bissa-Zandkom mine in Burkina Faso which continues to ramp up to capacity. Output in Eritrea is estimated to have fallen seven tonnes year-on-year as the gold enriched oxide cap of the Bisha ore body was exhausted. Mine planning has since transitioned into the primary ore, which is dominantly composed of

lead and copper bearing sulphides and which is expected to contribute limited gold in the future. Tanzanian production fell by an estimated 7% or four tonnes year-on-year where strong output gains at New Luika and North Mara were offset by significant losses at Tulawaka, Geita, Bulyanhulu and Golden Pride. Output in Guinea and Zimbabwe continued to rise and collectively added one tonne.

In Mauritania, increased throughput, head grade and recoveries at the Tasiast mine are estimated to have resulted in a two tonne year-on-year gain. Elsewhere, Egypt saw a three tonne output gain due to increased throughput at Sukari. Finally, we hear that the persistently low gold price has done little to stem informal activity in many areas, not least in Sudan and the DemocraticRepublicofCongo.

NORTH AMERICA

Total mine production in the UnitedStates contracted by four tonnes or 2% year-on-year to 226 tonnes. Lower processed ore grades at Newmont Nevada and Goldstrike led to an estimated fall in production of eleven tonnes at these operations. Despite the ramp up in production at Emigrant and Carlin North Area, and a consistent high grade and throughput at Phoenix, production was offset by lower grades at other locations. A similar picture was drawn at Bald Mountain and Round Mountain where

MINE PRODUCTION WINNERS AND LOSERS, 2013E VERSUS 2012

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output is estimated to have fallen by three tonnes. At Bald Mountain, the fall in production was a result of a decrease in tonnage treated due to a revised mine plan to reduce the number of pits, and focus on the most profitable ounces. These losses were partially offset by a two tonne output increase at Cortez, where a push for increased throughput led to output gains despite lower processed grades and recoveries. The fall was anticipated as specified in the mine plan, which led to a substantial increase in tonnes processed. Further gains were reported at Fort Knox, Jerritt Canyon, and Hollister, where output rose by a combined four tonnes.

Mine supply in Canada grew by 19% year-on-year to 128 tonnes, driven by increased output from new mining operations such as Detour Lake, Westwood, Young-Davidson and Canadian Malartic. On an aggregate basis, these mines are estimated to have produced a total of twenty seven tonnes in 2013. Production at Detour Lake is estimated to have reached seven tonnes as the mine continued to ramp up to nameplate capacity. Somewhat offsetting the overall growth trend, production at the country’s largest gold operation, Red Lake, is estimated to have decreased by 8% driven by lower grades owing to development work.

LATIN AMERICA

Total mine production in Latin America is estimated to have reached 634 tonnes, an increase of 5% year-on-year. Much of the growth is attributed to the DominicanRepublic and Brazil, where supply grew by over twenty and twelve tonnes respectively. In the Dominican Republic, the continued ramp-up to full production at Pueblo Viejo added just over seventeen tonnes in the first nine months of 2013, with output estimated to reach north of twenty-five tonnes by year-end. In Brazil, estimated gold production achieved an all-time high figure of seventy nine tonnes, with this growth led primarily by Salobo and Tucano. The successful ramp-up of Salobo proved instrumental in raising gold production as output increased by almost three tonnes, supported by a better than expected recovery rate. A continued ramp-up was seen at Tucano, where production increased by five tonnes due to higher head grade, throughput and plant recovery. Further gains were seen at Pau-a-Pique and Paracatu, countering losses at AngloGold Ashanti Mineração and Jacobina where combined output fell by two tonnes due to lower grade ore processing.

Elsewhere in Latin America, less significant changes were seen in output. Peruvian gold production grew by 1% year-on-year to 182 tonnes, limited by the elevated

number of strikes, not to mention the first nationwide strike in four years. A combined drop of nearly one tonne was registered at Orcopampa and Chipmo, as a result of lower ore grade, tonnage treated, and a sixteen day strike, coupled with the proposed closure of Pierina in the third quarter. Other losses were reported at Lagunas Norte and Yanacocha, where production dropped by fifteen tonnes due to ore feed bottlenecks and lower grades respectively. Nevertheless, the drop in output was offset by gains at Breapampa, which added just over two tonnes. Mexicosaw a 2% year-on-year drop in gold production to 101 tonnes, led by a contraction at Pinos Altos and Peñasquito where output fell by three tonnes due to variations in the proportion of heap leach ore to mill ore and water source challenges respectively. The other substantial drop was seen in Argentina, as gold production fell by 9% led by a fall in output at Alumbrera and Veladero, both due to lower grades.

OCEANIA

Mine supply from Australiais estimated to have grown by nearly eight tonnes, or 3% year-on-year, to total 259 tonnes. A significant portion of this growth was attributed to an increase in production at Cadia Valley and Tanami, and a ramp up at Garden Well. We estimate that these properties collectively added ten tonnes in 2013. Cadia East, one of the three mines that comprise the Cadia Valley Operations, commenced production at the beginning of the year. At Tanami, higher mill throughput offset lower grade ore processing and recoveries. Despite severe weather conditions, the smooth ramp-up at Murchison Goldfield and the recently commissioned Tropicana added an estimated two tonnes. Similarly, new supply came from Mount Carlton, where total output was almost two tonnes.

Losses were seen at Jundee, where production fell by an estimated two tonnes due to lower processed grades. Production at small to medium sized gold operations contracted further as the fall in gold prices resonated across producers causing properties such as Wiluna, Coyote, Laverton, Bronzewing and Southern Cross to be put under care and maintenance. Aggregate production at three of the country’s largest operations, Telfer, Boddington, and Super Pit, was flat year-on-year.

Gold production in NewZealand increased by an estimated eleven tonnes, or 10%, year-on-year. Production in the region was led by Waihi, where output reached three tonnes backed by higher processed grades.

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ASIA

Asian production is estimated to have risen year-on-year by a significant 6%, or 44 tonnes, representing an acceleration of growth in the second half of the year from the first six months of 2013. The most significant gain was seen in China, where output is estimated to have risen by just over 24 tonnes: the largest tonnage increase globally.

Data for the first nine months of 2013 show that the volume of gold recovered from the country’s smelting industry, which toll treats ores on the behalf of gold and nonferrous metal producers, was responsible for continued Chinese growth. Among these, the most significant gains were seen at the gold smelting divisions of Zijin Mining (+12 tonnes), partially due to the commencement of output at the Luoning Zijin Gold Refinery, and at Shandong Henbang (+4 tonnes). In the nonferrous industry, increases were recorded at smelters owned by Tongling Nonferrous Metals (+1 tonne) and Jianxi Hefeng Copper (+1 tonne), and a doubling of production at the Yanggu Copper Smelter.

In contrast, output from the country’s integrated mining and refining operations remained flat or fell during the first nine months, by 6% or eight tonnes. Fujian province,

previously one of the top five producing regions of China, saw output fall by a significant 25%, or three tonnes. The main driver was a reduction in output from Zijin Mining’s flagship domestic mining operation, Zijinshan. Processed grade fell by 21% along with downtime due to plant maintenance work and work to improve the tailings facilities. Elsewhere, amongst the country’s listed miners, output fell at Real Gold’s three operations in Inner Mongolia. Underlying this, the company continued to experience difficulties in 2013 at the Shirengou-Nantaizi processing plant regarding mined grades and recovery rates, in addition to problems with electricity outages between October 2012 and June 2013. Mined grade was also a key factor behind a 45% drop in production at the company’s Luotuochang operation.

Other Asian output is estimated to have increased by 20 tonnes, or 7% in 2013. Indonesian mine production saw a strong third quarter, with supply from Grasberg increasing to over nine tonnes, after several quarters of relatively depressed output. Martabe, commissioned during 2012, is estimated to have produced over eight tonnes during 2013. These improvements in output were more than sufficient to counter decreases at two of Indonesia’s other major mines. Production at Gosowong was down during Q3 due to scheduled mining of lower grade areas, meanwhile at Batu Hijau, lower grades and

CORPORATE ACTIVITY

Merger and acquisition activity in the gold mining sector

fell sharply last year, with the aggregate value of quantified

deals completed during 2013 down more than one-third

against 2012, and 75% lower than in 2011, based on data from

Thomson ONE. These amounted to $9.3 billion in 2013.

Perhaps unsurprisingly in 2013 there appeared to be

more potential sellers in the market than buyers. Many

of the transactions clearly reflected a strategy of portfolio

restructuring and divestment, rather than one of aggressive

takeovers, which was characteristic of 2010-11, when many

‘blockbuster’ deals were completed at elevated valuations.

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

in February. The second largest deal last year was the listing

of Sibanye Gold (also in February) from the spin-out of KDC

and Beatrix by Gold Fields, valuing Sibanye at $1.1 billion.

A more conservative corporate stance has seen fewer

companies exhibiting an appetite to grow through M&A, in

addition to the sharp scaling back of project spending across

the industry last year. Those that were in the market to buy

tended to be smaller companies looking to diversify modest

portfolios, with the largest deals of this type being Hecla

Mining’s purchase of Aurizon Mines, in a deal valued at $700

million, and New Gold’s acquisition of Rainy River Resources

for just under $300 million. As the market deteriorated several

proposed deals fell through or acquisition values were revised

lower, such as the purchase of a 50% stake in Turquoise Hill

Resources’ Kyzyl project by Sumeru Gold for $235 million, a

greater than 20% reduction on the initially tabled price.

2013E TOP 10 GOLD PRODUCERS

Change (tonnes) 2012 2013E y-o-y

Barrick Gold 230.8 223.9 -3.0%

Newmont Mining 154.8 154.0 -0.5%

AngloGold Ashanti 122.6 126.0 2.7%

Goldcorp 74.5 82.4 10.6%

Kinross Gold 1 76.2 77.2 1.4%

Navoi MMC 1 68.0 74.1 9.0%

Newcrest Mining 64.5 66.9 3.7%

Gold Fields 2 95.9 55.5 -42.2%

Polyus Gold International 52.2 50.9 -2.6%

Sibanye Gold 2 n/a 44.2 n/a1 Estimate, 2 KDC & Beatrix consolidated as of 1st Jan 2013

Source: Company Reports; Thomson Reuters GFMS

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recoveries resulted in 33% lower production over the first nine months of 2013 compared to the same period in 2012. On balance, production from Indonesia is expected to have increased by six tonnes in 2013, largely on the strength of second half output.

Production from PapuaNewGuinea is also expected to have risen by six tonnes during 2013, led by higher output from Lihir, where a flotation plant expansion was completed during 2013. In addition, Hidden Valley is expected to have increased production as commissioning of a crusher at the front of the overland conveyor enabled increased supply of higher grade mill feed from the upper open pit. Turkish output is expected to have risen by four tonnes in 2013, on higher supply from Çöpler, Efemçukuru and Kişladağ. At Çöpler, plant modifications improved recoveries, contributing to record quarterly production in Q3 13. New supply also came from the ramp-up of operations at Efemçukuru, and higher grades led to higher output at Kişladağ over the first nine months of 2013. Increased supply from Mongolia was due to the commencement of operations at Oyu Tolgoi, where commercial production was declared during the third quarter.

COMMONWEALTH OF INDEPENDENT STATES (CIS) AND EUROPE

Production in the CIS rose by 7%, or 25 tonnes, to total 390 tonnes, lifted by gains at all of the main gold producing countries across the region. Russiacontributed the bulk of the growth, adding an estimated eight tonnes. Especially strong growth was noted in the country’s Far East Khabarovsk region, where the ramp up of the Albazino-Amursk and Mayskoye operations led to an estimated output gain of seven tonnes. In Central Russia, gains at Olimpiada were offset by lower output at Blagodatnoye. Flooding at Pioneer prevented the mining of a scheduled high-grade bench and resulted in the processing of low-grade stockpiles, which impacted output negatively. In Uzbekistan, output is estimated to have risen by 8%, with the continued ramp up of Zarmitan, while at Muruntau, pit and hauling improvements contributed to small output gains. Output in Kazakhstan rose by six tonnes year-on-year with the continued ramp up of Altyntau.

In Europe, production rose by two tonnes, or 9%, as the Olimpias mine in Greece continued its commissioning phase and small output growth was observed in Spain, Sweden and Bulgaria.

PRODUCTION COSTS

— Global total cash costs were estimated at US$735/oz in the third quarter of 2013, decreasing from a high of US$796/oz in the first quarter of 2013.

During the first nine months of 2013, global total cash costs averaged $768/oz, compared to $740/oz during the same period in 2012, a rise of 4%. This represents a slowing of the cost escalation seen in recent years, and reflects industry-wide attempts to reduce production costs as margins continued to contract due to a combination of rising costs and a falling gold price. Total cash costs averaged $747/oz in 2012, and continued to increase into 2013, reaching a peak of $796/oz in the first quarter. However, results from Q2 and Q3 indicate that this upward trend has faltered, with slight falls in total cash costs, although much of this is likely attributable to higher output and consequently lower unit costs.

Total production costs, which comprise depreciation and amortization in addition to total cash costs, showed a similar trend, reaching $997/oz in the first nine months, a 5% year-on-year increase. A decrease was seen in the second and third quarters. As the gold price has continued to trend downwards, simple cash margins have 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 proprietary metric that includes ongoing capital costs, indirect costs and corporate costs, is estimated to have averaged approximately $1,350/oz in 2013, a 9% increase on the all-in cost for 2012. We expect much of this increase to result from asset write-downs, reclamation and remediation costs, as producers closed marginal operations. Excluding such factors, we expect the all-in cost to be in the region of $1,200/oz. The full impact of asset closures will become apparent when year-end results are reported, but it is clear that there will be no respite from the pressure on producer margins.

QUARTERLY TOTAL CASH COSTS BY REGION

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Regionally, North America saw a small increase in nine-month year-on-year cash costs, from an average of $656/oz in 2012 to an estimated $664/oz in 2013. This was driven by increasing costs in the United States, as over this period the total cash cost of Canadian gold production decreased by an estimated $47/oz. Focusing on Canada’s largest operations, total cash costs at Red Lake increased during 2013, due to lower production on falling grades. However, this has been outweighed by lower costs at operations such as Meadowbank, where unit costs have decreased on higher production. New supply from operations that have been ramping up during 2013, such as Canadian Malartic and Young-Davidson, has also helped to reduce the country average. Lower cash costs at Porcupine during the third quarter were partly attributable to higher production, but with contributions from a weakening Canadian dollar, as well as lower contractor and employee costs, and a reduction in spending on maintenance and consumables.

Latin America saw the largest year-on-year increase in costs during the first nine months of 2013, of approximately 12%. Consequently, Latin American average costs, while still the lowest, were only $28/oz lower than those for the North American region in the third quarter. At Latin America’s largest operation, Yanacocha, cash costs increased primarily due to lower production, as mining of some areas was completed during 2012. Costs also rose on lower production at Lagunas Norte, due to a scheduled decrease in head grade. These increases outweighed the benefits of relatively low-cost new production from Pueblo Viejo, as well as lower unit costs on higher production from Paracatu. The decision by Barrick to initiate closure of

Pierina is an example of a mature operation no longer deemed viable in the current price environment.

South African dollar denominated total cash costs remained flat, much of which is a consequence of the rand weakening. In rand terms, total cash costs have risen by 17%. Nonetheless, some South African operations have reduced their unit costs recently. For example, both Driefontein and Beatrix saw costs fall on higher production due to improved yields during the third quarter. Additionally, in 2013 the gold industry avoided a repeat of the widespread strike action that impacted output and costs during 2012.

The average total cash cost of Australian production remained fairly flat over the first nine months of 2013, decreasing by 2% in US dollar terms, although this translates to slight increase in costs when the effect of the weaking Australian dollar is accounted for.

WORLD TOTAL CASH COST CURVES

REPORTED TOTAL CASH AND PRODUCTION COSTS

(US$/oz) 12.Q2 12.Q3 12.Q4 13.Q1 13.Q2 13.Q3

North America 681 658 635 689 662 640

Latin America 563 571 585 600 639 612

Australia 868 891 907 956 864 750

South Africa 971 1,069 1,253 1,146 997 930

Other 768 791 786 827 828 815

World 744 762 766 796 773 735

Gold price 1,609 1,652 1,722 1,632 1,415 1,326

Cash margin 866 890 955 836 643 591

Productioncost 954 979 1,006 1,021 1,008 963

Note: Weighted averages based on the Gold Institute reporting standard. Does not include mines for which gold is not the primary source of revenue.


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9-Month 2013 Average Gold Price ($1,457.52/oz)

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PRODUCER HEDGING

— An estimated 50 tonnes was removed from the hedge book in 2013, as existing positions matured.

During the first nine months of 2013, the outstanding delta-adjusted hedge book shrank by 32 tonnes, or 26%. During 2013, due to the sharp decline in gold prices by the end of June, the marked-to-market global hedge book had swung from a net liability to a net asset for the first time since our quarterly coverage began in 2002. This prompted a number of Australian producers to close out existing in-the-money contracts to pay down project debt. With many producers under considerable pressure amidst persistently low gold prices, various market commentators had speculated that a return to hedging would occur in order to shield producers from further downside price risk. Evidence suggests the contrary however, a continued trend towards unhedged status.

The three largest reductions to the delta-adjusted book over the period involved cuts both to option positions and forward contracts. The most significant de-hedge came from Crocodile Gold, which cut nine tonnes of outstanding forward contracts. Minera Frisco and Sumitomo Metal Mining saw respective seven and five tonne reductions to their positions when adjusted for option delta. Of the notable hedging activity during the period, Petropavlovsk had sold forward over eight tonnes of production at a weighted average price of $1,571/oz maturing in June 2014, and B2 Gold Corp added forward

contracts and collar structures which amounted to a delta-adjusted hedge of five tonnes.

The end-September gold price of $1,327/oz represented a $135/oz rise quarter-on-quarter (on the basis of the London p.m. fix). This left the weighted average strike price of the US dollar denominated forward sales component of the book (the largest portion) at only $13 in excess of the spot price at end-September, reducing the marked-to-market asset position of the industry’s collective hedge book. While the price lift led to an increase in the outstanding volume of delta-hedging against the sold call portion of the book, it also meant that the bought put fraction of the book fell further out-of-the-money, with a corresponding decrease in the level of delta-hedging against these contracts. The resulting amount of gold hedged against the options portion of the hedge book therefore decreased by 36% over the nine months.

With the gold price having since dropped by year-end to $1,201.50/oz, we estimate that the fourth quarter saw further opportunistic closing out of in-the-money hedges. In addition to this, the delivery profile indicated that there were eighteen tonnes of contracts scheduled to mature in the fourth quarter of 2013. Aside from a recent six tonne hedge from OceanaGold, there is little evidence so far to support speculation that widespread hedging is underway in the industry. We therefore estimate that for the full year the market saw de-hedging of approximately 50 tonnes.

DELIVERY PROFILE AT END-SEPT 2013 EVOLUTION OF THE GLOBAL HEDGE BOOK

COMPOSITION OF THE DELTA-ADJUSTED HEDGE BOOK WEIGHTED AVERAGE STRIKE PRICES OF CONTRACTS

(tonnes, end period) Change 12.H2 13.H1 13.H2E y-o-y

Forwards & Loans 101 75 62 -39%

Options 22 21 11 -48%

Total 123 96 73 -41%


(weighted by number of contracts, end-September 2013) ContractType USD AUD

Bought Puts $1,133 $1,373

Sold Calls $1,813 $1,678

Forward Sales $1,340 $1,559


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5. SUPPLY FROM ABOVE-GROUND STOCKS• Net official sector purchases remained at historically high levels in 2013. However, the pace of central bank buying did drop during the year, especially after the price decline in the second quarter.

• Global scrap supply fell 14% last year driven by the drop in the gold price and lower stocks in some regions, pushing its share of total supply down to 29%.

OFFICIAL SECTOR

— Central bank buying is estimated to have declined by approximately 34% in 2013 to 359 tonnes.

Our estimates for official sector transactions are based on a combination of publicly available data found in IMF statistics, central bank websites and the press, as well as information collected through our field research. Due to the lag that often exists between activity taking place and being identified, it is possible that our calender-year estimates will be revised in the future.

Thomson Reuters GFMS’ estimate shows that net official sector purchases dropped by 34% year-to-year to 359 tonnes in 2013, although the absolute level remained high by historical standards. The overall level of net official sector purchases is a symptom of simultaneous decisions from two different types of countries. In the advanced economies, where many countries already have very substantial gold holdings, this almost universally centres around whether the central bank wishes to sell part of its holdings or not. Meanwhile, in developing economies, who generally have both smaller holdings of gold in tonnage terms and as a small percentage of their reserves, there is an ongoing desire to diversify their reserves away from the major international currencies and especially the US dollar. This often leads to purchases of gold.

As shown in the accompanying chart, the drop in net purchases in 2013 was due to a fall in acquisitions while sales remained at trivial levels. The slowdown in purchases was in part related to gold’s disappointing price performance, although in some cases this may be more of a tactical delay rather than a long-term change in policy. However, there was also a variety of other factors that acted as a drag on fresh gold purchases, not least as they made alternatives to gold in foreign exchange reserves appear more attractive than in recent years. These were primarily a function of an increasing

view that the loosening of US monetary policy was set to come to an end. This underpinned the renewed strength of the US dollar, particularly against the yen and euro, as well as a recovery in US Treasury yields.

In addition, despite market nervousness about the potential for major disposals from signatories to the Central Bank Gold Agreement (CBGA), sales have continued to be almost nonexistent.

Looking ahead, we expect the official sector to continue to be a net purchaser of gold in the first half of 2014 as the rationale of portfolio diversification has remained intact. However, the price decline has clearly shaken some central banks’ belief that now is a good time to make additional purchases, especially as the prospects for alternatives such as the US dollar and Treasuries has improved. Consequently, net purchases are set to be below the recent peaks despite sales remaining at negligible levels.

SALES

The year 2013 was the third consecutive year in which grosssales from the official sector remained minimal, at just ten tonnes. The largest seller, and the only country within the CBGA group to cut gold reserves, was as usual Germany. We estimate that Germany released just over four tonnes for its official coin programme. Elsewhere, sales remained lacklustre with the majority of gross sales seeming to have been related to coin minting.

PURCHASES

Grosspurchases are estimated to have totalled 369 tonnes in 2013, down by 31% year-on-year. As was

NET OFFICIAL SECTOR PURCHASES/SALESCh3 Retail investment

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CBGA*

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the case in 2011 and 2012, it is important to emphasise that our gross figure does not include the reported net increase in Turkish official reserves, as this is reflected in changes in local commercial banks’ gold deposits with the central bank.

Looking at the country-by-country split of announced purchasers, Russia was the largest buyer, increasing its official gold holdings in the first ten months of the year by 57 tonnes. This was achieved via regular acquisitions of local mine production. In a similar vein, Kazakhstan also purchased 24 tonnes primarily by buying domestic gold output throughout the year.

Other CIS countries were also significant buyers in 2013, with Azerbaijan purchasing a reported sixteen tonnes.

These acquisitions are believed to have been made by SOFAZ, the country’s sovereign wealth fund, in the international market. Elsewhere, modest purchases were also reported by a number of countries predominantly in Asia, includingNepal andSriLanka. The largest reported purchase by a central bank in any particular month this year was by SouthKorea, which raised its bullion holdings by 20 tonnes in March.

Apart from the aforementioned buyers, over 60% of gross purchases or some 225 tonnes were accounted for by undeclared transactions, details of which cannot be released in respect of confidentiality. In some cases, gold was added quietly in the local market.

GOLD PREMIA SOAR IN SOUTH ASIA

South Asia accounts for more than 50% of global gold demand,

emphasising its importance with respect to pricing. This was no

more evident than in 2013, and particularly following the acute

price correction in mid-April that spurred a frenzy of physical

gold demand across markets in the region. Vietnam and

India were the highlights as premia crossed $200 in these two

countries as metal supply tightness and expectation of a return

to higher prices saw demand surge for any available stocks.

In India, sizeable premia are the norm and near $25 per ounce

is no surprise for retail customers. From the beginning of

the year to 11th April gold was sold in the retail market at a

premium in the region of $32 per ounce over the London spot

prices. As the price plunged near the beginning of the peak

demand season offtake surged, pushing premiums higher.

Later, as international supply eased, the premia also tapered.

Thereafter, the sharp depreciation in the rupee drove a renewed

price rally to record levels in late August, leading to heavy sales

that pushed the price to a discount of $24 on 30th August. As

India’s new import policies squeezed supply, premia again rose

sharply, reaching a high of $211 on 6th December. Premia then

slumped by nearly $45 reflecting poor offtake at the retail level

and as supply emerged from other sources in the form of bars

and jewellery.

The Vietnamese market also attracts exceptionally high local

premia over the international price, often exceeding $100 per

ounce given the tight rein on supply by the State Bank. During

the price collapse in April and again in June premia soared to

over $300 as demand significantly outstripped available supply.

Despite a sharp rise in official imports during this period the

surge of consumer demand led to a wave of unofficial flows into

the country as traders from neighbouring countries capitalised

on the premia to generate healthy profits.

Premiums in China have generally been volatile. From a first

quarter average of $13 an ounce, premia surged to $27 in

the second quarter before falling to $20 and $12 in the third

and fourth quarters respectively; still comfortably above the

2012 average of $6.50. Premia initially surged to $41 in April,

reacting to the drop in local prices, which fell to the lowest

since 2nd October 2011. After a period of stabilisation, a supply

shortage pushed domestic premia to a record high of $56 on

13th May. However, this was followed by a fall to $7 on 6th

June; only to rise to $49 on 20th June as gold again tumbled.

Thereafter, the differential fell to a discount by mid-October,

reflecting heavy inventory building in the previous weeks.

Elsewhere, premia were also volatile during the peak demand

periods and often as odds with the paper market, topping $7 or

2% in Singapore, Thailand $4, while in Hong Kong they reached

a record $6 per ounce for kilobars.

GOLD PREMIA AND PRICE

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800

1100

1400

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2000

Jul-13Jan-13Jul-12

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/oz U

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Gold Price RHS Indian Premium LHS Chinese Premium LHS

-40-20

0

20406080

100120140160180

200220240

Jul-13Jul-12Source: Thomson Reuters

-40-20

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100120140160180200220240

Jul-13Jan-13Jan-12Source: Thomson Reuters

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SCRAP

— Global scrap supply fell 14% year-on-year in 2013, as regionally depleted stocks combined with a considerably lower gold price.

Global scrap supply fell 14%, or 219 tonnes, to an estimated 1,371 tonnes in 2013. The decline was almost entirely driven by gold’s significant price drop during the year, which motivated various scrap recyclers and individuals to sell less of their holdings until the general market sentiment in gold improved.

Unsurprisingly, scrap supply across all regions showed considerable weakness with the drop in the Middle East and Oceania particularly pronounced. Some refiners in India were even forced to close their doors for a short period. However, in comparison to other regions, a decline of 10% in the Indian Sub-Continent was relatively modest, which has been mainly driven by different dynamics at play in the second half of the year. Indeed, on the back of the price drop, large volumes of pawn gold jewellery turned up for sale. This was due to a sustained fall in prices that started in the third quarter of 2012 in combination with lower household earnings, slowing economic activity and higher inflation.

A similar slump in scrap volumes developed in the rest of East Asia in 2013, with the region’s total falling by 13%. If we exclude China the drop is even more pronounced as China turned out to be the only country that actually registered an increase in scrap supply in 2013. This was mainly centered in the second half of the year when prices briefly staged a recovery and people sold their material back to the market; a stark contrast to developments elsewhere.

In Europe, meanwhile, following an already modest reduction in 2012, scrap supply continued on that trend last year with flows sold back to the market falling by 10% to 352 tonnes in Europe. Scrap witnessed the largest decline in the northern part of the continent where recyclers refrained from selling material due to the drop in the gold price. However, in Southern Europe, the decline was less pronounced largely reflecting economic weakness in those countries.

Scrap supply in the UnitedStatesfell 16% to almost 108 tonnes in 2013. This was the lowest annual total since 2008 and followed a 17% fall in scrap flows in 2012. The decline in gold prices was the primary driver behind this sharp reduction. Improved economic conditions and expectations also weighed on scrap sales, as households

became less dependent on gold assets as a source for quick cash.

The US economy improved throughout the year, with unemployment falling from 7.8% in December 2012 to 6.7% by December 2013 and the housing sector strengthening. Disposable incomes trended higher throughout the year and pawnbrokers and cash-for-gold businesses continued to suffer from reductions in gold scrap sales. Liquidation of unsold jewellery inventories came off, as retailers were able to leverage the declining gold price and apply steep rebates and discounts to last-season styles. Sales of old jewellery held by consumers and other gold products declined 15% in 2013 compared to a 24% drop in 2012.

Scrap supply in the Middle East was significantly weaker last year, retreating by 20% to a 12-year low. A modest 4% fall in the first quarter as a result of softer prices and a depletion of close to market gold assets was followed by a precipitous drop in supply in the second quarter in tandem with the violent correction in the dollar gold price. Not surprisingly, this impacted dramatically on recycling rates across the region as both consumers and industry waited for a return to higher prices before selling old stock.

Given the strong demand for fabricated product in 2013 exports of surplus scrap to foreign refineries were very low and in several countries nonexistent. Aside from a period in late August when dollar gold pushed through the $1,400 barrier, generating a brief uptick in liquidations, scrap supply across the region continued to wane, slipping 26% in the second half of the year.

Looking to individual countries in isolation reveals a common trend across the region. Every market across the Middle East recorded double-digit declines with most slumping to multi-year lows. Scrap supply from this bloc

ABOVE-GROUND JEWELLERY STOCKS & % RETURN OF SCRAP

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201320112009200720052003

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of countries has fallen sharply in recent years; indeed, offtake last year was almost 50% below the peak seen in 2009. SaudiArabia dropped almost 30% in 2013, while Turkey eased 22%. Elsewhere, Egypt and Iran dipped 18% and 26% respectively, while most other markets were within this range.

As outlined above, Turkish scrap supply declined by a sizeable 22% in 2013, falling to a thirteen-year low as the Turkish lira (TL) gold price slipped 11% year-on-year. Following a modest fall in the first quarter, scrap supply fell sharply as gold’s acute correction in mid-April saw gold in domestic terms drop to below TL80/g for the first time in several years. Gold prices dropped to TL74/g in June, limiting recycling opportunities, and aside from a period in late August when gold rallied briefly consumers were reluctant to liquidate gold assets, willing to wait for higher prices to prevail, although this did not eventuate.

Scrap supply in India is estimated to have declined 8% to 104 tonnes in 2013. The modest decline is attributed to the surge in scrap sales during the third quarter as the price tested a new record high in rupee terms; this was followed by moderation in the fourth quarter as the price 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. Separately, field research revealed that large volumes of pawned gold jewellery turned up for sale in the first half of the year, resulting from payment default by borrowers. This was a result of the sustained fall in prices from the third quarter of 2012 to the second quarter of 2013, and it also coincided with lower household earnings and a liquidity crunch due to slowing economic activity and higher inflation.

In concert with the violent correction in the dollar gold price, scrap supply from across East Asia slipped 13%

last year to a six-year low, with China the only country registering modest growth. Indeed, removing China from the regional total reveals the true impact of the price drop, pushing scrap supply down by 23% year-on-year.

A weaker yen pushed gold in domestic terms to record levels in the first quarter helped to limit the decline in Japan’s scrap flows to a modest 12% fall, while all other key markets recorded far greater declines in supply. Indonesian scrap supply, for instance, slumped 26% to a level not seen in over a decade, while Thailand also fell a sizeable 29% year-on-year. In all cases it was a combination of lower prices and depletion of near market stocks that accounted for the fall.

As mentioned, China was the outlier in the region recording a modest 5% rise in scrap supply last year to an estimated 126 tonnes. Following a healthy 16% rise in the first quarter, the plunge in the domestic gold price to below 300 rmb per gramme in mid-April saw scrap slump 18% year-on-year as consumers waited for a return to higher prices before liquidating. As prices tracked higher from July scrap supply again emerged pushing supply in the second half higher by 10% year-on-year.

WORLD SCRAP SUPPLY

WORLD SCRAP SUPPLY WORLD SCRAP SUPPLY

0

200

400

600

800

1000

1200

H1-14H1-13H1-12H1-11H1-10

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*

Source: Thomson Reuters GFMS*Forecast

US$/oz

700

900

1100

1300

1500

1700

1900

Gold Price

Other

North America

Indian SC

Europe

East Asia

Middle East

0

200

400

600

800

H1-13H1-11H1-09H1-07H1-05H1-03

Tonn

es


Industrialised Countries

Developing Countries

Change(tonnes) 2012 2013E y-o-y 13.H1 13.H2E 14.H1F

Europe 389 352 -10% 175 177 165

North America 138 115 -17% 60 56 47

Latin America 112 105 -7% 54 50 41

Middle East 341 269 -21% 137 132 135

Indian S-C 166 149 -10% 53 96 50

East Asia 355 308 -13% 148 160 153

Other 89 74 -17% 36 37 37

WorldTotal 1,591 1,371 -14% 663 708 628


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6. FABRICATION DEMAND• At 2,990 tonnes annual fabrication demand in 2013 is estimated at its highest level since 2008 after witnessing 11.4% growth year-on-year. This is despite average real prices still being 49% above 2008 levels.

• The second half did witness a modest 8.7 tonne decline year-on-year to 1,363 tonnes, however, due to slightly softer offtake from industrial and dental applications.

• Assuming an average H1 2014 price of $1,233/oz we do not forecast another surge in demand akin to H1 2013 given current sentiment in the market. Our forecast is for a 17% decline in total fabrication demand in H1 2014 from an exceptional H1 2013.

INTRODUCTION

The second half of 2013 witnessed a hangover from the surge in first half fabrication in price-sensitive markets, with an additional negative impact brought about by the ramp-up of the Indian government’s import restrictions from July 2013.

In China, following a growth rate of 30.4% in the first half-year, fabrication demand slackened to a still impressive 20.4% in H2 2013, bringing total 2013 fabrication to 826.6 tonnes, up 166.7 tonnes or 25.3% from 2012 levels. Likewise in the Middle East, total tonnage consumption of 360.6 tonnes represented a 27.3% increase for the full year, despite a slowdown witnessed in the second half. The major adverse impact on growth came from India where first half growth of 30.7% or 101.4 tonnes was more than offset in the second half. A 116.0 tonne year-on-year decline in the second half brought total consumption for 2013 down to 721.4

tonnes, a fall which impacted significantly upon total global fabrication demand.

In the developed market, fabrication was not as quick to react to lower prices. In Europe a combination of sluggish growth and past substitution away from high-priced gold saw output broadly flat year-on-year. North America, however, fared considerably better as retailers heavily discounted gold pieces, and as spending on luxury goods continued to increase with the economic and stock market recovery. This brought global fabrication to 2,990 tonnes in 2013, an increase of 305 tonnes, with all of this coming in the first half of the year.

Looking forward, it is forecast that the first half of 2014 will see total fabrication decline in year-on-year terms from a H1 2013 high. Prices are expected to be more stable, which will reduce the likelihood of another bargain-hunting surge such as that of Q2 2013, while Indian import restrictions will also continue to curb international demand. Total fabrication is forecast at 1,344 tonnes in the first half of 2014, a decline of 17.4% year-on-year.

EUROPE

— Total European fabrication in 2013 remained broadly unchanged, at 255 tonnes, as losses in jewellery and electronics offtake were mitigated by a strong increase in official coin minting.

Jewellery fabrication in Italy is estimated to have fallen by 3% in 2013, taking total volumes to less than a fifth of those recorded in the late 1990s. That said, while the relentless downtrend continued into the last year, the

WORLD GOLD FABRICATION WORLD JEWELLERY FABRICATION

Change (tonnes) 2012 2013E y-o-y 13.H1 13.H2E 14.H1F

Europe 254 255 0% 129 126 124

North America 179 211 18% 107 104 89

Latin America 48 53 11% 25 29 29

Middle East 283 361 27% 217 143 175

Indian S-C 767 757 -1% 452 305 288

East Asia 1,000 1,191 19% 616 574 560

Africa 43 47 8% 24 23 21

Oceania 13 19 43% 10 9 9

CIS 96 96 1% 47 49 48

WorldTotal 2,684 2,990 11% 1,627 1,363 1,344


Change (tonnes) 2012 2013E y-o-y 13.H1 13.H2E 14.H1F

Europe 172 168 -2% 83 85 82

North America 62 76 23% 29 47 34

Latin America 40 45 11% 20 25 25

Middle East 229 260 13% 146 113 133

Indian S-C 649 648 0% 380 268 255

East Asia 705 904 28% 468 436 410

Africa 20 20 2% 10 10 10

Oceania 3 3 5% 2 1 1

CIS 70 73 4% 36 38 37

WorldTotal 1,951 2,198 13% 1,175 1,023 989


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rate of decline slowed somewhat compared to previous years. This slowdown was largely explained by the weaker price environment, which buoyed demand from key export destinations, helping somewhat to mitigate the losses stemming from the continued weakness in the domestic market.

Available data for the first nine months of 2013 suggest there was a strong rebound of nearly 50% year-on-year in jewellery exports. This was mainly thanks to stronger deliveries to the United Arab Emirates (UAE), Italy’s largest destination, where shipments from Italy rose by almost 70% in the January-September period. Price-led 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 graph below.

Similarly, the declining price trend explains much of the gains for shipments to East Asia. Data for the first nine months of 2013 showed that deliveries of finished jewellery were 35% higher year-on-year, thanks chiefly to buoyant flows to China/Hong Kong. Turning to the industrialised world, a robust recovery in US jewellery consumption along with an improving economy helped to explain the near 30% increase in exports to the United States over the January-September period.

Italian shipments to the EU witnessed a 12% growth in the first nine months of 2013, largely assisted by the lower gold price environment. The ‘Other Europe’ category saw the largest percentage increase by region, thanks chiefly to strong deliveries to Switzerland (operating as a global distribution centre for high-end jewellery) and to Turkey (mainly for re-export to Russia). Elsewhere, Italian shipments to Latin America recorded an 18% rise and this was largely attributable to stronger deliveries to Mexico and Panama. A sizeable increase

in the volume of shipments to Algeria and South Africa greatly explained a double-digit percentage rise for the ‘Others’ category illustrated in the graph below.

While the first nine months of 2013 witnessed an uptick in demand from key export destinations, retail activity in the domestic market experienced a further decline, with our estimate for the full year at a 9% decline year-on-year. One significant factor behind the structural decline in domestic consumption is the ongoing shift within the industrialised world’s markets from plain to gemset jewellery. This trend continued through last year. Persistent economic weakness, coupled with increased political uncertainty, were among other important factors that weighed significantly on consumer sentiment. Moreover, Italian jewellery fabrication continued to suffer from its market share loss to Asian fabricators, due to such factors as higher labour costs, tight EU legislation and import duties in some markets.

In Germany, jewellery fabrication growth remained stable, totalling 14.7 tonnes in 2013 with mixed performances among retailers. Some were reporting solid sales levels domestically as well as from abroad, whereas others tended to be struggling to turn a profit. The main trend for the year was the continued rise into alternative materials, such as palladium and stainless steel as well as the shift toward increased spending on electronic goods. Domestic demand for 18-carat pieces and higher value brands held up relatively well last year whereas the lower carat segment of the market showed some considerable weakness.

Jewellery fabrication in Switzerland is estimated to have fallen by 1% to almost 31 tonnes last year. Following three consecutive years of increases, Swiss hallmarking numbers sketched an even more bearish picture by falling 6% last year. However, the decline followed two

ITALIAN OFFICIAL JEWELLERY EXPORTS

EUROPEAN FABRICATION AND HALLMARKING SERIES

0 4 8 12 16 20 24

Others

L America

N America

Other Europe*

East Asia

EU-25

Middle East

Source: Thomson Reuters GFMS; Calculations based on Italian export data.Shows only the direct flow of finished pieces. *incl Russia & Turkey

Jan - Sept

Tonnes

100% OPACITY

2012

2013

ItalianJewelleryFabrication(Index based on Jan-Dec each year, with 2007 = 100) 2008 2009 2010 2011 2012 2013

Home 83 57 51 40 31 26

Export 79 57 54 44 41 40 SwissWatchCaseHallmarking (Index based on units for Jan-Dec period, with 2007 = 100) 2008 2009 2010 2011 2012 2013

103 59 62 87 104 99 HallmarkedUKJewelleryFabricationandImports (January-September each year, tonnes) 2008 2009 2010 2011 2012 2013

Total 16.2 11.7 11.0 9.1 8.6 8.3

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years of significant growth in hallmarked pieces whereas at the same time retailers were more inclined to draw down stocks.

Of all the European countries, jewellery fabrication in France suffered the most. Indeed, jewellery fabrication fell a significant 14% last year to 6.5 tonnes, with demand for middle-segment priced jewellery suffering the most. The high-end of the market continued to perform well, as it is less price-sensitive and the lower segment held up well, benefitting the most from the decline in gold prices. Similar to other countries, nevertheless, the domestic market continued to suffer from the shift towards alternative materials such as silver, custom made and non-precious materials.

In the UK the general trend last year was noticeably different compared to market developments elsewhere in Europe. Official hallmarking statistics showed a 1.1% year-on-year drop in the number of articles hallmarked in 2013. However, the gold content of articles hallmarked actually increased 2.5%, indicating a rise in the average gold content per article. When looking at the caratage split in more detail, 22-carat and the 18-carat jewellery clearly stand out, as demand for both increased last year by 16% and 5% respectively in weight terms, whereas all other segments witnessed a notable decline. Consequently, jewellery fabrication is estimated to have risen by 6% to a little over 7 tonnes in 2013.

Jewellery fabrication in Russia is estimated to have increased by 6% in 2013 to almost 52 tonnes. Similar to the trend in the previous years, last year saw jewellery fabrication benefit from a continued recovery in retail activity in the domestic market, with our estimate placing consumption growth at over 5% for the year. This was chiefly thanks to robust demand for gold jewellery from the growing middle class, supported by a rise in disposable incomes and lower gold prices. While demand for jewellery fabrication enjoyed a period of steady growth in the last few years, the estimated total for 2013 looks to have remained slightly below the peak recorded in 2008. Looking ahead, we are expecting to see another year of robust performance, assisted by further weakness in the gold price.

NORTH AMERICA

— Price declines and an improving economy pushed US gold jewellery demand up 26% in 2013.

US gold jewellery demand is estimated to have risen to almost 68 tonnes in 2013, up 26% from 54 tonnes in

2012. This marks the second annual increase in demand over the course of the past 13 years. The only other rise in annual demand came in 2010, when jewellery fabrication rose 5% on the back of a recovering economy following the financial crisis. The 15% drop in the annual average gold price combined with an improving US economy provided the impetus for growth in gold jewellery demand last year.

Over the past decade US gold demand in volume terms has suffered from higher and rising gold prices as well as economically devastating events such as the dot-com bubble and the financial crisis of 2007/08. Over the course of this time period, jewellers have coped with this adverse market environment by reducing the per-unit gold content of their pieces in a variety of ways.

Jewellers have applied fashion styles that inherently require less gold, used plating and bonding techniques, and reduced caratage. Preserving price points has been the biggest theme in the jewellery market as retailers have had to combat constrained disposable incomes among their consumer bases. Many retailers have adjusted their business models by holding significantly lower inventory and focusing their sales on custom-made pieces made to order.

In 2013, jewellery manufacturers saw a long-awaited improvement in margins, albeit modest, and retailers were able to boost sales by offering attractive rebates and discounts. Most retailers did not mark down sticker prices, which deterred some sales due to consumer shock with respect to jewellery prices compared to the market price for gold. This lag in sticker price reductions could benefit jewellery consumption in 2014.

US jewellery store sales were up 9% in the first ten months of 2013 relative to the same period in 2012,

US GOLD JEWELLERY IMPORTS

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according to US Census Bureau data. This compares to 4% growth in the same period in 2012. Most retail companies reported healthy growth in the holiday season, which ran from the end of November through December, although some cited sticker shock as a limiting factor. That said, the average price point of jewellery sold in the US moved higher last year. Retailers reported anywhere from flat to 20% growth in total jewellery sales during this period. Gold demand benefited from this growth, but silver jewellery demand growth arguably outpaced that of gold. Silver has gained share in the jewellery market and continues to benefit in the branded jewellery segment due to its price advantage.

The growth in US jewellery consumption can be further supported by the growth seen in gold jewellery imports last year. US gold jewellery imports are estimated to have increased 27% in 2013 through October from the same period in 2012. This compares to annual declines ranging between 2% and 37% in gross imports since 2005. The top exporters of gold jewellery to the US last year were India, China, and Italy, all of which exported more gold jewellery products to the US relative to the previous year. The US imported a significantly larger amount of Italian gold jewellery products in 2013 relative to 2012, rising over 30%. This was the first increase in gross imports from Italy since 1999.

Gold demand for use in dentistry continued to decline, albeit at a slower pace relative to the past two years. Demand for gold teeth has been declining for years, largely as a function of substitution from cheaper, more natural-looking materials. Consumers generally prefer aesthetic appeal over the longevity of gold teeth and this trend is expected to persist. The somewhat slower decline in demand in 2013 was largely reflective of the drop in gold prices, which helped curb the rate of contraction from this industry.

Gold demand for use in electronics rose 3.5% in 2013. Gold is used mostly on printed circuit boards and as bondwires. Electronics demand benefitted from lower gold prices, which helped curb thrifting activity. Healthy demand for these products used in mobile devices helped to boost growth, after declining 4.5% in 2012.

MIDDLE EAST

— Jewellery fabrication in the Middle East increased 13% in 2013, largely due to the price related resurgence in the second quarter of the year.

In line with other markets in the region Turkeyrecorded a sizeable increase in jewellery fabrication in 2013, surging 19% to a five- year high. It should come as no surprise, therefore, that bullion imports reflected this healthy rise; reaching a record level in excess of 300 tonnes. Looking back, jewellery fabrication was aided primarily by the lower gold price environment last year, which saw local consumption and the export sector both record sizable gains. In addition, domestic tourism, which also contributes to jewellery offtake across the country, was also more robust and helped lift consumption.

The declining price trend in the first quarter provided the market with a much needed boost, with both domestic consumption and export orders picking up in those early months of the year. The second quarter saw explosive expansion as the market reacted immediately to the sharp gold price fall in April that saw gold in domestic terms fall below TL80/g (a level not seen since mid 2011), instigating a wave of demand for the yellow metal that all but wiped out available stocks across the supply chain, pushing premia for fresh bullion to record levels.

The driving force behind much of the surge in fabrication during this period was demand for higher purity items as consumers looked to these segments as a simple means of investment. Indeed, while all segments of the industry were buoyed by the lower price environment, it was plain 22-carat items (mainly bangles) that recorded the most impressive gains as consumers looked to this segment for its low labour costs, mark up structure and savings potential. Field research revealed jewellery fabrication in the second quarter rallied an impressive 36% year-on-year, lifting first half offtake 23% over 2012 estimates.

Retail demand in the second half remained robust, though well below the heady level seen earlier in the year as a rising price environment, particularly in the

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third quarter, slowed retail sales. Another dip below TL 80/g in late 2013 failed to generate the same level of enthusiasm from consumers as sentiment had eased considerably and expectation of further downside potential saw many waiting on the sidelines for a lower entry point.

The jewellery export sector also posted healthy gains in 2013, with several key markets rebounding after a sustained period of weakness. Within the region, demand exploded in the second quarter, particularly from Iraq and UAE, the latter a distribution point for most markets across the Middle East. In addition, we understand that demand from Russia was stronger, as were several key western and Asian markets which all recorded healthy year-on-year gains.

Jewellery fabrication in SaudiArabia is understood to have recorded a healthy 15% rise last year, reversing six years of consecutive declines. Much was due to the surge in domestic demand witnessed in the first half after gold prices fell sharply, instigating a run on the yellow metal as consumers rushed to rebuild stocks after many had previously liquidated assets at higher price levels. Given that a large proportion of demand was driven by investment motives it was plain, higher purity (mainly 21-carat) items that dominated sales.

The second half of the year delivered further gains, though modest at 12%, after a weak Hajj sales period (impacting consumption primarily on the west coast) and a crack down on the Saudisation policy which stipulates that Saudi private companies allot job slots to Saudi Arabians; this severely impacted on retail outlets across the Kingdom which are dominated by foreign workers. This led to many gold souk showrooms closing across the country and limited further potential consumption growth.

Jewellery consumption in the UnitedArabEmirates (UAE) rebounded strongly in 2013, increasing by an estimated 26% year-on-year as both domestic and regional demand surged on the back of the lower price environment. Indeed, consumption in the second quarter alone jumped almost 50% year-on-year as a result of the acute drop in the dollar gold price during that period and the retail frenzy that followed. Field research at the time found that parts of the supply chain struggled to meet demand, with several major traders suggesting that they could have generated even greater sales during this time had they had access to fresh inventory. Aside from the surge in demand from Iraq and GCC countries, which is predominately purchased then hand carried from Dubai, demand from India and Indian sub Continent expatriates also generated a wave of demand for 22-carat jewellery.

It was this segment in particular that provided the greatest fillip to jewellery offtake as consumers rushed to purchase the plain high carat items (often purchased as a quasi investment option). While demand for these higher purity designs picked up strongly in 2013 these gains were often at the expense of 18-carat diamond and gem set items which declined after several years of healthy growth.

Turning briefly to Iran, Thomson Reuters GFMS estimates that jewellery fabrication demand rose 13% last year to a five-year high. Safe haven purchases were again to the fore, as the country struggled to reign in spiralling inflation and support its domestic currency in an environment of economic sanctions, with any retracement in the gold price followed by a significant uptick in retail activity. The introduction of trade sanctions on Iran has seen the collapse of jewellery imports from the UAE - which used to be the primary source of external supply. While imports from Turkey may have picked up some of this supply it appears that local fabrication has also increased to meet the rise in demand.

Despite a 16% rise in fabrication demand in the first half of 2013 Egyptian fabrication demand rose less than 1% on an annual basis after the flailing industry was again significantly impacted by the political violence that emerged after the Egyptian army overthrew president Mohamed Mursi in early July. This instability severely impacted tourism (which provides about 7% of the country’s GDP and employs 12% of the population) and was the chief catalyst for the drop of almost 25% year-on-year in the third quarter.

MIDDLE EAST NEW GOLD DEMAND

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50

100

150

200

250

H1-13H1-11H1-09H1-07H1-05

Tonn

es


US$/oz

0

300

600

900

1200

1500

1800Gold Price

34

FAB

RIC

ATI

ON

DEM

AN

D


INDIAN SUB-CONTINENT

— Indian jewellery fabrication remained largely unchanged in 2013, at an estimated 613 tonnes, with a surge in demand the first half offset by a sharp fall in the latter six months of the year. — Store expansion and growth of the organised jewellery market were less affected, assisting growth during the supply shortfall.

Indian jewellery fabrication reached 613 tonnes in 2013, almost unchanged from our 2012 estimates. This stable outcome was largely the result of the surge in demand witnessed during the second quarter balancing out a weaker domestic market in both the third and fourth quarters of the year. Initially, consumption was dominated by investment grade plain jewellery as investors took advantage of the lower price levels to build stock. However, this trend changed in the second half as gold prices rose due to a weak rupee and policies that limited official imports.

Restrictions on bank credit, quantitative restrictions, and higher customs duty increased the cost of procurement across the supply chain, leading to sizable rises in premia. Additionally, lower price expectations postponed discretionary purchases, with the latter largely attributed to widely discussed bearish views on gold. Evidence of this was a surge in scrap selling in the third quarter as gold in rupee terms tested new highs. However, base load jewellery demand was less affected, as it continued to clock more than 40 tonnes a month since August. This puts the estimate for overall consumption at 607 tonnes, up by 10% from the previous year, driven by surge of over 30% in the first half.

To understand demand on a regional basis, we need to look at official imports at specific locations as this indicates metals absorption in those key regions.

That said, this material constitutes both jewellery and investment demand. The import of gold into the southern states of Tamil Nadu and Kerala together outperformed other regions, rising 29% year-on-year. Whilst plain gold jewellery has dominated sales in these regions, it is also important to note that many of the large jewellery retail chains in the country originate from these states and have wider presence in the neighbouring states of Andhra Pradesh and Karnataka. Looking towards northern India, imports to the Delhi region surpassed the 2012 aggregate, but much of this was related to bar hoarding. Interestingly, the scenario was quite different in the eastern and western regions where official imports slumped nearly 40%. This helps to explain the flourishing unofficial trade that emerged in these regions.

Imports form a critical source of supply to the Indian jewellery market. In 2013 this was tightened by fixing it to a quantum of exports, defined as the 80:20 principle. After this came into effect, net official imports averaged approximately seven tonnes a month from August 2013 onwards. This is five times lower than India’s base load demand. However, unofficial supply, estimated to be in excess of 20 tonnes a month since August (compared to an average of just nine tonnes a month in the first seven months), has partially bridged the gap between supply and demand. That said, unofficial supplies were not just through cross-border shipments but also included seepage from units that were originally designated for exports. Indeed, detailed trade analysis shows that medallions and coins (which used to dominate this space), started losing out to rough cut plain jewellery. This outcome resulted from the legislative change that took effect on the 3rd May that prohibited such exports from Special Economic Zones. Part of that trade shifted to Export Oriented Units, thereby resuming exports in the form of medallions. With that caveat in mind our preliminary estimates suggest net imports in 2013 of

INDIAN BULLION IMPORTS* INDIAN JEWELLERY FABRICATION

0

50

100

150

200

250

300

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

Tonn

es


Rupees/10g (thousands)

0

5

10

15

20

25

30

35Gold PriceJewellery Fabrication

excluding Scrap

Scrap used in Fabrication

0

30

60

90

120

150

180


Tonn

es

Source: Thomson Reuters GFMS*including re-exports, excluding replenishment

Rupees/10g (thousands)

0

10

20

30

40

Gold Price

35

FAB

RIC

ATIO

N D

EMA

ND


827 tonnes, only 30 tonnes short of the 2012 total. The picture for the relative second half-year performances is vastly different, however, as imports dropped by a massive 55%. That said, our current estimate for unofficial flows is still a little on the conservative side as the opacity of this trade makes it difficult to ascertain the full nature of this parallel trade.

The supply shortfall had a major impact on jewellery retailers, reducing the carryover stock by at least 10% from 2012. Jewellers have started looking at alternatives to replenish their inventories by importing plain gold jewellery and using non-resident Indians (NRIs) as carriers to bring gold through official channels. Anecdotal evidence suggests these flows have exceeded two tonnes during the last two month of 2013.

Pakistan’sjewellery industry rebounded in 2013, recording its first annual rise since 2005 as weaker gold prices generated renewed interest in the yellow metal. Following a poor start when demand slipped almost 10% in the first quarter, demand for gold jewellery surged in the second quarter as a direct result of the acute collapse in the dollar gold price. Consumers across the country rushed to replenish stocks at the perceived bottom of the market, boosting domestic fabrication and driving a significant rise in imported items as local stocks sold out. Most of the retail activity was investment driven, with plain, higher purity, low margin jewellery the mainstay of domestic offtake.

EAST ASIA

— East Asian jewellery fabrication surged 28% year-on-year as lower gold prices stimulated retail activity. — Chinese jewellery fabrication jumped an estimated 31% in 2013 to reach a record high, taking the mantle as the world’s largest jewellery fabricating nation.

Chinese jewellery fabrication surged by 31% in 2013 to reach an estimated 724 tonnes, the largest year-on-year tonnage gain since 1992. Jewellery offtake in the first quarter enjoyed a robust start, rising over 20% for the period, stimulated by the Chinese New Year sales coinciding with period of easing gold prices and expectations that prices would return to previous elevated levels. The acute gold price drop in April that pushed the domestic gold price below RMB 270/g (the first time since September 2010) saw demand explode, with jewellery fabrication surging nearly 60% in the second quarter as consumers (mainly women) rushed in to accumulate gold for gifting, heirlooms, or as a simple quasi-investment tool. Indeed, many jewellery showrooms were cleared of all inventory, such was the level of panic buying, and many were devoid of stocks for several weeks due to the unprecedented demand.

The gold frenzy in the second quarter attracted many new entrants into the jewellery retail business, which in turn lifted gold fabrication. In July and August alone, over 200 showrooms were opened in Shenzhen, 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 purchasing activities of consumers, were the major contributors for the fabrication hike of 35% year-on-year in the traditionally weak third quarter.

Jewellery fabrication in the last quarter of 2013 remained at healthy levels though there were initial signs of overstocking and periods of discounting. Demand finally kicked in with fervour late in the year as the restocking process ahead of the Spring Festival began lifting demand across the supply chain, ending the quarter with a 14% year-on-year increase, and in so doing lifting China above India for the first time to become the world’s largest gold jewellery fabricating country.

CHINESE GOLD JEWELLERY FABRICATION

0

40

80

120

160

200

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

Tonn

es


Yuan/gramm

e

0

100

200

300

400Gold Price

EAST ASIAN TOTAL DEMAND*

0

200

400

600

800

1000

1200

H1-13H1-12H1-11H1-10H1-09

Tonn

es

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS*The sum of total fabrication and physical bar investment**Weighted average: Indonesia, South Korea, Thailand

GD

P (US$bn) &

Exchange Rate (N

ormalised)

100

125

150

175

200East Asian GDP**

Exchange Rate**

36

FAB

RIC

ATI

ON

DEM

AN

D


One trend worth noting last year was the dominance of demand for purer forms of jewellery. Given investment remains a key component of any purchase and so the 24 carat variant dominated sales due to its lower mark structure and ease of reselling.

Turning briefly to industrial fabrication, modest growth within the electronics sector again drove the industry higher. Robust domestic demand and a healthy recovery from key export markets (most notably the US) helped lift fabrication output, though ongoing substitution of cheaper metals such as palladium and copper partially offset the use of gold in bonding wire fabrication.

Jewellery consumption in HongKong surged by over 30% last year as a result of the lower gold price environment and increased numbers of visitors from the Chinese mainland. To the end of November tourist numbers were up 12% on 2012 and those crossing the border jumped by a sizable 17%, boosting demand for all luxury products, with gold just one beneficiary. The price drop in April saw retail outlets wiped out of inventory as consumers (primarily mainlanders) rushed to purchase gold, pushing offtake higher in the second quarter by a staggering 75% year-on-year.

Benefitting from both a recovery on the domestic front and healthy gains to key export markets, Indonesian jewellery fabrication rose 17% last year to an estimated 42 tonnes. A weaker domestic currency (one of the worst performers in the world last year) saw gold in rupiah terms fall just 3% (in contrast to the 16% drop in the dollar price) limited further gains as did a benign economy - that like many in the developing world failed to meet expectations. Demand in the first half benefitted from the lower price environment and demand ahead of key Ramadan sales period in the second quarter, boosting offtake by 23% year-on-year. While demand growth in the second half eased, rising by just 10%,

consumption was assisted by a weakening currency that maintained gold at a more affordable level. A notable feature of the lower price environment last year was the decline in the rate of migration to lower carat jewellery. Indeed, fabricators reported a healthy gain in higher purity output as consumers looked to replenish previously liquidated gold assets.

After a slow start Vietnam’s jewellery fabrication rose an estimated 14% in 2013, reversing seven years of annual declines. The price fall in the second quarter drove demand for high purity jewellery as consumers rushed to replenish depleted gold stocks, and, with access to gold bars limited due to tight State Bank control, investment demand was largely satiated with 24-carat jewellery (mainly tael rings). In contrast to most countries in the region, where average year-on-year growth was 28%, Vietnam’s modest increase may surprise; however, a soft economic performance last year (the emerging economy grew at just 5.4%), coupled with further weakening of the domestic currency, impacted consumer sentiment and restricted non discretionary spending.

A marked rise in jewellery exports accounted for the 27% jump in Malaysian demand in 2013, with shipments of finished jewellery to the Middle East surging on the back of the acute price drop in April. Such was the frenzy in demand during this period that many fabricators were unable to fulfil orders due to a lack of skilled labour; having significantly reduced staff levels in recent years as the industry was impacted by the high gold price environment. On the domestic front demand also picked up strongly, pushed higher by demand for higher purity items (mainly 22-carat) as consumers took advantage of lower prices to restock on investment related products.

Thailand jewellery fabrication demand was sharply higher on the back of stronger domestic demand and a healthy rise in exports, with full year offtake estimated

AUSTRALIAN GOLD BULLION EXPORTS THAI BULLION IMPORTS

0

25

50

75

100

125

Q1-13Q1-12Q1-11Q1-10

Tonn

es


Baht/B

aht bar (thousands)

0

5

10

15

20

25

30

35

Gold Price

Switzerland

Other

Australia

0

10

20

30

40

50

60

Jan-13Jan-12Jan-11

Tonn

es


Gold prices (Index, Jan -11 = 100)

50

75

100

125

150

175Rupiah

UK

East Asia

India

Other

Baht

37

FAB

RIC

ATIO

N D

EMA

ND


to have surged over 40% to a four-year high. While the second half of 2013 delivered an impressive 25% rise it was the first half of the year, and particularly the second quarter after the price fell below 18,000 baht per baht bar for the first time since late 2010, that saw fabrication demand surged as domestic consumers rushed to replenish previously liquidated gold assets at the perceived discounted price. At the same time a similar pattern was emerging in other key markets instigating a rush in export orders, bringing a much needed boost to an industry that had struggled in recent years, with the re-emergence of demand from the United States, Hong Kong, and UAE central to the significant rise in output.

Japanesejewellery demand rose by an estimated 8% last year, assisted in the main by the lower price environment and a more robust economy that lifted consumer sentiment and encouraged greater retail activity.

Not surprisingly, the price drop in the second quarter generated the healthiest year-on-year gains (rising over 11% for the period as gold in yen terms fell below 3,800/g for the first time since May 2011) though demand was stronger across each quarterly period. On the industrial front, demand eased for the third year in succession as stronger consumer demand (both domestically and from key export markets) was offset by further substitution losses away from gold.

Despite an 18% drop in the won gold price last year, SouthKorean jewellery fabrication failed to replicate most other markets in the region, slipping an estimated 7% to a level not seen since the mid 1980’s. A fragile domestic economy saw spending on luxury products ease, impacting non discretionary spending and limiting purchases of jewellery to mainly weddings and key gift giving occasions.

INDUSTRIAL DEMAND

— Industrial demand declined less than 1% as weaker metal prices helps offset soft economic conditions and substitution losses.

Despite a stronger economic environment and a lower gold

price gold used in industrial applications slipped 1% in 2013 to

a 10-year low. Electronics, which dominates industrial demand

at almost 70% of the total, was held to another modest decline

as stronger end-user demand was largely offset by further

substitution losses in bonding wire fabrication. Indeed, gold

has now lost significant ground to more affordable alternatives

such as bare copper, palladium coated copper wires, and more

recently, silver and aluminium wires. Other industrial and

decorative demand recorded a modest rise last year, buoyed

in part by the lower gold price environment that stimulated

retail activity and led to significant restocking. India accounted

for much of the annual increase as the lower rupee gold price

encouraged higher consumption of the price sensitive jari

thread. Elsewhere, healthy demand for plating solutions

(mainly gold potassium cyanide), which are largely used in

decorative, giftware, and electronics, also benefitted from the

lower price profile, though demand for luxury plated products

across Europe remained moribund due to the fragile economic

climate. Finally, gold used in dental applications continued

its long term secular trend to record just a 1% decline last year.

The significant year-on-year drop in the average gold price

limited the rate of substitution away from gold to other cheaper

alternatives (mainly cobalt:chrome, porcelain, and ceramics),

and provided fresh interest to a segment of consumers who were

previously priced out of the market.

Looking ahead, we expect to see little change in 2014; weaker

prices and a stronger consumer base will likely be offset by

further substitution losses within the electronics segment.

GLOBAL SEMICONDUCTOR BILLINGSWORLD FABRICATION OF GOLD BONDING WIRE

0

40

80

120

160

200

H1-13H1-11H1-09H1-07

Num

ber o

f shi

pmen

ts (m

illio

ns)

Source: SIA, Thomson Reuters GFMS

Global electronics fabrication (tonnes)

0

40

80

120

160

200

Electronics FabricationAmericas

Europe

Japan

Other Asia Pacific

0

20

40

60

80

H1-13H1-12H1-11H1-10

Tonn

es

Source: Thomson Reuters GFMSSource: Thomson Reuters GFMS, OECD *Forecast

Industrial Production (2010 = 100)

90

95

100

105

110

Industrial Production*

*

38

PR

ICE

AP

PEN

DIX


7. PRICE APPENDIXGOLD 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

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.

© Thomson Reuters 2013. All rights reserved. 0313 9136998.

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