Advanced by gold Executive summary

Contents

Gold’s impact 03

Preserving wealth 04

Rising aspirations 09

Scientific breakthroughs 12

Putting gold to work 15

Boosting growth 18

The World Gold Council 21

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Gold is not a new story. It is, however an evolving one. Today its unique qualities, seen in a range of applications, have given it new relevance.

Gold – making an impact in the world

Jewellery alone accounts for half of global demand. As a financial instrument, supporting medical breakthroughs, or helping to build new infrastructure to support communities, gold is being put to use in more ways than ever before. Gold’s versatility and scarcity combine to make it a unique substance: the ultimate store of value in a world advanced by gold. In the rapidly growing markets of China and India, gold – long embedded financially and culturally – has acquired new prominence and prestige. Consumers are enjoying new found wealth, and this can be seen in a renewed interest for gold.

Gold is adaptable: that is why it continues to be such an important material today. Gold’s properties make it an essential component in emerging technologies, such as medical diagnostics and nanotech. Today gold has renewed relevance as a foundation asset to help manage risk and preserve wealth. Gold represents stability, tangibility and long–term foundations, whether for institutions or individuals. Gold has a reassuringly solid presence and it is here to stay.

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Gold’s impact

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The world is ‘volatile, uncertain, complex and ambiguous’ – VUCA. Investment decisions are difficult. Growth is elusive, and security is hard to find, too. Gold is unique. Over the long term, it preserves wealth, and adds to it. As an asset it is supported by growing global demand. As a commodity it is both needed and trusted by a growing

cohort of industries and investors. Gold is always in demand somewhere, either as something exquisite to be aspired to, or as an investment. Whatever turbulence we see in global currencies or government credit ratings, gold remains solid.

Seeking solutions and stability in an uncertain world

Preserving wealth

The world spins on its axis, as every schoolchild knows. But today many of the other certainties we grew up with have been overthrown. Complexity rules. The great financial crisis which hit in 2008 is yet to be fully resolved. And meanwhile a global rebalancing is taking place. The resurgence of Asia, in particular China and India, will see higher growth rates than in the West, with a billion new urban consumers by 2020. Patterns of consumption are shifting. Savings rise in the East while debt rises in the West. However, despite lower projected growth rates in the mature markets of the West, they still remain significant. Indeed, on a per capita measure, developed countries are forecast to remain significantly wealthier. Powerful sources of demand China and India alone already account for more than half of total global demand for gold. Jewellery – which makes up half the global gold market – is valued there not only in its own right as a symbol of timeless relationships, but also as a store of value and an investment.

Solidity in a complicated world

Gold demand across sectors: 2008 – 2012 (5 year average)

Jewellery Technology

Bar and coin ETFs and similar Central bank net

purchases

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Preserving wealth

Gold demand across sectors: 2012

Source: Thomson Reuters GFMS, World Gold Council

Preserving wealth

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A solid investment This changing global context, underpinned by new and resilient sources of demand, should provide some reassurance to private investors wondering about gold as an asset class. What are private investors looking for? A reasonable degree of certainty. Gold can offer this as a modest part of any balanced investment portfolio, in terms both of wealth creation and preservation. As a tangible, real asset, gold is more easily understood and trusted than more complex, esoteric financial instruments. Perhaps this is why, as market confidence rises in the US, consumer demand for gold rose 22% in the first quarter of 2013 compared to early 2012. At a time when traditional assets are under-performing or overly volatile, pensions and savings need to build on assets that reduce risk and stabilise returns. Gold can help deliver this much–needed protection over the long term.

Geographical distribution of gold demand 2012*

of global gold demand is from China and India 55%

Source Thomson Reuters GFMS, World Gold Council

*% of consumer demand (jewellery plus total bar

and coin demand)

China: Projected central bank gold holdings

1,054 tonnes

2012 gold share in reserves (1.7%)

1,589 tonnes

2022 projected gold reserves if

ratio remains constant at 1.7%

2,524 tonnes

2022 projected gold reserves if

ratio increases by 1% to 2.7%

Source: Oxford Economics

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Central bank governors, a serious bunch by and large, are only human. They seek security. Gold can fulfill a monetary function and acts as a protector of the value of reserve assets as a whole. Central banks are increasing their holdings of gold as a percentage of reserve assets. As a new financial architecture emerges in the post–crisis world, it is clear that gold has acquired a new relevance. Since 2009, when they first became net purchasers of gold, central banks have bought heavily. They have added almost 1,100 tonnes to global gold reserves, and 2012 saw levels of buying not seen for five decades. Developing countries have been particularly active, seeking to diversify their asset base as their

currency reserves have grown. Future purchasing will have a big impact on demand. China’s foreign reserve purchasing is a clear example. Assuming gold prices remain flat in real terms, even gradually increasing the share of gold in total Chinese reserves by one percentage point by 2022 (to 2.7%) would increase physical gold holdings to an estimated 2,524 tonnes. Elsewhere gold is increasingly being used in the financial system as a source of high-quality collateral. Its lack of credit and counterparty risk allied to its depth of liquidity make it ideal for this purpose.

Banking on gold – new trends in reserve asset management

Preserving wealth

China is the only one of the world’s six largest economies that does not have reserve currency status. Yet the country has the second largest economy in the world, and its share of world trade has increased threefold in the past decade. China plans to internationalise its currency, the renminbi, over the next ten years. The renminbi is thus a candidate to play a greater role as an alternative reserve asset. Uncertainties around the renminbi relate to China’s exchange rate policy (gradually more flexible since 2005, but still tightly controlled) and accessibility (sales are restricted to about 190 institutions including 13 government purchasers, or through Hong Kong). In a study conducted for the World Gold Council, international finance think-tank OMFIF argues that the renminbi is likely to emerge gradually as a genuine international currency as Beijing eases restrictions on its use in transactions and investments abroad. This, the body argues, will enhance the role of gold in the international monetary system in the coming 10 years of rebalancing. Any setbacks to the renminbi’s rise as a reserve currency will benefit gold as a result of doubts about the overall strength of world monetary arrangements.

The renminbi – gold’s pivotal role

“As China weighs up its options for joining in the reserve asset game, gold – the official asset that plays no formal part in the monetary system, yet has never really gone away – is poised, yet again, to play a pivotal role. … no other reserve asset seems safe from impact of the change in the dollar’s value.” Professor Lord (Meghnad) Desai, Chairman of the OMFIF Advisory Board

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Aspiration drives rising consumer demand for jewellery Luxury is being restyled. In the US, increases in heirloom and gifting have recently seen their biggest year on year increase in seven years. New consumers in Asia are inspiring new designs and innovations in jewellery

buoyed by the shift in global economic power toward the East. For this market the only way is up – to the high end – where beautiful craftsmanship and value justify status purchases.

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Rising aspirations

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The bottom line is this: a new force in gold is growing in the East and has already eclipsed the West. This is the new world. If you want to understand how it is changing, both socially and economically, then the rising interest in gold in the world’s fastest growing economies is a good place to look.

New affluence driving growth

In these countries, a firmly rooted cultural affinity for gold is being reshaped and reinvented by affluence

and the social power of the millennial consumer (aged 16-31). Connected by social media, and enjoying new spending power their parents never had, this increasingly influential generation is building on a rich heritage to shape events in their personal image.

Asia’s millennial generation

Rising aspirations

Annual jewellery demand in India and China vs US and Europe

Source: Thomson Reuters GFMS, World Gold Council 1 Europe comprises 3 major markets: Italy, UK and France

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The past ten years have seen a consolidation in demand for gold in western developed economies at the top end of the luxury market. A 2012 study by the World Gold Council into global consumer attitudes revealed a shift in the market segmentation among consumers of gold in western developed economies.

Among high net value individuals, from the exclusive boutiques of New York and Los Angeles, to the refined shopping arcades of London, Paris and Milan, gold is about status. The price of gold can be a further justification for purchasing it because it is more clearly defined as an aspirational product with implied accessibility only to the most successful.

But even among those who are not the highest earners there is a desire to buy fewer but better pieces, to avoid compromising quality at all costs. Gold’s timeless appeal plays into this, if you are buying something for ever then you should buy the best.

While gold wedding rings remain an ever-present phenomenon in the West and leverage this timeless value, gold jewellery to be worn on other occasions is proving increasingly popular. The higher concentration of gold in luxury products has been accompanied by a new wave of creativity in the design of gold jewellery. This has broadened the range and potential of jewellery items.

Status and aspiration

‘Gold is an aspirational product with deep cultural heritage. Yet it offers the creative flexibility to express a lifetime of important moments, both formal and informal.’

Rising aspirations

Gold continues to drive the nanotechnology revolution At the nanoscale, gold displays unique properties which scientists around the world are still unraveling. While the bulk metal is one of the most stable and durable substances known to man, nanoparticles of gold can act as a catalyst making chemical reactions work hundreds of times faster.

Gold is also at the heart of diagnostic kits for diseases such as malaria and HIV/AIDS, and its biocompatibility make it ideal for delivering drugs inside the human body. Little wonder that patents for nanotechnology research using gold continue to soar.

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Scientific breakthroughs

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Gold, desired for its beauty since ancient times, is now helping shape the future of technology. At the ‘nano–scale’, gold has newly discovered properties and is one of the most promising nano–materials. Of the approximately 65,000 research papers on ‘nanoparticles’ listed in PubMed since 1978, more than 15% relate to gold. The majority were written within the last five years. Gold nanoparticles can be as small as 1 billionth of a metre in diameter. At this size the metal takes on a completely different set of properties. It can help accelerate chemical processes through catalysis, and may help fight deadly diseases such as cancer, HIV/AIDS and malaria.

A catalyst for improved health and environment

Gold nanotechnology related patents published, by year

Source: Johnson Matthey, World Gold Council

Scientific breakthroughs

Malaria, a curable disease, killed an estimated 660,000 people in 2010. However, reliable and cost-effective diagnostic kits are improving the situation for many people in remote parts of the world. Public health groups such as the Foundation for Innovative New Diagnostics (FIND) help to distribute thousands of test

kits to front-line health clinics in remote villages. The kits exploit tiny flecks of nanogold to drive a simple colour change on the test when the patient is infected with malaria. Gold, one of Africa’s richest natural resources, can now play a role in tackling some of its greatest health scourges.

Gold for health: tackling infectious disease worldwide

Air and water purified by gold

Until relatively recently, the technological potential of gold was being exploited only by the electronics industry, and dentists. But nanotechnology has changed all that. The discovery, in 1987, that tiny particles of gold can speed up chemical reactions was startling for

scientists. Gold is used to make jewellery precisely because it is inert and will not tarnish, as it does not react with water or oxygen. Initially, simple systems were investigated (such as the efficient removal of the poisonous gas carbon monoxide), but now complex issues, such as water purification, are being tackled.

Scientific breakthroughs

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Innovation in gold creates new business opportunities Investing in gold has become a possibility for many more people in the last decade. Formerly restricted gold markets have been liberalised. Affordable investment products have emerged for lower to middle income families. This trend provides new business opportunities for go-ahead

organisations. They can tap into latent demand for reliable savings vehicles across the developed West and the powerhouse economies of the East, by developing new channels and products to bring gold to investors and consumers across the world.

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Putting gold to work

The gold market has opened up dramatically to investors in recent years, thanks to liberalisation in countries where gold sales were once restricted, and the emergence of a growing range of investment products affordable to lower and middle income families. This provides new opportunities for financial institutions and partners to work with the World Gold Council on developing new channels and products to bring gold to consumers. Once only governments and large institutions traded gold, leaving the retail investor out of the picture. Today any investor can buy gold or gain exposure to gold price movements. As well as gold coins and bars, physical gold exchange-traded funds (ETFs), internet gold investment channels, and retail gold investment options in Asia are innovations that have responded to growing demand in the market over the last decade.

‘Democratising’ gold investment products

Gold global allocations Fixed income

Equities Money markets

Alternative investments

Gold

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Putting gold to work

Source: TBIS, Hedge Fund Research, J.P. Morgan, Preqin, Thomson Reuters GFMS, World Federation of Exchanges, World Gold Council

You cannot buck the market, and in the East the market is growing fast. Demand does not stem from any sense of nostalgia. New consumers in both India and China are exploring the potential for gold in a contemporary setting. This is all part of a familiar global trend, of course. The growing powerhouses of China and India are driving demand for many different goods and services. Gold is no exception. To understand the two largest markets for gold in the world, you have to bear in mind their particular investment cultures, as well as recent liberalisation and modernisation. Up until 2002, the market in China was tightly regulated, from production through to retail distribution. Now the market is more open. Many consumers are better off, and higher savings rates amongst private individuals are generating strong demand. Chinese consumers are looking to gold to protect new wealth in a world of fluctuating and uncertain currency movements. China is now the second largest consumer of gold in the world. Demand for gold has risen at an average rate of 26% a year for the last five years.

Asia rising: gold in India and China Middle class population

growth

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Source: McKinsey Global Institute

Putting gold to work

A global economic contribution worth over US$210 billion According to a new report by PricewaterhouseCoopers (PwC) commissioned by the World Gold Council, gold contributed an estimated US$210 billion to the economies of the largest gold-producing and consuming countries in 2012. Of that total, large-scale commercial gold mining added an estimated US$78 billion, and nearly 530,000 direct jobs.

Large-scale mines are significant contributors to economic and social development, often providing infrastructure, healthcare and business opportunities that can have a highly positive impact on communities. The gold mining industry is working with governments to ensure that the benefits of natural resources deliver for generations to come.

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Boosting growth

There is a continued appetite for gold. Approximately 60% of annual gold supply is newly-mined. This gold should be responsibly produced, to high environmental, and health and safety standards and not fuel unlawful armed conflict. At the same time, investors and consumers of gold are increasingly recognising that responsible gold mining can be a major driver of social and economic development. Indeed, 70% of new gold production originates in non-OECD countries.

Supporting national wealth creation

The potential development gains from gold mining are considerable. Research by PwC for the World Gold Council shows that gold mining contributed over US$78 billion to the economies of the top 15 mining countries in 2012, constituting a significant part of the economy in countries as diverse as Mexico, Ghana and Uzbekistan. Gold mining leads to jobs, foreign direct investment and foreign exchange – in 2012 it accounted for 36% of all Tanzanian merchandise exports and 26% of exports from Papua New Guinea.

Responsible mining delivers for developing countries

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Boosting growth

‘A study of four major gold mines in Peru showed that the four largest gold mining companies purchase 90% of the goods and services they need from Peruvian-based companies. Non-mining districts had on average 17% more poverty and 12% more extreme poverty compared with gold mining districts.’

more poverty in non–mining districts

17%

more extreme poverty compared with gold mining districts

12%

procurement needs met by Peruvian companies

90%

Gold map: unmined gold

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Boosting growth

*United States Geological Survey data shows significant untapped potential in developing economies of the global South.

Gross National Income per person*

Source: www.goldfacts.org, US Geological Survey

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We live in an interdependent, networked world, where success is shaped by the relationships we make. The World Gold Council has taken this to heart, developing commercial and business partnerships with top organisations and institutions that create structural shifts in demand for gold. At the centre of the world’s financial markets you find gold. Our global research provides investment insights, illustrating gold’s strength as an asset class and a preserver of wealth. We engage with governments and supranational organisations. We work with central banks to demonstrate how gold can help meet their strategic reserve management objectives. Half of the global demand for gold is driven by vibrant jewellery markets worldwide. With our partners we shape the future.

Gold mining contributes to national economies and local communities across the world, enabling the development of infrastructure such as schools, hospitals and transport. The world of gold is dynamic, resilient and varied. It is our privilege to play a part in a world advanced by gold.

Working in partnership

The World Gold Council

Advancing the case for gold – our track record

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The World Gold Council

• Conflict-Free Gold Standard, the first industry-led code to define responsible mining in conflict-affected areas

• SPDR® Gold Shares (GLD), the largest physical bullion-backed exchange-traded fund (ETF)

• ICBC Gold Accumulation Plan gold-backed savings accounts, with over 5 million accounts in China

• India Post retailing Swiss-manufactured 24-karat gold coins in over 950 post offices pan-India

• Reliance Capital My Gold Plan, a unique opportunity to save gold on a regular basis in India

• Azva, the new Indian wedding jewellery brand reinvigorating a core category across India.

• UC Berkeley executive education of the world’s senior central bankers

• Pioneered the use of gold in automotive emission control with leading industrial innovators

• Authoritative insights into the world’s gold markets

World Gold Council 10 Old Bailey, London EC4M 7NG

United Kingdom T +44 20 7826 4700 F +44 20 7826 4799

W www.gold.org