Gold July2010

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    Forecast 2010The Forecast for 2009Reviewed

    The challenge facing forecasters at the start

    of 2009 can be summed up in two words, now

    heard much less frequently: Credit Crunch.

    The atermath o the collapse o LehmanBrothers in September 2008 saw all our metalstrading close to their 2008 lows, in starkcontrast to the highs reached in March.The trading ranges were remarkably high too:gold had a relatively modest range o 30% othe average price in 2008 while the other threemetals had corresponding trading ranges o wellover 50%. By the time o orecasting in January2009, all our metals had risen signicantly romtheir lows and, with the exception o silver,the prices were not ar o the average levelsor the year. The orecasters had the diculttask o predicting whether worse was yet tocome economically or whether there might bea fight to quality that would boost preciousmetal investment and prices. As a group, theorecasters got the direction right relative tothe price in early January or al l our metals.

    Until the halway point in the year, the relativelymodest average price orecasts were lookingquite accurate. However, in the second hal, the

    surge in prices resulted in the outturn or theyear being well above the orecasts in all cases.

    Gold reached a new historic high o$1,213 on 2nd December well over 50%above its level in early January. Although noneo the other metals surpassed the 2008 highs,they all reached their 2009 peaks in the samemonth. Platinum saw a similar rise duringthe year to gold when it peaked at $1500 inearly December. Silvers high o $19.18 on2nd December was nearly double the level oDecember, 2008. There was a similar storyor palladium.

    Given this second hal advance it is hardlysurprising that the orecasters underestimated

    An Alchemist Publication

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    Name

    Allidina, Hussein

    Bhar, Robin

    Biondi, Adrien

    Christian, Jeffrey

    Cooper, Suki

    Davis, David

    De Wet, WalterHochreiter, Rene

    Jansen, Michael

    Kendall, Tom

    Klapwijk, Philip

    Murenbeeld, Martin

    Norman, Ross

    Panizzutti, Frederic

    Reade, John

    Rhodes, Jeffrey

    Smith, Daniel

    Steel, James

    Stevens, Glyn

    Takai, Bob

    Tully, Edel

    Turnbull, Trevor

    Turner, Matthew

    Vaidya, Bhargava

    Wrzesniok, Wolfgang

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    Average

    HighLow 1st week Jan 2009 Year Average 2009 Winner

    the increase in prices. Their best perormancewas in palladium where their orecast increaseor the year relative to the early January level

    was 13% compared with an outturn o 37%.For gold, there was a creditable orecast o 4%against an outturn o 14%. Silver representedthe worst perormance with the correspondinggures being 4% and 32% and platinum was notmuch better. It is notable that the orecastershave consistently been too pessimistic or silverin the last several years.

    Our congratulations go to the winners,who will take home a one ounce gold bar oreach correct orecast particularly to PhilipKlapwijk or achieving the double. Our thanksgo to Metalor Technologies S.A. or theirgenerous donation o the prizes.

    Last Years Averages

    Metal 2008 1st Week Average 2009 Winning 2009 Forecast Winners

    Average January Forecast Year Forecast

    2009 2009 Average

    Gold 872 856.0 881 972 970 Philip Klapwijk

    Silver 14.99 11.06 996 14.67 14.40 Philip Klapwijk

    Platinum 1,576 958 998 1,204 1,200 Rene Hochreiter

    Palladium 352.2 193.0 217.9 264.6 264.0 Robin Bhar

    The text below reviews the 2009 Forecast in comparison to the actual results o 2009. The pages that ollow detail the orecasts or 2010.

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    Forecast 2010:

    An Overview

    Given the surge in prices in late 2009,it is not surprising that the 2010 orecastprices are all much higher than last yearsorecast prices. With the gold values hittinga new all-time high in December 2009, the2010 orecast average or gold at $1,199,is well above the 2009 orecast level o$880. There has been an even sharperrise in silver predictions rom $11.58 lastyear to $19.02 in 2010. Average PGMorecasts have also increased dramatically:or platinum rom $996 to $1,558 and orpalladium rom $217.9 to $446.5. Theorecasts are well above the year averagesrecorded or 2009 as shown above: or theour metals together, the average increaseor 2010 orecasts relative to the averageprices in 2009 is 38%. Compared to thelevel in early January, 2010 the increaseis 5.4%.

    Trading ranges are expected to be

    wide or all our metals in 2010.All orecasters expect gold to hit recordhighs this year, with a predicted averagehigh o $1,394. Lower central bank sales areat the oreront o contributors predictions.

    Compared with January levels, themost bullish view is on silver, with somepredictions that the price will reach the $30level in 2010. The major infuencing actoror silver emerging rom the contributorsanalysis was portolio diversication.Improving industrial demand is expected toplay a role in the advance o silver prices.

    In platinum, contributors predict $1,843as the average high, $300 above the levelin early January. The average increaseor the year as a whole relatively to earlyJanuary is only 1.8%, well below thecorresponding increases or the other threemetals. Platinum ETFs are expected to bea major actor in the price o platinum. Inpalladium, contributors, on average, see themarket reaching a peak o $570.5. Higherinvestor interest and industrial demandare reasons contributors think palladiumwill have an exceptional year in 2010:

    the orecast increase relative to the 2009average is no less than 69%.To get urther views rom the experts,

    read on.

    Philip AubertinUBS Investment Bank, London

    During 2009, gold has clearly gone through aparadigm change and will continue to benetrom low interest rates and infation ears. Goldwill continue to shine as portolio diversiercoupled with continued interest rom theCentral Bank community. Gold should reach anequilibrium around $1,225 in the coming year.The enormous liquidity waiting or a home willbe another important attribute or the yellowmetal, where we expect the macro unds andasset managers to become the main investors.Strong physical demand will come into playagain sub $1,000, giving the elasticity gold isamous or.

    Silver should remain in the shade o the yellowmetal during 2010 and will keep its status asthe metal o choice or speculators with a good

    stomach or the strong swings rarely seen inother metals. With hal o its characteristicso commodities, it ollows more closely thecommodities (e.g. base metals etc) due to itsuse in industry as well compared with goldwhich is treated closer as a nancial product.We can expect a higher average price o$18.25 compared to $14.65 in 2009.

    Like copper, platinum took a strong hit during2008, but surprised with a steady recoveryduring 2009, despite a suering car industry.This trend should continue during 2010,with industrial demand rom either the car orjewellery sector, coupled with investor demandbringing this metal back towards $2,000.Prospects or urther exchange-traded unds(ETFs) will be an additional driver or thiscommodity.

    A key perormer in 2009, palladium willcontinue to do well in 2010, as it is still atreasonable prices or the investor community.It is likely that it will continue to surprise the

    market on the upside. An average price o $440is no utopia, as undamentals, especially romthe car industry, should give the additionalsupport.

    Robin BharCalyon Credit Agricole CIB,

    London

    We remain bullish on gold or reasons odeclining mine output, weaker recycling,lower central bank sales (European central

    months cut the upper limit or their orecastgold sales over the next ve years, whilethe central banks in Asia and Russia wantto increase their holdings) and geopoliticaltensions. Other actors such as a sae haven, astore o value and investor appetite are seenunderpinning gold over the longer term. Lowinterest rates have slashed the opportunitycost o owning gold; it may yield nothing, yetgovernment bonds oer little more while cashdeposit rates are low. Add in concerns aboutrising government debt, large central bankliquidity injections and credit r isk, and the

    demand or physical gold is understandable.To head o the threat o defation, monetarypolicy will stay accommodative in 2010, anecessary prerequisite to infuence infationexpectations. The US dollar is expected toremain under pressure early in 2010 but willsee some recovery in the second hal o the year,refecting a relatively stronger cyclical recoveryin the US, due to the more aggressive stanceo the US authorities. Under this scenario, weexpect gold to peak around mid-year and toweaken thereater in line with diminished r iskaversion. Recovering industrial demand due to

    stronger global economic growth anticipatedor 2010 should be the key driving actor, whichwill see silver outperorming gold this year.

    As we expect gold prices to peak by aroundmid-year and to weaken thereater, a similarpattern is expected or silver, although webelieve that the downside will be more resilienton improving industrial demand and bargain-

    hunting by end users. Portolio diversication islikely to continue to be a theme, with investorsadding exposure to silver through the ETFs.Capping the upside will be the greater supplyassociated with restarts at idled base metalsoperations and due to higher scrap recovery rates.

    Range: $950 - $1,415Average: $1,225Au

    Range: $14.50 - $22.25

    Average: $18.25Ag

    Range: $1,300 - $1,900

    Average: $1,600Pt

    Range: $320 - $585

    Average: $440

    Pd

    Range: $1,050 - $1,350

    Average: $1,215Au

    Range: $16.50 - $22.50

    Average: $19.25Ag

    Metal 2009 1st Average

    Year Week Forecast

    Average January 2010

    Gold 972 1,126 1,199

    Silver 14.67 17.68 19.02

    Platinum 1,204 1,530 1,558

    Palladium 264.6 422.5 446.5

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    Platinum is expected to steadily strengthenduring the course o 2010 underpinned byrobust investment demand refected in recordhigh net long positioning on NYMEX uturesand infows into the ETFs an improvingeconomic outlook and a rebound in auto sales,stimulating auto catalyst o-take, while usagein other industrial applications should recoversharply. Global auto sales are expected to growby 2.5% this year compared to a decline o 10%in 2009, with higher sales being driven by theUS and the BRIC countries. The launch o ETFproducts in the US could tighten the platinummarket urther and add to signicant pricestrength given the level o interest experiencedor similar products in gold and silver.

    Increased usage in industrial applications andgreater leverage to rebounding auto catalystdemand, with the emphasis on gasoline-uelledengines, will put the spotlight on palladiumsincreasingly more avourable supply/demandundamentals. The launch o a physicallybacked palladium ETF in the US is likely tobe a signicant actor, tightening availability inwhat is a small and oten illiquid market andpushing prices sharply higher. An attractiveprice dierential to more expensive platinum,a perception that oversupply may be overstatedand speculation that the Russian stockpile couldbe ar smaller than originally thought are alsoimportant actors that argue or palladium to bethe best perormer in 2010 o the our preciousmetals under consideration.

    Stephen BriggsRBS Global Banking & Markets,

    London

    In traditional undamental terms, silver is,in our view, the least well placed o the ourprecious metals. We expect non-photographic

    industrial demand to recover strongly in2010, while another modest rise in mineproduction will be oset by continued declinein scrap supply (alongside the secular declinein photographic usage) and government sales.Nevertheless, we orecast that the market will

    remain in hety underlying surplus at leastthrough this year. Silver would thereore beparticularly vulnerable to any signs o investoratigue. The surpluses o recent years have beencomortably absorbed by physical investment,and the dominant element, ETF buying, hasremained solid in recent months. But silver ismore dependent on golds direction than areplatinum and palladium, and i, as we expect,gold comes under some temporary downwardpressure during 2010, silver may slip down therankings. We orecast that silver will spend longspells below $17/oz in 2010.

    Its undamentals are now palpably improvingand we continue to expect platinum tooutperorm gold in 2010, just as it did in2009. Whilst both auto catalyst and industrialdemand should recover strongly this yearand jewellery demand is in ne ettle, SouthArican output will remain constrained, withproducers continuing to labour under heavy costpressures. We orecast another small underlyingsurplus in 2010 but, as in 2009, this couldeasily be absorbed by physical investment, andthe introduction o a new, US-based ETF maylead to growing market tightness. We expectplatinum eventually to return to $2,000/ozplus. That is probably not a story or 2010-11,but even this year platinum should hold rm,or the most part above $1,400, even i goldtemporarily eases below $1,000/oz.

    Joerg CehLandesbank

    Baden-Wuerttemberg, Stuttgart

    Strategic positioning by investment accountsand hedging o potential uture infation risks isreplacing the buying o gold initiated by globalpolitical concerns. Decreasing sales by westernnational banks combined with an increase opurchasing interest by the emerging marketsshould lead to an upward trend in the rst halo the year. High unemployment rates and globalwage restraints should have strong impact on thedemand o the jewellery industry in the second

    hal o the year.

    As the demand or silver is mainly driven by themanuacturing industry, the price developmentis more than ever a bet on economic cycles.In this respect, the bottom ormation o thelast months could justiy a moderate upswingin silver prices in 2010. Rising base metalprices and the increase o the extraction oor example copper and nickel will lead to anincrease o the silver output as well.

    With the background o comparatively lowrates, the price or platinum proted in thepast months rom the global economy as well asrom investment accounts buying and advancedjewellery industry demand. Now things havechanged and the jewellery industry will takea back seat and should be replaced by theautomobile industry. In 2009, the automobileindustry built less diesel vehicles and there is acertain backlog demand. Crucial or the pricedevelopment in platinum will be the issue othe new plain-ETFs at the US stock exchange.We will have to observe closely how theiracceptance will be.

    Among the precious metals, the prices orpalladium increased the most last year. Thiswas contributed by the positive outlook orthe economy in the next months. Beyond that,palladium could benet rom the worldwidetrend towards compact cars. These cars have

    petrol engines, where a lot o palladium isneeded or the catalysts. This trend is expectedto continue in 2010. Additionally, the issue opalladium ETFs in the US will improve the needor this metal as well.

    Jeffrey ChristianCPM Group, New York

    Gold prices are expected to head higherduring the rst several months o 2010, settingrecord highs in the process. Despite signs oan economic recovery emerging around the

    Range: $1,300 - $1,800

    Average: $1,526Pt

    Range: $350 - $560

    Average: $464Pd

    Range: $14.00 - $21.00

    Average: $17.00Ag

    Range: $1,350 - $1,750

    Average: $1,450Pt

    Range: $920 - $1,470

    Average: $1,198Au

    Range: $14.00 - $24.80

    Average: $19.25Ag

    Range: $1,200 - $2,400

    Average: $1,711Pt

    Range: $280 - $650

    Average: $385Pd

    Range: $1,000 - $1,400

    Average: $1,163Au

    Forecast 2010 3

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    world, conditions should be expected to remainvulnerable. Investors will continue to buy gold,not only as a hedge against another possiblenancial calamity, but also to saeguard againstpolitical problems that have been building upover the past several years. Prices may subsideduring the second hal o 2010 on expectationsthat economic conditions do improve, but mostinvestors would be expected to hold on to theirgold as longer-term investments. The shit romcentral banks becoming net buyers o gold romnet sellers, which occurred in 2009, is expectedto remain in place this year, lending additionalsupport to prices.

    Silver prices could rise sharply during the rstquarter o 2010. A spike to as high as $21.00between now and March cannot be ruled out.Both abrication and investment demand orsilver are expected to remain rm. Fabricatorswill continue to buy silver on anticipation thatthe use o silver will pick up sharply as theglobal economic recovery spreads. Investors, onthe other hand, have been buying out o ongoingeconomic, nancial, and political concerns.Many investors also have been buying silver as ahedge against infation. This strong investmentdemand or silver is expected to continue in2010. Prices may ease slightly in the second andthird quarters, but any declines are likely to belimited as bargain hunters take advantage bybuying on dips.

    Platinum prices are orecast to rise throughout2010. Investment demand, which was a criticalorce behind prices in 2009, is expected to

    gain even more importance in 2010. Theintroduction o new exchange traded unds andhealthy supply and demand undamentals areexpected to drive platinum investment demandhigher this year. Investors concerned about thepath o economic recovery are expected to buyplatinum or its sae-haven qualities. Investingor this purpose is likely to occur during therst three to our months o the year. Platinuminvestment demand is expected to get anadditional boost rom the introduction o newETFs during this period. Longer-term investorswill purchase the metal simultaneously in

    anticipation o a recovery in industrial activityduring 2010, which is expected to strengthenover the next two years. Supply rom SouthArica is orecast to be constrained as highercosts oset increases in metal prices andsqueeze producer margins. Secondary supply is

    orecast to improve during 2010. The resultingincrease in supply is expected to be negatedby an increase in abrication and investmentdemand.

    Palladium prices are orecast to rise sharplyduring 2010. The rate o growth in palladiumprices is expected to surpass that o otherprecious metals. A recovery in industrialdemand is expected to be the main driver opalladium prices. Not only is this expected toincrease the abrication demand or the metalbut it is also expected to be the main incentiveor investors to increase their holdings o themetal. The introduction o new palladiumexchange traded products also is orecast toincrease the amount o investment demandor the metal. The extensive use o gasolinevehicles in large auto markets such as China,India and the United States, coupled withthe increased use o palladium in diesel autocatalysts, gives the metal exposure to auto salesgrowth in virtually every market. Some supplyis expected to come back on-stream during2010, but this increase in supply is expectedto be overshadowed by higher abrication andinvestment demand.

    Suki CooperBarclays Capital, London

    Despite golds underlying physical undamentalsturning contrary last year, prices set reshnominal highs. This year, the physical picture

    is unlikely to change avourably, but we do notbelieve this will necessarily stop gold in itstracks. Two actors hold the key to whether goldcan continue to shine: the strength o investorappetite and whether there has now been ashit in the ocial sectors appetite or gold.A source o supply or 20 years is showing signso deserting the supply side and switching to thedemand side, providing a strong psychologicalboost. Sales under the central bank agreementhave been slow to emerge, while centralbanks have emerged as buyers outside o theagreement. Gold appealed to investors or a

    variety o actors last year ranging rom its sae-haven status at the start o 2009 to concernsabout currency debasement. But given that2009 has been dominated by investors spanningrom retail to institutions, will they keep buyingand propel prices higher in 2010? A stronger

    dollar could prompt urther long liquidation.But coupled with the central banks votes orgold, or now, the external drivers remainsupportive o urther investor interest in gold,given the uncertainty o whether we have seenthe last o the dollar weakness, concerns aboutinfation and the uncertainty surrounding theeconomic recovery. Until these ears are allayed,golds appeal is unlikely to wane. Should thishappen, physical demand will determine whereto cushion prices. As 2009 has unolded, priceexpectations have been orced to realign, withsome buying materialising above $1000/oz, andwe would expect dips below $950/oz to be metwith rising jewellery demand.

    Will investors keep buying? Detached romits underlying supply and demand, silver pricesstepped higher in 2009 due to the strengtho investor interest, which made up or theshortall created by its poor undamentals.This year, we believe silvers undamentalswill remain ar rom inspiring. Although weexpect demand to start to recover, led bygrowth in industrial applications, we alsoexpect scrap and mine supply to grow urther,keeping the market rmly in surplus. Unlikethe base metals, the primary supply o silverhas grown as prices have never really testedthe lows required to squeeze primary silvermines. However, despite the prospect oimproving industrial demand, given the hetysurplus, prices remain heavily dependent oncontinued robust investor interest. Improvingmacroeconomic data will indeed supportindustrial demand, but i it is coupled withan end to dollar weakness, silver could be themetal most at risk rom price corrections,in our view, given its weak dynamics.

    Platinums price prospects appear to beconsiderably brighter this year, in our view,as it is the precious metal with upside driversthat appear rmly stacked against the downsiderisks. With the exception o jewelleryconsumption, we expect demand to improve,and despite higher prices in dollar terms supply is ar rom orthcoming. The launcho the physical ETP in the US presents huge

    upside potential or investment demand, andgrowing investor appetite particularly i thenew product is well received is only likelyto improve the demand side or platinum andcould make up or the anticipated shortallcreated by the price-sensitive jewellery

    Range: $12.00 - $21.00

    Average: $17.50Ag

    Range: $1,400 - $1,750

    Average: $1,566Pt

    Range: $370 - $500Average: $468Pd

    Range: $13.50 - $23.20

    Average: $18.00Ag

    Range: $925 - $1,365

    Average: $1,180Au

    Range: $1,390 - $1,910Average: $1,690Pt

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    at which stage the prices o nickel and lithium(used in batteries) will be too high to competewith platinum. Cell phones use tiny amounts oplatinum, ruthenium, palladium and iridium,but the potential global cell phone market osales exceeding 3 billion units a year makesdemand rom the sector a signicant portiono total demand. Supply continues to muddlealong rom South Arican mines and has beencurtailed rom some North American mines.Norilsk production is also declining. Bottomline: signicant shortages are likely in 2010, butespecially rom 2012 onwards.

    Autocat demand is likely to improve as the USeconomy improves. Chinese/SE Asian vehiclesales are strong. The Russian stockpile has beenseverely depleted. The palladium price should,in three to ve years, begin to approach thelevel o the platinum price due to scarcity asa result o the depletion o the stockpile. Theglobal resource ratio o Pt:Pd is 1:1; all thingsbeing equal, the Pd price should be similarto the Pt price in the absence o stockpiles.Demand rom gasoline engine autocats (whichuse Pd, sometimes exclusively) in the US,China and South East Asia, which are essentiallygasoline economies will see Pd prices improve.Note: China and South East Asia car salesare now almost double the size o the NorthAmerica market, which is likely to be less andless signicant going orward.

    Michael JansenJPMorgan Chase, London

    JPMorgan orecasts gold to average $1,218 pertroy oz in 2010, with prices buoyed in the rsthal, especially via ongoing accommodativemonetary policy settings in the US and buildingconcerns around infation risks in the mediumterm. In addition, central bank fows mayurther support gold as central banks continueto, at the margin, increase their gold reserves,or slow the pace o sales relative to earlieryears. During this period (H1), the r isks ogold trading towards $1,500 are high (indeed

    our Q2 orecast is or an average o $1,400/oz). As central bank exit strategies come intoocus by mid 2010 and scal policy becomes lessstimulatory, the overall risks around infationin the US and globally will start to retreat,allowing gold to nish 2010 around $1,200/

    oz, still a comortable premium to spot pricestoday.

    JPMorgan expects silver to average just under$20 this calendar year, with silver largely litedon the back o higher gold prices. The silverbalance sheet is expected to be dominated byinvestors, just like the gold market, but intrinsicundamentals such as mine supply and centralbank fows avour gold over silver.

    Recovering global vehicle production andsupply side discipline are expected to delivera tight platinum market in 2010, especiallyonce robust investor participation is actoredin. This likely means that platinum averages atleast $1,500 throughout 2010, with signicantupside risk. Indeed, depending on the successo the to-be-launched ETF products in the US,platinum could trade considerably higher thanour orecast.

    Palladium is JPMorgans avoured preciousmetals exposure, and while our orecasts is arelatively modest $413/oz, we anticipate thatprices will continue to rally through 2010 andlikely challenge $500 by the turn o the year.Structurally, the market is in a progressivelywidening production/consumption decit thatrequires ongoing sales out o Russia to balancesupply with demand, and with state stocksbelieved to be at the lowest level in years,

    this injects a supply premium into palladiumprices in the medium to long term. In addition,demand side undamentals are especially robustand, with investor demand building, palladiumcould easily trade above $500 this year.

    Michael KempinskiCommerzbank, Luxembourg

    The question or 2010 is whether the expectedeconomic recovery really is going to happenor i its just an illusion, beore we see the next

    round o negative economic news. I cross myngers or the rst possibility; in this case, wewill see a slowdown o the investor-drivenrally and a recovery o physical demand on thebasis o lower prices. The risk o infation is stillat large, and the protection buying against itand an increase in physical demand will avoida bigger sell-o scenario. Expected ocialgold selling will be mostly absorbed by othergovernments and central banks looking toswitch their oreign exchange dollar reservesinto gold reserves. In case the crisis continuesand, even worst, the trust in the systemdisappears, gold will return to its sae-havenrole like we saw last year and in 2008. Theupside potential or gold will be enormous andthe price will continue to climb higher as thescenario worsens. I expect very high volatilityor 2010 in any case and we will see sharpmoves in either direction.

    The gold o the poor people has been the bigsurprise and the outperormer in 2009. Silvertook advantage o the situation to have a statussomewhere between Precious and Industrialmetal. And even better, it is still looking cheapcompared to gold to private investors. Silverwont repeat this top perormance in 2010,as we are not starting at the low prices levelanymore like at the beginning o 2009. TheETFs are running into storage problems alreadyso its more likely we going to see a trend tobuy gold or PGMs. Silver will or sure ollowthe general trend o gold but will probablyunderperorm in 2010.

    Tom KendallMitsubishi Corporation, London

    Talk o bubbles in relation to gold is premature,we believe. There will certainly be headwindsor the metal to negotiate in the orm operiodic US dollar strength, particularlyduring the rst quar ter o the year. But, in ouropinion, rising market expectations o highershort-term interest rates in both the US andEurope are likely to prove unounded or much

    o 2010 economic recovery in the Westremains ragile and we do not expect either theFederal Reserve or the European Central Bankto push borrowing costs up beore Septemberat the very earliest. So with real interest rateslikely to stay negative, the environment or

    Average: $1,218

    Au

    Average: $19.80Ag

    Range: $400 - $800

    Average: $600PdAverage: $1,506Pt

    Average: $413

    Pd

    Range: $975 - $1,505

    Average: $1,295

    Au

    Range: $14.85 - $22.85

    Average: $19.45Ag

    Range: $1,050 - $1,430

    Average: $1,215Au

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    gold investment should remain constructive.Broad measures o consumer prices are likelyto be well contained, but asset price infationwill reinorce concerns about the longer-termeects o unprecedented monetary easing.Commodities as a whole are expected toattract increased investment via a range ovehicles, which will be supportive o gold. Andheightened geopolitical risk in the Middle Eastcould also come into play. We also hold theview that physical demand or gold rom theIndian jewellery sector will improve this year,and that demand or gold in both jewelleryand investment orm will continue to expandin China. Central banks are again expected tobe net buyers o gold, with the IMF likely tobe the only signicant seller. The bullishness istempered somewhat by the knowledge that thegold price will not enjoy a repeat o the large,lumpy producer dehedging seen in 2009. Norare infows into exchange traded products likelyto match last years level. Risks may also emergerom a regulatory backlash against commodityspeculators. Nevertheless, we do not believethose actors will be sucient to prevent thegold price reaching resh highs.

    I our prognosis or gold is correct then theprospects or silver are even better. Industrialdemand should continue to expand, particularlyrom the Asian electronics sector, while supplyside growth is likely to lag behind. And thereare still many, many believers in silvers abilityto act as a hedge against infation/monetaryimprudence.

    We expect the recovery in US and Europeanauto sales to be anaemic this year as bothgovernment and dealer incentives ade awayand buyers have to swallow tax increases. Soall eyes are on China again, now the worldslargest single auto market. The prospects thereor another year o record sales are excellent,but Chinese automakers are rapidly makingthe switch to palladium-based catalysts.And platinum jewellery demand could alsodisappoint in 2010 thanks to less restocking.Industrial demand, however, should improveand South Arican suppliers continue to ace

    numerous challenges: poor saety, deeper minesand declining grades, labour relations, wagecosts rising by more than 10% per annum,availability o power, unreliable smelters,political intererence, an uncomortably strongrand, etc. And at the r isk o being tarred with

    the Aro-pessimist brush, who would bet againstan increased level o absenteeism/unauthorisedwalkouts on the mines during the 2010 soccerworld cup? Those issues, coupled with theimminent launch o a US-listed exchange tradedund, are expected to keep the platinum pricewell supported this year.

    The long palladium trade is already rathercrowded, but there are good reasons orbelieving that the metal has urther to run to theupside, including growth in vehicle production,continued substitution o platinum by palladiumin gasoline autocatalysts and tighteningemissions regulations. Add in the possibility thatRussian sales o metal rom state stocks maynot materialise and it becomes easy to make acase or a signicantly higher average palladiumprice. Continued investor support should beacilitated by new US and Swiss exchange-listedunds.

    Philip KlapwijkGFMS Ltd, London

    Investment demand in 2010 will be wellsupported by low to negative real interest rates,a sickly US dollar and growing infation ears,especially in the United States as policymakersreact to the threat o a double dip recessionby maintaining ultra-loose scal and monetarypolicies. The weight o money entering themarket rom non-traditional investors should

    help gold rise to above the $1,300 threshold,at which level we would expect collapsingjewellery demand and higher scrap supplyto help put a brake on things. Given its evergreater dependence on investment, the yellowmetal will be highly vulnerable to sentiment orpolicy-driven corrections, although the latterwill probably rst require either infation toreach worrying levels and/or the bond marketto choke on the record amount o governmentdebt being issued.

    Silver will benet this year both rom goldsexpected advance and a decent improvementin industrial demand or the white metal rom

    2009s very low base. Indeed, brighter prospectsor the latter will encourage investors intothinking that a solid breach o the $20 level ison the cards this year, something which wouldseem very plausible. Silvers supply/demandundamentals are a good deal less price-sensitivethan golds, and i investors really push hardenough then a high o around $22 could beachieved. However, even more than with gold,the ride over the next 12 months is likely to bea bumpy one, with plenty o scope or large allsin the price as indicated by a orecast sub-$15low in 2010.

    The new platinum ETF in the United Stateswill undoubtedly lead to a higher averageprice this year than would have been thecase in its absence. Nevertheless, or pricesto be maintained well above $1,400, stronginvestment demand is a requirement because,ailing a supply-side surprise in South Arica,the market is headed or a airly sizeable grosssurplus this year. Indeed, GFMSs orecastsor 2010 show a rise in mine productionand autocatalyst recycling contributing to ahealthy growth in supply, whereas the reboundin autocatalyst demand is expected to belacklustre. Moreover, a continuation o higherprices will dampen jewellery consumption inChina, last years star perormer on the demandront. Any altering in investors purchases oplatinum, thereore, could see a major stepdown in prices to more sustainable levels.

    Palladium, like its sister metal platinum, willbenet this year rom a high level o investor

    interest. Besides this, we expect a air jumpin supply in 2010, the bulk o it coming rommuch higher autocatalyst scrap volumes, aterlast years exceptional decline. In isolation, thismay appear bearish, but abrication demandshould grow a lot more, led by some robustgains in autocatalyst o-take. GFMS orecast thiswill result in a decent rise in the gross marketdecit. This should place upward pressure onthe price, although, as always, a key actor willbe the scale o Russian government stock sales.These are likely to not only cover the decit butalso leave an additional quantity or investors

    to absorb. This should, however, not prove toogreat a hurdle or the price to register a healthyyear-on-year gain in calendar 2010.

    Range: $16.30 - $24.20

    Average: $19.90Ag

    Range: $1,340 - $1,720

    Average: $1,565Pt

    Range: $340 - $535

    Average: $445Pd

    Range: $990 - $1,340

    Average: $1,172Au

    Range: $14.40 - $22.00

    Average: $18.07

    Ag

    Range: $1,240 - $1,605

    Average: $1,433Pt

    Range: $335 - $480

    Average: $409Pd

    Forecast 2010 7

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    Name

    Aubertin, Philip

    Bhar, Robin

    Ceh, Joerg

    Christian, Jeffrey

    Cooper, Suki

    Fertig, Peter

    Hochreiter, Rene

    Huang, Vincent

    Jansen, Michael

    Kempinski, Michael

    Kendall , Tom

    Klapwijk, Philip

    Ludwig, Michael

    Moore, Nick

    Murenbeeld, Martin

    Norman, Ross

    Panizzutti, Frederic

    Rhodes, Jeffrey

    Singh, Ruchi

    Smith, Daniel

    Steel, James

    Takai, Bob

    Turner, Matthew

    Vaidya, Bhargava

    Wilson, David

    Wrzesniok, Wolfgang

    Average:

    High Low Average

    1,415 950 1,225

    1,350 1,050 1,215

    1,470 920 1,198

    1,400 1,000 1,163

    1,365 925 1,180

    1,350 950 1,185

    1,400 960 1,200

    1,345 1,012 1,285

    1,218

    1,505 975 1,295

    1,430 1,050 1,215

    1,340 990 1,172

    1,530 1,050 1,290

    1,250 900 1,000

    1,345 995 1,205

    1,425 1,080 1,236

    1,480 950 1,268

    1,280 980 1,137

    1,350 1,020 1,280

    1,500 900 1,150

    1,300 950 1,150

    1,350 950 1,100

    1,350 950 1,179

    1,300 925 1,075

    1,650 1,090 1,388

    1,375 1,050 1,175

    1394.20 982.88 1199.38

    900

    950

    1000

    1050

    1100

    1150

    1200

    1250

    1300

    1350

    1400

    1450

    1500

    1550

    1650

    $1199.38Average

    HighLow

    1st week Jan 2010

    Average Forecast 2010 $1126.25

    Name

    Aubertin, Philip

    Bhar, Robin

    Briggs, Stephen

    Ceh, Joerg

    Christian, Jeffrey

    Cooper, Suki

    Fertig, Peter

    Hochreiter, Rene

    Huang, Vincent

    Jansen, Michael

    Kempinski, Michael

    Kendall , Tom

    Klapwijk, Philip

    Ludwig, Michael

    Norman, Ross

    Panizzutti, Frederic

    Rhodes, Jeffrey

    Singh, Ruchi

    Smith, Daniel

    Steel, James

    Takai, Bob

    Turner, Matthew

    Vaidya, Bhargava

    Wilson, David

    Wrzesniok, Wolfgang

    Average:

    High Low Average

    22.25 14.50 18.25

    22.50 16.50 19.25

    21.00 14.00 17.00

    24.80 14.00 19.25

    21.00 12.00 17.50

    23.20 13.50 18.00

    23.00 16.00 20.20

    23.00 17.00 20.00

    31.00 17.00 26.00

    19.80

    22.85 14.85 19.45

    24.40 16.30 19.90

    22.00 14.40 18.07

    30.00 15.00 22.50

    21.50 17.17 19.55

    30.00 15.00 22.25

    21.75 12.00 17.14

    24.00 12.00 17.00

    22.00 14.00 18.00

    19.50 14.50 17.00

    19.50 14.50 16.90

    24.00 14.00 18.65

    20.75 12.00 15.50

    26.00 16.80 21.83

    25.00 15.00 16.50

    23.542 14.803 19.020

    12.

    00

    13.

    00

    14.

    00

    15.

    00

    16.

    00

    17.

    00

    18.

    00

    19.

    00

    20.

    00

    21.

    00

    22.

    00

    23.

    00

    24.

    00

    25.

    00

    26.

    00

    27.

    00

    29.

    00

    30.

    00

    31.

    00

    $19.02Average

    HighLow

    1st week Jan 2010

    Average Forecast 2010 $17.68

    Au

    Ag

    Gold

    Silver

    8 The London Bullion Market Association

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    Name

    Aubertin, Philip

    Bhar, Robin

    Briggs, Stephen

    Ceh, Joerg

    Christian, Jeffrey

    Cooper, Suki

    Fertig, Peter

    Hochreiter, Rene

    Huang, Vincent

    Jansen, Michael

    Kendall, Tom

    Klapwijk, Philip

    Ludwig, Michael

    McVeigh, Rory

    Norman, Ross

    Panizzutti, Frederic

    Smith, Daniel

    Steel, James

    Stevens, Glyn

    Takai, Bob

    Turner, Matthew

    Wilson, David

    Wrzesniok, Wolfgang

    Average:

    High Low Average

    1,900 1,300 1,600

    1,800 1,300 1,526

    1,750 1,350 1,450

    2,400 1,200 1,711

    1,750 1,400 1,566

    1,910 1,390 1,690

    1,700 1,200 1,465

    1,900 1,200 1,500

    1,780 1,285 1,685

    1,506

    1,720 1,340 1,565

    1,605 1,240 1,433

    2,578 900 1,739

    1,740 1,180 1,570

    1,900 1,496 1,776

    1,880 1,450 1,625

    1,800 1,200 1,513

    1,800 1,350 1,600

    1,735 1,075 1,335

    1,900 1,300 1,550

    1,700 1,250 1,470

    1,700 1,460 1,565

    1,600 1,225 1,400

    1843.09 1276.86 1558.26

    900

    1,

    000

    1,

    100

    1,

    200

    1,

    300

    1,

    400

    1,

    500

    1,

    600

    1,

    700

    1,

    800

    1,

    900

    2,

    000

    2,

    100

    2,

    200

    2,

    300

    2,

    400

    2,

    500

    2,

    600

    $1558.26Average

    HighLow

    1st week Jan 2010

    Average Forecast 2010 $1530.5

    $446.48

    Name

    Aubertin, Philip

    Bhar, Robin

    Ceh, Joerg

    Christian, Jeffrey

    Cooper, Suki

    Fertig, Peter

    Hochreiter, Rene

    Huang, Vincent

    Jansen, Michael

    Kendall , Tom

    Klapwijk, Philip

    Ludwig, Michael

    McVeigh, Rory

    Moore, Nick

    Norman, Ross

    Panizzutti, Frederic

    Smith, Daniel

    Steel, James

    Stevens, Glyn

    Takai, Bob

    Turner, Matthew

    Wilson, David

    Wrzesniok, Wolfgang

    Average:

    High Low Average

    585 320 440

    560 350 464

    650 280 385

    500 370 468

    610 330 470

    550 300 440

    800 400 600

    550 390 455

    413

    535 340 445

    480 335 409

    740 350 545

    650 368 484

    475 350 400

    625 420 522

    780 390 578

    400 250 328

    450 350 400

    545 280 365

    600 300 450

    550 350 425

    440 390 408

    475 300 375

    570.45 341.50 446.48

    250

    300

    350

    400

    450

    500

    550

    600

    650

    700

    750

    800

    Average

    HighLow

    1st week Jan 2010

    Average Forecast 2010 $422.5

    Pt

    Pd

    Platinum

    Palladium

    Forecast 2010 9

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    Michael LudwigBNP Paribas, London

    Gold is expected to average $1,290 in 2010.Strong ETF and hedge und interest, and itscontinuing appeal rom an infation hedgeand risk-haven view will be supportive, givenconcerns over a scal sustainability and infation(Asia in the short term and the US longerterm).

    The silver and PGM markets will basicallytake their cue rom gold as well as the currenteconomic rebound.

    Platinum is expected to average $1,739/oz in 2010, palladium $545.00/oz and silver

    $22.50/oz, mostly due to strong outlooks inthe automotive and electronic sectors, and thelasting constrained mine supplies.

    Overall, there is a strong and increasing investorinterest in the commodities markets, which willstimulate the demand throughout the new year.The strongest price rises should be seen in therst hal o the year while the second hal will

    see some overall ease in the markets again, interalia due to recovering interest rates.

    Rory McVeighCommerzbank, Luxembourg

    With the downturn or industry keeping

    platinum under wraps or the rst hal o theyear, indicated by the large sponge discountsthat we saw, it was only a matter o time beorethat eroded as inventories were running low inthe last quarter o the year or many end users.2010 should prove a little more stable or the

    sponge versus Zurich cost and this in turn willalso refect in the real market. As Platinum willsee some o the commodity sell-os that willcome as money moves out o the sector again tond richer pastures, the industrials will be thereto pick up some o the slack.

    Palladium really sat in the shadows o the othermetals last year and ound a base around $370,with good interest appearing whenever webreached this area. The ocus o the car industryaway rom diesel engines as well, avouringsmall city petrol cars that oer better mileageand running costs, is helping to change thehabits o European car buyers. This alongsidethe uncertainty about stockpiles in Russia andthe continuing issue o the South Arican minessensitivity to energy prices and strikes couldcreate more interest or palladium over latinumthis year.

    Nick MooreRBS Global Banking & Markets,

    London

    Gold is the git that just keeps on giving. Goldhas been in a bull market or the past decadeand, uniquely amongst the metals, has enjoyedyo-yoing rises in its annual average price. Butthe best o the price rises are now behind goldand, as evidence, its worth noting that despiteall the noise, gold in rising by 26% in 2009 wasthe worst perorming o all the base or preciousmetals. We view 2010 as likely witnessing

    price consolidation at an unexciting averageo $1,000/oz. O course, we are reerring toa US dollar price, and the reversal o dollarweakness to one o increasing strength is thekey headwind that gold aces. But 2010 will bea pause or breath, not an out-o-breath year orgold. We remain encouraged by central banksbecoming net buyers o gold and by pedestriangold mine supply growth. Renewed enthusiasmor physically backed ETFs and the jewellerygiting season towards the end o 2010 willprovide the springboard to even better pricesin 2011.

    Palladium has been and remains our topprecious metal pick or 2010. The endingo the cash -or clunkers scheme will be aheadwind, and we orecast a conservativeaverage in 2010 o $400/oz and we expectthe price to rise to $700/oz by 2013. Weorecast a substantial underlying supply decitor palladium, even beore ETF investment.One has to be encouraged by the nite natureo Russian stockpile levels and, as each yearprogresses, that it is depleted by more than it isreplenished. We are also encouraged that Chinahas now overtaken the US as the worlds largestautomobile market and that this is gasoline-skewed, which avours palladium autocatalysts.We also take heart rom the act that China isnot a producer o palladium and will need tosecure strategic supplies o palladium, both tomeet autocatalyst demand as well as demand orpalladium in jewellery.

    Martin MurenbeeldDundee Economics, Vancouver

    Last year, we said the ollowing:

    At least two actors suggest 2009 could be an

    explosive year or gold: policy reation and geopolitical

    crisis. Policy reation would buttress gold against

    the downdrat o economic recession. Gold will likely

    set a new high again in 2009 despite the broadly

    disinationary/deationary macro-environment.

    Gold demand will continue to be driven by investment

    demand, by way o diversifcation out o cur rencies and

    other paper assets. Jewellery demand, being driven bywealth and price actors, will be weak in 2009.

    We liked these comments so much we arerepeating them or 2010 with new twists,o course. At the beginning o last year, wedid not expect that 2009 Q4 would be soexplosive a quarter or gold on the back othe Indian purchase o IMF gold, to be sure.Were it not or that quarter, gold might haveaveraged very close to the $945 we orecast.But that was last year! For 2010, we expectat least our actors to drive the gold price,

    other than the geopolitical actor, which cannotbe orecast with any accuracy. These are: (1)continued monetary and scal refation onaccount o a sub-par economic recovery in thedeveloped economies; (2) the eventual exitstrategy rom monetary policy refation in all

    Range: $1,050 - $1,530Average: $1,290Au

    Range: $15.00 - $30.00

    Average: $22.50

    Ag

    Range: $350 - $740

    Average: $545Pd

    Range: $900 - $2,578

    Average: $1,739Pt

    Range: $1,180 - $1,740

    Average: $1,570Pt

    Range: $368 - $650

    Average: $484Pd

    Range: $900 - $1,250Average: $1,000Au

    Range: $350 - $475

    Average: $400Pd

    Range: $995 - $1,345Average: $1,205Au

    10 The London Bullion Market Association

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    economies; (3) the value o the dollar againstthe Asian currencies (not against the euro,which is irrelevant to the gold market exceptthat many traders continue to trade gold on thebasis o the dollars euro cross-rate indeed,gold and the euro are likely to par t companyone o these days); and (4) emerging countrycentral bank purchases o gold. Our baselineassumptions include: (1) continued monetaryand scal refation punctuated with a very timidexit strategy (i any in 2010); (2) a dollar likelyto be reasonably fat against the euro (possiblya little rm on account o PIIGS), but downagainst the renminbi and other Asian currencies(quite possibly as a result o protectionist threatsrom the US Congress); and (3) continueddiversication out o dollars by reserve-heavyemerging country central banks that will alsoadd to their gold reserves (central banks will benet buyers o gold going orward, which willhelp oset the absence o dehedging). Infationwas not an issue in 2009 and is unlikely to bean issue in 2010, although many will worryabout it on account o the explosion in the USmonetary base. As long as there is widespreadunemployment and excess capacity in themajor economies, policymakers are unlikelyto act against higher commodity prices (whicheed into consumer price statistics). Butglobal liquidity is rising sharply and this is theundamental actor expected to drive the gold

    price irregularly higher in 2010.

    Ross NormanTheBullionDesk.com, London

    We orecast rm yet volatile prices or goldin 2010. We are concerned that the massive

    government stimulus packages via quantitativeeasing, paid or with borrowed and printedmoney, is having only a relatively modest impacton growth as bank balance sheets may takelonger to repair than widely expected. This, webelieve, will give rise to ongoing uncertaintyon the tenure and outcome o these actions. Asa result, we oresee increased interest in goldrom the investment community with aith inat currencies undermined; this should ensurethat investment demand not only lls the gaprom diminished jewellery sales as prices rise,but it should lead to a signicant increase in

    total gold demand. Meanwhile supply is likelyto remain constrained as ew new projectscome on stream to replace ounces taken outo the market by ETFs. Whilst possible deaultby sovereign entities may continue to play onpeoples minds in 2010, this should increasingly

    provide advantage to hard assets that providewealth preservation and risk diversication we see gold and the other precious metals as abeneciary o this.

    Despite the parlous state o global economicgrowth, we expect silver to rise in 2010,based upon tight physical supplies while alsobenetting rom increased investment demandin line with gold. We see these gains despiteonly modest growth in abrication demand asinvestors move towards hard assets or wealthpreservation and risk diversication.

    Platinum prices should stage a ur ther recoveryin 2010. Poor auto demand or vehicles indeveloped nations will be compensated or byincreased vehicle demand in Asia. The launch othe platinum ETF in New York should also keepthe market very much on the bid.

    Ater a stellar perormance on 2009, we expectthe strong rise in palladium prices to continuein 2010 as available stockpiles become depleted.Restocking by many o the major automakerswill also continue to keep the market rm.

    Frederic PanizzuttiMKS Finance, Geneva

    By the end o 2009, gold closed around 29%higher than the previous year. As during the pastyear, the global crisis is expected to remain oneo the prevailing actors determining the trendin the price o gold. We do not expect any majorchange in global growth beore the end o 2010.US dollar-denominated assets remain vulnerableon the back o reserves rebalancing across the

    world. We expect the US dollar to weakenagain against other major currencies during therst hal o the year, beore slowly recoveringtowards the end o 2010. As a consequence, weexpect the US Federal Reserve to keep its lowinterest rate policy unchanged or most o the

    year. We still expect investors to diversiy theirinvestments out o US-denominated assets,which should benet the physical gold market.Furthermore, we could see the ocial sectorbecoming a net buyer, as resh buying interestmight exceed ocial selling this year. We expectgold to reach a new high o $1,450-$1,500/oz by Q2. The impact o excessive liquidity andsome ears o infation could prompt the Fed totighten liquidity and raise interest rates towardsthe end o the reporting year or early 2011. Thismight result in a short-term, but not lasting,price correction. Despite our orecasts orhigher prices, we dont anticipate large volumeso scrap to be exported to reners as we expectgold available in physical centres to eed intolocal demand. 2010 shall be another volatileyear, and double-digit rallies seem to remainahead o us.

    With an upside move o over 50% in 2009,silver nally caught up with the other preciousmetals. This year, we expect an acceleration inthe upside trend and envisage silver to tradeas high as $30/oz in the second quarter o theyear. While during the last two years investorsmostly ocused on gold, we would now expect

    silver to attract more attention and to bemore actively traded again. Further US dollarweakness and recovering industrial-drivendemand toward year end shall eed the trend.We expect silver to trade up in very volatilesessions, ollowed by very calm periods.

    Platinum closed up 56% last year. We expectthe white metal to urther strengthen

    throughout the year. Industrial-driven demandis set to pick up again as various industrialconsumers start to recover rom the recentcrisis, more specically, according the latestreports, the automotive industry. The weakerUS dollar and the possibility o physical supplydisruption rom South Arica on the backo unsteady power supply will be additionalbullish actors. The platinum ETF shall possiblyurther impact the supply/demand imbalance.This could move the platinum price as high as$1,880 this year.

    Last year palladium overperormed the otherprecious metals, closing 110% higher. Possible

    Range: $1,080 - $1,425

    Average: $1,236Au

    Range: $420 - $625

    Average: $522Pd

    Range: $17.17 - $21.50Average: $19.55Ag

    Range: $1,496 - $1,900Average: $1,776Pt

    Range: $950 - $1,480

    Average: $1,268Au

    Range: $15.00 - $30.00

    Average: $22.25Ag

    Range: $1,450 - $1,880

    Average: $1,625Pt

    Range: $390 - $780Average: $578Pd

    Forecast 2010 11

  • 8/8/2019 Gold July2010

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    supply disruptions rom Russia and South Aricaand the weaker US dollar will prevail this year.This could lead to a signicant supply shortage,while the industrial demand is set to surgeagain in Q3. As investors more and more lookat palladium to diversiy their precious metals

    portolios, ETF-related buying could urtherdry the physical metal availability. This supply/demand imbalance could result in a signicantphysical squeeze, pushing the palladium price torocket as high as $780/oz in the third quar ter othe year. The physical market shall remain verythin and volatile this year.

    Jeffrey RhodesINTL Commodities, London

    Gold extended its bull run or an eighthsuccessive year in 2009, with the priceaveraging $972, a gain o 11.47% over 2008.The yellow metal posted a series o successiveall-time highs during a six-week period thatstarted at the end o October and culminatedin a record intra-day price o $1,226 on 3December, with a high x o $1,218.25 postedthat morning in London. The year-on-year gainwas over 25% as a wave o investment moneyfooded into commodities in general and goldin particular, with und managers hungry oryield and capital gains amid the lowest interestrate environment ever seen in the developednancial markets. Although the dollar remainsan important infuence on gold as thealternative currency, the inverse correlation in2009 was relatively weak, with the US dollarlosing just 4% year on year against a basket ocurrencies as measured by the DXY index, andthere is no doubt that the push/pull between

    risk aversion and risk appetite was the keydriver o gold prices last year. This resulted in anunusually direct correlation between preciousmetals and equity prices, with the DJIA postingan annual gain o almost 19% and a rally o 63%rom the lows posted in March. As we head into2010, there is a prevailing mood o cautiousoptimism in the global nancial markets anda better outlook or the US dollar against abackground o improved economic data withmuted infation, and this could initially weighon gold prices. However, with gold now verymuch a main stream asset class and central

    banks in the emerging economies moving tothe buy side, as graphically evidenced by Indiaspurchase o 200 tons rom the IMF, we arelikely to see the yellow metal extend its longest-ever bull market into the rst six months o thenew decade. The average annual percentage gain

    since 2001 has been 17.59%, and i this mean ismaintained in 2010, that would extrapolate to$1,137, with a likely trading range bounded bythe 200-day moving average, currently peggedat $990, and the all-time high o $1,226, witha air chance that this upper extreme could be

    briefy penetrated. However, all eyes will beon the Fed or signs o any reversal in its easymoney approach, with the interest rate optionsmarkets suggesting a tightening o monetarypolicy in the second hal o 2010.

    Silver snapped the bull run that had beenin place since 2001 on an average basis,with the price slipping to $14.65 in 2009, adecline o 2.26% versus the 2008 average o$14.99; although on a year-on-year basis, theindustrial precious metal actually gained 50%as a strong end to 2009 coincided with goldsrecord-breaking run and demand prospectsor industrial metals, particularly rom China,showed signs o improvement. It is interestingto note that the decline in price in December tobelow $17 produced signicant physical buyinginterest rom India, the worlds most importanto-take market, and with strong investmentdemand or silver, as a much cheaper proxyor gold, developing in 2009, highlighted bythe iShares Silver Trust, the worlds largestsilver ETF, which now holds over 9,500 tons,the outlook or 2010 is positive. Technically,silver has started the year firting with the100-day moving average located just below$17 and an early test o lower levels is possiblein January with $16 coming into play i goldcomes under pressure rom a stronger dollar.However, as with the yellow metal, we avoura buy the dips approach in 2010 as industrialdemand rebounds on the likely global economicrecovery next year, and investment interest

    intensies, with a price north o $20 a strongpossibility. As with gold, the average annualprice increase since 2001 has been about 17%and i this progress is maintained in 2010, itsuggests a price o $17.14 next year. A wild cardto watch is the likely growth o hybrid and allelectric cars in the coming years, which couldhave a proound impact on silvers demand/supply prole, given its excellent conductivityattributes.

    Ruchi Singh

    ICICI Bank, Mumbai

    We maintain a bullish outlook on gold or 2010.Gold has closely tracked dollar movements,and we expect this to continue through theyear. Given our view on dollar weakness in therst hal o the year going ahead, we believethat the yellow metal is yet to see its highs. In

    addition, investment in gold has strengthenedwith central bank buying and investment atthe retail level, which will provide additionalsupport to prices. However, as we expect USinfation to remain subdued, gold prices mightcome under signicant downward pressureonce the US economic recovery strengthens andthe US Federal Reserve begins to raise interestrates. Prices could hence ace a downwardpressure once investors price in a Fed rate hike,probably towards end 2010. The upside will alsobe capped by lower jewellery demand (untilconsumers/investors become accustomed tohigher prices) and increased scrap availabilityas the price reaches new levels. We, thereore,put our estimates at $1,020/oz, $1,350/oz and$1,280/oz as the low, high and average pr icesor 2010.

    We expect silver prices to remain volatile in thecurrent year and to broadly track gold prices.The strong supply/demand undamental isexpected to provide support to the metal. Onthe supply ront, the total supply is expected toincrease slightly as lower scrap and governmentsales will be oset by an increase in minesupply. On the demand side, abrication demandis expected to pick up this year as industrialproduction rebounds. However, we expectinvestors interest in the silver exchange tradedund (ETF) to wane slightly this year, therebycapping gains to some extent. We expect pricesto average around $17 per oz in 2010. The rangeor silver is orecast to be $12-$24/oz.

    Daniel SmithStandard Chartered Bank, London

    Prices to consolidate gains then move higher.Gold drives higher, as India takes a chunk oIMF gold. Gold prices have stormed higher

    in recent weeks, reaching record highs. Therewas a bullish reaction to the announcemento 403 tonnes (t) o gold sales by the IMF inSeptember, which encouraged a number othe worlds central banks to express interest.India announced that it had purchased 200t o

    Range: $15.25 - $21.75

    Average: $17.14Ag

    Range: $980 - $1,280

    Average: $1,137Au

    Range: $1,020 - $1,350

    Average: $1,280Au

    Range: $12.00 - $24.00

    Average: $17.00Ag

    Range: $900 - $1,500

    Average: $1,150Au

    12 The London Bullion Market Association

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    gold, taking its share o reserves to 6% rom4% previously. Russia has also been quietlybuilding its gold reserves and, in September,these were up by 72t to 594t. We expect urthercentral bank buying in the year ahead. Investorinterest in the market remains strong. This has

    shown up most visibly within the CommodityFutures Trading Commission data. This showedthat the net speculative position or goldrose to a record high o 253,955 contracts inmid-October and remained high into earlyNovember. Sales o gold coins by the US Mintare also at high levels and reached 115,500ozin October, with an additional 33,000oz sold inthe rst week o November. Outlook or 2010:We continue to avour the upside or gold.Global liquidity remains ample, helping to boostthe whole commodities complex and keepingthe US dollar under downward pressure. Goldis well positioned, given its strong inverserelationship with the US dollar, central bankbuying and continued investor infows. Goldprices are likely to consolidate in the rst hal o2010 on US dollar strength, but we anticipaterenewed gains in the second hal o 2010, as theUS dollars weakens once more.

    Silver consolidates due to overextended ratio.Ater a strong perormance through thesummer, silver has been treading water in recentweeks. We believe that there are two reasonsor this. First, prices are up by 57% so ar thisyear, relative to a 28% increase in gold. Hence,the market looks overextended. This shows upmost clearly in the gold-silver ratio. An averageratio over the past ve years is 59. At the starto 2009, it was 77, but ell sharply to 64 in earlyNovember, suggesting that silver was rising tooast, too quickly. With silver demand still closelylinked to the industrial cycle through its use in

    the electronics sector, we expect this ratio toremain relatively high compared with recentyears. Silver mine supply has also increased,with Fresnillo, the worlds largest silver miner,reporting that output in Q3 reached 9.75million oz up 9% quarter on quar ter. Outlookor 2010: We expect silver to track gold higherand anticipate urther upside in late 2010.

    Platinum is expected to outperorm overnext year. Platinum rallies, but gains havebeen limited. The platinum price has ralliedmodestly in recent weeks, with investor fowssupportive. Data rom ETF Securities showeda 5% month on month increase in its physical

    ETF to 396,000oz in mid-November. Also, themost recent data rom the Commodity FuturesTrading Commission (CFTC) showed that netnon-commercial longs reached a record higho 19,427 contracts in late October, whichwas maintained into early November. Further

    investor infows are likely or platinum in 2010,particularly i a US ETF being proposed byETF Securities is approved. In Europe, the keymarket or platinum autocatalysts, German carsales were up by 24% year on year in October,accelerating rom the previous month. Thiswas despite the withdrawal o a governmentincentive scheme. China is also a growth area,and it imported 4.4 tonnes (t) o unwroughtplatinum in August. The main driver was stronggrowth in the local jewellery market, as well asspeculative interest. Outlook or 2010: We havea bullish medium-term view on platinum. Thedownside is strongly underpinned by rising costsand a vulnerable power grid in South Arica.Investors continue to raise their exposure andthere are signicant upside risks on this ront.Once the industrial cycle gathers momentum,platinum prices should push steadily higher. Weexpect them to outpace gold in 2010.

    Palladium price rises, as demand accelerates.Palladium prices have moved rapidly upwards inrecent weeks on the back o continued investorinterest. Data rom ETF Securities showed a9% month on month increase in its physicalholding to 581,000oz in mid-November,signicantly outpacing the growth seen or theother precious metals. One reason is boomingcar sales in China, which were up by 76% yearon year in October. In China, the dominance ogasoline engines which are less demanding interms o catalysts means that palladium can beused instead o platinum. This has encouraged

    additional investor interest. Outlook or 2010:Palladium is benetting rom strong demandrom both investors and industrial consumers.In the short term, it looks set to outperormthe other precious metals on the back o theseinfuences. However, during 2010, we expectdemand growth to ease, and increased supply islikely to emerge in response to the rapid run-upin prices. Some North American producers arelikely to restart production i palladium pricesremain elevated, and Russia still has amplestockpiles o the material. This should resultin palladium underperorming the rest o the

    complex through the second hal o 2010.

    James SteelHSBC, New York

    A combination o infation and currency hedgebuying should be important actors supportinggold prices this year. Ongoing accommodativeUS monetary and scal policies may lendurther support to gold. Recovering globaldemand or commodities should also be apositive infuence on gold prices. The impacto low ocial sector sales is likely to be osetby the reduced scope or urther producerdehedging. Abundant scrap supply and weakjewellery demand may curb urther price gainsand should help dene the upside. Mine outputshould increase only modestly this year.

    Silver prices should continue to be supportedby ongoing investor demand or hard assets andcurrency hedge buying. A recovery in globalindustrial production this year is also likely

    to translate into a notable increase in silverdemand. Mine output is also expected to grow,encouraged by prices well above the marginalcosts o production and heavy investmentearlier this decade. Silver prices are also likelyto be strongly infuenced by gold direction andinvestor risk sentiment.

    A recovery in global auto production and

    industrial production should increase thedemand or platinum this year. Chinesejewellery demand is expected to be robustthis year ollowing on rom a strong 2009as Chinese consumers escape the brunt o theglobal slowdown. Meanwhile, producers inSouth Arica ace a number o challenges inraising mine output. These include rising powerand labour costs, a strong ZAR, and a variety ogeological and technical problems.

    We expect prices to be supported by continuedstrong auto demand in China and some recoveryin US demand. The US and China auto marketsare made up primarily o gasoline-driven

    Range: $1,200 - $1,800

    Average: $1,513Pt

    Range: $250 - $400

    Average: $328PdRange: $14.00 - $22.00Average: $18.00Ag

    Range: $950 - $1,300Average: $1150Au

    Range: $14.50 - $19.50

    Average: $21.83Ag

    Range: $1,350 - $1,800

    Average: $1,600Pd

    Range: $350 - $450

    Average: $400

    Pd

    Forecast 2010 13

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    engines, which require heavier palladiumloadings. Mine supply is anticipated to grow,but rising costs and alling ore grades willlikely limit increases. A major unknown inthe palladium market is the level o remainingstocks. Lower stock sales would be price-supportive.

    Glyn StevensINTL Commodities Inc, London

    The success or ailure o the new undamental,otherwise known as an ETF, will have a largebearing on the price direction or PGMs in2010. I Chinese jewellery demand becomessatiated and the global economic recoverydoes not materialise, with the auto industrystagnating, then investment may be platinumsonly saviour. South Arican power supplies andlabour relations notwithstanding, o course,perhaps this means a price spike as investorsbuy in a wave o New Year optimism, ollowedby a tailing-o as the months roll by, hopes oeconomic improvement ade and cash onceagain becomes king.

    As with platinum, investor appetite is likely tobe the major determinant or the palladiumprice. On the supply side, despite the hugevolumes o metal already allocated to unds,metal is plentiul and Russian vaults are surelystill bulging. The global move towards thritierpetrol-engined cars should help demand, butpalladium jewellery is unlikely to be the panacea

    some once thought.

    Bob TakaiSumitomo Corporation, Tokyo

    We oresee an accelerating pace o economicrecovery or 2010 led by China and theemerging economies in Asia. It has beenabundantly clear this year that the engineor growth is China as Western economies,principally the United States but also a lot oold Europe, continue to struggle to reethemselves rom the grip o the recession.Hence, we think that the recovery will almostbe two-speed, with Asia moving considerablyaster than the West.

    Excessive inventory levels will limit anysignicant rallies in the energy complex andaluminium until we see either a signicantuptick in demand or a structural shit in theshape o the orward curve. We do not expectto see either o these in the rst hal o the year.Stronger undamentals underpin copper, whilstthe PGMs will be aided by robust automobiledemand rom Asia.

    Predicting golds uture is dicult as muchdepends on the strength, or lack thereo, o thedollar. I the US economy continues to recoverthis year and the Fed moderates its low interestrate policy because o infationary ears, wemay see a lid on the price. However, ongoinggeopolitical worries and uncertainties overat currencies mean that, on balance, I remainriendly to gold in 2010.

    Matthew TurnerVM Group, London

    Ater a year in which the price generallywent up, we expect more volatility in 2010 asmacroeconomic themes dominate. The strengthand breadth o the economic recovery, the levelo the dollar and the risk o infation or evendefation are all still up or grabs and everypiece o economic data and political news willbe viewed as providing support or one view oranother. Within this, we see gold making newhighs, as with interest rates remaining low, itdoesnt seem likely that we have peaked yet. Butthe price might also dip, particularly i the USdollar can strengthen. Internally, the market is

    very dependent on investment, particularly nowthat dehedging has run its course. Although thecollapse in central bank sales has oset much othis decline, with everyone looking or the nextbuyer, theres a strong risk o a surprise seller.

    Silver had a tremendous year in 2009, but itshould, on historical relationship to the goldprice, be doing a bit better than it is. So whyhas it been a relative laggard? The main reasonwe eel is that silver lacked one advantagepossessed by gold the changing expectationsabout the level o net central bank sales goingorward. Looking ahead, in 2010, we expectthat silver will move similarly, but withmore volatility, to gold, with macro-actorsoverwhelming any internal demand and supplyissues. The longer term is all about new demanduses or the metal and we think these are quitepositive, even at these elevated prices. Andan improving industrial outlook as the yearprogresses will also help keep the price rm.

    Platinum should be set or a very strong yearon the back o improving industrial demand globally, economies will emerge rom thedeepest recession or decades, there will becontinued good Chinese jewellery demand andan uncertain supply outlook. But with pricesagain over $1,500/oz, we would urge cautionon the demand side. Car sales in Europe havebeen articially infated and are likely to all thisyear (although diesel sales might pick up), whileChinese jewellery demand is price-sensitive andhas already been slowing. In 2010, we also mightget our rst indication o whether electriccars (which use little or no PGMs) will soonbecome real contenders to cause the demise othe internal combustion engine. The US ETFcomplicates matters. While the high price andrisky demand outlook could dissuade investors,

    the potential or a production-induced pricespike might be enough on its own. But howmuch o this has been bought already?

    Ater a terrible 2008, palladium had a super-strong 2009, adding 115%. It also gained againstplatinum, with its price ratio r ising rom below0.20 to above 0.25. We think it could gainurther to 0.3 during 2010. Like platinum, it

    has supply issues, and while it does not enjoyplatinums strong jewellery demand, this meansless risk o disappointment in 2010, and it isincreasingly the preerred choice in automobilesdue to its much lower cost. Furthermore,most o the ast-growing developing markets,

    Range: $14.50 - $19.50

    Average: $16.90

    Ag

    Range: $950 - $1,350

    Average: $1,100Au

    Range: $1,075 - $1,735

    Average: $1,335Pt

    Range: $280 - $545

    Average: $365Pd

    Range: $1,300 - $1,900

    Average: $1,550Pt

    Range: $300 - $600

    Average: $450Pd

    Range: $950 - $1,350

    Average: $1,179Au

    Range: $14.00 - $24.00

    Average: $18.65Ag

    Range: $1,250 - $1,700

    Average: $1,470Pt

    Range: $350 - $550

    Average: $425Pd

    14 The London Bullion Market Association

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    primarily China, are gasoline-based and so usepalladium, while the US market should recoverslowly. There still exists concern about Russianstock sales, but an optimist will note that, bydenition, each year the amount less is lower.Palladium oten disappoints; however, thebiggest risk is perhaps that the US ETF mightturn out to be a damp squib.

    Bhargava VaidyaBN Vaidya & Associates, Mumbai

    Gold would remain a very important store ovalue in all investment portolios. Investmentdemand will remain high. The physical demandor jewellery can only improve rom currentlevels. Terror threats across the globe andinsecurity in certain regions would supportgold prices. Supply rom the largest hoarders,central banks and the IMF, is successully cappedthrough negotiations/agreements. The USeconomy is showing slow signs o improvementand this would help the US dollar by end o theyear. This would cap the gold run and may alsosignal a downward movement.

    Silver would remain volatile. Slow to negativegrowth in industrial demand or silver wouldrestrict its price run. The relationship with goldwould sustain the present bull run. Demand orsilverware and silver coins would remain poor;this would cap the price run.

    David WilsonSociete Generale, London

    The investment market has become increasinglyenthralled by the attractions o gold over thecourse o 2009 and the excitement almostreached ever pitch during parts o the ourthquarter. The rise in price has been driven

    by sustained expectations or acceleratinginfationary pressures and the ramicationso bloated government balance sheets.The potential or currency dislocations asquantitative easing programmes are wounddown at dierent rates has also been a primary

    ear among investors as has, ollowing theproblems in Dubai, the concern over thenancial sector. Proessional fows o undsare not abating, even though ETF purchaseswere reasonably slow in the ourth quarter o2009, with fows into the major unds averaging$49 million daily since gold cleared $1,100.The cumulative fow into the unds in the yearto early December 2009 was $15.6 billion.We are expecting urther strength in goldprices and this will be dr iven not just by dollarweakness (which is already heavily discountedinto the price), but by ear o infation and scaldislocations, plus continuing asset diversicationmoves by central banks. We are expectingan average o almost $1,400 in 2010 and oraverages in excess o $1,300 at least through to2014.

    The improving economic outlook is expected toavour silver in both the short and the mediumterm, and the gold:silver ratio is thereore likelyto narrow over the next two years. Sustainedhigh prices or gold will help to keep silverbuoyant as part o the precious metals complex,while restocking and the prolieration o newindustrial uses will help to tighten the marketsundamental balance. We are looking or anaverage o almost $22/oz in 2010, rising to$26/oz in 2012.

    The increase in platinum and palladiumprices has been driven in both markets bystrengthening industrial demand as wellas speculative and investor interest in theanticipation o tightening medium-termundamentals, particularly rom the demandside. Platinum and palladium ETFs have steadilyincreased over the nal quarter o 2009, withplatinum ETFs adding just over 408,000 ouncesto holdings during the year, while palladiumunds have added over 448,000 ounces over a12-month period to reach 1.1 million ounces.The potential launch o physical ETFs in the

    US is likely to provide a urther spur. We donot believe, however, that these higher pricesare ully discounting the improved outlook.Ater a torrid time in 2008 and the rst hal o2009, the automotive industry looked muchmore robust in the nal quarter o 2009 than

    Range: $925 - $1,300

    Average: $1,075Au

    Range: $12.00 - $20.75

    Average: $15.50Ag

    Range: $1,090 - $1,650

    Average: $1,388Au

    the markets had previously expected and thishas been supporting both metals. As economicactivity improves through 2010, it should driveboth automotive and jewellery demand, and weremain very riendly towards the PGM sector,especially palladium.

    Wolfgang

    Wrzesniok-RossbachHeraeus Metallhandelgesellschaft

    m.b.H

    Despite the setback seen in December, thepositive trend o the gold price looks intactat the beginning o the new year. There isthereore a high likelihood that the price willcontinue to climb in the rst hal o 2010, oncemore reaching resh all-time highs. Duringthis period, the price will largely be dr iven byinvestment demand, both rom more short-term oriented speculators, but also rominvestors who seek opportunities to diversiytheir portolios. Especially the long-terminvestors will be interested to invest in gold

    in physical orm, be it in ETFs or in bars andcoins. The biggest threat to the positive scenariowould be a signicant change in the globalinterest rate environment, with the US thenbeing the rst candidate or any hike o the keyrates. However, such a move is in our view noton the cards beore 2011. At the same time,very high production costs provide a relativelyhigh natural foor or the gold price. And otheractors such as an at best stable productionand a urther increasing interest by centralbanks to increase their gold reserves are againrather positive or the gold.

    Silver could again well be the most volatileprecious metal in the coming 12 months. Ingeneral, the metal will continue to rely on theguidance provided by its yellow sister metal.As a result, any urther decline o the dollarvalue and the still low interest rate environment(resulting in a food o liquidity in the nancialmarkets) are going to keep the buying interest

    by speculators and investors alive. On theindustrial side, we expect urther growth inthe consumption rom various industries. Thedemand rom relatively new applications suchas photovoltaics, wound care, etc. is likely tobecome more and more apparent.

    Range: $16.80 - $26.00

    Average: $21.83Ag

    Range: $1,460 - $1,700

    Average: $1,565Pt

    Range: $390 - $440

    Average: $408Pd

    Range: $1,375 - $1,050

    Average: $1,175Au

    Range: $15.00 - $25.00

    Average: $16.50Ag

    Forecast 2010 15

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    Platinum might be the metal that could

    (in relative terms) ace most diculties in thecoming months. The main reason is that demandor the metal rom the automobile sector shouldcontinue to be lagging behind as, especiallyin Europe, a quick recovery o the car marketdoes not seem to be on the cards. Beyond 2010,there is however some long-term support orplatinum as there are new applications on theback o stricter emission regulations or(diesel-powered) heavy commercial vehicles.At the same time, we do not believe that thejewellery market in Asia can continue to thriveas it has done in 2009; any all in demand rom

    that side should however be pared by newlyestablished ETFs on platinum in the US.

    Production is expected to remain stablein the coming months, mainly on the back onewly established mines in South Arica. Anyshort-term production problems, e.g. due tostrikes and or electricity outages (remember,theres the World Cup 2010), should not havea bigger eect on the price.

    Range: $1,225 - $1,600

    Average: $1,400Pt Range: $300 - $475Average: $375Pd Forecast 2010 is published by the LBMA.For urther inormation please contact:Stewart Murray

    LBMA Chie Executive13-14 Basinghall StreetLondon EC2V 5BQ

    Telephone: 020 7796 3067Fax: 020 7796 2112Email: [email protected]

    www.lbma.org.uk

    Given the reedom o expression oered to contributorsand whilst great care has been taken to ensure that theinormation contained in the Forecast is accurate, the LBMAcan accept no responsibility or any mistakes, errors oromissions or or any action taken in reliance thereon.

    Palladium moves well supported into the new

    year. A potential increase in investor demand(due to new products such as the ETF in theUS) and a booming demand by the car industrywill be major actors in the coming months.As ar as the car industry is concerned, theChinese market is likely to continue to boom,the US will to some extent recover and, inEurope, the recently increased market shareo (palladium-riendly) petrol-driven vehiclesshould be deended in 2010. In addition, smallerengines, or example or motorcycles, haveto be tted more and more with emission-reducing catalysts rom 2010 onwards,

    increasing the demand rom a previously moreor less insignicant area. On the supply side,ocial sales rom Russia might decrease urtherin 2010, adding to the chances or an ongoingrecovery o the palladium price.

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    16 The London Bullion Market Association