2013 Dubai Precious Metals Conference Update

Dear Reader,

Is the world as we know it coming to an end? Retired precious metals analyst, Andy Smith, seems to think so, and chose the Dubai Precious Metals Conference to make his apocalyptic message. Whilst only in its second year DPMC is establishing itself as a must-attend international precious metals event, further complementing Dubai‟s status as a vibrant hub for gold. The diversity and caliber of speakers from across the industry and the timing for the conference (beginning of Q2) are setting the tone for DPMC. The key take-away from the DPMC 2013 is that the precious metals industry, much like the rest of the world, is in a state of change; whether it is due to new sourcing practices, global economic shifts or obesity (as Andy would have you believe), the market is looking for some direction. The three weeks following the conference only helped to validate this view as the physical and electronic worlds have split the gold market in two; those who are too eager to sell and those who are too eager to buy. We look forward to following up on these developments in May.

Sincerely, Franco Bosoni Director, DMCC Commodity Services

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

Officially opened by H.E. Dr Saeed Mohammed Al Shamsi,

UAE Foreign Affairs Minister for International

Organisations, Foreign and Humanitarian Aid, Studies &

Research, the 2013 Dubai Precious Metals Conference

(DPMC) explored the theme of „Enhancing the Global

Precious Metals Supply Chain‟ through presentations and

panel debates from renowned industry specialists.

During his keynote address, Ahmed Bin Sulayem,

Executive Chairman, DMCC, said:

“As a result of DMCC‟s continuous efforts to realise the

vision of HH Sheikh Mohammed Bin Rashid Al Maktoum,

Dubai has risen as a major global gold and precious metals

trading destination, with over 20% of the world‟s physical

gold imported and exported through the Emirate. The value

of gold traded through Dubai in 2012 was US $70 billion,

compared to US $6 billion in 2003.

By building financial and physical infrastructure and

developing the right regulation in line with international

standards, DMCC has established Dubai as a major bullion

centre and a global gateway for commodities trade.”

Gautam Sashittal, Chief Operating Officer, DMCC, said:

“The second edition of the Dubai Precious Metals

Conference brought together over 350 delegates from 28

countries, a 40% increase from last year‟s conference. The

resounding

resounding success of the conference and calibre of

industry participants in attendance is further testament

to Dubai‟s position as a global trading hub for precious

metals.

From price outlooks to responsible sourcing, from

global economic outlook and inflation to risk

management and derivatives, every aspect of the

global precious metals supply chain was explored over

the two days. We thank our members, key trading

partners, and industry participants for their valuable

inputs and we look forward to hosting the third Dubai

Precious Metals Conference in April next year.”

DPMC 2013 also featured a range of lively debates and

panel discussions from topics including, „The different

faces of gold – central banks; investments;

consumption;‟ „Gold consumption giants; opportunities

linking the UAE with China, India and the U.S.‟ and a

special address by Andy Smith, acclaimed gold

specialist, on „Gold and the Great Inflations.‟

DMCC GOLD BULLETIN

Issue 2.4, April 2013

Save the Date!

The third Dubai

Precious Metals

Conference will

be held 6-7 April,

2014.

DMCC Gold Bulletin

Issue 2.4, April 2013

Panel Discussion on Responsible Sourcing From left to right: Chirag Sharma, Business Development Manager, Dubai Multi Commodities Centre; Hassan Nasser, Director of Compliance, Dubai Multi Commodities Centre; Philipp Olden, consultant Signet Jewelers ltd and Tyler Gillard, Legal Expert, OECD Investment Division

Day 1

Masterclass – Hedging strategies

Set in an environment of declining gold prices after 12

years of gold‟s strong growth, Simarjit Baweja of DGCX

highlighted that with the number of macro-economic

factors that affect the price of gold – inflation / deflation,

real interest rate, dollar value, money supply, central bank

purchase / sale, political uncertainty, GDP growth rates,

and mining cost – it is advisable to remain covered by

hedging positions.

He validated this point further by saying gold future prices

are lower than spot prices making a good argument for

hedging.

His presentation featured three global scenarios and how

they affect the performance of gold. The baseline

scenario is steady economic recovery in major

economies, modest inflation, solid rise in shares and

house prices leading to gold underperforming in

comparison to other assets.

The second scenario is a stagnant market, where there

are oil shocks, financial stress, property and stock market

underperformance and inflation at a minimum rate of 5%,

leading to a moderate performance of gold.

The last scenario is of deflation in the Euro-zone, major

global shocks, banks tightening credit standards, interest

rates falling to zero, and a deep drop in stock and

property prices. In this scenario of financial stress, gold is

projected to perform better.

Masterclass – Responsible Sourcing

Tyler Gillard, Legal Expert, OECD Investment Division,

stated that the final OECD Due Diligence Guidance has

received widespread support and has already been

adopted by 42 OECD and non-OECD countries. This

highlights the success of OECD‟s consensus-based

process, developed with the assistance of multi-

stakeholder

stakeholder working groups. Their 5-step, risk-based due

diligence process will help ensure companies do not

contribute to conflict or abuses of human rights through

their mineral and metal procurement practices. For

detailed information about the guidance, click here.

Additionally he advised regional participants to work

more closely with DMCC due to its responsible sourcing

guidance being based on the OECD requirements.

Chirag Sharma from DMCC emphasised on the DMCC‟s

firm commitment to promote responsible sourcing and

strong ties with the OECD as part of its Interim

Governance Group. Additionally he announced that all

Dubai Good Delivery refineries have engaged approved

auditors to review their responsible sourcing practices as

stipulated in DMCC‟s review protocol. Furthermore,

DMCC is also collaborating with various UAE

Government Agencies to formalise the implementation of

the DMCC Guidance across the UAE.

DMCC will launch Hindi, Arabic and Malayalam

translated versions of the DMCC Guidance which is

sponsored by Emirates Gold, Siroya Jewellers and

Malabar Gold respectively. These will be distributed

across GCC and India and all three versions will be

available to download from the DMCC website.

Hassan Nasser, DMCC‟s Director of Compliance,

elaborated on the risk mitigating and assessment tools

available to market participants when assessing

geographical, transactional and counterparty factors to

detect red flags.

For the first implementation cycle, DMCC has shortlisted

auditors with the strongest reputation in the market to

ensure the best possible outcome. For more information

on the DMCC guidance click here.

Philip Olden, Consultant, Signet Jewelers Ltd, gave the

final presentation and closed the supply chain loop by

sharing its stringent policy on responsible sourcing,

which is based on the SEC requirements for jewellers

exporting to the USA. This further highlighted the need

for regional suppliers and even sub-contractors to be

compliant with the DMCC Guidance.

DMCC Gold Bulletin

Issue 2.4, April 2013

Press Conference with Sponsors of the 2012 Dubai Precious Metals Conference From left to right: Sami Abu- Ahmed – General Manager, Al Etihad Gold Refinery DMCC; Tarek El Mdaka - Managing Director, Kaloti Jewellery group; Gautam Sashittal – Chief Operating Officer, Dubai Multi Commodities Centre; Gerhard Schubert - Head of Precious Metals, Emirates NBD and Alison Burns, - Head of Precious Metals MENA, Standard Bank

Day 2

The second day of DPMC 2013 covered every aspect of

the global precious metals supply chain, from price

outlook to global economic forecasts, risk management

and derivatives.

Global economic landscape

Nick Stadtmiller of Emirates NBD gave a view of the

global economy and stated that countries with debt

problems tend to inflate their way out. This is seen as the

most benign solution in view of the dangers seen with

deflation as a method for adjustment, illustrated in the

case of Japan. They have been struggling for 25 years

with deflation and are now looking at their current account

surplus falling, thereby creating further pressure on their

economy.

Peripheral Europe will therefore adjust either through an

inflationary shock, a „Euro-exit‟ or look at years of „internal

devaluation‟ to restore competitiveness. In the US,

quantitative easing will stay since US tax rates are

historically low and federal revenue has been below

average for the past decade. In this global scenario the

price outlook for gold is optimistic.

Andy Smith, renowned Precious Metals expert, offered a

similar view in his presentation, Gold and the Great

Inflation. He stated that the democratic system

encourages every new government that comes into power

to keep supporting unfavourable and unstable economic

policies of the previous government. In parallel;

dependency in the democratic system increases in the

form of social welfare, pensions and healthcare, amongst

others. According to Smith, this leads to bloated debt and

increases the burden immeasurably on the future

generations. It also leads to the adoption of the same

„cure‟: “debasing the currency”. In such an environment,

gold has a long way to run.

Panel – the different faces of gold

Gerhard Schubert, Head of Precious Metals of Emirates

NBD moderated a panel discussion with a focus on the

different faces of gold – central banks; investments;

consumption.

Central Banks are driven to generate good return on

investments but have an important focus on safety,

which continues to be core to their decision making.

Over the years gold has proven to be safer than many

other investment options hence within central banks it is

easier to convince people to invest in gold. Juan Ignacio

Basco from the Central Bank of Argentina said that in

practice, a very small committee decides on whether

gold should be bought or sold.

Argentina has always bought gold but as from 1996 it

started offloading some of its gold reserves as a means

of generating liquidity.

Isabelle Strauss-Kahn from the World Bank stressed

that currency composition is one specific aspect in

Strategic Asset Allocation (SAA). The proposition of

gold‟s share in portfolios is an output of the SAA for

currency optimisation. In general London fixings, AM or

PM or the average of the two are taken as the

benchmark price.

Juan Ignacio Basco of the Central Bank of Argentina

said traders are unsure of the future of the gold price

and that there is a current pause in purchasing. Last

year the demand of gold by central banks was driven by

emerging markets. These markets now have 4% on

average of the global gold reserves. Basco remained

optimistic that net consumption will continue.

A short discussion ensued on the merits of Dubai as a

storage hub of gold for Central Banks due to cost–

efficiency, state of the art vaulting and logistics benefits.

With the legal framework greatly improved in the UAE

and a favourable location between time zones this was

seen as a future opportunity for the Emirate.

DMCC Gold Bulletin

Issue 2.4, April 2013

Panel – gold consumption giants

The panel on gold consumption giants, discussing

opportunities linking the UAE with China, India and the

US, was moderated by Chandu Siroya of Siroya

Jewellery.

US economic growth augurs well for an increase in

overall jewellery sales. The current market volatility in

gold prices is not expected to have much of an impact

in the US at a retail level where consumption habits are

leaning more towards branded jewellery.

India continues to be the largest gold jewellery market

in the world. Its consumption is expected to remain

unchanged by the latest import duty hikes, imposed as

a solution for the current account deficit. There are

currently 10 million marriages a year, which offer

significant gold buying occasions and 70% of gold is

bought in the rural area.

China is the leading emerging market and also the

largest platinum jewellery market in the world that

consumes approximately 70 of the 250 tonnes of global

demand. Dubai sees increasing number of Chinese

buyers coming into the retail market of gold jewellery.

Amit Dhamani, MD, Dhamani Jewels, stated that

Chinese spending power has improved by 300% year-

on-year in Dubai; with 85-90% spent in jewellery shops.

They have overtaken European customers and primarily

look for gold in high purity and light weight jewellery,

sometimes custom made.

The UAE jewellery demand was 50 tonnes in 2011,

offering a number of opportunities in the Middle East

and also supporting a large tourist market.

The UAE is seen as an important trade partner for India

with 10% of the Indian imports on average coming from

Dubai in the last 15 years and 40% of the exports being

routed through Dubai for the regional market in that

same period. Prithviraj Kothari from Riddhisiddhi

Bullions Ltd. stated that there is a high potential for

import to increase to 250 tonnes.

David Bouffard from Signet Jewelers Ltd, elaborated by

pointing out that DMCC‟s association with OECD and its

activities to implement the OECD due diligence is

encouraging and will support the growth of trade

between the UAE and the US.

Panel – strengthening the supply chain

Alison Burns, Standard Bank, built on previous

discussions in this panel by moderating discussions on

refiner support and bullion bank implementation on

responsible sourcing. A need for more awareness of

responsible sourcing in the gold market was highlighted

in the panel.

Tarek El Mdaka, Kaloti Jewellery, presented a practical

view from a DGD refiner‟s perspective on implementing

the DMCC due diligence guidelines. In 2012, Kaloti

accepted 73 clients and declined 93 clients on the

ground of non-compliance who are now going through a

detailed evaluation process that will determine their

future acceptance or not. Tarek said, “As a company we

are spending 70% of our time and resources on due

diligence to ensure we are 100% compliant at all times.”

Chris Horsley shed light on the difficulties faced by many

African countries in the recognition and compliance of

responsible sourcing. He urged customs departments to

be more vigilant and handle the situation diligently. He

also said that if artisanal miners take up more

responsibility in their due diligence practices, then that

will help save costs for the rest of the value chain.

Panel – bringing the trade to the exchange

In 2012 the percentage of paper traded gold was 47% of

the total physical trade in Dubai. In line with this growing

trend, DGCX has positioned itself to grow its trade to

600 tonnes of gold through an enhanced technology

platform. The panelists also suggested weekend trading

to boost DGCX‟s international coverage.

Francesca Taylor (second from left), author of Mastering the Commodities Markets at the book signing event held in conjunction with the DPMC. The book is a step-by-step guide to the markets, products and their trading, featuring chapters from some of the most preeminent global experts on commodities. It also explores specific products such as precious metals, oil and other hydrocarbons, rare earth, elements, aqua and agriculture, alternative energy and carbon and environmental commodities.

DMCC Gold Bulletin

Issue 2.4, April 2013

April Responsible Sourcing Workshop on behalf of the UAE DGD refineries for their suppliers DMCC, along with sponsors Al

Etihad Gold Refinery, Emirates

Gold, Kaloti Jewellery Group,

hosted a Responsible Sourcing

Workshop. Attendees were given

a practical guidance on

conducting due diligence and

developing a risk management

framework for the responsible

supply chain management of gold

and precious metals when

sourcing from conflict-affected

and high risk areas.

will boost DGCX‟s international coverage.

Sunil Kashyap, Scotiamocatta, elaborated on the theme

of aligning futures with the spot market. He said that

futures are very important not only for trade and liquidity

but also to create the bridge between physical and

futures markets.

Gary Anderson of DGCX concurred and added that in a

futures contract, nothing gets delivered so matching

intent is very important for the exchange.

The panel concluded with the opinion that there is a

global demand for an exchange cleared spot contract

that moves physical trade onto the exchange to mitigate

risks. The exact nature of the bridge between spot and

future market needs to be discussed in more detail.

Panel – global trends in white metal

Platinum and palladium, both extremely resistant to

temperature, act as great car catalysts. This year, stable

production of the metals is foreseen with an increase in

car manufacturing and demand in consumption.

This favourable outlook is also complemented by

platinum jewellery demand in China. James Courage,

CEO, Platinum Guild International highlighted that the

Chinese market alone represents 24% of the total

platinum demand and it is the biggest single category

that has improved so far. David Jollie, Strategic Analyst,

Mitsui Precious Metals agreed that it is a very positive

story; the market is healthy with a stable price zone.

Platinum traders are more price conscious and at a retail

level it is possible to get reasonable margins over gold

particularly in the jewellery area.

Price outlook – gold in 2014 – 1,000 vs 3,000

Christoph Eibl from Tiberius Group was bearish in his

outlook towards gold and said that gold is driven by

investor demand and that has brought price to its current

level. The demand trend is about to end and price is

slowly decreasing. He predicts that consumption has

started to slow down and a time will come where there

will be no more consumption because of the current

surplus.

Phillip Klapwijk, Precious Metals Insights Ltd, was also

bearish for gold. In his view, the increase in purchase by

central banks does not have a real effect as there is still

a surplus of 2,200 tonnes in the market. Investment

demand will continue but only at lower levels, so gold

demand is going to reset to being driven by jewellery

demand.

Ross Norman, CEO, Sharps Pixley was bullish for gold

and substantiated his position with some macroeconomic

findings. According to Norman, we are going to

experience challenging economic events, such as

enormous level of sovereign debt, sovereign crisis and

slow global growth which will lead to a bull run for gold.

This will also be supported on the supply side with a lack

of new mine discovery and cost of production rising

significantly.

Andy Smith added that several buyers are yet to change

behaviour in terms of gold consumption. Quantitative

Easing is permanent for now as it is wiping out

government debts creating an environment in which the

gold bullrun is not going to end soon.

As far as the audience, the majority supported the bullish

argument, with a closing poll vote of 60% that the price

will tilt towards US$3,000 rather than US$1,000 in 2014.

DMCC Gold Bulletin

Issue 2.4, April 2013

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Average price of gold - April 2012 vs April 2013

2013 2012

Gold prices plunge

Gold prices fell 9.3% on 15th April to US$ 1,361, the

biggest two-day drop in more than 33 years. Overall,

gold is nearly 30% down from its all-time trading highs

of more than US$ 1,900 per ounce in September

2011. Source: goerie.com

The average gold price for April 2013 was US$ 1,486

which is 7% less than the previous month and 10%

less than the same period last year. In April 2012, the

average gold price fell to as low as US$ 1,626, which

is 2% more than the highest price recorded in April

2013. However prices have started picking up, as most

gold analysts tagged the recent fall as a temporary

shock in the markets.

On April 10, gold slumped into a bear market which

some believe is on the concern that Cyprus may sell

10 out of its 13 tonnes of gold in order to generate

cash to support the country‟s bailout. In addition some

analysts fear that other weak Eurozone economies,

such as Italy and Spain, will follow Cyprus's lead and

sell some of their gold stock, adding further supply to

weakening demand. Source: CNBC.com

Dominic Schnider, an analyst at UBS Wealth

Management, said it might not have been the

eurozone that triggered the mass flight out of gold:

"What we now see is panic selling, perhaps triggered

by the Fed's stimulus view. The Fed has given the

signal that there's a possibility to reduce QE and that

took a lot of trust out of gold. Also people recognise

that an environment where you have no inflation is a

powerful driver to get out of the metal."

“Gold took a beating because of margin calls expected

on the Comex,” Frank McGhee, the Head Dealer at

Integrated Brokerage Services LLC in Chicago, said in

a telephone interview. Source: Bloomberg.com

The price plunge was a “panic event,” Catherine Raw,

a fund manager in London at BlackRock, which

oversees about US$3.8 trillion, said in an interview on

16th of April aired on Bloomberg Television.

“Some of the key pillars of the gold bull market look like

they‟re suffering fatigue,” Peter Richardson, an analyst

at Morgan Stanley, said. “The gold market‟s probably

started to price in the prospect that beleaguered

members of the euro zone might be forced to sell gold

to raise part of the funding, and there are much bigger

holders in that category than Cyprus.” Source:

BBC.co.uk

Buying frenzy

With gold falling to a low of US$ 1,335, physical demand

started slowly but has picked up momentum. The Indian

market was the first to respond as prices bottomed,

followed soon after by Dubai, Japan, Europe and now

China.

Ross Norman, Sharps Pixely, said that rarely has the gold

market seen such a clear split, with the paper traders

heading south while the physical heads north. The former

has the advantage of leverage (via the futures) while the

latter has scale.

Impact on Dubai

Aram Shishmanian, CEO, World Gold Council (WGC) said

in an interview with the Telegraph: "It has become

increasingly clear that the fall in the gold price was

triggered by speculative traders operating in the futures

markets. Their short-term view of generating a trading

profit is in stark contrast to the views of long term investors

in gold, as evidenced by the massive wave of physical

gold buying that began over the weekend and accelerated

following Monday's further decline. The surge in gold

purchases is spanning markets from India and China to

the US, Japan and Europe. Buyers are viewing this as an

opportunity to purchase gold at prices not seen in the past

couple of years."

The World Gold Council is uniquely positioned in the gold

market to get immediate feedback on market patterns. "We

are already seeing shortages for bars and coins in Dubai,

while premiums in Mumbai are at US$26/oz and US$6 in

Shanghai, indicating that buyers are willing to pay more

than current spot prices for the metal.‟‟ Shishmanian

added “Clearly the desire to own gold, as an investment

and for adornment, has made itself felt in the physical

market. Gold operates on the basic economic

fundamentals of demand and supply. Our view is that

demand is strong while supply remains constrained, and

that this dynamic ultimately drives the long-term price of

the metal." Source: telegraph.co.uk

Other News

Source: LBMA

DMCC Gold Bulletin

Issue 2.4, April 2013

Almas Tower Level 2 PO Box: 48800 Dubai U.A.E T. +971 4 433 67 11 F. +971 4 375 18 96 commodityservices@dmcc.ae

Snapshots of the 2013 Dubai Precious Metals Conference