Filed Pursuant To Rule 433
Registration No. 333-209926
October 6, 2016
Market Update Price drop likely to spur demand October 2016 www.gold.org 01 Following a remarkable performance year-todate, the gold price fell by over 3% on 4 October, taking it below US$1,300/oz for the first time since the Brexit announcement in June 2016. The move seems to have been driven by speculation of a scaling back in the ECBs asset purchase programme, combined with rising expectations of a US rate hike in December. The move was exacerbated by technical levels, tactical positioning in derivatives markets and a national holiday in China. Looking forward, we believe the price dip will offer a good buying opportunity for consumers and long-term investors. In addition, even though central banks may start to normalise monetary policies, such a prolonged period of extraordinary measures has led to a structural shift in asset allocation that will linger much longer. In this new normal of lower returns and higher uncertainty, gold has an important role to play in the portfolios of investors large and small. Gold falls below key support level For the past 3 months, the gold price traded in a range of $1,310/oz-$1,370/oz. In the early hours of October 4, the price started consolidating near the lower end of the range. This was driven by slightly better-than-expected economic news in the US and recent bullish commentary by some of the Fed’s FOMC members. The media also reported that the ECB may look to scale back its €10 billion monthly bond purchase programme. Once the gold price pushed below US$1,310/oz an ounce, representing gold’s 100-day moving average, technical selling increased sharply (Chart 1), exacerbating the fall and triggering stop-losses and further tactical selling. Meanwhile, Chinese investors, who have historically bought on dips, were celebrating Golden Week national holiday, leaving domestic markets closed. Chart 1: Gold fell below its 100-day moving average prompting further tactical selling Source: Bloomberg Higher rates may not result in a lower gold price A shift in monetary policy need not signal lower gold prices. Although negative nominal rates are unprecedented, there are many historical precedents for negative real rates which give rise to the following stylized facts: „ When real rates are negative, gold returns tend to be twice as high as the long-term average „ Even if real rates are positive and as long as they are not significantly high (4% in our analysis), average gold returns remain positive „ Falling rates are generally linked to higher gold prices; yet rising rates aren’t always linked to lower prices. 1,220 1,240 1,260 1,280 1,300 1,320 1,340 1,360 1,380 9-Jun 24-Jun 9-Jul 24-Jul 8-Aug 23-Aug 7-Sep 22-Sep Gold price 100-day moving avg. US$/oz
Market Update | Price drop likely to spur demand 02 Price dip to lead to physical buying Despite the decline, gold remains one of the best performing assets this year, rising by 20% in dollar terms (Chart 2). Chart 2: Gold remains one of the best performing asset classes this year Source: Bloomberg, ICE benchmark Administration, World Gold Council We believe that consumers and investors may see the price decline as a good buying opportunity, as many have been waiting for a price pull-back before entering the market. Q3 2015 served as a good example, when a 7% decline in the gold price triggered a sharp increase in demand for jewellery and bars and coins. Some data already point to an uptick in consumer interest. The top five countries where consumers were searching online for gold following the price drop were in the Middle East, with the UAE being number one. Anecdotal evidence suggests that consumers had been holding off purchases in previous months, so this may well trigger an increase in demand. The price correction also comes at a good time for Indian consumers. With a good monsoon, the upcoming wedding season and Diwali and Dhanteras festivals, demand could pick up after subdued activity year-to-date. Volumes in the physically gold-backed ETF picked up in the secondary market as the price fell, and they haven’t resulted in large redemptions so far. We believe this is an indication that there is still good appetite for gold amongst the investment community. Central banks, a major driver of gold demand, continue to be strong buyers of the metal to diversify their reserve asset holdings considering the shrinking universe of nonnegative yielding assets. The Russian central bank recently said that it had no specific target for its gold holdings and continues to buy regularly every month. Meanwhile, a recent survey of 19 central bank reserve managers, conducted by the World Gold Council shows that nearly 90% of them will either increase or maintain their current gold reserve levels, indicating a strong floor of support for gold demand (Chart 3). Chart 3: Central banks are looking to add gold to their reserves Source: World Gold Council Gold remains a key portfolio component in this environment Market fluctuations will naturally occur from time to time, but the fundamental environment for gold remains strongly supportive. The broader market environment of ongoing low and negative interest rates, coupled with continuing political, economic and policy uncertainty remains unchanged, and are generally positive for gold. -20% -10% 0% 10% 20% 30% 40% Chinese stocks Euro stocks 3m T-bills Japan stocks US Treasuries Commodities US stocks US high grade Euro sov’gn debt US small cap EM stocks US high yield Gold Oil Return 0% 10% 20% 30% 40% 50% 60% Decrease No change Increase Source: World Gold Council What is your institution’s plan for your gold holdings over the next 3 years?
Market Update | Price drop likely to spur demand 03 About the World Gold Council The World Gold Council is the market development organisation for the gold industry. Our purpose is to stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market. We develop gold-backed solutions, services and products, based on authoritative market insight and we work with a range of partners to put our ideas into action. As a result, we create structural shifts in demand for gold across key market sectors. We provide insights into the international gold markets, helping people to understand the wealth preservation qualities of gold and its role in meeting the social and environmental needs of society. Based in the UK, with operations in India, the Far East and the US, the World Gold Council is an association whose members comprise the world’s leading gold mining companies. World Gold Council 10 Old Bailey, London EC4M 7NG United Kingdom T +44 20 7826 4700 F +44 20 7826 4799 W www.gold.org For more information Please contact: Juan Carlos Artigas Director, Investment Research juancarlos.artigas@gold.org +1 212 317 3826 Ezechiel Copic Director, Central Banks & Public Policy ezechiel.copic@gold.org +1 212 317 3806 Shaokai Fan Director, Central Banks & Public Policy shaokai.fan@gold.org +65 6823 1510 Alistair Hewitt Director, Market Intelligence alistair.heweitt@gold.org +44 20 7826 4741 Copyright and other rights © 2016 World Gold Council. All rights reserved. World Gold Council and the Circle device are trademarks of the World Gold Council or its affiliates. All references to LBMA Gold Price have been provided for informational purposes only. ICE Benchmark Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced. 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Brief extracts from the analysis, commentary and other World Gold Council material are permitted provided World Gold Council is cited as the source. It is not permitted to reproduce, distribute or otherwise use the whole or a substantial part of this report or the statistics contained within it. While every effort has been made to ensure the accuracy of the information in this document, the World Gold Council does not warrant or guarantee the accuracy, completeness or reliability of this information. The World Gold Council does not accept responsibility for any losses or damages arising directly or indirectly, from the use of this document. The material contained in this document is provided solely for general information and educational purposes and is not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, gold, any gold related products or any other products, securities or investments. Nothing in this document should be taken as making any recommendations or providing any investment or other advice with respect to the purchase, sale or other disposition of gold, any gold related products or any other products, securities or investments, including without limitation, any advice to the effect that any gold related transaction is appropriate for any investment objective or financial situation of a prospective investor. A decision to invest in gold, any gold related products or any other products, securities or investments should not be made in reliance on any of the statements in this document. Before making any investment decision, prospective investors should seek advice from their own financial advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision. Without limiting any of the foregoing, in no event will the World Gold Council or any of its affiliates be liable for any decision made or action taken in reliance on the information in this document and, in any event, the World Gold Council and its affiliates shall not be liable for any consequential, special, punitive, incidental, indirect or similar damages arising from, related to or connected with this document, even if notified of the possibility of such damages. This document contains forward-looking statements. The use of the words “believes”, “expects”, “may”, or “suggests”, or similar terminology, identifies a statement as “forward-looking”. The forward-looking statements included in this document are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on the analysis of World Gold Council of the statistics available to it. Assumptions relating to the forward-looking statement involve judgments with respect to, among other things, future economic, competitive and market conditions all of which are difficult or impossible to predict accurately. In addition, the demand for gold and the international gold markets are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the World Gold Council that the forward-looking statements will be achieved. The World Gold Council cautions you not to place undue reliance on its forwardlooking statements. Except in the normal course of our publication cycle, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and we assume no responsibility for updating any forward-looking statements.
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