volatility in global precious markets - cme group€¦ · • morning market report ... 10.q4 11.q1...

Harriet Hunnable

Managing Director, Metals Products, CME Group

Volatility in Global Precious Markets

© 2010 CME Group. All rights reserved 2

The information presented herein has been compiled by CME

Group for general purposes only. CME Group assumes no

responsibility for any errors or omissions. Additionally, all

examples in this document are hypothetical situations, used for

explanation purposes only, and should not be considered

investment advice or the results of actual market experience.

All matters pertaining to rules and specifications herein are made

subject to and are superseded by the official rules of the relevant

CME Group Exchanges. Current Exchange rules should be

consulted in all cases concerning contract specifications.

Copyright © 2010 CME Group

© 2010 CME Group. All rights reserved

Agenda

- Introduction

- Landscape

- Score Card (review of 2011)

- Volatility of the precious metals market

- Tools and Solutions for

- Risk Management (hedging)

- Investors (speculation)

- New metals products

3


* As at Nov 2010

0

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2008 2009 2010*

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usa

nd

s Global Gold Landscape

CME Group

NYSE

Tocom

SHFE

MCX

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Global Silver Landscape

CME Group

NYSE

MCX

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Global Copper Landscape CME Group MCX LME SHFE

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Global Platinum Landscape

CME Group

TOCOM


Score Card – Several Annual Precious Metals Volume Records Set in 2011

5

Metals Futures Volume Y.T.D 2011

(In Contracts)

Volume Y.T.D 2010

(In Contracts) % Change

COMEX Gold 49,175,593 44,730,345 9.9%

COMEX Gold miNY 192,575 105,236 83.0%

COMEX E-Micro Gold 474,444 23,534 1,916.0%

COMEX Silver 19,608,557 12,826,666 52.9%

COMEX Silver miNY 106,576 24,722 331.1%

NYMEX Platinum 1,993,263 1,486,507 34.1%

NYMEX Palladium 1,139,529 901,584 26.4%

Metals Options Volume Y.T.D 2011

(In Contracts)

Volume Y.T.D 2010

(In Contracts) % Change

COMEX Gold 10,080,754 7,730,488 30.4%

COMEX Silver 2,124,108 1,640,232 29.5%

NYMEX Palladium 37,389 12,214 206.1%

Daily Volume and Open Interest Record:

E-micro Gold Futures open interest record: 4,908 10/4

Gold Futures daily volume record: 483,429 8/24

Gold options open interest record: 1,521,421 9/26

Silver Futures daily volume record: 319,204 4/25

Palladium options open interest record: 9,401 11/1

Platinum futures daily volume: 27,748 9/26


Volatility strikes gold market

Why does volatility matter?

1.Rising Volatility has been a reliable predictor of

previous corrections in Gold price.

2.Volatility is damaging to the gold market for two

reasons:

1. It’s a sign of uncertainty.

2. Increase the cost of trading.


Year Gold/Silver Ratio

1871 lo 15

1913 hi 40

1919 lo 17

1933 hi 85

1939 lo 50

1943 hi 100

1971 lo 17

1991 hi 90

2011 lo 30

Note: gold/silver price ratio marked ‘hi’ means an interim

low silver price, and one marked ‘lo’ means an interim

high silver price, that is, the relationship is inverse.

the above table shows the unprecedented

long-wave volatility in the history of prices

driven by pure psychology unrelated to any

supply/demand fundamentals.


For Risk Management

• Liquidity - A liquid markets that enable market participants to

get in and out quickly.

• Financial Safeguards – As a central clearing house, we

guarantee the performance of every transaction to eliminate

counterparty risk.

• Global Access – CME Globex is a global electronic trading

platform – available around the clock and around the world.

• Transparency and Anonymity

• Flexibility - combination of standard-sized contracts with

smaller contract size (miNY and E-micro) on our benchmark

Gold and Silver may offer traders more flexibility.


For Investors

• E-micro contracts are tailored to meet demand of individual

investors.

• Investors/Speculators prefer CME Globex as it has less

slippage and less risk of not executing the orders.

• Market orders with protection: to avoid cascading market

orders being filled at extreme prices.

• Price Banding: Without price banding, a limit bid at a price well

above the market or a limit offer at prices well below the market,

could trigger a sequence of market-moving trades that require

subsequent price adjustments.

• Iceberg: AKA max show orders. only certain quantity of orders

will be showed on screen.

• Non reviewable range: if the price of the trade is inside the

NRR, the trade shall stand.


New Product Launches

•Gold Short-Dated Options

•London Gold Forward (clearing)

Coming Soon? Asian Kilo Gold contract


CME Group Metals Education and Research Sites:

Please visit…..

CME Metals Product Page: http://www.cmegroup.com/trading/metals/

CME Group Market Commentary: http://www.cmegroup.com/education/market-commentary/index.html

• Morning market report

• Mid-session Market Report

• Recap Market Report (after U.S. closing)

CME Group Tools: http://www.cmegroup.com/tools-information/metals-tools.html

http://www.cmegroup.com/trading/metals/

http://www.cmegroup.com/education/market-commentary/index.html



http://www.cmegroup.com/tools-information/metals-tools.html





GOLD SURVEY 2011 - UPDATE 2

.

PHILIP KLAPWIJK

GLOBAL HEAD OF METALS ANALYTICS

HONG KONG, 17TH JANUARY 2012

ScotiaMocatta

Tanaka Precious Metals

Kinross Gold Corporation www.randrefinery.com

Barrick Gold Corporation

www.newmont.com www.IBKCapital.com

Johnson Matthey

www.gold.org

www.nyse.com/metals

INTL Commodities, inc.

www.intlfcstone.com

www.natixiscm.com

www.pamp.com

A Global Partner in Commodities

www.commodities.sgcib.com

Paulson & Co. Inc. www.valcambi.com

JPMorgan Chase Bank

www.ljgold.com

www.standardbank.com

Thomson Reuters GFMS gratefully acknowledge the generous support from the following companies for this year’s Gold Survey

and its two Updates

PRESENTATION OUTLINE

• PRICES

• SUPPLY

• DEMAND

• SUMMARY AND PRICE OUTLOOK

PRICES

500

1000

1500

2000

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

US

$/o

z

US DOLLAR GOLD PRICE

200-day moving average

US$/oz US$/oz 2010 2011

Average 1,224.52 1,571.64

Intra-Year 25.3% 10.3%

Year-on-Year 25.9 % 28.3%

Source: Thomson Reuters GFMS

400

600

800

1000

1200

1400

1600


Eu

ro/o

z

EURO GOLD PRICE

200-day moving average

Euro/oz

Euro €/oz 2010 2011

Average 924.83 1,128.91

Intra-Year 36.2% 13.7%

Year-on-Year 32.7 % 22.1%


90

100

110

120

130

140

150

160

170

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11

Ind

ex

(4

th J

an

ua

ry 2

01

1 =

10

0)

GOLD PRICES IN DIFFERENT CURRENCIES

INDEXED DAILY SERIES Indexed Daily Series

Euro/oz

US$/oz

Rand/Kg

Rupee/10g


GOLD PRICE CORRELATIONS (BASED ON LOG-RETURNS ON DAILY PRICES)

10.Q4 11.Q1 11.Q2 11.Q3 11.Q4

US$/EURO RATE 0.47 0.45 0.39 0.07 0.43

US$/YEN RATE 0.58 0.12 0.18 0.16 0.17

SILVER 0.58 0.74 0.57 0.67 0.65

OIL (WTI) 0.29 0.32 0.42 -0.03 0.14

GSCI INDEX 0.36 0.34 0.44 0.01 0.30

CRB INDEX 0.32 0.23 0.21 0.12 0.40

S&P 500 0.16 0.12 0.03 -0.25 0.28


SUPPLY

GOLD MINE PRODUCTION

0

300

600

900

1200

1500

1800

H1 07 H1 08 H1 09 H1 10 H1 11

Europe CIS Oceania

Asia North America South America

Africa

Tonnes

2011E up 103t

or 3.8% y-o-y


MINE PRODUCTION: WINNERS AND LOSERS IN 2011*

-28

-24

-20

-16

-12

-8

-4

0

4

8

12

16

20

24

To

nn

es

China Canada

Eritrea Sudan

Argentina South

Africa Peru

Indonesia

Source: Thomson Reuters GFMS * Figures represent year-on-year change, i.e. 2011E less 2010

PRODUCTION COSTS 2000-2011E


0

200

400

600

800

1000

1200

1400

1600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US

$/o

z

2011E Total Cash Costs: $626

2011E All-In Cost: $935

Gold Price Total Cash Costs

OUTSTANDING DELTA ADJUSTED PRODUCERS HEDGE POSITION

0

500

1000

1500

2000

2500

3000

2001 2003 2005 2007 2009 2011

To

nn

es (

en

d-y

ea

r)


CHANGE IN SUPPLY FROM ABOVE-GROUND STOCKS

2011 COMPARED TO 2010


-400

-350

-300

-250

-200

-150

-100

-50

0

50

To

nn

es

Official Sector Scrap

CHANGE IN SUPPLY FROM ABOVE-GROUND STOCKS

2011 COMPARED TO 2001

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

To

nn

es

Official Sector Scrap


NET OFFICIAL SECTOR SALES/PURCHASES


-600

-400

-200

0

200

400

600

800

2003 2004 2005 2006 2007 2008 2009 2010 2011

To

nn

es

CBGA

IMF (ON-MARKET SALES)

OTHER

Net Sales

Net Purchases

REGIONAL CHANGES IN SCRAP SUPPLY 2011 LESS 2010


Middle East

Indian S-C

East Asia

North America

Europe Rest of World

-80

-60

-40

-20

0

20

40

60

To

nn

es

DEMAND

JEWELLERY FABRICATION: WINNERS AND LOSERS (Figures represent year-on-year change, i.e. 2011 less 2010)


Indian S-C

East Asia CIS North America

Rest of World

Middle East

Europe

-60

-40

-20

0

20

40

60

To

nn

es

INDIAN JEWELLERY FABRICATION

0

5,000

10,000

15,000

20,000

25,000

30,000

0

50

100

150

200

250

300

Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12

Ru

pe

es/1

0g

T

on

ne

s

Local Gold Price

Forecast


CHINESE JEWELLERY FABRICATION

0

50

100

150

200

250

300

350

400

0

50

100

150

200

Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12

RM

B/g

To

nn

es

Local Gold Price

Forecast


100

200

300

400

500

600

700

800

900

04.Q1 05.Q1 06.Q1 07.Q1 08.Q1 09.Q1 10.Q1 11.Q1 12.Q1

To

nn

es

JEWELLERY FABRICATION & SCRAP SUPPLY

Jewellery Fabrication

Scrap Supply

Forecast


0

500

1000

1500

2000

2500

3000

3500

4000

1980 1984 1988 1992 1996 2000 2004 2008

To

nn

es

WORLD INVESTMENT* AND FABRICATION (EXCLUDING COINS)

1980-2011

Fabrication

World Investment


*World Investment is the sum of implied net investment, physical bar investment and all coins & medals

GOLD MARKET ‘SURPLUS’ IS EXPLODING IN VALUE TERMS

0

5

10

15

20

25

30

35

-

100

200

300

400

500

600

700

800

Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12F

US

$ B

illion

s

To

nn

es

*Surplus is defined as mine production plus scrap supply minus fabrication demand (excluding all coins)

Value


WORLD INVESTMENT*

0

5

10

15

20

25

30

35

40

45

0

100

200

300

400

500

600

700

800

900

Q1.08 Q1.09 Q1.10 Q1.11 Q1.12

US

$ B

illion

s

To

nn

es

*World Investment is the sum of implied net investment, physical bar investment and all coins & medals

Forecast

Value


400

600

800

1000

1200

1400

1600

1800

2000

0

50

100

150

200

250

300

350


US

$/o

z

Ne

t p

osit

ion

s (

co

ntr

acts

, th

ou

sa

nd

s)

*Non-commercial & non-reportable net positions in futures taken as proxy for investors’ positions.

Gold Price

INVESTORS’ NET POSITIONS ON COMEX*

Source: CFTC

GOLD EXCHANGE TRADED FUNDS

0

500

1000

1500

2000

2500

3000

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

To

nn

es

Others

iShares COMEX Gold Trust

SPDR Gold Trust

NewGold Gold Debentures

GBS LSE

Source: Respective issuers

As of 30/12/11, 154t increase from end-2010

PHYSICAL GOLD INVESTMENT*


-50

0

50

100

150

200

250

300

350

400

450

06.Q1 07.Q1 08.Q1 09.Q1 10.Q1 11.Q1

To

nn

es

India China Europe North America Other

* Including bars and all coins

INVESTMENT IN 2011 and 2012

• World Investment dropped in Q1 2011, largely due to profit

taking. However, investor interest rebounded in Q2 2011.

• Safe haven purchases picked up further in the summer as a

result of the US credit downgrade and rapidly developing debt

crisis in Europe.

• Selling in some areas, especially futures, in the final third of the

year amid new fears over the health of the banking sector in

Europe, coupled with profit taking and stop loss sales due to the

slide in the price. Demand strong, however, for physical bullion.

• Environment for gold investment in 2012 is expected to remain

supportive, with negative real interest rates in many countries,

currency values questioned and Eurozone debt crisis continuing.

SUMMARY AND PRICE OUTLOOK

MARKET OUTLOOK: NEXT SIX MONTHS

Positives:

• Macro-economic backdrop remains supportive for gold investment:

– Eurozone debt crisis continues; more aggressive monetary easing by ECB

– Further monetary stimulus by Fed

– Rising inflation expectations

– Short-term interest rates in major economies remain at low levels, close to zero

• Scrap supply is set to decline slightly

• Ongoing robust purchases from the official sector

Negatives:

• Stronger dollar

• Liquidity concerns/distress selling

• Slight increase in mine production

• Lower jewellery demand

QUARTERLY PRICE FORECASTS FOR 2012


600

800

1000

1200

1400

1600

1800

2000

2200

09.Q1 10.Q1 11.Q1 12.Q1

US

$/o

z

Average 2011: $1,571.64

2012 Forecast: $1,760

High

Average

Low

DISCLAIMER

The information and opinions contained in this presentation have been obtained

from sources believed to be reliable, but no representation, guarantee, condition

or warranty, express or implied, is made that such information is accurate or

complete and it should not be relied upon as such. Accordingly, Reuters Ltd

accepts no liability whatsoever to the people or organizations attending this

presentation, or to any third party, in connection with the information contained in,

or any opinion set out or inferred or implied in, this presentation. This presentation

does not purport to make any recommendation or provide investment advice to

the effect that any gold, silver, platinum or palladium related transaction is

appropriate for all investment objectives, financial situations or particular needs.

Prior to making any investment decisions investors should seek advice from their

advisers on whether any part of this presentation is appropriate to their specific

circumstances. This presentation is not, and should not be construed as, an offer

or solicitation to buy or sell gold, silver, platinum or palladium or any gold, silver,

platinum or palladium related products. Expressions of opinion are those of

Reuters Ltd only and are subject to change without notice.

volatility in global precious markets - cme group€¦ · • morning market report ... 10.q4 11.q1...

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