GOLD

1
GOLD

• Matt Litwin
• Feb. 20th 2006

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Why Invest in Gold?

• Excellent portfolio diversifier
• Gold can be converted into any currency
• Serves as a hedge against inflation
• Move independently of the broader stock markets
• Gold is a safe haven from uncertainty

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Why the StreetTracks ETF?

• Created in 2004
• ETF is physically backed by deposits of gold
• More demand means they buy more gold

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Why is Gold Going Higher?

• Simple Supply vs. Demand
• Whos Buying
• China, India, Middle East ? Increased wealth to
  invest
• Indias jewelry business
• Foreign Reserves South Korea, South Africa,
  Russia, China
• Whos Selling
• Hedge Funds
• Conspiracy Theory

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China Will be the Catalyst

• Citizens Starting in 2002 the Chinese were
  allowed to invest in gold (1975 for US)
• American ownership 1.4g per person
• Chinese ownership lt.1g per person
• Government China will diversify its foreign
  reserves
• They use gold to hedge against USD
• Chinese Reserves are only 1.4 gold

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Supply-Side Trends

• Mining companies neglected exploration in the
  1990s due to lower prices and it will take many
  years before the necessary exploration catches up
• Morgan Stanley Supply peaked in 2001 and will be
  constrained until 2009

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Additional Notes

• Physical demand for gold jewerly amounted to 110
  of global gold producation
• Typically Gold moves lower when the dollar
  strengthens but this hasnt been the case in the
  last year ? Bull Market
• Typically there is a correction between March and
  May and people are trying to time this
• All time high is 850 which is 1500
  inflation-adjusted
• The value of gold will never go to zero

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My Recommendation

• Purchase 50 shares (2250) _at_ 55
• Price Target 65
• Downward Price Limit 47

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Gold Skeptic

• Steve Novakovic

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What has Gold done?

• Up over 22 in the last 3 months
• Up over 34 in the last year

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Why has Gold been up?

• Inflation Fears
• European Central Banks
• Middle Eastern Geopolitics
• Speculation
• Asian Central Banks buying
• ETFs

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Inflation

• Gold is a great inflation hedge
• You can convert gold into any currency
• Ben Bernanke is expected to be more of a hawk
  than Greenspan

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European Central Banks

• Committed to sell a max of 500 tons per year from
  2005-2009
• Sold 459 ton by July, 2005
• Second half of 2005 had little selling pressure
  from ECB
• Short term will we see selling pressure?

14
Middle East

• The market hates uncertainty, but Gold loves it
• When crises hits investors flock to gold
• Time reduces our uncertainty

15
Speculation

• Will China increase its gold exposure as it
  diversifies its currency basket
• ECB sells gold because it doesnt compare to the
  paper yield

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ETFs

• According to the World Gold Council, ETFs
  account for 10 of what gets mined per year