War Room 08/31 Gold – Where Do We Stand, And Where Are We Going?

War Room Monthly macro discussion Using tools in context Feature for subscribers only Feedback - what should it to be?

Gold Market Fundamentals Past + Present

Gold Market Fundamentals Jewelry = 57% of gold demand Investments = 32% of demand Two-thirds of Q demand growth investment- related Mining is keeping pace with core demand, not investment demand Gold recycling fills the difference Gold is never destroyed – unlike oil, the total world gold supply keeps on rising over time Demand ('05-'10 5yr avg) Supply ('05-'10 5yr avg)

Gold, Inflation, and Crises - Gold responds to higher inflation, as expected - But gold has a mixed record in responding to crises USSR Collapse, Gulf War I 9/11, Gulf War II

Gold Comparisons: Silver Oil S&P 500

Silver vs Gold, Silver moves with gold, but with higher volatility Has outperformed gold during precious metals rallies

Oil, Gold, S&P: Correlation Trends Diversification? Oil, gold, and equities are thought to be non-correlated, but in fact their relationships widely vary over time.

Oil, Gold, S&P: Correlation Trends Since financial crisis, oil, gold, and the S&P all highly correlated Correlation broke down in recent correction If gold – oil correlation is breaking down, which is overpriced, and which is underpriced?

Oil – Gold Ratio, Ratio has been as high as 34, and as low as 7, with Mean at 15.5 Currently near 20 – above average but not overextended Oil Barrels Per Ounce of Gold

Commodities Boom + Bust of Surge – 19 months Gold Boom + Bust of Surge – 10 months Previous Commodities Bubbles

Comparing Oil Gold 2011 Is Gold walking on air since July, or is it different this time? Oil was Wile E. Coyote, walking on air, from May to July 2008, and then falling off a cliff.

Gold Miners are not Gold Exposure Gold Miners more tied to Markets Dont confuse Gold Metal + Miners

Gold Scenarios

Present Gold Surge – 2 months old The surge has just begun Bullish Case for Gold: QE 3 succeeds = more asset inflation Euro Zone situation further deteriorates Bubbles last a long time (JP Morgan target $2500)

Bearish Scenarios for Gold QE3 Fails: Liquidity Trap Deflation: US Becomes Japan Gold Crash (via economic recovery)