Tocqueville Gold Private Equity Fund

Tocqueville Gold Strategy
June 2014
Doug Groh
Co-Portfolio Manager
Private and Confidential. Not for distribution
Disclaimer
This material may not be distributed, published, or reproduced, in whole or in part,
without the prior approval of Tocqueville Asset Management L.P. The information
presented in this material has been prepared by Tocqueville Asset Management L.P.
and/or obtained from sources which it believes to be reliable, however it does not
guarantee the accuracy, adequacy, or completeness of such information. The views
expressed in this presentation are the opinion of Tocqueville Asset Management L.P.
Charts or quotes from other sources have been selected because, in our view, they
provide an interesting, provocative or enlightening perspective on current events or
the topic of discussion. Their reproduction in no way implies that we endorse any part
of the material or investment recommendations that might be included.
2
Tocqueville Asset Management
•
New York-based, SEC registered investment adviser formed in 1985
•
Contrarian, fundamentals-driven investor that specializes in undervalued and outof-favor assets
•
Disciplined investment process that seeks to mitigate risk via in-depth primary
research and vigilant portfolio oversight
•
$12.2 billion of assets under management as of 4/30/14
•
Employee-owned limited partnership is an incentive to excel and a source of
organizational stability
Please refer to page 23 for full disclosures regarding the Tocqueville Gold Equity Composite.
3
Tocqueville Gold Portfolios
Portfolios
Gold Strategy AUM
as of 4/30/14
Percentage of
Firm’s Assets
Composite Returns
9/30/98 - 4/30/14
• Mutual fund
• Separately managed accounts
• Private funds
• $2.3 billion
• 18.5%
Gold Net Returns
XAU Index1
Cumulative
374.5%
53.7%
Annualized
10.5%
2.8%
1. PHLX Gold/Silver Sector Index (XAU).
Please refer to page 23 for full disclosures regarding the Tocqueville Gold Equity Composite. Past performance is no guarantee of future performance.
4
Tocqueville’s View on Gold
Reasons to Own Gold
• Store of value
• No counterparty risk
• Under-owned by financial
institutions
• Growing discrepancy between
paper claims and physical gold
• Low correlation with the S&P 500
Ideal Macroeconomic
Environment
• Negative real interest rates
• Potential risk of inflation
• Growing distrust of financial
institutions, politicians, and
currencies
Limited Supply of Physical Gold
• Growing investor demand
• Mine supply challenged
• Physical gold premiums elevated
after the April 2013 sell off
5
Gold is a Store of Value
Purchasing Power in the United States of Gold and
Selected Currencies (1913=1.0)
Reichsmark
1924=1.0
4. 0000
•
Gold has retained its purchasing
power over the long-term
•
Paper currencies lose purchasing
power because of governments’
policies to print money
Gold
1,0000
Swiss Franc
British Pound
US Dollar
0,1000
– Some policies were extreme and
their currencies are now extinct
Deutsche Mark*
1924=1.0
0,0100
Japanese Yen
0,0010
German Mark
100-Trillion Zimbabwe dollar note (2008-09)
French Franc*
*using Euro 1999-2014
0,0001
1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013
Purchasing power calculated from the implicit price deflator for US GDP and the
exchange rates of foreign currencies for US dollars. As of 3/31/14.
Source: American Institute for Economic Research, Bloomberg, MeasuringWorth.com.
500-Billion Yugoslav dinar note (1992-94)
100-Billion German mark note (1922-23)
6
Monetary Extremism is Currently in Vogue
The Biggest 6 Central Bank Balance Sheets
US, UK, Japan, China, EU & Switzerland (US$T)
$18
$16
•
$14
$12
Many countries have unveiled
unprecedented monetary stimulus
– Japan (Apr 2013) - $58B/month or
~13% of GDP on an annual basis
$10
$8
$6
– US (Apr 2014) - $45B/month or ~3%
of GDP on an annual basis
$4
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Bloomberg.
– Swiss National Bank expanded its
balance sheet relative to GDP from
21% in 2007 to 82% in 2012
Debt to GDP
250%
Greece Default (2012)
Argentina Default (2001)
Indonesia Default (1999-2002)
Russia Default (1999)
Pakistan Default (1999)
200%
150%
•
Adding debt is fine until others
believe it cannot be repaid
•
History suggests that many large
countries are now in or approaching
the “danger zone”
100%
50%
0%
Japan*
US
2000
Source: IMF, Bloomberg.
EU
2010
UK
Switzerland
China
2012
7
Alternative Currencies
Financial institutions from central banks to hedge funds have few alternatives to
the traditional “reserve” currencies
•
– Most options lack size, liquidity, and reputation/history
Gold is the logical “alternative” and is the only one without counterparty risk
•
Market Size of the Primary "Reserve" Assets = $39T
$14 000
$32T
$12 000
Billions
$10 000
$8 000
$6 000
$4 000
$2 000
$0
Japan
US
Source: World Gold Council.
Europe
Gold
UK
Canada
Denmark
Australia
China
Switzerland
8
Gold Equities Provide Optionality & Leverage to the Gold Price
Bullion
Mining Shares
YES
YES
Discovery/ Resource
Enhancement/Production
N/A
YES
Operating & Price Leverage
N/A
YES
Industry Structure Encourages
Mergers & Acquisitions
N/A
YES
Shareholder Return
N/A
YES
Alternative to Currency
Debasement
Organic Growth:
9
Investment & Research Process
•
Objective: Achieve exposure to gold related assets that have value creation potential
independent of the gold price
•
Investment thesis: Early-stage mining companies, we believe, offer the greatest
potential for value creation and are often overlooked in the market; large cap
mining companies provide leverage and liquidity; while a rising gold price should
enhance investment results
Idea
Generation
Desktop
Analysis
• 4 investment
• Public
analysts
information
• Relationships
review
(technical &
financial)
• >300 meetings
per year
• Site visits - 32
countries visited
• US$220B market
cap. universe
Valuation
• In-situ
valuation
• Cash flow
analysis
• Risk and
Sensitivity
analysis
Detailed
Due
Diligence
Execution
• Portfolio
• Site visits
allocation
• Information
blends
review
• Management industry and
conversations country risk
and return
• Update
analysis and
valuation
Value
Creation
• De-risk assets
• Dividends
from cash
flow
• M&A Activity
• Ongoing
Valuation
Reassessment
• Buy/Sell
10
Understanding Gold’s Decline – Current Situation
•
Gold and gold equities sold off during September through December as investors
pursued momentum performance in broader equity markets.
•
Gold sell-off accelerated with tax loss selling in late 2013.
•
Gold recovery in early 2014 was on the back of an oversold market, portfolio
repositioning, weaker U.S. dollar, geo-political tensions.
•
Gold equities in 2014 are benefiting from investors recommitting to gold exposure,
favorable valuations, merger & acquisition activity.
•
1Q14 Gold mining profit and earnings performance was in general a “beat” as
miners benefit from cost cutting focus and favorable exchange rate.
11
Understanding Gold’s Decline – Going Forward
•
•
•
•
•
•
The rationale for holding gold is still intact: Central Bank money printing, negative
real interest rates, financial repression.
Slow global economic growth – Europe, U.S., China – presents a long-term
dilemma to Central Bankers who are trying to use ultra low interest rates to
stimulate economic activity.
Sovereign debt is difficult to repay with low growth while inflation becomes a
more attractive means to reduce the impact from debt.
Despite attempts to taper quantitative easing, any sizable increase in interest rates
would likely destabilize any economic recovery or growth currently underway. And
potentially, an increase in interest rates could lead to a renewed bull market for
gold.
Gold mining companies have cut operating costs significantly, closer to $1000 per
ounce. Positive margins are aligned with the current gold price. Any positive
move in gold prices would have a powerful impact on profits.
We anticipate more mergers and acquisition activity in the sector which should
support valuations.
12
Life Cycle of a Gold Mining Stock
•
Tocqueville uses its intensive research to identify investment sweet spots
Higher risk
Development
Production
Value
Discovery
Lower risk
Valuation Parameters
Geologic Potential
Market Cap./Au oz. Resource
Market Cap./Au oz. Reserve
Net Asset Value per share
Enterprise Value/EBITDA
Price/Cash Flow per share
Price/Earnings per share
Market Cap./Au oz. Reserve
References to securities or investments should not be considered recommendations to buy or sell. Past performance is not a guide to future performance. Securities that
are referenced may be held in portfolios managed by Tocqueville or owned by principals, employees, and associates of Tocqueville, and such references should not be
deemed as an understanding of any future position, buying or selling, that may be taken by Tocqueville.
13
Not All Gold Mining Equities Perform Alike
17%
3%
25%
-1%
17%
6%
6%
-3%
28%
18%
15%
8%
-5%
0%
5%
10%
19%
14%
15%
20%
25%
30%
Source: Tocqueville Asset Management & Paradigm Capital
14
Portfolio
•
The portfolio is built to balance risk and return
– Significant opportunities exist in smaller, earlier-stage mining companies
– >50% of the asset base, on a look-through basis, is located in North America
Typical Equity Allocation by
Company Size/Type*
Underlying Asset Base*
>$8B (Senior
Producers)
10%
Canada
Mexico
10%
23%
23%
35%
45%
$2B - $8B (Mid-Tier
Producers / Large
Advanced
Developers)
$0.5B - $2B (Small
Producers /
Developers)
<$0.5B (Early
Development /
Exploration
Companies)
USA
Guatemala
2%
2%
3%
3%
3%
3%
4%
DRC
Burkina Faso
20%
7%
Turkey
Chile
Peru
Brazil
Other
*Please refer to page 23 for full disclosure information.
15
Tocqueville Gold Equity Exposure Over the Long Term
Gold
$/oz
100,0%
$2 000
90,0%
$1 800
80,0%
$1 600
70,0%
$1 400
60,0%
$1 200
50,0%
$1 000
40,0%
$800
30,0%
$600
20,0%
$400
10,0%
$200
Fixed Income & Cash Equivalents
Early Development/Exploration Companies
Senior Producers
Physical Gold
Small Producers/Developers
Gold Price per ounce
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
Apr-08
Feb-08
$0
Dec-07
0,0%
Other Equity/Securities
Mid-Tier Producers/Large Advanced Developers
*Please refer to page 23 for full disclosure information.
16
Osisko Mining Corp. - “A Fresh Outlook on Mining.”
•
Geological re-interpretation of prolific Quebec
gold district
•
9+ million ounce gold reserve supports mining
economies of scale
•
One of the top successful gold projects of the
cycle; six years after exploration & $1.0 bn of
investment, Canadian Malartic began production
•
Target of hostile acquisition and ultimately
friendly merger with Agnico-Eagle and Yamana
•
Osisko boosts 1Q cash flow profits to C$92 million
amid record gold production
References to securities or investments should not be considered recommendations to buy or sell. Past performance is not a guide to future performance. Securities that
are referenced may be held in portfolios managed by Tocqueville or owned by principals, employees, and associates of Tocqueville, and such references should not be
deemed as an understanding of any future position, buying or selling, that may be taken by Tocqueville.
17
Timing Isn’t Everything, But It Sure Helps
– Autumn correction / tax selling
– Late year rally
Yrs of Postive %
10
Yrs of Postive %
minus Negative %
5
Dec
Nov
Oct
Sep
Aug
Jul
0
Jun
• Attractive values
• Commercial inventory build
15
May
– Early in the year portfolio adjustment
– Spring Asian buying
– Late Spring/Early Summer lackluster
interest
– Summer rallies for end of the year
positioning
20
Apr
Seasonal Gold Interest Follows a
Pattern
Mar
•
Monthly Gold Price +/- Performance
1992-2014
Feb
Annual Rhythm to Gold investing
Jan
•
-5
-10
Source: Paradigm Capital & Tocqueville Asset Management
18
Performance
•
Tocqueville Gold Equity Composite has outperformed the gold price and
Philadelphia Gold/Silver Sector Index (XAU) over the long-term
1050%
950%
850%
750%
650%
Cumulative Net Performance Since Composite Inception
Portfolio
Gold
Philadelphia Gold/Silver Sector Index (XAU)
S&P 500
MSCI World Materials
550%
450%
350%
250%
150%
50%
-50%
09/98 09/99 09/00 09/01 09/02 09/03 09/04 09/05 09/06 09/07 09/08 09/09 09/10 09/11 09/12 09/13
Source: Tocqueville Asset Management, Bloomberg.
As of 4/30/14. Please refer to page 23 for full disclosures regarding the Tocqueville Gold Equity Composite. Past performance is no guarantee of future performance.
19
Composite Net Annual Returns
100%
75%
50%
25%
0%
-25%
-50%
YTD
2014
Tocqueville 18,5% -11,2% 21,0% 72,8% 52,8% -9,6% 28,8% 36,6% 12,0% -35,8% 88,2% 55,7% -17,4% -9,7% -49,9% 19,4%
XAU
6,5% -22,5% 7,6% 43,4% 44,0% -7,7% 30,6% 12,5% 22,9% -27,7% 36,6% 35,9% -19,2% -6,7% -48,0% 10,5%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
As of 4/30/14. Please refer to page 23 for full disclosures regarding the Tocqueville Gold Equity Composite. Past performance is no guarantee of future performance.
20
Composite Performance
Gross-of-Fee Net-of-Fees XAU Index Number of
Return
s Return
Return
Portfolios
Composite 3-Yr
Internal
Standard
Composite
Deviation
Dispersion
N/A
N/A
XAU 3-YR
Standard
Deviation
N/A
Composite
Assets
(US$M)
$673
Percent of
Firm Assets
Firm
(US$M)
Assets
23.6%
$2,854
2003
54.3%
52.8%
44.0%
5
2004
-8.1%
-9.6%
-7.7%
6
3.5
N/A
N/A
$641
17.3%
$3,711
2005
30.3%
28.8%
30.6%
9
4.4
N/A
N/A
$820
17.4%
$4,727
2006
38.1%
36.6%
12.5%
10
4.0
N/A
N/A
$1,113
18.9%
$5,877
2007
13.4%
12.0%
22.9%
10
4.1
N/A
N/A
$1,256
17.3%
$7,276
2008
-34.3%
-35.8%
-27.7%
10
2.1
N/A
N/A
$724
12.8%
$5,657
2009
89.7%
88.2%
36.6%
8
2.8
N/A
N/A
$1,404
17.1%
$8,199
2010
57.2%
55.7%
35.9%
8
3.3
N/A
N/A
$2,944
26.9%
$10,944
2011
-15.9%
-17.4%
-19.2%
10
1.3
31.4%
33.9%
$2,611
24.5%
$10,641
2012
-8.3%
-9.7%
-6.7%
17
2.7
26.1%
26.3%
$2,821
25.8%
$10,945
2013
-48.4%
-49.9%
-48.0%
12
1.1
28.5%
28.8%
$1,376
12.0%
$11,447
9/30/98 – 4/30/14
Annualized
Gold Strategy Net Returns
374.5%
10.5%
XAU Index
53.7%
2.8%
Please refer to page 23 for full disclosures regarding the above chart. Past performance is no guarantee of future performance.
21
Opportunity
•
•
Gold equities are historically inexpensive relative to bullion
The gold mining industry is going through a period of self-examination and we
believe positive change is underway
Valuations are based on a gold price assumption of $1300/oz in 2014, $1400/oz in 2015, $1500/oz in 2016, and $1300/oz in 2017 and long term.
22
Team
John Hathaway, CFA, Senior Managing Director, Co-Portfolio Manager
Mr. Hathaway is a co-portfolio manager of the Tocqueville Gold Fund, as well as other investment vehicles in
the Gold Equity Strategy. Mr. Hathaway joined Tocqueville in 1997 where he is a co-portfolio manager of the
Tocqueville Gold Fund as well as other investment vehicles in the Gold Equity strategy. He is also the portfolio
manager of private funds. Prior to joining Tocqueville, Mr. Hathaway founded and managed Hudson Capital
Advisors followed by seven years with Oak Hall Advisors as the Chief Investment Officer in 1986. In 1976, he
joined the investment advisory firm David J. Greene and Company, where he became a Partner. Mr. Hathaway
began his career in 1970 as an Equity Analyst with Spencer Trask & Co. Mr. Hathaway earned a B.A. from
Harvard College and an M.B.A. from the University of Virginia. He also holds the CFA designation.
Douglas Groh, Co-Portfolio Manager
Mr. Groh joined Tocqueville in 2003, where he is a co-portfolio manager of the Tocqueville Gold Fund as well as
other investment vehicles in the Gold Equity Strategy. Prior to joining Tocqueville, Mr. Groh was Director of
Investment Research at Grove Capital from 2001 to 2003. From 1990-2001, he held investment research and
banking positions at J.P. Morgan, Merrill Lynch, and ING Bank. During the late 1980s, Mr. Groh served as a
portfolio manager of gold mining equity funds for U.S. Global Investors and IDS Financial Services, after
beginning his career as a mining and precious metals analyst in 1985 at U.S. Global Investors. Mr. Groh earned a
B.S. in Geology/Geophysics from the University of Wisconsin – Madison and an M.A. from the University of
Texas at Austin, where he focused on mineral economics.
23
Team
Ryan McIntyre, CFA, Research Analyst
Prior to joining Tocqueville, Mr. McIntyre was an analyst and then associate focused on mergers and
acquisitions in the metals and mining sector with Macquarie Bank. Mr. McIntyre holds a Bachelor of Commerce
with Distinction (majoring in finance) from Dalhousie University and an MBA from the Yale School of
Management.
Coille van Alphen, Research Analyst
Prior to joining Tocqueville in 2011, Ms. Van Alphen worked in corporate development at Cardero Resources.
She gained investment banking experience through working with a leading public institution, Canada Pension
Plan, and one of Canada's largest independent investment dealers, Canaccord Genuity. Ms. Van Alphen holds a
MBA from the University of Western Ontario, graduating with distinction, and a BA in geography.
Victor Huwang, Director of Gold Funds Operations
Mr. Huwang has extensive fund administration experience in financial reporting, investor relations and
portfolio management system development/implementation. He began his career in 1992 as a mutual fund
accountant with The Boston Company. He joined Wisdom Tree Capital Management in 1996 and became a
hedge fund controller. In 2002, he co-founded Venture soft International, a private equity portfolio
management software firm. He joined The Bank of New York Mellon as a Vice President in 2006 overseeing
NAV operations. He holds a BS degree in accounting/finance from Boston College and a MBA from the Hong
Kong Polytechnic University with a concentration in China Business Studies.
Liya Corona, Assistant
Ms. Corona joined Tocqueville in 2011 as an intern and became a full-time employee in 2012. Ms. Corona holds
a BS degree in accounting from Baruch College of the City University of New York.
24
Performance Disclosure Statement
Past performance is not indicative of future results.
1. Tocqueville Asset Management L.P. (the “Firm”) is a U.S. registered investment advisor which offers specialization in the management of family assets.
2. The Firm claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. The Firm has been
independently verified for the periods January 1, 2002 through June 30, 2006. The verification reports are available upon request. Verification assesses whether (1) the firm has complied with
all the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) the firm’s policies and procedures are designed to calculate and present performance in
compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. For a list of composite descriptions, please call 212.698.0800. Policies
for valuing portfolios, calculating performance, and preparing complaint presentations are available upon request.
3. The Gold & Precious Metals Equity Composite (the “Composite”) consists of only discretionary accounts in the Gold Equity strategy which are at least $1 million in asset size at time of inclusion.
Accounts meeting the Composite criteria are included in the Composite in the first full measurement period in which that account is under management. Currently the “Period” consists of the
first full month. Prior to December 31, 2008 the “Period” was the first full quarter. The Composite returns are benchmarked against the total return of the PHLX Gold/Silver Sector Index (XAU).
The inception date of the Composite was September 30, 1998. The Composite creation date was November 1, 2008. The Composite has not been independently audited.
4. The Composite results are time-weighted rates of return net of commissions and transactions costs, and have been presented both gross and net of investment advisory fees. The Firm values
all portfolios monthly and records all transactions on a trade date basis. Dividend income is recorded on a cash basis. Monthly Composite returns are calculated by weighting each account’s
monthly return by its beginning market value as a percent of the total Composite beginning market value. Currently Net of fee composite returns reflect the deduction from gross performance
of an investment management fee of 1.50% annually reduced at a rate of 0.125 basis points per month. From October 1, 2002 to December 31, 2008 Net of fee composite returns reflect the
deduction from gross performance of an investment management fee of 1.50% annually reduced quarterly. Prior to October 1, 2002 Net of fee composite returns deduction from gross
performance of an investment management fee of 1.00% annually reduced quarterly. Annual Composite returns are calculated by linking the monthly returns through compounded
multiplication. For each account in the Composite, net of fee rates of return are calculated by taking the previous quarter’s monthly advisory fee as a percentage of the account’s month-end
market value. For each Composite, monthly and annual returns, which are net of fees, are calculated in the same manner as described above. Performance on this Composite has been
calculated using U.S. dollars. Past performance is no guarantee of future results. Performance results are total return, i.e. include the reinvestment of all income.
5. Composite dispersion is a measure of variability, which is often used in the investment industry as an indicator of risk. The composite dispersion of annual account returns is calculated from
the measurements of variance from the mean annual account return on an equal-weighted basis. Composite dispersion is not meaningful for populations of less than five accounts. As of
December 31, 2013, the three-year annualized standard deviation (using monthly returns) was 28.5% for the composite and 28.8% for the Philadelphia Gold & Silver Index w/ Income.
6. The standard fees charged by the Firm applicable to the Composite are 1.50% on the first $10 million and 1.00% thereafter. There are no non-fee paying accounts in this Composite.
7. The benchmark for the Composite is the XAU Index. This index is comprised of 30 companies engaged in the gold/silver mining sector. It is a market capitalization-weighted index calculated on
a total return basis with dividends reinvested. You cannot invest in the index.
8. Market cap data is calculated by FactSet Research Systems and the equity mining stages for each market cap is provided as a general guide and defined by the investment team. The
underlying asset base is an estimate of the mine locations of a largest account in the Tocqueville Gold Equity strategy and is calculated by the investment team. Top 10 Holdings are also based
on the representative account, and are shown as Supplemental Information. The portfolio is actively managed and holdings will change over time. Top 10 Holdings should not be deemed a
recommendation to purchase or sell the securities mentioned. Holdings are based on percent of net assets. This information is unaudited and should be referenced for informational purposes
only.
9. The Gold Equity portfolio invests in gold, which involves additional risks, such as the possibility for substantial price fluctuations over a short period of time. The portfolio may also invest in
foreign securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods. The portfolio is non-diversified, meaning it may
concentrate its assets in fewer individual holdings than a diversified portfolio. Therefore, the portfolio is more exposed to individual stock volatility than a diversified portfolio.
25
Appendices
26
Technical Indicators
•
We believe the recent market correction has set the stage for a powerful advance
166.0%
?
139+ weeks
$1 600
-31.6%
Time to break old high
75.7% 75 weeks, 4 days
$800
123.9% 68 weeks, 1 day
-29.5%
-22.6%
29 weeks, 4 days
$400
-16.2%
$200
2001
2002
2003
As of 5/12/14
Source: Casey Research, Factset.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
27
Gold is Forming a Major Bottom
CFTC data shows net commercial position at the highest level since April 2001
•
Gold - Net Commercial Position
# of contracts
100 000
April 2001 bottom
$255/oz
50 000
Feb. 2005
bottom $412/oz
0
2008 bottom
at $712/oz
-50 000
2012 bottom
at $1540/oz
-100 000
-150 000
-200 000
QE3
-250 000
2008 top
at $1000/oz
-300 000
-350 000
2001
2002
2003
2004
Source: Meridian Macro Research, CFTC.
2005
2006
2007
2011 top at
$1900/oz
2009 top
at $1215/oz
2008
2009
2010
2011
2012
2013
2014
28
Gold and Real Interest Rates
Gold thrives when real interest rates approach zero
Financial repression is a macro driver of gold
•
•
$2 000
14%
12%
$1 500
$1,284
10%
$1 000
US Real Rates
8%
Gold
$500
6%
$0
4%
2%
0%
-$500
1966
1971
1976
1981
-2%
1986
1991
1996
2001
2006
2011
-$1 000
-1.5%
-$1 500
-4%
-$2 000
-6%
Source: McClellan Financial Publications, US Treasury, Bloomberg.
29
Gold and U.S. Financial Assets
•
Gold remains inexpensive relative to U.S. financial assets
Market Value of Above Ground Gold/US Financial Assets
25,0%
21,8%
20,0%
19,6%
15,0%
10,0%
4,0%
5,0%
0,0%
1934
1982
Source: World Gold Council; Federal Reserve.
Ratios are based on US total financial assets of ~$194T and market value of above ground gold of ~$7.8T as of 12/31/13.
2013
30
Physical Market Constraints
A 1% increase in investment allocation to gold would swamp world supply
– Incremental gold required is 42,800 tonnes of gold, more than exists in the known float1
– The inability to quickly produce more gold could place upward pressure on prices
Investment Allocation to Gold
80 000
70 000
60 000
Tonnes
•
50 000
40 000
30 000
20 000
10 000
0
Current 0.7% allocation
Source: World Gold Council.
1 Assumes
1.7% allocation
no price impact, a 12-month average gold price as of 12/31/2013 of $1,408/oz, and U.S. financial assets of $194T as of 12/31/2013.
31
Industry in the Midst of Positive Changes
More gold companies are:
•
–
–
–
–
Instilling better discipline on capital expenditures
Offering dividends and share buybacks
Changing executive management in the best interest of shareholders
Undergoing asset sales
$18
300
$16
250
$14
$B of Equity Issued
# of Transactions
$12
$10
200
150
$8
$6
100
$4
50
$2
$0
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: RBC Capital Markets, Bloomberg.
32
Gold Industry Production Costs
•
Mining costs are leveling off, as miners have the ability to adapt to a changing gold
price environment
$1 400
40%
$1 200
35%
30%
$1 000
25%
$800
20%
$600
After Tax Cash Cost
($/oz)
$400
15%
10%
$200
$0
5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 2014E
After Tax Cash Cost ($/oz)
209
210
253
311
363
413
552
738
661
814
987
1 108 1 100
980
Margin (%)
23%
32%
31%
24%
18%
32%
21%
15%
32%
34%
37%
34%
23%
22%
0%
Costs reflect historical results for approximately 30% of annual global gold production from 13 of the
largest producers; while 2013 & 2014 estimates are based on FactSet consensus estimates for the same
producers.
Source: Tocqueville Asset Management, FactSet.
33
The XAU/Gold Ratio
•
Gold stocks represent historically low values relative to the metal
0,40
0,35
Inception
of SPDR
Gold ETF
0,30
0,25
0,20
0,15
0,10
0,05
0,00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: Bloomberg.
34
The Dow/Gold Ratio
Cycles end when the Dow Jones Industrial Average equals ~1 ounce of gold
The Dow/Gold Ratio (DJIA Divided by Gold Price)
64
32
16
Log Scale
•
8
4
2
1
1915
1922
1929
1936
1943
1950
1957
1964
1971
1978
1985
1992
1999
2006
2013
Source: Tocqueville Asset Management, Bloomberg.
35
Contact Information
 Eric Tajchman - Directeur du développement
– 01 56 77 33 86 - etajchman@tocquevillefinance.fr
 Anne-France Gauthier - Responsable distribution France
– 01 56 77 33 88 - afgauthier@tocquevillefinance.fr
 Jean-Baptiste Chambert - Responsable de clientèle
– 01 56 77 33 54 - jbchambert@tocquevillefinance.fr
 Cyril Grinblat - Responsable de clientèle
– 01 56 77 33 89 - cgrinblat@tocquevillefinance.fr
 Eric Diby – Assistant commercial
– 01 56 77 33 93 - ediby@tocquevillefinance.fr
 www.tocquevillefinance.fr
36