Resource World Magazine

u Unless you belong to some nefarious organization that manipulates precious metals, it is extremely difficult to predict the nearterm price of gold. This is due, of course, to the various constantly changing drivers of the gold price such as unpredictable geopolitical events and the ever-changing value of the US dollar, although the US dollar isn't always a gold price driver. The same holds true for the gold price rising when the general stock market falls – this is not always the case. Recently, the ongoing crisis in Syria caused the price of gold to fluctuate wildly and instantly as the latest news raced around the world. Then there are unanswerable questions such as when the excessive "printing" of US dollars and related bond buying will devalue the "real" dollar and pump up the price of gold. The recent fear of the US Federal Reserve tapering quantitative easing caused the gold price to drop significantly. However, when tapering did not occur, gold shot up about US $60/oz. While near-term price predictions are tricky, there are circumstances and events taking place that bode well for mid and long term price appreciations for gold and silver. Meanwhile, investors hate the uncertainty caused by the US government's financial bickering that sometimes resulted in volatile gold price swings, some of them downright ugly. The behavior of gold producers can be monitored with the HUI Gold Index (the NYSE Arca Gold BUGS Index) that is comprised of a basket of unhedged gold stocks. Another popular index is the XAU Index which is the Philadelphia Gold and Silver Index that is comprised of 16 precious metal mining companies traded on the Philadelphia Stock Exchange. If you november 2013 are interested in technical analysis, there are daily comments by various analysts on www.kitco.com. The UK-based World Gold Council, the market development organization for the gold industry, has broken down the drivers of gold into seven primary interrelated global factors; namely, currencies, inflation, interest rates, consumer spending and income growth, systemic risks, shortterm investment flows and supply-side drivers. Refer to David Duval's column on page 62 for related information. While gold is not a major industrial metal like silver, its physical demand plays an important role. Indeed, globally, jewelry demand was up 37% in Q2 2013 to 576 tonnes from 421 tonnes in Q2 2012, reaching its highest level since Q3 2008, according to the World Gold Council. This was fuelled by the significant drop in the gold price in April 2013 that many saw as their chance to buy the yellow metal at very favourable prices. Others thought the gold bull market was over. Physical gold demand in China was up 54% in Q3 2013 compared to the same quarter last year while other parts of the world also saw strong demand – Indian jewelry demand was up 51%, the Middle East was up by 33% and Turkish demand was up by 38%. Bar and coin purchases were way up – 78% globally compared to last year. With Chinese government encouragement, demand for bars and coins was up 157% compared to Q2 2012, according to the World Gold Council. In total, jewelry, bar and coin sales was 1,083 tonnes in Q2 2013, up 53% higher than the previous year. Central banks were also major buyers of gold, purchasing 71 tonnes. However, this bar and coin demand doesn't reveal the total picture. Overall demand for gold in Q2 2013 was actually down 12% from the previous year's Q2. This was due to gold-backed ETFs that fell by over 400 tonnes, particularly driven by hedge funds and other speculative investors selling. It can be said that the selling of gold has become a Western activity while gold buying is the dominant factor in the East. Marcus Grubb, Managing Director, Investment at the World Gold Council, summed it up: "Q2 2013 continued the trend that we saw in the first quarter of a rebalancing in the market, as gold coming onto the market from ETF sales met with a wave of demand for bars and coins, as well as jewelry. This surge in bar and coin investment was a common theme in key markets around the world, and has been particularly prominent in the world's biggest gold markets, India and China." Gold is used in some industrial applications with demand in the technology sector stable at 104 tonnes, a rise of 1% over 2012. Gold mine production in Q2 2013 was 4% higher than a year ago at 732 tonnes with recycling falling 21%, resulting in a total supply that was 6% lower than the previous year. It is remarkable that some open pit gold mines can be viable with grades lower than 1 gram gold/tonne. With gold falling below the support level of US $1,350/oz, the big question is: Is gold's long-term uptrend still in place? Resource World interviewed Paul Saxton regarding a number of topics related to gold. Saxton is CEO of Golden Band Resources Inc. [GBN-TSXV; GBRIFOTCQX], a company that owns and operates a producing gold mine at La Ronge, Saskatchewan. www.resourceworld.com 7

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