Gold wars - A golden renaissance presentation

THEGOLDWARS

A Tribute to Ferdinand Lips (1931 – 2005)

A Golden Renaissance

All material is compiled from sources believed to be accurate, but no accuracy can be guaranteed. The presentation is for information purposes only and is not a solicitation to invest. Unauthorized reproduction or distribution is strictly prohibited.

The Mining Journal Investor SeminarsDate: 07/09/10

WHAT ARE GOLD WARS?Gold Wars are between governments and gold. This ultimately restricts the constitutional rights of the people.

Gold is the vital barometer of the health of a nation’s currency. The suppression of gold by government allows them to mask the mismanagement of their currency.

DOLLAR – PURCHASING POWER PARITY BASIS

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Jan-50

Jan-53

Jan-56

Jan-59

Jan-62

Jan-65

Jan-68

Jan-71

Jan-74

Jan-77

Jan-80

Jan-83

Jan-86

Jan-89

Jan-92

Jan-95

Jan-98

Jan-01

Jan-04

Jan-07

Jan-10



MONETARY POLLUTIONThe dollar’s purchasing power has been trashed in the post-war period. One dollar can buy you less than one ninth of what it could have in 1950.

0%

-200%

-400%

-600%

-800%

-1000%

-1200%

-1400%

-1600%

-1800%

Sources: EU Commission, Eurostat, CBO, IMF, Morgan Stanley Research

Italy

Ger

man

y

Fran

ce

Port

ugal

USA U

K

Spai

n

Irela

nd

Gre

ece

400%

200%

Cost of ageingStructural deficitInitial debt level

TOTAL DEBT & LIABILITIES AS % OF GDP



GLOBAL DEBT MOUNTAINToday’s system of paper money is still very young. It depends solely on the belief that the debts upon which it is based will be repaid someday.



FERDINAND LIPS (1931 - 2005)

“Gold Ferdi, the Pope of Gold”, Karl Otto Pohl, former Head of the Bundesbank

He’s back but arguably he never left us – as his life’s work lives on through the Lips Institute www.lips-institute.ch



GOLD WARSGold Wars are between governments and gold. This ultimately restricts the constitutional rights of the people.



GOLD WARS OF THE 20TH & 21ST CENTURIES1. The Classical Gold Standard is abandoned in 1914

2. The Genoa Gold Standard 1922

3. Great Depression of 1930s – Exchange Stabilization Fund, Gold Reserve Act 1934

4. Bretton Woods 1944 – Gold Exchange Standard

5. Collapse of the London Gold Pool 1960s and 70s

6. Stagflation of 1970s and US Treasury and IMF Gold Sales

7. The Failure of the Second London Gold Pool of 1990s and 2000s?



THE LONDON GOLD POOL 1960 – 68

$35.50

$36

$35.25

$35.20

$35.15

$35.10

$35.05

$35.00

$34.95

$34.90

$34.85

21,000

Source: Financial Graph & Art

19,000

17,000

15,000

13,000

11,000

9,000

1968

1966

1964

1962

1960

1958

1956

1954

The Gold Price was fixed at $35 a troy ounce

$37

$38

London Goldmarket reopened

London Gold Pool established

Berlin Crisis

The London Gold Pool is dismantled

Cuban Missile Crisis

Six day war

Gulf of Tonkin IncidentDe Gaulle’s gold speech

First official US combat troopsarrive in Vietnam

France leaves the Gold Pool

British pound devalued 14%

Tet OffensiveOctober 1960 gold crisis begins as gold breaks $35.20

Suez Canal nationalised

Suez Crisis – France, Israel and Britain invade Egypt

1954 – 1968 Morning Fix, Left Axis, London Gold Market

US Gold Reserves

Yearly Tonnes, Right Axis



THE TWO-TIER GOLD MARKET 1968

$34

1968

$36

$38Gold Pool dismantled,

price spikes up

1967-1971 Morning Fix - London Gold Market

South African goldboycott begins

South Africa sells gold for foreign currency

Nixon ends gold convertability

Run on US dollar,deutche mark allowed to float

$40

$42

$44

$46

1969 1970 1971

When the Gold Price was fixed at $35

1

4

3

5

6

2

South Africa acceptsUS compromise. London gold hits lowest level in history.

Source: Financial Graph & Art



GOLD IS UNDERVALUED Price is the level at which one exchanges; value is whether it is worth it. Nominal new price highs in gold do not signal an overvalued market.

GOLD IN CURRENT DOLLARS

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Mar-70

Mar-72

Mar-74

Mar-76

Mar-78

Mar-80

Mar-82

Mar-84

Mar-86

Mar-88

Mar-90

Mar-92

Mar-94

Mar-96

Mar-98

Mar-00

Mar-02

Mar-04

Mar-06

Mar-08

Mar-10



GOLD IN ‘REAL’ DOLLARS IS STILL VERY UNDERVALUEDGold in current dollar terms is still 30% off the high it reached in 1980. Re-basing, hedonistic adjustments, etc have lowered the CPI levels and with it the true value of gold adjusted for inflation.



GOLD IS UNDERVALUED IN CURRENCY TERMSThe official gold reserve in banks throughout 1930s to 1950s was 40% but in reality was much higher. Even to achieve this backing, assuming current gold supply, the price of gold will have to rise by three to four times.

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

150%

125%

100% 100% Gold-Backed

75%

50%

25%

0%

Sources: U.S. Federal Reserve / World Gold Council

GOLD BACKING OF THE U.S. MONETARY BASE(CURRENCY IN CIRCULATION + BANK RESERVE CASH)

CRB/S&P RATIO

0

0.5

1

1.5

2

2.5

3

3.5

4

Oct-57

Oct-60

Oct-63

Oct-66

Oct-69

Oct-72

Oct-75

Oct-78

Oct-81

Oct-84

Oct-87

Oct-90

Oct-93

Oct-96

Oct-99

Oct-02

Oct-05

Oct-08



COMMODITIES ARE UNDERVALUED RELATIVE TO US EQUITIESCommodities as a whole are very cheap compared to equities. At Hinde we believe commodities will rise as currency creation competes with supply constraints. This will be gold positive.

GOLD RELATIVE TO S&P 500

0

100

200

300

400

500

600

Oct-70

Oct-72

Oct-74

Oct-76

Oct-78

Oct-80

Oct-82

Oct-84

Oct-86

Oct-88

Oct-90

Oct-92

Oct-94

Oct-96

Oct-98

Oct-00

Oct-02

Oct-04

Oct-06

Oct-08

Gold/S&P



GOLD IS UNDERVALUED VERSUS US EQUITIESGold vs S&P would have go up six times to match the 1980 highs.

GOLD RELATIVE TO S&P 500

0

100

200

300

400

500

600

Oct

-70

Oct

-72

Oct

-74

Oct

-76

Oct

-78

Oct

-80

Oct

-82

Oct

-84

Oct

-86

Oct

-88

Oct

-90

Oct

-92

Oct

-94

Oct

-96

Oct

-98

Oct

-00

Oct

-02

Oct

-04

Oct

-06

Oct

-08

0

100

200

300

400

500

600

Gold/S&PGold/Total Return S&P



GOLD IS UNDERVALUED VERSUS US EQUITIESEven more so on a total return basis:

The Gold v S&P ratio is currently one fifth of the high it reached in the early 1980s.Gold v Total Return S&P, however, is standing at only one twelfth the peak it reached in 1980.



GOLD UNDERVALUED BUT OUTPERFORMING ALL ASSET CLASSESOver the last twenty years, gold has outperformed all major asset classes on many time horizons.

GOLD V MAJOR ASSETS

-50%

0%

50%

100%

150%

200%

250%

300%

350%

1y Return 5yr Return 10y Return 15y Return 20y Return

10y US Treasury (total return*) (*from 1994)S&P 500MSCI WorldCRB IndexGold (USD)



GOLD IS UNDEROWNED

PERCENTAGE OF RESERVE ASSETS IN GOLD

87.9%

78.5% 78.4%75.2%

12.6%8.1%

3.0% 1.7% 0.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%U

S

Fra

nce

Germ

any

Neth

erlands

World

India

Saudi A

rabia

Chin

a

Bra

zil



MOST CENTRAL BANKS HOLD LITTLE GOLDEmerging market central banks hold very little gold. Their primary holdings are in US Treasuries. The scope for gold allocation in emerging markets is huge.

Source: IMF

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1959

1957

1955

1953

1951

-40

-30

-20

-10

0

10

20

MILLIONOUNCES

NET CENTRAL BANK SALES



MOST CENTRAL BANKS NOW LOVE GOLDFor the first time in forty years, central banks are beginning to buy more gold. China, Russia, India and Sri Lanka and others are now buyers on any weakness in the gold price.

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

70

60

50

40

30

20

10

%

CENTRAL BANK % RESERVES IN GOLD SINCE 1970

Source: IMF Source: IMF

CENTRAL BANK HOLDINGS OF GOLD IN MM TROY OUNCES

950

1,000

1,050

1,100

1,150

1,200

Oct-70

Oct-72

Oct-74

Oct-76

Oct-78

Oct-80

Oct-82

Oct-84

Oct-86

Oct-88

Oct-90

Oct-92

Oct-94

Oct-96

Oct-98

Oct-00

Oct-02

Oct-04

Oct-06

Oct-08



PAPER CURRENCY DWARFS GOLD ACCUMULATIONCentral banks are net buyers. But as fast as they might buy their paper currency reserves keep growing faster. Russia has bought over 220 tonnes of gold between 2000 to 2010. In 2000 the ratio of Russian gold holdings to their currency was 24.6%; now it is 5.1%.

BILLION $

8000

7000

6000

5000

4000

3000

2000

1000

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

CENTRAL BANK TOTAL INTERNATIONAL RESERVES – $ VALUE

Source: IMF Source: IMF



BUY WHAT CHINA IS BUYING: CHINA GOLD & SILVER LIBERALISATION The defining moment for the War on Gold? August 2010 will be the time we look back and say that was when the war was potentially won. China’s PBoC announced “to further develop the gold market”. This country has a serious affinity for gold.



CURRENCY REFORM – YUAN LIBERALISATION China has so far been accumulating mainly dollar assets rather than gold as its reserves balloon. The potential free float of the Yuan paves the way towards currency reform with Russia et al.

CHINA: FX RESERVES AND GOLD AS A % OF RESERVES

0

500

1,000

1,500

2,000

2,500

3,000

Oct

-96

Oct

-97

Oct

-98

Oct

-99

Oct

-00

Oct

-01

Oct

-02

Oct

-03

Oct

-04

Oct

-05

Oct

-06

Oct

-07

Oct

-08

Oct

-09

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Gold as a %FX Reserves, $ mns



BRICS ADVOCATE CURRENCY REFORM

January 2009 Russian leader Mr Putin said the leading powers should ensure an “irreversible” move toward a system of multiple reserve currencies, questioning the “reliability” of the US dollar as a safe store of value. “The pride of Wall Street investment banks doesn’t exist anymore,”

March 2009 PBoC Governor Zhou calls for new reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.”



GOLDEN DEMOGRAPHICS: EMERGING MARKET OWNERSHIP IS LOWIt’s not just emerging central banks that are underinvested. On a per capita basis, China and India own much less than many other countries, as well as below the world average. This is noteworthy for two gold loving countries.

GOLD DEMAND (GRAMS PER CAPITA)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Saudi A

rabia

Turk

ey

Hong K

ong

Germ

any

Vie

tnam

Egypt

US

Italy

Thaila

nd

Russia

UK

India

South

Kore

a

World

Taiw

an

Chin

a

Indonesia

Japan

Fra

nce

China still hugely underowns gold. It owns much less on a per capita basis than several other countries, and also owns less than the world average.

Source: UN, WGC



GOLD INVESTMENT IS INFINITESIMALImagine the impact of a shift out of bond markets into Gold…

INVE

STM

ENT

GO

LD

MAR

KET

VALU

EO

F AL

L G

OLD

GLO

BAL

MO

NEY

SUPP

LY (M

3)

FIN

ANC

IAL

ASSE

TS

50

100

150

TRILLION $

0.8 5.0

60.2

200.0



GOLD INVESTMENT HISTORICALLY MINUTEIn 1932 the allocation of gold relative to global financial investments was 20%. Today it stands at 0.8%. To rise to 2% would require 85,000 tonnes, approximately 34 years mine supply at existing rates.

GOLD + GOLD MINING EQUITIES AS A % OF GLOBAL ASSETS

0%

5%

10%

15%

20%

25%

30%

35%

1921 1932 1948 1981 2009

Source: Erste Bank



GOLD UNDEROWNED AND FALLING SUPPLY, RESERVE GRADESo much demand but not so much supply. There have been less than 5 gold discoveries over 10mm troy oz. this past decade. Barrick needs to replace 9mm troy oz. of production a year.

12%

9%

6%

3%

0%

-3%

-6% 1000

1500

2000

2500

Tonnes

1987

Mine Supply Mine Supply

Source: World Gold Council, UBS

GOLD MINE SUPPLY HEADING DOWN

1990 1993 1996 1999 2002 2005 2008 2011E Cash cost

Total costs

Reserve grade

750 1.8

1.7

1.6

1.5

1.4

1.3

1.2

1.1

1

650

550

450

350

250

150

GLOBAL MINE COSTS AND RESERVE GRADE g/t

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

Cos

ts U

S$/

oz

Res

erve

Gra

de g

/t



THE FINAL BATTLE?“ In order to improve your game, you must study the endgame before everything else, for whereas the endings can be studied and mastered by themselves, the middle game and the opening must be studied in relation to the endgame”

Jose Raul Capablanca



GOLD ‘SHORTS’ UNDER PRESSUREA series of actions have perhaps uncovered the distressed nature of the short perpetrators in the precious metals market.

Mysterious BIS Gold Swaps July 2010• 380 tonnes of gold is swapped between BIS and unnamed commercial bank• FT and WSJ post conflicting commentary from BIS themselves on counterparties involved

CFTC Hearings March 2010• Precious Metals trader blows whistle on manipulation of Comex market• Comex commercial bank short positions have been reducing as investigation mounts

IMF Quietly Selling Gold • 15 tonnes a month for first half of 2010

Cum

. Ove

rnig

ht C

hang

e $/

oz

Cum

. Int

rada

y C

hang

e $/

oz

1600

1400

1200

1000

800

600

400

200

0

100

0

-100

-200

-300

-400

-500

-600

1/1/2001

Overnight

Intraday

9/28/2003 6/24/2006 3/20/2009 12/15/2011

Source: Adrian Douglas, www.marketforceanalysis.com

CUMULATIVE INTRADAY CHANGE AND CUMULATIVEOVERNIGHT CHANGE IN GOLD 2001-2010



FAILURE OF THE SECOND LONDON GOLD POOL 2000 TO ?Physical Gold dumped into the PM Fix to contain its price in a covert version of the 1960’s London Gold Pool. Selling at PM fix and purchasing at the AM fix for last nine yrs returns US$1,400 per troy ounce.

JULY

70

2X

4X

6X

8X

10X

12X

14X

16X

JAN

71

JULY

71

JAN

72

JULY

72

JAN

73

JULY

73

JAN

74

JULY

74

JAN

75

JULY

75

JAN

76

JULY

76

JAN

77

JULY

77

JAN

78

JULY

78

JAN

79

JULY

79

JAN

80

JULY

80

JAN

81

JULY

81

1971 Nixon closes ‘Gold Window’ Are we here?

1999-PRESENT1970-1980

GOLD REBASED FOR COMPARISON – 1970-1980 AND 1999 TO PRESENT GOLD IN NOMINAL $S FROM 1970-1980AND FROM 1999 TO PRESENT

1201141081029690847872666054484236302418126

Months from Jan 1970, Jan 1999 resp.

-100

100

300

500

700

900

1100

1300

1500

1700

1900

1970-19801999-Present



GOLD – WHERE ARE WE NOW?Gold went up considerably more in the 70s compared to the last decade.



HINDE CAPITAL



HINDE GOLD FUND: A UNIQUE INVESTMENT• A long bias gold bullion fund with close adherence to USD spot gold price

• A managed gold investment in three share classes EUR, GBP or USD

• A potential return in excess of the spot gold price

• A cheap method of owning physical allocated gold

• A secure method of owning physical allocated gold

• An investment in growing gold ounces vis a vis up to 25 % small cap mining holding

• A liquid investment, no subscription or redemption fees, and same month dealing



Allocated Gold Bullion (stored at secure vaults in viable jurisdiction)

Unallocated Gold Bullion

Comex & Tocom Futures (warning potential hotspot)

Physical Bullion ETFs (warning hotspot)

Swaps & Derivatives

Other

Wealth Store

Default Risk

Safer

Increased Risk

HINDE GOLD FUND: A HIGHLY SECURE INVESTMENT

ETFs and other vehicles for gold investment have inherent risk investors may be unaware of. An investment should hedge out all possible credit risk. Hinde Gold Fund achieves this by investing in allocated gold held in a reputable Swiss Private Bank.

Default Risk

Wealth Store

Increased Risk

Safer



HINDE CAPITALHinde Capital’s structure ensures the firm’s operations are thoroughly audited and transparent.



HINDE GOLD FUNDHinde Gold Fund is a managed gold investment. It aims to outperform the gold price, while smoothing any downside volatility.

HGF RELATIVE PERFORMANCE: GOLD (LAST 12 MONTHS)

-7%

-2%

3%

8%

13%

18%

23%

28%

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Monthly Relative Performance

Cumulative Relative Performance (RHS)



HINDE GOLD FUNDHinde Gold Fund has performed well against other assets since its inception.

HGF COMPARATIVE PERFORMANCE SINCE INCEPTION

40

60

80

100

120

140

160

Sep

-07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep

-08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Hinde Gold FundMSCI WorldGDM



OUR GOLDEN SECRET TO SUCCESS:A BRILLIANT CEO, CFO?



HINDE CAPITAL: INVESTMENT MANAGERSBEN DAVIES, CEOBen Davies ran trading for RBS Greenwich Capital in London where he managed a macro portfolio. He started his career in 1995, trading in the Credit fixed income market at Credit Lyonnais, moving to IBJI as a fixed income specialist and finally to Greenwich Capital in 1999. He graduated with a BSc in Management from Loughborough University. Ben Davies and Mark Mahaffey, former colleagues from RBS Greenwich Capital, established Hinde Capital in early 2007, primarily to focus on the precious metals and commodity sector.

MARK MAHAFFEY, CFOMark Mahaffey has 24 years’ experience in the international markets, having held senior posts at several leading investment banks. He trained as a fixed income specialist at Daiwa Securities before joining Midland Montagu as Director of the US government trading desk. In 1990 he jointly set up the Greenwich Capital office in London where he managed a portfolio focusing on global macro themes, before joining IBJI in 2001. His most recent appointment from 2005 was Managing Director of Bank of America London Proprietary desk.



HINDE CAPITAL: CONTACT INFORMATION

Hinde Capital10 New StreetLondon EC2M 4TPUnited Kingdom

Email Ben Davies, CEO: [email protected]

Email Mark Mahaffey, CFO: [email protected]

Phone +44 (0)20 7648 4600

www.hindecapital.com



HINDE CAPITAL: DISCLAIMERHinde Gold Fund Ltd is an open-ended multi-class investment company incorporated in the British Virgin Islands.

This document is issued by Hinde Capital Limited, 10 New Street, London EC2M 4TP, which is authorised and regulated by the Financial Services Authority. This document is for information purposes only. In no circumstances should it be used or considered as an offer to sell or a solicitation of any offers to buy the securities mentioned in it. The information in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete. The information concerning the performance track record is given purely as a matter of information and without legal liability on the part of Hinde Capital. Any decision by an investor to offer to buy any of the securities herein should be made only on the basis of the information contained in the relevant Offering Memorandum. Opinions expressed herein may not necessarily be shared by all employees and are subject to change without notice. The securities mentioned in this document may not be eligible for sale in some states or countries and will not necessarily be suitable for all types of investor. Questions concerning suitability should be referred to a financial adviser. The financial products mentioned in this document can fluctuate in value and may be subject to sudden and large falls that could equal the amount invested. Changes in the rate of exchange may also cause the value of your investment to go up and down. Past performance may not necessarily be repeated and is not a guarantee or projection of future results. The Fund is categorised in the United Kingdom as an unregulated collective investment scheme for the purposes of the Financial Services and Markets Act 2000 and their Shares cannot be marketed in the UK to general public other than in accordance with the provisions of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemption) Order 2001, as amended, or in compliance with the rules of the Financial Services Authority made pursuant to the FSMA. Participants in this investment are not covered by the rules and regulations made for the protection of investors in the UK. Participants will not have the benefit of the rights designed to protect investors under the Financial Services and Markets Act 2000. In particular, participants will lose the right to claim through the Financial Services Compensation Scheme. The securities referenced in this document have not been registered under the Securities Act of 1933 (the “1933 Act”) or any other securities laws of any other U.S. jurisdiction. Such securities may not be sold or transferred to U.S. persons unless such sale or transfer is registered under the 1933 Act or is exempt from such registration. This information does not constitute tax advice. Investors should consult their own tax advisor or attorney with regard to their tax situation.

Economy & Finance

Gold wars - A golden renaissance presentation