PMFM_Feb2010-1

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in association with

Precious Metals

Forecasting

Monthly

February 2010

Date of release: 2nd February 2010

Copyright GFMS Ltd - February 2010

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Disclaimer

Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd cannot

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Table of Contents

Gold 3

Silver 6

Platinum 9

Palladium 12

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Precious Metals Forecasting Monthly - February 2010

3Independent - Informed - International

1. Gold

Gold Price and Forecast Trading Range Gold Supply & Demand

(tonnes)

2009 2010F

Supply

Mine production 2,553 2,610

Net official sector sales 24 200

Old gold scrap 1,565 1,644

Total Supply 4,142 4,454

Demand

Fabrication

Jewellery 1,686 1,669

Other 627 652

Total Fabrication 2,314 2,321

Bar hoarding 159 178Net producer de-hedging 242 80

Implied net investment 1,427 1,875

Total Demand 4,142 4,454

Source: GFMS

Outlook for Next Three Months:Golds resilience in recent weeks and the rebound in the price during the first few trading days of

February might suggest that we have already seen this years low in late January when the metal

briefly traded down into the $1,070s. Indeed, the case for this is not unreasonable given the

strong physical demand seen from Asia, especially China, when gold was below the $1,100 mark.

Moreover, at the end of January the euro hit a seven month low against the US dollar on the back of

concerns over Greeces fiscal position reaching new peaks plus a decrease in risk appetite linked to

monetary policy tightening in China and plans for firmer bank regulation in the United States. Since

then, though, the European single currency has strengthened, in part due to Greeces revised fiscal

programme but also as the focus has shifted to President Obamas massive budget deficits and as

more signs of recovery in the US economy have for the time being re-energised the appetite for risk.

On balance, however, we think that this current rally in gold will fairly quickly come to an end. This

is because we expect a period of demand weakness in the next few months from both western

investors and Asian buyers plus a further spell of US dollar strength. After another year with a strong

performance, gold benefited from fresh allocations by insitutional investors in January. Such new

commitments may now be less forthcoming, especially while there is no immediate sign of inflationary

pressures building. Although for the year as a whole we expect substantial new investment, our

hunch is that there may now be a quieter period that could last several months. Similarly, a good deal

of the Asian physical demand referred to above has been supported by restocking after an extended

period in the fourth quarter of 2009 when imports were very low in several key markets. This will

tend to dampen demand in the weeks ahead, especially if prices are above $1,100/oz. In particular, it

should be borne in mind that very strong buying ahead of the Chinese New Year, which begins on 14th

February, has been and remains an important factor underpinning prices that will shortly be removed.

When it comes to the level of the US dollar and, especially, its exchange rate against the euro, we

are not convinced that the December/January rally in the American currency is over. First, our

expectation is that risk appetite will decline over the next few months as it becomes clear that there is

no smooth economic recovery taking place. This shift is likely to be enhanced by stock prices dropping

further. Second, we would expect more pressure on the euro as the markets focus is extended from

Greece to include other European countries with similar fiscal problems such as Portugal and Spain. If

the euro were to fall to around the $1.35 mark then we expect this would be sufficient coupled with

the weaker underlying demand conditions described above and liquidations from still very high long

speculative positions on the Comex to force gold prices to well under their year-to-date lows.

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4 Independent - Informed - International

Gold 1-month and 12-month Leasing Rates

Gold Price Volatility over Last 3 months

Gold Prices in January

Major FX Rates and World Stock Indices in January

10

15

20

25

30

FebJan-10DecNov

10

15

20

25

30

FebJan-10DecNov

Source: GFMS

Rolling20-dayvolatility(%)

Max Min Average YTD Avg

US$/oz 1,153.00 1,078.50 1,117.96 1,117.96

Euro/kg 25,514 24,668 25,196 25,196

Yen/g 3,407 3,140 3,278 3,278

Rps/10g 17,045 16,245 16,704 16,704

Rmb/g 253.05 237.93 245.50 245.50

TL/g 53.85 51.59 52.84 52.84

Rand/kg 274,059 262,903 268,092 268,092

Source: Thomson Reuters EcoWin

Key Gold Market Developments: The gold price rallied through the first week of January, rising from an opening fix of $1,121.50 to a

high of $1,153.00 on the 11th. There then followed a sharp drop largely on the back of a rebound in

the US dollar, with the yellow metal falling by over 6% to record a monthly closing price of $1,078.50

before trading higher again in early February.

Prices in other currencies showed similar losses in January. The only exception was the euro price,which registered a marginal gain of 1%, reflecting the euros depreciation against the US dollar.

Gold ETFs saw a general declining trend during the month. At end-January 2010, total combined

holdings reached 1,793 tonnes, 1% or 24 tonnes compared with the end-2009 level.

Much of the decline in the gold price was driven by investor activity in the futures market. After

edging higher in the first two weeks, net investor positions on Comex posted a hefty fall of 12% to

around 248,600 contracts by the 26th, their lowest level since early September 2009.

Gold Market News: The China Gold Association announced that the countrys gold production rose to 314 tonnes in

2009, up by 11.3% year-on-year. The top 10 producers are said to have produced a combined total of

149 tonnes last year, accounting for 47.3% of total Chinese output.

Kinross planned to pay $368 million in shares and cash to acquire two Russian Far East gold

properties, both of which are located 90 kilometres north of Kinross Kupol operation. The transaction

is expected to help the company to enhance its existing Kupol facilities and to allow for blending of

Kupol ore with higher-grade ore from the new properties.

Newcrest reported a 17% increase in gold output for the December quarter, and maintained its full-

year gold production guidance of 1.81 to 1.91 Moz. Total cash costs fell by 31% in the fourth quarter

of 2009, helped partially by lower site operating costs.

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

FebJan-10DecNov

%


12-month

1-month


US$/EUR 1.455 1.390 1.427 1.427

JPY/US$ 93.21 89.44 91.14 91.14

DJ AIG 10,725 10,067 10,478 10,478

S&P 500 1,150 1,074 1,124 1,124

HUI 465 374 427 427

XAU 183 148 169 169


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Gold/Oil Price Ratio

Investor Net Positions* in Comex Futures

Gold Price and XAU Index

Combined Daily Gold ETF Holdings Major Gold Futures Markets and ETFs

Premium/Discount in Indian Physical Market

COMEX TOCOM ETFs total

net long open interest holdings

Date futures* tonnes futures tonnes tonnes

05-Jan 278,551 866.4 128,631 128.6 1,811

12-Jan 282,488 878.6 114,754 114.8 1,800

19-Jan 273,647 851.1 132,413 132.4 1,795

26-Jan 248,618 773.3 122,743 122.7 1,793

YTD Avg 270,826 842.4 125,340 125.3 1,800

* Combined non-commercial & non-reportable positions, contracts

Source: Comex, Tocom, respective ETF issuers

Netpositions

(contracts,

thousan

ds) C

omexsettlementprice(US$/oz)

Source: CFTC

200

220

240

260

280

300

320

Jan-10DecNov

900

950

1000

1050

1100

1150

1200

Gold Price

* Combined non-commercial & non-reportable positions

12

13

14

15

16

17

FebJan-10DecNov


Price/oz

XAU

Index

Gold $ Price

100

120

140

160

180

200

650

750

850

950

1050

1150

1250

FebJan-10DecNov

XAU Index


Gold Price

Tonnes

US$/oz

Source: Thomson Reuters EcoWin, respective ETF issuers

1700

1750

1800

1850

Jan-10DecNov

850

950

1050

1150

1250

Gold Price

Total ETF Holdings

Rps'000/10

g

Premium/Discount,$

$ Premium/Discount

-4

-2

0

2

4

14.5

15.5

16.5

17.5

18.5

Jan-10DecNov

Source: GFMS

Gold Rps Price

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2. Silver

Silver Price and Forecast Trading Range Silver Supply & Demand

Source: GFMS

Outlook for Next Three Months:At the time of writing silver has risen to not far short of the $17 mark and it is quite possible that

further gains well into the $17s will be seen in the short term. However, as with gold we would

caution that the most likely outcome is a return to lower levels once the current speculatively-drivenmove loses momentum. Important grounds for expecting this is that silver is particularly vulnerable

because of its important industrial-end uses to a substantial correction if a less optimistic mindset

begins to prevail concerning the economic outlook. This would apply to both developed countries

where, especially in the United States, a strong rebound in activity seems largely related to temporary

inventory rebuilding and China, where it is debatable whether recent steps to rein in bank lending will

be the last such policy measures applied to constrain excessive real estate and financial speculation

in the country. Moreover, the further round of US dollar strengthening that we expect will tend to put

downward pressure on all commodity prices, including silver. As such, we would not be surprised to

see the white metal dropping comfortably below $15/oz within the next three months and perhaps

even breaching the $14 level at its lowest point.

Key Silver Market Developments: Silver prices jumped in early January and then climbed to a high of $18.84 on the 11th. Since then,

however, profit taking and a fall in the gold price has led to a marked correction in silver, with the

price falling to a four-month low of $16.29 by the end of the month. Similar to gold, early February

has seen silver rally strongly, into the $16.80s at the time of writing.

Compared with gold, silver performed in a far more volatile manner, as evidenced by a rapid drop in

the gold:silver ratio and the subsequent sharp rebound to over 66 by the 29th, the highest level since

late August last year.

Combined silver ETFs fell by 1% to 12,262 tonnes by the end of January. Unlike gold ETFs, which

saw a relatively steady outflow, the bulk of losses in silver took place on just one day, namely a

decline of 150 tonnes from the iShares Silver Trust on the 14th.

Turning to Comex, the net investor long initially rose by 8% to 61,746 contracts in mid-month

before slipping to 54,711 contracts (equivalent to a nominal 8,509 tonnes) by the end of January.

(Moz)

2009 2010F

SupplyMine production 695.9 705.7

Net government sales 24.0 20.0

Scrap 171.3 169.2

Total Supply 891.2 894.9

Demand

Industrial 359.1 411.2

Jewellery 158.1 152.9

Other 228.0 209.3

Total Fabrication 745.2 773.4

Net producer de-hedging 7.2 5.0

Implied net investment 138.8 116.5

Total Demand 891.2 894.9

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Silver 1-month and 12-month Leasing Rates

Silver Price Volatility over Last 3 months Silver Prices in Major Currencies in January

Gold/Silver Ratio

Silver Market News: Fresnillo Plc announced a record annual attributable silver production of 37.9 Moz in 2009, up by 9%

year-on-year. The companys production in the fourth quarter increased significantly compared with

the same quarter of 2008, as a result of higher ore grades and increased volumes of ore milled.

Despite the global economic crisis, mineral exploration activity in Argentina in 2009 was four times

as much as the historical average, according to the countrys National Mining Secretariat. There were

four new foreign-owned projects commissioned during the year, which was a record for the country.

Together, the four mines represented investment of 3.13 billion Argentine pesos, 8,000 new jobs and

generated work for over 750 local small and medium-sized enterprises.

The US Semiconductor Industry Association (SIA) said that worldwide semiconductor sales jumped

by 29% to $22.4 billion in December 2009. For the full year, sales fell to $226 billion, around 9%

below 2008s figure. The rebound in the final quarter of 2009 was largely due to healthy demand in a

variety of consumer electronics areas, coupled with a recovery in the enterprise sector.

55

60

65

70

FebJan-10DecNov

55

60

65

70

FebJan-10DecNov

Source: GFMS

20

30

40

50

FebJan-10DecNov

20

30

40

50

FebJan-10DecNov

Source: GFMS



US$/oz 18.84 16.29 17.79 17.79

Euro/kg 401 375 390 390

Yen/10g 526 472 508 508

Rps/kg 29,145 26,140 28,091 28,091

Rmb/g 3.85 3.56 3.80 3.80

Au/Ag Ratio 66 61 63 63


-0.6

-0.4

-0.2

-0.0

0.2

0.4

0.6

0.8

FebJan-10DecNov

%


1-month

12-month

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Combined Daily Silver ETFs Holdings Silver Futures on Comex and ETFs Holdings

Investor Net Positions* in Comex Futures

COMEX ETFs total

net long equivalent holdings

Date futures* tonnes tonnes

05-Jan 57,390 8,925 12,361

12-Jan 61,746 9,603 12,411

19-Jan 61,690 9,594 12,265

26-Jan 54,711 8,509 12,215

YTD Average 58,884 9,158 12,303


Source: Comex, respective ETF issuers data

Netpositions

(contracts,

thousands) C

omexsettlementprice(US$/oz)

Source: CFTC

30

40

50

60

70

Jan-10DecNov12

14

16

18

20

Silver Price

* Combined non-commercial & non-reportable positions

340

350

360

370

380

390

400

US$/oz

Million

ounces

Silver Price

14.5

15.5

16.5

17.5

18.5

19.5

Jan-10DecNov

14.5

15.5

16.5

17.5

18.5

19.5

Jan-10DecNov

Source: various ETF issuers

Total ETF holdings

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Independent - Informed - International10

Platinum 1-month and 12-month Leasing Rates

Platinum Price Volatility over Last 3 months Combined Daily Platinum ETF Holdings

Platinum Prices in January

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

12-month

1-month

Jan-10DecNov

%

Source: Various

550

650

750

850

950

US$/oz

Thousand

ounces

Platinum $ Price

1250

1350

1450

1550

1650

Jan-10DecNov

Source: Thomson Reuters EcoWin, respective ETF issuers

Total ETF holdings

15

20

25

30

35

FebJan-10DecNov

15

20

25

30

35

FebJan-10DecNov

Source: GFMS



US$/oz 1,627.00 1,500.00 1,563.00 1,563.00

Euro/kg 37,056 33,401 35,215 35,215

Yen/g 4,771 4,350 4,580 4,580

Rmb/g 357.11 329.31 343.08 343.08

Rand/kg 395,380 351,631 374,715 374,715


of increased optimism in the auto industry was another factor helping to drive prices upwards.

Subsequently, however, prices not only lost momentum but also dropped back sharply to close

January at $1,517/oz.

Platinum Market News:

The first US platinum and palladium ETFs, owned by ETF Securities Ltd, began trading on 8thJanuary. ETF Securities has since applied to the US Securities and Exchange Commission to more

than double the number of securities in the platinum ETF, and increase the number of securities in the

palladium ETF by nearly 50%. Under the current prospectus, the number of securities in the platinum

ETF is limited to 4.77 million shares, equivalent to 477 koz of platinum. The palladium ETF has a limit

of 12.7 million securities, equal to 1.27 Moz.

Lonmins end-December 2009 platinum quarterly refined production declined by 16.7% year-on-

year, to reach 110,786 oz. It reiterated its 2010 sales guidance of 700 koz of platinum. Aquarius

Platinum reported an increase in attributable production by 16% to 112,359 PGM oz for the fourth

quarter of 2009.

The National Energy Regulator of South Africa (NERSA) has been holding public hearings across

the country as it considered an application by Eskom to increase power tariffs by 45% annually over

the next three years. So far, Eskom has met with widespread opposition from a number of bodies,

including COSATU, the Chamber of Mines, the South African Institute of Electrical Engineers and the

Democratic Alliance. A decision from NERSA is expected on 24th February.

Chinas auto sales exceeded those of the United States to reach record levels in 2009. Vehicle sales

there came to 13.6 million units, the China Association of Automobile Manufacturers said, compared

with annual sales of 10.4 million cars and light trucks in the United States.

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Independent - Informed - International 11

Nymex Net Platinum Investor Positions

Tocom Volume & Open Interest Platinum Premium/Discount against Gold

Nymex Total Investor Pt Futures Positions

SGE Platinum Daily Volume & Price Premium

-6

0

6

12

18

24

30

Jan-10DecNov

Contracts,thousands

Source: CFTC

Long

Short

Netpositions

(contracts,

thousands)

Nym

exsettlementprice(US$/oz)

Source: CFTC

16

18

20

22

24

26

28

Jan-10DecNov

1250

1350

1450

1550

1650

Platinum $ Price

Non-reportable Non-commercial

Turno

ver(contracts,thousands)

Open

Interest(contracts,th

ousands)

Source: Tocom

0

10

20

30

40

Jan-10DecNov

25

30

35

40

45

50

55

Open Interest

0

5

10

15

20

25

30

35

Jan-10Jul-09Jan-09Jul-08Jan-08

Thousand

ounces

US$/oz

-50

0

50

100

150

200

Price Premium

Volume

Source: SGE

150

250

350

450

550

FebJan-10DecNov

150

250

350

450

550

FebJan-10DecNov

Source: Thomson Reuters

US$

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Independent - Informed - International12

4. Palladium

Palladium Price and Forecast Trading Range Palladium Supply & Demand

Major Palladium Futures Markets and ETF Holdings

(000 ounces)

2009 2010F

Supply

Mine production 6,115 6,304

Autocatalyst scrap 1,067 1,441

Old jewellery scrap 122 111

Total Supply 7,304 7,856

Demand

Autocatalysts 3,633 4,319

Jewellery 1,256 1,258

Electronics 1,240 1,368

Other 1,245 1,192

Total Demand 7,374 8,137

Gross surplus/(deficit) (70) (281)

Identifiable stock movements 670 670

Residual surplus/(deficit) 600 389

Source: GFMS

COMEX net long Equivalent TOCOM Equivalent ETFs total,

Date futures position* tonnes open interest tonnes tonnes

05-Jan 16,407 51.0 3,476 1.7 36.6

12-Jan 15,447 48.0 3,957 2.0 36.6

19-Jan 14,838 46.2 4,154 2.1 42.9

26-Jan 14,340 44.6 4,119 2.1 48.3

YTD average 15,258 47.5 3,930 2.0 40.7


Source: Comex, Tocom, respective ETF issuers

Outlook for Next Three Months:The phenomenal success of the ETF Securities New York-listed palladium ETF, which accumulated

nearly 400,000 oz in January, helped to drive prices to over the $460 mark, a level to which they

have recently approached after a brief $40 excursion to the downside. Thus, regarding the outlook

for prices over the next three months much will depend on whether ETF demand will rise further

or if, as we expect, there instead lies ahead a period of consolidation rather than growth. Waning

investment demand will to some extent be offset by the improving picture on the autocatalyst front.

Although relatively bearish on the economy, we recognise that palladium is particularly well placed

to benefit from a modest recovery in US demand and further good, albeit less spectacular, growth in

the Chinese light vehicle market. As regards China, however, we are aware that palladium jewellery

demand has been sliding in recent months and if this continues it could provide some drag on prices.

Moreover, the wider understanding that this once highly prospective area of demand growth is instead

foundering could well contribute to the reversal in investor sentiment that we expect. The associated

reduction in the strength of investment demand that would result is the main reason behind our

forecast for a retracement in palladium prices, with the metal in our view probably falling to below$350 at their lowest point over the February to April period.

Key Palladium Market Developments: The palladium price soared from $421/oz at the beginning of January to a high of $462/oz on the

21st. As was the case in platinum, much of this growth was driven by heightened investor appetite,

which was whetted by greater confidence in the outlook for the auto industry, and speculation

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Independent - Informed - International 13

Palladium 1-month and 12-month Leasing Rates

Palladium Price Volatility over Last 3 months Combined Daily Palladium ETF Holdings

Palladium Prices in January

surrounding the launch of the ETF Securities palladium ETF in New York.

Although prices fell to the $420/oz level at end-month, the month-on-month gain was nonetheless

strong, at 16%.

Palladium Market News: Americans scrapped more automobiles than they bought last year, according to a report by the Earth

Policy Institute. The United States scrapped 14 million autos while buying only 10 million last year,

shrinking the countrys car and light duty truck fleet to 246 million from a record high of 250 million.

Stillwater Mining exceeded its 2009 production guidance by nearly 15,000 PGM oz and projected a

guidance of 515,000 oz of production this year. The company produced a total of 529,900 oz last year,

due to higher productivity at both mining operations. After a sharp decline in late 2008, its recycling

volumes gradually recovered during 2009 as PGM prices increased and supply arrangements were

adjusted. Nonetheless, the company still reported only 251,000 recycled ounces processed in 2009,

down by 38% or 147,100 oz from 2008s level.

Toyota Motor Corp aims to double its global output of gas-electric hybrid cars to 1 million units in

2011. It plans to add about 10 new hybrid models in the next few years to its existing lineup and

to increase the number of sites where it can assemble hybrid models. Toyotas global productionof hybrid cars is likely to have been 500,000 units in 2009, accounting for about 8% of its overall

production. Toyota has already expanded its hybrid production sites beyond Japan to include China,

the United States, Thailand and Australia, typically receiving some form of state-backed incentives to

build the fuel-efficient vehicles locally.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

12-month

1-month

Jan-10DecNov

%

Source: Various

15

25

35

45

55

FebJan-10DecNov

15

25

35

45

55

FebJan-10DecNov

Source: GFMS



US$/oz 462.00 420.00 434.45 434.45

Euro/kg 10,567 9,373 9,790 9,790

Yen/g 1,354 1,208 1,273 1,273

Rmb/g 101.40 92.20 95.36 95.36

Rand/kg 112,242 98,691 104,170 104,170


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Platinum - Palladium Price Spread

Nymex Total Investor Pd Futures Positions

Tocom Volume & Open Interest

Nymex Net Palladium Investor Positions

Netpositions

(contracts,

tho

usands) N

ymexsettlementprice(US$/oz)

Source: CFTC

7

10

13

16

19

Jan-10DecNov

250

300

350

400

450

500

Palladium $ PriceNon-reportable

Non-commercial

-5

0

5

10

15

20

Jan-10DecNov

Contracts,thousand

s

Source: CFTC

Long

Short

Turnov

er(contracts,thousands)

Open

interest(contracts,thousands)

Source: Tocom

0.0

0.3

0.6

0.9

1.2

Jan-10DecNov

2.5

3.0

3.5

4.0

4.5Open Interest

950

1000

1050

1100

1150

1200

FebJan-10DecNov

950

1000

1050

1100

1150

1200

FebJan-10DecNov


US$

Documents

PMFM_Feb2010-1