3. Gold is a Good Store of Value. The Proof is in the Math.
GOLD PROTECTS PURCHASING POWER OVER THE LONG RUN
The cost of life in
US dollars over time
0.11
857
0.26
0.15
0.07
739
0.27
0.13
The cost of life in
Gold over time (grams)
1985 2015 1985 2015
Food
Fuel
Transportatio
n
Entertainment
$1.16
$9,000
$2.75
$1.60 $4.79
$27,825
$2.51
$10.25
5. ..because Gold is mathematically a “Money Stock”, not a
Commodity!
How do we value an asset with “no use”, no yield, no dividend?
Falsifiable, valueless “flow” metrics are our information:
6. Gold is a money stock – with currency like
volatility, but with asymmetric upside
Cumulative distribution of monthly-average YoY change since 2000
7. How do we value an asset with “no use”, no yield, no dividend?
The Goldman Sachs Real Interest Rate Model
• …but that explains the fluctuation of the denominator, not value
8. Over the medium-term, real rates alone
don’t explain gold prices:
A long term regression of rates alone leaves
significant variance, as seen in 1999-2009
…and as seen in 2010 when gold
broke out beyond tips
9. The missing factor in the gold price model:
Forward looking view on energy prices, ie the numerator of Gold/USD price
or “energy proof of value”
11. Gold fell from 2012, despite rising asset prices, due to
falling long-dated energy prices (not spot prices) and rising
real rate expectations (until 1Q2016 of course)
12. The move in gold prices from the low of around $270/oz to the highs
around $1680/oz and back to $1160/oz can be broken down in 3
distinct periods
Source: Bloomberg, GoldMoney Research
272
879
1,676
1,169
0
500
1000
1500
2000
Series1Real rate/ QE Energy price Central bank gold stock Unexplained
(+)
(-)
(+) (+)
(+)
(+)
(-)
(-)
(-)
(+) (+)
Energy wasthemain driver
for theupward movein the
priceof gold in USD between
2001and 2008. Central banks
werenet seller of gold
Real ratesand QEdrovethe
pricebetween 2009-2012
whileenergy had aslightly
negativeimpact on theprice.
Central banksbecamenet
buyersof gold
Since201, thefall in longer-
dated energy pricesand the
risein real interest rates
combined with QEtapering
had roughly thesame
downsideeffect
(+)
(-)
(+)
Gold price
271
879
1676
1061
0
500
1000
1500
2000
2500
Series1Real rate/ QE Energy price Central bank gold stock Unexplained
(+)
(-)(+) (+)
(+)
(+)
(-)
(-)
(-)(-)
(+) (+)
Energy wasthemain
driver for thegold
pricerally in USD
between 2001and
2008
Real ratesand QE
drovetheprice
between 2009-2011
whileenergy had a
slightly negative
impact on theprice
From 2012until the
end of 2015, falling
energy pricesand CB
policy each
accounted for about
half of thedrop while
central bankswere
net buyers
(+)
(-)
(+)
Gold price
Real interest rateshave
resumed their long-term
downward trend, which
started anew up-cyclein
gold. Goingforward, we
expect longer-dated energy
pricesto becomemore
supportiveaswell
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