E

I V 1

S
C
L Explaining the
U
EX
2001 - 2011
Bull Market
Gold Rate
 2

1. BACKGROUND

US$ Per Ounce of Gold

London PM Fixed Averages 2000 - 2011
$1,600

$1,200

$800

$400

$-
0 0 00 01 0 2 0 3 04 0 5 05 0 6 0 7 08 09 1 0 10
2 0 2 0 20 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 20 2 0 2 0
 3

1. BACKGROUND

1. The beginning of the 21th century is witness

of a long and mostly continuous rise in the
gold rate from US$ 265 per ounce at the
beginning of 2001 until more than US$ 1400
ten years later
2. This translates into a gain of 528%, which is
a stark contrast to the previous 20-year long
bear market.
 4

1. BACKGROUND

1. Which factors contribute towards the steady

rise of the gold rate?
 5

1. BACKGROUND

1. First, a reduction of gold supply

2. From 2001 the global gold production falls
within a decade by 10%
3. Still, demand in jewelry and by industry
continues to increase due to India’s and
China’s economic performances
4. Additionally, at the end of the decade central
banks began to step up their gold reserves
 6

1. BACKGROUND

1. Other important factors are the since 2001

increasing US national debt and the
weakening of the US dollar relative to other
currencies
2. The financial crisis of 2008, during which
the US government nationalized the two
biggest US mortgage lenders and the biggest
US insurer, drove up demand for physical
gold and exchange traded funds
 7

1. BACKGROUND

1. SPDR Gold Trust, the biggest ETF gold

funds holds currently more gold reserves
than the Chinese Central Bank
2. To stimulate the economy, the US Treasury
reduced the federal funds rate to a mere 0.25
per cent
3. This low interest rate also made gold
investments more attractive
 8

1. BACKGROUND

1. The Nine Eleven attacks had only a short-

term direct effect on the gold rate
2. The London PM gold price experienced
within this trading day an increase by more
than 5%
3. Usually daily differences are 10 – 20 times
lower
 9

1. BACKGROUND

1. In the long-term, the September 11 terrorist

attacks had no direct effect on the gold rate.
2. It can be argued that the US engagement in
Iraq and Afghanistan were a direct result of
the terrorist attacks on America
3. This led to an increase of US national debt
which finally resulted in a weakening US
dollar and a higher gold price
 10

2. BACKGROUND

US$ Per Ounce of Gold

London PM Fixed Averages 2000 - 2011
$1,600

$1,200

$800

$400

$-
0 0 00 01 0 2 0 3 04 0 5 05 0 6 0 7 08 09 1 0 10
2 0 2 0 20 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 20 2 0 2 0
 11

2. TIMELINE

1. 11. September 2001: On this date, the gold

price experienced a spike of 5% within one
trading day. Usually, price differences are
between ten and twenty times smaller
 12

2. TIMELINE

1. 2004: Launch of SPDR Gold Shares (SPDR

Gold Trust).
2. This exchange traded fund tracks the price
of a tenth of an ounce of gold. With approx.
1,299 tons of gold held, SPDR Gold share is
the sixth largest gold holder in the world,
behind the central bank of France (2,435
tons) and ahead of China (1,054 tons)
 13

2. TIMELINE

1. 2005: Gold price for the first time since

1987 more than US$ 500 per troy ounce
2. 14. March 2008: At the New York
Mercantile Exchange, gold was traded for
more than US$ 1000 per ounce
 14

2. TIMELINE

1. September 2008: The US nationalizes the

two biggest US mortgage banks, Fannie Mae
and Freddie Mac. This led to sharp declines
at global stock markets
2. After the insolvency of the investment bank
Lehman Brothers and the nationalization of
AIG, the biggest US insurer, the gold rate
reaches in New York its highest daily
increase in history, 11.8%
 15

2. TIMELINE

1. 2009: For the first time in two decades,

central banks become net purchaser of gold
2. 2010: The London PM Fix reaches 35
successive heights
3. 2010: Several central banks announce plans
to increase their gold reserves. These are,
among others, the central banks of China,
India and Russia
 16

2. TIMELINE

1. March 2011: Gold reaches in New York an

all-time record of US$ 1440 per fine ounce.
Seen from another perspective, the US dollar
(and the Euro) is compared to gold as weak
as never before
 17

2. TIMELINE

US$ Per Ounce of Gold

London PM Fixed Averages 2000 - 2011
$1,600

$1,200

$800

$400

$-
0 0 00 01 0 2 0 3 04 0 5 05 0 6 0 7 08 09 1 0 10
2 0 2 0 20 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 20 2 0 2 0
 18

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