LBMA/LPPM Precious Metals Conference 30/09/2013

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Baldric Fowler
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1 PHYSICAL INVESTMENT UNSHAKEABLE FAITH Presented By David Madge Physical Investment Unshakeable Faith? Introduction Bullion Coin & Small Bar Market Fabrication Capacity Issues Distribution Network Demand for Bullion Coins & Small Bars What Happens in the Future? 2 Session 3 Madge

US Mint, Royal Canadian Mint, Austrian Mint... World Class Private Mints Defined quality standards, ie.

2 Introduction Focus on Small Bar & Coin Market Important segment of the market that is often overlooked today Very loyal investors with a voracious appetite for physical metal Supply issues of some products 3 Bullion Coin & Small Bar Market Fabricators Major Sovereign Mints US Mint, Royal Canadian Mint, Austrian Mint... World Class Private Mints Defined quality standards, ie. ISO certified Ability to meet stringent government specifications for finish, weight and purity Other Private Mints Regional mints that serve the local market 4 Session 3 Madge 2

$with some fractional and large format coins Small Bars & Rounds Gold, Silver, Platinum & Palladium Wide mix of$ products 5 Fabrication Capacity Issues In Late 2007 & 2008 Gold Coins: Demand Supply Resulted in higher premiums

products 5 Fabrication Capacity Issues In Late 2007 & 2008 Gold Coins: Demand Supply Resulted in higher premiums

3 Bullion Coin & Small Bar Market Bullion Coins Gold, Silver, Platinum & Palladium Predominantly one-ounce coins, with some fractional and large format coins Small Bars & Rounds Gold, Silver, Platinum & Palladium Wide mix of products 5 Fabrication Capacity Issues In Late 2007 & 2008 Gold Coins: Demand Supply Resulted in higher premiums Government mints responded by increasing capacity and this has not been a material issue since 6 Session 3 Madge 3

4 Fabrication Capacity Issues Since Late 2007 Silver Coins & Small Bars: Multiple Times Demand Supply Capacity issues still remain for popular sovereign mint products Takes time and capital to increase capacity Some mints need to look at ROI on the project and long term implications of staffing for expansion What if it is only a short term demand spike Delicate balance between being able to respond to increased demand verses idle capacity and staff Higher premiums 7 Distribution Network Historic Model Recent Trends The big game changer in the last ten years has been the internet Consumers have more choice and access to product Greater price discovery in the market Increase in number of products brought to the market The size of the market has increased as a result and there are more consumers and dealers 8 Session 3 Madge 4

5 Demand for Bullion Coins & Small Bars Demand for coins and small bars remains strong despite the latest pullback in metal price and net outflows from ETF s Retail investors still believe precious metals are: A reserve currency as well as a commodity An insurance policy when faith in monetary authorities debt and paper currency are questioned Seen as a safe-haven during periods of increased geopolitical uncertainty Viewed as a portfolio diversifier An opportunity for capital appreciation 9 Demand for Bullion Coins & Small Bars There have not been sustained periods of secondary market liquidations for precious metal coins and small bars There have been isolated liquidations that have been absorbed by existing demand Demand starting to align itself with supply 0 Session 3 Madge 5

6 Demand for Bullion Coins & Small Bars Estimated demand by geographic location is hard to pinpoint Retail investors are concerned about privacy in their transactions Dealers and distributors are protective of their customers Mints cannot accurately track where the products are ultimately sold Private mints do not report sales volumes Demand for Bullion Coins & Small Bars Estimated Sales of Sovereign Mint Products North America 50% to 60% Europe 25% to 35% Other Markets 0% to 25% Currently China is not a material consumer of sovereign mint bullion coins 2 Session 3 Madge 6

7 What Happens in the Future? Germany a big question mark for 204 with a proposed VAT increase from 7% to 9% on silver bullion coins Chinese market could open up, but there is still a high tax on bullion coins and no real secondary market for liquidity 3 What Happens in the Future? Overall demand should continue to be strong Internet creates easy access to product for new consumers Precious metals will remain a safe-haven during periods of economic uncertainty and geopolitical instability Precious metals will remain a good portfolio diversifier We will continue to see product allocation by some sovereign mints into Session 3 Madge 7

8 Disclaimer This material was prepared and is being distributed by A-Mark Precious Metals,Inc.( A-Mark ) for our clients information only, and is not intended for publication to other persons, whether by the press or other means, and is not to be construed as investment advise or a solicitation of an investment in gold, silver or other precious metals. The material is based on sources believed to be reliable, but is not a representation or guarantee by A-Mark as to its accuracy, completeness or application to any specific situation and does not constitute investment advice. Any opinions expressed herein are subject to change without notice. 5 Session 3 Madge 8

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