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Summer Goldrums 29 May 2014

War Room. Summer Goldrums 29 May 2014. HiddenLevers War Room. CE Credit. Macro Coaching. Idea Generation. Archived webinars. Open Q + A. P resentation deck. Product Updates. Scenario Updates. Summer Goldrums. Market Update Gold Scenarios Gold 101 Gold Macro Picture. HiddenLevers.

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Summer Goldrums 29 May 2014

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  1. War Room Summer Goldrums 29 May 2014

  2. HiddenLevers War Room CE Credit Macro Coaching Idea Generation Archived webinars Open Q + A Presentation deck Product Updates Scenario Updates

  3. Summer Goldrums • Market Update • Gold Scenarios • Gold 101 • Gold Macro Picture

  4. HiddenLevers Market update

  5. Market Update World Cuprising US-China Tensions EM regime changes EU Deflation = QE Reborn sources: HiddenLevers, Marketwatch, New Yorker, Wikipedia, Reuters

  6. Macro Snapshot Endless bull? VIX + UI claims at 2007 levels, and 10Y diverging southward

  7. HiddenLevers Summer goldrums – Scenarios

  8. Review: Gold Crash Scenario – Aug 2011 Gold Crash Amidst Uptrend 100% priced in Aug 2011 gold miners distinction was key -33% start of HL risk parity ethos Slide from Aug 2011 War Room Solid analogy Gold 2011-13 Oil 2008-09 Dec 2013 sources: HiddenLevers

  9. Ugly: Gold signals Deflation MDD 700usd/ounce Several precedents on- 40-50% MDD fiat currency 1930s analogies invalid USD purchasing power rising caveatgovt price controls 1929-41 Gold Standard CPI sources: HiddenLevers, MarketWatch, USAGold.com

  10. Bad: Gold 1k drift MDD 1000usd/ounce technical support at 1k don’t confuse bounce for long term investment -40% drop fits into usual MDD paradigm Fed sees no inflation risk, continuing taper $1000/ounce

  11. Good: Gold Rebound QE ending priced in, so is gold bottom India/China demand surprise Russia, Ukrazy escalation Safe-harbor during EM chaos Bounce off technical support at 1k sources: HiddenLevers, Forbes, WSJ, John Holt

  12. Scenario: Summer Goldrums • Good • Gold Rebound • Bad • Gold 1k Drift • Ugly • Gold Signals Deflation Rising inflation could drive gold prices back up – if a source of inflation can be found. Typical gold decline is 40-50% from peak, 1900 -> 1000 in this cycle. This could occur while S&P continues its steady climb. A deeper gold crash could be a harbinger of deflation, which is negative for both equities and gold.

  13. HiddenLevers Summer Goldrums – Gold 101

  14. Gold 101 – Overview Silver follows gold – precious metals moving together Median Ratio = 15 Gold trading below long term oil-gold ratio, as it did for most of ‘00s Gold demand down 3 years straight sources: HiddenLevers, World Gold Council

  15. Gold 101 – Interest rates + Inflation Gold price returns follow inflation… And by extension rates as well. source: HiddenLevers, Reuters

  16. Gold 101 – Historical Comparisons • Real commonality between events driving gold: Inflation • Gold has experienced numerous bull/bear cycles, with typical Max Drawdown over 40% before new cycle begins • Gold 10y standard deviation almost 20%, greater than S&P 500 source: Bloomberg, HiddenLevers, Principes de Science Economique

  17. Gold 101 – Recap inflation = key driver of Gold volatility: Gold > S&P 500 typical Gold drawdown = - 40-50% worldwide demand down 3 years running

  18. HiddenLevers Summer goldrums – macro picture

  19. Macro Picture – India • 2013 • Rupee tanks • Stocks rally to record • US recovery boon to software + exporters • State-run Gold importers only • Gold performance = -28% • Post 2014 election • BJP govt relaxing import laws • Investors selling, prices weaker • Shortage of gold over • Jewelers not buying for long-term Rupee strong, diverging source: HiddenLevers, WSJ, CNN

  20. Macro Picture – China • 2013 ---> 2014 • Jewelry demand up 9% • Investor demand down 17% 2013 Yuan USD fix over China CPI vs Gold source: HiddenLevers, Economic Times, Shanghai Daily

  21. Macro Picture – Bitcoin + Other Alternatives Similarities divisible, durable, known/limited supply, transferrable. Market Caps Gold: 6500 B BTC: 7.3 B History Gold: 5000y BTC: 4y Crypto-currency Market 7.8 B source: Coin Market Cap, Only Gold

  22. Macro Picture – Global Deflation Risk decreasing birth rate technology automation sluggish GDP growth commodities sinking first world baby bust If you believe inflation will return, buy Gold. (we don’t) sources: HiddenLevers, Economist

  23. Macro Picture – Recap Bitcoin – the new girl in school India no longer worships gold global deflation = quicksand China + Gold jewelry, not investment

  24. HiddenLevers Use Cases Summer Goldrums scenario Gold Crash Data Center Currencies scenarioGlobal Deflation Data CenterCommodities scenarioEnd of QE

  25. Product Update • Annuities Support (Fixed / Variable / Equity Indexed) • Advisor Fees Support • Index Correlations • Options Support – Call Writing • Integrations: • BlackDiamond • WealthAccess

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