RBC Capital Markets, LLC

Christopher Louney
Commodity Strategist
(212) 437-1925
christopher.louney@rbccm.com

July 17, 2017

Gold Strategy: Golden in India?

Given Indias long-standing importance to global gold balances, recent policy changes have
necessitated a deeper dive into short- and long-term trends there. As far as prices are
concerned, despite recent weakness, our 2017 annual gold price forecast remains
unchanged, as Q2 2017 quarterly prices ended within $1/oz of our expectations.
This Month in Focus: With GST implemented in India, we look at trends in Indian gold
demand, once the worlds largest source of demand and now second to China. In our view,
in the short term a significant amount of seasonal gold demand was brought forward,
while in the longer term demand hinges on continued economic growth. This results in a
multilayered view on Indias gold demand/import prospects.
2016 was a dismal year for Indian gold demand, and while we expect 2017 to be much
better, it is unlikely to impress when compared to longer-term averages. The
implementation of GST will likely at least partially disrupt AugustSeptember
seasonality in our view, but our annualized demand expectations do look stronger y/y
for 2017, albeit well short of longer-term averages despite upside risks.
Over the longer term, demand depends more on economic growth, in which GST
plays an important part for multiple reasons. First, if GST ends up further organizing
and integrating the gold sector, it may lead to more gold-positive policies in the future
rather than consumption-limiting ones. Additionally, if economic reforms are
successful on a grand scale, that is likely to be positive for gold on a demographic
consumption basis. That said, there are downside risks versus longer-term normal
levels of demand.
Over time, we think Indias impact on global balances will be somewhat closer to long-
term averages, but China will obviously remain the biggest driver. The main takeaway
is that the two largest sources of gold demand globally have entirely different
prospects. While India wants to control and limit the inflow of gold by hopefully
mobilizing domestic stocks, China seems intent on absorbing additional volumes.
Monthly Market Analysis: Gold prices averaged $1,258.46/oz over Q2 2017 (versus our
forecast of $1,259/oz, or $1,258.66/oz with decimals), so although gold prices have fallen
recently (with the exception of last weeks close), we remain of the view that ongoing
uncertainty implies upside for gold prices. Likewise, the latest turn of our models implies
only slight changes to our supply and demand forecasts.
Figure 1: Quarterly consumer demand
1,600
Quarterly consumer demand (t)
1,400 Rest of world
China
1,200 India

1,000

800
All values in USD unless otherwise noted.
600
Priced as of prior trading days market close,
ET (unless otherwise stated).
400

200 For Required Conflicts

Disclosures, please see
0
Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17
page 16.
Source: World Gold Council, RBC Capital Markets

Disseminated: July 17, 2017 00:15ET; Produced: July 16, 2017 18:33ET
 Gold Strategy: Golden in India?

Table of Contents
Monthly Market Analysis .................................................................................................................................................................................................................... 7
Macro Factors ..................................................................................................................................................................................................................................... 8
Physical and Financial Demand ........................................................................................................................................................................................................... 9
Asia Regional Factors ........................................................................................................................................................................................................................ 10
Supply Factors ................................................................................................................................................................................................................................... 11
Pricing, Ratios and Exchange Holdings .............................................................................................................................................................................................. 12
CFTC Positioning in Precious Metals (managed money and swap dealers) ....................................................................................................................................... 13
Correlation Matrix ............................................................................................................................................................................................................................. 14
Global Economic Calendar ................................................................................................................................................................................................................ 15

Golds long history in India, in brief

Long occupying an important place in India, local gold demand is largely for gifts and
personal purchases tied to holidays, harvest seasons, and weddings. In some years, high
imports (official and unofficial) resulted in stresses that have driven a history of changing
regulations. Prior to 1990, Indian gold policy centered on increasing regulation of the gold
sector, which drove some activity to the unofficial market. In June 1990, however, the Gold
Control Act was repealed and domestic trade was somewhat deregulated; by 1997, a number
of banks in the country were allowed to import gold, with a healthy share of gold being
imported through official channels. In September 1999, a Gold Deposit Scheme was
established in an attempt to mobilize domestic holdings and reduce imports, but the scheme
did not really take off. In 2007, gold ETFs were launched (a few years after the US), but
holdings remain modest relative to the size of Indias gold market. Starting in 2009, gold
imports accelerated significantly, but between higher prices and persistently high imports,
India faced a current account deficit and an uncertain global economic picture.

In that context, the government instituted new restrictions once again. In particular, an
import duty was levied on primary gold imports, which was raised a number of times over
the course of a single year. In 2012 and 2013, the import duty on gold was increased from 2%
to 4%, and then quickly raised again to 6%. Then in June, the import duty was raised from 6%
to 8%, and then again raised to 10% in August. In the same year, the Reserve Bank of India
introduced the 80:20 rule, which required 20% of imports to be re-exported; however,
toward the end of 2014 this import restriction was removed.

Then in 2015, the government announced a slew of gold policy measures. A new Gold
Monetization Scheme was announced (replacing the Gold Deposit Scheme), once again with
the intention of mobilizing domestic gold stashes, making gold available on loan from banks
to the gold sector and reducing imports. Additionally, there is the Sovereign Gold Bond
Scheme, which is a government security offered as a substitute for holding physical gold. In
2015, the first national gold coin was launched, and the Bureau of Indian Standards
introduced mandatory hallmarking standards effective in January 2017. We think that many
of the latest measures mentioned above should prove to be of longer-term significance.

As for the nearer term, in November 2016 the government announced that it was
withdrawing the legal tender status of INR500 and INR1000 banknotes. These large bills were
of primary importance in the grey economy as well as the gold market. Similar moves were
made in 1946 and 1978, but the demonetization did not account for as large of a share of
currency. The liquidity squeeze did cause short-term pain in the cash economy, but new
INR500 and INR2,000 notes have since been introduced. More importantly, as of July 1,
Indias new nationwide Goods and Services Tax (GST) has also been implemented,
comprising the most significant fiscal reform in recent memory. GST is a single tax on the
supply of goods and services for the whole nation, making India a common market. Credits
for input taxes are paid at each stage, making GST a tax on value added. GST, while new, if
successfully enforced has the potential to make the gold industry more efficient and
transparent, but it also admittedly poses a headwind, especially in the near term.

July 17, 2017 2

 Gold Strategy: Golden in India?

Figure 2: Map of 2016 gold flows into India (unwrought, semi-manufactured or powder, tons)

Source: UN COMTRADE, RBC Capital Markets

Figures 3 & 4: Share of 2016 gold flows by origin; Time series of gold imports into India

Share of 2016 gold flows by origin (%) 1200 Gold imports (tons)

Africa Middle East 1000

13% 10%

Oceania 800
1%
South 600
Asia
America
5%
5%
400

200

North
America Europe 0
17% 49% 2004 2006 2008 2010 2012 2014 2016
Source (all): UN COMTRADE, RBC Capital Markets

Note: The figures on this page cover unwrought, semi-manufactured, and gold in powder form only. Data is sourced from supernational trade statistics sources

July 17, 2017 3

 Gold Strategy: Golden in India?

Near-term effects and recent trends

We cannot talk about 2017 without first talking about 2016. For the full year, 2016 Indian
gold demand was down significantly, by 22%, while official imports were down by 39%, in the
550600 ton range. However, the full-year trend masked a successive quarterly climb from
Q1s low. The nationwide jewelers strike, which essentially shut down the sector, negatively
affected Q1 demand (107 tons), as did rising prices. However, falling prices after the early
July peak and festival demand allowed demand to pick up over Q2 and Q3 (122 and 192 tons
respectively). In Q4, the surprise demonetization move sparked an additional spike in
demand, causing Q4 demand to reach 244 tons. After the initial gold-positive panic, the cash
crunch may have lingered into the early weeks of Q1 17, at least for rural communities.

In 2017, prior to the government budget announcement in February and further clarity on
the customs duty and GST rate to be imposed, gold demand was largely on the sidelines.
Since the announcement, demand has picked up. While Q1 demand was 124 tons, official
figures for Q2 will likely prove very strong for consumer demand and imports. In fact, import
data supports this idea, as the build in monthly imports in H1 17 was strong. Monthly gold
imports grew mostly steadily m/m through May (at least) to notably high levels. This is
largely due to restocking and consumers flocking to stores to buy ahead of GST
implementation (July 1). In our view, much of this demand is actually seasonal demand being
brought forward from later in the year. Thus, we caution against simply extrapolating the
YTD trend in imports and consumer demand for the rest of 2017. First, it is not the GST itself
that we think will have the biggest impact on demand for the rest of 2017 (the net tax
burden is only marginally higher than it was previously and well below the worst of
expectations), but rather this bringing forward of demand prior to the implementation of
GST. 2017 could possibly even be front-loaded for the first time since 2013 depending on
how prices and the monsoon season pan out this year. Total demand in India will likely be
700800 tons in our view, which translates to stronger levels y/y compared to 2016 but is
still below 2014 and 2015 levels. Imports should also improve y/y, likely at least 1520%
higher, but the strength experienced year-to-date is unlikely to be replicated on a relative
basis in H2 17, in our view.

As always, there are risks. If prices were to delink from our forecasts and sustainably fall
materially below $1200/oz in conjunction with a better than normal monsoon season, we
think enough price-sensitive demand could materialize to at least partially make up for the
demand brought forward ahead of GST implementation and push gold demand and imports
higher than we expect, thus implying a higher call on global balances in the near term.

Figures 5 & 6: Monthly gold imports; Tax burden on gold (World Gold Council)
140 Monthly gold imports (t) 15% Tax burden on gold Some expectd
GST to be as
120 13% Import duty high as 5%
Banks Nominated agencies VAT
11% Excise Duty
100
GST
9%
80
7%
60
5%
40
3%

20 1%

0 -1%
Jan-16 Jun-16 Nov-16 Apr-17 Jan-12 Jan-13 Jan-14 Jan-15
Source: Thomson Reuters Eikon, World Gold Council, news and government sources, RBC Capital Markets

July 17, 2017 4

 Gold Strategy: Golden in India?

Long-term effects
Over the long term, the most important driver of gold consumption in India is economic
growth and in particular income growth (in addition to prices of course). Thus, the success
and enforcement of GST, which should have material implications for economic growth,
could ultimately be positive for Indian demand. That said, it will take tame to shake out and
result in any meaningful volumes. The possible direct and indirect effects of GST have been
well publicized, but the major point here is around efficiency and transparency gains. For the
gold sector, GST should help to reduce interstate barriers, incentivizing more integrated and
organized participants, meaning that larger regional and national chains could grow market
share (also benefited by ongoing urbanization). The incentive for more integrated
enterprises largely stems from the removal of the need for local warehouses, allowing for
more efficient inventory logistics. While interstate stock transfers are still taxable, that tax
can be reclaimed. This change allows for consolidation of a highly fragmented market,
especially in the jewelry sector (both retail and manufacturing). The further organization and
additional transparency of the gold industry under GST (and new hallmarking standards) will
also likely make under-karating harder, another positive for gold demand. Lastly, by taking
the industry more fully into the taxable official sector (as opposed to the grey market), it
could lead to gold policy that is less focused on limiting consumption and more on
mainstreaming and reducing barriers that have traditionally incentivized grey market activity.
Indirectly, but more importantly, reforms over the longer term should add to economic
growth. This is the most significant gold-positive driver, as growing income levels are the
biggest driver of local demand, as interest in gold and gold products will likely grow as the
economy, middle class, and income levels grow.

That said, there are some possible negatives over the longer term. The limit on cash
transaction size may have a negative effect in the longer term, as it could curb some gold
purchases, limit purchase sizes, or cause a push to the grey market. In fact, if GST ends up
pushing more demand to the grey market over the longer term, we would expect more gold-
negative, consumption-limiting policies to be the end result. Other possible negative fallout
could be if recycling volumes fall or take place outside of official channels to avoid taxes. On
the other hand, if the Gold Monetization Scheme or Gold Sovereign Bond Scheme take off
significantly, they could eat into official imports over time. While we think this is somewhat
more likely this time around (given that efforts to organize and tax the whole value chain of
the gold industry are part of a larger policy change rather than simply being gold-targeted), it
is not our base case right now. In our view, none of this likely spells the downfall for gold
imports in India.

Figures 7 & 8: Retail size comparisons (2015); Economic growth and income growth

Retail jewelers size has been trending towards 3000 IMF economic data and forecasts 12%
Hundreds
larger enterprises over time
National 2500 10%
7%

2000 8%

1500 6%

Small and 1000 4%

Regional medium
23% 70%
500 2%
GDP annual % change
GDP/capita ($)
0 0%
1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: World Gold Council, Bloomberg, RBC Capital Markets

July 17, 2017 5

 Gold Strategy: Golden in India?

Balance impact
In short, the balance and price impact of recent market changes in India is layered. In the
short run, we think changes in GST have brought a significant amount of demand and
imports forward from later in the year. In particular, the most important period of gold
demand is typically from September through November, as there is an overlap of festivals,
the marriage season, and the harvest season. Thus, we think the higher than normal imports
in the first five months of the year will actually eat into that demand. Risks to the upside in
the short term are centered around policy changes, price, and the monsoon season (rural
Indian demand drives around one-third of Indian gold demand and income there is largely
linked to the harvest). Most climate models point to a normal or above-normal monsoon
season and thus a bumper crop year, so 2017 should be stronger overall y/y. Over the longer
term, the picture is somewhat less clear, with likely economic growth being the main
positive. However, demand growth could eventually be met at least in part by the
mobilization of existing domestic stocks in India (think the Gold Monetization Scheme and
Gold Sovereign Bond scheme). Given that efforts like these have not necessarily born fruit in
the past, further efforts are needed to really make these plans successful. Overall, we expect
demand (and imports) to improve over the longer term versus 2016, which was weak, but
not necessarily beyond long-term averages.

Thus, while India remains one of the dominant forces in the gold market given its sheer size
and long-running cultural affinity for gold (namely due to purchases during holidays such as
Diwali and for weddings), we still think that China will be the main driver of any call on global
supply and demand balances over the longer term. The main difference is that for India,
historically the governments focus and the long-running analyst debate are around if, when,
and how to mobilize significant domestic stocks (thousands of tons). On the other hand,
China, which overtook India as the largest demand center for gold in 2013, seems more
interested in absorbing additional gold into the domestic market. We have pointed out
previously that China largely explains the growing gap in many market balances. Thus, while
Indian gold demand and imports will most likely improve versus last years and even current
levels over the longer term, it is unlikely to build past longer-term averages in our view,
making clear the divergent trends for the worlds two largest gold markets, China and India.

See the next page for our Monthly Market Analysis and the following pages for our extensive
chart deck and monthly figures.

Figures 9 & 10: History of Indian gold imports vs. year-to-date statistics; Chinese gold demand versus Indian gold demand

1400 Cummulative Indian gold imports (t) 600

Quarterly consumer demand (t)
Annual imports Jan-17 Feb-17 Chinese consumer demand (t) Indian consumer demand (t)
1200 Mar-17 Apr-17 May-17 500

1000
400
800
300
600

400 200

200
100
0
2003 2005 2007 2009 2011 2013 2015 2017 0
YTD Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17
Source: UN COMTRADE, Thomson Reuters Eikon, government statistics, World Gold Council, RBC Capital Markets

July 17, 2017 6

 Gold Strategy: Golden in India?

Monthly Market Analysis

Figure 11: Modeled gold prices
Gold prices averaged $1,258.46/oz over Q2 2017, within a
2000 Modeled versus actual gold prices ($/oz) dollar of our Q2 forecast ($1,258.66/oz with decimals). Thus,
our full-year average forecast for 2017 remains unchanged
1600 Forecast (after marking to market with Q2 actuals) at $1,253/oz.
Modeled price While gold prices have trended lower recently (with the
Actual price
exception of last weeks close), we remain of the view that
1200 ongoing uncertainty implies upside for gold prices. Janet
Yellens recent testimony touched on it, saying, of course,
800
considerable uncertainty always attends the economic
outlook. There is, for example, uncertainty about whenand
how muchinflation will respond to tightening resource
400 utilization. Possible changes in fiscal and other government
policies here in the United States represent another source
of uncertainty. In this context, we still think that there is
0
Jun-00 Jun-04 Jun-08 Jun-12 Jun-16
scope for prices to move higher, with the caveat that if gold
were to close below the $1,200/oz level on a sustainable
Figure 12: Supply & demand versus prices basis, it would lead to sentiment-drive material downside
5000 1800 risk for prices. In terms of our balance, our updated models
Physical balance versus prices
show that little has changed in our view regarding supply and
4500 Supply 1500 demand. Y/y demand trends across industrial demand,
Demand dental demand, and ETPs will still be lower in 2017. However,
Price ($/oz) there will likely be a pickup in bar and coin demand and we
4000 1200
think there will now be some upside for jewelry in 2017 and
2018. Official sector demand should improve y/y as well. As
3500 900
far as Asia is concerned, bar premiums look steady for the
most part. Meanwhile, ETP holdings have largely stalled out
3000 600 this year, but we think there is scope for holdings to at least
build from current levels in the context of uncertainty (still
2500 300 much weaker y/y though). Overall, we think there is some
upside risk to prices through the balance of the year, before
2000 0 averaging $1,303/oz in 2018.
2002 2006 2010 2014 2018 F

Figures 13 & 14: Global supply & demand balance and price rorecasts, annual and quarterly (Commodity Strategy)
Gold balance (t) 2010 2011 2012 2013 2014 2015 2016 2017 F 2018 F
Supply
Mine production 2759.5 2856.6 2897.4 3074.7 3160.4 3214.4 3238.9 3189.0 3137.6
Scrap supply 1712.8 1685.6 1695.9 1282.8 1173.5 1145.7 1281.9 1425.3 1455.5
Net producer hedging -107.6 20.3 -42.7 -33.4 106.3 17.2 27.0 6.2 -0.3
Total Supply 4364.8 4562.5 4550.7 4324.2 4440.3 4377.3 4547.8 4620.5 4592.8
Demand
Jewelry 2063.1 2090.7 2096.2 2665.0 2492.7 2421.2 1940.3 1979.4 2098.1
Industrial 422.8 408.9 368.6 355.1 344.3 318.6 310.1 301.5 289.9
Dental 47.5 40.9 36.5 33.5 31.6 30.1 28.4 25.6 22.6
Bar & Coin 1233.1 1557.0 1355.4 1794.6 1104.1 1113.8 1049.7 1177.5 1231.7
ETPs 401.5 211.8 293.0 -897.8 -169.2 -126.4 528.2 196.6 53.5
Central Bank purchases 78.2 468.7 556.7 516.6 524.8 506.1 316.9 425.6 390.6
Total Demand 4246.2 4778.0 4706.4 4467.1 4328.2 4263.3 4173.7 4106.2 4086.5
Balance 118.6 -215.5 -155.7 -142.9 112.1 114.0 374.1 514.3 506.4
Price ($/oz) 1226 1572 1669 1413 1266 1161 1249 1253 1303
Quarterly Q1 17 Q2 17 E Q3 17 F Q4 17 F 2017 F Q1 18 F Q2 18 F Q3 18 F Q4 18 F 2018 F
Price ($/oz) 1220 1258 1268 1265 1253 1315 1291 1324 1281 1303

Note (all): Price forecasts (published as averages) draw from two primary methodologies. Source (all): Thomson Reuters Eikon, GFMS, WGC, Bloomberg, other sources, RBC Capital Markets

July 17, 2017 7

 Gold Strategy: Golden in India?

Macro Factors
Figures 15 & 16: Gold versus S&P 500; Gold versus 10yr US Treasuries
2,000 S&P 500 (RHS) 2,600 2,000 10yr US Treasuries (%, RHS) 3.5
Gold ($/oz, LHS) Gold ($/oz, LHS)
2,400 3.0
1,800 1,800
2,200
2.5
1,600 1,600
2,000
2.0
1,400 1,800 1,400
1.5
1,600
1,200 1,200
1.0
1,400
1,000 1,000 0.5
1,200

800 1,000 800 0.0

Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17
Figures 17 & 18: Gold versus inflation expectations; Gold versus US CPI
2,000 Inflation Expectations (%, RHS) 2.5 2,000 CPI (% y/y, RHS) 3.0
Gold ($/oz, LHS) Gold ($/oz, LHS)
1,800 1,800 2.5
2.0
2.0
1,600 1,600
1.5
1.5
1,400 1,400
1.0
1.0
1,200 1,200
0.5
0.5
1,000 1,000 0.0

800 0.0 800 -0.5

Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17
Figures 19 & 20: Gold versus Trade Weighted Dollar; Gold versus Euro
2,000 TW$ (level, RHS) 100 2,000 EUR/USD (RHS) 1.5
Gold ($/oz, LHS) Gold ($/oz, LHS)

1,800 1,800 1.4

90
1.3
1,600 1,600
1.2
1,400 80 1,400
1.1
1,200 1,200
1.0
70
1,000 1,000 0.9

800 60 800 0.8

Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

Note (all): Index data was sourced from the CFTC IID reports until October 2015, all data since is RBC Commodity Strategys proprietary estimate. Adjusted AUM only accounts for underlying flows. Breakdown
between underlying and price effect does not cover non-US investments. Source (all): Bloomberg, CFTC, RBC Capital Markets

July 17, 2017 8

 Gold Strategy: Golden in India?

Physical and Financial Demand

Figures 21 & 22: Key quarterly gold demand factors; Reported monthly official sector activity
1,500 Quarterly demand Jewellery 2,000 100 Reported official sector activity (t)
Investment
(WGC, t) Central banks Purchases Sales
Gold Price ($/oz, RHS) 80
1,200 1,800
60

900 1,600
40

600 1,400 20

0
300 1,200
-20

0 1,000 -40
Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17

Figures 23 & 24: Quarterly technology demand factors; Quarterly investment demand factors
120 Quarterly technology Electronics 2,000 800 Quarterly investment Physical bars 2,000
Other Official coins
demand (WGC, t) Dentistry demand (WGC, t) Medals/Imitation coins
600
100 Gold Price ($/oz, RHS) ETPs
1,800 1,800
Gold Price ($/oz, RHS)
400
80
1,600 1,600
200
60
0
1,400 1,400
40
-200
1,200 1,200
20 -400

0 1,000 -600 1,000

Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Q1 13 Q1 14 Q1 15 Q1 16 Q1 17

Figures 25 & 26: Gold ETF holdings; US gold coin sales

3,000 Gold ETF holdings (t) 350 Gold coin sales (koz) 2000
Gold price ($/oz)
2,500 300
1600
SPDR
iShares 250
2,000 ZKB
ETFS (UK) 1200
200
GBS (UK)
1,500
Sprott
150
Other 800
1,000
100
400
500 50

0 0 0
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 May-92 May-97 May-02 May-07 May-12 May-17
Source (all): WGC, IMF, Thomson Reuters Eikon, Bloomberg, US Mint, RBC Capital Markets

July 17, 2017 9

 Gold Strategy: Golden in India?

Asia Regional Factors

Figures 27 & 28: Hong Kong and China monthly gold trade; Shanghai Gold Exchange volume and average local prices
200 Hong Kong total gold trade with China (t) 18,000 Average trading volume (LHS) 330
Average price (RHS, CNY/g)
Exports 16,000 310
150 Imports
Net exports 14,000
290
100 12,000
270
10,000
50 250
8,000
230
0 6,000
210
4,000
-50
2,000 190

-100 0 170
May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17
Figures 29 & 30: Quarterly East Asian gold demand; East Asian gold bar premiums
600 Consumer demand by country (t) 45 Asian gold bar premiums ($/oz)
China Hong Kong Singapore Japan 40
500 China
35 Hong Hong
Singapore
30 Tokyo
400
25
20
300
15

200 10
5
100 0
-5
0 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17
Q1 13 Q1 14 Q1 15 Q1 16 Q1 17
Figures 31 & 32: Quarterly Indian gold demand; Indian gold bar premiums
350 Consumer demand (t) India 20 Indian gold bar premiums ($/oz)

300 0

250 -20

200 -40

150 -60

100 -80

India
50 -100

0 -120
Q1 13 Q1 14 Q1 15 Q1 16 Q1 17 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17

Source (all): China and Hong Kong Customs, SGE, WGC, Bloomberg, Thomson Reuters Eikon, RBC Capital Markets

July 17, 2017 10

 Gold Strategy: Golden in India?

Supply Factors
Figures 33 & 34: Mine and scrap supply; Other supply factors
5000 Gold supply versus prices 1800 1200 Other supply items versus prices 1800
Mine production Net producer hedging
Scrap supply ETPs
Price ($/oz) 1500 800 1500
Central Bank sales
Price ($/oz)
4000 1200 400 1200

900 0 900

3000 600 -400 600

300 -800 300

2000 0 -1200 0
2006 2008 2010 2012 2014 2016 2018 F 2006 2008 2010 2012 2014 2016 2018 F

Figures 35 & 36: Mine supply by region; Scrap supply by region

4000 Gold supply by region (t) 2000 Gold scrap supply by region (t) North America
South America
North America South America Europe
Europe Asia Asia
Africa Oceania Africa
3000 1500
Oceania

2000 1000

1000 500

0 0
2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016
Figures 37 & 38: Quarterly cash costs versus actual prices; Annual cash costs
2000 Gold price versus cash costs and all-in costs 2,500 Cash costs vs all-in sustaining costs 450
($/oz) (preliminary $/oz)
Gold price
1600 Average cash cost 2,000 350
Marginal cash cost
Average all-in cost
Marginal all-in cost
1200 1,500 250

800 1,000 150

2016 all-in sustaining

400 500 50
2016 cash cost
Average difference
Average (50%), Marginal (90%)
Marginal difference
0 0 -50
Mar-05 Mar-08 Mar-11 Mar-14 Mar-17 0% 25% 50% 75% 100%

Source (all): Thomson Reuters Eikon, GFMS, Bloomberg, WGC, Company reports, RBC Capital Markets

July 17, 2017 11

 Gold Strategy: Golden in India?

Pricing, Ratios and Exchange Holdings

Figures 39 & 40: Gold prices in other currencies; Silver prices in other currencies
9500 Gold in key currencies 1600 160 Silver in key currencies 25
USD/oz (LHS)
EUR/oz (LHS) USD/oz (LHS)
RMB/oz (RHS) 140 EUR/oz (LHS)
INR/0.1oz (RHS) 1400 RMB/oz (RHS)
INR/0.1oz (RHS)
8500 20
120

1200
100
7500 15
1000
80

6500 800 60 10
Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17
Figures 41 & 42: Gold forward curve; Silver forward curve
1,600 23
Gold forward curve ($/oz) Silver forward curve ($/oz)
As of: 07/13/2017 As of: 07/13/2017

1,400
19

1,200

6 month range 15 6 month range

1,000
1 year ago 1 year ago
6 months ago 6 months ago
1 month ago 1 month ago
Months forward Latest Months forward Latest
800 11
1 3 6 10 14 18 22 30 43 55 67 1 3 7 11 15 19 23 30 43 55
Figures 43 & 44: Gold-oil ratio; Gold-silver ratio
50 Gold-oil ratio Average over period 100 Gold-silver ratio Average over period

40
80

30
60
20

40
10

0 20
Jan-95 Mar-99 Jun-03 Aug-07 Nov-11 Jan-16 Jan-95 Mar-99 Jun-03 Aug-07 Nov-11 Jan-16

Source (all): Thompson Reuters Eikon, Bloomberg, exchange information, RBC Capital Markets

July 17, 2017 12

 Gold Strategy: Golden in India?

CFTC Positioning in Precious Metals (managed money and swap dealers)

Figure 45: Managed money and swap dealer positioning table (000 lots)

Futures (net long) as % of open

As of: 07/04/2017 Open interest (futures) Futures (net long) Futures & Options (net long)
interest
Managed money Current month ago Current m/m Current m/m Current m/m
Palladium Nymex 67.5% 66.9% 34.41 (0.17) 23.23 (0.33) 22.95 (0.61)
Gold Comex 7.4% -23.5% 457.20 (36.84) 33.69 (132.36) 37.78 (136.88)
Silver Comex 0.6% -24.2% 203.54 (5.43) 1.17 (49.06) 1.85 (47.96)
Platinum Nymex -16.5% -30.8% 72.80 3.30 (11.98) (11.48) (12.02) (11.79)
Total/average 14.7% -2.9% 767.95 (39.14) 46.10 (193.23) 50.56 (197.24)
Swap dealers Current month ago Current m/m Current m/m Current m/m
Platinum Nymex 8.5% 16.4% 72.80 3.30 6.19 6.29 6.17 6.45
Gold Comex 4.6% 20.1% 457.20 (36.84) 21.06 63.46 17.96 73.97
Silver Comex -0.1% 9.0% 203.54 (5.43) (0.13) 17.86 (0.55) 18.74
Palladium Nymex -15.0% -14.6% 34.41 (0.17) (5.17) 0.19 (5.01) 0.16
Total/average -0.5% 7.7% 767.95 (39.14) 21.95 87.80 18.58 99.33
This page provides a breakdown of managed money positioning and swap dealer positioning in major commodity futures (and options) as defined by the CFTC Commitment of Traders Report. The tables above
rank commodities by net long futures position as a percentage of futures open interest versus a month prior. A money manager is defined by the CFTC as a registered commodity trading advisor (CTA); a registered
commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients. A swap dealer is defined by the
CFTC as an entity that deals primarily in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swaps transactions. The swap dealers counterparties may be
speculative traders, like hedge funds, or traditional commercial clients that are managing risk arising from their dealings in the physical commodity.

Figures 46 & 47: Gold managed money positions, Net long as a percentage of futures open interest
400 Long Short Net 800 Open interest (LHS) 50%
'000 lots '000 lots
% of open interest (RHS)
300 40%
600
200 30%

100 400 20%

0 10%
200
-100 0%

-200 0 -10%
Jul-12 Oct-13 Jan-15 Apr-16 Jul-17 Jul-12 Oct-13 Jan-15 Apr-16 Jul-17
Figures 48 & 49: Gold swap dealer positions; Net long as a percentage of futures open interest
200 Long Short Net 800 Open interest (LHS) 20%
'000 lots '000 lots
% of open interest (RHS)
10%
100
600
0%
0
400 -10%
-100
-20%
200
-200
-30%

-300 0 -40%
Jul-12 Oct-13 Jan-15 Apr-16 Jul-17 Jul-12 Oct-13 Jan-15 Apr-16 Jul-17

Source (all): CFTC, Bloomberg, RBC Capital Markets

July 17, 2017 13

 Gold Strategy: Golden in India?

Correlation Matrix
Figure 50: Cross asset correlation matrix covering major commodities, equity, yield, and foreign exchange marks

Correlation Matrix As of: 14-Jul-17

1 month

Shanghai Comp.

US Inflat. Index

Canadian 10yr
Nikkei Index
Brent Crude

Natural Gas

Japan 10yr
WTI Crude

Aluminum

USD Index
TSX Index
Soybeans

USD/CAD
EUR/USD
Platinum

USD/JPY
S&P 500

US 10yr
Copper

Wheat
Corn
Gold

3 month

WTI Crude 0.96 0.32 0.06 -0.06 0.33 0.33 0.10 0.19 0.08 -0.06 0.34 -0.13 -0.04 0.17 0.45 0.46 0.09 -0.31 0.23 0.04 -0.23

Brent Crude 0.97 0.27 -0.04 -0.22 0.23 0.38 0.09 0.21 0.07 -0.03 0.38 0.01 -0.08 0.15 0.44 0.39 0.00 -0.20 0.16 0.13 -0.18

Natural Gas 0.27 0.26 0.20 -0.09 -0.03 -0.26 0.21 -0.04 0.05 -0.35 0.08 -0.02 -0.22 0.12 0.03 0.05 -0.11 -0.24 0.23 0.12 0.11

Gold 0.19 0.13 0.15 0.69 0.19 -0.12 -0.20 -0.22 -0.23 -0.13 0.26 0.03 -0.22 -0.37 -0.38 -0.08 0.16 -0.61 0.49 -0.72 -0.14

Platinum 0.11 0.04 0.03 0.64 0.27 -0.19 -0.21 -0.14 -0.05 0.04 -0.16 -0.24 -0.41 -0.37 -0.50 -0.10 0.27 -0.51 0.36 -0.83 -0.34

Copper 0.12 0.10 0.06 0.11 0.26 0.12 -0.12 0.00 -0.02 0.01 0.28 0.00 0.17 0.13 0.30 0.24 0.05 -0.51 0.49 -0.12 0.00

Aluminum 0.09 0.15 -0.16 0.01 0.08 0.39 -0.32 -0.12 -0.38 -0.18 -0.12 0.04 0.26 0.25 0.48 0.41 0.06 -0.27 0.26 0.07 -0.11

Corn 0.12 0.16 0.19 -0.02 -0.08 0.04 -0.04 0.74 0.85 -0.21 -0.01 0.05 -0.03 0.32 0.23 0.11 0.28 0.02 0.13 0.34 0.27

Wheat 0.18 0.23 0.10 -0.05 -0.19 0.04 -0.04 0.73 0.69 -0.08 -0.03 0.17 -0.18 0.32 0.23 0.17 0.26 0.15 -0.05 0.27 0.13

Soybeans -0.04 -0.01 0.02 -0.08 0.00 0.10 -0.06 0.70 0.56 0.05 0.06 -0.03 -0.11 0.24 0.15 0.07 0.30 0.08 0.02 0.26 0.11

S&P 500 -0.04 -0.01 -0.20 -0.28 0.01 0.17 0.13 -0.05 -0.08 0.03 0.53 -0.24 -0.04 -0.32 -0.16 -0.15 0.14 0.43 -0.52 0.02 -0.44

TSX Index 0.35 0.37 0.02 -0.01 0.08 0.37 0.14 0.08 -0.01 0.04 0.63 0.09 0.15 -0.17 0.14 -0.02 0.05 0.03 -0.06 0.13 -0.10

Nikkei Index -0.14 -0.09 -0.15 -0.01 -0.03 -0.03 0.05 0.02 0.00 0.11 0.15 0.16 0.08 -0.09 -0.13 -0.24 -0.26 -0.03 0.20 0.03 0.39

Shanghai Comp. -0.20 -0.19 -0.05 0.03 -0.09 0.23 0.26 0.11 0.12 0.05 -0.09 -0.15 -0.11 0.27 0.39 0.08 -0.19 0.11 -0.04 0.33 0.34

US 10yr Tips -0.14 -0.14 -0.09 -0.51 -0.23 -0.03 0.09 0.15 0.04 0.25 0.07 0.05 0.06 -0.02 0.83 0.71 -0.23 -0.05 0.10 0.68 0.16

US 10yr 0.08 0.10 -0.06 -0.60 -0.33 0.12 0.21 0.16 0.08 0.16 0.24 0.25 0.07 0.03 0.83 0.79 -0.08 -0.11 0.14 0.67 0.04

Canadian 10yr 0.19 0.19 0.00 -0.40 -0.19 0.05 0.02 0.12 0.10 0.10 0.24 0.15 -0.07 0.00 0.60 0.74 -0.13 -0.31 0.22 0.32 -0.43

Japan 10yr -0.11 -0.10 -0.04 -0.03 0.03 0.10 0.09 0.02 -0.03 0.11 0.16 -0.04 0.11 -0.05 -0.10 0.00 0.07 -0.20 0.17 -0.33 -0.03

USD Index -0.12 -0.09 0.00 -0.48 -0.40 -0.19 -0.26 -0.07 0.06 -0.09 0.12 0.01 -0.06 0.06 0.21 0.21 0.07 -0.08 -0.96 0.45 0.15

EUR/USD 0.03 0.01 0.00 0.42 0.35 0.24 0.30 0.13 -0.04 0.17 -0.15 -0.02 0.15 -0.05 -0.14 -0.16 -0.14 0.05 -0.95 -0.33 0.04

USD/JPY -0.05 0.01 0.02 -0.77 -0.54 0.05 0.09 0.14 0.11 0.10 0.43 0.36 0.18 0.02 0.58 0.74 0.52 0.12 0.44 -0.37 0.26

USD/CAD -0.43 -0.41 0.00 -0.21 -0.34 -0.06 -0.03 0.07 0.05 0.01 -0.25 -0.19 0.26 0.16 0.11 0.06 -0.31 0.08 0.18 -0.07 0.22

Scale: 3 month correlation (bottom) Positive -> Negative 1 month correlation (top): Positive -> Negative

Source: Bloomberg, RBC Capital Markets

This page provides cross-asset correlations. Source data is from Bloomberg as of the date indicated in the table. Darker colors indicate more positive
correlations while lighter colors indicate more negative correlations. The top-right section indicates one-month correlations of daily changes while the bottom-
left section indicates three-month correlations of daily changes. Yield markets were calculated on the yields themselves. This table covers the major commodity
markets (energy, precious metals, base metals, and agriculture), major global equity indexes, major yield markets, and major FX indexes and crosses.

July 17, 2017 14

 Gold Strategy: Golden in India?

Global Economic Calendar

Figure 51: Major commodity-relevant economic data releases

10-Jul 11-Jul 12-Jul 13-Jul 14-Jul

Japan Machine Orders Italy Industrial Production EIA Petroleum Status Report EIA Natural Gas Report Baker-Hughes rig count
Eurozone Industrial Production US Jobless Claims Eurozone Merchandise Trade
India CPI Germany CPI US Industrial Production
India Industrial Production

17-Jul 18-Jul 19-Jul 20-Jul 21-Jul

US: Empire State Manufacturing UK CPI, PPI EIA Petroleum Status Report EIA Natural Gas Report Baker-Hughes rig count
Survey US Housing Market US Jobless Claims Canada CPI
RBA Meeting Minutes Germany PPI Japan PMI Manufacturing Index
ECB Announcement Flash (weekend)

24-Jul 25-Jul 26-Jul 27-Jul 28-Jul

France, Germany, EU, US PMI Australia CPI EIA Petroleum Status Report EIA Natural Gas Report Baker-Hughes rig count
UK GDP US Jobless Claims EU EC Economic Sentiment
US International Trade Germany CPI
Japan CPI US GDP
Australia CPI Canada GDP
Japan Industrial Production
(weekend)
China CFLP Manufacturing PMI
(weekend)

31-Jul 1-Aug 2-Aug 3-Aug 4-Aug

Japan PMI Manufacturing Index
China PMI Manufacturing Index
US Motor Vehicle Sales
US, India, France, Germany, EU,
UK PMI Manufacturing Index
EU GDP Flash
EIA Petroleum Status Report
EU PPI
Japan PMI Composite
EIA Natural Gas Report Baker-Hughes rig count
US Jobless Claims
France, Germany, EU PMI
Composite
Japan Industrial Production

Source: WSJ, Econoday, Bloomberg, Reuters, RBC Capital Markets

Recent Commodity Strategy Research

Commodity Comment: Let It Go (July 13, 2017)
Commodity Surveyor: 2017 Halftime Report (July 7, 2017)
Commodity Comment: Wont Back Down (July 6, 2017)
OPEC Watch List: Sleepwalking (June 29, 2017)
Commodity Comment: Hardball (June 29 2017)
Oil Strategy: The Tale of the Tourist (June 26 2017)

July 17, 2017 15

 Gold Strategy: Golden in India?

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July 17, 2017 16

 Gold Strategy: Golden in India?

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July 17, 2017 17

 Gold Strategy: Golden in India?

Global Macro, Economics & Rates Strategy Research Team

Europe
RBC Europe Limited:
Adam Cole Chief Currency Strategist +4420 7029 7078 adam.cole@rbccm.com
Vatsala Datta UK Rates Strategist +44 20 7029 0184 vatsala.datta@rbccm.com
Sam Hill, CFA Senior UK Economist +44 20 7029 0092 sam.hill@rbccm.com
Cathal Kennedy European Economist +44 20 7029 0133 cathal.kennedy@rbccm.com
Elsa Lignos Global Head of FX Strategy +44 20 7029 7077 elsa.lignos@rbccm.com
Peter Schaffrik Global Macro Strategist +44 20 7029 7076 peter.schaffrik@rbccm.com

Asia-Pacific
Royal Bank of Canada Sydney Branch:
Su-Lin Ong Head of Australian and New Zealand FIC +612-9033-3088 su-lin.ong@rbccm.com
Strategy
Michael Turner Fixed Income & Currency Strategist +612-9033-3088 michael.turner@rbccm.com

Royal Bank of Canada Hong Kong Branch:

Sue Trinh Head of Asia FX Strategy +85228485135 sue.trinh@rbccm.com

North America
RBC Dominion Securities Inc.:
Mark Chandler Head of Canadian FIC Strategy (416) 842-6388 mark.chandler@rbccm.com
George Davis Chief Technical Analyst (416) 842-6633 george.davis@rbccm.com
Simon Deeley Fixed Income Strategist (416) 842-6362 simon.deeley@rbccm.com

RBC Capital Markets, LLC:

Michael Cloherty Head of US Rates Strategy (212) 437-2480 michael.cloherty@rbccm.com
Tania Escobedo Jacob Latam FX Strategist (212) 618-3535 tania.escobedo@rbccm.com
Jacob Oubina Senior US Economist (212) 618-7795 jacob.oubina@rbccm.com
Tom Porcelli Chief US Economist (212) 618-7788 tom.porcelli@rbccm.com
Ashutosh Kamat Associate Rates Strategist (212) 618-2528 ashutosh.kamat@rbccm.com
Daria Parkhomenko Associate (212) 618-7857 daria.parkhomenko@rbccm.com

Commodities Strategy Research Team

North America
RBC Capital Markets, LLC:
Helima Croft Global Head of Commodity Strategy (212) 618-7798 helima.croft@rbccm.com
Christopher Louney Commodity Strategist (212) 437-1925 christopher.louney@rbccm.com
Michael Tran Commodity Strategist (212) 266-4020 michael.tran@rbccm.com

July 17, 2017 18