Precious Metals

Standard Bank Plc Cannon Bridge House 25 Dowgate Hill, London EC4R 2SB

Monthly report

Gold

1

Silver

5

Platinum Group Metals

7

4th January 2008

Gold • Gold continued to benefit during December from the uncertainties in the financial markets. Concerns that the stresses in the credit system might last longer than previously feared and might have a wider collateral effect in the financial markets and global economies as a whole were among important drivers in fuelling continued investor and speculative demand. • The outlook for the dollar is inextricably bound up with the tensions in the markets and this, combined with continued geopolitical tensions and associated bullishness for oil prices means that gold finished December on a constructive note ahead of scoring fresh all-time highs in early January. • The physical market, however, remains patchy with price-responsive would-be purchasers (notably the Indian Sub-continent and the Far East) deterred by sustained price volatility. At the start of January they remain cautious and there is a growing feeling that the price is due for a correction. The medium term outlook remains positive.

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Precious Metals Spot gold in dollar terms against $; euro rate Dollar:Euro & Gold Price US$/€

US$/oz 900

1.52

850

1.48

800

1.44 1.40

750

1.36

700

1.32

650

1.28

600

1.24

550

1.20

500 Jan-07

Apr-07

Jul-07

PM Fix $

Oct-07

1.16 Jan-08

Non-commercial and Non-reportable Net Positions Contracts US$/oz 000s 250

850 800

200

750 150

700

100

650 600

50

550

0 Jan-07

500 Apr-07

Non-Commercial Settlement Price

US$/€

The dollar:euro rate remains an important driver in the market as the dollar’s international value is an important measure of confidence, but towards the end of the year gold was independently strong. During December gold gained (on a pm fixing basis) 6.3% in dollar terms and 6.0$ in euro terms. Over the year as a whole the gains were 30% and 18% respectively. Relative economic performance, interest rate differentials and financial concerns in general are combining for a medium-term bearish dollar outlook.

Contracts 000s 600 550

250

500 200

450

150

400 350

100

300 50 0 Jan-07

250 200 Apr-07 Volume

Jul-07

Oct-07 Open Interest (rhs)

Open interest in the COMEX contracts increased by 186 tonnes over the course of December to 1,685 tonnes, their highest since 9th November, when the price reached an intermediate high. This, too, points to the possibility of a correction as the market is starting to become a little top heavy with speculative positions outweighing the commercial side.

Oct-07 Non-Reportable

The net long speculative position on COMEX increased steadily over the course of December, rising from 639 tonnes at end-November to 689 tonnes through to 24th December (the latest date for which figures are available), an increase of 50 tonnes. This was very largely due to increasing long positions, with shorts virtually unchanged and this adds to the possibility of a bout of profit taking.

ETF Holdings

COMEX Futures volume and open interest Contracts 000s 300

Jul-07

Tonnes 900

US$/oz 900

800

800

700 600

700

500

600

400 300

500

200

400

100 0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 GBS LSE

streetTRACKS

Other

Gold PM Fix

300 iShares

Holdings in the major Exchange Traded Funds increased by 32 tonnes during December to reach a total just in excess of 840 tonnes (value of contained gold, 422.5 billion). There were increases more or less across the board, with the StreetTRACKS fund in New York adding 26 tonnes. The increase over the year was 236 tonnes, compared with 245 tonnes in 2006.

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Precious Metals Gold Price 900

Gold and the S&P 500

Leasing Rates (%)

S&P 500 1600

850

3-mth

12-mth

2006

0.11%

0.12%

Jan-Dec 07

0.21%

0.26%

Dec

0.38%

0.45%

2006

0.19%

0.20%

Jan-Dec 07

0.45%

0.59%

Dec

0.45%

0.59%

2006

0.04%

0.03%

Jan-Dec 07

0.11%

0.10%

Dec

0.23%

0.33%

Average

1500

800 750

1400

700 650 600

1300

High

550 500 Jan-07

Apr-07

Jul-07

Au $ pm fix

Oct-07

1200 Jan-08

S&P 500

The S&P 500 lost 1% during December, first rallying, then easing, both in parallel with gold as investors maintained a broad balance in their portfolios. The end of the month saw some position squaring in the equities, but gold holdings were maintained, partly as year-end window dressing given the metal’s strong performance over the year. This, too, suggests that gold may weaken if there are fresh signs of equity distress as it may be used to raise liquidity.

Gold Price 900

Spot gold vs gold equities

XAU Index 200

Low

Lease rates eased during December, reflecting the fact that market liquidity remains plentiful and pointing also to the likelihood of further hedge lifting in the mining sector. By the end of the year the three-month rate was between 0.2% and 0.3%, with the twelve-month rate between 0.3% and 0.4%.

180

800

160 700

Prices (based on a.m. and p.m. fix)

140 600

500 Jan-07

120

Apr-07

Jul-07

Au $ pm fix

Oct-07

100 Jan-08

Dec %

Ch.

US$/oz

2006

Jan-Dec 07

Dec 07

mom

yoy

Average

604.06

695.91

803.42

-0.5%

28%

High

725.75

841.75

836.50

N/a

N/a

Low

520.75

608.30

783.75

N/a

N/a

XAU

Taking the relationship between gold and the equities back to the intermediate high on 8th November, the equities have dropped by 7% while gold shed just 1%. Given that at these levels the gearing between the two should be of the order of three, this suggests, as does the underperformance in the late December rally, that longer-term investors believe that there is some slack in gold and that it is in need of some correction.

While the December average in dollar terms was 28% above that of December 2007, the average in euro terms gained 16%. In trade-weighted dollar terms the increase was 17%. Clearance of the old $850 high points to a challenge of $900, but if this does not happen soon then a sell-off is likely in order to shake some of the shorter-term speculative participants out of the market and allow for consolidation.

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Precious Metals Gold vs the Long Bond Yield

Gold and the VIX Index Bond Yield 6.0

Gold Price 900

850

850 5.5

800 750

5.0 4.5

650 600

4.0

550 Apr-07

Jul-07

Au $ pm fix

Oct-07

3.5 Jan-08

30-yr Bond yield

23.5

750

Key KeyIndicators Indicators Key Indicators

18.5

650

13.5

600 8.5

550 500 Jan-07

Apr-07 PM Fix $

The Treasury markets have been relatively strong during the problems with the credit markets, partly as a “safe haven” and partly in anticipation of further US interest rate cuts. As a consequence, gold and interest rates have been moving counter to one another. In the long term gold generally leads interest rates, and the recent hiatus in the relationship reflects the unusual market conditions as investors shun risk and look for liquidity.

Dec %

Change

(end-period)

2006

Dec-07

mom

yoy

S&P 500

1,418

1,468

-1%

4%

CRB Index

368

427

0%

16%

XAU Index

142

173

1%

22%

US 30-yr Bond Yield

4.82

4.50

N/a

N/a

635.70

836.50

7%

32%

Gold Price ($/oz)

28.5

800

700

700

500 Jan-07

VIX Index 33.5

Gold Price 900

Jul-07

Oct-07

3.5 Jan-08

VIX

The VIX Index, which measures market uncertainty through S&P options prices, peaked in early November and eased through to late December, at which point it picked up once more. At the start of 2008 it is 28% higher than the average sustained over 2007 and this, too, points to investors remaining risk averse, suggesting that the medium term outlook for gold remains well underpinned.

The bond markets bear the closest relationship to gold at present as investors remain risk-averse. There are concerns about inflationary pressures, and with real federal funds rates hovering close to zero, this is perhaps understandable. Inflation, however, remains relatively well contained and should not be an overbearing cause for concern. Given that the primary drivers at the moment revolve around uncertainty, Treasuries and equities are probably more important. The bearish outlook for the dollar, of course, is supportive for the medium term, but there remains room for a short-term correction as this latest move looks overextended.

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Silver •Silver remained in thrall of gold’s performance during December and is expected to continue to be dominated by activity in gold in 2008. Prices in early January are in excess of $15 and at these levels there is an excess of speculative length in the market. Silver’s volatile nature means that (on a fixing basis) it traded in a 20% range in 2007, compared with gold’s 16% range. Wide swings remain likely.

Comex: Silver Non-Commercial and NonReportable Positions Contracts US$/oz

000s 100

16

80

14

60

• Silver opened December at just below $14 and reached a high

12 40

fix of $14.76 at the end of the month, prior to breaching $15 in early 2008. Activity was dominated by speculative market

10

20

participants and volumes have not been high, which suggests that the move may prove itself to be brittle.

0 Jan-07

something of a pall over it given the expectations for a slowdown this year. This, combined with the nature of the recent rally, suggests an overall medium-term underperformance with respect to gold.

Dollar:Euro Silver Price Spot Silver Price;&Dollar:Euro Rate cents/oz

US$/€

1600

1.52

Jul-07

Non-Commercial Settlement Price

• There have been some signs of physical sales and speculative profit taking. The metal’s industrial consumer base casts

8 Apr-07

Oct-07 Non-Reportable

The net speculative long position on COMEX oscillated during December, dipping from almost 8,300 tonnes in midDecember to just less than 7,500 tonnes before increasing to 8,152 tonnes. The gross long position increased during the month by less than the degree to which shorts covered and the gross short is at its lowest since late March 2007. Market uncertainty means than participation has been falling, implying further volatility.

Silver, gold and copper; Jan 2007=100 Index 200 180

1.44

1400

1.36 1200

160 140 120

1.28 100 1000 Jan-07

Apr-07

Jul-07

London Fix

Oct-07

1.20 Jan-08

US$/€

The dollar price of silver gained fractionally more than gold (on a fixing basis) during December, rising by 6.5% in dollar terms and just over 7% in euro terms. The gains over the year were 13% and 3% respectively, underperforming against gold as a reflection of silver’s weaker fundamentals. This underperformance is likely to be sustained, especially on any downward correction in gold.

80 Jan-07

Apr-07 Gold

Jul-07

Oct-07

Silver

Jan-08 Copper

Silver’s relationship with gold was relatively strong during December and extremely weak with respect to copper. The simple correlation coefficients between silver with gold and with copper were 53% and 27% respectively. Over the year as a whole the coefficients were 52% and virtually zero. Silver has thus ignored copper’s correction, favouring the strength in gold. With little by way of industrial trade buying in evidence, there is clearly scope for a correction.

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Silver Gold : Silver Ratio (London gold p.m. fix US$/oz over London silver fix US$/oz)

The Gold : Silver Ratio

Prices (based on London fix)

60

55

Dec %

Ch.

US$/oz

2006

Jan-Dec 07

Dec 07

mom

yoy

Average

11.55

13.38

14.30

-3%

7%

High

14.94

15.82

14.76

N/a

N/a

Low

8.83

11.67

13.75

N/a

N/a

50

45

40 Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Silver’s higher volatility than gold has meant that the ratio between the two varied substantially during December, dipping below 55 in early December, just before the sector turned down, reflecting silver’s short term outperformance during the previous rally. The ratio has now widened to more than 56. This suggests that during the most recent rally gold has been finding more favour and that silver speculators are becoming nervous at prices above $15.

The average silver price during 2007 was 16% higher than the average in 2006, with a year-on-year gain of 13%. In producer currencies the story was rather different, with the averages in Australian and Canadian dollars just 4% and 10% higher respectively. Year-on-year, silver gained 3% in Australian dollar terms but fell by 3% in Canadian dollars.

Comex Turnover and Open Interest (Number of Contracts, 5,000 oz, daily averages)

Million Ounces 180

Turnover

Open Interest

Price (US$/oz)

2006

21,820

115,602

11.96

Oct

25,264

123,781

13.70

Nov

48,500

144,897

14.66

Dec

20,468

145,939

14.36

ETF Holdings US$/oz 16

160 140

14

120 100

12

80

Source: COMEX

60 10

40 20

0 8 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 iShares Silver Trust Holdings

London Silver Fix

Holdings in the silver Exchange Traded Fund increased during December by 23 million ounces, with the majority of the increase reported for 31st December. This was partially reversed at the start of January, such that in early January, holdings were 4,690 tonnes (value of continued metal approximately $2.3 billion), compared with 3,704 tonnes at the start of 2007, a gain of 986 tonnes.

COMEX turnover dropped off substantially during December, but this is not unusual and the volume was better than that of 2006. The average daily turnover for the month was just over 3,110 tonnes, compared with 2,168 tonnes in December 2006. Open interest at the end of the year was 23,744 tonnes, demonstrating that speculative position holders outweighed the commercial side by some 27%, which also suggests some fragility to this latest burst of strength.

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Platinum Group Metals Platinum & Palladium

Platinum Prices (London fixes)

Platinum rounded off a tumultuous year with a stunning performance in December. Against a backdrop of sharply rising lease rates, November’s high of $1,484 was eclipsed by a run of successive fixes above $1,500 from 18th December through to year-end. The highest of these came on the afternoon of the 27th when a $1,544 fixing set a new high. However, with gold smashing all previous records in early January trading, this will be consigned to history as platinum’s high-water mark for 2007. New all-time highs for platinum beckon, with the record-books again being rewritten as we close for press. Undoubtedly, supply-side concerns were the dominant theme for platinum in 2007 and sensitivity to this issue remained high in December. In South Africa, a national one day mining strike in protest over safety took place on the 4th, with the government embarking on an industrywide programme of safety inspections and promising tough action where standards are found to be deficient. A further example of industrial unrest was seen in the tenday strike over bonus payments at the Marikana mine (an Aquarius:Anglo Platinum pool and share operation) from the 16th. The safety question and the often interrelated issue of industrial unrest have had a dramatic impact on South African platinum production over the last year. From an initial expectation of growth in 2007, the industry has ended up producing significantly less platinum than it did in 2006. Whilst improved output is expected in 2008, the prospect of a dramatic recovery is unlikely. The big issue

Gold

1,600

900

1,500

850

2006

Jan-Dec 07

Dec 07

mom

yoy

Average

1,143

1,305

1,488

3%

33%

High

1,390

1,544

1,544

N/a

N/a

Low

982

1,112

1,450

N/a

N/a

of safety will take time to resolve and a slow and cautious approach in the meantime seems probable. On a different tack (and perhaps coincidentally), platinum’s December surge through $1,500 came on the day when the ANC elected Jacob Zuma as its new party leader, thus anointing him their preferred successor to Thabo Mbeki in South Africa’s presidential elections in 2009. While this was no great surprise (a new president will take office in 2009 in any event), Mr Zuma’s election received much international media coverage and some investors may have regarded it as indicative of uncertainties to come. Although this may have been a factor, it should be noted that platinum’s price action at that time (from the 18th) also coincided with a jump in gold prices, the emergence of unconfirmed reports from Russia suggesting a new round of export licence difficulties (as in early 2007) and a sharp hike in platinum lease rates.

US$/oz

US$/oz

1500

400

1400

375

800

1,400

750

1,300

700

1,200

1300 350 1200

650

1,100 1,000 Jan-07

US$/oz

PlatinumPlatinum and Palladium Prices & Palladium Prices

Platinum & Gold Prices Platinum

Dec % Ch.

600 550 Apr-07

Jul-07

Platinum

Oct-07 Gold

325

1100 1000 Jan-07

300 Apr-07 Platinum

Jul-07

Oct-07 Palladium (rhs)

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Platinum Group Metals US Dollar:Euro Dollar: Euro

US$/€

Leasing Rates Rate PlatinumPlatinum 1-month Lease %

1.6

8

1.5

7 6

1.5

5

1.4

4

1.4

3

1.3

2

1.3

1

1.2 Jan-07

Apr-07

Jul-07 US$/€

0 Jan-07

Oct-07

On the subject of higher lease rates, one month platinum more than doubled during December, exceeding 10% per annum. Underlying this tightness is the fact that platinum’s slender above-ground stocks have been significantly depleted in 2007 by shortfalls in South African production. More recently, this has been compounded by the surge in ETF investment over the latter part of the year, which has served to further drain physical liquidity. This was particularly evident in November and was exacerbated in December by the inflow of a further 35,000 ounces to the London listed fund of ETF Securities, lifting its total year end holdings to almost 140,000 ounces of allocated platinum. Meanwhile, other supportive factors for platinum are not hard to find. Inflation fears continue with crude oil prices converging on the $100 big number as we write. At

Jul-07

Oct-07

1-month rate

the same time, the risk of a recession in the US this year appears to be increasing. The early January release of the ISM manufacturing index suggests that factory output in December declined for the first time in almost a year. This report sent US stocks sharply lower, triggering a New Year rush to gold and new record prices. Whilst recessionary conditions would be less than ideal for platinum, its role as an investment vehicle (with its close correlation to gold) and the supply-side issues discussed earlier, are providing more than adequate compensation. Witness not only the recent growth of ETF investment but also the rise in net long positions on Nymex to their highest level since May. Finally, it would be remiss not to mention geopolitics, where the assassination of Benazir Bhutto on 27th December sparked a surge in gold prices, with platinum hitting its 2007 high on the same day.

ETF Securities - Pt Holdings Pt ETF

Pd ETF- Pd Holdings ETF Securities

Ounces

Ounces

160000

50000 45000

140000

40000

120000

35000

100000

30000

80000

25000 20000

60000

15000

40000

10000

20000 0 Apr-07

Apr-07

5000 Jun-07

Aug-07

Oct-07

Dec-07

0 Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com

Platinum Group Metals NYMEX: Platinum Net Positions '000 ounces 800

NYMEX: Palladium Net Positions

US$/oz

'000 ounces

US$/oz

1600

1600

400

700

1400

1500

600 500 400 300

1000

1300

800

1200

600

200

300

250

400

1100

100 0 Jan-07

350

1200 1400

200 1000 Apr-07

Jul-07

Non-Commercial Platinum price

0 Jan-07

Oct-07 Non-Reportable

200 Apr-07

Jul-07

Non-Commercial Palladium Price

Although palladium gained little media attention in December, its price action over the month mirrored platinum in a reasonably close if unspectacular manner. This enabled palladium to gain $18 over the month and close the year at $365. Unlike platinum, there was scant evidence of additional investor interest in either Nymex or ETF products and while there was some anecdotal evidence of fabrication demand, it is likely that OTC investment was the principal factor during December. On an intra-year basis, palladium gained $33 (or 10%) in 2007, with its year-on-year average rising by a similar amount. Although this is less than exciting, the positives over the year were the crystallisation of support for palladium at significantly elevated levels and its gradual consolidation in the mid-$300s. Whilst the achievement of this produced an exceptionally narrow trading range (only $62 over the whole year), palladium appears to have more solid foundations as a result and is currently trading around the $370 mark. From this position, its 2007 high of $382 may soon be challenged.

Oct-07 Non-Reportable

Rhodium With a trading range of less than $100 over December – easily the narrowest range of 2007 – there was little excitement in rhodium to close the year. However, with average offers during the month exceeding $6,800, rhodium finished the year on an exceptionally positive note and seems poised for further gains in 2008.

US$/oz

Rhodium Prices Rhodium Prices

7000

6500

6000

Palladium Prices (London fixes) Dec % Ch. US$/oz

2006

Jan-Dec 07

Dec 07

mom

yoy

Average

320

355

351

-3%

8%

High

404

382

365

N/a

N/a

Low

261

320

344

N/a

N/a

5500

5000 Jan-07

Apr-07

Jul-07

Avg Low Source: Johnson Matthey - basis 8am offer

Oct-07 High

Precious Metals Sales and Trading • London 44-20-7815 4210 • New York 1-212-407-5102 • Hong Kong 852-2822-7888 Singapore 65-6533-7086 • Dubai 971-4-3300-011 • Tokyo 81-3-4520-6003 www.standardbank.com • Reuters prices SBLLMETALS/Reuters direct dealer STPM Important Information Please Refer to Back Page. This report may be found at www.standardbank.com