20080521-Citi-GOLD：“Multiple Handoffs” Illustrated

Getting Physical as Investment Wanes, Fabrication Fades
 In the afterglow of a potent investment pulse — The World Gold Council released
1Q/08 Demand Trends, based on GFMS data. Investment surged to 284 T
(+163%), while Jewelry fell to 445 T (-21% YoY). This continues the patterns of
4Q/07, and echoes 2006. Investor profit-taking and seasonal fabrication slack are
working against Gold. Recovery above $900/oz shows important demand points.
 China and Russia buck the trend, with rapid off-take — While price-sensitive
Indian/Asian jewelry demand was down sharply, de-regulation and wealth effects
drove China (+7% YoY) and Russia (+9%). China is now the #1 jewelry market.
Fabrication in India fell -49% YoY; Mid-East -19%; USA -25%; Turkey -13%.
 Gold supply remains tight — Mine supply was flat in 1Q/08 as new capacity failed
to offset mature districts. Scrap ran high at 314 T, up +30% YoY, on-pace with
prior peaks. Central Bank selling was 78 T, up +8%, offset by rapid miner dehedging
of 128 T, +36%. We do not expect waning de-hedging to create surplus.
 Gold seems healthy, Bull not banished — We remain positive on Gold, based on a
mix of macro and supply/demand factors. The forces that have propelled Gold for
the last 5 years are firmly in-place. We expect Gold to work higher through 2009-
10, although catalysts may await autumn when fabrication tightens supplies.