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Gold sector report: September 1979 revisted

We believe that three features of the general, western economic crisis of the 1970s
are relevant to current conditions both in the gold market and in the wider US
economy. First, it heralded a period of significant volatility in real interest rates that
lasted until December 1981. During this time, the gold price materially re-based
itself from US$315/oz in August 1979 (when real interest rates were -0.438%) via
US$382/oz in October 1979 (when real interest rates were 3.428%) to US$653/oz
in January 1980 (when real interest rates were 0.091%). Second, the gold price did
not peak until real interest rates attained a level of 4% on a sustainable basis in
November 1980. This level of real interest rates not having remotely been reached
and the Fed now seemingly pausing its tightening cycle, we believe that the gold
bull market remains intact and that, while it is possible to predict a lower gold price
in the next few years (down to US$1,126/oz if latent inflationary forces fail to come
through and 2029 becomes the analogue of 1985), in the shorter term a number of
our analyses demonstrate that a price in excess of US$3,000/oz is a realistic
possibility and that one of US$4,500/oz is an outside possibility. Our updated gold
price forecasts are shown in Exhibit 13 on page 8 of this report.