Summary
Is the current financial and economic environment good for gold, or
is it merely expedient to assume that banking crises and economic
slowdowns will lead bullion higher? A critical assessment of the
macroeconomic environment leads us to conclude that the outlook
for gold is mixed. HSBC’s macroeconomics team argues that “public
money,” such as currency and bank deposits, will gain at the
expense of other asset classes (“private money”) until the financial
system is stabilized. Gold, being both a form of money and a
financial asset, has been caught between two opposing forces.
The gold mining industry is generally valued using discounted cash
flow techniques, leading to a net asset value or sum-of-the parts
calculation. Our SVM real options model is also a NAV-based
model. These models, however, do not take into account short-term
liquidity needs or the availability of capital, which have become
increasingly important in the current economic client. By analyzing
the industry with a standard tool for measuring financial health, the
Altman Z-score, we find that the industry is generally in good health.

During the second half of 2008, the global financial system ground close to a halt, a process that slowly
began to spread to the broader economy. First, the securitization market dried up, in turn leading to a
constraint on new loans and credit of all types. Declining asset values led not only to the demise of wellknown
investment banks, they signaled the beginning of a long deleveraging process in the financial and
household sectors. Once the consumer began to feel the impact, the real economy began to slip. And what
happened to gold the day the earth stood still? To the surprise of many, the yellow metal did not
appreciate sharply, disappointing those that view gold as the ultimate safe haven. Neither, however, did
gold plummet, following the path of other metals that had experienced a sharp contraction in demand.
Although gold did come under some pressure during September and October, it rallied smartly in the final
weeks of 2008.
In a certain sense, gold did perform admirably in its role as a store of value. The price of gold in USD
terms was broadly unchanged at the end of 2008, appreciating slightly throughout the year, and handily
outperforming – on a relative basis – most other asset classes. Gold and cash held steady while stocks and
other securities depreciated in value. That the metal did not rally sharply as investors shed assets with

During the second half of 2008, the global financial system ground close to a halt, a process that slowly
began to spread to the broader economy. First, the securitization market dried up, in turn leading to a
constraint on new loans and credit of all types. Declining asset values led not only to the demise of wellknown
investment banks, they signaled the beginning of a long deleveraging process in the financial and
household sectors. Once the consumer began to feel the impact, the real economy began to slip. And what
happened to gold the day the earth stood still? To the surprise of many, the yellow metal did not
appreciate sharply, disappointing those that view gold as the ultimate safe haven. Neither, however, did
gold plummet, following the path of other metals that had experienced a sharp contraction in demand.
Although gold did come under some pressure during September and October, it rallied smartly in the final
weeks of 2008.
In a certain sense, gold did perform admirably in its role as a store of value. The price of gold in USD
terms was broadly unchanged at the end of 2008, appreciating slightly throughout the year, and handily
outperforming – on a relative basis – most other asset classes. Gold and cash held steady while stocks and
other securities depreciated in value. That the metal did not rally sharply as investors shed assets with

uncertain value points out the limitations that gold faces as an ultimate store of value; the need for
liquidity – whether real or perceived – was met with cash and government bonds, not gold. Consider a
situation where people need to get out of a building quickly: Will they queue up and wait their turn to
squeeze through the narrow opening labeled “gold,” or will they run to the wide gate labeled “cash?”
As we point out in the thematic section of The Senior Gold Book, the macroeconomic background that led
to the current crisis also provides some clues as to gold’s behavior. Although there is still some debate as
to whether we are in a disinflationary environment – defined as a decreasing rate of inflation – or a true
deflationary environment (in which the actual level of prices is declining), the pressure on the value of
assets classes has been fairly evident. Under these circumstances, investors, businesses, and households
all prefer to hold cash because they perceive that it will hold its value relative to these other asset classes.
Investors will hoard cash until it appears that securities have stopped declining, leading to soggy stock
markets. Businesses will husband their resources, cutting back on investment and hiring, which explains
why industrial production is weak and the demand for primary commodities has fallen. Households have
eliminated discretionary spending, potentially entrenching these deflationary expectations. As HSBC’s
chief economist, Stephen King, describes it, we are in an environment where forms of money that carry
an explicit government guarantee – cash – have gained at the expense of other classes that do not.
Gold is at the center of the connection between these two opposites, “public money” and ”private
money,” because it is, in a certain sense, cash, and those that have been buying into the gold ETFs and
accumulating bars and coins would argue, we believe, that gold is the ultimate monetary instrument. If
the explicit government backing for money were to be taken away – for instance, if the US government
chose the so-called nuclear option and began to monetize the debt – then gold would stand alone as the
one true form of money. In a piece titled To the printing press and beyond – The crisis, the solutions and
the long-term costs (HSBC Research, 15 December 2008), Stephen King explains why policy makers will
try almost anything before resorting to the “nuclear option,” but it is a solution that some investors wish
to be prepared for. For the time being, however, it appears that those that have accumulated gold because
they see it as a form of cash, or “public money,” have been largely balanced by those that view it as
another asset class of uncertain value, another form of “private money.”
Although the gold equities rallied sharply towards the end of 2008, recovering much lost ground in the
last few weeks of the year and beating the broader stock indices, they still performed very poorly relative
to gold. It could be argued that the industry was hamstrung by sharply rising costs during H1 2008, which
impaired its ability to deliver margin improvements in a rising gold price environment, thus disappointing
investors. We believe the explanation has as much to do with the concepts of “public money” and
“private money.” By the time the gold equities sold off in Q3 2008, it was clear that input costs were
declining and margins might be preserved, but still the gold stocks were sold down aggressively.
Although gold equities are a form of gold ownership, they do not have inherent monetary value, like gold,
and as businesses they face many of the same issues facing other industries during an economic
contraction. Just as investors had a difficult time valuing complex asset-backed securities, the value of
gold equities came into question and, ultimately, the gold stocks were traded for cash along with many
other types of “private money.”

Gold equities, which represent an ownership in gold mining operations and development-stage projects,
are generally valued using discounted cash flow techniques that calculate the present value of the
company’s potential future cash flows. These methodologies, including the standard NPV approach as
well as our proprietary SVM real options model, could best be described as a net asset value or sum-ofthe-
parts valuation, and do not always take into account short-term liquidity and funding issues. In an
economic environment characterized by constrained capital availability, the gold industry has already
been faced with this issue, and some of the projects that might be included in a sum-of-the-parts valuation
may not be given much value in the marketplace if it appears they cannot be funded. Short-term
liabilities, which under typical circumstances would probably have been easily refunded, are now a
source of concern for investors.
One common measure of financial health that places greater emphasis on the strength of the balance sheet
and short-term liquidity is the Altman Z-score. Based on our estimates, the 18 companies that we cover in
The Senior Gold Book had an aggregate Z-score at year-end 2008 of 2.76, which is close to the ideal score
of 2.99 or higher, and well above the score of 1.80 that signals financial distress. The gold industry,
therefore, could be described as being in rude financial health, aided by the recapitalization that took
place when capital was available and the gold price was in an uptrend. Based on our average gold price
estimate for this year of USD825/oz, and assuming no further deterioration in the equity value of the
industry, the industry’s score would improve to 3.00 by the end of 2009. The sector aggregate score,
however, masks the differences between individual companies, and not all the gold companies in our
coverage boast high Z-scores. Based on our estimates, 10 companies boasted a year-end 2008 Z-score of
2.99 or better. These are, in alphabetical order, Agnico-Eagle, Barrick, Buenaventura, Centerra,
IAMGOLD, Kinross, Lihir, Newcrest, Randgold Resources, and Royal Gold. Four companies have an
indeterminate Z-score ranging from 1.80 to 2.99: Gold Fields, Goldcorp, Harmony, and Newmont. A
further four companies – AngloGold, DRD, Peter Hambro Mining, and Yamana – ended last year with a
score below 1.80.

目录

Introduction 6
Key trend indicators 22
Global rankings 56
The day the earth stood still 78
HSBC gold outlook 103
Company profiles 121
Agnico-Eagle 122
AngloGold Ashanti 129
Barrick Gold 140
Buenaventura 151
Centerra 161
DRD Gold 169
Gold Fields 176
Goldcorp 185
Harmony 195
IAMGOLD 205
Kinross 213
Lihir 223
Newcrest 230
Newmont 241
Peter Hambro Mining 251
Randgold Resources 260
Royal Gold 269
Yamana Gold 278
Disclosure appendix 288
Disclaimer 291