Filed Pursuant To Rule 433
Registration No. 333-158105
August 20, 2009
PIMM FOX, co-anchor:
Gold demandit plummeted in the second quarter as buying by jewelers and electronics makers fell
off. Well, how long before we could see a rebound, whats going on? Lets find out. Weve got an
expert. George Milling-Stanleyhe has been a precious metals trader, and five years ago he helped
develop the gold ETF that trades on the NYSE and now he is the managing director of the World Gold
George Milling-Stanley, good to have you with us. Thanks for coming in.
Mr. GEORGE MILLING-STANLEY (Managing Director, World Gold Council): Thanks for inviting me.
FOX: Whats the state of the gold market now? I mean, if we can, how much demand for gold is
really coming from jewelry?
Typically, its been 7080 percent for most of the 30 odd years Ive
been looking at this business. In the first quarter of this year, it was down to around about 35
percent. Its recovered now to somewhat better than half of all demand in the second quarter was
for jewelry. The industrial applications are really pretty small. Around about 10 or 11 percent.
And of course, the balance was investment. Investment demand has really picked up the slack as
jewelry fell off during the economic crisis. Investment demand has gone up and picked up that
slack. We got a slight shift. There was less of a decline in jewelry in Q2 and there was less of
an increase in investment in Q2 too. So were getting back to a more normal kind of balance
right, so about 70 percent would be normal for jewelry demand for gold right now.
Mr. MILLING-STANLEY: Difficult to tell. Because with the introduction of exchange traded funds,
which were pioneered about six years ago, weve changed the dynamics of the gold market and we
dont know how much yet because its really -- we havent had time to tell. Weve brought a whole new
universe of investors into gold. People who found it cumbersome and costly and complicated, and
who love the convenience and transparency of trading on the stock exchange rather than over the counter
markets or futures markets. So weve changed the paradigm. I dont know when we get back to
normal economic circumstances whether jewelry will be 70 or whether jewelry will be 60. Its
probably in that kind of ballpark.
FOX: All right, now when someone actually buys a gold ETF, what are they buying? Are they buying
a call on the physical metal?
Mr. MILLING-STANLEY: No. What theyre buying is a share traded on the New York Stock Exchange,
and the only thing backing that share, the only asset backing that share isnt part of a company.
bars stored in a vault. But the individual investor cant get his hands on the gold bars because
we can get wholesale rates for storing those bars -- provided we store wholesale-sized bars. Theyre
400 ounces best bought at $500,000 a piece. Not too many investors on the New York Stock Exchange
can afford to take delivery of an investment thats worth that.
FOX: I was going to say, you need a pretty big vault if youre going to have to store all those
Mr. MILLING-STANLEY: You absolutely do. You need a pretty big insurance policy or pretty big gun
to do that. And of course we cant chop little pieces off the gold bars and give them to people.
So what were giving people is exposure to movements in the gold price. They can buy and sell the
stock. The broker dealers who make a market buy and sell the gold.
FOX: All right, and is there a discrepancy in the price of the ETF versus the actual price in the
Mr. MILLING-STANLEY: No, thethe product was set upthe ETF was set up to track the price of
spot gold in the over-the-counter market minus the cost of administering the trust. And thats
exactly what its done. If you follow this on the graphs, theres no discrepancy, no divergence at
all. As long as youre careful to look at prices that are taken at the same time. You dont want
to be looking at a stock price thats delayed 20 seconds and the commodity prices delayed 10
minutes. You wouldnt expect those prices to match them, they dont. But if you compare like with
like, then minus the expenses of administering the trust, it is exactly on par.
FOX: OK, all right. So theres one way to invest in gold, through this ETF that you
Mr. MILLING-STANLEY: GLD is the ticker symbol.
FOX: OK, now with that in mind if you take a look at the actual, sort of, desire for gold does it
fall into various segments? In other words, investors would rather have gold coins, gold bullion,
or indeed this ETF? Is there any market data that would give you some indication as to where the
real market demand is?
Mr. MILLING-STANLEY: Well, gradually, what were doing is putting together the data on the ETFs.
As I said, weve only got a six year track record so far. But its starting to become
statistically significant in the market. It tends on balance in recent quarters to have been
somewhere round about half of all investment demand. An investment demand thats been fluctuating
between about 10, 15 percent of each quarter and up as high as 40 or 50 or 60 percent.
So its been aits become an integral part of the gold market. There are always going to be
people who want physical delivery. There is some kind of visceral appeal to being able to hold
something as beautiful as a gold bar or a gold coin in your hands. And Im subject to that, too. I
FOX: Do you actually own gold bullion and gold coins?
Mr. MILLING-STANLEY: I own some small gold bars and I own some small gold coins just in case I
ever need them. But most of my investment is actually in the form of exchange-traded funds because
I know the bullion is there backing them and I know that they are the easiest and for me, as an
investor, the most cost effective way to trade gold.
FOX: Now, my previous guest, Frank Holmes, he was talking about how he invests in gold companies
that have unhedged gold positions. The idea that they havent sold their production in some future
date. When you take a look at the sort of selling and buying of gold right now, are you seeing
more people congregate around the current price or do you see this idea of gold futures? Is that
something that is waning because of the competition from something like an ETF?
Mr. MILLING-STANLEY: I dont know that it is. I think whats happened is weve actually spread
the universe. There were peopleand before we introduced ETFsthere were people comfortable
in commodity futures on the exchanges. There were people comfortable in investing in the
over-the-counter market, primarily wholesale customers, like big
institutions, and funds, and so on.
was an awful lot of different ways of investing. What weve done is weve added
something that was completely new and that so far has accumulated $50 billion worth of gold in six
years. We figure thats a pretty good success bet.
FOX: The Gold Councilthe World Gold Council, who are the members of the Gold Council?
Mr. MILLING-STANLEY: The members of the World Gold Council are gold mining companies. They are
the only entities that are allowed to be members and they pay voluntarits a voluntary membership
and they pay dues based on their production. So they pay, rather, per ounce, if you like, towards
the programs and they gave us the mandate when they set up the organization 21 years ago, they gave
us the mandate to increase gold consumption in all its forms.
We work a lot with the jewelry business, put a little bit of seed capital away of any interesting
environmental applicationenvironmental and industrial applications, and, of course, weve gotten
into the investment business in quite a big way, too.
FOX: Last question: where are you seeing any new gold finds? Are there any regions of the world
where youre seeing new dramatic production?
Mr. MILLING-STANLEY: There are some but there arent enough. One of the problems for the gold
mining industryI dont know whether weve touched on thisone of the problems for the gold
mining industry, its not finding new gold deposits at the rate that shareholders would like.
FOX: All right. I want to thank you very much. George Milling-Stanley coming in from the World
Gold Council sharing your illustrious information.
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