Investing in Precious Metals

Business - April 21st, 2006
Magellan Japan

Tel. 03-3769-5511

Safe haven or hedge against uncertainty

Precious metals, gold bullion, silver and platinum, have traditionally provided a defense against a wide range of economic and political uncertainties for in­vestors whilst acting as a hedge against inflation. How can the ordinary investor – without the benefit of a strong room and solid floors – access this market, and what are the benefits?

It is possible to buy these precious metals via spe­cialized open-ended mutual funds allowing direct exposure to physical bullion. Ideally the funds you choose should not use futures, options, warrants, and equities and have no leverage.

• Diversification with Exposure to Three Precious Metals

The combination of gold bullion, silver and platinum offers investors the protection of a diversified portfo­lio. The underlying metals – gold, silver, and platinum – are used as a store of wealth as coins, bars and jew­elry, and in industrial and consumer applications, such as photography and auto catalysts.

• Hedge against Inflation

Over the long run precious metals have maintained their value in terms compared to other commodities. Precious metals have been proven to be an effective preserver of wealth. Unlike other money sources, it’s liquid, portable and, along with silver, the only asset in the world that isn’t someone else’s liability. Silver has less monetary trading clout than gold. Its appeal today however lies in the huge industrial demands.

• Insurance against Political Risk, Religious Con­flicts and Unstable Markets

A portfolio of precious metals has also proven to be a safe haven in times of political or religious uncertainty and the resulting instability in financial markets.

• Portfolio Diversification and Enhancement using an Uncorrelated Asset Class

The real return from holding precious metals is negatively correlated, meaning it rises when stocks, bonds, real estate and treasury bills fall. Precious metals therefore have the potential to provide diver­sification benefits and enhance the risk/return pro­file of a portfolio.

• Outlook for the Precious Metals Arena

Sentiment remains very positive with precious met­als posting a gain of 27.41% over the past 12 months. Gold, platinum and silver have all recorded new highs, year to date with more expected to come.