|
|
|
|
|
Brown Wealth Strategies, Inc.
|
|
George P. Brown CLU, ChFC, CPhD
Brown Wealth Strategies, Inc.
P. O. Box 605
190 Bethlehem Pike, Ste One
Colmar, PA 18915
advisor@pobox.com
|
|
|
|
Gold, Silver, Platinum and Palladium The Investment Metals:
For Market Rate Quotations, click here to visit our Information Pages, and use your back arrow to return to this site.
Gold, silver, platinum and palladium possess six innate attributes that render them unique in all of nature. They are Beauty, Utility, Rarity, Indestructibility, Portability, and Inherent Value. No other elements known to man manifest all the characteristics, and it is for this reason that mankind has always considered these metals precious.
Precious metals have assumed a place of growing importance in both the personal and institutional portfolio. Precious metals represent an excellent portfolio diversifier and hedge against uncertainty. They are also a tangible and highly liquid asset.
Sophisticated financial managers often look for portfolio diversifiers with a low beta or correlation to stocks and bonds. The correlation of precious metals to the stock and bond market is virtually zero -- exactly what you want from a portfolio diversifier. In addition to being a portfolio diversifier, precious metals serve as an effective portfolio hedge or "insurance policy." Thus, in recent years, worldwide investor interest in precious metals as a hedge against inflation and currency fluctuations has intensified. Moreover, many investors participate in the precious metals markets when they believe the stock market is over-priced, and they seek other investment alternatives.
Most investors find the tangible nature of precious metals attractive. Although many investment derivatives have been created to hedge currencies and equities, those products do not fulfill the traditional role of precious metals bullion. For example, following the 1987 stock market crash, gold mining shares fell in value while gold bullion prices actually rose demonstrating that gold shares are not always a reliable proxy for gold bullion. In addition, investors concerned about the stability of the financial markets do not always want an instrument or obligation based solely on the good faith and credit of a financial institution or national government.
Of course liquidity, or how easily an asset can be converted to cash, is also of critical importance to most investors. The precious metals marketplace operates worldwide and the international nature of precious metals not only insulates investors from political risk in any particular country, it also provides exceptional liquidity. As a result, the spread between the bid and offer prices on bullion products is small, thereby allowing transactions to be easily conducted.
Portfolio diversification, a hedge against inflation and currency fluctuations, a tangible asset, an efficient market
for these reasons, a growing number of investors, financial advisors and money managers have come to recognize the vital role of precious metals within the total investment portfolio.
Precious Metals Investment Alternatives:
| Investment | Advantages | Disadvantages | | Bullion Bars / Coins | Easy to buy / sell Easily transported, stored, highly liquid
Tangible asset / inherently valuable
Not a promise or liability of a company or country
Prices widely quoted
Competitively prices | Requires secure storage
Manufacturing premiums added to price
No dividend / interest yield | | Statement Account | Detailed confirmations / acct statements
Invest by dollar or ounce amounts
Competitively priced / highly liquid
Insured, secure storage | No dividend / interest yield
Must be bought / sold through same company
| | Mining Stocks | Current prices widely quoted
Highly liquid
May yield dividends | Industry knowledge required
Geopolitical / environment risk
Corporate governance risk
Price more volatile than bullion | | Mutual Funds | Prices widely quoted
Highly liquid
Professional portfolio management
Dividend income possible
Diversity reduces stock risk | No dividend / interest yield
Must be bought / sold through same company
| | Electronically Traded Funds | Current prices widely quoted
Highly liquid
May represent bullion
Low management/custodial fees | ETF is a legal entity, subject to the liabilities of such entities
May represent securities and/or futures holdings | | Futures Contracts | Speculative appeal
Leverage reduces required capital
Prices widely quoted
Liquidity is high | Requires special market knowledge
Unlimited loss potential
High risk
Fixed contract sizes
Require constant marketing monitoring | | Options on Futures | Speculative appeal
Leverage reduces required capital
Limited price risk | High risk
Required special market knowledge
Fixed contract sizes
Require constant market monitoring | | Rare Coins | Collector appeal
Sentimental value
Capital appreciation potential | Each coin unique / sold individually
Subjective market valuations
Require special handling / storage
Thinly traded
Poor liquidity |
Bullion Coins and Bars
Bullion coins and bars are produced in a variety of sizes and shapes. The most popular bullion coins range in size from 1/10 to 1 ounce. The most popular bullion bars range in size from 1 ounce to 1,000 ounces. Bullion products are manufactured by a number of international refiners, private and government mints.
Delivery and Custody Services
Below are some considerations regarding delivery and custody services.
Delivery of your bullion has both benefits and disadvantages. When taking personal possession, your bullion is typically shipped via Express Carrier or the US Postal Service and each package is insured. Different companies have different insurance limits generally ranging from $25,000 to $100,000 per package. Depending on the size of the shipment, higher insurance limits may result in lower overall shipping costs. For very large shipments, armored carriers may be used. When taking possession, you gain control of your investment and do not need to worry about finding a commercial custodian. However, you will incur shipping and handling costs and, if you decide to sell your bullion at some point in the future, you will again incur shipping costs and delays. Property protection and your personal security must be considered. You will assume the risks of personal security, physical loss through theft, robbery or mysterious disappearance, and physical damage from fire, flood or other means.
Custody of your bullion also has both benefits and disadvantages. When placing you bullion in custody, you do not have to worry about your personal safety. Reputable custodians have high-security, insured vaults and holdings are protected through the use of proprietary systems, stringent internal controls, state-of-the-art security systems, and sound insurance coverages. Bullion coins and bars are considered a bailment, not a deposit or consignment. Accordingly, these assets cannot become the property of the custodian and cannot be subject to the claims of any creditor of the custodian. When choosing a custodian, be sure to thoroughly investigate their capabilities, insurance coverages and credentials.
|
|
|
