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Portfolio Investment Opportunities in Precious Metals

ISBN: 978-1-118-50303-4
112 pages
October 2013
Portfolio Investment Opportunities in Precious Metals (1118503031) cover image

Description

New research and investment strategies for asset managers in precious metals

In this handy new e-book, bestselling author David M. Darst provides valuable perspective on the role and positioning of gold and other precious metals within an economic, financial, and portfolio context. It covers the advantages and disadvantages, risks and rewards of investing in precious metals and sheds light on the key factors that drive prices, including supply and demand forces, inflation and deflation, geopolitical conditions, interest rates, and the global monetary system. The book also offers detailed information on specific vehicles that provide exposure to precious metals, as well as sources of further information available in print and online. Portfolio Investment Opportunities in Precious Metals gives investors the information they need to make intelligent investment decisions in precious metals.

  • Covers key factors investors need to know about precious metals, including advantages, risks, and investment performance
  • Written by David M. Darst, CFA, the bestselling author of The Little Book That Saves Your Assets
  • Perfect for individual investors, financial advisors, and CFAs interested in the role that precious metals play in investment portfolios
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Table of Contents

About the Author ix

Introduction xi

Section 1: Advantages and Risks of Precious Metals 1

The Gold Debate 2

Fundamental Forces against Gold 3

Valuation Forces against Gold 3

Psychological, Technical, and Liquidity Forces against Gold 4

Fundamental Forces for Gold 5

Valuation Forces for Gold 8

Psychological, Technical, and Liquidity Forces for Gold 8

Section 2: Precious Metals Investment Performance and Correlations 11

Correlations of Annual Returns of Precious Metals 12

Principal Uses of Precious Metals 13

Section 3: Overview of Gold 15

History and Background of Gold 15

Why Central Banks Hold Gold 16

Gold Sales under Central Bank Gold Agreements (CBGA) 17

Major Central Banks’ Gold Holdings 18

Gold as an Asset Class 19

Demand, Supply, and Global Gold Holdings 22

Jewelry and Net Retail Investment in Gold 23

Above-Ground Stocks of Gold, Demand and Supply Flows 24

The Price of Gold 26

Gold Demand Outlook 27

China and Gold Ore Reserves 28

Origins of Gold Demand in China 29

Long-Term Outlook for the Chinese Gold Market 30

China and Gold 31

India and Gold 31

Gold Price Relative to the S&P 500 32

Gold Prices during Periods of Uncertainty 32

Gold Price versus the DJIA and the S&P 500 34

Ratio of the Price of Gold to the Price of Silver 34

Annual World Production of Gold since 1900 34

Global Supply of and Fabrication Demand for Gold 36

Investment Performance of Gold Share Indices 37

Physical Gold 38

Section 4: Overview of Silver 41

History and Background of Silver 41

The Price of Silver 42

Annual World Production of Silver since 1900 44

Global Supply and Demand Data for Silver 44

Physical Silver 44

Section 5: Overview of Platinum and Palladium 47

History and Background of Platinum and Palladium 47

The Price of Platinum and Palladium 48

World Production of Platinum and Palladium 51

Global Supply and Demand Data 52

Physical Platinum and Palladium 54

Section 6: Overview of Precious Metals Companies 57

Select Factors Leading to Price Divergence between Precious Metals and Precious Metals Mining Shares 57

Select Precious Metals Mining Shares Indexes 57

NYSE Arca Gold BUGS Index 57

Philadelphia Stock Exchange Index 58

Market Vectors Junior Gold Miners Index 59

FTSE Gold Mines Index 61

S&P/TSX Global Gold Index 62

Examples of Precious Metals Companies 63

Precious Metals Futures and Options Contracts 64

Section 7: Select U.S. Legislation Affecting Gold 67

The Gold Confiscation Executive Order of April 5, 1933 67

The Trading with the Enemy Act of October 6, 1917 70

Executive Order 6102 of April 5, 1933: Forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates 71

Reports of Safe Deposit Box Seizure 71

Section 8: Additional Information on Gold 73

Background Information on Gold 73

Characteristics 74

Monetary Exchange 74

History 75

Occurrence 76

Production 76

Consumption 77

Symbolism 77

State Emblem and State Mineral 77

The California Gold Rush and the Panic of 1857 78

When Wall Street Rescued the U.S. Treasury 79

Britain’s 1999–2002 Sale of Gold Reserves 80

Switzerland and Gold 82

Gold Performance Relative to Real Interest Rates 84

Gold Investment Flows 84

Money Supply and Gold Price vs. Inflation 84

Operation of the Gold Market 86

Over-the-Counter Market 86

London Bullion Market 86

Futures Exchanges 86

Market Regulation 86

Section 9: Additional Sources and Disclosures 89

Select Websites 89

Books 89

Reports 92

Periodicals 93

Other 94

Disclosures 94

Acknowledgments 99

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Author Information

David M. Darst (New York, NY) is a Managing Director of Morgan Stanley and chairs the firm's Global Wealth Management Asset Allocation and Investment Policy Committee. He serves as Chief Investment Strategist of the Global Wealth Management Group, with responsibility for Asset Allocation and Investment Strategy, and was the founding President of the Morgan Stanley Investment Group. Mr. Darst joined Morgan Stanley in 1996, after more than 20 years with Goldman Sachs, where he served as a senior executive in the Equities Division. Previous responsibilities with Goldman included serving as Resident Manager of their private bank in Zurich. Darst is the author of four books: The Complete Bond Book, The Handbook of Bond and Money Markets, The Art of Asset Allocation, and Mastering the Art of Asset Allocation. He has also contributed numerous articles to Barron's, Euromoney, The Money Manager, and other publications. Darst is frequently quoted and regularly profiled in the business press including the New York Times, the Wall Street Journal, Reuters, Financial Times, among others. He is a frequent guest on CNBC, Bloomberg, and FOX News, and on radio shows. Darst earned his MBA from Harvard Business School and received a BA in Economics from Yale University, both of where he has served as a visiting faculty member. Darst also holds a CFA.
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