We are guided by the thesis that in the long-term gold is not only a possible inflation hedge but also the “currency of choice”.

 

Declining or unstable currency values may lead to an increase in the value of gold by revitalizing gold’s traditional role as a central bank reserve asset and as a store of wealth. While gold is an impractical medium of exchange, it can serve to strengthen a currency’s foundation as a store of value.

 

Gold therefore is inextricably linked to currency value. Currency value can be thought of as a unit of account that among other things measures inflation. As a currency cheapens, the world wide price of most natural resources will generally rise, or inflate in relation to that currency. Gold is particularly sensitive to currency value because it is both a precious metal traded on worldwide financial markets and serves as a bank reserve asset, or store of wealth for several global central banks. When and if a high worldwide rate of inflation or currency devaluation occurs gold should tend to follow with a proportionate rise in price.

 

By government “fiat” (decree), a nation can establish a currency as a medium of exchange. But governments, without the discipline of tying its currency to gold or a basket of other natural resources such as oil and silver, have not been capable of maintaining their currency’s value. In the post-WWII era, the dollar has lost approximately 90% of its purchasing power. This deterioration certainly calls into question the dollar’s role as a store of value. While gold is an impractical medium of exchange, it can serve to strengthen a currency’s foundation as a store of value.

 

While recent years have shown sustained growth in the demand for gold, global production has remained constant, and has actually decreased in some countries since the year 2000. Mining production is relatively inelastic due to the challenges involved in expanding existing mining site production and the long lead times needed for the discovery and extraction of new ore deposits. Therefore a sustained rally in gold prices may not engender a net increase in production levels for many years to come.

 

A portfolio may gain exposure to gold and other precious metals through many differing investment structures. Unlike many of the products noted in this web-site, most precious metal investment structures do not provide a dividend or other income stream. They are focused solely on the potential for capital appreciation.

 

The World Gold Council (www.gold.org) has completed research showing that a distinct allocation to gold within a portfolio can preserve capital and reduce risk, without diminishing long-term returns. In a portfolio including alternative assets such as private equity, hedge funds, commodities and real assets, gold can serve as a good source of diversification, as well as providing liquidity and risk-adjusted returns.

 

As with all investments, an investment in gold or precious metals does not assure better portfolio performance and cannot eliminate the risk of investment losses. There are risks involved, including market fluctuation and the possible loss of principal value, as there are with any other investment.

 

Prices of precious metals and of precious metal related securities historically have been very volatile, which may adversely affect the financial condition of companies involved with precious metals. Inflation and changes in demand may affect the prices of precious metals and related securities.