Investment Bullion Portfolios 3
The Portfolio Options

You can see this current chart of the g-s ratio which shows the past 2 month's ratios. In the current historical context, if the ratio is below 60, silver is 'expensive' relative to gold.

• The closer the ratio to 50--or even below, better the opportunity to sell some accumulated silver in exchange for gold, and/or allot more of the budget for gold purchase than silver. Here, gold is 'cheaper' than silver.
• Conversely, a higher g-s ratio number means that relative to gold, silver is cheaper and silver may be bought. At that time I would not suggest selling gold to buy silver but rather allot more of the budget to silver purchase than gold.
• Our strategy is not to 'trade' in gold and silver as such, but to rip our returns higher by utilizing the volatile nature of silver prices to our advantage in accumulating more gold. One can balance one's bullion portfolio this way every couple of years where indicated, by exchanging some part of accumulated silver for gold.

Get the silver coins and put these in your Saturday Box for saving and wealth building. The principle of 'like attracts like' will get you more. A regular monthly acquisition plan will enable you to systematically add to your portfolio.

• Remember that gold and silver bullion attract a wealth tax (as does jewelry), if you hold amounts greater than the exemption limit.

An alternate way to hold gold
If you want to invest in gold but do not want the trouble of holding the metal you could buy shares in gold exchange traded funds (ETFs) that are traded in the stock market.

The cost of each unit or share represents about one gram of gold plus the fund house's administrative costs. The Quantum gold fund deals with half gram units making it easier to buy gold units. In general the ETF 'share' trades for about 2-5% over the spot gold price.

• Advantages of these ETFs is that there is no wealth tax levied on gold ETF holdings, nor are there any major security concerns.
• The disadvantage is that when gold prices fall, because the ETF share is very liquid one may be tempted to cash out at a loss, whereas if one is holding physical gold, people don't usually rush to sell physical gold when gold prices fall.

  Gold ETFs can form some part of your bullion holdings after you have physical gold, if you can live with the invariable price fluctuations. Remember, gold and silver bullion are a dual instrument--serving the purposes of savings as well as an investment.

• The purpose of this portfolio is to have some gold and silver bullion that can be handily traded for goods and services should there ever be a need due to some personal or economic crisis, and also to enjoy wearing part of your wealth as an ornament.

Keep in mind that if you ever need to sell the gold bangles to a jeweler, the jeweler will deduct the infamous ever-present 'making charges'--typically 5 to 10%. However, the bangles can be your 'last to sell', after you first sell the bullion for any need you may have. This way you have a good degree of protection against losses.

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Portfolio 2 - Saving for daughter's marriage

• There is a time-honored Indian tradition of saving gold and jewelery for daughters' weddings--even if this is an even to come many years from now. Saving early is a good habit.

Sometimes the savings are done in the form of gold jewelry that the mother might also wear until it is time for the daughter's marriage. We consider this as the mother's individual jewelry and not part of this portfolio.

No gold jewelry need be bought because what might be needed in the form of jewelry many years ahead is unknown. (Pure gold bangles may be bought if desired, though.) Fashions, designs, choices and circumstances change. There is no point buying a lot of jewelry now only to have it melted and re-cast in a new form (or exchanged), paying making charges at both the buying and selling ends. Buy gold bullion bars/coins or pure gold bangles instead.

So, saving for a daughter's wedding, the portfolios can be as below.

• Option 1 - Where you can invest less than 30,000 rupees per year or up to 2,500 per month:
  Buy only silver .999 bullion in the largest weights you can afford given the cash available with you. This way you will accumulate a precious metal on a regular basis rather than waiting for the time you may have enough savings to buy gold.

  Silver has a tendency to appreciate at a faster rate than gold as examined in previous articles. It has a volatile price behavior going up and down, but for a long-term investor, this is not a significant consideration. Use the gold:silver ratio to guide you how and when to purchase the bullion. This is explained further on in this article.

  Keep in mind though, that if you have accumulated silver over time and the current price of silver is sufficiently higher in terms of the gold-silver ratio--you can exchange the silver for gold. Therefore buying silver when it is relatively cheaper and exchanging it for gold when relatively more expensive you can 'trade up' your silver savings conveniently for gold from time to time.

• Option 2 - Where you can invest between 30,000 to 50,000 rupees per year.:
  Buy silver bullion only of .999 grade in bullion bars or coins of the largest unit weights according to available cash, until you have about 1.50 kilograms of silver. Then buy .995 gold bullion upto 30 grams. After that, with the available money buy equally .999 silver bullion and .995 gold bullion.
• Option 3 - Where you can invest more than 5,000 rupees a month:
  Spend half of available money in .999 Silver bullion coins or bars of upto 100 gram weight, which have smaller premiums over the spot price. The rest can be used to purchase .995 gold coins or bars of a minimum of 10 grams weight each.

• Invest half of the available money in silver bullion (.999) coins and bars of 10 grams or more. Invest the other half in gold bullion (.995) where the coins are 10 grams or more in weight each.

  Use the gold-silver ratio 'trading up' strategy as explained earlier in this article. When silver becomes more expensive relative to gold, exchange some of your silver stocks for gold. You should review your averaged cost of silver from time to time --every couple of years or so, and when silver is cheaper relative to gold, buy more silver than gold. (Do not sell accumulated gold to buy silver.) This way you will utilize the silver price volatility to your advantage.

• Where you can invest more than 10,000 rupees per month or more than 1.20 lakhs per year:
  With half the money buy silver bullion (.999) coins and bars of 10 grams or more. With up to half or three-fourths of the balance buy .995 gold bullion where the coins are greater than 10 grams in weight. The remainder can be used to buy collector coins that contain a standard and known weight of pure gold. You can enjoy your collection and trade up as you become more knowledgeable on the subject.