Investment Bullion Portfolios for Your Needs - 1
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As prices of gold and silver have risen over the years, they have kept well ahead of inflation. Traditionally in India, there has been the accumulation of gold in the form of jewelry and bullion.
Due to easy availability in the recent past, the widely seen British gold sovereign (also commonly known as 'guinea'), has had the oldest history in India as being part of modern investment bullion portfolios.
However, its popularity has been its downfall also. This has been the most copied coin in India--both openly and in the way of forgeries.
Some are clearly not meant to fool anyone into thinking it is the real article, especially as it is offered in smaller sizes as 5 grams and 1 gram such as the specimen above.
The difference in quality of the design is easily seen when you compare this to the real coin issued by the British Royal Mint. The modern sovereign is of a standard weight of 7.98 grams of 22 carat gold containing actual gold of 7.315 grams.
The most important bullion metal
In all the previous articles, we have not focused on the most important precious metal for a personal investment bullion portfolios. It is, in a way, more important than gold.
- That metal is silver. You may be surprised by this. We can plot this on a chart to see how these precious metals have performed relative to each other.
This chart shows that over the past ten years gold and silver have appreciated more than 400% on a rupee basis. The interesting thing is that from 1998 to 2008 the gain was 200%. So in 2 years following, the gains have been huge. The interesting thing is that silver (yellow line) has had a greater volatility in price than that of gold (blue line) in times of economic uncertainty, from 2006-2010.
The Gold to Silver Ratio
The gold-silver ratio (ounces of silver required to buy one ounce of gold) is a reference of the relative performance of these precious metals. A couple of years ago the gold to silver ratio was 75:1. Recently it has dipped below 50:1. The lower the ratio, the greater the appreciation of silver relative to gold. It also means that silver is becoming more 'expensive'.
Optimistic experts believe that the ratio would eventually approach 16. Historically, over centuries, that has been the most long-held stable gold to silver ratio. This was before government issued paper money of unknown worth became an acceptable substitute.
Paper money is, of course, a fraud perpetrated by governments on the citizenry, first invented in the 17th century by John Law, a disreputable Scotsman with a very colorful history. You can read more about government paper funny money here (opens a new window).
I do not know that this ratio will be achieved in a hurry. It might get there if there is a major collapse of world economies such as the collapse of the sub-prime housing market in the US, 2008 onwards.
In any event, given the current depressed economic scenario worldwide, gold and silver continue to be superior assets. More so as paper money that has no real asset value backing it up, the paper currency continues to get shredded.
- The ratio is likely to continue improving in favor of silver, making silver a great long term investment. Of course the upward journey of both these metals will not be a straight line. The path will be up and down, but the overall trend will be upward.
If we look at the chart below for the past 1 year (November 2009- November 2010), we find that the silver price (yellow line) has in fact been rising at a greater rate than that of gold (blue line).
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| The S&P CNX NIFTY rose from 4301 to 6881, or by 29% from November to November 2009-10. |
In the past 1 year, the S & P CNX Nifty index for the stock markets has risen by 29%.
In the same period gold has appreciated by 20% while silver is up by 55%. At 50, the gold-silver ratio is currently more favorable for buying gold compared to silver as silver is relatively more costly to buy at this ratio. (The G:S ratio is a calculation of how many units of silver it would take to buy 1 unit of gold at current prices. A G:S ratio means that at 50, it would take 50 grams of silver at to buy 1 gram of gold.)
- Given the current pricing scenario, even while silver is relatively more expensive than gold, there is a case to be made for accumulating both silver and gold in one's investment portfolios. This is because over a longer period of time the G:S ratio tends to drop for silver, so that it appreciates beyond the gold appreciation. However as seen from the 10 year chart above, gold does play catch-up in appreciation.
Nevertheless, as silver prices are more volatile than gold, there will be periods of price spikes and that is when the GS Ratio is helpful to indicate the preferred metal to buy.
- Currently, you can make small investments in silver at the G:S ratio of around 50, and rather more of gold. Greater investments in silver may be made when the ratio is nearer 60.
- The sample investment bullion portfolios given at the links below keep this in view. However if you are more comfortable accumulating only gold rather than silver at current G:S ratios, then that is fine as well for the long term. One advantage of investing in silver is that it requires less money at a time for a reasonable quantity--this is dealt with in the articles at the links below.
| "India Bullion" - World's best performing assets Best Investment Secret of Billionaires Investment Bullion - St. George Sovereigns This article: Investment Bullion Portfolios for Your Needs - 1 - An Overview Investment Bullion Portfolios for Your Needs - 2 - Review of Key Points Investment Bullion Portfolios - 3 - The Portfolios |