The following appeared in a strategy memorandum of an investment company:
“Over the past several years, investment in precious metals, such as gold and silver, has proven to be one of the most profitable investment strategies for our firm. Over the next decade, the demand for these metals is expected to be strong, largely driven by the economic growth of large emerging markets--China, India, and Russia. Thus, our investors are best served by increasing their exposure to precious metals to take advantage of this unique profit-making opportunity.”
Author concluded that , investment in precious metal is a profit making opportunity. He gave few reasons while concluding its arguments first is, investing in precious metal such as gold silver has shown profits in his firm, and He/she expects that it will show the same trend in next decade too,because of increasing exposure of investment in metal in emerging countries such as India and china. I think, author's reasons are not well supported in two respects.
First, Author stated that in past few years it has shown to profitable investment but he didn't consider other factors, for example dollar rate, economy of United states etc. If United states economy economy was in recession in last few years and dollar was depreciating and that might lead gold to increase in value and in future something in contrast of that happen than author reasoning will be weakened.
Second reason is, author stated that in next decade metals demand will increase in china and other emerging markets. What if India russia and china would have gone in economic recession, and purchasing power of each consumer decreases? what if india china and russia government could not afford to put more reserve of gold in next decade? Author did not give a complete picture why would the demand increase in emerging markets and what would encourage them to go for metal. In addition to that, In last few years a big research analyst failed to estimate the price of gold because some time overestimate the buying pattern of emerging markets such as china and India.And this may happen with this author's country too?
In conclusion, author’s reasons about investment are not well supported. He should have provided details for what lead to emerging market to increase investment in metals. Moreover, author could have provide why in last decade demand of metal shown increasing trend and lead to profitable investment.
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