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PORTFOLIO THEORY

Sophisticated investment decision approach that permits an investor to classify, estimate, and control both the kind and the amount of expected risk and return; also called portfolio management theory or modern portfolio theory. Essential to portfolio theory are its quantification of the relationship between risk and return and the assumption that investors must be compensated for assuming risk. Portfolio theory departs from traditional security analysis in shifting emphasis for analyzing the characteristics of individual investments to determining the statistical relationships among the individual securities that comprise the overall portfolio. The portfolio theory approach has four basic steps: security valuation – describing a universe of assets in terms of expected return and expected risk; asset allocation decision – determining how assets are to be distributed among classes of investment, such as stocks or bonds; portfolio optimization – reconciling risk and return in selecting the securities to be included, such as determining which portfolio of stocks offers the best return for a given level of expected risk; and performance measurement – dividing each stock’s performance (risk) into market-related (systematic) and industry/security-related (residual) classifications.

PRECIOUS METALS

Gold, silver, platinum and palladium. These metals are valued for their intrinsic value, backing world currencies, as well as their industrial applications. Fundamental issues of supply and demand are important factors in their prices, along with political and economic considerations, especially when producing countries are involved. Inflation fears will stimulate gold accumulation and higher prices, as will war and natural disaster, especially in major producing or consuming countries or regions. Precious metals are held by central banks and are considered a storehouse of value. While gold is often singled out, cultural factors assign different levels of significance to the metals. In the Far East, especially Japan, platinum traditionally is held in higher regard than gold, both in terms of physical metals and investment holdings, and for personal accumulation (e.g., jewellery and coins). Gold is favored in the West. In India and in the Middle East, silver is highly prized, and the dowries of Indian women are replete with silver jewellery and coins. Investors can buy physical metal in bars, bullion and numismatic coins, and jewellery.

There are numerous investment vehicles that do not involve physical delivery: futures and options contracts, mining company stocks, bonds, mutual funds, commodity indices, and commodity funds. The values of these investment vehicles are influenced by metal price volatility, with commodity funds and indices, and futures and options, more sensitive to daily price swings. Many metals analysts and advisors recommend that 5 percent to 15 percent of investor portfolios be held in some form of precious metals as a long-term hedge against inflation and political turmoil.

Gold, silver, platinum and palladium: These four rare metals located in columns 10 and 11 of the periodic table have similar properties including high malleability, conductivity, high density, high ductility, luster, and low reactivity with oxidants.

PRECIOUS METALS CERTIFICATES

Written confirmation of a liability for precious metal.  Certificates are for unallocated ounces or grams and are settled in either physical bullion bars or cash.  Storage fees are much lower than for Custodial Storage and both bar charges and storage fees are deducted at the sale or delivery of the bars.  As these are liabilities of the dealer or bank, investors may suffer losses in the event of bankruptcy or insolvency of the dealer.

PRINCIPAL-TO-PRINCIPAL

Bullion transactions executed directly between the client and the market makers without being channeled through an exchange. Used primarily by market participants who have actual physical transactions to complete rather than the speculators. Speculative business tends to be channeled via the exchanges.