GMAT Essays (AWA)

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.”

Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound.


Response:
The investment company asserts to invest more in precious metals, such as gold and silver and sees that as the best option to maximize profits for its investors. There are several flaws in this argument, and I would like to discuss them one by one.

Firstly, we can not conclude that investment in precious metals is always the most profit making option. Other than precious metals,there are several options of investment, viz. stocks, real estate, foreign investment, etc. Each of these can be more profitable than the other depending on the economy. The argument does not indicate the profit return of the other modes of investment. The investment company should explore all options before deciding the investment policy.

Secondly, this argument will not hold true if the economies change in the future. The argument depends on the prediction of growing markets at India, China and Russia. Even though, these markets are improving currently, it can not be deducted that they would continue to grow in the future. There can be change in government policy, environmental factors, emergence of other national economies, etc., which can hamper the growth of the economies of India China and Russia.

Thirdly, if it is really true that investment in precious metals is most profitable, market dynamics would indicate a sharp rise in the demand of precious metals. If the demand exceeds supply, the cost of precious metals will rise, resulting in reduced profits for the firm. This would revert back to the first reason that other options may prove more profitable at that time.

I suggest that the investment firm invest for short term in precious metals, to take advantage of the good returns, but it can not make this a long term plan of over a decade. It would be better for the investment firm to have a flexible investment policy based on the market dynamics and invest in the most suitable option to maximize the profits of their investors. Since the argument indicates that the economies of India, China and Russia are growing, it may also be more profitable to invest directly in those markets, instead of investing in the precious metals market.