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."

RESPONSE:
Argument says 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. In addition it is stated demand for these metals is expected to be strong, largely driven by growth of large emerging markets - China, India, and Russia. Thus, firm concludes their investors are best served by increasing their exposure to precious metals to take advantage of this unique profit-making opportunity. At first glance argument seems convincing however going in details it is full of flaws.

Firstly, when author states investment in precious metals, such as gold and silver, has proven to be one of the most profitable investment strategies for the firm - there is no evidence stated for same. May be it is firms belief but in reality this is not the case. Or, may be firm concluded this based on survey that included investors who have invested in gold and silver and gained profit. But, this doesn't reflect the majority of investors.

Secondly, author is assuming demand for gold and silver is expected to be strong and is largely going to be driven by economic growth of emerging markets. It might happen that markets such as China, India, and Russia do not have economic growth that author is relying upon and in turn effects gold and silver prices in negative sense.

Thirdly, author states investors are best served by increasing their exposure to precious metals to take advantage of this unique profit making opportunity. Again, without data this conclusion is falling flat. Author do not have data to support the claim and also he didn't provide any time frame. May be, even if authors assumptions are true gains in precious metals are short term rather than long term. For example, lets say investments in gold and silver are giving returns of 5% every year but investing in blue chip stocks gives 100% return in 5 years. Thus, its clear over the span of 5 years investors are not best served.

To conclude, argument is based on unsubstantiated premise and weak assumptions due to which it does not hold any water. Author could have compared past investments and corresponding returns in precious metals with other investments by stating facts and figure to make the argument more stronger. Overall arguments seems to be unconvincing and left open for debate.