investment in precious metals - please grade

[kiskopata]

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.

[o_0]

Nice essay! Good lay-out, concise and well reasoned. I would predict a 5+.

A couple of recommendations:
- Try not to use "I" in the Analysis of an Argument
- Do not introduce new material in your conclusion. ie. investing directly into those markets instead.

If you have the time it would be appreciated if you could critique on of my posted essays.

Cheers.

[kiskopata]

Originally Posted by o_0

Nice essay! Good lay-out, concise and well reasoned. I would predict a 5+.

A couple of recommendations:
- Try not to use "I" in the Analysis of an Argument
- Do not introduce new material in your conclusion. ie. investing directly into those markets instead.

If you have the time it would be appreciated if you could critique on of my posted essays.

Cheers.

THanks
I will review your essays...whatever I can do

The question says :what changes would make the argument more logically sound. "....so I had introduced new material in the conclusion. Are we supposed to improve the logic, or is that crossing the boundaries of the essay?

[ergoam]

Hi kiskopata,

Your response is indeed well laid out, compact and 'fairly' well reasoned. But I would like to point out some of the flaws which I found (that's why the single quotes embracing fairly):

1. The line of reasoning you have followed in the second paragraph is right. But I disagree that the topic ever claimed the gold business is 'the' most profitable business. The topic claims that gold investment is 'one of the' most profitable ones. So your response changes the meaning a bit (probably you missed to include 'one of the' when you started writing it).

2. I think that using words like 'also', 'further', 'however', 'moving to the argument's claim that' convey the change of context better than using 'firstly', 'secondly', 'thirdly' etc.

3. I would twist the reasoning you have used in the fourth paragraph (the one starting with 'Thirdly') a little bit. If I reason like - "the firms will pass on the effect of the price rise to the end customer to retain their share of the profit; however, the increased consumer demand of gold will raise the cost of the already precious metal, and this rise, in turn, will work as a deterrent for end consumers to invest more in gold, effectively turning the tide i.e. pulling down the gold prices and reducing the profits of the gold trading firms" - I feel this will be closer to how the market dynamics work.

Before signing off, I will give you a 5.0 for the response (would have awarded 4.5, but the GMAT evaluators do not award fractional credits - hence a 0.5 credit bonus for you ).

I have written too much. Time to stop the gibberish. But do let me know how far you agree with my analysis.