The Case for Precious Metals:

What Role Should Gold and Silver Play in Your Portfolio?

By Michael S. Finer and Gary M. Coon

Major League Investments, Inc.

June 7, 2012

As Ralph Waldo Emerson wrote, "The desire of gold is not for gold. It is for the means of freedom

and benefit." Emerson's keen observation that since ancient times people have bought gold not simply

to own gold, but for what gold represents, certainly rings true for today's investment managers.

Historically, gold has served both as a safe harbor during economic downturns and as a valuable

hedge against inflation. Therefore, over the long-term, gold can be an effective tool for wealth

preservation.

And yet, because gold has no earnings and does not pay dividends, an investment in gold is often

categorized as "dead money." This traditional knock has particular merit in today's low interest rate

environment. As Warren Buffett, one of the great investors of our time and a famous critic of gold,

once quipped, "[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig

another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone

watching from Mars would be scratching their head."

So, after a decade-long run-up in price, no actual earnings, no yield or other way to return cash to

investors, you might wonder whether it's still possible to make money in gold. With respect to gold

positions, our robust technical analysis generally leads us to subscribe to the 13 ½ month cycles that

technician Tom McClellan espouses. This cycle suggested as of the end of May 2012 that gold was

forming a bottoming pattern in the mid $1530 to $1570 range. Complementing technical timing

considerations, factors like currency stability, geostrategic/political context, and demand for precious

metals drive our investment decisions.

Of course, gold is a complicated measure of value because gold also reflects the currency that it is

measured in. As such, gold weakened in the last month or so because the U. S. Dollar strengthened

precipitously against the Euro. As a result, the weakness in gold prices does not just reflect a

weakening in demand for gold instruments, but also serves as a proxy for a strengthening dollar. The

consensus view seems to be that the dollar will strengthen against the Euro because of fallout from the

European debt crisis that has rocked global markets for more than two years.

Yet, while market volatility persists in Europe due to Spain's banking system teetering on the brink

and Greece's political future hinging on results from next month's elections, it's important to

remember that, with mounting debt and lingering unemployment, the United States has a significant

"fiscal cliff" of its own. What's more, last summer's fractious debate over raising the debt ceiling

certainly taught us that getting our nation's fiscal house in order is no small task.

Today's physical demand for gold continues to outstrip the production capability of the mines. While

this does not necessarily suggest that the price of gold must rise, it is a contributing factor that could

generate structural changes that shift supply and demand and increase the price of gold at each level.

Governments of the world also remain net buyers of gold and this is a positive contributor to increases

in price.

Although gold and silver appear fairly correlated from a price perspective, the case for silver's

underlying physical demand is a compelling one for the next five to ten years. In addition to silver's

use in coinage, silverware, jewelry and photography (although the latter is diminishing because of

digitization) industrial use is growing in such areas as cellular phones, photovoltaic cells in solar

panels, automotive electronics and medical applications. Notably, although it has sold off even more

aggressively than gold, silver tends to trade in sympathy to gold. Additionally, silver tends to be more

volatile than gold, bringing potential for additional opportunities as well as risk.

McClellan's 13 ½ month cycles, currency instability, underlying potential physical demand, geo-

strategic/political uncertainty, and future potential inflation continue to inform our dynamic

investment approach to gold and precious metals. Our consideration of these factors led us to take a

significant position in gold and silver throughout the month of May, 2012. We will continue to

examine precious metals in the coming quarter as part of our multi-asset wealth management strategy.

© Major League Investments, Inc., 530 Loring Avenue, Suite 302, Salem, MA 01970

Telephone: 978-740-1011 ? Please visit our website at www.majorleagueinvest.com

Disclosure

This article should not be regarded as a complete analysis of the subjects discussed. All expressions of

opinion reflect the judgment of the authors as of the date of publication and are subject to change.

Information presented does not involve the rendering of personalized investment advice and should

not be viewed as an offer to buy or sell, or a solicitation of any offer to buy or sell the investments

mentioned herein. Different types of investments involve varying degrees of risk, and there can be no

assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio.

All investment strategies have the potential for profit or loss. Major League Investments, Inc. is

registered as an investment advisor and only transacts business in states where it is properly

registered, or is excluded or exempted from registration requirements. Registration as an investment

advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that

the advisor has attained a particular level of skill or ability.

Major League Investments, Inc. 530 Loring Ave Suite 302, Salem, MA 01970

Phone: 978-740-1011

michael.finer@majorleagueinvest.com

IRS Circular 230 Disclaimer: To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed non the recipient or any other taxpayer, or (ii) in promoting, marketing, or recommending to another party a partnership or other entity, investment, arrangement or other transaction addressed herein.