WHY INVEST IN PRECIOUS METALS TODAY? FEBRUARY 2009

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1 WHY INVEST IN PRECIOUS METALS TODAY? FEBRUARY 2009

2 WHERE WE ARE TODAY Contraction of bank lending Excessive leverage Forced unwinding has pushed many asset prices below their fundamental values Repatriation of $USD and JPY Many commodities are trading below their fundamentals Fiscal stimulus packages 2

3 M1 MONEY SUPPLY GROWTH 3

4 VIX VOLATILITY INDEX PEAKED AT 80.86% 4

5 GOLD PRICE OVER THE VOLATILITY OF EQUITIES 5

6 SILVER PRICE OVER THE VOLATILITY OF EQUITIES 6

7 PLATINUM PRICE OVER THE VOLATILITY OF EQUITIES 7

8 GOLD PRICE IS NEGATIVELY CORRELATED TO THE $USD 8

9 REAL ASSETS VS. FINANCIAL ASSETS

10 REAL ASSETS VS. FINANCIAL ASSETS

11 REAL ASSETS VS. FINANCIAL ASSETS

12 GOLD EXPRESSED AS DXY IS UP 17% SINCE JUNE

13 GOLD DELIVERED SUBSTANTIAL OUTPERFORMANCE OF EQUITIES IN

14 A COMPARISON: DIRECT VS. INDIRECT EXPOSURE DIRECT EXPOSURE TO PRECIOUS METALS EXPOSURE VIA EQUITY FUNDS No corporate or counterparty risk Performance susceptible to corporate factors Offers true portfolio diversification Precious metal stocks will always be stocks Lease rates offer a potential income to investors No utilization of lease rates True correlation to actual precious metal prices Will show stronger correlation to equities during volatile times Holding precious metals acts as a hedge against inflation No direct relationship to money supply 14

15 COMMODITIES: SUBSTANTIAL RALLY AFTER A DECLINE 15

16 GOLD EXPRESSED AS DXY IS UP 17% SINCE JUNE

17 GOLD EXPRESSED AS DXY IS UP 17% SINCE JUNE

18 GOLD EXPRESSED AS DXY IS UP 17% SINCE JUNE

19 WHY BUY GOLD BULLION TODAY? Gold is an insurance in your portfolio against the effects of economic and geopolitical uncertainty In the extreme market turmoil of 2008, when we saw substantial declines in nearly all asset classes, gold provided a positive return Real assets outperformed financial assets in the 1970s. Given the current economic climate, we expect this will be the case for years to come Given the substantial increase in US money supply (currently running at an annualised 40%, inflation is inevitable). Gold is your hedge against inflation Gold is uncorrelated with other asset classes, providing diversification and increasing the efficient frontier of your portfolio 19

20 WHY BUY PRECIOUS METALS TODAY? Given the substantial increase in money supply (currently running at an annualised 40%, inflation is inevitable). Real assets are your hedge against inflation The diverse uses of gold, silver and platinum result in low price correlation, smoothing the combined long-term returns At current consumption rates, all of the remaining silver in the earth s crust will be gone by 2034 Silver is currently trading at a lower absolute price per ounce that 30 years ago Most of the world s platinum is sourced from South Africa s Bushweld Complex and Norilsk-Talnakh in Russia. Both are shutting mines and restricting supply These dramatic cutbacks will lead to supply shortages, forcing the price higher 20

21 CONCLUSIONS Downside risks are now limited, deleveraging and liquidation of all asset classes is largely over Projected weakening of the $USD due to fiscal stimulus package amounting to 10% of GDP M1 Money Supply currently running at 40% annualized Investors looking for yield Commodities below fundamentals Governments encouraging banks to lend Precious metals are now at some of their most attractive valuations 21

22 POSSIBLE QUESTIONS Considering the Beneficiaries. Why would Central Banks buy physical Gold as opposed to Futures or ETFs. How safe is holding physical precious metals personally (at home, in your safe deposit box). Buying and selling personally. 22

23 DISCLAIMER Castlestone Management funds are not authorized by the Securities and Futures Commission for distribution to the public in Hong Kong. Due care should be taken by all Hong Kong intermediaries that they comply with all relevant local rules and regulations in responding to requests from clients for information on non-authorized funds in Hong Kong. The opinions expressed and views stated are entirely Castlestone Management s and information contained in these pages is a summary and is indicative only; it is not an invitation to invest in the shares or any other products or services or otherwise deal in these or enter into a contract with Castlestone Management or any other company. Before making any investment decisions, prospective investors should read the Prospectus or seek relevant professional advice. The past performance referred to on these pages cannot be relied upon as a guide to future performance. The price of shares and the income derived from them can go down as well as up and investors may not recoup the amount originally invested. This document does not constitute an offer or solicitation to sell shares in any of the funds mentioned, by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. Investors should inform themselves as to the legal requirements within their own counties for the purchase of shares and to any taxation or exchange control legislation applicable to them. Current tax levels and reliefs depend on individual circumstances. Any reference to any product or service which has been or may be provided by Castlestone Management or any other company does not amount to a promise that such product or service will be available at any time. Changes to or improvements in such products or services may be made at any time without notice. Castlestone Management Limited is authorised and regulated by the Financial Services Authority in the UK. Castlestone Management LLC is a registered investment advisor with the United States Securities and Exchange Commission. Castlestone Management Limited is authorised by the Financial Services Board in South Africa. Castlestone Management Inc. is regulated by the British Virgin Islands Financial Services Commission. In Singapore, Castlestone Management's funds are registered as restricted recognised schemes with the Monetary Authority of Singapore for distribution to institutional and accredited investors. 23