Buy gold and silver as insurance.

Anyone who is regularly reading news on personal finance would have come across articles on why gold and silver prices are set to rise even higher. Marc Faber and Jim Rogers, both people I respect, are just two prominent figures who have put forth compelling reasons to own some gold and silver.

Personally, when I started this blog, I also wrote about the real value of gold and why silver would be a better buy than gold after I researched the gold:silver ratio. I started a separate blog on the precious metals later on because I want to concentrate on blogging about investing for income here at ASSI.

We just have to do a quick check online to see how much the prices of gold and silver have appreciated since I started blogging three years ago to see how well anyone who invested in these metals have done in that time.

My current attitude towards buying physical gold and silver is like my attitude towards paying for insurance. To own physical gold and silver is an insurance against the inherent flaws of fiat currencies. Just like how we put aside a certain sum of money annually to pay for our insurance policies, I believe that setting aside 5% of my annual income for the purchase of gold and silver as insurance is not too much.

So, am I saying that I do not buy gold and silver now with the hope of making more money in S$ terms? Well, if we think of gold and silver as a form of money, then, buying gold and silver in the hope of making more money in our home currency is like forex trading. It would make more sense to trade in paper gold and silver then.

Buying physicals would be more suitable for anyone with a crisis mentality.

I am posting this article here in ASSI instead of my blog on the precious metals because the latter's readers are probably conversant with the reasons why we should be in precious metals. I want to reach out to readers here in ASSI who might not have any position in the precious metals yet.

Let me guess. Some of you are probably wondering if it is a good time to buy now. Well, if we believe in the thesis that the precious metals are set to rise much more in price over the next few years and if we are holding them as insurance instead of trading them for short term gain, the question becomes less important.

Technically, there is some near term weakness and if we want to wait to buy lower, a 5% correction in price could see buyers returning. Remember, however, that technical analysis is all about probability, never certainty. It never hurts to hedge.

Related posts:
1. Silver bullion coins.
2. Gold and silver: Important assets to own.
3. Gold or silver?
4. Silver: Some views.
5. Silver: Weekly chart.

Olam: Renounceable Underwritten Bond-Cum-Warrant Rights Issue.

Olam, in response to Muddy Water's claims, said that they "have more than enough capacity to meet ... repayment obligations of S$1.5 billion in the next 12 months, as well as ... likely capex of S$1-1.25 billion in the same period" and that "without raising any further debt (they) can easily meet ... debt repayment obligations and pursue ... planned Capex, in addition to meeting the on-going working capital needs." Then, why are they issung bonds-cum-rights now?

This reminds me of CitySpring Infrastructure Trust's claim a few years ago that they did not have to issue rights and that people who said they had to didn't understand their business. It could also be a coincidence that Sunny Verghese was also the chairman of CitySpring Infrastructure Trust then.

Each 1,000 shares owned will get to subscribe for 313 bonds with a face value of US$1.00 each. The bonds have a 5 year tenor and a coupon rate of 6.75%. This unsecured bond will raise some US$750m for Olam.

Each 1,000 shares owned will also be given 162 free warrants. Strike price of warrants is US$1.291. The warrants expire in 5 years and cannot be exercised in the first 3 years. This will raise US$500m for Olam if all the warrants are eventually exercised.

Full details here:
Olam International announces proposed US$750 M Renounceable Underwritten Bond-Cum-Warrant Rights Issue

Rights issues to strengthen the balance sheet is bad news for shareholders as it dilutes EPS (eventually, in this case). It also admits that the balance sheet was weak in the first instance. What are shareholders to do? It is Hobson's choice.

"Temasek is committed to take 100% of rights not subscribed by existing shareholders." Just like the case with CitySpring Infrastructure Trust, Temasek Holdings could end up enlarging its share of Olam.

　
"The Transaction is available to all its equity shareholders and provides a unique and rewarding opportunity to participate in the long term growth of the Company." This requires a leap of faith and I certainly hope for all shareholders that things improve from here.

Share price could take a hit tomorrow. $1.35 perhaps?

Related post:
Olam: A time bomb?