INVESTING STRATEGIES IN PRECIOUS METALS FINAL PROJECT

INVESTING STRATEGIES IN PRECIOUS METALS
FINAL PROJECT
By
Dicky Gunawan
19009027
Undergraduate Program
School of Business and Management
Institut Teknologi Bandung
2012
INVESTING STRATEGIES IN PRECIOUS METALS
DICKY GUNAWAN
19009027
Date of Final Project Presentation: August 6 th, 2012
Date of Graduation: October 20th, 2012
Undergraduate Program Institute Technology of Bandung, 2012
Supervisor: Harimukti Wandebori, ST, MBA, Ph.D.
ABSTRACT
People get to work and keep their money to fulfill their needs and wants, but the value of their money is
depreciated over time. Investors, people who do investment, put some of their wealth in the investment
vehicle to fight the inflation rate that weakened their money’s buying power. Precious metals, which
consist of gold, silver, platinum, and palladium, are one of many investment options that can be selected.
Precious metals had been used as investment since long time ago. Many investors trust precious metals as
storage for their wealth because precious metals offer adequate rate of return with low volatility compared
to any other investments. Each of these metals offers different rate of return and risk.
“Never put all your eggs in one basket”, this old quotes can be read as “never put all your wealth in one
investment only”. Investors can create the optimal portfolio using Harry Markowitz’s efficient frontier to
diversify their risky investment. A diversified portfolio can generate an investment with a higher rewardto-risk ratio that give investors high return with lower risk. Harry Markowitz’s theory usually is used in
creating the efficient frontier for capital market, but in practical it is also possible to be used to create the
efficient frontier and optimal portfolio for commodity. There are two efficient frontiers and two optimal
portfolios can be created for precious metals, one for respective normal trading and short sell trading.
For both options, more than half of the portfolio structure is invested in gold, it is logical because the rate
of return and the volatility of gold as a single investment itself compared to the other metals. The normal
optimal portfolio consists of 79% of gold and the rest of silver, this portfolio offers the investors 20.39%
annual return and 21.39% of volatility. While the optimal portfolio with short sell consists of 90% in gold
and 25% in silver of their initial investment and do short sell 14% in palladium and 1% in platinum, also
based on their initial investment. This portfolio comes with 21.44% annual return, 22.49% volatility and
2.65% VaR using 99% confidence level.
Investing in precious metals has its own advantages and disadvantages compared to any other
investments. The advantages of precious metals are its liquidity, protection against depreciation and
devaluation, protection against inflation, portfolio diversification, tangibility, wide variety of options and
kinds, practical applications, portability, and beauty and prestige; while the disadvantages are low
profitability, no interest rate or potential income, government influences, appreciation cycle, price
correction, subject to confiscation and theft, not accepted for goods and services, and taxes and other fees.
Precious metals investment itself can be divided into two types, which are physical metals and nonphysical metals investment. Bars, coins, ingots, bullions, rare collectible, and jewelry forms is categorized
as the physical metals; and statement account, certificates, mining company stock, mutual funds,
accumulation plans, and futures and options contract forms is categorized as the non-physical metals.
Physical and non-physical metals have their own advantages and disadvantages. Physical metals are
considered as the safer way to invest in metals, but in the other hand, non-physical metals offer higher
rate of return. Each investor has his/her own judgments toward each investment type based on his/her
background, experiences, and knowledge that make the investment strategies may vary between one
investors to another.
Key Words: investment, precious metals, efficient frontier, investing strategies.
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Strategi Investasi Logam Mulia
Dicky Gunawan
19009027
Tanggal Sidang Tugas Akhir: 6 Agustus 2012
Tanggal Wisuda: 20 Oktober 2012
Program Sarjana, Institut Teknologi Bandung, 2012
Pembimbing: Harimukti Wandebori, ST, MBA, Ph.D.
ABSTRAKSI
Orang-orang pergi bekerja dan menyimpan uang mereka untuk memenuhi kebutuhan dan keinginan
mereka namun nilai uang mereka menurun seiring dengan waktu Investor, orang yang melakukan
investasi, menaruh sebagian dari kekayaan mereka pada instrumen investasi untuk memerangi laju inflasi
yang melemahkan daya beli uang mereka. Logam mulai yang terdiri dari emas, perak, platina, dan
palladium, adalah satu dari sekian banyak pilihan investasi yang dapat dipilih. Logam mulai sudah
digunakan sebagai investasi sejak lama. Banyak investor mempercayai logam mulai sebagai wadah untuk
menyimpan kekayaan mereka karena logam mulai menawarkan tingkat pendapatan yang cukup dengan
resiko yang rendah dibandingkan dengan investasi lain. Masing-masing logam ini menawarkan tingkat
pengembalian dan resiko yang berbeda-beda.
“Jangan menaruh semua telurmu dalam satu keranjang”, cukilan lama ini dapat pula diartikan “jangan
menaruh kekayaanmu pada satu investasi saja”. Investor dapat membuat optimal portfolio menggunakan
efficient frontier dari Harry Markowitz untuk mendiversifikasi resiko investasi mereka. Sebuah portfolio
yang terdiversifikasi dapat menghasilakn sebuah investasi dengan rasio pengembalian-resiko yang lebih
tinggi yang member investor tingkat pendapatan yang tinggi dan resiko yang lebih rendah. Teori Harry
Markowitz biasanya digunakan untuk membuat efficient frontier di pasar modal, tapi secara pratikal, teori
ini juga dapat digunakan untuk membuat efficient frontier dan optimal portfolio untuk komoditas. Ada
dua efficient frontier dan dua optimal portfolio yang dapat dibuat untuk logam mulia, masing-masing satu
untuk jual-beli biasa dan juga jual-beli short sell.
Untuk kedua pilihan, lebih dari setengah dari struktur portfolio diinvestasikan di emas, hal ini sangat
masuk akal karena tingkat pengembalian dan fluktuasi harga dari emas sebagai investasi independen itu
sendiri dibandingkan dengan logam lainnya. Optimal portfolio normal berisikan 79% emas dan sisanya
dalam perak, portfolio ini menawarkan 20.39% pengembalian tahunan dan 21.39% resiko. Sedangkan
optimal portfolio dengan short sell berisikan 90% emas dan 25% perak ditambah 14% palladium dan 1%
platina dalam short sell, portfolio ini menawarkan 21.44% pengembalian tahunan dan 22.49% resiko.
Berinventasi di logam mulia memiliki kelebihan dan kelemahannya sendiri dibandingkan dengan
investasi lain. Kelebihan dari logam mulai adalah likuiditasnya, pertahanan terhadap depresiasi dan
devaluasi, pertahanan terhadap inflasi, diversifikasi portfolio, tangibilitas, banyaknya pilihan dan jenis
dari logam, penggunaan praktikal, portabilitas, dan keindahan dan prestius; sedangkan kelemahannya
adalah profitabilitas rendah, tidak adanya tingkat bunga atau pendapatan potensial, pengaruh pemerintah,
siklus apresiasi, koreksi harga, subjek penyitaan dan pencurian, tidak diterima sebagai alat tukar barang
dan jasa, dan pajak serta biaya lainnya.
Investasi logam mulia dapat dibagi menjadi dua tipe, yaitu investasi logam fisik dan logam non-fisik.
Batang, koin, ingot, bullion, logam langka dan koleksi, dan perhiasan dikategorikan sebagai logam fisik;
dan akun pernyataan, sertifikat, saham perusahaan tambang, reksadana, rencana akumulasi, dan kontrak
futures dan options dikategorikan sebagai logam non-fisik. Logam fisik dan non-fisik memiliki kelebihan
dan kekurangannya masing-masing. Logam fisik dianggap sebagai cara yang lebih aman untuk
berinvestasi di logam, tapi dilain pihak, logam non-fisik menawarkan tingkat pengembalian yang lebih
tinggi. Setiap investor memiliki penilaian sendiri masing-masing terhadap jenis investasi berdasarkan
latar belakang, pengalaman, dan pengetahuannya yang membuat strategi investasi dari tiap-tiap investor
dapat berbeda.
Kata Kunci: investasi, logam mulia, efficient frontier, strategi investasi.
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VALIDATION PAGE
INVESTING STRATEGIES IN PRECIOUS METALS
By:
Dicky Gunawan
ID No:
19009027
Undergraduate Program
School of Business and Management
Institut Teknologi Bandung
Supervisor
Harimukti Wandebori, ST, MBA, Ph.D.
NIP: 999.069.103
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FOREWORD
I am fully grateful that my thesis can be done in time. I would like to express my
gratitude to people that mentioned below that without their help, my thesis could not be
finish in time.
1. My thesis advisor, Mr. Harimukti Wandebori for his guidance and give me
freedom to finish this thesis,
2. My parents who rise and support me all this time,
3. My siblings, brother and sister, for the support so I can finish my thesis on time,
4. Bapak-bapak; Andrew, Budi, Cukong, Dudut, and Sulim, for all the time,
madness and fun, see you guys in ‘real world’,
5. My ‘badi’, Arga Riztama Parnadi and Alfiani Sartika, even until now, we do not
know what buddy is for, but we really having a good time,
6. All my SBM friends, especially Akiba (Audi Kiri Bawah) occupants for all audi
classes we attended together,
7. All interviewees who willingly spent some of their time to help me finish my
thesis,
8. All SBM-ITB lecturers and tutors who taught me this three years,
9. To all people and parties who support me that I cannot mention one by one.
This thesis is far from perfect that have weaknesses here and there, but I hope that this
thesis would be useful for readers, especially them who want to invest in precious
metals, for considerations.
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TABLE OF CONTENTS
ABSTRACT...................................................................................................................... i
ABSTRAK ....................................................................................................................... ii
VALIDATION PAGE .................................................................................................... iii
FOREWORD ................................................................................................................. iv
TABLE OF CONTENTS..................................................................................................v
LIST OF IMAGES ........................................................................................................ vii
LIST OF TABLES ....................................................................................................... viii
LIST OF EQUATION ................................................................................................... ix
LIST OF APPENDIXES .................................................................................................x
CHAPTER I INTRODUCTION .....................................................................................1
1.1
Background ........................................................................................................ 1
1.2
Problem Identification ........................................................................................ 1
1.3
Research Objectives ........................................................................................... 3
1.4
Problem Limitation ............................................................................................ 3
1.5
Writing Structure ................................................................................................ 3
CHAPTER II LITERATURE REVIEW ..........................................................................5
2.1
Investment .......................................................................................................... 5
2.2
Short Sell ............................................................................................................ 5
2.3
Precious Metals .................................................................................................. 5
2.3.1
Gold ............................................................................................................ 6
2.3.2
Silver ........................................................................................................... 6
2.3.3
Platinum ...................................................................................................... 7
2.3.4
Palladium .................................................................................................... 7
2.4
Advantages and Disadvantages of Investing in Precious Metals ....................... 8
2.4.1
Advantages of Investing in Precious Metals ............................................... 8
2.4.2
Disadvantages of Investing in Precious Metals ........................................ 10
2.5
Precious Metals Investment Strategies ............................................................. 12
2.5.1
Investing in Physical Metals ..................................................................... 12
2.5.2
Investing in Non-physical Metals ............................................................. 13
2.6
Harry Markowitz Theory ................................................................................. 15
2.7
Investment Risk and Return ............................................................................. 17
2.7.1.
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Rate of Return ........................................................................................... 17
v
2.7.2.
Expected Rate of Return............................................................................ 18
2.7.3.
Standard Deviation .................................................................................... 19
2.8
Portfolio Risk and Return ................................................................................. 19
2.8.1
Portfolio Expected Rate of Return ............................................................ 20
2.8.2
Portfolio Risk ............................................................................................ 20
2.8.2.1 Portfolio Coefficient Correlation............................................................... 21
2.8.2.2 Portfolio Covariance ................................................................................. 21
2.8.2.3 Portfolio Variance ..................................................................................... 22
2.8.2.4 Portfolio Standard Deviation ..................................................................... 22
2.8.2.5 Value at Risk ............................................................................................. 23
CHAPTER III RESEARCH METHODOLOGY ........................................................... 25
3.1.
Problem Identification ...................................................................................... 26
3.2.
Literature Review ............................................................................................. 26
3.3.
Data Gathering .................................................................................................. 26
3.4.
Data Analysis .................................................................................................... 27
3.5.
Conclusion ........................................................................................................ 28
CHAPTER IV DATA ANALYSIS ................................................................................ 29
4.1.
Trends of Each Metals ...................................................................................... 29
4.1.1.
Gold ........................................................................................................... 29
4.1.2.
Silver ......................................................................................................... 30
4.1.3.
Platinum .................................................................................................... 31
4.1.4.
Palladium ................................................................................................... 32
4.2.
Efficient Frontier for Precious Metals .............................................................. 32
4.2.1.
Efficient Frontier without Short Sell ......................................................... 35
4.2.2.
Efficient Frontier with Short Sell .............................................................. 36
4.3.
Optimal Portfolio for Precious Metals.............................................................. 37
4.3.1.
Optimal Portfolio without Short Sell ........................................................ 37
4.3.2.
Optimal Portfolio with Short Sell.............................................................. 38
CHAPTER V CONCLUSION AND RECOMMENDATION ...................................... 39
5.1.
Conclusion ........................................................................................................ 39
5.2.
Recommendation .............................................................................................. 40
REFERENCES ............................................................................................................... 43
APPENDIX
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v
LIST OF IMAGES
Figure 3.1 Research Methodology Flowchart.................................................................. 25
Figure 3.2 Calculation Process Flowchart ....................................................................... 27
Figure 4.1 Gold Price Chart in the Last 10 Years ............................................................ 29
Figure 4.2 Silver Price Chart in the Last 10 Years .......................................................... 30
Figure 4.3 Platinum Price Chart in the Last 10 Years ..................................................... 31
Figure 4.4 Palladium Price Chart in Last 10 Years ......................................................... 32
Figure 4.5 Efficient Frontier without Short Sell .............................................................. 35
Figure 4.6 Efficient Frontier with Short Sell ................................................................... 36
Figure 4.7 Optimal Portfolio without Short Sell.............................................................. 37
Figure 4.8 Optimal Portfolio with Short Sell ................................................................... 38
vii
LIST OF TABLES
Table 4.1 Structure of Each Metal ................................................................................... 33
Table 4.2 Covariance Matrix ........................................................................................... 34
Table 4.3 Volatility Matrix .............................................................................................. 34
Table 4.4 Correlation Matrix ........................................................................................... 35
Table 5.1 Rate of Return and Volatility of Each Metal ................................................... 39
Table 5.2 Optimal Portfolios for Precious Metals ........................................................... 39
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LIST OF EQUATION
Equation 2.1 Minimum Portfolio Standard Deviation ..................................................... 15
Equation 2.2 Maximum Portfolio Rate of Return ........................................................... 16
Equation 2.3 Sharpe’s Ratio ............................................................................................ 16
Equation 2.4 Rate of Return ............................................................................................ 18
Equation 2.5 Arithmetic Rate of Return .......................................................................... 18
Equation 2.6 Geometric Rate of Return........................................................................... 18
Equation 2.7 Standard Deviation ..................................................................................... 19
Equation 2.8 Portfolio Expected Rate of Return ............................................................ 20
Equation 2.9 Portfolio Coefficient Correlation................................................................ 21
Equation 2.10 Portfolio Covariance................................................................................. 21
Equation 2.11 Portfolio Variance .................................................................................... 22
Equation 2.12 Portfolio Standard Deviation .................................................................... 22
Equation 2.13 Value at Risk ............................................................................................ 23
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LIST OF APPENDIXES
APPENDIX A GOLD MONTHLY PRICE ..................................................................... xi
APPENDIX B SILVER MONTHLY PRICE .................................................................. xii
APPENDIX C PLATINUM MONTHLY PRICE .......................................................... xiii
APPENDIX D PALLADIUM MONTHLY PRICE ....................................................... xiv
APPENDIX E SUKU BUNGA INDONESIA RATE………………………………….xv
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