Strategic Asset AllocationStrategic Asset Allocation

gold silver platinum palladiumgold silver platinum palladium

11--866866--924924--GOLDGOLD

www.nbimetals.comwww.nbimetals.com

Precious Metals:Precious Metals:

A Solid Foundation for Every PortfolioA Solid Foundation for Every Portfolio

Why?

Investment in spot bullion precious metals market should not be considered a short-term speculation, butrather a long-term investment strategy that should always form a part of your portfolio. Here are fewfacts for you to consider….

I. Strategic Asset Allocation

2

I. Strategic Asset Allocation

II. Hedging

III. Tactical Asset Allocation

The following pages will address these strategies in greaterdetail and review why precious metals shall be thefoundation of every investment portfolio.

1.1. Strategic Asset AllocationStrategic Asset Allocation

3

"More efficient investment portfolios can be created by diversifying among asset categories

with low to negative correlations.”

- Dr. Harry M. Markowitz, Nobel Prize Economist

Portfolio DiversificationPortfolio Diversification

In search for effective diversification against increasing convergence among mainstream asset classes, investorsare considering a variety of alternative investment vehicles. One being the old-fashioned physical precious metal,such as gold, silver, platinum and palladium. Why? It offers superior diversification with high liquidity and lowcosts. In addition, the price of precious metals typically moves contrary to other investment vehicles, thus givingbalance and protection in a changing economy.

Historical Efficient Frontier, with and without Precious Metals

4

Efficient Frontier - core portfolio without Precious Metals

Efficient Frontier - core portfolio with Precious Metals

M+L

The spectrum of asset classcombination with optimal risk returncharacteristics forms the EfficientFrontier. According to Harry Markowitz,the most influential economist of 20th

century, by including precious metals intheir investment portfolios, investorsare thus being able to properly balanceasset classes of different correlationsin order to maximize their potentialreturns and minimize the risk of theirinvestment portfolios. This is at theheart of calls as Strategic AssetAllocation.

Precious Metals are the only asset

class with negative average

Low Correlation: The Basis for DiversificationLow Correlation: The Basis for Diversification

The essence of diversification in a portfolio is the appropriate balanceof asset classes of different correlations. While many investorsbelieve their portfolios are diversified, they typically contain onlythree major asset classes – stocks, bonds and cash. Real estate,commodities, precious metals and collectibles rarely form part ofmost investors’ portfolios. With only three asset classes out of a totalof seven, such portfolios are clearly not adequately diversified. Arecent study carried out by Ibbotson Associates, Portfolio

Diversification with Gold, Silver and Platinum, showed that preciousmetals are the most negatively correlated asset class to all otherassets. It also noted that, since 1969, stock and bond correlationshave increased and, contrary to popular belief, a mix of these will notresult in a diversified portfolio. Today, most portfolios lack the

5

class with negative average

correlation to other asset classes.result in a diversified portfolio. Today, most portfolios lack thenegatively correlated asset classes – real estate, commodities andprecious metals – necessary to achieve full diversification, and as aresult are exposed to risk and market volatility.

Correlation Coefficients of Annual Total Return for Precious Metals and Other Asset Classes – the only asset class with Low to Negative

Correlation to other asset classes

“By allocating 7%-16% to Precious Metals,

investors could increase returns and reduce

portfolio risk.” – Ibbotson & Associates

Source: Ibbotson Associates, 1972-2004

InflationInflationPrecious Metals Have Been a Solid Hedge Against Inflation.Precious Metals Have Been a Solid Hedge Against Inflation.

The price of precious metals typically increases with rising inflation, thus offering insurance against inflation. Goldalso has the amazing ability to accurately forecast the direction of the general price level and interest rates. Accordingto the recent studies of John List, a top economist at the University of Chicago, by testing three commodity indexes

(Dow Jones Commodity Spot Index, crude oil, and gold) to determine whichone best anticipated changes in the Consumer Price Index (CPI) since1970, Gold proved to be the best indicator of future inflation, as measuredby the CPI – even better than oil. The lag period is about one year.

“It just makes sense to have portfolio insurance in the

form of bullion… Any investment portfolio must be

bedrocked in Gold!” – Jim Cramer

6

bedrocked in Gold!” – Jim Cramer

Research shows that overall performance ofprecious metals during the 32-year period wasclose to fixed income investments. Eventhrough the long bear market of 1980 to 2002,precious metals outperformed both cash andinflation during the entire period. From 1973to 1984, a high inflation period, preciousmetals were the top-performing asset class,and the study concluded that precious metalsprovide an effective hedge against inflation.The study confirms, Precious Metals are themost positively correlated asset class toinflation, thus, the higher the inflation rate,the better is performance of Precious Metals.

1989

-200

6 M

oo

re

Res

earc

h C

ente

r, In

c.

0%

5%

10%

15%

20%

25%

US Large CapStocks

US Small CapStocks

InternationalEquity

Spot PreciousMetals Index

(SPMI)

US Long-TermGovernment

Bonds

USIntermediate-Term Bonds

Cash (US 90-Day Treasury

Bills)

US Inf lat ion

High Inflation

Low Inflation

Source: Ibbotson Associates

Compounded Annual Return through High Inflation (1972-1981) & Low Inflation (1982-2004)

Market VolatilityMarket Volatility

Precious metals are thought of as safe heavens during periods of financial stress. They can act as a hedge againstinstability of other investment vehicles; they can rise when stocks, bonds, real estate and Treasury bills fall.Research shows that for the period of 1972-2004, Precious Metals’ overall performance was close to that of fixedincome and it outperformed cash and inflation.

No other investment reacts to market downturns as well as gold, silver, platinum or palladium bullion. It is thebest known portfolio insurance. Precious metals are the only asset class with a negative average correlation toother asset classes, the basis for diversification.

2006

Mo

ore

R

esea

rch

Cen

ter,

Inc.

Cash (US 9 0 - Day Treasury Bills)

US Inf lat ion

Arithmetic Historical Returns for Nine Years of Negative US Large Cap Returns

7

1989

-200

6 M

oo

re

Res

earc

h C

ente

r, In

c.

(15) (10) (5) - 5 10

US Large Cap St ocks

US Small Cap St ocks

Internat ional Equit y

Spot Precious M et als Index ( SPM I)

US Long-Term Government Bonds

US Int ermediat e- Term Bonds

Cash (US 9 0 - Day Treasury Bills)

Source: Ibbotson Associates, 1972-2004

Gold Bullion vs. Mining StocksGold Bullion vs. Mining Stocks

Crash of 1987: The Dow, Gold Bullion and Mining Stocks

When examining the hedging attributes of precious metals, it is important to distinguish between bullion andmining stocks. For example, in the financial crash of 1987, both the Dow and Precious Metals Mining Sticks haveexperienced major similar declines, while Gold itself has appreciated. The Closed End Central Fund (CEF) thatholds both gold and silver acted as a mining stock during that timeframe. This confirms that it is important tohold bullion in fully allocated segregated form to provide the desired hedging benefits.

8Source: stockcharts.com

9

2.2. HedgingHedging

10

“… Put 10% of your money in Gold and hope it doesn’t work.”

- old Wall Street saying

Currency RiskCurrency Risk

In today’s economic climate, there are plenty of risks to hedge against, one of them is currency exchange declines.

• Currency Crisis of Mexico,1995,the price of Gold rose over100% in just 3 months.

• In Indonesian Currency Crisis of1997, Gold skyrocketed over

+312%+111%

11

100% in just 3 months. 1997, Gold skyrocketed over310% in 1 year.

• In Russian Currency Crisis of1998, the price of Gold roseover 300% over 1 year period.

+304%

• Similarly in ArgentineanCurrency Crisis of 2002, therewas a roughly 350% increase inprice of Gold in just 6 months.

+348%

Currency Risk & Growth of U.S. Money SupplyCurrency Risk & Growth of U.S. Money Supply

Growth of US Money Supply

Typically, a currency crisis results when there is an excessivegrowth in a Money Supply as evidenced by the Chart of M3 U.S.Money Supply. For example, in 1971, total M3 Money Supplyproduced was at about $800Bil levels. In 2006, an annualincrease in M3 was around $980Bil., thus creating a yearlyincrease in money supply that surpassed total money incirculation back in 1971. If this process continues, ultimatelytoo much money is being creating resulting in hyperinflationand essentially leading to currency collapse. Precious Metalsact as a leading indicator as they act essentially as a nonconfidence vote in a government’s monetary policy.

12

confidence vote in a government’s monetary policy.

M3 is Soaring

Today, fundamentals are in play again as the lax monetarypolicy of the Federal Reserve is hugely increasing the moneysupply, which can really only result in further dollar weakness,global inflation and higher commodity prices.

The supply of precious metals is pretty much fixed so goldand silver will rise in price as the money supply expands.

Money Supply & U.S. Dollar DepreciationMoney Supply & U.S. Dollar Depreciation

Precious Metals Have Been a Solid Hedge Against a Declining U.S. Dollar.Precious Metals Have Been a Solid Hedge Against a Declining U.S. Dollar.

The results of increasing Money Supply can already be seen in the loss of the exchange traded value of U.S. dollar.

US Dollar is down over

30% since its peak of February 2002

13

During same time period, precious metals went up over 100%

Source: stockcharts.com

U.S. Money Supply & Erosion of Purchasing PowerU.S. Money Supply & Erosion of Purchasing Power

Apart from Foreign Exchange losses, an increase in Money Supply results in steady erosion of purchasing power.

“$5.03 in the year2005 has the same"purchasing power"as $1 in the yearas $1 in the year1970,” i.e., U.S.Dollar depreciatedby more than 80% –

US Department of

Labor

Purchasing Power: Then and Now…Purchasing Power: Then and Now…

“Gold is a constant, like the North Star.” “Gold is a constant, like the North Star.” --Steve ForbesSteve Forbes

If we look at the loss of purchasing power from apractical example, the percent increase in prices isastonishing. For example, it would take 12 times asmuch dollars to buy an average house today than what

Purchase Price in U.S. $ 1971 2006 Price Change

Compact Chrysler Car $ 2,313 $ 15,200 657%

Avg House Price $ 24,608 $ 299,100 1215%

Dow Jones 890 12,502 1405%

1 Ounce of Gold $ 35 $ 632 1806%Purchase Price in Gold oz 1971 2006

Purchase Power Increase

Compact Chrysler Car 66 oz 24 oz 175%

Avg House Price 703 oz 384 oz 83%

15

Dow Jones and Gold Prices as of Dec. 28, 2006

Gold has always preserved its purchasing power over thelong run. To demonstrate the long-term value of gold,let’s take a look at $20 Saint-Gaudens Double Eagle goldcoin. Prior to 1933, our grandparents carried this coin intheir pockets as money. Back then, they could buy atailor-made suit for one double eagle, or $20. Today, theSaint Gaudens coin, which is worth between $600 and$1,000, depending on its rarity and condition, can buy thesame tailor-made suit with the value of this one coin.

much dollars to buy an average house today than whatit used to cost in 1971. While 1 ounce of Gold hasappreciated by over 1800% during the same timeperiod, if we convert these prices to the ounces ofGold, we can see that instead of increasing prices, theprices actually declined once measured in the numberof gold ounces. Precious Metals preserve thepurchasing power against erosion by inflation.

Dow Jones 25 oz 20 oz 25%

“The implications of a change in the gold price are far-reaching.Gold serves as a dependable barometer of purchasing power-andtherefore of pressures on inflation and bond markets. It is widelyregarded as an effective hedge against inflation, just as it is a hedgeagainst a broad number of economic ‘shocks.’ Combine this with its

16

against a broad number of economic ‘shocks.’ Combine this with itsliquidity vis-à-vis inflation linked bonds, and gold, as many investorsare currently discovering, has a vital role to play.”

- World Gold Council, November 2005

� War

� Terrorism

� Natural Disasters

� Health Pandemics

� Systemic Financial Risks

• Derivatives Accident

• Bankruptcies of major

Fat Tail Events Fat Tail Events

“Fat Tail” Events refer to protection against a sudden financial crises, such as:

Bullion vs. The Dow

17

• Bankruptcies of major financial institution, and

• Defaults

� Disruption of Oil Supply

As evidenced by the chart above, 9/11 terrorist attacks havesent the Dow into financial turmoil. At the same time,precious metal prices have appreciated by over 120%.

Source: stockcharts.comPrecious Metals act as portfolioinsurance to mitigate catastrophiceffects on assets in traditionalfinancial world if such “Fat Tail”events to occur.

“… Derivatives are financial weapons of mass destruction, carrying dangers that while now

latent are potentially lethal.”

18

latent are potentially lethal.”

- Warren Buffet, 2003

3.3. Tactical Asset AllocationTactical Asset Allocation

19

A Solid Foundation for Every Portfolio

The DowThe Dow--Gold RatioGold RatioDiversification protects investment portfolios. Many of the world-renowned authorities on asset allocationtheory agree that investors could improve returns and reduce risk by holding 7-16% in precious metalsbullion. No other investment reacts to market downturns as well as gold, silver, platinum or palladiumbullion. It is the best known portfolio insurance.

The Dow-to-Gold ratio measures how manyounces of gold are required to purchase the Dow.It is a reliable method of taking the temperatureof the markets, and also a leading indicator thata cyclical trend change is occurring. Historysuggests that markets move in cycles lastingapproximately 20 years. As these cyclical trendsoccur, an important indicator for portfolio

20

occur, an important indicator for portfolioadjustments between asset classes is the Dow-Gold Ratio. Research indicates that when theratio rises (like it did in the 1920s, 60s, and 90s),portfolios should contain more of financialassets. When the ratio declines, as in early 70sand is currently doing now, portfolios shouldcontain more of physical bullion allocation. Since2005, precious metals have been risingdrastically against all currencies, signaling thebeginning of a true Bull Market in preciousmetals. Now, with the ratio at 22 and falling,many authorities suggest that it is time toincrease portfolio allocation to gold and otherprecious metals in order to take full advantage ofcurrent market trends.

Declining Dow-Gold Ratio indicates rising bullion prices.

Will Trend Remain the Same?Will Trend Remain the Same?

Bullion vs. The Dow,2000 - Present

Since 2000, when Dow-Gold ratio peaked, price of Gold andSilver have risen by astonishing 130-150%, respectively, YTD;price of Platinum has increased by whooping 200%! During thesame period, the Dow Jones remained almost flat.

To determine if this trend will continue , it is important tolook at some key drivers for these increases in preciousmetals.

Gold +130%

Silver +150%

Platinum +200%

DOW +13%

21

Source: stockcharts.com

Source: investmentpostcards.wordpress.com

While some investors look to commoditybased Supply-Demand fundaments, the recentrise in precious metals prices can beattributed to increasing concerns of thestrength of U.S. Dollar, the amount of debtowed by U.S. government as well as concernsabout oil prices.

U.S. DollarU.S. Dollar

Precious Metals Have Been a Solid Hedge Against a Declining U.S. Dollar.Precious Metals Have Been a Solid Hedge Against a Declining U.S. Dollar.

he U.S. government has put America into huge financial trouble. The value of the U.S. Dollardeclined more than 60% from 2001 through 2007, plunging 10% in just a few weeks.T

2006

Mo

ore

R

esea

rch

Cen

ter,

Inc.

22

Since the U.S. Dollar acts as the world’s reserve currency, any declines in the U.S. Dollar and U.S.financial assets ultimately ends up impacting most of the world’s major economies.

1989

-200

6 M

oo

re

Res

earc

h C

ente

r, In

c.

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

The Forbidden Topic: U.S. National DebtThe Forbidden Topic: U.S. National Debt

Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about$1.4 billion a day — or nearly $1 million a minute. To put this in perspective, at the time Nixon removed

23

$1.4 billion a day — or nearly $1 million a minute. To put this in perspective, at the time Nixon removedgold convertibility in 1971, the total cumulative national debt was just over $400 Bil. Today, U.S. NationalDebt rose to a mind-numbing number of $9.13 trillion. The national debt is out of control and somedaysoon foreigners will decide to dump the U.S. Dollar.

What's that mean to you? It means the current U.S. national debt path is damaging to future U.S. livingstandards. It also means almost $30,000 in debt for each man, woman, child and infant in the UnitedStates. Even if one managed to escape the recent housing and credit crunches and is coping with risingfuel prices, one may still be headed for economic misery, along with the rest of the country. That'sbecause the government is fast straining resources needed to meet interest payments on its nationaldebt. Many leading economists suggest, “…the basic facts are a matter of arithmetic, not ideology. Thegovernment is in the same predicament as the average homeowner who took out an adjustablemortgage… If interest on the national debt will become unsustainable, foreign countries will begin todump their dollar holdings. U.S. will have to shell out a lot of resources to make those interestpayments… A major economic slowdown may be looming...”

Source: Stanley Collender, former congressional budget analyst

24

Precious Metals are safe heavens for alternative currency holdingsPrecious Metals are safe heavens for alternative currency holdings……--Ibbotson & AssociatesIbbotson & Associates

Growing Trade DeficitGrowing Trade Deficit

To make matters even worse, the Trade Deficitbegan to grow at an astonishing rates every yearsince 1975. In 2006, it was recorded at thewhooping $765 Bil. This means that U.S. has toborrow about $700 Bil. annually from foreigners tofund its consumption of foreign made goods andimported commodities.

25

Typically, the Trade Deficit declines with declines invalue of underlining currency, U.S. Dollar. However, thisis not the case, not anymore. Since the U.S. isdependent on oil imports, a declining currency actuallyresults in a higher deficit. Thereby, the Trade Deficit hascontinuously increased as the U.S. Dollar has declined byover 35% during the same time period. Clearly, thiscannot go on forever as at some point foreigners will beunwilling to continue to fund U.S. expenditures and U.S.will be forced to expand its money supply even further.

Source: www.bea.gov

Current Account,… Yet Another Danger to U.S. EconomyCurrent Account,… Yet Another Danger to U.S. Economy

The imbalances are also reflected in our Current Account position. Based on the studies of Bureau of EconomicAnalysis, the U.S. Current Account deficit is now approaching 7% of GDP. According to leading economists, in thepast, a Current Account deficit in excess of 5% of GDP had resulted in Currency Crisis. In Currency Crisis,demand for alternative currency holdings such as gold, silver and platinum increases dramatically becauseprecious metals offer protection against currency exchange declines.

26

U.S. Unsustainable Debt Levels and Precious MetalsU.S. Unsustainable Debt Levels and Precious Metals

As evidenced by the rising U.S. Debt levels and a lax monetary policy of the Federal Reserve, as foreigninvestors loose confidence in the U.S.’ ability to service its debt, they will seek to exit U.S. Dollars for thesafety of precious metals in increasing numbers. This will lead to high inflation in the U.S. and skyrocketingprecious metals prices.

“The supply of precious metals is pretty much fixed… There is not “The supply of precious metals is pretty much fixed… There is not enough gold available to cover present dollars in circulation, unless enough gold available to cover present dollars in circulation, unless

gold was to be valued at $5,000 an ounce.” gold was to be valued at $5,000 an ounce.” - Associated Press

27

Source: BullandBearWise.com

Oil & Precious MetalsOil & Precious MetalsHigher oil prices are very bullish for gold investors, especially when viewedin their proper inflation-adjusted real context within market history.

In addition to U.S. current monetary issues that are impacting preciousmetals prices, there is also an issue of Peak Oil. Based on numerousstudies, experts now believe that the world is very close to reachingpeak oil production. As production of oil will start to decline,particularly as demand from Asia will continue to increase, it will resultin a continually increasing oil prices. Higher oil prices have a negativeimpact on global economies as well as financial assets while positivelyimpacting precious metals prices.

28

Gold-Oil RatioStudies suggest that there is a positive correlationbetween oil prices and the price of gold, up to 90%confidence level, or what is known as Gold-OilRatio. As price of oil increases, gold follows. Asgold rises, silver and platinum follow.

Historically oil have traded at around 15 barrels ofoil to 1 oz of Gold, on average. Right now we havean anomaly where it takes about 10 barrels of oil to1 oz of Gold. Thereby, either Gold has somecatching up to do or Oil has to come down in price.Since its highly unlikely that Oil will come down to$30 per barrel, it is safe to assume that Gold shouldbe trading at $1,300 per ounce with the oil priceat its current levels.

4.4. ConclusionConclusion

29

“We have gold because we cannot trust governments”

– President Herbert Hoover

Gold Appreciation in Major CurrenciesGold Appreciation in Major Currencies

30Source: wikipedia.org

The Bull Market in Precious Metals has begun in2002. By 2005, the price of gold has beenincreasing steadily in all currencies with price ofGold in U.S. Dollars leading the way. By 2007, theprice of gold in U.S. Dollars has appreciated byalmost 130%.

History suggests that markets move in cycles lasting approximately 20 years. Some investors think we’re well intocurrent bull market and it is too late to invest in precious metals. However, if we compare the Current Bull Marketto that of the 1970s, we’ll find striking similarities between the two. To put it in perspective, gold had appreciatedby 2,400% in the bull market of the 70s. With Gold closing 2007 at roughly $835 per oz and gaining roughly 130% inits value since the beginning of current bull market, it becomes apparent that Current Bull Market is only at itsinfancy of what could be a 20-year Bull Market in Precious Metals.

Precious Metals Bull Markets: Then and NowPrecious Metals Bull Markets: Then and Now

"Gold prices actually started theirlife at $35 per ounce in the early1970s. From there, it went to $850-$875 - a twenty-five-times-overmove. In the current Bull Market,Gold began its latest move up at

31

Gold began its latest move up at$252, so prices at $6,250 can't beruled out either, in terms ofmagnitude of the move." –JON NADLER, Investment Products Analyst,

Kitco.com

Who Expects 4Who Expects 4--Digit Gold… and WHY?Digit Gold… and WHY?

HOWARD RUFF - "Gold and silver are now early in a historic bull marketthat will dwarf the 500-1,700% profits we made in the '70s. The mostpowerful, completely essential factor affecting gold is monetaryinflation. The most compelling force affecting silver…is thesupply/demand equation." -Marketwatch

JAMES TURK, - "There are two aspects to what's driving the gold price:First, there is strong physical demand around the world… Second, thephysical demand for gold is causing a huge problem for the gold shorts…It is very possible gold could have a massive spike in the next six to 12months to as high as $2,000, driven by these factors." -Barron's

32

MARC FABER, Author, Tomorrow's Gold, - "A vicious drop in the Dowcoupled with a vicious rise in gold, possibly pushing gold to anastounding $2,000, $3,000 or even $6,000. Commodities are an assetclass for the first time in history." Marketwatch.com

EMANUEL BALARIE, - "I think gold prices will eventually shatter even myown bullish expectations of $1,000/oz. If you have not entered the goldmarket, waiting for an opportune time might be too late. Keep in mindthat regardless of what the media is telling you, gold is still cheap atthese levels." CNBC Squawk on the Street

JIM CRAMER, Founder, Thestreet.com, - "Any portfolio designed tocounter government-mandated inflation has to be bedrocked in gold" -New York Magazine

The information presented to you has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and its accuracy cannot be guaranteed. It shall be used for informationalpurposes only. No information presented here shall be construed as investment advice, recommendations, or solicitation. NBI Metals, LLC, is not liable for any loss or damage that you might incur by usingor acting on this information. Products and services described may not be available in all jurisdictions. Please be advised that as with all speculative investments, purchasing spot precious metals involvesa risk of loss that should be carefully evaluated prior to investing any funds. Client shall carefully review all documents and risk disclosures prior to opening an account with NBI Metals, LLC.

11--866866--924924--GOLD GOLD www.nbimetals.comwww.nbimetals.com