Here are the numbers for the end of our first week, Friday, March 18, day 5:
Day 5
Results upon NY close of trading -- March 18, 2011:
- Gold closed at $1,419.70 per oz, up $15.70 and 1.12% from yesterday. Silver closed at $35.28 per oz, up $1.05 and 3.07% from yesterday.
- VFINX closed at $118.27 per share, up $0.51 and 0.4% from yesterday.
Investment #1, Precious Metals:
- Percent return for the day: 2.09%
- Profit for the day: $1,913.01
- Total percent return: -5.9%
- Total profit: $-5,935.05
Investment #2, Vanguard 500 Index:
- Percent return for the day: 0.4%
- Profit for the day: $425.34
- Total percent return: -1.3%
- Total profit: $-1,317.72
Advantage: Vanguard 500 Index investment, by $4,650.45
Gold and silver had solid performances today, while the S&P continues to weakly trade upwards. If (read: as) this trend continues, the margin between our two investment will grow smaller and smaller...
With that in mind, and without making any tangible prediction as to the near-term performance of our two investment, I'll mention that earlier in the week (up to and including yesterday), I made a prediction that gold would close today's session between $1405-1410, and that silver would close just under $35. Although I tempered my prediction with a disclaimer about the sheer unpredictability of precious metal prices, I nevertheless went out on a limb and made a prediction. My prediction was wrong, and for that I apologize.
With that in mind, I'm going to explain the three main reasons why gold and silver jumped so much today:
1. Dollar devaluation. The dollar (USDX) is down today, taking out 2010 lows, and this accounted for 0.54% of the increase in the price of gold and silver -- $7.60 for gold and $0.18 for silver.
2. Geopolitical events. The nuclear crisis in Japan, the market effect of the Bank of Japan's recent money printing stoking inflationary fears (which also directly feeds #1), and the escalating crisis in Libya, where military action by the UN is now imminent. (Ignore the nonsense about the ceasefire). Precious metals, especially gold, are the ultimate "safe-haven" investment. Investors flock to gold when they don't know where else to turn when their faith in the paper-asset-driven financial world begins to vanish. (Even with the incredible instability in the world, gold accounts for less then 0.5% of assets held by the average investor -- it can hardly be said that gold is in a "bubble" when less than 1 in 200 investors are investing it)
3. Demand, demand, demand. Demand for both gold and especially silver remains very high, and even mainstream Wall Street financial institutions are now openly advising their clients buy gold in anticipation of a 2012 peak in gold prices. Silver demand continues to outstrip supply, and even with the blatant manipulation of the silver markets by a certain major financial institution with the initials JPMC, the supply of physical silver simply cannot keep up with demand. (In subsequent articles I'll be discussing the manipulation of the silver market in more detail) While the drop in the USDX accounted for nearly half of the price increase of gold, it only accounted for 17% of the increase in silver, the remaining 83% or so was due to predominate buying.
As the action in Libya heats up, we should see oil prices really start to move upwards. This action in the oil market, plus the natural course of gold-seeking by panicky investors, plus the Bank of Japan intervention, plus the continued devaluation of the dollar (and palpable inflation), plus who-knows-what-else is in store for us, have all set the stage for precious metals to climb back to and past previous highs. Continued weakness in the S&P 500, DJIA and Wall Street, along with a general feeling of uncertainty about the overall global economic situation, will continue to drive more investors into precious metals. It's not a matter of if or when, because it's already happening. The only question you should be asking yourself is, "Where is my money?"
That is all for now,
Baxter
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