Recap of day 32

Good evening, readers.

Our precious metals investment continues to put serious distance between itself and our S&P 500 (Vanguard 500 Index Fund) investment, gaining 2.65% on the day, to lead Vanguard by almost $4,000. In 32 calendar days, our hypothetical precious metals investment has appreciated by 10%, while our Vanguard 500 Index Fund investment has yielded 1.1%. To put this in annualized terms, our precious metals are averaging a 75.85% yearly return, while our Vanguard 500 Index Fund is averaging a 13.20% return. Granted, it's still early in the game and things can quickly change, but why in the world would anyone invest in Wall Street, when Wall Street is paying less than 20% as well as precious metals? It's sheer, blissful ignorance...

Silver continues its unstoppable flight to $50, closing the day at yet another post-1980 high, and a little over $8.00 off the all-time nominal high. Silver has gained 36.5% already this year, and is on pace to gain more than 100% by the end of the year. What else can I say? If you're not buying silver, you're simply not interested in making money.

In other news, gold closed at a new all-time record today. No surprise here... We should see $1600/oz gold before July.

The S&P 500 closed up, gaining a whopping 0.01% today. I think I can actually hear crickets chirping over at the NYSE. With swirling rumors of QE3 abounding, we have yet to see the market pick up in response. Apparently, they want to see the money first.

I believe that there's a good chance (~80%) that silver will break $100 before the end of the year. This article today from ZeroHedge seems to confirm my suspicions:

Two weeks ago the precious metals space was closely following the fate of Sumitomo's San Cristobal mine, where a long strike had paralyzed work at the world's third largest producer of silver and sixth-largest producer of zinc. While the strike was eventually resolved with concession to the domestic workers, a far more troubling report from Bolivian daily La-Razon states that Bolivia's president Evo Morales is now planning on expropriating zinc, silver and tin mines sold off by previous governments. Bloomberg reports that "Morales will announce a decree May 1 to “dismantle the privatization model,” said Nicolas Fernandez, a spokesman for state mining company Corp. Minera de Bolivia, known as Comibol. "The government is recovering all the privatized companies,” Fernandez said today in a telephone interview from La Paz. “When the decision is taken, Comibol will be ready to manage these mines.”" Among the contracts to be affected are those with Glencore International AG, Pan American Silver Corp., and most importantly, Coeur d’Alene Mines Corp., which is operator of the San Bartolome mine: the world's largest pure silver mine. Notably San Bartolome and Sumitomo's San Cristobal "account for about 83% of the nearly 1.1M tons of fine silver Bolivia produced in 2009, according to Mining Ministry data" according to The Gold Report. If indeed this news is proven true, and we will know for sure in 16 days, looks for the price of silver to spike considering about 1.33 million kilograms of silver was produced in Bolivia 2009, according to the U.S. Geological Survey: an amount which will likely fall off a cliff following the utter chaos that is unexpected nationalization.

Like clockwork, silver responded to this news, and gained almost 4% on the day. I do get a little tired of repeating the same things over and over again, but... BUY PRECIOUS METALS!

The numbers:

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Day 27

Results upon NY close of trading -- April 14, 2011:

• Gold closed at $1,475.80 per oz, up $18.40 and 1.26% from yesterday. Silver closed at $42.18 per oz, up $1.52 and 3.74% from yesterday.
• VFINX closed at $121.16 per share, up $0.01 and 0.01% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 2.56%
• Profit for the day: $2,625.20
• Total percent return: 5.1%
• Total profit: $5,068.68

Total investment value: $104,990.46

Investment #2, Vanguard 500 Index:

• Percent return for the day: 0.01%
• Profit for the day: $8.34
• Total percent return: 1.1%
• Total profit: $1,092.54

Total investment value: $101,047.25

Advantage: Precious Metals, by $3,943.02

Days 29-31

Good evening, readers.

First, my sincere apologies for neglecting this blog over the past several days. I'm not going to make excuses, suffice it to say that I had been extremely busy with work and couldn't find the time to plug in the numbers, let alone write something useful or even remotely entertaining. With that out of the way, lets turn out attention to our hypothetical investments...

Since Friday, our precious metals have continued to beat our Vanguard 500 Index Fund investment, in spite of two significant down days in precious metals, yesterday and Monday. Our precious metals have now appreciated by more than 7% since we bought them, giving us a total return of 2.4% (remember the 5% premium we paid for them?), versus just 1.1% for our S&P 500 (Vanguard 500) investment.

As some of you may have seen before, I like creating charts in Excel to try and explain data and (ultimately) to make predictions. Therefore, I present the following two charts:

Snapshot of Vanguard 500 (S&P 500) Performance-to-Date
With Polynomial Regression Curve Indicating Expected Performance Through 4/30/2011

Snapshot of Precious Metals Performance-to-Date
With Polynomial Regression Curve Indicating Expected Performance Through 4/30/2011

This is not to say that by the end of the month our Vanguard will be at -4%, while our precious metals will be at +17%. What this says is that the best fit curve -- the R-squared value -- is fairly well-correlated to these data points. The important thing is to look at the trend, not the absolute value. The trend -- based on our totally arbitrary starting point -- for precious metals is decidedly upwards (with an ~89% correlation), while the trend for the S&P 500 is mostly downwards (with a ~75% correlation).

Over the years I've found that these charts are very good at predicting long-term movements, but not so good at predicting short-term values. How good are they at predicting short-term movements? Why don't we re-visit this in 17 days...

Here are the numbers, delayed, but hopefully worth it:

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Day 27

Results upon NY close of trading -- April 13, 2011:

• Gold closed at $1,457.40 per oz, up $3.70 and 0.25% from yesterday. Silver closed at $40.66 per oz, up $0.55 and 1.37% from yesterday.
• VFINX closed at $121.15 per share, up $0.03 and 0.02% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 0.84%
• Profit for the day: $851.41
• Total percent return: 2.4%
• Total profit: $2,443.48

Total investment value: $102,365.26

Investment #2, Vanguard 500 Index:

• Percent return for the day: 0.02%
• Profit for the day: $25.02
• Total percent return: 1.1%
• Total profit: $1,084.20

Total investment value: $101,038.91

Advantage: Precious Metals, by $1,326.16

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Day 26

Results upon NY close of trading -- April 12, 2011:

• Gold closed at $1,453.70 per oz, down $9.50 and -0.65% from yesterday. Silver closed at $40.11 per oz, down $0.11 and -0.27% from yesterday.
• VFINX closed at $121.12 per share, down $0.94 and -0.77% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: -0.45%
• Profit for the day: $-461.99
• Total percent return: 1.6
• Total profit: $1,592.07

Total investment value: $101,513.85

Investment #2, Vanguard 500 Index:

• Percent return for the day: -0.77%
• Profit for the day: $-783.96
• Total percent return: 1.1%
• Total profit: $1,059.18

Total investment value: $101,013.89

Advantage: Precious Metals, by $499.77

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Day 25

Results upon NY close of trading -- April 11, 2011:

• Gold closed at $1,463.20 per oz, down $11.80 and -0.80% from last week. Silver closed at $40.22 per oz, down $0.71 and -1.73% from last week.
• VFINX closed at $122.06 per share, down $0.34 and -0.28% from last week.

Investment #1, Precious Metals:

• Percent return for the day: -1.34%
• Profit for the day: $-1,332.98
• Total percent return: 2.1%
• Total profit: $2,054.06

Total investment value: $101,975.84

Investment #2, Vanguard 500 Index:

• Percent return for the day: -0.28%
• Profit for the day: $-850.68
• Total percent return: 1.8%
• Total profit: $1,843.14

Total investment value: $101,797.84

Advantage: Precious Metals, by $177.80

Day 26

Good evening, readers!

Very exciting news today in our little experiment: Our precious metals have overtaken the S&P 500, and are now winning by more than $1000! In just 25 days, our gold and silver has appreciated by more than 8.4%, while our S&P 500 investment (Vanguard 500 Index Fund) has appreciated 2.1% during this same time. Now bear in mind that our net return from precious metals is 3.4%, not 8.4%, because our hypothetical metals were bought at a 5% dealer premium, as is customary for physical delivery. Still, the fact that we bought our metals near a top in gold and when the S&P 500 was relatively weak (and thus making our Vanguard 500 investment less expensive), makes today all the more remarkable.

I'm pressed for time this evening, but tomorrow I'll post a detailed recap of the week's trading, and my preview of what we can expect next week, and sometime this weekend will be the second part of my long-awaited (and much delayed) article, Are Precious Metals Prices Headed for a Major Crash?

The numbers:

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Day 25

Results upon NY close of trading -- April 7, 2011:

• Gold closed at $1,475.00 per oz, up $15.90 and 1.09% from yesterday. Silver closed at $40.93 per oz, up $1.29 and 3.25% from yesterday.
• VFINX closed at $122.40 per share, down $0.68 and -0.55% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 2.21%
• Profit for the day: $2,237.43
• Total percent return: 3.4%
• Total profit: $3,387.04

Total investment value: $103,308.82

Investment #2, Vanguard 500 Index:

• Percent return for the day: -0.55%
• Profit for the day: $-567.12
• Total percent return: 2.1%
• Total profit: $2,126.70

Total investment value: $102,081.40

Advantage: Precious Metals (!), by $1,227.22

Recap of day 25

Hi There Readers!

This is Mrs. Bentley. Nice to meet you! Tonight Baxter is feeling a bit under the weather so I'm filling in to bring you the exciting news in the world of  hypothetical financial investments! Since I am not versed in the jargon or science of investing, I am here to bring you the numbers, sans discussion. Tomorrow I hope Baxter will be feeling more like himself, but if not I promise to keep you updated. It sure is exciting to watch these portfolios battle against one another! Let's see who won today!

The numbers:

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Day 25

Results upon NY close of trading -- April 7, 2011:

• Gold closed at $1,458.40 per oz, down $0.70 and -0.05% from yesterday. Silver closed at $39.64 per oz, up $0.13 and 0.33% from yesterday.
• VFINX closed at $122.90 per share, down $0.18 and -0.15% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 0.15%
• Profit for the day: $148.81
• Total percent return: 1.1%
• Total profit: $1,126.30

Total investment value: $101,048.08

Investment #2, Vanguard 500 Index:

• Percent return for the day: -0.15%
• Profit for the day: $-150.12
• Total percent return: 2.5%
• Total profit: $2,543.70

Total investment value: $102,498.40

Advantage: Vanguard 500 Index, by $1,450.52

Recap of day 24 (updated)

Good evening, readers!

I'd first like to extend a very warm welcome to our international visitors today from Switzerland, Singapore, Thailand, Zimbabwe, Greece, the Netherlands, Vietnam, South Africa, Canada, and a heartfelt thank you for visiting this blog. I know that the information presented here transcends international boundaries, but it still inspires me to look at my visitors and see so many from all over the world. Truly, we are all in this together, because the making of terrible economic and financial decisions is not the sole domain of the United States. I truly hope that this blog inspires you to prepare for the apex of the unstoppable global financial collapse that we're currently racing towards...

As predicted, gold and silver traded softly today, only gaining 0.16% and 0.59% respectively. A close this week above $1475 in gold and $40 in silver would be extremely bullish, but I don't expect that will happen this week, so we're looking to a Friday close above $1450 in gold and and $39.20 in silver. There's going to be a lot of profit-taking this week with both gold and silver trading at highs, so I expect that we will probably see down days tomorrow and Friday. It's a crazy world though, and with the shutdown of the U.S. federal government looming large on a deadline this week, it's possible that we could see strong upwards movement in both metals on Friday.

A lot happened in the world today, and there's nothing I'd love more than to discuss it all with you right now, but my wife is calling me to supper, so it will have to wait until later.

(updated)

I'm often asked by people who know that I closely follow the precious metals market, "If inflation is such a concern, why doesn't gold just keep climbing? Why does it only move along in spurts?"

There's a very simple answer, and that answer is "buy the dips and sell the tops!"

In any market where there is a great deal of speculation on what the future price may be (such as real estate, commodities, etc), there will always be those who seek to capitalize on short-term gains while minimizing losses. When gold (or silver) trades downwards sharply, some people see this as a sign that the "gold bubble" has finally burst. Other, much smarter people, see this as an opportunity to buy an asset that can only appreciate in the long-term. So, while the weak-hands are being scared off by the threat that the "gold bubble" is finally bursting, the smart money sits and waits... and waits... and waits some more. Then, when it seem like gold has finally reached it's short-term bottom, there is a rush of buying, which of course sends the price right back up as more investors see gold as less-risky. It's basically the "You first!" mentality... 

Once the price of gold finally pushes up to where there is an equilibrium between supply and demand (in the past 2 years this has almost invariably been at a new all-time high), it levels off a bit as investors wait for signals on whether they should buy more, or sell. If it looks like gold is about to make another big move upwards, they'll likely buy more. If it looks like the price of gold has pushed up against some resistance, then they'll likely sell their positions and take some big profits. When the price starts to move downwards, more and more investors start selling to try and capitalize on their short-term gains. None of this, of course, matters to us, because we own (hypothetical) physical metals and we'd be stupid to buy and sell these at a 5% premium just to capitalize on 3% movements... But for those who trade in gold and silver futures, this is their bread and butter, so to speak.

That's all for tonight, but I promise (promise!) that the long-awaited (and much asked for) part II of my article, Are Precious Metals Prices Headed for a Major Crash?, will be up by the end of this weekend.

For now, the numbers:

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Day 19
Results upon NY close of trading -- April 1, 2011:

• Gold closed at $1,459.10 per oz, up $2.30 and 0.16% from yesterday. Silver closed at $39.51 per oz, up $0.23 and 1.77% from yesterday.
• VFINX closed at $123.08 per share, up $0.32 and 0.26% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 0.38%
• Profit for the day: $381.11
• Total percent return: 1.0%
• Total profit: $977.49

Total investment value: $100,899.27

Investment #2, Vanguard 500 Index:

• Percent return for the day: 0.26%
• Profit for the day: $266.88
• Total percent return: 2.7%
• Total profit: $2,693.82

Total investment value: $102,648.52

Advantage: Vanguard 500 Index, by $1,749.45

Recap of day 23

Good evening, readers!

Today was an exciting one indeed in the precious metals markets! Gold set a new all-time closing high of $1,456.80, demolishing the previous high of $1,437.60, set way back on March 23rd of this year. Silver blew another 31-year high today, marking the 5th consecutive day of post-Hunt record setting, closing at $39.28. Over the past two days, gold has gained 1.92% and silver 3.73%, while the S&P 500 has averaged a 0.02% gain.

Today also marks an important milestone for us and our hypothetical investments... Today is the first day that our precious metals investments have become profitable!

Now I know that some of you are saying, "Big deal, your Vanguard investments have been profitable almost all along!", and while this is technically true, it ignores the fundamental reality of our investments. The reality is, we took an automatic 5% hit on our precious metals due to broker premiums, while no such premiums were charged on the shares of our Vanguard 500 fund. So, over the course of the past 23 days, while our Vanguard 500 fund has appreciated 2.4%, our precious metals have appreciated 5.6%, more than double the appreciation of our Vanguard 500 shares.

Way back when this blog first started, I predicted that our precious metals would overtake our Vanguard 500 index investment by the 2nd week of April. How's my prediction doing so far? Did you think I was pulling a random date out of a hat? The truth is, I've been analyzing the price movements of precious metals versus the stock market for a long time, and I've developed a pretty good ability to forecast emerging trends. My tweets from last week precisely predicted the movements of gold and silver this week, although admittedly I was slightly off in that I thought Tuesday would bring a higher percent gain for gold and silver than Monday, when in fact only gold posted a higher gain on Tuesday than Monday. All in all though, I was pretty much spot-on -- I predicted a gold close of just under $1450 and a close in silver just under $40.

Okay, I think this is enough shameless self-indulgence for one day. Although I'd love nothing more than to spice this post up with lots of links to articles, charts, quotes, and the like, I simply don't have the time, so the numbers will have to suffice.

I also wanted to add that you should feel free to add any questions or comments to any posts you see -- you can do so anonymously -- or send me an email (pm.vs.vfinx@gmail.com) if you'd prefer something a little more confidential. I have been getting a lot of traffic from all over the world -- Vietnam, Zimbabwe, Macedonia just to name a few from today -- but I'm genuinely interested in hearing what people have to say.

Now, the numbers:

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Day 19
Results upon NY close of trading -- April 1, 2011:

• Gold closed at $1,456.80 per oz, up $22.30 and 1.55% from yesterday. Silver closed at $39.28 per oz, up $0.69 and 1.79% from yesterday.
• VFINX closed at $122.76 per share, down $0.02 and -0.02% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 1.68%
• Profit for the day: $1,656.15
• Total percent return: 0.6%
• Total profit: $596.38

Total investment value: $100,518.16

Investment #2, Vanguard 500 Index:

• Percent return for the day: -0.02%
• Profit for the day: $-16.68
• Total percent return: 2.4%
• Total profit: $2,426.94

Total investment value: $102,381.64

Advantage: Vanguard 500 Index, by $1,863.68

Recap of day 22

Good evening, readers.

In case you hadn't already noticed, silver has quite the day today, gaining more than 2% over Friday's close and pushing it yet-again to a new post-1980s high -- the 5th consecutive one. Gold was somewhat more subdued, gaining 0.39%, but nevertheless precious metals (and crude) were the darlings of buyers today.

Since the beginning of this year, silver has returned 25.1%, and is on pace to have a near 100% return for 2011. I know it's early to be speculating about such things, but I'm certain that silver will successfully defend last year's title of Highest Performing Asset.

What else can I say? People said it was stupid to buy silver at $12/oz, and then $15/oz, and then $20/oz, and then $25/oz, and then $30/oz, because surely the silver bubble is going to burst soon. People, there is no silver bubble, silver has been in a long-term bear market for the past 30 years, and it's only been the last few years that it's began to appreciate to its appropriate value based on supply/demand. Adjusted for inflation, its current levels are not even close to record-breaking -- we'd need it to top $100 for that to happen. 

I can't help but think that, in 5-10 years, everyone who saw the awesome performance of silver, but sat idly by because they believed slick Wall Street fraudsters, who told them that investing in precious metals was strictly for fools, will be kicking themselves. Those who ignore an obvious opportunity, even when it's right in front of them, perhaps don't deserve its rewards. Maybe that's just a law of the universe...

The numbers:

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Day 19
Results upon NY close of trading -- April 1, 2011:

• Gold closed at $1,434.50 per oz, up $5.60 and 0.39% from last week. Silver closed at $38.59 per oz, up $0.76 and 2.01% from last week.
• VFINX closed at $122.78 per share, up $0.05 and 0.04% from last week.

Investment #1, Precious Metals:

• Percent return for the day: 1.22%
• Profit for the day: $1,192.72
• Total percent return: -1.1%
• Total profit: $-1,059.77

Total investment value: $98,862.01

Investment #2, Vanguard 500 Index:

• Percent return for the day: 0.04%
• Profit for the day: $41.70
• Total percent return: 2.4%
• Total profit: $2,443.62

Total investment value: $102,398.32

Advantage: Vanguard 500 Index, by $2,536.51

Recap of day 19

Good evening.

I'd first like to start out by providing you with two charts on the year-to-date silver performance, along with a projection for silver performance into the new quarter.

As anyone who knows me will tell you, I'm a bit of an obsessive when it comes to Excel. I use it for nearly everything in my life that is even remotely connected to numbers, such as how much weight I'm lifting at the gym, how many miles I've ridden on my bike, how many calories am I eating, how much I weigh, and how much are my investments worth right now.

Now bear in mind that I don't tirelessly input numbers of seemingly dubious relevance just for the sake of record-keeping. No, I most certainly have a mission, and that mission is prediction. With enough data, one can make all sorts of predictions, and depending on the reliability of the data collection method, do so with a very high degree of accuracy. I guess this would mean that I'm a technical analyst in my real life, and not just in the worlds of finance and economic. I like to know, for instance, how strong might I be in 4 months, based on my current weight-lifting exercise routine. Call me crazy, but I just like to know everything I can about anything that might be highly beneficial to me at some future point. Believe it or not, raw data of a sufficient quality and reliability, when processed correctly, can yield some amazingly accurate predictions. Needless to say I'm a huge believer that too much information is nearly impossible. How can one ever make a completely educated choice without all of the data?

In the first chart, we see the direction that silver is likely to follow, based on its performance to date. How likely is it to follow this trend? Well, that's basically what the R-squared number means -- it's the coefficient of determination. The R-squared number gives you a numeric representation of the correlation of the line to the data. In simple terms, it's the probability -- assuming past performance is a good predictor of future activity -- that the line is accurate. In this case, the line and the data are 83.5% correlated. So, assuming that previous data is reliable and the trend relatively constant, it's the probability of where silver is headed in the next quarter. 

Spot Silver Prices, 1st Quarter 2001, With Linear Regression (Projection of Performance) Through 2nd Quarter

Being that I have watched silver and gold for the past several years, and I've seen a consistent trend upwards in both metals, I know that the long-term future performance of gold and silver will be excellent. However, in the short-term, no one really knows. Nevertheless, I'm going to offer this chart as a prediction, because I've made many of these charts over the years and -- generally speaking -- they're pretty damn accurate. Silver will close at a minimum of $44.50/oz by the end of May of this year. Now I saw "a minimum" because I have yet another chart for you.

Spot Silver Prices, 1st Quarter 2001, With Polynomial Regression (Projection of Performance) Through 2nd Quarter

This is a polynomial regression, which entails a slightly different equation than that for a linear regression, but that -- in this instance -- has produced a "better fit curve" than the linear regression. According to this chart, this curve is 88.1% correlated to the price of silver based on its performance so far this year.

"Wait a minute! What's this madness", I hear you say. "Are you really telling me that you think silver will be over $55.00/oz by the end of May?"

My answer to this question is a quote from the good Reverend Lovejoy, "short answer yes with an if, long answer no with a but."

I'll leave you to ponder this until next time,

Baxter

The numbers:

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Day 19
Results upon NY close of trading -- April 1, 2011:

• Gold closed at $1,428.90 per oz, down $2.90 and -0.20% from yesterday. Silver closed at $37.83 per oz, up $0.16 and 0.42% from yesterday.
• VFINX closed at $122.73 per share, up $0.61 and 0.50% from yesterday.

Investment #1, Precious Metals:

• Percent return for the day: 0.12%
• Profit for the day: $115.27
• Total percent return: -2.3%
• Total profit: $-2,252.49

Total investment value: $97,669.29

Investment #2, Vanguard 500 Index:

• Percent return for the day: 0.50%
• Profit for the day: $508.74
• Total percent return: 2.4%
• Total profit: $2,401.92

Total investment value: $102,356.62

Advantage: Vanguard 500 Index, by $4,687.53