Baxter Bentley is Betting on Gold and Silver

Recap of day 32

2011-04-14T21:23:00.000-07:00

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:

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

2011-04-13T21:37:00.000-07:00

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:

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

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

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

2011-04-08T21:34:00.000-07:00

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:

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

2011-04-07T21:17:00.000-07:00

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:

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)

2011-04-06T18:41:00.000-07:00

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:

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

2011-04-05T18:46:00.000-07:00

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:

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

2011-04-04T21:30:00.000-07:00

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:

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

2011-04-01T22:48:00.000-07:00

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:

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

Recap of day 18 (updated)

2011-03-31T18:38:00.000-07:00

Good evening, readers. I'm going to post a recap of our investments' performance today, and then I'll be back a little later to discuss some of the day's important financial events, since there were so many!

(Updated):

So we had quite an interesting day today. Silver, continued to show why it's the investment of right now, reaching yet another 31-year high today, closing at $37.67 after coming within a few cents of $38.00 during intraday trading and picking up another 0.5% on the day. Gold, ever the steady tortoise, is gradually climbing up back towards it's all-time closing high, set on 3/23.

If I had to make a few prediction about what the precious metals markets will look like over the coming week, I'd wager that the combination of continuing middle east instability and concomitant surges in crude oil and the broadening realization that you can't pump trillions of dollars of liquidity into the market without the inevitable bout of crippling inflation, we'll see a new all-time high in gold, possibly even surpassing the tremendous psychological milestone of $1450. Silver will blow through $38.00 and land somewhere just under $40.00, before dropping back down to the levels we've seen in the past few days. A double-barrel shot of $1450 gold and $40 silver will provide tremendous momentum to precious metals prices going into the 2nd quarter of this year, sending a loud message that the almost mind-boggling performance of these two assets over the past 3 years will continue unabated.

Speaking of mind-boggling, I have to briefly mention this story from earlier today. The CEO of Wal-Mart, the big-box discount retailer du millénium, is warning U.S. consumers that they face "serious" inflation in the upcoming months.

[...]inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."

Along with steep increases in raw material costs, John Long, a retail strategist at Kurt Salmon, says labor costs in China and fuel costs for transportation are weighing heavily on retailers. He predicts prices will start increasing at all retailers in June.

That's all for tonight, thanks for reading,

Baxter

The numbers:

Day 18
Results upon NY close of trading -- March 31, 2011:

Gold closed at $1,431.80 per oz, up $8.00 and 0.56% from yesterday. Silver closed at $37.67 per oz, up $0.19 and 0.51% from yesterday.
VFINX closed at $122.12 per share, down $0.22 and 0.18% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 0.53%
Profit for the day: $517.96
Total percent return: -2.4%
Total profit: $-2,367.76

Total investment value: $97,554.02

Investment #2, Vanguard 500 Index:

Percent return for the day: -0.18%
Profit for the day: $-183.48
Total percent return: 1.9%
Total profit: $1,893.18

Total investment value: $101,847.88

Advantage: Vanguard 500 Index, by $4,294.06

Recap of day 17

2011-03-30T23:07:00.000-07:00

Good evening readers.

Today we saw a lot of up-and-down movement in the gold market, while silver made a relatively steady (but slow) gain up to it's highest ever post-1980 close. While gold eventually closed higher on the day, capping a 4-day losing streak, silver demonstrated with force that it is now an independent commodity, capable of moving regardless of what gold happens to be doing. This year, silver has gained 21.3%, while gold -- other than a spectacular record close of $1,437.60 on March 23rd -- has essentially drifted along, gaining only 0.2% as of this writing.

Look for continuing signs of strength in silver to indicate the next leg of a very strong upwards movement, which will soon see silver surpass $40, as long as it can avoid falling below $36 within the next week or so. Even still, $50/oz silver before July seems an inevitability, so if you're at all thinking about going in, now is the time. Even at today's price of $37.48/oz, silver is still a bargain, since it's so terribly undervalued relative to gold. The smart buyer will let the price of gold determine if the price of silver makes it an attractive investment, not just the fact that it's outperformed everything over the past few years. When silver and gold -- currently trading at 39:1 -- are trading around a 25:1 ratio, then the price of silver will be "fair." Even still, with gold also tremendously undervalued relative to the obscene amount of fiat currency in circulation, we can reasonably conclude that the precious metals bull market of the past 10+ years has no foreseeable end. To be sure though, when it finally does end, we will see gold and silver at prices previously unimaginable. Mark my words...

Now, the numbers:

Day 17
Results upon NY close of trading -- March 30, 2011:

Gold closed at $1,423.80 per oz, up $9.30 and 0.36% from yesterday. Silver closed at $37.48 per oz, up $0.35 and 0.94% from yesterday.
VFINX closed at $122.34 per share, up $0.82 and 0.67% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 0.66%
Profit for the day: $633.23
Total percent return: -2.9%
Total profit: $-2,885,72

Total investment value: $97,036.06

Investment #2, Vanguard 500 Index:

Percent return for the day: 0.67%
Profit for the day: $683.88
Total percent return: 2.1%
Total profit: $2076.66

Total investment value: $102,031.06

Advantage: Vanguard 500 Index, by $4,995.50

Recap of day 16

2011-03-30T22:52:00.000-07:00

Day 16
Results upon NY close of trading -- March 29, 2011:

Gold closed at $1,423.80 per oz, up $9.30 and 0.36% from yesterday. Silver closed at $37.48 per oz, up $0.35 and 0.94% from yesterday.
VFINX closed at $122.34 per share, up $0.82 and 0.67% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 0.66%
Profit for the day: $633.23
Total percent return: -2.9%
Total profit: $-2,885,72

Total investment value: $97,036.06

Investment #2, Vanguard 500 Index:

Percent return for the day: 0.67%
Profit for the day: $683.88
Total percent return: 2.1%
Total profit: $2076.66

Total investment value: $102,031.06

Advantage: Vanguard 500 Index, by $4,995.50

Recap of day 15

2011-03-28T19:06:00.000-07:00

Good evening readers. My apologies again for my neglect -- I've started a new job and it's difficult to pull myself away from my beautiful new art deco glass desk in order to write updates during work. Seriously though, it's nice to finally work somewhere that actually appreciates my talent for numbers.

Now, onto business...

First off, we have an absolute must read post over on ZeroHedge for those interested in understanding Why The European Union is Doomed. In short, a combination of factors, but at its foundation was the advent of "Neoliberal Capitalism", where:

Markets are opened specifically to benefit the central State and global corporations, and risk is masked by financialization and then ultimately passed onto the taxpayers...profits are privatized, losses are socialized, i.e. passed on to the taxpayers via bailouts, sweetheart loans, State guarantees, the monetization of private losses as newly issued public debt, etc.

This is a colonialism based on the financialization of the smaller economies to the benefit of the big banks and their partners, the Member States governments, which realize huge increases in tax revenues as credit-based assets bubbles expand.

The fact that the Euro is ultimately headed to failure should come as no surprise to many of you -- it's been obvious since late 2008 that the economic policies of the EU are simply unsustainable in the long-term, and that an eventual collapse of the Euro is the only possible outcome. When this happens, the dollar will no doubt surge as panicked European investors flock to the "safety" of the USD. Precious metals should also surge, as major European investors who no longer trust the stability of the USD will flock to their only remaining refuge: gold and silver. If the collapse of the Euro happens before the end of this year, then it will likely happen just after the summer, and we will likely see gold at levels exceeding $2000/oz and $75-100/oz for silver.

In the gold market, gold finished 0.65% lower than Friday's close, it's 3rd consecutive decline, after a report on U.S. consumer spending indicated that everything is back to normal, and the financial meltdown has been averted. Seriously though, if you believe that the United States can spend its way out of debt, then please stop reading my blog.

In silver news, I happened to catch a rare gem from CNBC, explaining that silver is undervalued compared to gold. Really?!?! Are you SURE?!?!?!(sarcasm)

Silver is about 16 times as plentiful in the earth’s crust as gold, according to John Stephenson, author of the “The Little Book of Commodity Investing.”

Yet, the price of gold per ounce currently trades at about 38 times that of silver.

According to the basic laws of supply and demand, especially given that the two metals are quite similar, the price gap between the two metals should be much smaller.

I don't know how the editors at CNBC.com let this one slip by, but clearly someone was asleep at the wheel. If the above weren't good enough, the article went on to tell us:

“It basically has the same physical characteristics of gold as a store of value and it also has an industrial kicker,” said Stephenson, a portfolio manager for FirstAsset Management in Canada. “For my money, the trade of the decade will be in silver. Gold was the best investment over the last decade, but in the future, silver will be the go-to investment for investors looking to ride out the current storms in the global economy.”

Historically, gold sells for about 30 times the price of silver. Since gold is currently selling at about 38 times, silver is undervalued by about 27 percent and should be closer to $47 an ounce instead of $37.

“In a world where the amount of paper fiat currency is staggering and increasing as governments from U.S. to Europe keep printing, it may be time to start looking at the poor’s man’s gold,” said Stephenson, who pointed out that while gold has exceeded its record price during the 1980s, silver is still way off the $68 per ounce level it reached during that time.

Of course, this should come as no surprise to those of us in-the-know, but the mere fact that CNBC -- usually a relentless Wall Street shill -- actually managed to report some factual data on precious metals, seems to indicate that a very deep and dark level of uncertainty is creeping up on Wall Street.

Silver has done very well so far this year, returning nearly 20% since January 1st, and I expect that this will continue for quite some time. Silver still stands alone as the single best performing asset for going-on the 3rd consecutive year. Something to think about when you suddenly find yourself with some extra cash...

That's all for tonight, so I'll leave you with the numbers for our investments:

Day 15
Results upon NY close of trading -- March 28, 2011:

Gold closed at $1,420.90 per oz, down $9.30 and -0.65% from last week. Silver closed at $37.15 per oz, down $0.17 and -0.46% from last week.
VFINX closed at $120.64 per share, down $0.34 and -0.28% from last week.

Investment #1, Precious Metals:

Percent return for the day: -0.55%
Profit for the day: $-534.77
Total percent return: -3.4%
Total profit: $-3,419.21

Total investment value: $96,502.57

Investment #2, Vanguard 500 Index:

Percent return for the day: -0.28%
Profit for the day: $-283.56
Total percent return: 0.7%
Total profit: $658.86

Total investment value: $100,613.57

Advantage: Vanguard 500 Index, by $3,859.98

Recap of day 12

2011-03-26T18:29:00.000-07:00

Greetings readers, my apologies for this late update.

Recapping the week, gold finished up $10.50 and 0.74% from last week's close, while silver posed a huge gain of $2.04 and 5.78% over last week, closing just $0.10 less than its 31-year high set on March 23rd. The total average percent gain over last week for our precious metals was 3.26% -- strong performance, even given that they closed lower than their peak highs this week.

Our Vanguard investment posted a gain of $2.71 and a respectable 2.29% increase over last week after unexpected strength in the S&P 500.

Tomorrow you can expect a full recap of this week's action, and part two of my article, Are precious metals prices headed for a major crash?

Until then, here are the numbers from Friday's trading:

Day 12
Results upon NY close of trading -- March 25, 2011:

Gold closed at $1,430.20 per oz, down $0.60 and -0.04% from yesterday. Silver closed at $37.32 per oz, up $0.15 and 0.40% from yesterday.
VFINX closed at $120.98 per share, up $0.39 and 0.32% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 0.18%
Profit for the day: $178.62
Total percent return: -2.9%
Total profit: $-2,884.44

Total investment value: $97,037.34

Investment #2, Vanguard 500 Index:

Percent return for the day: 0.32%
Profit for the day: $325.26
Total percent return: 0.9%
Total profit: $942.42

Total investment value: $100,897.13

Advantage: Vanguard 500 Index, by $3,859.98

Recap of day 11 (updated)

2011-03-24T16:59:00.000-07:00

Good evening, loyal readers.

I'm a little worn out from all of the action today, hopefully I'll catch my second wind and can provide some commentary on what transpired today.

(UPDATED)

Well, today was quite the wild ride in the precious metals market. After starting the day off trading sideways, gold and silver both exploded, gold to a new all-time high and silver to a new all-time post-Hunt Brothers high, before finishing the day on a loss.

It could reasonably be said that the drop in price was simply due to some "profit taking" by investors who felt that these metals had reached a short-term top, and looking at the 24 hour spot chart for gold and silver, you'll notice that gold and silver moved pretty well in tandem on their run ups and respective drops. This is the nature of precious metals -- volatility. A gain of 5% in one day is possible, and just as quickly the next day that gain can vanish. For our purposes, we're not going to concern ourselves with the day-to-day movements of gold and silver except for the sake of curiosity. We're in it for the long-term, if gold loses 5% tomorrow and silver loses 10%, it matters not to us, because the long-term trend is still looking very very good, and according to the Wall Street journal:

"This is a buying opportunity if anything," said Bob Haberkorn, senior market strategist with Lind-Waldock

The only thing that matters is the long-term performance of precious metals, and for the last 10 years the performance has been absolutely rock solid. There's no reason whatsoever to believe that anything will change anytime soon. So good days, bad days; whatever... All that matters is what our metals look like in 6 months, a year, 5 years, 10 years, etc. If you want the stability of small daily price movements, then perhaps the S&P 500 suits you better, you'd just better expect to lose money, because over the past 10 years the S&P 500 has only returned 1.6% and adjusted for inflation, it's had a return of -1%

Meanwhile, the fundamentals of gold and silver remain very strong, and gold and silver's current bull runs will continue unabated, as least as long as U.S. finances rate nearly worst in world, and the U.S. plunges headlong into a debt crisis of nearly unimaginable magnitude.

From CNBC:

In the Sovereign Fiscal Responsibility Index, the Comeback America Initiative ranked 34 countries according to their ability to meet their financial challenges, and the US finished 28th, said David Walker, head of the organization and former US comptroller general.

Walker predicted the US will have a debt crisis "within the next two to three years" and implored Washington lawmakers to "wake up."

Those who are in the know remain very bullish on gold, and with good reason. Articles such as this one from MSN Money, demonstrate succinctly the fundamentals that will continue to propel gold and silver ever upwards:

"You've got a lot of things that are stacked up in gold's favor right now," argues Adrian Ash, the head of research for BullionVault.com. "Monetary policy is way too loose across the world. . . . This is as bad as the negative real interest rate has been since the 1970s."

Ash says that for every 1% move in gold there is a 1.75% move in silver but that recently silver has outpaced gold five times over. "This is just nuts." Silver is playing catch-up to gold and has been increasingly more appealing to investors as a "cheaper" precious metal.

Ash fervently believes that gold is not a bubble and that people who say it is are "confusing longevity with speed." Gold has been in a bull market for 10 years versus its previous 20-year bear market.

I urge you, dear reader, to explore your investment options beyond those presented by your financial advisor. It never hurts to take an objective look at the alternative, and right now, the alternative continues to outperform Wall Street by a huge margin.

That is all for now, and so I'll leave you with today's numbers:

Day 11

Results upon NY close of trading -- March 24, 2011:

Gold closed at $1,430.80 per oz, down $7.30 and -0.51% from yesterday. Silver closed at $37.17 per oz, down $0.25 and -0.67% from yesterday.
VFINX closed at $120.59 per share, up $0.61 and 0.51% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: -0.59%
Profit for the day: $-574.09
Total percent return: -3.1%
Total profit: $-3,063.06

Total investment value: $96,858.72

Investment #2, Vanguard 500 Index:

Percent return for the day: 0.51%
Profit for the day: $508.74
Total percent return: 0.6%
Total profit: $617.16

Total investment value: $100,571.87

Advantage: Vanguard 500 Index, by $3,713.34

Recap of day 10

2011-03-23T15:23:00.000-07:00

Good evening readers.

I thought yesterday was an interesting day of activity and news in the financial world, but today has been even more so. Unfortunately, I don't have the time right now to comment on the day's stories, but I will post a more detailed summary of the performance of our two investments as an update to this post and a full recap of the day's most important financial news, later this evening. For the time being, the raw numbers for our investments will have to suffice.

Day 10

Results upon NY close of trading -- March 23, 2011:

Gold closed at $1,438.10 per oz, up $9.30 and 0.65% from yesterday. Silver closed at $37.42 per oz, up $1.04 and 2.86% from yesterday.
VFINX closed at $119.98 per share, up $0.35 and 0.29% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 1.76%
Profit for the day: $1,686.65
Total percent return: -2.5%
Total profit: $-2,488.97

Total investment value: $97,432.81

Investment #2, Vanguard 500 Index:

Percent return for the day: 0.29%
Profit for the day: $291.90
Total percent return: 0.1%
Total profit: $108.42

Total investment value: $100,063.13

Advantage: Vanguard 500 Index, by $2,630.51

Recap of day 9

2011-03-22T16:30:00.000-07:00

Good evening readers, today was quite an interesting day in the financial world!

Borrowing from an article over at ZeroHedge, it seems that a certain bank with the initials of JPMC believes that the failure of the Portuguese government is now imminent, and will likely happen this week, and possibly as early as tomorrow. This probably will have little negative effect on the price of gold, even though it's likely to spur dollar buying and an increase in the USDX, because the USDX has had only a marginal effect on gold prices as of late, and very little effect on silver prices. The probability of "panic" gold buying and strong upwards movements in gold if the government of Portugal does fail cannot be discounted. So, we'll just have to wait and see how things play out this week. One thing is certain though, a default by Portugal most certainly will not bode well for the S&P 500, since it's already trending downwards sharply, and a Eurozone sovereign default clearly flies in the face of the (ludicrous) belief that there is any sort of economic recovery occurring, anywhere.

In other financial news, inflation fears seem to be spreading beyond the control of the Federal Reserve. The Fed has long postured that inflationary pressures would be "transitory." Nevertheless, finance professionals around the world are starting to seriously doubt the Fed's ability to limit inflation to their target of 2% annually. Meanwhile, on the other side of the pond, inflation levels in the UK have skyrocketed to the highest levels seen in 20 years. This news, while bad news for consumers, is very good news for gold investors, since gold is always seen as the last refuge and protection against rampant inflation.

Finally, in yet another sign that Wall Street banks are not only entirely clueless to the fact that they are currently vacationing aboard the Titanic, but also expect endless government handouts in the form of Quantitative Easing ("money printing") to infinity, Bank of America is painting a rosy picture of an S&P 500 on target to hit 1400, just as soon as it drops 10% more. I wonder precisely where optimism ends and delusion begins?

Turning our attention towards our investments, we see that precious metals did fairly well today. Gold is slowly but surely creeping back up to the highs we saw earlier this month, while silver continues to shred anyone and anything that tries to get between it and $50/oz, closing at a new 30 year high of $36.38, up a staggering 16% since the beginning of the year! Had we not been saddled with such stiff 5% premiums on our precious metal purchases, today would have marked the second consecutive day that our gold and silver investment traded in the black (-4.6% yesterday and -4.2% today).

Our Vanguard 500 Index fund (remember, it's based on the S&P 500) continues to trade sideways, this time losing 0.3% and edging back into the red. Look for the possibility that our metals may surpass our Vanguard 500 Index fund within the next week or two, if BofA's predicted 10% drop in the S&P 500 does indeed materialize.

That's all for tonight, but I'd like to remind you that if you haven't yet had a chance, please check out my post from last week, Are precious metals headed for a major crash? -- I think it's an excellent introduction to a subject that a lot of investors are uncertain. Part two will follow this weekend...

Day 9

Results upon NY close of trading -- March 22, 2011:

Gold closed at $1,428.80 per oz, up $1.70 and 0.12% from yesterday. Silver closed at $36.38 per oz, up $0.28 and 0.78% from yesterday.
VFINX closed at $119.63 per share, down $0.41 and -0.3% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 0.45%
Profit for the day: $427.33
Total percent return: -4.2%
Total profit: $-4,175.62

Total investment value: $95,746.16

Investment #2, Vanguard 500 Index:

Percent return for the day: -0.3%
Profit for the day: $-341.94
Total percent return: -0.2%
Total profit: $-183.48

Total investment value: $99,771.23

Advantage: Vanguard 500 Index, by $4,025.26

Recap of day 8

2011-03-21T23:36:00.000-07:00

Good evening readers, my apologies for such a late post, but I've had friends here from out of town and was attending a professional sporting event. Unfortunately, I'm simply too tired to write a detailed report on the performance of our two different investments, although you can expect a detailed post tomorrow night on the market forces driving up the price of gold and silver, and propping up the S&P 500.

Today we turned a profit on our Vanguard 500 Index investment, we're now in the black. Precious metals still need to catch up to where they were the day we bought them, keeping in mind that I started this experiment when gold and silver were both trading right near record high levels.

If you haven't had a chance yet, check out my post from last week, Are precious metals headed for a major crash? -- I think it's an excellent introduction to a subject that a lot of investors are uncertain.

Day 8

Results upon NY close of trading -- March 21, 2011:

Gold closed at $1,427.10 per oz, up $7.40 and 0.52% from last week. Silver closed at $36.10 per oz, up $0.82 and 2.32% from last week.
VFINX closed at $120.04 per share, up $1.77 and 1.5% from last week.

Investment #1, Precious Metals:

Percent return for the day: 1.42%
Profit for the day: $1,332.10
Total percent return: -4.6%
Total profit: $-4,602.95

Total investment value: $93,986.73

Investment #2, Vanguard 500 Index:

Percent return for the day: 1.5%
Profit for the day: $1,476.18
Total percent return: 0.2%
Total profit: $158.46

Total investment value: $100,113.17

Advantage: Vanguard 500 Index, by $4,794.53

Are precious metal prices headed for a major crash? (Part 1 of 2)

2011-03-19T19:15:00.000-07:00

Note: For the sake of simplicity, and since gold and silver nearly always move upwards or downwards in tandem, throughout this article, unless otherwise noted, the term “gold” is used interchangeably to mean both gold and silver.

Although you’d hardly know it to read the Wall Street Journal or to watch CNBC, for the past two consecutive years, gold and silver have been the top performing assets, besting every other commodity, the S&P 500, tech stocks, mutual funds, and every other common investment vehicle. More strikingly, over the past 10 years, the price of gold has grown from a low of $255.50 in 2001, to a high of $1,435.70, reached early this month; an 18.9% annual rate of growth with a total 10-year growth of 561.9%. While at the same time, the price of silver has seen steady growth from a low of $4.02 in 2001, to a high of $36.13, reached earlier this month, representing a 24.6% annual rate of growth and a total 10-year growth of 898.8%.

$1000 invested in gold in 2001 would be worth nearly $6,000 today, and that same $1000 invested in silver would be worth nearly $9000. By comparison, $1000 invested in the S&P 500 in 2001 would have earned a profit of a mere $1.60.

Why then does gold attract so little attention by investors? Why are so few invested in such high-performing assets (gold accounts for only 0.3% of global investment )? Perhaps it’s due to the fact that, for the most part, the only time gold gets any real attention in the mainstream financial media is when there’s a significant price drop or a week or two of sideways trading. When this happens, just like clockwork, armies of pundits will crawl out of the woodwork to loudly declare that gold might be in a bubble. Here's an example of such, from our trustworthy friends at the London Telegraph, published on March 8th, when spot gold closed at $1,428.90 and spot silver closed at $36.06:

Patrick Connolly, of the financial adviser AWD Chase de Vere, said: "There continue to be bullish statements and bold predictions about gold and the assumption that the returns seen over the past decade are now the norm. There were similar sentiments in 1999 about technology stocks, and the belief that the only way was up."

As he pointed out, there is a real danger that this could be a "gold bubble", and when prices do fall - which they will at some point - the correction could be far sharper and last longer than many people expect. He added: "It's easy to forget that gold prices can go through prolonged downturns. During the Eighties and Nineties, the price of gold fell by 70pc."

Martin Bamford, a chartered financial planner with Informed Choice, said: "Investors are understandably concerned about inflation at present. But there is a real risk that those now buying gold are doing so at the top of the market and will end up making losses when prices fall."

He added that investors should remember that gold does not produce any income, in terms of either interest or dividends, so returns are based solely on capital growth. He said: "It can also be difficult to access as an asset class: many people end up buying funds that are largely invested in mining stocks, which don't always reflect gold prices accurately."

This week, as it has been so many times before over the past decade, a temporary weakness in gold (I only mention gold because silver is almost never discussed -- it’s much easier to simply pretend that it doesn’t exist, and that the huge gains over the past few years simply didn’t happen), and a significant drop in price, was again seized upon in an effort to intimidate those who haven’t fully excommunicated themselves from the religion of Wall Street, because as we all know, fear is the weapon of choice for any religious fanatic.

Perhaps no better is this demonstrated than by this March 16th gem from CNBC, noting not only that gold (apparently unequivocally) is in a bubble, but that this bubble is finally on its way to bursting:

Gold is currently in a bubble and investors need to apply some common sense when trading it, as it will likely fall on interest rate tightening, according to Yogi Dewan, the Founder and CEO of Hassium Asset Management.“Back in the 1990s gold traded at $400 an ounce. It hit $253 in 2001 and is now trading at $1,400 an ounce,” Dewan told CNBC.com on Wednesday.

“This is a bubble and a fear trade,” he said. “As soon as the recovery takes hold and the interest-rate cycle changes you will see mass outflows from gold into riskier assets.” When this happens, gold will head back towards $1,000 an ounce, he said.

I can only imagine what surely must be their gleeful revelry as they celebrate that all of the crackpots, loonies, and financial doomsayers who have invested in precious metals will soon get their comeuppance for failing to believe in the dogma of Wall Street’s infallibility and invincibility, and the supreme wisdom of the Federal Reserve. Keynes has been vindicated once again, and all is well in the universe. That is, until gold inevitably picks back up again and smashes through its prior resistance level...

With gold garnering so much negative attention in spite of its stellar performance, this nonsense tends to lead one to ask oneself, “Why does Wall street hate gold so much?”

As best as I can tell, based on what I’ve gleaned from the self-imposed limited contact I’ve had with these types, the typical “Wall Streeter” subscribes to a particular (and peculiar) religion. This particular religion sees gold as an obsolete relic of a time before civilization, before the dollar was the supreme ruler of the universe, and before nearly incomprehensible wealth could be created instantly from thin air, as needed.

Gold is the antithesis of their faith, and so like all religious fanatics, they attack it with the same combination of contempt and hatred that has been used since the beginning of time to malign and persecute those with with the “wrong” religious beliefs. They attack when they sense weakness, preying upon the natural fears of the enemy, while simultaneously reassuring their brethren that they’ve not chosen the wrong religion and that their holy trinity of the dollar, the S&P 500 and the DJIA, is and shall always be supreme. These attacks continue for as long as weakness in gold is seen, but then, when precious metals inevitably begin to rise again, their sermons are silenced. For yet again, they are forced to accept that return of their messiah is not now, but of course is still nigh, and so they grudgingly retreat to Park Avenue penthouses to eagerly await His return. Occasionally, they will briefly emerge, when gold seems about to break through record highs, to issue dire warnings about the foolishness of belief in anything but Wall Street, and the hellfire of eternal economic damnation that awaits the non-believers, before vanishing once again.

Their faith is puzzling however, given that over the past 10 years, the dollar (USDX) has had a negative annual growth of 4.2% with a total 10-year decline of -65.5%. In just 10 years, nearly two thirds of the value of the dollar has evaporated, and the 10 year annual growth rate of the S&P 500 has been a mere 0.16%. I’ll refrain from making a direct comparison of the performance of gold and silver in real dollars to Wall Street’s real dollar performance, lest I provoke a holy war with the other side.

Perhaps their faith, which had been waning, has been re-energized by Wall Street’s performance over the past two years, where the S&P 500 has seen an annual growth rate of nearly 31%. Surely though, they must recognize the correlation between the Fed’s money printing program, or Quantitative Easing (QE), and the sudden positive reversal on Wall Street, right? They cannot possibly believe that this is merely a coincidence, and so it must be reasoned that they know that the market’s recent strong performance is merely a product of a lot of extra cash floating around. If this is true, then it must also be true that they believe that the momentum that the Fed has injected into the market is self-sustaining, otherwise what would be the point of propping up the market only to let it fall back down?

Clearly though, there is no economic recovery, and Wall Street’s recent performance is absolutely no reflection of the economy as a whole. This is patently obvious because widespread unemployment continues unabated, food stamp participation is at an all time high, the national debt is over $14 trillion dollars (and growing by more than $40k per second). Moreover, California, New York, Illinois, and numerous other heavily populated states are essentially bankrupt. Municipalities across the country have been forced to consider filing bankruptcy, or have already filed. Thus, one is left to wonder how Wall Street expects the market to continue its recent performance, when all signs point to down; unless of course they are hoping for and expecting an endless series of liquidity injections, courtesy of the Fed, to maintain market performance and stability.

To be sure, the timid investor, who may have been considering buying precious metals will certainly be dissuaded by the propaganda against gold, and the uneasy investor who isn’t already mostly certain that he made the right choice by investing in precious metals is probably going to take a second look at his decision. It is certain that people who, lacking either common sense or critical thinking or both, are so easily influenced by “authority figures” and succumb easily to fear. Fear appeals to our most primal emotion, and since fear is the antagonist of logic and reason, these people will ignore facts and perhaps even their own intuition, in favor of protecting themselves from the perceived impending doom that they may soon face.

Then again, there are those of us who aren’t persuaded by fear. We cannot be bullied, only bargained with. We believe that right now, precious metals are simultaneously the most profitable and the safest investment vehicle available. We have reached this conclusion not because we were born with an affinity for shiny things, but because at some point the realization dawned on us that Wall Street is a scam. Wall Street doesn’t exist to make the average investor wealthy, it exists to extract as much money from the average investor as possible by promising big returns, if only the investor is patient. The only real wealth that is created is created for Wall Street, as endless cycles of boom and bust part small-time investors -- those who actually work for a living -- from their hard earned money.

In part two of this series, I will put forth what I believe is a most-compelling case for the investment in and ownership of precious metals, I will detail the reasons why every investor needs to make precious metals a significant portion of their portfolio, and I will offer a point-by-point repudiation of the fallacious arguments against investing in precious metals, such as have been foisted upon us by the religion of Wall Street.

Recap of day 5

2011-03-18T15:20:00.000-07:00

Greetings readers, what an interesting day we've had! Radiation from Japan detected in California, imminent "war" with Libya, and a major Wall Street bank is now openly advising its clients to short U.S. Treasuries!

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

Total investment value: $93,986.73

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

Total investment value: $98,636.99

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

Recap of day 4

2011-03-17T20:01:00.000-07:00

Greetings, friends, and a happy St. Patrick's day to you, if that's your thing!

Today saw an unexpected gain in the S&P 500 and the dollar, in spite of reports that the S&P is in the midst of a downward correction, buoyed by the Bank of Japan's buying of billions of US dollars with newly printed money, and their announcement of ¥10 trillion in earthquake recovery bonds. A summary of the ongoing fiasco and its implications for the global financial market can be found on ZeroHedge.

The push in the S&P 500 added a little bit to our Vanguard 500 Index, while continued weakness in precious metals saw gold rise only slightly, with silver dropping a few cents. However, as I write this, gold is up close to 0.50% and silver is up over 1.50% in after hours trading on the Hong Kong and Sidney global markets, so we'll see how things look tomorrow in holding my prediction of a Friday close of $1405-1410 in gold and just under $35 in silver.

With that out of the way, here are the numbers March 17, day 4:

Day 4

Results upon NY close of trading -- March 17, 2011:

Gold closed at $1404.00 per oz, up $2.50 and 0.18% from yesterday. Silver closed at $34.23 per oz, down $0.03 and 0.09% from yesterday.
VFINX closed at $117.76 per share, up $1.55 and 1.3% from yesterday.

Investment #1, Precious Metals:

Percent return for the day: 0.05%
Profit for the day: $43.53
Total percent return: -7.9%
Total profit: $-7,848.06

Total investment value: $92,073.72

Investment #2, Vanguard 500 Index:

Percent return for the day: 1.3%
Profit for the day: $1,292.70
Total percent return: -1.7%
Total profit: $-1,743.06

Total investment value: $98,211.65

Advantage: Vanguard 500 Index investment, by $6,138.12

I know that many of the gold naysayers are quietly nodding to themselves with smug superiority, because for the moment the Vanguard 500 Index investment is beating the pants off of precious metals, which remain choppy and continue to trade sideways. However, this is merely a temporary setback, and I'll explain why.

The Bank of Japan, the Japanese Central Bank, has injected a total of 60.6 trillion Yen over the past week. Since Japan is heavily invested in dollars, the additional dollar purchasing will be a strong upwards force on precious metals, valued both Yen and Dollars, due to concerns about inflation. Additionally, gold prices have been moving in tandem with oil prices, and the escalation of the conflict in Libya and the the inevitable military action against Gaddafi's Libya, will exert a very strong upwards pressure on gold and ultimately silver, as silver follows its bigger brother's lead. This will be compounded if Gaddafi -- as many expect -- orders the destruction of the Libyan oil fields and infrastructure, resulting in an explosion of oil prices well past 2008 records, and pushing gold and silver into new record highs.

So, even with the present weakness of gold and silver, I remain unfazed. Precious metals will prevail, and I'm looking for late April or early May for our precious metals investment to overtake our Vanguard 500 Index investment.

That is all for this evening,

Baxter

Recap of day 3

2011-03-16T21:22:00.000-07:00

Alright people, here we go with our first daily recap post for the performance of our investments. I'm going to launch right into the numbers. In subsequent posts, I will try to provide what I hope will be an explanation for the day's numbers. Also, in upcoming posts I'd like to take a bit of time to discuss the extremely shaky foundation that we presently find our entire global system supported by, and the potentially dire outcomes when this foundation eventually crumbles. Unfortunately this evening, I'm a bit pressed for time, so this one is going to be a just-the-facts-ma'am sort of post. When you read these quotes, please remember that they are the New York Spot Price close, not the futures price.

Here are the numbers for March 16, Day 3:

Day 3

Results upon NY close of trading -- March 16, 2011:

Gold closed at $1401.50 per oz, up $5.80 and 0.42% from yesterday. Silver closed at $34.26 per oz, up $0.02 and 0.06% from yesterday.
VFINX closed at $116.21 per share, down $2.30 and -1.9% from yesterday.

Investment #1, Precious Metals

Percent return for the day: 0.24%
Profit for the day: $219.62
Total percent return: -7.9%
Total profit: -$7891.59
Total investment value: $92,030.19

Investment #2, Vanguard 500 Index

Percent return for the day: -1.9%
Profit for the day: -$1,918.20
Total percent return: -3.00%
Total profit: -$3,035.76
Total investment value: $96,918.95

Advantage: Vanguard 500, by $4,888.95

As you can see, we made back a tiny bit of money in our precious metals, and our Vanguard investment lost about $2k. So, what was a $7k edge yesterday by Vanguard over our metals has dropped down to just under $5k. I expect this trend will probably continue through the end of the week, as precious metals bounce back from the tremendous beating they took on Tuesday, and by close on Friday gold will be trading in the $1405-1410 range, with silver edging right up near $35. Continued weakness in the S&P 500 will lead to a few dollars drop in our Vanguard investment, and I wouldn't be surprised to see our VFINX trading at the $110 level by close on Friday.

These "predictions" of course are somewhat meaningless, since the events in Japan are nearly unprecedented in terms of their impact on the global financial market. So, I could be entirely off the mark. Thus, I make no promises as to my accuracy as a prognosticator.

Since I didn't post anything for the previous trading days, you can click here for a recap of Day1, and here for a recap of Day 2, and just as a reminder, the entire performance to date for each investment, broken down by day, can be found by clicking on the Play by Play (Stats) tab at the top.

Goodnight,

Baxter

The making of our mutual fund investment...

2011-03-16T20:42:00.000-07:00

Since this is a blog primarily dealing with precious metals, I'm going to keep the narrative about the purchasing of our imaginary Vanguard 500 Index Fund shares to a minimum.

Suffice it to say, we called the 1-800 number for Vanguard, were told that there would be no up-front fees, and that given the amount of money we would be investing, we'd receive a discount on our expense ratio from the normal 0.18% to 0.07%. The price quoted to us per share was $119.85, and with $100,000 of our pretend money, we were able to purchase 834 shares. We wired the funds to Vanguard, the account was setup, and now we're good to go.

Huzzah.

A brief introduction...

2011-03-16T12:09:00.001-07:00

First and foremost, this blog is not intended to denigrate Vanguard. Rather, its purpose is to demonstrate that investing in hard assets, especially precious metals, is the most prudent long-term investment that one can make at this time. In the past few years, the Vanguard 500 Index (VFINX) has offered investors a steady rate of capital growth, as it mirrors the performance of the S&P 500. Additionally, VFINX offers a low expense ratio, a low minimum investment, no up-front fees, and no commission charges. If one were inclined to invest in paper assets, they should certainly take a serious look at VFINX.

With that in mind, I’m going to make a bold statement: If you’re a long-term investor (such as a person investing for retirement or a child’s college education, as opposed to someone looking to profit from short-term market movements) then you should absolutely not be investing any significant amount in paper assets! This includes CDs, savings accounts, money market accounts, stocks, bonds, mutual funds, exchange traded funds (including exchange traded precious metal funds), or any other paper asset. Due to a number of factors affecting the market right now, and which I will be discussing in later posts, I believe that paper assets are extremely overvalued at this time. I believe we are heading for a major market correction on the order of the DJIA losing several thousand points. Losses will be staggering, and this will likely trigger a financial meltdown not seen since the Great Depression.

If you are looking to make some money on precious metals in the short term, then gold and silver ETFs are an easy way to get into the market without having to find a precious metals dealer, pay a substantial premium, and figure out how and where to store any physical precious metals. They're also easy to liquidate and can be utilized to take advantage of large up and down movements in the precious metals market. However, their potential as a long-term investment is dubious, since it's rumored that gold and silver are over-leveraged (possibly on the order of 100x) in some of these funds. A wise investor who wishes to invest in precious metals for the short and long term would do well to split their investment partially into physical metals and partially into ETFs.

So what is the purpose of this blog? Well, at the very least, this blog is intended to demonstrate that investing in physical precious metals will be more profitable in both the short-term and long-term than any class of paper assets. It's intended to demonstrate that physical ownership of precious metals is not an investment strategy for weirdos, loonies or doomsayers. Rather, it's a strategy built upon realizing that gold and silver ownership is the only absolute guarantee of long-term wealth preservation and creation. My goal is to explain these things to you in a way that is easy to understand, so that you can make an informed decision as to whether or not investing in physical precious metals is appropriate for you.

On market trading days, I will provide a daily update on the performance of our two hypothetical investments. Sometimes there will be charts, or spreadsheets, or quotes from sources that I deem as credible, and sometimes there will even be math, but I promise not to bury you in numbers or mundane chatter, and I promise that I will strive to maintain this blog as a source of information that is easy to understand, even for a person with no real understanding of economics, finance, or investing. I also promise to keep the speculating to a minimum.

I will also be writing articles on current events and how they could reasonably be expected to affect the financial world, as well as articles on finance and economics-related subjects that I think readers of this blog might find interesting or useful. Also, just as a reminder, all performance data can be found on the Play by play (Stats) page. This page contains a recap of the daily performance of both investments, starting from the first day.

I hope that you will give the ideas that I present here a fair appraisal.

Thank you,
Baxter

First Post: Setting up our gold and silver investment

2011-03-14T23:43:00.000-07:00

(Foreword)

I’m going to launch right into some numbers. I know there are probably a lot of you who (think that you) hate math, but try to bear with me. After I get the numbers out of the way, I’m going to explain how to buy gold and silver, what to look for, and what you can expect. Hopefully this will help make some sense out of the number that I posted. For now, don’t concern yourself with trying to understand everything that is being presented. Just try and follow along…

(Glossary)

First off, I should explain what “spot price” means. Spot price basically means the current (immediate, right now!) price of a commodity (a commodity is simply some physical good for which there is demand, such as gold, oil, corn, wheat, soybeans, etc) which is available for immediate delivery. Spot price is determined by the ratio of buyers to sellers. When the commodity market is heavier with buyers than sellers, then the spot price of the commodity rises. Conversely, when the market is heavier in sellers than buyers, then the spot price of the commodity falls. It’s the law of supply and demand: When demand is greater than supply, the price increases, and when demand is less than supply, the price decreases. With that in mind…

(Prices)

Today’s New York closing spot price for gold was $1,428.80. So, with the hypothetical $50k we’ve set aside to invest in gold, and with our broker charging us a 5% commission, we have bought 33.3 imaginary ounces @ $1,500.24 per troy ounce, for a total of $49,958. Silver closed today at $35.94 per ounce, and with our broker charging us the same 5% commission, with the hypothetical $50k we have set aside for buying silver, we have bought 1324 imaginary ounces @ $37.74 per troy ounce, for a total purchase of $49,964. Thus, the initial value of our precious metals is the spot price of gold times the number of ounces bought plus the spot price of silver times the number of ounces bought, which comes out to $95,164.

Represented mathematically, the calculation of our precious metals investment value would be:

($1428.80 per ounce of gold * 33.3 oz) + ($35.94 per ounce of gold * 1324) = $95,164 total dollar spent

(Panic!)

Some of you may be wondering: “Where’s our other $4k plus change? We had $100k to start with, right?”
That went into our broker's pocket as commission...

“What, are you kidding me? It’s only the first day and we’ve already lost nearly $5000?!?!”
Well, there are two answers.

1. Unfortunately, yes.

AND

2. Don’t worry about it, because we’re in this for the long-term! If we anticipate first-year annual returns of at least 5% in our precious metals investment (as a point of reference, silver returned more than 80% last year and gold returned just under 28%), then we have nothing to worry about, because, there would be no net loss.

I know, I know, a lot of you out there are shaking your heads in disbelief… “Gold and silver have topped! The time to buy was years ago when they were cheap” Stick around here long enough and I promise you’ll start seeing things differently.

(Acquisition)

We’re now going to discuss the acquisition of our physical precious metals for our investment. There are many ways to purchase these, but the most straightforward is to simply place an order with a broker, either online or in person. Most brokers charge a premium (commission) ranging anywhere from 3% to 10% (or more) for precious metals, depending on the specific investment vehicle being purchased (coins, bars, etc). There are benefits and drawbacks for each instrument -- bars and coins. Bars usually have a lower premium than coins, but coins tend to have better liquidity. Additionally, bars are worth considerably less than their spot value if a certificate of assay is not included which matches the serial number on the bar. For the most part, we will only be concerning ourselves with bullion bars, except for the fraction of an ounce we'll need to top off our investment...

For those who are unfamiliar with gold bullion bars, all gold bars are stamped with the manufacturers name, the weight (in troy oz) of the bar, the purity of the gold (ideally 99.9999%, also called “four-nines”), and an individual serial number, on the bar. Generally, these bars come in sealed packages also containing a certificate of assay -- this is a document certifying that chemical tests have been conducted on the gold used in the bullion bar, which qualify and quantify the purity of the gold. Bullion bars are available in a variety of weights, from 1oz all the way up to 1kg, and from a number of bullion manufacturers. For this scenario, we’ll pretend that we have purchased 33 Pamp Suisse 1oz gold bars, and 3 Canadian “Maple Leaf” 1/10oz gold coins, for a total of 33.3 troy ounces. (Tip: Most reputable dealers will charge a higher premium for coins than for bars, often around 8-10% or more, but they will often waive the extra if you're placing a large order for bars and only buying a few coins -- ask for the discount!)


Pamp Suisse 1oz .9999 Bar (We've paid an imaginary $1,500.24 for each of 33)

Candaian "Maple Leaf" 1/10 oz .9999 Coin (We've paid an imaginary $157.53 for each of 3)

Aside from the obvious differences, silver bullion is a little different than gold. For starters, gold, being essentially inert (“non-reactive” with most chemicals), can be refined to a very high purity. Silver, however, because of its high chemical reactivity (it readily donates electrons in redox reactions, in case you were wondering), is usually only 99.999% (“three-nines”) pure. Silver bars are also often found with a coating of silver oxide -- a result of the reaction between silver and oxygen present in our atmosphere. This is simply what is referred to as “tarnish”, and is usually manifested as a grayish color. Thankfully, “tarnish” does not affect the value of silver.Secondly, silver is much harder than gold. Gold coins and bars can be damaged by rough handling and generally need to be protected in a clear, hard plastic case of some sort. Silver can be handled without worry, and in fact it's not uncommon to see some large (100oz or greater) bars with small dents from being accidentally dropped on a hard surface.


Engelhard 100oz Bar (We've paid an imaginary $3774.00 for each of 13)

Engelhard 1oz Bar (We've paid an imaginary $37.74 for each of 24)

Like gold, silver is available as both bars and coins, but for the purposes of our hypothetical investment and for the sake of simplicity, we’re only going to concern ourselves with silver bars and not coins. This is just for the sake of simplicity. In all fairness, silver bullion coins are just as valuable as their bar counterparts and have the added benefit of (usually) greater liquidity. Like gold, silver bars are stamped with the manufacturer’s name, the weight of the bar, the purity, and a serial number. With our imaginary $50k, we’ll be purchasing 13 Engelhard 100oz bars, and 24 Engelhard 1oz bars, all of 99.999% pure, for a total of 1324 troy ounces. Again, as with gold, dealers will often charge higher premiums for smaller weight bars. If you’re buying a large quantity of silver with just a handful being small bars (or coins), then ask for the discounted price.

(Conclusion)

Now that we have our imaginary metals, we're going to sit tight. And while we're in this for the long-term, it certainly doesn't mean that we don't get to enjoy the occasional thrill of a day where gold gains 2% and silver gains 4%. Of course, there will also be days when gold loses 2% and silver loses 4%. I guess my point is not to get too worked up about daily movements -- think long-term. All that matters is that gold and silver have more up days than down, and if the past 10 years are any indication, they most certainly will.

Tomorrow after the NY closing bell, I'll post the numbers for gold and silver, and we'll see where we're at with our hypothetical investment. Keep in mind that gold and silver need to gain 5% before we breakout and turn profitable, but fear not, because I see that happening before the 2nd week of April.