Gained $42000 from Gold and Silver
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I have been sitting on the side line for my equity investment for quite some time. I missed a lot of opportunities in the stock market by being very conservative. Instead, I purchased a rental property in 2019. The stock market has been very volatile in Q1 2020. As a conservative investor, I haven’t done much this year, except in March.
Back then, I saw that lots of stocks were in free falls. I saw a tremendous opportunity and bought the shares of a few distressed companies since the beginning of March. For example, I bought airlines ETF (JETS), cruise lines (CCL, NLCH, etc.) and energy ETFs (XLE, VDE). They were selling at their multi-year or multi-decade lows. To the extreme, the oil future was trading at below $0, which was unthinkable.
However, the price continued to fall after loading up so many distressed companies. The sky seemed to be falling. By March 11th, I decided to buy Gold and Silver ETFs (GLD, SLV).
Why Gold and Silver?
At that time, US Government passed a 1-Trillion dollar stimulus plan and Federal Reserve started a new round of ‘QE’ and several other programs including buying bonds. It is not difficult to imagine that USD will lose its value due to so much money printing. Gold and silver have been safe investments during uncertain time like this year. Therefore, I bought quite a bit of gold and silver ETFs on 3/11/2020.
To my surprise, the price of these precious metal ETFs continued to fall during the following couple of weeks. Instead of panic selling, I doubled down on silver, thinking that the price will go back up in the upcoming months. I did more readings on gold and silver investments since I purchased them in mid-March. For example, I learned that there are about 15 times more silver than gold on Earth. Because of that, gold should be about 15 times more expensive than silver if all else being equal. However, the GOLD/SILVER ratio was sitting at all time high (125) in March. That means either Gold was over-valued or silver was under-valued. Since I didn’t know which one is (more) true, I bought roughly the same dollar amount of GLD and SLV ETFs on 3/11.
Why did GLD/SLV prices drop in March?
Despite the massive money printing, both GLD and SLV prices dropped soon after I purchased them. It was very puzzling. Eventually, I learned that many investors scrambled to cover their short positions. They had to liquidate whatever equity they could, including GLD and SLV to avoid margin calls. Others might have sold their GLD and SLV ETFs simply because they didn’t seem to be very safe. They also sold them to cut the losses even though there were no short position to cover.
Eventually, GLD and SLV ETFs bottomed on 3/18. I decided to purchase more SLV ETFs on 3/23 to dollar cost average. I bought SLV instead of GLD because it seemed to have more upside potential. I ended up spending $23.4K and $43K on GLD and SLV ETFs respectively by the end of March.
Stock market continued to recover remarkably in April and May, except for the distressed companies that I purchased. At some point, I was able to break even on them and so I liquidated most of them (JETS, CCL, NCLH, VDE, etc.). I am still holding on to some XLE (energy ETF) and all of the SLV and GLD ETFs.
I bought more Gold!
Fast forward to July, US GDP lowered by about 10% from Q1 to Q2. The new cases of the virus infection continue to climb without signs of slowing down. Millions of American are still out of jobs. On the other hand, the stock market continues to defy gravity. Nasdaq got to all-time highs multiple times. Things don’t make much sense at all. Perhaps there is too much printed money and liquidity in the market. Gold and silver ETFs also appreciated a lot. There are more talks about another round of stimulus as the previous one phased out and many people are still struggling. That means USD will further depreciate. Therefore, I decided to buy more precious metals. This time, I bought more GLD because SLV already appreciated a lot compared to GLD.
Gold and Silver soar
After seeing SLV price jump 6-7% almost daily by July end, I felt a little bit uneasy to hold on to SLV. This week (might have been last week), GLD also made an all-time high. The appreciations were unstoppable. Although I still think that there is still room for GLD and SLV to increase in price in the near future, I don’t want to take the risk any more. So I sold them all.
As a result, I netted about $43K on GLD and SLV after 5 months.
The return from GLD and SLV ETFs was a whopping 15% and 83% respectively. Since I traded them in my Fidelity 401K brokerage link account, all the gains are tax-deferred. That’s very sweet.