DCA Experiment October 4 – Gold Pounded

I thought that May was a bad month for Gold.  That was tame compared to September’s pounding. In the month, CEF lost 12.76% with GDX losing 19.79%.  Just last month I wrote that gold stocks were on the verge of a break-out and then this happens.  This is taking volatility to a new level.  September’s action has taken out all of our dollar cost averaging gains for the year plus some. 

It is going to be a challenge to meet our goals of double digit returns in CEF and GDX using this strategy.  However, even after this month’s drubbing – I still believe that both will out-perform the S&P before the year is over.  No, I am not smoking anything.  My theory is that the general market is being propped up for the mid-term elections.  We want voters happy when they walk into the booth.  Afterwards, all of the geopolitical issues will resurface and money will flow back into commodities.

 

The objective of this experiment is to demonstrate the power of dollar cost averaging. I believe that it is the best investment strategy for the average investor. If you are willing to learn technical analysis, you may outperform dollar cost averaging. However, technical analysis can take a significant amount of time to master.

 

Table 1. CEF vs. S&P 500

  CEF S&P 500 CEF S&P 500
  Closing Price Closing Price Mon. Return Mon. Return
1/4/07        
12/4/06        
11/6/06        
10/4/06 8.00  1350.22  -12.76  2.82 
9/5/06 9.17 1313.25 0.00% 2.65%
8/4/06 9.17 1279.36 2.80% 0.66%
7/5/06 8.92 1270.91 -2.09% 0.44%
6/5/06 9.11 1265.29 -9.80% -3.58%
5/4/06 10.10 1312.25 24.23% 0.25%
4/4/06 8.13 1309.04 3.57% 2.41%
3/6/06 7.85 1278.26 2.08% 1.05%
2/6/06 7.69 1265.02 8.31% -0.66%
1/4/06 7.10 1273.46    

Note: $1000 invested each month in CEF (total $9000) is worth $8482.11 (-5.75%).
Note: $1000 invested each month in S&P 500 (total $9000) is worth $9457.38 (5.08%).

Table 2. GDX vs. S&P 500

  GDX S&P 500 GDX S&P 500
  Closing Price Closing Price Mon. Return Mon. Return
1/4/07        
12/4/06        
11/6/06        
10/4/06 33.77  1350.22  -19.79  2.82 
9/5/06 42.10 1313.25 6.34% 2.65%
8/4/06 39.59 1279.36 0.56% 0.66%
7/5/06 39.37 1270.91 3.25% 0.44%
6/5/06 38.13 1265.29    

Note: $1000 invested each month in GDX (total $4000) is worth $3398.55 (-15.04%).
Note: $1000 invested each month in S&P 500 (total $4000) is worth $4213.07 (5.33%).
Data starts on 6/5 since GDX was launched on 5/25/06

 

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