This presentation is not a recommendation or solicitation. We will compare different approaches to how $100k could be employed with a common assumption that the price of gold will increase from $1,000 to $1,611,
The first approach is to buy and hold gold bullion. The results would be, in USD terms, a profit of $61,100 or 61.1%.
Another alternative would be to invest in gold mining shares. They, on average, are three times as volatile. The profit would be $183,000 or 188%.
It is also possible to buy an exchange traded fund, ETF, owning gold mining share with three to one leverage so the rate of return would be: $544,900 or 544%.
It is also possible to buy call options on the shares of the ETF. This can result in a further leverage of ten to one over owning the share of the ETF. The results are: $5,449,000 or 5,449%.
And then there is pyramiding: the reinvestment of profits while gold is increasing from $1,000 to $1,611. In mathematical terms, this is simply compounding. When applied to a short term speculation, it is called pyramiding.
So, to be conservative let us take out forty percent of the profits at each compounding point so the maximum leverage is decreased from ninety to fifty times over the price of gold bullion. If the compounding is done just five times at each ten percent increase in price, the resulting profit is Increased from $5,449,000 to $312,000,000 and to $953,000,000 if you compound at each five percent increase in the price of gold so that you compound ten times rather the five times. And, needless to say by the fourth year, you own all the money in the universe.
Futures Market Commentary (above) by Arthur Fixed
[box type=”info” style=”rounded” border=”full”]Commentary from Arthur Fixed the author of the Art of Speculation during Civil War – Sun Tzu Meets Jesse Livermore is a private manuscript copyrighted 2012 by Art Fixed.[/box]
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