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After doing some research over the past couple of weeks, I decided to invest my $1,000 in the commodities industry, or more specifically; in gold and silver.

Underlying Reason for my Decision
I personally believe that the sub-prime mortgage resets that are scheduled to continue throughout 2008 will exacerbate the US financial and real estate industry's struggles. We will see an exponential growth in the number of foreclosures, which will continue to fuel unanticipated write-downs over the course of the year from major financial companies such as Citigroup (C). Since the US boasts a negative savings rate and Americans' wealth are tied mainly to their home equity, these decreasing real-estate prices will cause a trickle-down effect, which will subsequently send the US economy into a recession. With recent news now suggesting that credit card debt could become the next sub-prime, I only anticipate things getting worse. The Federal Reserve will continue to lower interest rates with disregard to its mandate to control inflation in hopes of stimulating the economy. Unfortunately, tighter lending standards and the fact that most Americans are already over-extended with debt will offset the intended purpose of these interest rate cuts. I believe that the US will undergo a severe recession (at least 2 consecutive quarters of negative GDP growth) this year that will last well into 2009.

The de-valuation of the US dollar over this period will cause other countries to follow suit and cut their interest rates in an effort to reduce the impact the falling US dollar will have on their economies. Ultimately, the events described above will drive the demand for gold and silver up as people seek a hedge against declining worldwide currencies caused by this global inflation.

Central Fund of Canada (CEF.A)
Since I don't yet know enough about the industry and its inner workings, I decided to forgo the exploratory companies and look for a company that simply holds the asset I'm looking to invest in. I decided to invest in Central Fund of Canada (CEF.A) because:

1) It's a Canadian based company and is traded on the TSX exchange.
2) The transparency it provides by providing information on its website (www.centralfund.com) about the company's asset holdings and changes to its stock's premium/discount. updated on a daily basis.
3) It doesn't seem to get much media attention, which appeals to me.
4) The hold very little cash (less than 2%) and the rest is physical gold and silver, split about 50/50 by value.

My first trade was executed at 10:42am on March 6, 2007 for 70 shares of CEF.A.TO at $13.75/share. I wasn't sure whether to use a market or limit buy so ended up just picking the market option based on the fact that my order would process more quickly and I could get this show going.

Premium/Discount Calculation
Cash = CAD$28,562,445.18
Gold = CAD$968.53/oz x 830,585 oz = CAD$804,446,490.05
Silver = CAD$20.23/oz x 41,523,556 oz = CAD$840,021,537.88

Total NAV (CAD$1,673,030,473.11 ) / Shares Outstanding (129,452,713)
NAV per Share = CAD$12.92

Premium on Purchase = (CAD$13.75 - CAD$12.92) / $12.92 = 6.4%

Breakeven Calculation
Breakeven = Buy/Sell Commission / # of Shares + Share Price
= $9.90 / 70 +$13.75
= $13.90

Other Interest Notes
- CEF.A - $13.71/share on Google Finance at the time of purchase
- C - $21.51/share on Google Finance at the time of purchase

Forecast
There are several variables that would cause me to sell this stock, the most important being global rises in interest rates following the US recession. I plan to hold this stock until a point in time where something like this may appear to start materializing. Call it wishful thinking but I wouldn't be surprised if this stock hit $25 before the end of 2008. Stay tuned...