Commodity ETF Alert April 2010 Portfolio Update

April 27, 2010

Gold buying intensifies…

According to a recent World Gold Council report, investors bought 5.6 tons of gold via ETFs in the first quarter of 2010.  Currently, the total amount of gold held in ETFs is 1,768 tons, which is worth about $63 billion.  Investors are increasingly looking to gold ETFs as a convenient way to gain exposure to the gold market.

Here’s another interesting development…

The U.S. Dollar has been strengthening in recent weeks due to weakness in the Euro.  But during this recent dollar strength, gold has been holding up very well.  This is an important shift in the relationship between gold and the dollar.  Normally in times of dollar strength, the price of gold will pull back substantially.

The fact that gold is holding so well during dollar strength is very interesting.  It tells me demand for gold is holding strong.  It also tells me investors are becoming increasingly bullish on gold.  Currency movements are not enough to shake investors out of their positions.

At some point, the downtrend in the U.S. Dollar will continue.  This is when gold is likely to outperform all other asset classes.

Now, let’s take a look at our open positions…

Position Updates

. . . . iPath S&P GSCI Crude Oil Total Return ETN (OIL) – HOLD

Crude has been chopping around the $85 level in recent weeks.  The fact that crude is holding these elevated levels suggests we haven’t seen the end of the bull run.  I believe crude oil will likely hit the upper $90 range this summer.  While good for our accounts, it will have a negative effect on the economic recovery.

Why will it have a negative effect?  Well, because the U.S. economic recovery is still very fragile.  Sustained high energy prices will hinder discretionary spending by consumers. More money will go into purchasing energy.

We also still have the geopolitical risk with Iran.  This is a problem that just won’t go away.  As long as the saber rattling continues, you can expect oil prices to stay elevated.  I think the chances are relatively small a military action is taken against Iran.  If by some outside chance there is a military strike, the price of oil will spike very quickly.

Remember, the price target for our position in OIL is $32.50.

. . . . iShares Silver Trust (SLV) – HOLD

Silver has been holding around the $17.50 level for a couple of weeks now.  This is great news for our position.  Why is this great news?  Because the recent run up from the $15 area has not been sold heavily.  In the past, when silver had a good upside run, it would encounter heavy selling and the price would fall right back down.

This recent selling weakness means investors are holding for higher prices in the future.  Remember, our price target is $25.

. . . . iShares COMEX Gold Trust (IAU) – HOLD

Gold is still looking great in both fundamental and technical pictures.  The sovereign debt problems in the EU, as well as the inflation fears here in the U.S., should keep a solid floor under gold prices.  Don’t be surprised if we see some short term volatility.  In the long term, we should be looking at significantly higher prices for gold.

. . . . iPath DJ AIG Grains ETN (JJG) – HOLD

JJG is starting to show some solid buying interest.  Grain prices are now higher than right after the planting intentions report.  The bearish results of the report were boughtafter the initial spike down.  This means a floor has likely been put in around the $34 level in JJG.  Keep holding this position for future gains.

. . . . ETFs Physical Palladium (PALL) – SELL

PALL has absolutely exploded in recent weeks.  The investment demand, along with the resurgence in automobile manufacturing, is pushing up prices dramatically.

We hit our price target of $57 in recent days.  This gives us a whopping 21% gain in just under two months!  Exit the trade now.  Great trade everyone.

. . . . United States Gasoline Fund (UGA) – HOLD

UGA is trading just above our buy up to price of $38.50.  Everybody should have had ample opportunity to pick up shares of UGA last week.  As we move into early summer, we should see a pick-up in gasoline demand.

Remember, this is a seasonal trade and we’re looking for UGA to rise going into summer.  Our profit target is $45…

Category: Commodity Trading