Commodity ETF Alert August 2012 Portfolio Update

August 28, 2012

Precious Metals Firestorm!

In case you haven’t noticed, precious metals are back in vogue with investors again.  After nearly a year of unimpressive and downright boring trading activity- gold, silver, platinum, and palladium are all surging to new multi-month highs.

What’s causing this newfound investor interest?

And more importantly, how much longer can it last?

Let’s find out…

Position Updates

. . . . ETFS Physical Palladium Shares (PALL) – HOLD

Well, it took a while, but palladium is finally getting the bullish move we’ve been waiting for.  As a matter of fact, the white metal is the top commodity advancer over the past month with a gain of 12.8%!

Why has palladium all the sudden caught fire?

The same catalyst we based our platinum trade on, bullish supply/demand metrics and South African production slowdowns, is affecting palladium as well.

While most of the world’s above ground palladium stockpiles sit in Russia, the majority of new production comes out of the same area of South Africa mining region as platinum… the Bushveld complex.  And as I’m sure you may have heard, things are getting ugly down there.

Our palladium ETF holding, PALL, is currently sitting just below our original entry point of $65.10.  We may see a bit of profit taking after the recent surge, but PALL will likely be trading much higher as we head into year-end.

In fact, many analysts are slapping an $800 price target on palladium.  That’s a 23% move higher from current prices.

Let’s keep holding PALL for further upside…

. . . . iPath Dow Jones-UBS Cocoa (NIB) – HOLD

This is the market move we’ve been so patiently waiting for!

Weather worries in cocoa’s prime Western African growing region have the market on high alert.  As a result, cocoa is finally surging over the important $2,500 a tonne technical resistance zone in today’s trading session.

If cocoa can hold today’s gains for the next few days, it would be a very bullish signal.  As a result, I wouldn’t be surprised to see cocoa trading at $3,000 by year-end.

We’re currently sitting on a 10% gain in NIB.  Let’s keep holding for additional gains!

. . . . US 12-Month Natural Gas (UNL) – HOLD

Natural gas is slipping in recent trading…

In fact, the abundant commodity has stalled in the $2.60- $2.70 mmBtu price range.

Now remember, this recent bout of weakness was expected.  With this summer’s record breaking hot spell coming to an end, we’ll likely see EIA inventory builds come in a bit higher over the next few weeks.

But whatever you do, don’t give up on this trade…

With dry natural gas rig counts at decade lows, we may be on the cusp of a dramatic rally later this fall.  If we get a colder than usual winter, we may very well find the US natural gas market in a state of undersupply, which would result in much higher prices.

Let’s keep our position in UNL at a hold until further notice.

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

Crude’s back in the mid-$90 a barrel range thanks to slowly-building optimism over the global economy.  With Europe coming to grips with its debt issues and the US Federal Reserve ready to boost the US economy, things are looking rather bullish for oil.

But that’s just the start of it…

I hate to keep harping on this issue, but the uncertainty over Iran’s nuclear program just won’t go away.  While an attack is still unlikely, each day that goes by without some sort of placation by Iran puts the global community a step closer to a confrontation.

And one thing’s for certain, a conflict with the rogue country would push crude prices much higher.

We’re currently up nearly 14% on our iPath S&P GSCI Crude Oil ETN (OIL) trade.  Let’s keep holding OIL for the possibility of much higher prices ahead.

. . . . iPath DJ-UBS Copper (JJC) – HOLD

Copper’s trading slightly higher on hopes the US and China are on the verge of new monetary easing campaigns.  While it remains to be seen whether the two economic powerhouses will follow through, there’s plenty of evidence to support it.

For example, China’s Purchasing Manager’s Index (PMI) came in at 47.8 in August.  As you may know, the PMI reading gives investors an idea whether manufacturing is expanding or contracting.  At a reading of 47.8, manufacturing in China is undoubtedly slowing.

While there’s no question this is worrisome for China, the news greatly increases the odds of the country implementing a new form of economic stimulus in the very near future.

We’re currently sitting on a 4% gain in JJC.  Let’s be patient and keep holding for higher prices.

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

Gold is on the move!

After spending the last few months stuck in a trading range between $1,625 and $1,550, the yellow metal is moving to higher ground.  In fact, gold’s currently trading at $1,670 an ounce as I write.

What’s sparking the bullish move in gold?

Minutes from the Federal Reserve’s August 1st meeting were released last week.  And once investors had the chance to digest the Fed’s language, it was ‘game on’ for gold.

Here’s an excerpt from the Fed’s minutes…

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

In plain English, the Fed appears ready to unleash another round of quantitative easing… the same stimulus that caused gold to surge from $800 an ounce in 2008, to over $1,800 by mid-2011.

We’re currently up a respectable 5% in IAU.  Since IAU is beyond our buy-up-to-price, I’m moving it to a hold.

Let’s allow this trade plenty of time, as gold is very likely to continue higher in coming months.

. . . . iPath Dow Jones-UBS Platinum (PGM) – HOLD

That didn’t take long!

A mere two days after this month’s trade alert, platinum surged higher by $150 per ounce… nearly 11%! 

That’s a remarkable short-term move, and it just goes to show how quickly things can change in the commodity markets.  One day all’s quiet, and the next it’s an all out scramble to establish a bullish position.

Much of platinum’s recent price explosion has to do with the South African supply fears we talked about in the original trade write-up.

How do we manage our platinum position from here?

We’re currently up a solid 9% in PGM… not bad for two weeks work.  However, we’ll likely see some short-term profit taking relatively soon.  So don’t be surprised to see the platinum weaken a bit in coming days.

But in the long-run, platinum’s tightening supply/demand curve points to much higher prices.  I wouldn’t be a bit surprised to see the precious/industrial metal test $1,800 an ounce by year-end.

Of course, thanks to the recent rally, PGM is well beyond our buy-up-to-price.  As a result, I’m moving it to a hold.

Let’s keep riding PGM for further gains!

Category: Commodity Trading