Commodity ETF Alert December 2010 Issue
We hear a lot about gold and silver these days. Of course, precious metals are a hot item. They have been for centuries.
However, there’s another metal which has been a staple to society since the dawn of civilization. This versatile metal has been used by humankind for over 10,000 years.
I’m talking about copper of course.
And it’s still a prized commodity to this day… but for very different reasons than gold and silver.
Copper has been coveted for thousands of years for several reasons. It’s easy to stretch, mold, and shape. It’s resistant to corrosion. And it conducts heat and electricity efficiently.
In ancient times, copper was used for coins, tools, and weapons. After thousands of years, it’s still used for some of these items.
But it’s also used for so much more…
Today, copper has a variety of uses… many of these vital to the day to day functioning of society.
Some of the major uses include construction, power generation, electronic products, vehicles, and heavy machinery.
Chances are you use several items containing copper each day. It’s used in electrical wiring, plumbing, heating and cooling devices, telecommunications connectors, appliances, motors, radiators, brakes, and integrated circuits.
Copper’s clearly a vital ingredient to a significant number of industries.
More importantly, this industrial metal is providing us with a great opportunity for profits.
I’ll get back to the opportunity in a minute. First, let’s take a closer look at what impacts the copper market…
Copper has fairly straightforward drivers for supply and demand.
There’s one word which really defines the demand side of copper… growth. Economic growth and population growth fuel the demand for industrial metals like copper.
More people and more money mean more buildings, cars, and electronics. And all of those require copper. In particular, as developing countries expand their economies, copper will be a necessary building block for growth.
While demand is based on growth, copper supply is based on two factors.
The obvious one is mining. There are mines all over the world producing a steady supply of copper ore. Although mines are fairly widespread, the most productive copper production region is South America. That’s where 45% of copper production is.
The other less obvious source of copper is recycling. Roughly one-third of copper consumed is recycled. The nature of copper allows it to be recycled without any side effects… making it one of the most widely recycled metals.
Here’s what’s really interesting…
Right now, supply and demand factors are pointing to a major bull market in copper.
In a nutshell, demand for copper is soaring and supplies are limited. That’s always a good sign prices are about to take off.
First off, let’s take a look at demand.
If you’ve been reading Commodity ETF Alert for the last several months, you probably noticed a recurring theme… growth in Asia.
The fact is, exponential growth in Asia is driving demand for commodities. Both population growth and economic growth means basic materials are a must-have.
And this couldn’t be more true than with copper.
Keep in mind, copper is needed for some crucial elements of a developing economy. Wires, pipes, automobile components… these are vital items in countries like China and India.
And Asian demand isn’t expected to slow down anytime soon.
What’s more, the supply situation is even more compelling than demand.
Check this out… over 50% of available copper stocks is owned by one player.J.P. Morgan owns over $1 billion worth of copper… that’s over 175,000 tons of copper!
J.P. Morgan purchased some of the copper on behalf of its clients. The bank owns the rest of it – presumably in conjunction with a new copper ETF they plan on launching.
Here’s the thing… it doesn’t really matter why they own it. The fact J.P. Morgan and its clients own so much copper is a big deal in of itself. Quite simply, investors aren’t going to sit on such huge amounts of a commodity they expect to go down.
Investors are making extremely large bets copper has only one way to go in the coming months – much higher.
Here’s the bottom line…
There are great reasons on both the supply side and the demand side to be bullish on copper. And that’s a strong signal copper prices are ready to soar.
Now’s a great time to invest in copper.
Demand for copper is through the roof. Asia is experiencing unprecedented economic growth. That means more buildings, more cars, and more electronics.
And every one of those items requires copper.
And that’s not all…
J.P. Morgan and its clients own over $1 billion of the available copper supply – more than half of the stock. This isn’t a coincidence. The smart money is betting copper prices are on the rise.
And even more importantly… demand for copper is expected to significantly outpace supply next year by nearly 500,000 tons.
All in all, it’s clear copper is on track for a great year.
It’s time to take advantage of these extremely bullish conditions in the copper market. Grab your shares of iPath Dow Jones-UBS Copper Index ETN (JJC) to profit from higher copper prices.
ABOUT COPPER
We’re in great position to profit from rising prices in the iPath Dow Jones-UBS Copper Index ETN. JJC is an exchange traded note (ETN). The goal of this ETN is to track the movement of live copper prices using futures.
TECHNICALLY SPEAKING
Take a look at the chart…
JJC is currently trading just over $56. Clearly, copper is making its move higher. While we’re at recent highs, I’m not worried. If you would have shied away from gold or silver this year because they were making new highs, you would’ve missed out on huge profits. Just like gold and silver, there’s no reason copper won’t continue its run.
WHAT TO DO NOW:
The iPath Dow Jones-UBS Copper Index ETN (JJC) is trading at $56.10.
Buy JJC up to $58.00 per share.
Our profit target is $70.00 or more.
Don’t forget your position sizing.
| COMMODITY | TICKER | CURRENT VALUE | LAST MONTH | CHANGE |
| Energy | JJE | $22.69 | $22.09 | 2.7% |
| Grains | JJG | $50.27 | $50.22 | 0.1% |
| Industrial Metals | JJM | $44.66 | $44.32 | 0.8% |
| Precious Metals | JJP | $79.35 | $78.62 | 0.9% |
| Softs | JJS | $76.98 | $77.79 | -1.0% |
| Livestock | COW | $29.59 | $28.80 | 2.7% |
| All Commodities | DJP | $47.11 | $46.61 | 1.1% |
ENERGY COMMODITIES
Crude oil continues to shine.
Oil has rebounded the last couple weeks after dropping down to just above $80 a barrel in mid November. Oil briefly touched $90 at the start of December and is currently holding steady around those levels.
The improving economy, particularly in Asia, is driving prices higher. I don’t see the macro conditions changing any time soon. And I expect OIL to continue to climb on positive economic news.
Let’s hang on to our OIL shares.
Our position in heating oil is doing well… it’s up over 6%. The strong crude oil market combined with the onset of winter is pushing prices higher.
And more importantly, it looks like winter storms are hitting hard in parts of the country. No doubt people in those areas will be stocking up on heating oil before the next wave of storms hits!
The recent surge in heating oil prices has pushed UHN above our buy up to price. I’m moving our position to a hold.
Finally, natural gas has finally broken out of its doldrums, gaining nearly 16% over the last month. Are we finally seeing a bull market for natural gas? Not yet. Inventories are still at record high levels. We’ll be keeping a close eye on the natural gas market.
GRAIN COMMODITIES
Grains are back near their highs!
After dipping in November, JJG has climbed higher to kick off December. Our position in JJG is currently up a healthy 15.6%. Not too shabby!
Grains are being driven higher by wheat prices, which have skyrocketed nearly 17% over the last month. Corn and soybeans are also up over the same period.
The grain markets continue to feel the sting of the harsh climate during the year. And there’s no resolution in sight.
Keep holding your shares of JJG for bigger gains.
INDUSTRIAL METALS
Copper is perfectly positioned for big gains.
As I mentioned above, now’s a great time to buy JJC and gain exposure to rising copper prices. See above for all the trade details.
PRECIOUS METALS
Gold has cooled off somewhat over the past month, but silver continues to sparkle.
Silver jumped over 16% this past month and is posting an incredible 75% increase year to date. Meanwhile, gold has managed a robust 27% gain year to date.
Both metals will remain investor favorites as long as economic and political uncertainty maintain their global presence.
Our platinum position continues to hold its own… up a solid 9%. And it still has a lot more room to rise. Both precious metals and industrial metals look bullish right now… and either way, it’s great for platinum prices.
Let’s continue holding our shares in PGM.
SOFTS
It’s been a crazy couple weeks for cocoa.
A political crisis in the Ivory Coast sent shares in NIB soaring. NIB spiked to over $44 a share before pulling back. As of this writing, the price is sitting right around $41.
I see no reason cocoa prices won’t go back up… and then some. The Ivory Coast is in total disarray. There’s a real chance of civil war. I don’t see this situation being resolved any time soon.
The leading supplier of cocoa could be a tough place to do business with for awhile. And that means cocoa prices should be on the rise.
Buy your shares in NIB below $45.50 if you haven’t yet done so.
LIVESTOCK
Livestock is holding its own.
Our position in COW is up slightly after a fairly uneventful month. Live cattle hit new highs before pulling back a bit in recent days. Lean hogs have held steady during the same period.
I expect live cattle to remain strong in the coming weeks. Perhaps more importantly, we could see the elusive rally in lean hogs we’ve been waiting for. When both cattle and hogs move higher, we should see a nice jump in COW.
COW is sitting just under our buy up to price of $30. Be sure to grab shares if you haven’t done so.
- This month we’re adding Copper (JJC) to the portfolio. See above for all the details.
- We’re moving our position in Heating Oil (UHN) to a hold.
Category: Commodity Trading
