Commodity ETF Alert December 2011 Portfolio Update

| December 27, 2011 | 0 Comments

December 27, 2011

US Dollar Strength Keeping Commodities Under Wraps…

A side effect of the ongoing European debt uncertainty is the strength in the US Dollar. Since investors around the world have been reducing their exposure to the Euro (the European currency), the dollar’s found renewed interest.

Take a look…



As you can see, the dollar index has been in a solid uptrend since late October.  As a result, it’s closing in on 12-month highs.

Of course, this upward push in the dollar is not what commodity investors want to see. Since the dollar is the world’s reserve currency, there’s a strong negative correlation between it and commodities.

In other words, strength in the dollar generally equals weakness in commodities.

But I think this dollar strength is about to ease…

Recent European Central Bank actions are pointing towards a near term solution to the pesky sovereign debt issue.  As a result, the Euro should stop falling- and the dollar will likely reverse its upward course soon.

So be patient as 2011 comes to a close and 2012 gets rolling…

Commodities may trade in fits and starts for a couple more weeks as the holiday season winds down.  But when the dollar finally starts weakening in early 2012, our portfolio will benefit in a big way.

Let’s take a quick look at the commodity ETFs sitting in our portfolio…

Position Updates

. . . . iShares Gold Trust (IAU) – Hold 

There’s no other way to say it…

US Dollar strength is hurting gold prices right now.  But like I said earlier, the strength in the dollar is unlikely to last much longer.

Remember, our position in IAU is at a hold since we’ve owned it for so long and have such nice gains.  In fact, even though gold prices have fallen in recent weeks, we’re still sitting on an 18.7% gain in IAU.

Keep holding IAU for further upside in 2012…

. . . . Sprott Physical Gold Trust (PHYS) – Buy up to $15.00

No doubt about it, mainstream business news channels are all jumping on the anti-gold bandwagon.  The recent pullback has nearly everyone with a pulse saying gold has seen its best days.

But we know better…

The pullback in gold presents a fantastic buying opportunity for long-term investors right now.  In my opinion, the only way gold trades substantially lower is if there’s a turn for the worse in Europe.

But like I said earlier, I don’t see it happening.  And that means the current pullback in PHYS is a ‘golden’ buying opportunity.

If you haven’t already, buy PHYS up to $15.

. . . . United States 12 Month Natural Gas (UNL) – Hold

Another month… another drubbing for natural gas prices.

As of now, it looks as though the 2010 lows of $3.26 for natural gas aren’t going to hold. You may remember, I thought those lows would provide a floor for natural gas prices in a recent update.  But now, it looks like the abundant supply of this commodity is causing it to head lower.

How much lower?

We may see natural gas drop to the multi-decade lows of $2.40 Mmbtu set in 2009.

For the time being, keep UNL at a hold.  There’s no reason to start buying again until that major low is reached.

. . . . iShares Silver Trust (SLV) – Buy up to $33.00

Silver prices are back at the September 2011 lows of $28 an ounce.  Much like the gold market, silver is falling due to US Dollar strength.

But don’t let the recent weakness fool you…

Long-term investors are getting a fantastic buying opportunity at these levels.  Global supply/demand fundamentals are strong and set to get stronger in coming years.

If you haven’t already, buy SLV up to $33.

. . . . iPath Dow Jones-UBS Coffee (JO) – SELL

As you know, coffee hasn’t gone on its seasonal end-of-year run like it usually does.  As a result, JO broke below our predetermined exit price of $54 last week.  If you haven’t already, make sure you close this trade.

Another commodity trade is coming your way soon…

. . . . United States 12 month Oil (USL) – Hold

Oil made a quick trip down to the $93 a barrel level since we spoke last.  Short-term oil traders were likely reacting to uncertain European news.

But the weakness didn’t last long…

Oil quickly took back the $100 level last week.  And if the US Dollar weakens in coming weeks (like I think it will), oil will likely be the first commodity to make a run higher.


The global oil supply/demand curve is exceptionally tight.  And commodities with the most bullish fundamentals will likely be the first to move higher when the dollar falls.

And don’t forget Iran.

The rogue nation continues to rattle the global community with its nuclear intentions.  If Iran makes good on their promise to close the Strait of Hormuz, the price of oil will go nuts.  After all, one third of the globe’s tanker borne oil passes through the straight every day.

Keep holding USL for higher prices in 2012…

. . . . iPath Dow Jones–UBS Livestock Subindex (COW) – Buy up to $30.50

A build in early December feedlot numbers caused cattle prices to fall a few weeks ago. Hopefully you used this weakness as a buying opportunity.  I mentioned the opportunity to pick COW up at reduced prices in the last update.

Why should you be buying weakness in the cattle market?

The recent build in Midwestern feedlot numbers is due to ranchers culling ahead of a forecasted tough winter.  And that’s putting more cattle on the market, which drives down prices.

However, once the short-term culling effect is over, it’s highly likely cattle prices will firm and continue rising in 2012.  The long-term supply shortage for US cattle is still in place.

If you haven’t picked up COW yet, you still have time since the shares are trading just below the buy-up-to-price of $30.50.

. . . . ETFS Physical Palladium Shares (PALL) – Buy up to $67.00

Like oil, palladium endured a quick pullback after I recommended it earlier this month.  But it popped right back up as investors swooped in to pick up the industrial metal at discounted prices.

PALL is still beneath our original buy-up-to-price of $67, so go ahead and add it to your portfolio if you haven’t already.  However, don’t be surprised to see more wild trading in the palladium ETF in coming weeks.

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.