Commodity ETF Alert December 2013 Portfolio Update
SILVER: HOW LOW WILL IT GO?
As you know, I sent out an email on December 11th, alerting you to the long-term buying opportunity in the iShares Silver Trust (SLV).
Here’s some additional insight into why we made this trade, and how it’s performing thus far.
Also, due to the holiday shortened trading week, I’m providing an abbreviated version of our Commodity Review. In it, you’ll find just what you need to manage your open portfolio positions.
I hope you have a wonderful holiday season!
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Federal Reserve Chairman Ben Bernanke gave investors quite a surprise last week…
As you may know, the Fed announced they’ll reduce treasury and mortgage-backed securities purchases by $10 billion starting in January. The reduction will decrease Fed stimulus to $75 billion a month.
Why’s that a surprise?
Most investors and economists thought the Fed would hold out until March 2014 to start pulling in the stimulus reins. Heck, some analysts believed the Fed would never stop their money printing madness.
But according to Bernanke, the US economy is strong enough to start their highly-anticipated stimulus reduction program.
After hearing the news last week, investors sent the price of silver lower. In fact, the lustrous metal dropped from $19.93 an ounce in the morning before the Fed’s announcement, to a closing price of $19.10 the day following. And in this morning’s holiday shortened trading session, silver is crossing the tape at $19.36.
Considering the news, that’s not much of a drop…
In fact, I’m downright excited about how well the price of silver is holding up in the face of tapering news. After all, plenty of big league analysts proclaimed the start of tapering would be the final nail in the coffin for silver bulls.
They’re absolutely wrong…
Forget about inflation (or the lack thereof), quantitative easing, tapering, and other secondary circumstances. The prime factor investors should focus on now is cost.
In other words, what does it cost a miner to produce silver?
My calculations have this “all-in production cost” at an industry average of $23 an ounce…
Believe it or not, there’s a lot involved in figuring out this important metric. After all, producers generally aren’t forthcoming with this true production cost data because it shows just how unprofitable their operations currently are. No doubt about it, rising labor and energy costs are making it tough to be in the mining business.
But the good news is…
High all-in costs are precisely why the downside in silver is limited!
You see, the average silver miner is suffering right now. As a matter of fact, the majority of producers are in some stage of shutting in unprofitable operations.
And the longer silver stays at these subdued levels, the more mine shafts that will ultimately be closed.
And that means a global supply squeeze will eventually present itself.
Now let me be clear, global silver supply is currently plentiful. There’s no risk of an imminent supply crunch.
But in the long run, it’s a completely different story…
According to The Silver Institute, global silver demand is still on a steady long-term upward trend. And now that the global economy is returning to solid growth, industrial silver demand will likely work to new highs.
But if unprofitable silver production is shut in, the supply won’t be there when the global marketplace needs it. And as you’re aware, when demand outweighs supply, prices must go higher.
Friends, buying silver at these bargain-bin levels is virtually guaranteed to pay off for patient and committed investors!
As a result, now’s the perfect time to add the iShares Silver Trust (SLV) to your long-term investment portfolio.
You can buy SLV at any price under $19.66.
Folks, it’s really quite simple…
Silver is priced too low relative to the cost to bring it out of the ground.
And when investors start treating silver as a commodity, with its own unique set of supply/demand fundamentals, and stop viewing it as an alternative currency, we’ll see the price of silver rise once again.
Will it happen tomorrow?
Maybe not. But at some point, it absolutely must.
The global silver mining industry depends on it.
Now, let’s take a look at our open portfolio positions…
COMMODITY REVIEW
| COMMODITY | TICKER | CURRENT VALUE | LAST MONTH | CHANGE |
| Energy | JJE | $18.55 | $16.93 | +9.6% |
| Grains | JJG | $44.22 | $45.08 | -1.9% |
| Industrial Metals | JJM | $29.15 | $28.39 | +2.7% |
| Precious Metals | JJP | $60.61 | $63.18 | -4.1% |
| Softs | JJS | $43.44 | $43.50 | -0.1% |
| Livestock | COW | $27.14 | $27.32 | -0.7% |
| All Commodities | DJP | $37.34 | $36.22 | +3.1% |
ENERGY COMMODITIES
Our position in the US Short Oil Fund (DNO) is still profitable in spite of the recent rally in West Texas Intermediate. Keep this position at a hold as last month’s upswing will likely alleviate soon.
Natural gas is roaring higher thanks to cold US weather and huge weekly inventory withdrawals. Keep holding our position in the US 12-month Natural Gas (UNL) for higher prices.
GRAIN COMMODITIES
If you haven’t already, buy the Teucrium Corn Fund (CORN) up to $32.00. What’s more, buy the Teucrium Soybean Fund (SOYB) up to $23.75. Finally, the Teucrium Wheat Fund (WEAT) remains a buy up to $16.30.
As you can see, at the current low prices the grain complex is a screaming buy!
INDUSTRIAL METALS
Copper is bouncing nicely in recent trading. Recent Chinese economic data tells me the red metal will continue higher in 2014. Keep holding the iPath DJ-UBS Copper (JJC) for a continued upswing.
PRECIOUS METALS
No doubt about it, platinum is cheap at $1,320 an ounce. As a result, buy the iPath DJ-UBS Platinum (PGM) up to $30.50 if you haven’t already. However, even though palladium has very bullish fundamentals, the metal remains above our buy zone. As a result, the ETFS Physical Palladium Shares (PALL) remains a hold.
SOFTS
We currently have no open positions in the softs complex. But stay on your toes, as that may change soon!
LIVESTOCK
Livestock prices are undoubtedly high, and will likely remain high for the foreseeable future. However, there currently isn’t a low-risk opportunity to get long the livestock market via commodity ETFs.
Category: Commodity Trading
