Commodity ETF Alert February 2011 Issue

| February 7, 2011 | 0 Comments


New readers of Commodity ETF Alert have probably noticed we’re not holding any gold in our portfolio.

Fact is, we sold out of our gold position near the highs set back in October 2010.  And we locked in some big profits.

But no commodity portfolio should be without gold for long.  The yellow metal’s upside potential is just too great to ignore.

As you know, I’ve been waiting for a chance to get us back into gold.  And now I have great news…

The wait is over! 

Gold’s recent pullback has given us the opening I’ve been looking for.

So what’s the deal with gold anyways?  What makes this precious metal the most popular commodity in the world?

Gold’s unique among precious metals.  It has limited industrial use.  Unlike silver, platinum, and palladium, gold is valued more by what it represents than what it actually does.

Yes, gold is used heavily in the jewelry industry.  But jewelry can hardly be used by itself to justify gold’s hefty $1,350 per ounce price.

But gold is so much more than just a metal.

You’ll often hear gold referred to as an international currency.  And I don’t think that’s too far from the truth.  For all intents and purposes, gold is a currency – possibly the safest currency in the world.

You see, gold is held by many people as a ‘store of value’.  It’s a liquid product accepted almost everywhere in the world.  So, it’s a safe way to protect your money without the interference of politics or concern over banks.

What’s more, the conventional wisdom for holding gold is still plenty relevant.

Gold is an effective inflation hedge.  It protects you against a selloff in your local currency.  Gold also holds its value better than many investments during a recession.

These reasons for holding gold are as true today as they were in previous years.

And that’s not all…

Central banks are once again adding to their gold reserves.

For the third straight year, the most powerful central banks in the world are increasing their gold holdings.  This hasn’t happened since the 1970s.  Clearly, the demand for gold isn’t just a flash in the pan.

In addition, major players and hedge funds are still making huge bets on gold.

George Soros and John Paulson both are heavily invested in gold… and neither looks ready to sell the yellow metal anytime soon.  Soros has over $60 million worth of gold in his portfolio.

And Paulson… he made a cool $5 billion personally off gold in 2010.

All signs point to higher gold prices ahead…

Inflation is starting to creep into the picture.  Long-term interest rates are inching higher.  Food and energy prices are surging.

And if that isn’t enough…

Geopolitical uncertainty is still a major issue in countries across the planet.  Look no further than Egypt.  It’s a perfect example of how unhinged a political situation can become in a hurry.  Keep in mind, Egypt was a relatively stable country prior to this uprising.  You just never know…

And that’s why so many investors flock to gold.

Here’s the bottom line…

Gold isn’t going to slow down in 2011.

All the reasons why gold was a great investment in 2010 still apply today… perhaps even more so.  We have major political uncertainty and conflict, inflation concerns, currency devaluations, and a tenuous job market.

What’s more, central banks and hedge funds are adding to their gold positions.  In other words, the smart money is definitely still bullish on the precious metal.

It’s time to put gold back into our portfolio.  Grab your shares of iShares Gold Trust(IAU) to profit from the rising price of gold.


We’re in a great position to profit from the climbing price of gold in the iShares Gold Trust (IAU).  IAU is an exchange traded fund (ETF).  The goal of this ETF is to track the performance of gold using physical gold bullion.  I like IAU better than some other gold funds.  It has cheaper management fees and I’m partial to the lower share price.


Take a look at the chart…


IAU is currently trading right around $13.20.  As you can see, gold finally pulled back a bit in January after soaring through most of 2010.  We’re going to take advantage of the recent dip to get back into gold at a reasonable price.  This may be the last chance for some time to buy gold at these levels.


The iShares Gold Trust (IAU) is trading at $13.20.
Buy IAU up to $13.50 per share.
Our profit target is $15.00 or more.
Don’t forget your position sizing.

Commodity Review

Energy JJE $22.22 $22.92   -3.1%
Grains JJG $55.87 $51.80    7.9%
Industrial Metals JJM $48.30 $45.61    5.9%
Precious Metals JJP $77.16 $78.14   -1.3%
Softs JJS $87.36 $79.97    9.2%
Livestock COW $31.45 $30.45    3.3%
All Commodities DJP $49.20 $48.05    2.4%


Bearish inventory reports are sending oil lower… and it’s weighing down the rest of the energy sector.

Oil prices spiked when the Egypt crisis first started.  But the fundamentals are now outweighing the fear trade.  As a result, oil is trading back in the mid $80 per barrel range.

I think it’s a temporary situation and expect oil to climb higher soon.  But in the meantime, I think it’s time to sell out of our position in OIL.  This ETF has recently become vulnerable to contango effects in oil futures.

Don’t forget, we still have exposure to rising oil prices through JJE.

Go ahead and sell your shares of OIL now.


Grains continue to experience an impressive bull market.  The catalysts driving grain prices higher in 2010 are still in play in 2011.

Harsh weather conditions are heavily impacting grains supplies.  Meanwhile, demand for grain is on the rise in emerging market countries.  It’s an equation – high demand and low supply – which always leads to higher prices.

Corn and wheat are both seeing rapidly increasing prices.  Soybeans aren’t far behind. And overall, grain prices have picked up nearly 8% in the past month.

I think the buying is a little overdone.  At this point, most of the catalysts for higher prices should be built in at current levels.  There’s a lot of risk to the downside here. I’ll keep an eye on grains, but right now the risks outweigh the potential rewards.


Emerging market growth is sending copper soaring!  Copper continues to set record highs… and demand doesn’t look like it’s going to slow down anytime soon.

Our position in JJC has already pulled in gains of nearly 10%.  With demand for copper through the roof – and the massive institutional longs – I expect this key industrial metal to keep setting new highs.

With JJC now trading above our buy up to price, I’m moving it from Buy to Hold.  Hang on to this surging ETF for greater gains.


It’s time to get back into gold.

As I discussed earlier, now’s our chance to grab shares of IAU while they’re priced at a reasonable level.  See above for all the trade details.

Our platinum position has made a nice run.  Platinum is benefiting from the improving global economy and the renewed interest in precious metals.  PGM just hit a new high… and is a solid 20% winner.

Let’s continue holding our shares in PGM for bigger gains.


The situation in the Ivory Coast continues to play out… and create volatility in the cocoa market.

Here’s the deal…

There’s a ban on cocoa exports in place in the Ivory Coast.  It’s supposed to cut off the money supply to the incumbent president who refuses to step down after losing in the past election.  The ban is supposed to stay in place until the situation there is resolved.

For the time being, other countries have stepped up their exports to meet cocoa demand.  That’s why cocoa prices have pulled back somewhat after a nice surge.

However, the additional supplies will likely slow down before the political situation in the Ivory Coast is resolved.  In other words, there’s still plenty of reasons – and time – for cocoa prices to jump.

Let’s hang on to our shares of NIB a little longer and see how this situation plays out. There’s still potential for big upside gains.


Livestock prices are holding steady.  Our position in COW is up over 9% at these levels.  And I think it’s time to lock in those gains.

Live cattle hit record highs but can’t seem to break through the resistance there. Meanwhile, we’ve gotten the move higher I was anticipating in lean hogs.  It was a nice run, but now I expect prices to level out.

At this point in time, I don’t see COW having much upside remaining.  It’s been a good trade for us, but let’s sell it here and collect our profits.

Portfolio Changes

  • This month we’re adding Gold (IAU) to the portfolio.  See above for all the details.
  • We’re selling our position in Livestock (COW) for over a 9% profit.
  • We’re also selling our position in Crude Oil (OIL).
  • Let’s move our position in Copper (JJC) to a hold.

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.