Commodity ETF Alert February 2013 Portfolio Update

| February 26, 2013


Flying Dollar Sends Commodities Lower…

Unfortunately, US Dollar bulls went on a stampede over the past few weeks.  In fact, the greenback has rallied just over 3% since early February.  It may not sound like much, but a 3% short-term rise is a fairly hefty move when it comes to a widely traded currency like the dollar.

As I’m sure you’re aware, the greenback’s recent rally created an unwelcome downturn for most commodities.  We’ll discuss how the dollar’s recent activity affected our portfolio in a minute.

But first, let’s take a look at a chart of the dollar…

US Dollar

As you can see, the greenback used the 79 technical support zone (green line) as a springboard in early February.  Of course, the dollar’s status as the world’s reserve currency makes it tough on commodity bulls whenever it roars higher.

But now the dollar is at an inflection point…

With the greenback currently trading at technical resistance (red line), we’ll likely see a downturn soon.  Odds are the dollar will fall back into the 79-81 trading range for a few more months.

However, if the dollar breaks above resistance, it could very well test the mid-2012 highs at the 84 area.  Of course, such a scenario would present a continued bearish environment for commodities.

So what should we do with our portfolio?

Let’s take a look…

Position Updates

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

Of all the commodities sent lower by the dollar’s recent rally, gold and silver were hit the hardest.  As a matter of fact, gold briefly dropped to $1,550- a possibility I warned of in the last update.

Fortunately, we set a stop loss in our IAU position to protect ourselves from such a downturn.  As a result, we stopped out of IAU at $15.47 on February 20th.  If you haven’t done so yet, close your IAU position.

As disappointing as it is to stop out of this trade at breakeven, I’m still not convinced the gold trade is done…

Recent US economic data is still highly supportive of further quantitative easing (QE) by the Federal Reserve.  I have no doubt extremely low interest rates and additional Fed asset purchases will continue through year-end, and likely much longer.

Let’s be patient and wait for another gold buying opportunity to present itself…

. . . . Powershares DB Gold Short (DGZ) – SELL

Of course, our position in DGZ reacted favorably to gold’s February fall.  The inverse ETF shot to 6-month highs at $12.64 last week, giving us a peak gain of 10%.  Not bad considering this trade was originally intended as a mere hedge against the Fiscal Cliff drama in late 2012.

However, with gold trading near 52-week lows, it’s unlikely the yellow metal will continue falling dramatically lower.  Let’s go ahead and close our DGZ short positionfor a gain of 8.3%.

. . . . iShares Silver Trust (SLV) – SELL

Unfortunately, the dollar’s February rally knocked the spots out of the silver market.  The lustrous metal nosedived below $30 an ounce last week before stabilizing at $28.50 yesterday.

Of course, this wild move sent SLV firmly below the early January 2013 low of $28.61. As a result, we stopped out of SLV at $28.50 on February 19th.  If you haven’t closed this trade yet, go ahead and do so now.

Both gold and silver have endured hefty technical damage due to their recent price downturn.  However, like I said with gold a minute ago, I do not believe the bullish trade for precious metals is over.  In fact, the current downturn will create a great buying opportunity for gold and silver in the not-so-distant future.

However, let’s not jump the gun.  We’re entering a seasonally weak time for precious metals.  So we must be patient and wait for gold and silver prices to stabilize before jumping back in on the long side.

. . . . PowerShares DB Multi-Sector Metals Fund (DBB) – HOLD

Unfortunately, industrial metals couldn’t avoid the US Dollar’s onslaught either.  Copper retreated from $3.75 to $3.55 last week, with aluminum and zinc following closely behind.

This downturn has us sitting on a 4% loss in our industrial metal trade, DBB.  However, with copper oversold on a short-term basis, it’s highly likely the red metal will give us a nice bounce in the near future.

Take a look…


As you can see, copper’s currently trading at the 200 day moving average (dma).  We may see a brief fall to $3.50 in coming days, but it’s highly likely we get a bounce out of copper soon.

Let’s keep holding DBB for higher prices…

. . . . iPath Pure Beta Cocoa (CHOC) – Buy up to $32.50

No doubt about it, cocoa is still acting weaker than it should.  In fact, the sweet commodity is still stuck in the same downtrend that’s been hindering it for weeks now.  As a result, our CHOC trade is currently recording a small loss of 4.5%.

However, cocoa is now trading near important technical support at $2,100.  This is within a whisker of the 52 week low set in June 2012.  With cocoa fundamentals still supportive, we should see CHOC regain lost ground soon.

If you haven’t already, go ahead and buy CHOC up to $32.50…

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

Before I update our most recent palladium trade, let me respond to a subscriber question. Andrew W. recently wrote in asking…

…I just subscribed to your investment newsletter. Your latest edition of the Commodity EFT Alert speaks of having invested in palladium last year (2012)… when I looked at the performance webpage of your site PALL was not listed for 2012. Why is this? Do you list only those investments that gave a profit?

First of all, welcome aboard Andrew!

To answer your question, the last time we invested in the ETFS Physical Palladium(PALL) was December 2011.  You’ll find this trade, as well as all of our previous open positions (winners and losers) listed on our performance page.

Upon further review, you’ll find we had a gain of 10% in the 2011-12 PALL trade at one time.  However, due to the circumstances I mentioned in our most recent monthly issue, this trade was officially closed for a loss in October 2012.

Please note Andrew, our performance page only highlights the potential gains available to subscribers on each trade.  It’s imperative you read through previous “Monthly Issues” and “Portfolio Updates” if you have questions on how a particular trade was managed.  You can find all past issues and updates by logging into your account .

For more information on how we track performance, please refer to page 25 of the“Commodity ETF Alert Operating Manual”.  This report is available for subscribers on the website.

Now back to our most recent PALL trade…

Palladium encountered a bit of volatility in recent trading, just like I suggested it would when we entered this trade two weeks ago.  The precious/industrial metal fell from $760 an ounce down to $710 last week before rebounding yesterday.

Currently, we’re sitting on a slight loss of 1.7% in our PALL trade.

Considering the abrupt rise of the dollar in recent trading, I’m moving PALL to a hold.  I want to make sure the greenback doesn’t rally higher in coming weeks before we continue buying PALL.

So for now, keep your shares of PALL at a hold until further notice.


Category: Commodity Trading