Commodity ETF Alert February 2014 Portfolio Update
GOLD: A CONTRARIAN’S DREAM…
As you know, I sent out an email on February 11th, alerting you to the long-term buying opportunity in the iShares COMEX Gold Trust (IAU).
Here’s some additional insight into why we made this trade, and how it’s performing thus far.
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Look up the word “contrarian” in the dictionary…
You’ll find it describes a person “who takes up a contrary position, especially a position that is opposed to that of the majority, regardless of how unpopular it may be.”
And without question, bears held the majority position on gold over the past six months.
In fact, when the yellow metal fell to $1,200 an ounce in late December 2013, bears were screaming from the rooftops that it would soon drop below $1,000.
After all, former Federal Reserve Chairman Ben Bernanke had just announced the start of the Fed’s much-anticipated tapering program.
And with QE3 on the way out, the crowded majority was convinced gold had further to fall.
But they were wrong…
As you’re likely aware, gold has jumped $140 an ounce from the late December lows… a solid 11.6% gain.
Why did the metal rise precisely when the majority was certain it would fall?
The sole event that had bears convinced of continued downside turned out to be gold’s saving grace. Ever since the Fed officially announced the onset of tapering, the yellow metal has gained ground.
It turns out, the onset of Fed tapering was largely priced into the gold market last year.
And with the metal currently trading at multi-month highs, the crowded majority is slowly giving up on the idea that gold is headed dramatically lower.
But that’s not the only bullish development…
A recent World Gold Council (WGC) report revealed China has overtaken India as the world’s largest gold consumer. As a matter of fact, Chinese consumers gobbled up 1,066 tons of the yellow metal in 2013.
That’s up a whopping 32% over 2012, and an all-time record high!
The WGC went on to say they expect burgeoning Chinese demand to continue. The research body projects the country will consume another 1,000 tons in 2014.
And China isn’t the only place consumers are grasping for the metal…
Demand in Turkey shot up 60% last year while Thailand’s gold consumption jumped 71%. And let’s not forget India, which saw demand jump to 975 tons, a 13% increase over 2012.
According to the WGC, global consumers bought 3,864 tons of gold last year, 21% higher than 2012.
What does strong gold demand mean for prices?
Gold consumption is rising at the same time most miners are struggling to produce it. Miners are reporting “all-in sustaining” costs in the range of $1,150 to $1,450 an ounce. With the metal currently trading just over $1,300, it goes without saying that many in the industry are facing challenges.
As a matter of fact, one of the biggest miners in the world, Barrick Gold (ABX), has already sold off many of their high cost mines and shelved development of another. The economics simply didn’t work with gold sitting at multi-year lows.
Folks, the bullish factors are adding up for gold…
Investors are slowly waking up to the possibility that gold fell too far, too fast in 2013. And that means the recent lows near $1,200 an ounce will likely prove to be a long-term bottom for the commodity.
Since I recommended the iShares COMEX Gold Trust (IAU) earlier this month, gold has advanced higher. As a result, IAU is now beyond our maximum buy-up-to price of $12.60.
Keep holding IAU for further gains in 2014!
COMMODITY REVIEW
| COMMODITY | TICKER | CURRENT VALUE | LAST MONTH | CHANGE |
| Energy | JJE | $18.33 | $18.33 | +5.2% |
| Grains | JJG | $42.86 | $42.86 | +7.7% |
| Industrial Metals | JJM | $28.66 | $28.66 | -0.8% |
| Precious Metals | JJP | $62.60 | $62.60 | +8.3% |
| Softs | JJS | $41.20 | $41.20 | +26.8% |
| Livestock | COW | $28.38 | $28.38 | +2.4% |
| All Commodities | DJP | $36.67 | $36.67 | +7.1% |
ENERGY COMMODITIES
What a month for natural gas…
The commodity exploded to multi-year highs near $6.40 mmBtu in recent trading thanks to another round of frigid temperatures in the Midwestern and Eastern US. Extended cold has taken US gas inventories 40% below last year’s levels and 33% below the 5-year average.
Without question, the natural gas market was caught off guard by Mother Nature’s wrath this winter.
But here’s the deal…
Given the enormous gains in the natural gas market since January, the odds of continued substantial upside are growing very slim. As a result, I would not be long natural gas in any way right now.
As far as oil goes…
The recent start up of the southern leg of TransCanada Corp’s Keystone XL pipeline is having an incredible bullish effect on WTI crude. As you may know, the pipeline project is intended to take crude supply away from the storage hub in Cushing, Oklahoma to Port Arthur, Texas.
Due to this development, WTI crude is currently trading near $103 a barrel… the highest price since last October.
While I still believe WTI is overpriced at this level, bulls are in firm control of the crude market right now. As a result, let’s cut the US Short Oil Fund (DNO) from our portfolio at current prices. Doing so will free up capital for our next trade.
GRAIN COMMODITIES
Grain trading is really picking up…
Soybeans are jumping to 5-month highs at $1,376 a bushel thanks to sustained Chinese demand. As a result, the Teucrium Soybean Fund (SOYB) has pushed beyond our buy-up-to price of $23.43. Keep holding SOYB for additional upside in coming months.
Wheat is perking up as well…
According to the USDA, the extreme cold is taking a toll on the US winter wheat crop. Seedlings in many parts of Midwest are thought to be dead thanks to the lack of snowfall and frigid weather.
As you may now, snow cover helps protect winter wheat seedlings from the colder air temperatures. Given the recent gains in wheat, let’s move Teucrium Wheat Fund (WEAT) to a hold until further notice.
As far as corn goes…
The commodity is trading near 4½-month highs at $4.60 a bushel. Abnormally deep ground freeze in the northern Midwest has investors fearing a delay to the spring planting season. What’s more, high export demand has investors speculating total supplies for the 2013-14 crop year won’t be as lofty as previously thought.
Thanks to the recent rally, the Teucrium Corn Fund (CORN) is now beyond our adjusted maximum buy-up-to price of $32.00.
INDUSTRIAL METALS
There’s simply nothing good to say about industrial metals right now. Chinese growth slowdown fears have copper, aluminum, and nickel trading in an uninspiring fashion.
We’ll either need to see a big drop in copper prices (which will create a value setup) or see a big pickup in Chinese import/export readings before we can jump on the long side of industrial metals again.
PRECIOUS METALS
Silver is finally on a roll…
The metal is trading near 3½-month highs thanks to increasingly bullish investor sentiment. And remember, these gains are coming in spite of the fact that Janet Yellen and the Federal Reserve are going full-steam ahead with their stimulus tapering program.
Thanks to the recent run-up, the iShares Silver Trust (SLV) is beyond our maximum buy-up-to price of $19.66. As a result, I’m moving SLV to a hold.
Our portfolio mainstays, platinum and palladium, are still trading in defined ranges. Platinum is stuck between $1,460 and $1,340, while palladium seems happy trading between $760 and $700.
But remember…
Platinum and palladium have very bullish long-term supply/demand metrics. Analysts see a global shortage developing for both metals.
As a result, keep holding the iPath DJ-UBS Platinum (PGM) and ETFS Physical Palladium Shares (PALL) for future gains. I realize we’ve had these metals in the portfolio for an extended period. But I firmly believe our patience will be rewarded if we continue holding.
SOFTS
Wow…
Now that’s what you call an explosive rally!
The price of coffee is surging to 16-month highs on the heels of worrisome Brazilian weather. With the world’s largest coffee producer suffering a brutal drought, investors fear this year’s crop will fall short of what’s needed to keep the global market in balance.
Thanks to coffee’s remarkable rally, our iPath Pure Beta Coffee (CAFE) position has blown through the roof!
Remember, I sent out a special trade update last week recommending you raise the price target on this trade to $23.00.
… CAFE hit our goal yesterday!
As a result, you should be out of CAFE with a whopping 45% gain! If you’re not out of CAFE yet, do it as soon as possible.
Here’s what a paid-up subscriber had to say about the trade…
“Just a quick note to say thanks for the coffee trade. I pulled in just over $1,000 on CAFE over the past few weeks.” – Brian
LIVESTOCK
After a brief dip in early February, live and feeder cattle are once-again trading at all-time records highs. Not only are long-term supply/demand fundamentals still wildly bullish, there’s a new factor pushing cattle higher.
As you may know, California is suffering through a horrific drought. Rainfall in much of the state has been in short supply since July 2013. And unfortunately, one of the hardest hit areas is central California’s agriculture belt.
Due to a lack of feed, ranchers in this part of the state are being forced to cull their herds.
Remember, a few years ago ranchers in Texas, Oklahoma, and New Mexico were forced to do the same thing. The end result was a further reduction in the already low total US cow herd.
Bottom line…
Cattle prices will remain elevated as long as total US supplies remain near multi-decade lows.
Category: Commodity Trading
