Commodity ETF Alert January 2012 Portfolio Update

| January 24, 2012 | 0 Comments

January 24, 2012

Finally, A Crack In The Dollar…

As you know, strength in the US Dollar has kept commodities hemmed in a corner over the past few months.  We’ve talked about the strong dollar effect on commodities a number of times in recent reports.

But recent European developments are changing the dollar’s course…

The Euro, which has seen plenty of weakness in recent months, is now turning higher. Progress in Greece’s debt talks, along with strong Spanish and Italian debt auctions, is turning investor sentiment on the Euro more bullish.

As a result, the dollar turned down quickly last week.

Take a look…



Over the past week, the dollar index has declined nearly 2%.  Now that may not sound like much, but the effect on physical assets is clear.  A number of important commodities showed more strength in the past week than they have in months.

For example, metals rose nicely in recent trading.  Gold, silver, copper, and others all turned higher last week.

What’s more, a number of soft commodities are suddenly looking very bullish.  Cocoa, cotton, and sugar have all reversed long-term downtrends over the past few days.

No question about it, the weakening dollar is driving commodity prices higher…

Let’s take a look at our portfolio holdings and see how they’ve been affected by this trend.

Position Updates

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

After a big drop in late 2011, gold is looking much healthier in 2012.  The yellow metal’s bounced over $100 higher since the start of the year.  In fact, last week’s drop in the US Dollar pushed gold back above $1,650 an ounce.

Remember, our position in IAU was initially recommended in February 2011.  And as many of you know, we were up a sweet 41% in this trade a few months ago when gold was at record highs.

Of course, that’s when we took profits on half our position in IAU- when gold was near record nominal highs.  We locked in big gains, but also kept our long exposure to gold by holding the remaining position.

And now the multi-month pullback is almost over…

Gold’s bullish fundamentals haven’t changed one bit over the past few months.  As a result, we should see gold return to its winning ways in the very near future.

However, it might take one more dip down to the $1,575 range before heading higher.  So be on the lookout for a quick drop to shake out weak hands in coming weeks.

IAU has plenty of upside potential in 2012.  Let’s keep holding for more gains.

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

Like IAU, PHYS is rising nicely in recent trading.  In fact, PHYS is about to break above our buy-up-to-price of $15.00.  Remember, PHYS tracks the price action of gold just like IAU.

If you haven’t already, make sure you buy PHYS before it breaks above $15.

. . . . United States 12-Month Natural Gas (UNL) – Buy up to $20.00

As you know, natural gas has been declining for months now.  Unusually warm weather along with huge gas supplies has turned this market upside down in recent trading.

But the tide may finally be changing for natural gas prices…

Chesapeake Energy (CHK), the second largest natural gas producer in the US, just announced they’re shutting in 8% of their dry gas production.

What’s that mean?

It means natural gas has dropped below an economically sustainable production price in many gas fields.  It doesn’t make sense for CHK to invest millions in gas production just to sell the gas at a loss.  I suspect CHK is the first of many gas companies who will announce shut-ins in coming months.

This news also means US gas supplies will slowly start reversing to a point of equilibrium. In other words, the huge glut of natural gas supply will start wearing off in 2012.

Now let me be clear, I don’t expect an immediate or huge rebound in natural gas prices. But I do think we’re very close to a major multi-year bottom.  And that means it’s time to move UNL back to a BUY.

Go ahead and buy shares of UNL up to $20…

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

Silver was one of the big movers in the precious metals space last week.  The white metal rose 5.4% in the last two trading days alone.

Could this finally be the breakout we’re looking for in silver prices?

Given the size and volume of the move in silver last Friday, I think something’s amiss in this relatively small market.  There’s no news to speak of to cause a spike like we saw last Friday.  But one thing’s for certain… somebody’s buying silver with reckless abandon.

If you haven’t already, buy SLV up to $33.  Silver’s heavy industrial usage along with growing global investment demand are solid long-term trends.

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

Oil prices dropped below $100 per barrel last week as the standoff with Iran cooled.  But like I said in the last update, oil prices are unlikely to drop below $98 for a sustained period of time, regardless of the situation in Iran.

We’re currently sitting on an 18% gain in USL.  All signs point to $95-$100 oil for the foreseeable future.  But if things heat up with Iran again, prices could shoot dramatically higher.

Let’s keep holding for bigger gains…

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

Live cattle prices are strengthening in recent trade.  As a result, COW is about to break above our buy-up-to-price of $30.50.

Remember, US live cattle feedlot numbers have been dwindling for years.  Ranchers have cut the size of their herds due to poor market conditions and rising input costs.  That’s leading to lower feedlot numbers and rising prices… a trend that will take years to reverse.

If you haven’t already, add COW to your portfolio under the $30.50 level.  Cattle prices should remain in an uptrend through 2012.

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

Palladium’s breaking higher!

The industrial metal’s up nearly 10% in just the past week.  The recent surge is due mostly to the falling US Dollar.

The recent swell in price has pushed palladium to $680 an ounce… an important technical level.  If the metal breaks above that price, we could see it rise to the $740 area in short order.

Our position in PALL is now a hold since it’s beyond our buy-up-to-price.  Keep holding for bigger palladium gains ahead.

. . . . iPath Dow Jones-UBS Copper ETN (JJC) – HOLD

Wow! That didn’t take long…

Copper has already run 12% higher since we bought JJC a couple weeks ago.  Turns out, the triangle pattern I pointed out in the trade alert was a key turning point for copper prices.

JJC has moved beyond our buy-up-to-price of $45, so I’m moving it to a hold.  And given the strength of the move over the past two weeks, copper likely has more upside in coming weeks.

Let’s hold JJC for more gains…

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.