Commodity ETF Alert July 2011 Issue

| July 12, 2011 | 0 Comments


Silver’s been on a roller-coaster ride…

And I wouldn’t be surprised if investors are experiencing some ‘motion sickness’ due to the twists and turns in this market.

Just how wild are these silver market moves?

From February to April of 2011, the shiny metal shot from $27 to over $48, a spectacular 77% rise.

Day after day, silver moved higher…

By April, silver had become the talk of the town.  You couldn’t go a day without hearing a market pundit rave about silver’s spectacular rally.

At one point, the volatile metal shot to nearly $50 an ounce… a 30-year high.

But then the CME stepped in…

In late April, the Chicago Mercantile Exchange (CME) raised silver margin requirements through the roof.

Within a two-week span, the upfront capital needed to buy a silver futures contract was raised 84%… an unheard of event.

The move sent the silver market into a tizzy…

Latecomers to the silver rally suddenly realized they were left holding the bag.  And it wasn’t long before they were scrambling to get out.

By May 5th, an ounce of silver was selling for $35… a 30% drop in less than two weeks.

Why did the CME take such drastic measures?

It’s simple – speculation was out of control…

Many small investors were heavily leveraged in silver.  And that was putting brokerages and other financial institutions at risk.  By driving margins higher, the CME forced smaller speculators to close their positions.

Obviously, that set off a wave of selling.  And now, a few months after the spectacular crash, many analysts believe the bull market in silver is over.

Not so fast…

Yes, the CME has taken steps to reduce speculation, and they’ve clearly affected the silver market.  But no matter what the CME does, they can’t change the supply/demand fundamentals for silver.

And folks, the fundamentals are still strongly bullish…

In fact, let’s take a look at a few silver demand drivers.  You’ll see why investors were speculating so heavily in the first place.

First of all, one of the fastest growing industries in the world uses large quantities of silver.

What industry am I talking about?

Solar photovoltaics (PVs)…

Solar PVs currently represent a minute portion of global energy production.  But don’t let that fool you, the global industry grew by 139% in 2010.  And industry experts think it will continue growing at a healthy clip for many years to come.

And it just so happens, silver is an essential ingredient in crystalline silicone (CS) solar panels… the ones making up 90% of global solar capacity.  In fact, it’s estimated the average CS solar panel contains approximately 20 grams of silver.

Barclay’s estimates 64.3 million ounces of silver will be gobbled up by the solar PV industry in 2012.  That’s up from 25.7 million ounces in 2009 and 51.4 million ounces in 2010.  As you can see, silver usage in the solar industry is growing rapidly year over year.

But solar isn’t the only industry buying up silver.  According to the Silver Institute, total 2010 industrial silver demand came in at 487 million ounces… a 20% jump over 2009’s industrial demand of 403 million ounces.

But wait a second, we’re not done yet…

If you add in the jewelry, coin, photography, and silverware industries, global 2010 silver demand came in at 1 billion ounces… up 14% over 2009 levels.  Clearly, there’s a growing need for silver in the modern world.

But far and away, the biggest silver demand growth is coming from investors.

Particularly Indian and Chinese investors…

These two emerging market economies are demanding increasingly large quantities of silver.

In fact, Bloomberg just revealed that India’s state-owned trading company is expecting to import 1,200 metric tons of silver in 2011-2012.  In the second quarter of 2011 alone, silver imports were up 200%!

But even India’s imports pale in comparison to China’s…

Once the world’s leading silver exporter, China is now importing record amounts of the precious metal.  In fact, 3,500 metric tons of silver were imported by China in 2010… a fourfold increase over 2009.

Why such a large jump?

Chinese consumers are scrambling to protect themselves against rising inflation.  The most recent figures show Chinese inflation is just over 6%.  That’s well above the 4% rate China’s government is shooting for.

And silver is now the inflation hedge of choice for many Chinese investors.  Its low price relative to gold makes it more attractive to lower income consumers.

Now, there’s no question the silver market has taken a beating since April…

And the CME’s recent actions will likely keep American investors a bit leery about investing in the precious metal.  But remember, even after a 30% drop, silver’s still up 100% from the $18 lows of August 2010.

More importantly, silver’s been trading around $35 an ounce for nearly two months now.  That’s a great sign the new ‘floor’ for silver is around that area.

We may see some lower prices here and there, but the global supply/demand fundamentals say silver’s rise is far from over.


My favorite way to invest in silver is the iShares Silver Trust (SLV).  SLV is a trust holding physical silver bullion in English vaults.  The value of SLV shares reflects the price of the silver owned by the trust.  This ETF is one of the most liquid and convenient ways to invest in silver.


Take a look at the chart…


SLV is currently trading at $34.90.  Clearly, SLV nose-dived a few months ago.  But thanks to strong global supply/demand fundamentals, the bull market for silver is about to pick up where it left off in April.


The iShares Silver Trust (SLV) is trading at $34.90.
Buy SLV up to $36 per share.
Our profit target is $70 or more.
Don’t forget your position sizing.

Commodity Review

Energy JJE $22.69 $23.88   -5.0%
Grains JJG $48.50 $54.53 -11.1%
Industrial Metals JJM $44.63 $43.47    2.7%
Precious Metals JJP $89.93 $87.43    2.9%
Softs JJS $81.90 $81.51    0.5%
Livestock COW $30.83 $28.19    9.4%
All Commodities DJP $48.21 $49.30   -2.2%


June’s employment numbers were horrible…

Only 18,000 jobs were added to the US economy, far below what economists were expecting.  Of course, the news was bearish for oil. If the US economy continues to sputter, demand for crude will remain weak.

But remember, even though the US economy is feeling blue, China and India are picking up the slack.  Both of these economies are demanding more oil with each passing day.  And due to this rising emerging market demand, the global oil market remains tight… that means oil’s bull run is far from over.

Natural gas has fallen back to the $4.20 MMBtu area recently.  And that has UNL trading back near the 52-week lows.  If you don’t have UNL in your commodity portfolio, consider adding it up to $32.50 per share. 

Remember, our investment in UNL is a long-term holding and requires patience!


Corn, soybean, and wheat remain subdued in recent trading…

The USDA surprised investors a few weeks ago when they reported much stronger than expected plantings.  Now the grain markets are stuck in a ‘holding pattern’ as investors wait for more data.

But they won’t have to wait long…

Key USDA crop data hits the wires this week.  Expectations for this year’s US grain crops vary… some analysts are expecting record yields while others expect much less.

Here’s the bottom line with grains right now…

With such a wide range of expectations, it’s tough to get an accurate reading on grains.  It’s best to steer clear of grains until we get a bit more clarity.


Copper finally broke higher from its recent consolidation…

The red metal is pushing back towards all time highs near $4.60 a pound.  The global copper market is tight, so we may even see a retest of those historic highs.  Keep holding JJC for higher prices…

Palladium and platinum are mixed in recent trading.  Global debt fears have investors feeling a bit skittish.  However, we’re holding onto these valuable resources as global supplies will likely remain tight for some time to come.


After a brief drop below $1,500 last week, gold is rebounding close to $1,560… the all time high.  When you see a quick drop followed by an even quicker recovery, it’s a great sign of continued upward momentum.

Don’t be surprised to see gold breaking to new highs soon.  Keep holding your position in IAU for higher prices.


Our sugar trade is a top performer in recent weeks…

In just a few weeks, our position in SGG has turned in gains of 23%.  Our $95 price target was easily surpassed as SGG is currently trading over $100 a share.  That’s exceptional considering the commodities complex as a whole was down slightly last month.

Since we’ve hit our price target, take your well-deserved profits to the bank!

Congratulations on a “sweet” summer trade!


The cattle markets are experiencing a quick turnaround…

Cattle prices are rebounding after a big sell-off in April and May.  Goldman Sachs is now calling for higher cattle prices on strong beef demand in the US and abroad.  In fact, they’re expecting cattle prices to outperform grain prices next year due to low feedlot numbers.

We’ll be taking a closer look at cattle in coming issues…

Portfolio Changes

  • This month we’re adding Silver (SLV) to the portfolio.  See above for all the details.

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.