Commodity ETF Alert July 2012 Portfolio Update

| July 24, 2012 | 0 Comments

July 24, 2012

$8.00 Natural Gas by year-end?

…that’s what one analyst claims!

In a recent Forbes article, Richard Finger suggests natural gas prices are on the verge of moving dramatically higher.

His thesis states drastically slowing dry-gas drilling, along with quicker than expected well production declines, is about to push the US natural gas market into a state of shock.

According to his article, the potent mixture of an exceptionally warm summer and a potentially colder than normal US winter will keep energy demand on the upswing.  And since utilities are still making the switch from coal to natural gas, it means demand for the cleaner burning fuel will continue to surge.

But that’s just the start of it…

With the US dry natural gas drill rig count at a 13-year low, the amount of readily available new supply is less than many energy analysts think.  As a result, Mr. Finger suggests natural gas in storage will continue dwindling to levels that make a mini-supply shock inevitable.

By his estimates, we may see $8.00 natural gas by this winter!

Of course, we’re a few months ahead of Mr. Finger and his bullish analysis…

As you know, we established a position in the US 12-Month Natural Gas Fund (UNL) in May.  Our position is based on the same principles stated in Mr. Finger’s Forbesarticle.

But here’s the deal…

While I agree with Mr. Finger’s thesis, $8.00 natural gas by this winter may be a bit of a stretch.  However, even if his analysis is only partially correct, natural gas could easily approach $6.00 by this winter.

At any rate, higher natural gas prices are very likely coming our way.  Let’s keep holding UNL for much bigger gains!

Here’s a look at the rest of our open commodity ETF positions…

Position Updates

. . . . iPath DJ-UBS Copper (JJC) – HOLD

Copper demand is on the upswing.  In fact, orders to move the red metal out of warehouses monitored by the COMEX and London Metal Exchange (LME) have doubledsince early June.

This recent surge in copper demand is likely due to the budding recovery in the US housing market.

According to recent Commerce Department data, housing starts rebounded by 6.9% in June.  That put the number of new homes under construction at 760,000… the highest seasonally adjusted level since October 2008.

Let’s keep our position in JJC at a hold as copper demand continues firming.

. . . . iPath S&P GSCI Crude Oil (OIL) – HOLD

Oil’s on the move again…

Growing Middle East tensions have many investors fearing a supply disruption is right around the corner.  Those worries sent crude surging to just over $93 a barrel last week.

We’re currently sitting on a 4.2% gain in our iPath S&P GSCI Crude Oil (OIL) position. Let’s keep holding for bigger gains…

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

Palladium is the lone sore spot in our portfolio right now.  Even though the global supply/demand equation remains solidly bullish for the metal, it just can’t seem to find a bid.  In fact, palladium’s still stuck in the same technical downtrend that’s kept a lid on the price for nearly five months now.

But take a look at a chart and you’ll see we have one more shot at higher prices…



As you can see, palladium is currently trading at the $575 technical support area.  If the metal can bounce off this important level, it may be enough to send it above $650 an ounce.

A rally of that size would likely be enough to ignite more buying interest, which could send palladium back above $700 an ounce.  Obviously, that would be a great development for us.

But we have to be careful.  If palladium drops below the $575 support level we’re going to have to close this trade.  We can’t risk riding palladium down to $500 an ounce or less.

So here’s what we’ll do…

If our position in PALL closes below $54.00 in coming weeks, go ahead and sell it. Otherwise, just keep holding the position for a possible oversold bounce.

. . . . iPath Dow Jones-UBS Cocoa (NIB) – HOLD

Recent data revealed cocoa demand is weakening dramatically in Europe.  In fact, European cocoa bean processing declined 18% in the second quarter… a three year low.

Obviously, slowing demand is not what cocoa bulls want to see.  If we get more data revealing weakening demand in other countries, the price of cocoa may fall… the exact opposite of what we want to see for our NIB trade.

However, let’s not jump the gun and sell just yet…

We still have a chance that worrisome weather patterns will push cocoa prices higher in coming months.  Many analysts fear poor African crop quality will be enough to push cocoa higher into year-end.

For now, let’s keep our cocoa ETF at a hold.  But if NIB falls below $27.50 in coming weeks, go ahead and close the position. 

. . . . iShares COMEX Gold Trust (IAU) – Buy up to $16.00

Our most recent trade is still sitting in neutral.  As a matter of fact, gold remains firmly planted in the same $1,550 to $1,620 trading range it’s been stuck in for the past two months.

However, gold’s summer trading lull may not last much longer…

The yellow metal is entering a seasonally strong price period.  In fact, over the past 35 years, gold ran higher in the late summer months of August, September, and October… and it happened nearly 80% of the time.

If you haven’t already, buy IAU up to $16.00…

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.