Commodity ETF Alert June 2009 Portfolio Update
June 23, 2009
It’s been an exciting few weeks for the commodity markets. To start the month, oil spiked to over $70, and copper jumped over $2.40 a pound. It seemed like the commodity markets could do no wrong.
Then, the World Bank revised their estimates for GDP growth.
All of a sudden, investors remembered we were in the middle of a global recession. I guess some people have short memories. The equities markets started falling and they dragged down commodities with them.
Gold was approaching $1,000 an oz, now it’s down around $920. Grains are off their highs, as is the entire energy complex (Oil, Natural Gas, Gasoline, and Heating Oil).
So, we should sell everything and run for the hills… right?
Not so fast.
Remember, a lot of the run-up in commodities can be attributed to increasing demand out of China. Right now, most of the countries are watching their GDP numbers shrink like a wool sweater in a hot dryer.
But not China. Their economy is expected to grow this year by almost 7%. It doesn’t sound like much but remember, the US economy normally grows 2% in a good year (and this year we’re shrinking).
Increasing demand from China will, over the long run, drive up demand for various commodities. So hold on tight… it’s going to be a fun ride.
Let’s take a look at our open positions…
Position Updates
. . . iShares COMEX Gold Trust (IAU) – Buy up to $96.00
Our new trade this month has started moving lower. Not quite the direction we were looking for. As inflation concerns become part of the news cycle, we should see gold prices rise.
I see gold trading well above $1,000 an oz in the next few months. Give this trade some time.
. . . iPath Dow Jones–AIG Livestock ETN (COW) – Buy up to $32.00
Grain prices have spend the better part of the year climbing… and that makes growing beef and hogs more expensive. The added expense should reduce supply, and that should drive prices higher. Unfortunately, remnants of the swine flu keep holding down hog prices.
Looking closely at the chart, it looks like mid-June might have been a good bottom. Our commodity ETF is trading above the 20-day moving average. I’m optimistic the 20-day will act as a level of support going forward.
As swine flu drifts into the past, and the economy starts to improve, we should see this market return to reality… and that means higher prices. Hold tight for now.
. . . iPath Dow Jones–AIG Copper ETN (JJC) – Buy up to $31.50
We’ve seen a nice run-up in copper since putting on a position back in April. Demand out of China pushed industrial metals significantly higher. However, in the short term, I question how aggressive China will be in accumulating new stocks.
Because of this, I’m adjusting our ‘Buy up to’ level on this trade. If you’re already in the trade, continue holding tight.
. . . iPath Dow Jones–AIG Grains ETF (JJG) – SOLD for a 27% Gain
In our last issue, we told everyone to exit the Grains trade. We hit our price target and racked up gains of more than 27%. Congratulations to everyone!
. . . iPath S&P GSCI Crude Oil Total Return ETN (OIL) – HOLD
Oil keeps climbing higher. We hit $70 a barrel this month and I think we might approach $80! I know energy prices have pulled back recently. I’m not worried. Demand from around the world is going to grow as the economic outlook improves.
OPEC calling for $80 oil doesn’t hurt either. Hold tight and watch our price target of $27 on the OIL ETF.
Action To Take
- Adjusting the ‘Buy up to’ price on Copper (JJC) – Buy up to $31.50
Category: Commodity Trading
