Commodity ETF Alert June 2013 Portfolio Update

| June 25, 2013

 

Another Commodity Wipeout?

Talk about a bait and switch…

After stating that it was “too early” to start tapering quantitative easing (QE) in a May press conference, Fed Chairman Ben Bernanke shocked investors by stating the exact opposite last week.

In his post-FOMC speech last Wednesday, Bernanke suggested that if US economic data keeps improving, the Fed will start reining in its stimulus program.

Investors took Bernanke’s ill-timed statement as a signal to run for the exits…

Not only did commodities have a tough few days, but equities and bonds experienced their largest selloff of the year.  There was literally no place to hide during last week’s surge in volatility.

Of course, the question now is… where do markets go from here?

Is additional downside coming for commodities?  Or are hard assets wildly oversold and ready for a bounce?

Let’s take a look at our current portfolio holdings for an answer…
 

Position Updates

. . . . iShares Comex Gold Trust (IAU) – CLOSED

Once investors caught wind of Bernanke’s plan, they pushed gold down to $1,268- the lowest price since September 2010.  Obviously, that’s below the $1,350 technical support level I pointed out in the original trade alert a few weeks ago.

That means our trade in IAU was short-lived.  You should have closed this trade on June 19th when IAU fell below $13.20.  That was before the real damage was done in the gold market on the 20th.

Clearly, this is a disappointing outcome for this trade.  But by closing the position when IAU broke below $13.20, we avoided the brunt of the selling in the gold market.

. . . . iPath Pure Beta Cocoa (CHOC) – SELL

After a fierce rally in early June, our cocoa trade was once again set back on its heels last week.  The commodity experienced a hefty selloff to $2,155 a tonne as investors factored in Bernanke’s new plan.

And that’s not all…

There’s also word that growing conditions in West Africa have become surprisingly good. That’s raising hopes for a bigger cocoa crop than investors were expecting just a few short weeks ago.

Due to the recent pullback, cocoa’s chart has become decidedly less attractive.  The most recent rally couldn’t match the high set in May at $2,400… and that’s not a good sign.

In light of the current market uncertainty, I think it’s best we close this trade for a small loss.

We don’t want to run the risk of cocoa prices falling further.  But more importantly, the commodity may not be able to rebound now that fundamentals have become less bullish.

Go ahead and sell CHOC at current prices.

. . . . ETFS Physical Palladium Shares (PALL) – Buy up to $66.00

Another frustrating month for palladium…

After being one of the top commodity performers in May and early June, the industrial/precious metal was once again dragged down with other precious metals.

Even though palladium’s supply/demand fundamentals are as bullish as they’ve been in years, the metal just can’t seem to shake broad market worries.

However…

Palladium is currently trading at $657 an ounce.  That’s within a whisker of the same price point that kicked off the phenomenal $120 rally that started in mid-April.

Take a look…

PALL Chart

This is likely another fantastic buying opportunity for palladium.  Given the increasingly bullish fundamentals, investors should use the $650 price support level as a low-risk area to get long the market.

If you haven’t already, go ahead and buy PALL up to $66.00.

. . . . US 12 Month Natural Gas (UNL) – Buy up to $18.25

Natural gas is finally presenting investors with a solid technical buying opportunity.

Take a look…

Natural Gas Chart

As you can see, natural gas has slowly worked its way down to trendline support at the $3.70 mmBtu area.  Given that we’re moving into summer and higher cooling demand, we should see gas prices start rallying soon.

There’s a slight chance that natural gas may break lower to the $3.60 area if EIA inventory builds are bigger than expected this Thursday.  But even at that price, the commodity would remain a solid buying opportunity.

Go ahead and buy UNL up to $18.25…

. . . . iPath DJ-UBS Platinum (PGM)- Buy up to $30.50

It may sound crazy but the current price downturn in platinum virtually guarantees this market will turn dramatically higher.  The only question is- when?

As you know, South African miners are already having an exceptionally hard time making ends meet.  In most cases, the market price of platinum simply isn’t high enough for miners to attain profitable operations.

In fact, this lack of profitability is the main reason for the South African mining industry upheaval we’ve been talking about recently.  And the lower platinum prices drift, the more that mining companies will feel the squeeze.

I wouldn’t be surprised to see additional news of mining shaft closures out of South Africa in coming weeks.  And since the global platinum market is already expected tobe in deficit by 844,000 ounces this year, this situation is getting worse by the day.

Folks, it’s simple…

Platinum prices can’t continue lower without there being massive problems for the South African mining industry.  And remember, approximately 80% of global platinum supply comes from this one country.

That’s why we have to be very close to a bottom for this metal.

If you haven’t already, go ahead and buy PGM up to $30.50.

 

Category: Commodity Trading

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