Commodity ETF Alert March 2012 Portfolio Update

March 27, 2012

Bernanke gives gold bulls a boost…

No doubt about it, when Ben Bernanke talks- commodity markets listen.

In a speech to the National Association for Business Economics yesterday, Fed Chairman Ben Bernanke lamented about the fact that the US labor market remains weak.  He went on to say that to alleviate the problem, the US economy may need more help in the form of monetary easing.

That remark sent precious metals soaring…

Why?

The easing he’s talking about is quantitative easing (QE)… and it’s highly inflationary.  If the Fed institutes another round of QE, the dollar is very likely to continue on its long-term downward trajectory.  And as you know, when the dollar drops, gold tends to rise.

In fact, gold rose $30 yesterday on the mere thought of QE3…

When will we know for sure that QE3 is coming?

The next Federal Reserve meeting in April is going to be very interesting.  We’ll likely get more clues as to whether or not the Fed will try to boost the economy with additional easing at that time.

Until then, let’s take a look at our portfolio…

Position Updates

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

After a weak China PMI reading sent oil lower last Thursday, a shocking supply report put the bulls back in control on Friday.

According to Reuters, 300,000 barrels per day of Iranian oil will come off global markets as international sanctions towards the country intensify.  As you may know, select European countries have agreed to halt all Iranian imports as of July 2012.

Folks, who knows where this troublesome standoff with Iran is headed.  But by the looks of it, things are going to get worse before they get better.

And you know what that means… oil is likely to hold these lofty levels.

As of today, our USL position is up a hefty 27%…

Let’s keep holding this one for a while longer.  If news out of the Middle East deteriorates further, we’ll likely see higher oil prices soon.

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

Thanks to Bernanke and his speech yesterday, gold is back on the upswing.

And that means I’m moving PHYS back to a Buy. 

As you know, PHYS dropped below our $15.00 buy-up-to-price in recent weeks.  I kept it at a hold in the last update due to the lack of immediate catalysts to send gold higher.

But now we have one…

Speculation of another round of QE should send the yellow metal higher in coming months. If you haven’t already, buy PHYS up to $15.00.

. . . . United States 12-Month Natural Gas (UNL) – SELL

The unseasonably warm winter has the US sitting on record natural gas inventories.  And that’s keeping prices at multi-year lows near $2.32 Mmbtu.

Many analysts now think natural gas could fall down to the $2.00 area… or lower.  There’s just not enough demand to make a dent in the current supply glut.

As a result, I’m moving UNL to a sell…

Now don’t worry, I’m going to keep a very close eye on natural gas going forward.  If there’s any sign America’s next generation fuel is going to rebound, you’ll be the first to know.

But for now, let’s not fight the market.  Natural gas is set to fall even further…

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

Silver lost some ground in recent weeks.  But now that another round of QE is becoming more likely, the shiny metal should get a much needed boost.

I’m moving SLV back to a Buy since Bernanke seems determined to push the dollar to new lows.

If you haven’t already, buy SLV up to $33.

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

Palladium got caught up in a wave of selling last Thursday thanks to the weaker than expected Chinese manufacturing report.

What’s the big deal about a simple manufacturing report?

If the Chinese economy continues softening, demand for industrial metals will do the same. Of course, weak demand will bring prices down for a number of important commodities… and palladium is one of them.

But I think China has something up its sleeve…

Chinese authorities aren’t going to stand idly by if their economy continues to slow.  Most economists agree, the country has to grow at a minimum rate (most peg that number at 8%) in order to keep social unrest at bay.

What’s the takeaway?

We’ll likely see some sort of economic stimulus from the Communist country soon.  When that news hits the wires, palladium will likely continue its move higher.

Remember, palladium supply/demand fundamentals are very bullish due to questions surrounding Russia’s stockpiles.  If you’d like more information, you can read the original palladium trade report on the CEA website.

For now, let’s leave PALL at a hold.

. . . . iPath Dow Jones-UBS Sugar (SGG) – HOLD

No doubt about it, sugar is all over the map.  One day it’s up 5% and the next day it’s down 3%.

What’s going on?

For starters, Brazilian harvest worries are keeping a bid under the market.  But so far sugar hasn’t been able to break above $0.26 a pound.  Twice in the last month sugar’s tested that price, only to be rejected and sent back down.

But we could see a breakout soon…

There’s growing speculation the European Union will need to import additional sugar in coming months.  If those unexpected imports come to pass, we should see sugar break above the $0.26 level and continue higher.

As of today, we’re sitting on a 6% gain in SGG.   Let’s keep holding for further upside.

. . . . Path Dow Jones-UBS Cocoa (NIB) – Buy up to $32.37

Cocoa took a little dive right after we recommended it in the last report.  But since that quick bout of selling, cocoa prices have firmed up.  As of today, cocoa trades for $2,360 per ton- just a few dollars shy of where we entered the trade two weeks ago.

In order to achieve the breakout we’re looking for, cocoa needs to break above $2,400… an area of strong resistance.  But given the looming supply deficit, there’s a very good chance higher prices are coming.

If you haven’t already, add NIB to your portfolio up to $32.37.

Category: Commodity Trading