Commodity ETF Alert May 2012 Portfolio Update

| May 22, 2012 | 0 Comments

May 22, 2012

The US Dollar Is At It Again…

No doubt about it, the past few weeks have been rough for commodities.

Worries over the strength of the US economic recovery, along with a growing sense of panic in Europe, have investors running to the safety of the US Dollar.

Take a look…



As you can see, the dollar’s been on a remarkable win streak since early May.  Remember, commodities are inversely correlated with the greenback.  In other words, when the dollar rises, commodities generally drop.

And drop they have…

The iPath DJ-UBS Commodity Index Total Return (DJP) is down nearly 5% from the May 1st highs.  As you may know, DJP reflects the performance of the entire commodity complex.  The dollar’s recent strength is clearly having a negative effect on hard assets.

But whatever you do, don’t let the recent weakness scare you.  In fact, we should be rooting for commodities to drop a bit further so we can scoop them up at even cheaper prices in coming months.

Speaking of lower prices, notice the red line at the top of the chart…

This very important line represents the $82.00 technical resistance area in the US Dollar index.  If the greenback rises above this line in coming weeks, we’ll likely see additional weakness in commodities.

On the other hand, if things settle down in Europe, the dollar should retreat from this pivotal level.  If that’s the case, investors will roll investment dollars back into undervalued commodities.

Let’s take a look at our portfolio holdings…

Position Updates

. . . . Sprott Physical Gold Trust (PHYS) – SELL

No doubt about it, gold’s stuck in a rut.  The dollar’s recent advance sent the yellow metal to multi-month lows near $1,530 a few days ago.  As a result, our gold trade- PHYS- dropped below our $13.40 stop loss on May 14th.

Now that we’re out of this trade, I’d like to see gold continue dropping for another month or two.


Quite simply, I want to buy it back at much lower prices.  Fact is, long-term fundamentals still support much higher gold prices.

Consider this…

There’s really only one way out of the debt crisis in Europe and the US… economic growth. And to get it going, the European Central Bank and the Federal Reserve will need to make economic conditions as favorable for growth as they can.

That means we’re highly likely to see additional monetary easing in the near future.  And more easing means more money supply, which in turn means higher inflation expectations.

Gold has to go higher in the long run folks.  Just be patient and we’ll get back into the gold trade when the time is right.

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

Like its precious metal cousins gold and silver, palladium has seen its fair share of weakness recently.  In fact, the industrial/precious metal fell to $600 an ounce a few days ago, its lowest price since December 2011.

Of course, our investment in PALL isn’t looking so hot due to palladium’s recent weakness.

But we’re not going to give up on this trade just yet…

Long-term supply/demand fundamentals for palladium are overwhelmingly bullish.  Rising demand from the auto industry, as well as sketchy global supplies, point to much higher prices in the long run.  In fact, many metals analysts see palladium rising to $800 an ounce or more by the end of the year.

Let’s be patient and keep holding PALL for higher prices.

. . . . Teucrium Commodity Trust Corn Fund (CORN) – HOLD

Weather worries are starting to make an appearance in the corn market.  The same warm temperatures allowing US farmers to get ahead on planting this year is now starting to cause problems.

Many Iowa, Illinois, and Indiana farmers say they need rain in order for corn growing conditions to remain ‘good’ by USDA standards.

And according to an analyst at Rabobank, if crops don’t get rain within the next month, farmers will likely start reporting ‘poor’ crop conditions across the Midwestern US… the heart of the corn belt.

This development brings into question the record USDA corn inventories expected later this year.  As a result, we should see corn prices rise in coming months if the Midwest remains dry.

Let’s keep CORN at a hold for now.  A lot can happen in the next few months to push prices higher.

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

Cocoa remains stuck around $2,100 a ton.  But the closer we get to Fall, the more likely we are to see the cocoa rally we’re looking for.


The supply deficit we based our trade on should hit global markets in the third quarter of 2012.  And once it does, many commodity analysts feel cocoa prices will rise to $2,700 a ton or more.

Let’s be patient with NIB.  Keep holding for higher prices.

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

After an amazing multi-year price collapse, natural gas is back on the upswing.  In fact, natural gas is the top-performing commodity over the past month… up 40%.

But let’s not get ahead of ourselves.  Natural gas will likely be volatile for the next few months.  The summer injection season is just starting and we may see natural gas test the $2.00 mmBtu area again soon.

If that’s the case, use the weakness as a buying opportunity.  For now I’m moving UNL to a hold since it’s beyond our buy-up-to-price of $17.30.

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.