Commodity ETF Alert May 2013 Issue

| May 14, 2013



Every commodity trader I speak to agrees…

Trading in precious metals markets last month was highly unusual.

As you’re most likely aware, gold, silver, platinum, and palladium all endured massive selloffs in April.

What happened?

It all started with a nasty (and so far untrue) rumor that Cyprus is selling the majority of its gold holdings.

According to various reports, the country is on the verge of selling 10 tonnes of gold. Doing so would raise approximately 400 million Euro ($523 million) the country needs to fund its portion of the European Union/International Monetary Fund bailout.

But the funny thing is, the Central Bank of Cyprus has flat out denied the rumor.

In fact, a spokesperson for the central bank recently told CNBC that there’s “no such thing being discussed.”

So what’s the deal?

In a nutshell, gold suffered a massive selloff based on an unconfirmed rumor.

But what’s even more interesting is that the rumor surfaced when the price of the yellow metal was at extremely important technical support levels.

Take a look…

Gold Chart

As you can see, gold took a spectacular dive once the long-standing $1,550 technical support zone was broken.  The margin call selling issue I discussed in April’s portfolio update had a huge impact on the severity of the downturn.

I don’t know about you, but something smells fishy about all this…

I realize I may sound conspiratorial, but after doing extensive research, there’s no other conclusion an unbiased analyst like myself can come to…

April’s precious metals market collapse appears manipulated.

I could go on for pages about my reasoning for that highly charged statement- but I won’t waste your time.  Fact is, I can argue my case until I’m blue in the face but it won’t change the fact that gold is down substantially from where it started the year.

In other words, there’s no sense in arguing with the market- what’s done is done.

At this point, you’d be much better served with information about where precious metals are set to move next.  Are gold and silver a good buy here?  Or are they destined for even lower prices?

As far as gold and silver go, enormous technical damage was done to both markets over the past month.  And since both metals are highly speculative in nature, that technical damage will affect investor perception for some time to come.

One thing’s for certain, gold and silver are no longer considered the “safe-haven” investment investors once thought they were.  There will be a time to get long gold and silver again- but it’s not today.

But palladium and platinum are a completely different story…

You see, even though both metals were dragged lower by last month’s washout, they have something gold and silver lack… an extremely bullish supply/demand backdrop.

As a matter of fact, both metals are on the cusp of very important fundamentals shifts.

Let me explain…

As you know, South Africa is a huge player in the global platinum/palladium market since 80% of global mine production comes out of the country’s Bushveld complex.

But due to relatively low prices for the metals in recent years, mining companies operating in the Bushveld are facing an enormous problem- they can’t achieve profitable operations.

As a matter of fact, the world’s top platinum producer, Anglo American Platinum, just revealed a restructuring plan to combat their money-losing situation a few days ago. The company wants to close two mine shafts and cut 14,000 jobs.

As a result, there’s going to be some intense labor negotiations in South Africa over the next few months.  If Anglo goes through with the cuts, South African miners will be up in arms.

Maybe you remember what happened to the price of platinum last August when labor negotiations got ugly and miners reacted with violence.  The metal surged from $1,400 an ounce up to $1,700… a 20% jump in a matter of weeks.

Will it happen again this year?

All I can say is the labor situation in South Africa is incredibly complex and I don’t want to bore you with all the details.

All you need to know is this…

If Anglo American and other South African mining companies are forced to curtail production and slash jobs, it’s highly likely miners go on strike.  And that means global palladium and platinum supplies will come under pressure.

And remember, all this is happening at a time when global auto sales are growing.  As you may know, over 50% of global platinum supplies are gobbled up by the automobile industry due to the metal’s use as an auto catalyst.

Bottom line…

The recent drop in platinum is presenting us with an outstanding buying opportunity. Much like palladium (which we’ll talk about in a minute), platinum’s supply/demand fundamentals are extremely bullish.


The iPath DJ-UBS Platinum (PGM) is an ETF that tracks the day-to-day price movements of platinum.  PGM reflects the returns potentially available through an investment in platinum futures contracts.


PGM Chart

As you can see, PGM took a steep dive over the past few months.  But with South African labor disputes looming, the recent pullback presents an opportunity to pick up platinum on the cheap!


iPath DJ-UBS Platinum (PGM) is trading at $33.11
Buy PGM up to $34.00 per share
Our profit target is $39.00 or more

***Important***  PGM is a thinly traded ETF with low liquidity.  Do not purchase for more than the maximum buy up to price of $34.00.


Energy JJE $17.50 $18.03    -2.9%
Grains JJG $50.90 $48.87     +4.2%
Industrial Metals JJM $30.62 $31.36    -2.4%
Precious Metals JJP $73.43 $82.23   -10.7%
Softs JJS $50.58 $51.26    -1.3%
Livestock COW $25.91 $26.04    -0.5%
All Commodities DJP $38.92 $39.71    -2.0%



There’s a lot of uncertainty in the energy markets these days.  As a result, the price of WTI crude is stuck in a volatile trading range between $95 and $97.

However, one thing is for certain…

US crude supplies are growing rapidly.  In fact, a recent EIA inventory report revealed the US is sitting on its biggest crude stockpile since the government agency began tracking weekly storage data in 1981.

Quite frankly, it’s unusual that WTI crude is still trading in the mid-$90 a barrel range with this much supply.

Unfortunately, there’s still no trade for us in oil right now.  But once I see something, you’ll be the first to know.

As far as natural gas goes…

Warmer Spring temperatures are taking a bit of the froth out of the natural gas market.  The spot price of Henry Hub gas fell from $4.40 in late April to $3.90 a few days ago.

Where our trade in US 12-month Natural Gas (UNL) goes from here depends on upcoming EIA storage injection data.  The higher the weekly storage builds, the more UNL is likely to pull back.

But like I mentioned in the original trade alert on UNL…

The new floor for natural gas is likely around the $3.75 to $3.85 level.  And that means UNL could trade down to $18.25.  At that point, we’ll move UNL back to a buy. For now, keep UNL at a hold.


Grains are stuck in tight trading ranges as the Spring planting season kicks off.  Corn is stuck at $6.50 a bushel while soybeans are holding the $14.15 area.

However, we could see an uptick in prices in coming weeks if Mother Nature doesn’t start cooperating.  Many parts of the Midwest are too wet for farmers to get into the fields and plant.

If rains don’t ease soon, we may have to rethink our bearish stance on grains.


Bulging London Metal Exchange inventories had bears taking control of the copper market in recent months.  In fact, copper dropped to a new 52-week low of $3.04 a pound on May 1st.

However, the red metal made a spectacular bullish u-turn May 3rd when the surprisingly good April US unemployment report hit the headlines.  Copper and other industrial metals may see a bit more upside in coming months if Chinese and US economic data hold strong.


Our position in ETFS Physical Palladium Shares (PALL) is recovering nicely after being dragged lower by chaotic trading in the gold market a few weeks ago.  Just like platinum, supply/demand fundamentals for palladium are strongly bullish.

If you haven’t already, go ahead and buy PALL up to $72.00.


Sugar is still not cooperating…

Spot sugar dropped to a new 52-week low at 17cents this morning.  This has our position in iPath DJ-UBS Sugar (SGG) currently sitting at a 9% loss.  No doubt about it, we need the short covering rally in this sweet commodity to start soon.  Otherwise, we’ll have to cut this trade from our portfolio.

For now, keep SGG at a hold.  But if the ETF breaks below $60.00 over the next two weeks, go ahead and close this trade.

On a brighter note, cocoa bulls really turned up the heat last month…

The commodity ran from $2,120 a ton in early April up to $2,420 by May 1st.  The bullish run put our trade in the iPath Pure Beta Cocoa (CHOC) firmly in the green.  We may see a bit of profit taking for cocoa over the next few weeks, but the commodity should take a run at $2,500 by year-end.

Keep holding CHOC for bigger gains…


There isn’t much to get excited about with livestock right now as both live and feeder cattle futures remain under pressure.  In fact, live cattle for June delivery hit a new contract low of $1.19 a pound a few weeks ago.  What’s more, ample supplies of feeder cattle coming across Midwest sale rings have feeders trading at $1.35 a pound.

Steer clear of the livestock markets for now…

Portfolio Changes

  • This month we’re adding platinum (PGM) to the portfolio.


Category: Commodity Trading