Commodity ETF Alert May 2013 Portfolio Update

| May 28, 2013


Soaring Dollar Creates Headwinds For Commodities…

No doubt about it, the Greenback has been on a roll lately.  Since the start of the month, the US Dollar index has jumped just over 2%.

Take a look…

USD Chart

As you can see, the Dollar index jumped from 82 to 84 in May.  Not surprisingly, the inverse correlation between commodities and the Greenback sent many hard assets lower on the month.

What’s causing the Dollar’s resurgence?

There’s growing talk that the Fed is ready to start tapering off quantitative easing (QE) sooner rather than later.  As a matter of fact, FOMC meeting minutes released last week revealed several Fed members mentioned the idea of exiting QE starting in June.

Will they follow through on the idea?

If so, we’ll see the Dollar continue higher.

However, in his testimony before Congress last week, Ben Bernanke stated it’s too early to start tapering out of QE.  According to the Fed Chairman, while certain areas of the economy are steadily improving, unemployment levels are still too high.  He made it clear that the Fed will continue their easing efforts until unemployment levels are firmly below 7%.

What’s all this information mean for commodities?

Until investors get more clarity on the situation, we’ll likely see volatile trading for the Dollar around the 84 technical resistance level (red line in chart above).

If there are signs of a QE exit, the Greenback will likely break above this important level. In such a case, only the strongest of commodities would be able to hold their ground.

On the other hand, if the unemployment rate stays above 7% (as it is now), it’s highly unlikely Bernanke will approve a QE exit in the near future.  As a result, the Dollar may fall from the 84 resistance level.

A falling Dollar means commodities with strong underlying supply/demand fundamentals will be compelling buys as 2013 advances.

Let’s get to the updates…


Position Updates

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

A bout of profit taking sent cocoa lower in recent trading.  Now remember, I mentioned the high odds of a cocoa market pullback in the last update.  So don’t let the current pullback worry you.

Higher cocoa grindings mixed with tightening global supply/demand fundamentals will likely push cocoa higher in the second half of 2013.

For now, let’s keep CHOC at a hold…

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

Palladium is back!

As you know, we went on a wild ride in the industrial/precious metal last month.  The chaos in the gold market unfairly dragged palladium lower.

However, palladium’s bullish fundamentals are finally putting prices back where they belong.  In fact, the metal rose $100 an ounce since early May.  The recent rally puts us back near our original buy price of $74.37 in PALL.

Those of you who picked up PALL under $72.00 (recommended in the last update) are sitting pretty.

Keep holding PALL for higher prices…

. . . . iPath DJ-UBS Sugar (SGG) – SELL

Unfortunately, our sugar trade stopped out at $60.00 a few days ago.  The short covering rally we were looking for in the sugar market just didn’t pan out.  The sweet commodity’s bearish fundamentals proved to be too much to overcome.

If you haven’t already, sell SGG.  You’ll have the opportunity to move the capital from this trade into a better opportunity soon.

. . . . US 12 Month Natural Gas (UNL) – HOLD

Natural gas is back above $4 mmBtu…

News of the US Department of Energy approving another liquefied natural gas export facility sent prices higher last week.  What’s more, a slightly lower than expected EIA inventory build of 89 billion cubic feet helped bulls reassert their dominance.

However, as I’ve said before, natural gas will likely remain subdued until summer arrives.  At that point, we’ll see if bulls have the underlying fundamentals necessary to push natural gas to the $5 area this Fall.

For now, just keep holding UNL for additional gains…

. . . . iPath DJ-UBS Platinum (PGM) – BUY

South African wage negotiations between mining companies and workers are ongoing.  So far, we haven’t seen major worker strikes that would inevitably slow production.

However, the situation is fluid.  Should we see a major strike and work stoppage like we did last year, platinum prices are sure to rise… and quickly.

If you haven’t already, go ahead and buy PGM at any price under $33.11.


Category: Commodity Trading