Commodity ETF Alert September 2009 Portfolio Update
September 22, 2009
Gold Over $1,000!
We’ve been talking about this trend since the beginning of the year. And now it’s taking hold. We’ve spent 11 trading sessions with Gold over $1,000. Those traders calling this a fluke are starting to reevaluate.
It’s great news for our Gold position… Never bad to see a profit on a trade!
The question of the day is, “Why Now?”
Why are we just now seeing Gold jump over the strategic $1,000 level? I see two big drivers… weakness in the US Dollar and the look of the recession.
Let’s talk about the recession first.
To combat the global recession, the US Federal Reserve flooded the market with US Dollars. Liquidity was needed and they delivered it by the boatload. At the time, fear of financial loss was sky high.
But now fear is quickly leaving the market.
Many were waiting for a second leg down in September or October… so far September’s been stable. And even the bears are starting to question a further fall.
So fear is leaving the markets and the recession looks to be ending. We’re also seeing employment numbers stabilize. The talk of Great Depression-like unemployment (over 25%) isn’t even serious anymore.
Analysts are now trying to project just when unemployment numbers will turn lower. It’s a significant change from when everyone was thinking about how high they would go.
The recession’s ending and economic numbers, like unemployment, are manageable. But the market is still flooded with US Dollars. Remember all that liquidity the Fed created? Well now it’s causing investors to fear something entirely different… inflation.
The threat of inflation is pushing down the value of US Dollars. Remember my second big cause of rising Gold prices? Right now the US Dollar is trading at new lows for the year. We still have farther to fall.
What are investors going to do? Invest in Gold of course. Gold is a natural hedge to both the falling US Dollar and the threat of inflation.
This run-up in Gold isn’t over by a long shot. We’re only in the early innings. I’m expecting Gold to move another 15% to 20% (if not more) in just the next few months.
Now, let’s take a look at our open positions…
Position Updates
. . . iShares Silver Trust (SLV) – Buy up to $17
Our new trade in September is already up in value. We traded over the $17 level which gave us a better than 7% gain in just two weeks…
This trade should move for a while… Inflation risks, resuming industrial demand, and falling US Dollar values will all drive Silver higher. SLV is now trading under our buy-up-to level of $17… Consider adding some to your portfolio if you haven’t already.
. . . iPath DJ AIG Natural Gas TR Sub-Index ETN (GAZ) – Buy up to $17
After we put on this trade, we watched it fall right down to the $12 level. We bounced from that level right back up towards our entry point. I think the move we just witnessed may be the bottom of the market. Yes… I’m going out on a limb with that one.
Don’t forget, Nat Gas is needed in a growing economy and to heat homes in a cold winter. Demand’s going to return, and with drilling rig numbers falling, supply should dwindle.
We’re still under our buy-up-to price so if you haven’t already, consider adding GAZ to your portfolio.
. . . iShares COMEX Gold Trust (IAU) – HOLD
The Gold commodity is trading above $1,000 an oz. Our Gold ETF is showing a nice profit. See my notes above for more commentary on Gold.
We’re trading above the buy-up-to price… I’m moving Gold to a Hold.
. . . iPath Dow Jones–AIG Copper ETN (JJC) – HOLD
Copper is trading in a tight range right now. We’re bouncing from $38 to $41 and then moving back down. This is clearly a consolidation pattern. These consolidation phases are good. They establish a solid level and eventually we’ll see our ETF break-out.
With the economic recovery in process, demand for Copper’s sure to grow. Hold tight to JJC for now.
. . . iPath S&P GSCI Crude Oil Total Return ETN (OIL) – HOLD
Oil is another commodity consolidating around a tight range. We keep bouncing from $23 to $25 and back. Again, as the recovery takes hold, we’ll see oil prices move higher. Our price target is $27 on the OIL ETF.
Hold tight.
Action To Take
- Move Gold (IAU) to a Hold
Category: Commodity Trading
