Commodity ETF Alert September 2011 Portfolio Update

September 27, 2011

Forced Liquidation Rocks Hard Assets…

Watching a commodity with exceptionally bullish fundamentals drop due to irrational market behavior can be very frustrating.

And that’s exactly what happened last week…

Commodities across the board spiked down due to margin calls and panic selling.  Fears over a banking meltdown in Europe along with a weaker global growth outlook threw the commodity markets into a tizzy.

There’s really no other way to put it- commodity markets are being hijacked by headlines right now.

So how do we manage our portfolio in this uncertain environment?

Take a look…

Position Updates

. . . . iShares Gold Trust (IAU) – Hold

The US dollar rally did exactly what we thought it would… it knocked the spots out of gold last week.

But much of the big move down in gold was due to margins calls, not a change in fundamentals.  Central banks are still buying gold hand over fist, and investors the world over are still clamoring for the yellow metal.

Now that gold has fallen to the $1,600 area, buyers are very likely to come back into the market with force.  In fact, gold surged nearly $60 in today’s session alone.

It may be hard to believe, but the bull-run in gold is far from over.  So far, the fixes to Europe’s debt problems all require more debt and more money printing.

And that’s just what the doctor ordered for higher gold prices.

Remember, we sold half our position in IAU near all time highs in August.  Let’s keep holding our remaining position for higher prices…

. . . . United States 12 Month Natural Gas (UNL) – Buy up to $31.00

Natural gas is already in the dumps, so the recent high volatility didn’t affect this market too much.  Prices are still holding just under the $4.00 MMbtu level.

However, things could get interesting in the near future…

I’m hearing lots of talk out of Washington in regards to a new energy policy.  If politicians decide to push the US trucking industry towards natural gas, we could see this commodity move higher in a hurry.

If you don’t have a position in UNL yet, go ahead and add it to your portfolio up to $31.

. . . . iShares Silver Trust (SLV) – Hold

Silver took a hit right along with gold last week.  Since silver is a relatively small market compared to gold, it’s highly susceptible to big moves.

But remember, the fundamentals for silver haven’t changed since our trade alert.  And that means silver is still a great place to be.  We’re down slightly in our SLV position right now, but I think higher prices are still coming.

Keep holding SLV for more upside…

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

Palladium prices took it on the chin last week.  Fears of a global economic slowdown sent this metal downward in a hurry.

Why such a big move in palladium?

Palladium prices are closely linked to activity in the auto industry.  If there’s a slowdown in global economic growth, auto sales will surely fall.  And that will lead to a decline in palladium demand.

Let’s go ahead and cut palladium from the portfolio for now.  There’s just too much downside risk in the current market environment.

. . . . United States 12 month Oil (USL) – HOLD

Oil came down to test the $80 a barrel mark in recent trading.  This puts our position in USL sitting at just above break even.

Unfortunately, the oil market is now a completely headline driven market.  The slightest whiff of bad news from Europe and the oil market takes a dive.

But let’s not give up on this trade just yet…

Last week’s EIA oil inventory report showed oil stocks were at 32 million barrels, their lowest level since April 2010.  Much of that draw in inventories is likely due to rough weather in the Gulf of Mexico.

The oil market is pricing in plenty of fear right now.  But higher oil prices are certain if Europe can get a handle on its debt problems.

. . . . iPath Dow Jones-UBS Copper ETN (JJC) – Sell

Copper was one the harder hit commodities last week.  This metal is highly sensitive to changes in economic growth forecasts.  And with fears of a global economic slowdown ruling the headlines, copper took a dive.

Even though the fundamentals for copper are strongly bullish, the market is more concerned about the possibility of a big slowdown in global growth.  Let’s take our lumps and move out of this trade for now.

Go ahead and sell JJC…

. . . . iPath Dow Jones–UBS Livestock Subindex (COW) – Buy up to $30.50

Our most recent portfolio addition is holding up rather well in all this market volatility.  In fact, cattle futures were limit up in Monday’s trading session due to a surprise drop in animals ready for feedlot placement.

Analysts are expecting smaller US calf crops in 2012 and 2013, which will further raise cattle prices.  If you haven’t already, consider adding COW to your portfolio up to $30.50.

Category: Commodity Trading