Commodity ETF Alert September 2012 Issue
In case you haven’t noticed, things are heating up for precious metals.
Ever since the Federal Reserve’s meeting notes were released on August 22nd, it’s been ‘game on’ for the likes of gold, silver, platinum, and palladium.
What was so important about August’s FOMC meeting?
Well, simply put, it’s when the Fed finally realized the US economy needed additional help.
After all, unemployment is still lingering over 8% and manufacturing is showing signs of contraction in various regions of the country.
Clearly, that’s not what Ben Bernanke and the Federal Reserve wants to see.
So like it or not, it’s highly likely we’ll see some form of further monetary easing in the very near future. In fact, many economists are predicting an announcement as early as this Thursday, September 13th.
Now I won’t get in the game of predicting the exact date Ben Bernanke will announce the next round of quantitative easing (QE3).
But I will do this…
I will suggest silver is in the early stages of another massive move higher.
Not only do we have the backdrop of further monetary easing and a weaker US Dollar, but silver also has a highly bullish technical pattern.
Take a look…
As you can see in this long-term weekly chart, silver is breaking higher from a very large consolidation pattern.
What exactly does the term ‘consolidation’ mean?
Consolidation refers to price action that generally occurs after an asset (it could be a stock, commodity, or otherwise) makes an explosive price run. Now, let me be clear, consolidation can occur after a large move up or down. Of course, the consolidation we’re seeing in silver comes after a massive rally that started in August 2010 (point A).
Once consolidation starts, the asset in question enters into a defined trading range. This is where market participants work to figure out the asset’s next move. During this period, the price of the asset bounces between defined technical resistance and support zones. You can see silver’s trading range marked by the blue lines.
Now here’s where it gets interesting…
The longer the consolidation pattern lasts, the more explosive the resulting move higher (or lower) can be. As you can see in the chart above, silver’s been stuck in consolidation for over a year.
But once market participants agree on a new direction, the asset’s resulting move can be fast and furious. And that’s exactly what we’re seeing in the silver market right now. Take a look at green point B and you’ll see the white metal is quickly breaking to multi-month highs.
And here’s the best part…
Given the size of silver’s consolidation over the past year, along with the current expectation of further monetary easing by the Fed, silver’s poised for a remarkable rally.
I’ll go on the record saying that if the Fed follows through on their promise to further stimulate the US economy, silver will likely touch $50 an ounce within the next six months.
Now, please listen closely.
The ride in silver will not be easy. You can expect plenty of twists and turns in the market over the next few months.
But once the dust settles, investors buying into silver at today’s prices will most likely find themselves sitting on hefty gains by early 2013!
ABOUT SILVER
As many long-term readers remember, we’ve had great success trading the iShares Silver Trust (SLV) in the past. As of today, SLV holds just over 315 million ounces of silver, worth just under $10.6 billion. The trust’s day-to-day price reflects the value of each ounce of silver held within its vaults.
TECHNICALLY SPEAKING
As you can see, SLV is breaking solidly above $32 in recent trading- much like the actual price of silver. Now keep in mind, we may see silver retrace its recent gains and retest the $30 level before continuing higher into year-end. If we do get such a pullback, make sure you use it as a buying opportunity.
WHAT TO DO NOW:
iShares Silver Trust (SLV) is trading at $32.29.
Buy SLV up to $33.00 per share.
Our profit target is $47.50 or more.
| COMMODITY | TICKER | CURRENT VALUE | LAST MONTH | CHANGE |
| Energy | JJE | $17.51 | $17.38 | +0.7% |
| Grains | JJG | $62.42 | $60.60 | +3.0% |
| Industrial Metals | JJM | $34.96 | $31.77 | +10.0% |
| Precious Metals | JJP | $94.30 | $85.48 | +10.3% |
| Softs | JJS | $57.35 | $58.74 | -2.4% |
| Livestock | COW | $27.57 | $28.29 | -2.5% |
| All Commodities | DJP | $43.99 | $42.13 | +4.4% |
ENERGY COMMODITIES
Believe it or not, oil’s pushing the $100 a barrel mark for the second time this year. In fact, crude set a multi-month high of $98.29 on August 23rd. Obviously, this recent strength has bode well for our iPath S&P GSCI Crude Oil (OIL) trade. As of today, we’re sitting on a 14% gain in OIL.
Now, in order to ensure a nice profit in this trade, we need to figure out what crude’s next move is. Is the essential commodity about to move higher? Or will something turn up that pushes crude lower?
While global supply/demand fundamentals support oil prices in the $90 range, there is something lurking in the background that could knock crude down to $80.
What is it?
As I’m sure you’re aware, this is an election year. And during election years, standing Presidents do all they can to ensure they get re-elected. That’s why there’s a strong possibility the Obama Administration releases oil from the Strategic Petroleum Reserve (SPR) in the near future.
An SPR release would immediately bring down the price of West Texas Intermediate Crude. And as a result, we would likely see a hefty drop in gas prices- something that would benefit Obama’s re-election campaign.
So here’s what we’ll do…
Let’s sell half of our OIL position at current prices. Doing so will give us a solid 14% return on half our position.
But whatever you do, don’t sell all your OIL…
Middle-Eastern issues with Iran are still unsettled. And that means there’s still an outside possibility of a conflict- related crude market surge. Only selling half at today’s levels leaves the rest of our OIL position open to further upside.
As far as natural gas goes, we’re still seeing some late summer weakness due to ongoing oversupply issues. Let’s keep our position in the United States 12-Month Natural Gas (UNL) at a hold until further notice.
GRAIN COMMODITIES
Corn and soybeans are still seeing the after-effects of this year’s drought as both grains remain near all-time highs. And to make matters worse, many analysts see further upside for corn as the total damage to this year’s crop is accounted for in coming weeks.
As tempting as it may be to go long corn again, I don’t recommend it. This market is already extremely overbought and susceptible to a severe sell-off. Especially if things aren’t as bad as the market is currently pricing in.
What’s more, since we already made solid gains of nearly 20% earlier this year in CORN, it’s best to invest elsewhere.
INDUSTRIAL METALS
Great news for copper…
The People’s Bank of China announced they’re ready to build $150 billion worth of ports, roads, and other projects in bid to stimulate the Chinese economy. And as you may know, most construction projects rely heavily on copper.
We’re currently sitting on a 10% gain in the iPath Copper ETN (JJC). Let’s keep JJC at a hold, as it’s highly likely we’ll see further gains for the red metal in coming months.
PRECIOUS METALS
As I mentioned earlier in today’s report, precious metals are getting lots of investor attention in recent trading. Gold, platinum, palladium, you name it… they’re all moving higher.
What’s going on?
Another round of quantitative easing (QE) by the Fed is virtually guaranteed at this point. As you may know, August’s unemployment report came in well below expectations. And that has many economists convinced Fed Chairman Ben Bernanke may announce QE3 as soon as this week.
Regardless of whether the Fed implements QE3 or not, I remain strongly bullish on the entire precious metals sector.
As I’m sure you’re aware, all our open precious metals positions are now positive. But the best part is, platinum and gold are giving us hefty gains of 16% and 9%respectively. And it’s only a matter of time before palladium does the same.
Let’s keep holding our gold (IAU), platinum (PGM), and palladium (PALL) positions for further upside.
SOFTS
Cocoa’s done it!
The sweet commodity has finally broken above the $2,500 technical resistance zone. As you may remember, this is the price area that has held cocoa back for months.
What’s going on?
Recent Commodities Future Trading Commission (CFTC) data shows investors net long position in cocoa increased to just over 28,000 lots last week… the highest in nearly two years. Much of the bullishness is due to continued South African weather worries and expected supply shortfalls later this year.
Now that cocoa is firmly above technical resistance, it’s highly likely we’ll see $3,000 a tonne in coming months. We’re currently sitting on an 11% gain in the iPath DJ-UBS Cocoa ETN (NIB).
Let’s keep holding our position for further upside.
LIVESTOCK
Cattle prices are all over the map…
After high grain prices and drought conditions took prices down in June and July, long-term supply worries gave cattle a boost in August. The cattle market will likely see more ebb and flow as USDA data reveals the damage to this year’s corn crop.
- This month we’re adding silver (SLV) to the portfolio. See above for all the details.
Category: Commodity Trading
