Weekly Update: December 18, 2013

Weekly Update: December 18, 2013

 

Commodity Watch:

There it is folks!

The Federal Reserve’s tapering program is officially starting.  According to this afternoon’s speech from Fed Chairman Ben Bernanke, the US economy is strong enough to reduce monthly stimulus measures by $10 billion. 

Of course, that brings the ongoing total monthly stimulus to $75 billion, which is still a substantial sum of money. 

And what about precious metals’ reaction to the news?

Gold and silver investors are essentially yawning.  Gold closed down a mere $11.90, while silver slipped a measly 7 cents.  The lack of movement tells me tapering has already been priced into these markets.

But on the other hand, with inflation still running at extremely low levels, investors aren’t in any hurry to add these metals back into their portfolios.

As far as our newly established, low-risk trade in the iShares Silver Trust (SLV), let’s keep holding these calls for at least another week.  We may see a delayed bullish reaction by investors. 

Here’s an update on the remainder of our open portfolio positions…

 

Portfolio Recap:

. . . . US Oil Fund (USO) January 2014 $34.50 Calls

This morning’s EIA inventory report revealed oil in storage decreased by 2.9 million barrels.  What’s more, distillated inventories decreased by 2.1 million barrels.

All in all, today’s report was mildly bullish.  And true to form, the price of oil rose $0.43 to $97.64 in today’s trading session.

Since WTI achieved our first profit target of $98 a barrel in recent trading, conservative investors may want to close this trade for a 20% gain.  If you’re more aggressive, you may want to hold onto your calls for higher prices.

. . . . iShares Comex Gold Trust (IAU) January 2014 $12.00 Puts

Gold’s reaction to today’s FOMC announcement was a bit dull.  But like I said earlier, the fact that the yellow metal didn’t move much is a good sign investors have already priced in tapering.

But on the other hand, until inflation picks up, gold won’t be the highly desirable asset it once was.  That means we’ll likely see the yellow metal trade in a choppy, yet slightly lower pattern for a while longer.

However, there’s still a good chance gold suddenly drops below $1,200 an ounce in the near future.  With equities putting together a huge rally today, investors may pull more money out of gold to put into stocks.

Since we still have another month before these puts expire, let’s keep holding this put trade for continued downside in gold.

 

Category: Commodity Trading