Weekly Update: January 29, 2014

| January 29, 2014

Weekly Update: January 29, 2014


Commodity Watch:

What a day for the commodity markets…

As you may be aware, Federal Reserve Chairman Ben Bernanke shocked investors this afternoon when he announced another $10 billion a month in tapering.  This is in addition to the $10 billion a month of cuts announced in the December 2013 FOMC meeting.

The additional stimulus cut brings quantitative easing to $65 billion a month- still a tidy sum.

But here’s what’s really interesting…

Precious metals are rallying on the news!  In fact, gold rose $18 an ounce on the day while silver popped $0.28.  At first sight, this may seem like an unusual response to seemingly bearish news.

Here’s the deal…

Metals are likely rallying because the Fed’s tapering operations have largely been factored in.  As you know, gold and silver suffered enormous losses last year as investors priced in the onset of tapering.

Now let’s be clear…

I’m not saying metals can only go up from here.  But judging by today’s reaction to the Fed’s tapering news, the brunt of the heavy selling in the precious metals markets is very likely over!

Let’s look at our open positions…


Portfolio Recap:

. . . . US Natural Gas Fund (UNG) April 2014 $21 Puts

Egg.  Meet face.

Natural gas screamed to another all time high at $5.60 mmBtu today as extreme cold consumes the Eastern US.  What’s more, the NOAA is expecting more frigid temperatures for the Midwest in their 6-10 day outlook.

No doubt about it, the extreme cold has natural gas inventories at extremely lows levels.  And that’s precisely why this commodity is exploding higher.  Investors fear there won’t be enough gas to go around if temperatures stay below normal for much longer.

Could a national natural gas heating emergency really happen?

It’s possible, but not at all likely.

I realize I’ve stated this before, but this remarkable jump in natural gas prices won’t last.  Once a warming spell hits, we’ll see this commodity plunge downward.

For now, keep holding the April $21 UNG puts.  What’s more, look for another natural gas trade in your email inbox soon!


. . . . US Oil Fund (USO) February 2014 $33.50 Calls

Thanks to the recent bullish action in WTI crude, our USO calls are sitting on solid gains.  In fact, as of this afternoon’s close, the $33.50 calls are crossing the tape at $1.52 per contract.  That’s a solid 75% gain from our entry price.

If you’re a conservative investor, consider closing this trade tomorrow morning.  There’s a growing chance the sudden downturn in the US equity markets may leak into the oil market soon. 

However, from a technical standpoint, it still looks as though crude has a very good chance of hitting the $100 a barrel mark. So if you like to take a bit more risk, don’t be afraid to hang onto your calls for another week.


Category: Commodity Trading