Weekly Update: July 17, 2013

| July 17, 2013

Weekly Update:  July 17, 2013

 

Commodity Watch:

Ben Bernanke went before Congress this morning to update lawmakers on the health of the US economy.  In a Q & A session, Bernanke said the Fed still plans on tapering their bond purchases sometime this year. Not exactly what bullish commodity investors want to hear as it will add strength to the US Dollar.

However, Bernanke went on to say that the Fed will continue to be accommodative and may adjust their plans on incoming economic data. 

In other words, he’s taking a wait and see attitude.

As far as trading action in the commodity markets goes, silver managed to peek its head above $20 an ounce last week- the first time that’s happened since mid-June. 

However, Bernanke’s testimony before Congress this morning is clearly not what bullish silver investors wanted to hear.  More on that in the gold update below…

Spot corn rallied above $7.20 a bushel in recent trading on a strong cash market.  However, prices are still dramatically weaker in the September and December contract- $5.40 and $5.10 respectively.

Let’s take a quick look at our open positions in oil, natural gas, and gold…

 

Portfolio Recap:

. . . . SPDR Gold Trust (GLD) August 2013 $126 Calls

Gold rose to within a whisker of $1,300 in recent trading.  The rally from the key reversal signal I pointed out in the original trade alert on July 2nd gave us gains of just over 30% in our $126 GLD calls.

But the rally faltered today…

Bernanke’s testimony this morning sent gold back down towards $1,250 an ounce.  With the Fed now likely to reduce QE measures in coming months, the impetus to own gold is diminished in the eyes of wary investors.

As of this writing, our $126 calls are worth about $1.80 per contract- a few pennies under what we paid for them ($1.88).  Since these are out of the money calls with August expiration, they’re going to lose value quickly if GLD doesn’t get above $126.  And as of right now, it’s readily apparent that bears are back in control of the gold market thanks to Bernanke’s testimony.

As a result, it’s in our best interest to SELL TO CLOSE the GLD $126 call at current prices.  This essentially gets us out breakeven on this trade.

Unfortunately, the fundamental reasons to sell gold are now outweighing the technical reasons to buy.  And that’s precisely why we need to cut our risk in this GLD call trade.

. . . . US Natural Gas Fund (UNG) August 2013 $21 Calls

Mother Nature is starting to cooperate with our natural gas trade.  Temperatures along the eastern seaboard are heating up with temperatures pressing the mid-90s.  Remember, higher temperatures means more electricity demand, which should increase natural inventory drawdowns and raise gas prices.

However, natural gas is still stuck in a trading range between $3.60 and $3.75 mmBtu.  Tomorrow’s EIA inventory report is very important.  We need to see a bigger than expected storage drawdown in order for natural gas prices to move higher.

For now, keep holding the UNG calls for higher prices…

. . . . US Oil Fund (USO) September 2013 $36 Puts

It’s still too early to garner much information on our newly established WTI put trade.  As you know, we bought puts on USO yesterday with oil at $106 a barrel. 

 

Category: Commodity Trading

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