Weekly Update: July 31, 2013

| July 31, 2013

Weekly Update:  July 31, 2013


Commodity Watch:

Second quarter US GDP numbers came in better than expected this morning at 1.7%.  While that’s certainly good news for the US economy, it had a detrimental effect on the price of gold and silver earlier this morning. 

Gold was down $15 in the early morning trading session while silver dropped firmly below the psychologically important $20 level.

But then the Fed’s rate decision came out this afternoon…

According to the release, Bernanke will keep the printing presses rolling for the time being.  What’s more, the Fed gave no sign of an imminent tapering of their $85 billion a month bond purchase program. 

Thanks to that news, gold and silver quickly recovered their earlier losses… a great sign for bulls. 

We may have a trade in precious metals soon, but I need to see a few technical factors fall in line before I make the call.

Corn finally dropped below $5 a bushel this week thanks to near perfect growing conditions for this year’s US crop.  As you may know, the USDA is forecasting a record corn crop of 13.95 billion bushels.  If that comes to fruition, this Fall we may see even lower prices.

And that’s not all…

Wheat and soybeans are also trading dramatically lower on the week thanks to abundant crop projections.  The recent downdraft in these three commodities has the grain complex drastically oversold on a short-term basis.

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


Portfolio Recap:

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

We had two very important things going for us when we opened this trade in mid-June.  Not only was natural gas trading near an important technical support level, but we were also entering a seasonally strong period for the commodity.  The odds were strongly in our favor that natural gas prices would rise in July.

But as you know, natural gas just hasn’t cooperated with us…

We haven’t seen the sustained high temperatures needed to push natural gas demand, and prices, higher over the past month.  A few heat spells showed up in the northeast but they were intermittent and not enough to make a huge dent in EIA storage levels.  As a result, natural gas has essentially been stuck at the same price level since we entered our position.

Unfortunately, since our out-of-the-money $21 call options are getting close to expiring, their value has eroded quickly over the past week.  That means we have no other choice but to chalk this trade up as a loss.

Rest assured, I’m keeping a close eye on natural gas.  If I see another low-risk trade in this market, you’ll be the first to know.

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

Crude prices have fallen nicely over the past week.  In fact, WTI dropped from $107 to just over $103 as of last night’s close.  We did see a rally in crude today due to the better than expected US GDP number and the Fed’s meeting results.  However, I highly doubt oil will be able to hold above $100 through the end of August due the fundamental factors I mentioned in the original trade alert.

If we get a drop back to the $90 level or lower within the next few weeks, these $36 put options will explode in value.  Keep holding this put position for further downside in the crude market.


Category: Commodity Trading