ETF Investors: A Silver Bullet For Commodities (SLV, GLD, CORN, AA, RJA, UGA, USO, AGQ, ZSL)
Sean Brodrick: So far, January has been a bullish month for commodities. In fact, if you read my December 29 column, “3 Commodities to Buy for 2012,” you saw that I recommended three commodity funds in that column — the United States Gasoline Fund (NYSE:UGA), the Rogers International Commodity Index Agriculture Total Return ETN (NYSE:RJA) and the Teucrium Corn Fund (NYSE:CORN).
Since then all three are up, and one of them — UGA — is up nicely.
UGA opened December 29 at $48.24. This Tuesday, it sported a price of $50.62 — a 5% gain in just seven trading days.
The other two only have small gains, but I still think all three are good bets for 2012. Today, I’ll give you another bullish commodity bet — right after I tell you about three forces that are lining up to push commodity prices higher.
1) Alcoa’s Outlook Is Pretty Good. Aluminum maker and earnings bellwether Alcoa (NYSE:AA) reported earnings on Monday night. While Alcoa missed the consensus estimate by 2 cents, it said it expects global aluminum demand to increase 7% in 2012.
In particular, I like this chart from Alcoa …
You can see that Alcoa expects worldwide, commercial building and construction demand for aluminum to rise 4% to 5% this year; car manufacturers will use an additional 3% to 8% aluminum; and global aerospace demand for aluminum should rise 10% to 11% this year.
My take is that this is pretty bullish for the global economy.
2) Bad News from China Is Seen as Good News. This week, China reported a 13.4% increase in exports and an 11.8% jump in imports in December. That may sound good, but the import growth was a little more than HALF the growth rate registered in November.
But markets are taking this as good news. In fact, China’s stock market surged 2.7% on the idea.
That’s because investors believe this slower growth will prompt China to announce new measures to ease its monetary policy sooner rather than later. Investors also liked reports that the government will endorse policies aimed at spurring investments in the Chinese stock market.
The bottom line is that, when the market rises on bad news, it’s pretty darned bullish.
3) Bullish Parade of News for Oil. Along with an improved outlook for the global economy, crude oil (NYSE:USO) is getting a boost from worsening tensions between the West and Iran, as well as a national strike that could affect oil production in Nigeria.
A 6% annual rise in oil imports by China is another bullish factor for crude. China has recently much-reduced its imports from Iran due to disputes over payment. That means China will need to source its demand elsewhere, which could drive prices further upward.
To be sure, all of these problems could be resolved. But tensions with Iran could also get worse, and other problems could flare up. While it’s said that the cure for high oil prices is high oil prices, I still believe crude could be making a run to my target of $119 per barrel.
Bullish but Cautious
There is still plenty that could go wrong with commodity prices. If investors start to panic about the euro again, they’ll pile into the U.S. dollar. Since commodities are priced in dollars, that tends to drive commodity prices lower.
Also, Europe is probably still going to slide into recession this year. That would weigh on global demand.
So while I’m bullish, I’m cautious. I’m limiting position sizes and setting protective stops to (hopefully) save my butt in case the market heads south in a hurry.
However, there’s another trade you can add today to our basket of commodity plays — and this one shines in a sea of precious metals names.
One More Way to Play Bullish Commodity Prices
Along with the other three picks I gave you on December 29, here is another commodity pick that should do well in 2012 …
The iShares Silver Trust (NYSE:SLV)
The Silver Trust tracks the price of silver closely enough that it could benefit from forces that are poised to drive silver higher — namely, that investor fears of a global recession are receding.
Silver is an industrial metal as well as a precious metal. So it benefits more from an economic recovery than even gold (NYSE:GLD) does.
Take a look at the chart …
Looking at the chart, you can see it sure looks like silver hammered out an inverse head-and-shoulders pattern and is now testing the neckline of that pattern.
SLV could easily head up to its December high and, once bullish momentum gets rolling, we may even see the October high again.
Who’s Right, Who’s Wrong?
By now, you know that I and other analysts at Weiss Research don’t always agree on everything. Maybe the more-bearish view will be proven correct. But I have to go with what my signals are telling me. They’re turning more bullish, and they’re too loud to ignore.
If you’d care to talk with me about it in person — good news. I’ll be speaking at the Cambridge House 2012 Resource Investment Conference in Vancouver, January 22-23. You can find more information about that here. It’s a conference that’s packed with great speakers and more than 600 companies are presenting and exhibiting.
If you’re trading on your own, do your own due diligence and make up your own mind before investing a single cent. And good luck to us all in this market.
Yours for trading profits,
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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