Commodity Profits: Can It Be True?
Overall commodity performance was lacking in 2013. Fed tapering fears, global growth uncertainty, and Chinese economic slowdown worries came together to keep hard assets investors planted firmly on the sidelines.
So, as Editor of the Commodity ETF Alert, 2013 ended up being an exercise in navigating an underperforming sector rather than an outright search for the next big commodity winner.
Now that’s not to say we didn’t achieve gains in the Commodity ETF Alert in 2013.
A number of our portfolio positions achieved solid profits last year. And since these positions are still open I believe they’ll roar to even bigger gains in 2014.
Let’s take a look at a few of those positions…
In early 2013, the price of copper plummeted from $3.75 a pound down to $3.00.
Chinese economic worries, a strong US Dollar, and high global inventories put bears in firm control of the red metal for the first six months of the year.
But at $3.00 a pound copper was too cheap…
That’s why we went long the metal in the July issue. And since the Commodity ETF Alert focuses on exchange traded funds (ETFs), we did so via the iPath DJ-UBS Copper ETN (JJC). As you may know, JJC tracks the price of copper. In other words, when the price of the red metal rises, so does JJC.
Thanks to growing confidence in the Chinese economy and a turn lower in the US Dollar, copper jumped to $3.35 by mid-August. As a result, our position in JJC reached a short-term gain of 12%. Not bad for a holding period of less than two months!
And as I mentioned a minute ago, this position is still open because there’s very likely more upside to copper in 2014. In fact, I’ll go out on a limb and say the red metal will test $3.55 in the not-so-distant future.
Another trade we made was is in the oil market…
As you may remember, the price of oil skyrocketed this summer when Middle East violence swelled. In fact, West Texas Intermediate crude (WTI) shot from $92 to $112 a barrel.
Now, since political firestorms are challenging to predict we missed this bullish run in the Commodity ETF Alert.
Dissapointing? Certainly.
Missing out on a big profit keeps me awake at night.
But wait a second, that’s just the first chapter of this story…
You see, at $110 a barrel WTI was extremely overvalued. Supply/demand fundamentals didn’t support oil at such a nosebleed level. After all, US production was (and still is) surging to the highest levels in decades.
As a result, we put the US Short Oil Fund (DNO) in the portfolio in mid-August. Since DNO is an inverse commodity ETF, the value of the fund rises when the price of oil falls.
If you follow global politics as I do, you know Middle Eastern uncertainty eased in September and October. Not surprisingly, WTI crude plunged downward as a result. As of late November oil traded at $92 a barrel, pushing our DNO position to a 13% gain. And after a brief December rally WTI crude currently trades for $93.88.
Since oil will likely fall to the high $80 range in the near future, subscribers are holding DNO for additional gains.
As you can see, an asset doesn’t always have to rise to put profits in your commodity ETF portfolio!
Of course, not everything went smoothly last year…
As with any investment system, there were trades that simply didn’t work out. For example, we bought the iPath Pure Beta Cocoa ETN (CHOC) in January thinking cocoa prices would rise.
But after a roller coaster ride in the first six months of the year we pulled the plug. Cocoa wasn’t reacting like I expected, so we sold CHOC from the Commodity ETF Alert portfolio for a small loss.
Boy was that a mistake…
Cocoa ended up being one of the top commodity performers in the latter half of 2013.
The commodity shot from $2,100 a tonne in early July, up to $2,800 a few weeks ago.
The same supply/demand imbalance I thought would hit this market earlier in the year came through a few months late.
Let that be a lesson to not give up on a position so easily!
To sum it up, 2013 was filled with plenty of uncertainty when it came to overall commodity performance. Tapering fears, currency moves, and Chinese slowdown worries all played their part.
But here’s the deal…
2014 is shaping up to be a much better year for the global economy.
And that means commodities are set to leave last year’s weak performance in the dust!
If you’d like to discover how to profit from this likely 2014 surge, without the high risk of commodity futures contracts, click here!
Until Next Time,
Justin Bennett
Category: Commodities
