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Two Out of Three Ain’t Bad

gld

In a blog post on April 6th ( Here is the link ) I told you I was getting a bit uncomfortable with the euphoria that had pushed the commodity trades up fast and furious.

I showed you three graphs in that post: the Gold ETF (which I’ve updated above), the Gold Miners and Commodity Index ETF (both updated below).

Notice the black circle around April 6th on the graph where we took some profits on 20% to 30% of our holdings on these three as well as other commodity related investments.

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The Gold ETF at the top went vertical after we sold a portion of our holdings and even after the recent selloff, its still slightly above where we booked some gains.

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The other two, however, proved to be better implementation of strategy as you can see they happened at the top of the range.

As I’ve mentioned on the blog, I believe long term, the commodity sectors of the market will be big winners as the dollar moves lower. We will likely only be able to pay back our foreign lenders by depreciating our currency – something that China has stated publicly that they anticipate will happen and which has caused them to start to reduce their holdings of treasuries. As that process unfolds, the industrial metals, precious metals, oil, and ag commodities will go up in value along with their producers.

However, it will not be in a straight line and it will not be on the schedule that everyone wants. Too many people got into these ETF’s and similar investments late in the game, and now they are all trying to exit at the same time. Watching the technicals on the charts allows you to see when things have gotten frothy and over bought, and allows you to book some profits to reinvest them back into those investments – which have a long secular bull market ahead of them – at lower levels.

I have always believed that when you are in a secular bull market like we see for commodities that has a macroeconomic tailwind behind it that could have several years to play out, you want to have a core investment in the market at all times. But you also want to have a portion of your target position that you book profits on when investor sentiment gets too one-sided – the technicals can show you when that is – and reinvest those proceeds back into the bull trend once investor sentiment swings the other way.

We were right on the miners and commodity index, we had the right analysis but were early on the gold etf. I’ll take those results anytime.


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Mark