Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

China and Commodities Profit Opportunities for the Quick and Bold

Commodities / Investing 2009 May 22, 2009 - 08:05 AM GMT

By: Uncommon_Wisdom

Commodities

Best Financial Markets Analysis ArticleSean Brodrick writes: For weeks now on UncommonWisdomDaily.com and on my blog, I’ve been talking about the new downleg in the U.S. dollar. This is bullish for commodities in general.

I’ve also been talking about how oil prices are running up even though we haven’t seen a return of U.S. demand AND how China’s economy seems to be recovering faster and even revving up.


These three things — the dollar, oil and China — are tied together, and they open the door to tremendous profit opportunities for the quick and the bold.

Looking at a weekly chart of the U.S. dollar index, you can see it has broken important support. The easiest path is lower, and it should test support at 80.

Weekly dollar has broken important support and could test 77.70

If that fails, its next support is 77.70. After that … well, then we get into “ouch” territory. This kind of move should be extremely bullish for commodities.

Let’s talk about how oil prices keep charging higher. Even before we got extremely bullish news on Wednesday — a decline of 2.1 million barrels in U.S. oil stockpiles, according to the EIA, when the consensus was for a 400,000 barrel drop, and a whopping 4.3 million barrel drop in gasoline stockpiles — oil prices had trekked higher for the last couple months.

The babbling heads on CNBC said it’s because traders are worried about unrest in ever-restless Nigeria. I think the first part of the oil rally was due more to short-covering and speculation, but oil is also accelerating due to rising demand in China.

China increased its crude imports by 13.6 percent year over year in April, guzzling 3.9 million barrels a day. China is busy building a strategic oil supply while oil prices are low. China is the world’s second-biggest consumer of oil products (the U.S. is No. 1).

And it’s not just oil. China is importing commodities of all types, lighting a fire under shipping rates …

  • China bought 3.71 million tons of soybeans in April — another record — bringing imports to 13.86 million tons in the first four months of 2009. China’s soybean imports are expected to rise 5 percent to 42 million tons in 2010 from this year, hit 45 million tons in 2011 and jump again in 2012 to 50 million tons.
  • China boosted its imports of iron ore to a record 57 million metric tonnes in April — a rise of 33 percent! That was the third record month in a row. China is the world’s biggest consumer of iron ore.
  • April saw China buy a record 399,833 metric tonnes of copper and copper products, compared with 374,957 tonnes in March.
  • China’s platinum imports rose 17.3 percent in the first quarter — at a time when automakers’ use of the metal is going down. Catalytic converters account for 60 percent of the metal.

One indicator of how fortunes are turning in commodities is the Baltic Dry Index — an index of spot rates for shipping dry bulk commodities such as coal and iron ore around the world. It hit a seven-month high this week.

The Baltic Dry Index is way off its highs

The BDI is cyclical and seems to have bottomed on December 5th — it’s up 283 percent since making that low, though still way off its highs. Is China helping drive the BDI higher? Heck, yeah!

Why is China ramping up its imports of iron ore, copper, oil, soybeans and more? Zhang Guobao, the head of China’s National Energy Administration, said his country will increase imports of commodities including oil and boost inventories of strategic raw materials because prices are at their lowest in seven years. In other words, China thinks commodities are cheap at current prices.

But it’s not just stockpiling. China is also using commodities at a ravenous pace. On Wednesday, Tony told you that Chinese auto sales are skyrocketing. In April, China’s vehicle sales jumped 25 percent over the year-earlier period, to a record monthly high of 1.15 million units.

Now for the real eye-popping part: This means the Chinese are now buying more cars than Americans. April was the third consecutive month that China has surpassed the United States in sales.

And you know how U.S. automakers are on the ropes? Not in China. GM is reaping benefits from its two joint ventures in China. GM’s China sales hit a monthly record in April — up over 50 percent from a year earlier.

So there are two good reasons for China to import more commodities — 1) to build up reserves; and 2) because its factories are ramping up. Now we’ll add a third reason … and if this one doesn’t scare you, you aren’t paying attention.

China’s Long-Term Goal — Drop the Dollar

The Royal Bank of Canada says China is reallocating its wealth as Beijing fears the U.S. dollar is in a long-term decline (I’m worried about that, too). Premier Wen Jiabao has said he is “worried” about the safety of the nation’s estimated $767.9 billion in holdings of U.S. Treasuries.

The U.S. can print a lot more dollars. But Uncle Sam can’t print more copper … or oil … or iron. It seems like a sound strategy to me, and one that the world may follow.

China hates being so dependent on the U.S. dollar. But it can’t unhook its currency from the greenback because then Americans wouldn’t be able to buy Chinese-made junk.

China and the United States are in a painful embrace — like they’re grasping each other’s throats. They’re really hoping the other guy doesn’t squeeze too hard!

While China can’t get away from the dollar now, it’s exploring ways to get away from it in the future.

So China is starting to shift its foreign exchange reserves out of U.S. dollar assets.

Sure, China takes pains to say that it thinks U.S. bonds are a good investment. But rather than listen to a hungry tiger’s words, follow the money. China is buying more short-term U.S. Treasuries while decreasing the percentage of long-term Treasuries that it buys.

China's Treasury Flows

According to U.S. Treasury data, from August 2008 to March 2009, China purchased $171.3 billion of T-bills, debt that carries a maturity of up to a year, compared with just $22.9 billion of longer-term notes and bonds with a maturity of two years or more. At the same time, China also sold $23.5 billion of long-term agency debt.

The general trend is for less buying of long-term U.S. Treasuries … like China is giving Uncle Sam a vote of “no confidence.”

When traders wise up to what China is doing, it could send the U.S. dollar tumbling even further. That would be bad news for the United States … but investors who hold commodities can help insulate themselves against the fallout.

A New World Currency Order

So if China is moving away from the dollar, what does it want to use instead? It looks like China would like to see its own currency, the yuan (renminbi), become an international benchmark.

China has signed $95 billion in swap agreements with Argentina, Indonesia, South Korea, Hong Kong, Malaysia and Belarus in recent months. This way, gradually, China hopes to make the yuan a truly international currency.

In the latest move, China and Brazil are researching how the nations can conduct trade in yuan and reals. The more they can trade in their own currencies, the less they have to rely on the U.S. dollar.

The move came as Brazil’s President, Luiz Inacio Lula da Silva, visited Beijing to strengthen ties with his country’s largest trading partner. During the visit, China is going to give Brazil more than $10 billion in loans.

Other Countries Have the Same Idea

It’s not just China making moves away from the U.S. dollar. Brazil also worked out a deal with its neighbor to the west, Argentina, to trade in local currencies. They will stop using the U.S. dollar for bilateral trade in September. Trade between the two nations amounts to more than $19 billion a year.

Brazil and Argentina are both big commodity exporters. China is a big commodity importer. This trend is bearish for the dollar longer term, and bullish for commodity prices.

How to Play These Big Trends

International shipping tends to be cyclical. If we’re at the start of a big upswing, that could be bullish for shipping stocks like Diana Shipping (DSX), DryShips (DRYS) and Excel Maritime (EXM).

As for commodities — we’re playing a bunch of them in Red-Hot Commodity ETFs. The portfolio is packed with open gains and subscribers have already banked some profits. There should be a long way to run.

The easiest way to play the China bull story is the iShares FTSE/Xinhua China 25 Index (FXI). It’s already had a great run, so be careful. And one commodity ETF you might want to consider is the iShares Commodity-Indexed Trust (GSG). It is energy-heavy but follows a big basket of commodities — and should do very well going forward.

Remember 3 Important Rules

In this wild and crazy market, there are three important things you MUST do …

  1. Buy on pullbacks — don’t chase anything, no matter how tempting. Use a protective stop in case this rally gives up the ghost and the bear rears its ugly head again.
  2. Use a profit target and don’t be greedy — bag those gains and get out.

There’s a lot more to it than that, so for Pete’s sake, be careful. This is a fast and furious market that humbles professional traders on a daily basis — but that means the profit potential is all the bigger.

Yours for trading profits,

Sean

P.S. If the funds mentioned in this article interest you, you’ll be interested in Red-Hot Commodity ETFs. I’ll be sending out new recommendations SOON. Sign up now — CLICK HERE.

Also, remember to check out my daily updates at http://blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold/.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

Uncommon Wisdom Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules