New Way to Invest in the Commodities Super Cycle
Commodities / Resources Investing Mar 05, 2008 - 11:03 AM GMT
Sean Brodrick writes: In 2007, gold prices shot up 36.6% ... crude oil prices rocketed higher by 70.8%... and agriculture prices — corn, wheat, soybeans and more — soared to new records.
And they just continue to surge in 2008! This week, gold, oil, coal, corn and soybeans all hit new all-time highs, and many other commodities marched higher.
Yesterday, the commodity complex started pulling back, and I bet I'm not the only investor who thinks this is going to lead to a great buying opportunity.
Unfortunately, while many Main Street investors can see that it's the right time to buy commodities, they don't know how best to get in the game.
Futures and options are alien to them. And they have a hard time picking the individual stocks that are best positioned to ride these trends higher.
Good news: There's now another plain-as-day way to aim for profits by the pound, bushel and barrel. I'll get to that in a moment. First ...
Why Natural Resource Prices Are Rallying Right Now, And Why They Can Go Much Higher
I believe we have entered the 2nd or 3rd inning of a “Commodity Super Cycle,” a period of rapidly rising prices for the earth's basic resources.
The boom is being fueled by double-digit GDP growth in India and China, which are both furiously building out their infrastructures, and by billions of new consumers lining up to buy everything from clothes and cutlery to air conditioners and cars.
Take a look at what's happening in the major resource categories ...
Energy: This year, the world's oil demand will rise past 1,000 barrels a second — and oil companies can't keep up. As for OPEC ... with friends like them, who needs enemies? Don't expect the cartel to increase supply anytime soon. Heck, Chakib Khelil, the group's president, recently said not to expect a boost in production!
Precious Metals: Investor demand for gold is surging as investors try to hedge against inflation. One of the biggest funds that holds physical gold — the street TRACKS Gold Shares ETF — now holds more gold than many central banks. And a new gold ETF is starting this year in India, where 1.1 billion people will suddenly have a new way to buy the yellow metal.
Agriculture: China and India are changing their diets, a fundamental shift in global food supply/demand. Now their combined populations of 2.4 billion people want to eat our lunch. To do it, they are buying U.S.-grown grain by the boatload. Global stockpiles of grain — that is, the food held in reserve for times of emergency — are now sufficient for just over 50 days. This is already lighting a fire under prices on your grocer's shelves.
According to commodities guru Jimmy Rogers,
“The price of oil, the price of all commodities, are going to go much higher during the course of the bull market, and the bull market's got another 10 to 15 years to go.”
I couldn't agree more. All this explosive demand is sending prices higher. And the price inflation is being supercharged by ...
The Fed Stabbing the Dollar in the Back
Just look at this monthly chart of the U.S. dollar versus the Continuous Commodity Index, an equally-weighted basket of 17 commodities. You can see that natural resources are soaring at the same time that the U.S. dollar is plummeting.
This is hardly a coincidence. The good-time Charlies in Washington have been creating money by the bucketload — the latest flood of dough they've thrown at ailing credit markets is just the tip of the iceberg.
And with the U.S. dollar going down, it becomes a lot easier for hungry consumers in China to buy our grain.
The process is only going to accelerate, and we have the Federal Reserve's easy money policy to thank for that. The more dollars they print, the less each dollar is worth.
In that kind of environment, investors flock to hard assets — gold, oil, and so on.
In fact, commodities have climbed 30% since September 18 when the first of five cuts in the U.S. benchmark interest rate sent the dollar lower!
So how can ordinary investors play the commodities surge? By using ...
Exchange-Traded Funds: The Main Street Investor's Key to Commodity Wealth
Exchange-Traded Funds (ETFs) — baskets of stocks or commodities that you can buy just like a stock — are the hottest part of the global equity market.
And among these funds, commodity ETFs are red-hot!
According to Morgan Stanley, at the end of 2007, global ETF assets stood at $796.60 billion, a 41% increase over the previous year. But the real growth was in commodities — assets in commodity ETFs increased about 87% to $6.32 billion.
Even better, new commodity ETFs are being created every month. Ditto for other similar products.
For example, Deutsche Bank just launched three new exchange-traded notes. These ETNs trade like ETFs but are essentially debt agreements that link the value of the notes to a Deutsche Bank Liquid Commodity Index — Optimum Yield Gold.
This index is tied to gold futures, not gold bullion. The two prices do not always track exactly the same. In any case, the three ETNs are ...
- DB Gold Double Long ETN (DGP), which should provide 200% of the monthly return of the index.
- DB Gold Short ETN (DGZ), which should provide MINUS 100% of the monthly return of the index.
- DB Gold Double Short ETN (DZZ), which should provide MINUS 200% of the monthly return of the index.
With gold zigging and zagging its way toward $1,000 an ounce and higher, you can see how these funds could prove very profitable.
Another new ETF will let you get financial revenge (in theory) for the high prices you're paying at the pump. The United States Gasoline Fund (UGA) is designed to track gas prices by using a basket of futures.
With prices soaring, more investors may be shifting into UGA!
But please note that not all commodities are doing well, and not all commodity ETFs are created equal.
For example, some oil ETFs track the price of crude pretty well. Others — not so much.
Likewise, a few natural resources aren't enjoying the same kind of barn-burning returns as the rest.
Take sugar, which hit the skids in 2006 and is only recently starting to make up lost ground.
My point ...
Commodity ETFs Offer Tremendous Potential, But You Must Choose Them Wisely!
Let's face it, you can't just buy any old commodity ETF and strike it rich. But with a little due diligence, the sky really is the limit.
In fact, I think the opportunities are so great that I'm launching a brand-new service dedicated to these tremendous investments. It's called Red-Hot Commodity ETFs , and I'll be using both macro and fundamental analysis to pick the hottest sectors and technical triggers to issue “buy” and “sell” recommendations.
Look, last year, the Dow Jones Industrial Average had a total return of 7%, while the S&P 500 gained 4.1%. Meanwhile commodities gained an average of 22.9%.
So far this year, the S&P 500 is actually down 8%. At the same time, the leading commodity index is up 13%.
And with an exploding number of commodity ETFs hitting the exchanges, there's no longer any reason to be left behind.
What are you waiting for? Get out there and start investigating!
Good luck and good trades,
Sean
P.S. If you want to get in on the ground floor of my sizzling new commodity service, Red-Hot Commodity ETFs , click here . Or call 1-800-430-3683 for personal service to get you locked, loaded and aiming for profits.
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