Making Money in Commodities

Commodities Bounce Back - Thank the Greenback: Oil was up $2.41 and is once again bearing down on the $70/barrel level. The last two trading sessions oil took a major hit after once again failing to break through resistance at the $73 area. Gold closed higher by $3.40 at $937.50/ounce; the SPDR Gold ETF (GLD) is hanging above support at the $91 level, closing above $92 today.

THE BOTTOMLINE - MAKING MONEY IN COMMODITIES: A perfect scenario for the commodity stocks/ETFs would include inflation, an improving global economy, a weakening US Dollar, and a rebound in housing in the US/stimulus spending. Inflation is definitely debatable and the recent CPI and PPI do not support my theory that inflation is creeping into the US economy and that eventually we will be dealing with near hyperinflation. That being said, I still believe inflation will be a major driver of investment performance in the near future. The global economy is improving and even the IMF could out today and stated the worldwide recession is over. A weakening US Dollar is inevitable in my mind and the charts indicate the downtrend continues. Finally a rebound in housing may not be around the corner, but I feel a bottom is forming. As far as stimulus finally leaving the coffers of the White House and moving into infrastructure as our President promised - that is a total guessing game.

With 2 of the situations likely to occur, another eventually down the road, and the last a gamble, I like my odds of the commodity stocks beating the market in the next 12-24 months. The question is how to play the sector - there are single commodity futures ETFs, commodity ETFs that invest in a basket of commodity futures, individual stocks in a variety of sectors, and ETFs that will give investors exposure to a diverse group of commodity stocks. The average, non-aggressive investor that has a long-term approach to the market should have exposure to commodities in some manner, likely an ETF or two. A more active investor that is willing to buy/sell when the timing is right, possibly once or twice per year, can look at individual stocks and ETFs. Both types of investors can also turn to the PFG Covered Call Strategy for building positions in the commodity sector and combining it with monthly income. The ETF Bulletin newsletter (www.ETFBulletin.com) currently has a position in the Market Vectors Agribusiness ETF (MOO) with a covered call against it. For more on COVERED CALLS and Commodity Plays please feel free to contact Penn Financial Group at 1-877-383-7366 or info@pennfinancialgroup.com.