Friday, March 13, 2009

Gary Gordon on Commodity ETFs

Interesting piece on Commodity ETFs by Gary Gordon of In it he discusses the obvious inflationary pressures government printing presses will have on commodity prices, but also took a contrarian view

So why does the seemingly obvious make me a bit skeptical. For one thing, we've seen some pretty significant inflation in an unregulated hedge fund world already. That's why we witnessed a commodity bubble. That's why witnessed a commodity collapse. And that's part of the reason I believe capital appreciation will be much slower and steadier on the next go-around.

He goes on:

What I am saying here is that all assets should rise... eventually. However, commodities can't make a substantial move higher until a major economic force -- developed nation or emerging country -- gets out from underneath the economic malaise. And even when commodities do rise, there will be greater regulation to offset the monstrous gains seen in the speculative past.


Don't give up on commodity exposure; just don't bet the entire "farm" on steel, soy, wheat, potash, gold, silver, gasoline or crude.

In his article he refers to the PowerShares DB Commodity Fund (DBC). It is clear since July of last year that the trend for DBC has been solidly down and remained so up to today. When the faster moving averages (20-day and 50-day MAs) cross above the slower average (200-day MA) we can begin to consider a new up phase for commodities. As I noted in my personal blog last week, commodities are the last sector to bottom in the yields-stocks-commodities relationship. Only when a bottom is in place for stocks can we start to look for a bottom in commodity prices.

It doesn't look like we are there yet, but perhaps the worst is behind us?

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website