None of this has impaired the performance of your Global Bull Market Alert portfolio which is in full-on, defensive mode. As you know, since mid January, you have shifted your global investments into a portfolio focusing on commodities and currencies that are independent of global stock markets. That strategy has been paying off. The CurrencyShares Japanese Yen Trust (FXY) soared against the U.S. dollar on Friday to breach the 100 yen to the dollar level for the first time since 1995. With your options now recording 183% gains, sell half of your remaining options to lock in your second triple-digit percentage gain for 2008.
This week’s Global Bull Market Alert pick, PowerShares DB Precious Metals (DBP), doubles up your existing bets on gold and silver. DBP tracks the Deutsche Bank Liquid Commodity Index – Optimum Yield Precious Metals Excess Return, an index composed of futures contracts on the two precious metals. Your existing positions in precious metals have been performing strongly. Yamana Gold Inc. (AUY) is up 20.10% — with the options up 108.70%. The iShares Silver Trust (SLV) is already up 16.19% in less than a month.
In troublesome times, commodities such as gold and silver gain a special shine. Everything that is bearish for stocks — financial bailouts, a falling dollar, and real estate collapsing — tends to be bullish for precious metals. As the prices of commodities soar, precious metals are regaining their status among investors as an inflation-proof currency that has never lost its value in 3,500 years.
James Burton, chief executive of the industry-backed World Gold Council, said that gold’s price rise was “much quicker than even many bullish analysts had predicted.” Tobias Merath, head of commodity research at investment bank Credit Suisse in Zurich, says that the combination of dollar weakness, negative real interest rates and surging inflation was “the ideal environment for rising gold prices.” And remember that gold has a way to go. In real terms, gold would need to reach at least $2,200 to match the price achieved in 1980. No wonder spot gold rose to a high of $1,021.40 per ounce overnight, up more than 2% from Friday when it hit a record high of $1,007.10
Although gold grabs the headlines in 2008, silver has actually outperformed gold by a significant margin. On the supply side, silver seems like it’s a one-way bet. According to research consultancy CPM, in 1900 there were 12 billion ounces of silver on the planet. Today, this number has fallen to 300 million ounces — a drop of 97.5%. Above-ground silver supply is projected to shrink to a critically low level by 2010.
How long can the boom in precious metals last? As investment bank Goldman Sachs noted last week: "Conventional wisdom would assume that commodity prices are close to peaking, given already long bull market runs, [but] we strongly disagree and believe that we are in the ‘middle innings’ of a powerful secular up-trend.”
So buy the PowerShares DB Precious Metals (DBP) at market today and place your stop at $32.50. Although there are options on DBP, the bid/ask spreads on the options sometimes exceed 100%. If that changes, I’ll let you know.
All but two of your positions in the Global Bull Market Alert portfolio are showing profits. Last week’s pick, the PowerShares DB Commodity Index Tracking Fund (DBC), is already up 6.11% and the options are up 34.55% as of Friday’s close. Not bad for a rough week on Wall Street.
The PowerShares DB Agriculture ETF (DBA) is up 17.05% and you’ve already taken triple-digit percentage profits on the options. With both DBA and iPath DJ AIG Agriculture TR Sub-Index ETN (JJA) consolidating last week, this may be a good time to add to your positions here. The soft commodities boom is one of the most powerful investment themes of 2008. As Jim Rogers put it on CNBC last week: "Buy agriculture. Agriculture is one of the few places where you’re going to make a fortune in the next years.” You should view any pullback in our agricultural picks as an opportunity for a second bite at the very profitable soft commodity apple.
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