A New Bet on a New Metal — and Locking in 52.86% of Golden Gains in a Single Week

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The good news is that thanks to the explosion in the number of ETFs and ETNs during the past few years, you have a lot more options to diversify away from the stock market than you did during the last bear market after the dot-com crash. The set of investment opportunities expanded yet again on June 25 when Barclays announced the launch of 11 new Barclays iPath Exchange Traded Notes (ETNs). Linked to a variety of Barclays Capital Global Indexes, these ETNs provide investors with exposure to the global price of a wide range of commodities previously only available on futures exchanges, including carbon, tin, sugar, platinum, lead, cotton, coffee, cocoa and aluminum.

This week’s Global Bull Market Alert pick stems from the ranks of one of these new ETNs — the iPath Dow Jones-AIG Aluminum ETN (JJU).

Thanks to its unusual combination of properties, no other metal has as many diverse uses in the home, in transport, on land, sea and in air, industry and commerce as aluminum. In the late 19th century, it actually was considered more precious than silver — which is why some buildings of the era — notably The Library of Congress in Washington, D.C. — are decorated with aluminum and not silver leaf.

More importantly for our purposes, aluminum is on a tear in a world where bull markets are few and far between. Aluminum hit a record high just last week after China’s biggest aluminum producers, the largest in the world, agreed to cut output by as much as 10% to help alleviate a sixth consecutive year of domestic power shortages. Three-month aluminum futures traded on the London Metal Exchange hit a record $3,380.15 a ton last Friday. Aluminum now has gained 39% since the start of the year.

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The production cut in China is destined to significantly change the balance of the global aluminum market. The cuts will remove 600,000 to 1.2 million tons per year from the aluminum market — enough to eliminate the current surplus of around one million tons per year. A string of more aluminum production disruptions in China, South Africa and New Zealand is expected by analysts and could further impair production, thereby sending aluminum prices soaring even higher.

That’s why it came as no surprise when Citigroup recently raised its 2009 aluminum price forecast to $4,000 a ton or $2 dollars a pound. Goldman Sachs also raised its aluminum price forecasts by as much as 21% just yesterday, citing supply constraints caused by cutbacks in China and power shortages in South Africa

The bottom line? An aluminum price of $4,000 per ton or more seems just a matter of “when,” and not “if.”

So buy the iPath Dow Jones-AIG Aluminum ETN (JJU) at market today, and place your initial stop at $39.50. A word of warning: since this is a spanking new ETN, liquidity may be limited. There are no options on this one.


Your position in SPDR Gold Shares (GLD) got off to a strong start with a gain of 5.79% since I recommended it last week. With the options up a solid 52.86% in a single week, book some well-earned profits here by selling half of your options at these levels.

Russian steel-maker Mechel (MTL) announced that its fiscal first-quarter profit more than doubled compared with the same period last year. For the period ended March 31, the Moscow-based company posted a profit of $500 million, or $1.20 per ADR, compared with $190.7 million, or 46 cents per ADR, in the year-ago period. With the shares jumping 4.5% on the news, now is a good time to close your position in the July calls for a loss.

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Elsewhere in the Global Bull Market Alert portfolio, note that Atwood Oceanics Inc. (ATW) split its stock two for one yesterday.

In addition, you stopped out of NII Holdings (NIHD) on July 7 at $42.50 for a small loss. We also incurred a loss on the NII options that we sold along with the stock. Unless otherwise instructed, sell any remaining options in a holding whenever you sell the stock.

I invite you to join me for the 30th anniversary celebration at The Money Show San Francisco, August 7-10, 2008. Hear from 50+ world-class experts in more than 150 FREE workshops at the San Francisco Marriott, where you will be given every opportunity to refresh your perspective and prepare yourself for the uncertainty that may lie ahead. Meet face-to-face with 150+ investment companies and evaluate the products and software designed to help you improve your market performance. Call 800/970-4355 and mention priority code #009613 or visit The Money Show San Francisco’s Web site to register FREE today!

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