Commodity ETF Risk: An Exception To The Dollar Rule
09 February 2010 at 3:15 pm by Gary Gordon
When the U.S. dollar hit 15-month lows in late November/early December of 2009, Commodity ETF investors were ecstatic. Precious metals, base metals, oil, gasoline — most “stuff” had been notching 52-week highs.
It didn’t matter whether you tracked the price movement of the iShares Silver Trust (SLV), the SPDR Gold Trust (GLD), the PowerShares DB Base Metals (DBB) or United Stated Gasoline Fund (UGA). The patterns were eerily similar.
Then came sovereign debt default uncertainty. It began with Dubai, which received a quick reprieve from neighboring Abu Dhabi. It continued into 2010 with Greece. And, each day that the European Union balked at “aiding” Greece, the U.S. dollar gathered strength.
With a more potent U.S. dollar, we began to see ”commodity contagion.” It looked a little something like this:
Even now… as the European Union appears ready to take the “fall” for Greece… additional credit aftershocks due to irresponsible government spending are probable. And if there’s one irony that trumps all others… it’s the fact that the U.S. dollar and U.S. debt have benefited from the poor credit scores of smaller countries.
The simple fact remains that commodities may have difficulty gaining traction if the U.S. dollar rises without resistance. It follows that, at least for the time being, most commodity ETFs in my ETF Risk Alert service carry elevated risk levels. (See image below.)
Click Image To Enlarge
There is an exception: Platinum. While platinum may be similar to gold, it is more than a precious metal to the developing world; platinum is indispensable to China and India’s auto industry. What’s more, platinum-based anodes are used in ships, pipelines, and steel piers. You can invest in the exchange-traded note UBS E-TRACS Long Platinum (PTM) or the recently released exchange-traded fund, ETFS Physical Platinum (PPLT).
Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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