The recent global stock market swoon has investors in a state of
disarray. Weak investors are folding their hands and selling stocks
at the lows of last week, as the vultures swoop in and pick up
shares at bargain-basement prices. So far, the vultures look like
the winners, but the outcome could change from day to day, given
the enormously high market volatility.
The same can be said for the commodities market. Gold surged to new
all-time highs recently, as oil fell on fears of a double-dip
recession in the U.S. Then there is corn, which has quietly been
hitting new highs as demand from China puts pressure on
It is a difficult chore for investors to keep track of the daily
swings in stocks, but when the commodities market is added to the
list, it can be overwhelming. I will try and break down three
commodities that have been on the move lately and how investors
could play them within their portfolio.
The hottest investment this side of Mars has been everyoneâs
favorite yellow metal, gold. The two largest gold ETFs, the SPDR
Gold ETF (NYSEArca:GLD) and the iShares Gold Trust ETF
(NYSEArca:IAU), are hitting new all-time highs this week as the
metal trades above $1,815/ounce for the first time ever.
My firm owns shares of both GLD and IAU and the combined total
of the two results in the largest holding in our company. The rally
in gold has several catalysts behind it and it does not appear the
trend of new highs will end anytime soon.
The perception that gold is a safe-haven investment in times of
global uncertainty has been the major driver recently, as troubles
in Europe and the U.S. increase. There are also the secondary
factors, such as a weak U.S. dollar, supply/demand and the trend of
new highs that attracts buyers.
I would not recommend jumping into IAU or GLD with both feet at
this time, as they sit at all-time highs. The better strategy is to
look for a pullback in the ballpark of 3 to 5 percent before
entering a new position.
As the global stock market tumbled in the last two weeks, it
brought down the price of WTI crude oil to the lows of the year. A
global slowdown would result in less demand for oil and in lower
prices in the months ahead. That panic caused the energy commodity
to crash before surging back last week.
The United States Oil ETF (NYSEArca:USO) fell from $39 to $30 in
a matter of weeks before recapturing half the loss one week later.
Investors looking to gain exposure to the oil futures market can
consider USO; however, they must be aware of the effects of
contango and backwardation on the daily pricing.
An ETF that can deliver comparable moves to the price of oil
without the risks associated with investing in futures contracts is
the IndexIQ Global Oil Small Cap ETF (NYSEArca:IOIL). Historically
the ETF has been a better proxy for the movement in oil futures
than its large-cap energy ETF peers. That being said, if oil
continues to move lower, IOIL will likely fall along with the
As gold and energy prices roll across the ticker on the
television screen and make newspaper headlines for their moves, a
quiet winner has been corn. The Teucrium Corn Fund (NYSEArca:CORN)
traded within a penny of its best level ever this week as demand
from China remains strong. With more mouths to feed around the
world, especially in emerging markets, and supplies inconsistent,
the long-term outlook for corn remains bullish.
Investorsâ only pure play on corn is through CORN; however,
there are a handful of grain and agriculture ETPs that offer some
exposure to the commodity. Due to my liking of corn in particular,
I would recommend CORN, even though it lacks diversification and
the risk is higher.
Is The Time Now?
Because I view gold, oil and corn as long-term investments, I
would look to invest in the commodities today. That being said,
with the market volatility, there will be plenty of opportunities
to buy into weakness in the coming days/months. Patience is a
Matthew D. McCall is editor of The ETF Bulletin and
president of Penn Financial Group LLC, a New York-based wealth
management firm specializing in investment strategies using
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