McCall’s Call: Wait For Dip, Then Buy Gold, Corn

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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.

Matthew D. McCall 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 supplies.

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.

Gold

The hottest investment this side of Mars has been everyone’s 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.

Oil

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 futures.

Corn

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.

Investors’ 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 virtue.

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 ETFs.

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Copyright ® 2011 IndexUniverse LLC . All Rights Reserved.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: CORN , GLD , IAU , IGV , USO

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