As 2011 winds to a close, it’s time to set our sights on where to invest in 2012. I have plenty of ideas for my Red-Hot Global Resources subscribers. After all, we track a closed gain of $11,343 before commissions for Red-Hot Global Resources’ recommended positions in 2011 — that means we have plenty of ammo to target new, potentially bigger gains.
And this is a very exciting time to be investing in commodities. For example, you might not know it to look at the news, but many commodities surged higher recently.
This is partly due to good economic news. In just the last week, we learned that durable-goods orders rose in November by the most in four months. The Commerce Department reported that U.S. bookings for equipment meant to last at least three years rose 3.8% after no change in the prior month, a period that was previously reported as a contraction. What’s more, sales of new U.S. homes rose in November to a seven-month high.
Another piece of good news last week is that jobless claims unexpectedly fell to their lowest level in more than three years. Maybe that’s why U.S. consumer confidence climbed more than forecast in December, to a six-month high. The increase to 69.9 from 55.7 in August is the biggest four-month increase since 2009.
So, it’s no wonder that last week …
- Gasoline prices jumped 8% to $2.6872 a gallon (on average).
- Wheat clocked six consecutive daily advances — the longest winning streak since January.
- Oil rose 6.6%, the biggest weekly gain since October. And it’s up again this week, on fears that trouble is brewing with Iran.
- Even copper, which has been picked on as Europe’s financial earthquake rocked global markets, rose 2.8% last week.
Even so, the widely followed Reuters/Jeffries CRB Index — a global benchmark of 19 commodities — was recently down 8% for the year — underperforming both the S&P 500 (just slightly positive for the year) and crude oil (up a nice 9.2% for the 2011).
It’s true that commodities underperformed in 2011 — but that makes it easier for them to outperform in 2012. In fact, Goldman Sachs said earlier this month that it expects commodities as a group to rally 15% in 2012.
Here are three commodities that I believe could outperform in 2012 … and how you can play them …
#1) Gasoline Looks Ready to Ignite
Gasoline has felt the weight of worries about Europe’s financial quicksand and a lackluster recovery in the United States. But that may be changing. Take a look at this chart …
Looking at the chart, you can see that gasoline is way off its highs, and is testing its weekly downtrend. At the same time, bearish momentum seems to be exhausted. This sets the stage for a heck of a rally — perhaps 30% or more — if we get more bullish news for gasoline.
What could those bullish developments be? Well, last week, U.S. gasoline inventories fell by nearly 400,000 barrels, confounding the expectations by many market analysts that low seasonal demand would lead to a rise in stock levels. That was the biggest drop since February.
Gasoline inventories in Cushing, Oklahoma, are still above the usual range. But more inventory draw-downs could be a catalyst for higher prices, as could more good news on the economy.
A good way to play this is the United States Gasoline Fund (UGA). Unlike funds that are supposed to track the price of oil and often underperform it, UGA was recently up 16% for the year compared to a 9.8% rise in unleaded gasoline. So for 2011, the fund outperformed its benchmark. That should give you some extra “oomph” if gasoline really blasts off.
#2) Food Prices Have a Recipe for a Rally
Agriculture prices got fed into the disposal in 2011, hit by decreasing prices for soybeans, corn and wheat as well as a stronger U.S. dollar. And as recently as November, the USDA and others were predicting continued low or even lower prices in 2012.
But a funny thing happened on the way to the pantry. Check out this daily chart of the Rogers International Commodity Index Agriculture Total Return ETN (RJA), which tracks a basket of 20 agricultural commodity futures contracts.
Looking at a recent chart, you can see that the RJA pushed above overhead resistance. This came after a disconnect between price action and the momentum indicator, just like we saw in gasoline.
This sets up the potential for a 20% move higher in the RJA, maybe more.
Why would food take off? Well, even if corn and soybeans are under pressure, other foods are going higher. The Farm Bureau’s survey of Thanksgiving foods shows a 17% increase in the price of frozen green peas, a 16% increase in the price for a 30-ounce can of pumpkin-pie mix, a 13% increase for a gallon of milk, a 9% increase for a 14-ounce bag of stuffing, an 8.5% increase for 12 rolls, a 2.9% increase for cranberries, and a 2.2% increase for sweet potatoes.
Now add in the fact that while China’s enormous and growing appetite for imported food may slow its growth, it’s not backing down. And you have the recipe for much higher food prices in 2012.
The RJA is a great way to play a potential rally in food prices, as is the PowerShares DB Agriculture Fund (DBA).
#3) Corn Is Poised to Spring Higher
Among the broad food group, corn deserves special attention, simply because it shows how quickly attitudes can change on commodities.
Back in November, we had way too much corn and exports estimates were low. Now, the corn surplus is fast disappearing and the export picture is looking better and better.
Take a look at what’s happening in the Teucrium Corn Fund (CORN) …
The price of corn is well off its highs, but you can also see that it has put in a double-bottom and now has pushed above its downtrend.
The price of corn is surging due to a developing and worsening drought in Argentina. Argentina is the world’s No. 2 exporter of corn. (The United States is No. 1.)
This is the critical time for Argentina’s corn crop to pollinate. January weather is important because severe soil moisture deficits now can badly damage the development of young corn plants, making for a lousy harvest.
And do you know who’s across the border from Argentina? Brazil — the world’s No. 3 exporter of corn. If the drought spreads there — well, 2012 could be a very bullish year for corn … and for CORN.
Those are the three commodities to be bullish on right now. But I’d be remiss if I didn’t touch upon what’s happening with everyone’s favorite precious metals as we ring in the new year.
Gold and Silver Are Consolidating
When it comes to commodities for 2012, I haven’t mentioned gold … or silver. That’s because both metals seem to be in quiet periods of slippage and consolidation. That could change in an instant, and the big trend in gold remains up. We’ll return to that market when the outlook improves.
For now, I recommended Red-Hot Global Resources subscribers hold a position in a double-SHORT gold fund as a hedge in the portfolio. We grabbed half gains and we’ve moved up the protective stop, so if subscribers get stopped out, it’s likely they’ll be stopped out with gains. And we already banked two rounds of gains on a double-short silver fund.
It just goes to show you can make money on the long AND short side in commodities — that’s what we’re doing in Red-Hot Global Resources. If you’re doing this on your own, please be careful, do your own due diligence, and don’t be too piggy when you have profits in this fast and furious market.
Best wishes for the New Year,
P.S. You don’t have to “go it alone” when you’re looking to harvest profits in commodities and other natural resources.
In Red-Hot Global Resources, subscribers just grabbed gains of 158%, 135%, 72%, 19% and 14% in the last few weeks, plus returns on some hedges — that they had on the table for just a few days — of 14%, 9% and another 9%!
It’s been a great year, and I’m expecting 2012 to be even better. Get on board for the next round of happy returns — start here today!