The One Chart Every Commodity Trader Must See

The past few years have seen the global economy fall on some hard times. At the head of it all has been the U.S., whose fiscal policies and rampant immoralities led to some of the biggest banks in the world bringing down the local economy. In order to keep our heads above water, the Federal Reserve has stepped in on numerous occasions, offering bailouts for hundreds of billions to try and salvage the economy. But the economy has done little to make a solid recovery and instead seems addicted to its regular injections of quantitative easing. As such, the financial situation surrounding the U.S. and our debt policies is beginning to grow concerning [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].

Investors have long been wary of the Fed’s liberal spending policies, as many have feared that it is only a temporary solution to issues that will eventually find their way to the forefront. But the debt has been an issue in the press for some time now and the severity of its consequences seem to get lost in translation. The following chart, courtesy of ZeroHege, details the current outlook for debt to GDP for the coming decades, outlining a rather desperate situation [for more commodity news subscribe to our free newsletter].

As outlined above, the U.S. debt scenario has the potential to become astronomically worse in the near future. Though Bernanke has attempted to stand pat on his reluctance to pump more money into the economy, the damage may have already been done. With a debt-to-GDP ratio soaring to potentially disturbing heights, commodity investors need to take into account the future of the U.S. and the diversification of their current holdings. With debt piles adding up quickly, the U.S. dollar could slide into a tailspin and shake up the commodity industry in a hurry [for more commentary on the U.S. economy and the commodity industry, sign up for our free newsletter].

Cautionary Plays

If the dollar does go to hell in a handbasket, a number of your traditional commodity plays will be suspect at best. Assets like grains and industrial metals will likely take a major hit (along with the entire commodity industry). Your best bet to protect yourself against a massive dip in the value of your holdings is to invest in precious metals. Gold will have the least ties to the industrial world and will therefore be relatively independent of the slowdown in that market sector. Those seeking physical exposure in gold can either buy and store it themselves, or utilize the SPDR Gold Trust (GLD), which invests in physical bullion. Otherwise those looking for more of a speculative play can utilize futures contracts to make more specific bets [see also Why No Investor Should Own GLD].

The remaining three “white metals” (silver, platinum, and palladium) will be hit harder by a slowdown in the industrial world. That being said, gold prices are much more susceptible to being altered by heavy trading and speculators, so these three metals may even be a better alternative. While there is always physical and futures investments, those looking for ETF plays should check out the iShares Silver Trust (SLV), Physical Platinum Shares (PPLT), and the Physical Palladium Shares (PALL).

Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.

Disclosure: No positions at time of writing.

This entry was posted in Actionable Ideas, Asset Allocation, Commodity Futures, Gold, Palladium, Platinum, Precious Metals, Silver and tagged , , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

11 Responses to “The One Chart Every Commodity Trader Must See”

  1. [...] The Invesco PowerShares’ DB Base Metals Fund (DBB) was one of the worst performers, shedding 2.77% on the day. Copper futures plummeted today as concerns over China’s demand forced prices lower. In response, this ETF gapped significantly lower at the open, only to inch downward throughout the day [see also The One Chart Every Commodity Trader Must See]. [...]

  2. [...] The ETF industry had a relatively active week on the product development front. Six new funds were introduced to the markets, including a pair of leveraged Australian dollar ETFs from ProShares and a new UBS ETN that tracks the Alerian MLP Index [see also The One Chart Every Commodity Trader Must See]. [...]

  3. [...] the company has been struggling as of late, investors will be happy to see that the firm is not funded by debt and keeps a sizable amount of cash on [...]

  4. [...] ago, Buffett made a comment about how he could end our swarming debt problems in 5 minutes. As our total debt has now surpassed that of our GDP and continues to grow, we revisit Buffett’s commentary to see [...]

  5. [...] government debt and spending. The price of gold is merely responding to decades of rapid growth in government debt and paper currency [...]

  6. [...] as European weakness is likely to continue. But bear in mind that the approaching fiscal cliff, massive debts, and the rampant money printing spell out a weak future for the dollar; proceed with caution if you [...]

  7. [...] that the debt ceiling issues would be resolved. But as of the open of 2013, the country stares at a debt pile of more than $16.4 trillion–higher than total GDP. This has led to all sorts of [...]

  8. [...] that the debt ceiling issues would be resolved. But as of the open of 2013, the country stares at a debt pile of more than $16.4 trillion–higher than total GDP. This has led to all sorts of unconventional [...]

  9. [...] business-led capital expenditures versus tinkering with tax rates and budget cuts in the face of insurmountable debt. Gold should remain a core part of any twenty-first century portfolio that seeks to preserve wealth [...]

  10. [...] business-led capital expenditures versus tinkering with tax rates and budget cuts in the face of insurmountable debt. Gold should remain a core part of any 21st century portfolio that seeks to preserve wealth in the [...]

  11. [...] A very entertaining title for a blog that is extremely focused on technical analysis and deciphering charts for stocks as well as [...]

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