Making Money Alert
Eyeing the Commodity Pullback
05/11/2011
There’s been a big correction in commodities since the beginning of May. The selling in the space was led by silver, as the astounding run up in the precious metal culminated in a pushing-up against resistance at the all-time highs of $50 an ounce. The profit taking in silver prompted a sell-off in gold, and that prompted some selling in oil and other commodities that make up the DB Commodities Tracking Index Fund (DBC).
Commodity prices have since come off their May lows, as you can see here by the chart of DBC. My thesis here is that the factors pushing this basket of commodities higher—a falling dollar, increased oil and food consumption from the emerging markets, and the possibility of another summer of wild weather that hurts food production—could very well send commodity prices higher in the second half of the year.
What this means is that a fund like DBC could represent a good buying opportunity, now that the fund is well off its 52-week high. I’d actually like to see commodity prices get back to their short-term, 50-day moving average before recommending investors add this to their portfolio. However, I am watching DBC closely for any signs of a breakout, as that breakout could lead to another buying spree in the sector.