Saturday, February 16, 2008

Platinum, Oil, and Chinese Stocks

Last week, precious metals were more or less flat, which is a bit unusual considering how strongly the Euro rallied. In this post, I'll show some charts that caught my eye this week.

Firstly, in the chart below, we have a chart of USO, the United States Oil fund ETF, beneath a chart of Crude Oil's Commitment of Trader structure. Using this technique is not perfect, but generally, clues can be obtained from watching the commercials, and keeping an eye on open interest:

The next chart shows a weekly chart of USO. This chart is a duplicate of a chart I featured and analyzed in this article. As you can see, this ETF is grinding against the red resistance area that is atop the price action. As it is consolidating, it is working off its overbought condition, which can be shown by the indicator on the bottom. I feel that Crude Oil could be winding up for a big move.

With about 90% of my investments tied up into precious metals and commodities, I thought it might be wise to explore some other profitable opportunities. Another area that I think has a lot of potential is China. I am currently reading Jim Roger's new book, A Bull in China, and he makes a good argument.

One way to play Chinese stocks can be through ADRs, which is more risky, or through ETFs, which give you a basket of stocks. One such ETF is FXI, and here is a daily chart of it below:

I was somewhat nervous investing in the Chinese market a few months back because of the frothiness that was building up. However, if you look at the Hang Seng, which is the main index for Hong Kong stocks, you will see that it is no longer overbought, after correcting 36% in the last 3 months:

Finally, another chart that caught my eye was a chart of platinum. I feel bad that I was never able to capitalize on this massive move. I always felt that, for political reasons, South Africa would inevitably descend into third world status, and I knew that 80% of platinum is mined in South Africa, but I was never able to put 2 and 2 together.

Platinum production in South Africa has plummeted due to that country's inability to supply electricity to its mines.

It is also worth mentioning that South African mining stocks should always be avoided without exception. Unfortunately, some of the major ETFs, such as XGD, have South African exposure, but it is not too significant. Two mining operations that I like, and that are in politically stable regions are Agnico Eagle Mines, and Silver Standard Resources.


Larry Nusbaum said...

"Two mining operations that I like, and that are in politically stable regions are Agnico Eagle Mines, and Silver Standard Resources."

Funny, those are the two favorites of Bob Chapman (International Forecaster)who loves the management and the fact that both companies have built up their real assets........

Guerilla Investor said...

Great post! I have also been eyeing oil and USO and expecting a more significant break above $100 for oil. And you can certainly count me in with the crowd that wishes they hadn't missed the platinum elevator!

Danny Merkel said...

Hi Larry,

You got me. That is not a coincidence. Bob Chapman is one of the main gold commentators that I enjoy following.

Please feel free to drop by again.

Danny Merkel said...


You and I are on the same wavelength right now, judging by your recent posts.

I am starting to get bullish on oil for fundamental reasons too. After listening to Jim Puplava for years, and reading books by Richard Heinberg, I can`t help but think that oil will contend with gold for being the top asset class for the next 5 years.

HeadlineCharts said...

Hi, don't you think the run in commodity prices is getting close a to frothy top intermediate-term?