IPFS
The Key to Investing in Commodities in 2011
Written by Sierra Hancock Subject: Precious Metals
The Key to Investing in Commodities in 2011
Matt Badiali
Editor's note: For more insight and actionable investment advice on gold, oil, and other natural resource opportunities from Matt Badiali, consider a trial subscription to Growth Stock Wire. Click here for details.
The gains in natural resources are getting ridiculous these days...
In just the past year or so, my readers have made 542% on
exploration firm ATAC Resources... 397% on silver company Silver
Wheaton... 280% in silver miner Silvercorp... 213% on gold firm Northern
Dynasty. We're also sitting on a handful of "just" 100% winners.
After seeing huge gains in such a short time, it's tempting for us
to walk around feeling like geniuses. But in the resource investment
business – which produces enormous booms AND enormous busts – simply
counting your money and feeling brilliant, while ignoring risk, is a
recipe for disaster.
You see, commodity prices have surged in the past year. Crude oil
is at a new 52-week high. Copper is up 33% this year... and sits at an
all-time high. Gold and silver are near all-time highs. Most
agricultural commodities are at 52-week highs. These gains are drawing
in a tremendous amount of money... all chasing the gains.
According to the Financial Times, the money spent on mining in 2011 will be a record $115 billion to $120 billion. That's more than the old record of $110 billion we set in 2008,
which marked a massive top for the benchmark CRB commodity index. Also,
fast money hedge funds hold huge amounts of long bets in crude oil,
copper, and corn.
In other words, investors are throwing money at resources willy-nilly. We need to hang on to our heads.
Don't get me wrong... I don't want you to dump your commodity
positions right now. I'm not selling any. In fact, I'm going to keep
adding them to my portfolio. I think this could be the start of a
full-blown mania in commodities... and manias are where "never have to
work again" fortunes can be made.
We could see gains in commodities like we saw in 2007 and 2008. For
example, crude oil jumped 130% from 2007 to mid-2008. You can see this
huge rise in the chart below.
Back then, I didn't believe oil would hit $100 per barrel, let
alone $140. But that's what happens when huge amounts of money chase
commodities.
Now it's the other side of that hill we need to watch for... After
its meteoric rise, oil fell from $140 to $35 per barrel in about six
months.
Fortunately, my readers were out on the sidelines for most of the
rout. We had taken care of our risk with trailing stops. And we managed
to book most of our gains.
I'm not saying we're going to see a similar fall in gold, copper,
or silver anytime soon. But we'd be foolish to focus only on the
potential gains. We need to acknowledge that things could get crazy...
but we still need to manage our risk.
Our risk today is that the world will send resources into a
bubble... and that bubble will burst. On new mining investments, make
sure to use trailing stops. And if you're sitting on giant, 100%-plus
gains, consider tightening trailing stops to 15% or 25%. This will
preserve the money you've made.
In sum, this bull market could go hundreds of percent higher. But
don't ignore the risk of resource investment. If you stick to the plan
I've laid out, you'll make plenty of money and get out when the time is
right.
Good investing,
Editor's note: For more insight and actionable investment advice on gold, oil, and other natural resource opportunities from Matt Badiali, consider a trial subscription to Growth Stock Wire. Click here for details.
Further Reading:
Toward the end of oil's monster run up, as 84% of his portfolio was
showing double-digit profits, Matt wrote, "When you get the big trend
right and swim with the current, it's relatively easy to make big
returns... But I'm not going to confuse brains with a bull market." And
he showed his readers two simple rules for keeping commodity gains. Learn his rules here.
While Matt has been touting natural gas plays for a
long time, he warns readers of a "danger lurking here that could smash
some companies in your portfolio." If you're invested in natural gas,
make sure you're fully prepared. Get the details here: This Secret of the Oil & Gas Industry Could Hammer Your Portfolio.
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