Saturday, 27 November 2010

Will Gold Crack the $1000 an Ounce Mark for Good?

Will Gold Break the $1,000 an Ounce Mark for Good?Home page Company name and slogan

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Sam SubramanianWill Gold Break the $1,000 an Ounce Mark for Good?Sam Subramanian PhD, MBA

A 4.6% increase in the price of gold over the past three days has helped the precious metal to break out of its two month trading range of $930 to $970 an ounce. Gold for December delivery hit a six-month high of $999.50 an ounce today pushing the price close to the psychologically important $1,000 an ounce mark.

This is gold's third attempt to break the $1,000 an ounce barrier this year. While the previous attempts have failed, there are reasons why the third attempt could be successful.

Following a spectacular 52% advance from its March 6 lows, the S&P 500 has recently declined for four days in row. Investors' comfort with equities has eroded over the past few trading sessions. The CBOE Volatility Index (VIX) has vaulted as high as 29.57, an eight-week high. Equity investors are getting concerned that stock prices are leapfrogging an eventual economic recovery. Investor sentiment on gold has not been particularly bullish off late. Mark Hulbert of Hulbert Financial Digest reports that gold market exposure recommended by a subset of short-term gold timing services is just 25%, well down from 61% in early June. As such, it is conceivable that investors are under-weighted in gold and may continue to pull monies out of equities to put them in gold. SPDR Gold Shares Price ChartThe recent rally in gold has helped SPDR Gold Shares (GLD) break out of its 2-month trading range.

Soaring budget deficits in the U. S. and U. K. are increasing investment demand for gold, more notably in Europe. Gold held in ETF Securities Ltd.'s exchange-traded commodities has risen to a record 7.99 million ounces. After some weeks of outflows, bullion holdings of SPDR Gold Shares (GLD) are starting to climb again.Limiting supplies of the precious metal, central banks are restraining their sales of gold. The European Central Bank, the Swiss National Bank and Sweden's Riksbank have agreed to limit gold sales to less than 400 metric tons per year over the next five years. The seasonal pattern favors gold. Coming just ahead of the surge in jewelry demand from the wedding season in India, September is often a strong month for gold. What can go wrong with the above lines of reasoning? An up-tick in the U. S. dollar.

Upward moves in the price of gold have correlated quite well with declines in the U. S. dollar this year. And this is unlikely to change in the near-term. If economic data in the U. S. surprise to the upside and those from Europe to the downside, the dollar can pop hurting gold.

Given gold's impressive recent momentum and break-out of the trading range, the odds for a sustained downtrend looks remote at least in the near-term. SPDR Gold Shares (GLD), Market Vectors Gold Miners (GDX), and ProShares Ultra Gold (UGL) are a few ways ETF and ETN investors can use to join the gold bugs. Mutual fund investors can look to Fidelity Select Gold (FSAGX), First Eagle Gold (FEGIX), and USAA Precious Metals & Minerals (USAGX).

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AlphaProfit MoneyMatters™ is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any of the investment companies, brokers or entities connected with the securities mentioned herein. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of the AlphaProfit MoneyMatters.





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Will Gold Stay Hot and Gas Cold?

Commodity Trading Strategies - Gold - Natural GasHome page Company name and slogan

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Sam SubramanianCommodity Trading Strategies: Profiting from Gold and Natural GasSam Subramanian PhD, MBA

Investors often lump commodities together and run the risk of making improper investment choices. While some commodities can be hot, others may not. The supply and demand factors affecting commodity prices are usually specific to a commodity.

Take the case of gold and natural gas this year. The price of gold has been relatively strong. The surge in the yellow metal's price over the past few trading sessions has put gold just short of the $1,000 an ounce mark, the third time gold has approached this level.

In contrast, the price of natural gas has been on a downtrend. With a series of lower lows getting set, natural gas prices are near levels seen in March 2002. To some, such weakness in natural gas has surprisingly come in the face of strong oil prices.

So what gives? What's driving gold and natural gas?

Gold - Demand and Supply Following a spectacular 52% advance in the S&P 500 from its March 6 lows, investor's comfort with equities has eroded on concerns that stock prices are leapfrogging an eventual economic recovery. The implications of soaring budget deficits in the U. S. and U. K. are a point of concern as well.

Commodity Trading Strategies: Natural Gas and Gold ReturnsDivergence of gold and natural gas prices indicates the need for commodity trading strategies.Against this backdrop, investors appear under-weighted in gold. They are pulling monies out of equities to put them in gold. Meanwhile, central banks are restraining their sales of gold and limiting supplies of the precious metal. The European Central Bank, the Swiss National Bank, and Sweden's Riksbank have agreed to limit gold sales to less than 400 metric tons per year over the next five years.

Natural Gas - Demand and Supply First off, it is important to note that unlike oil, natural gas is a domestic commodity. The price of U. S. natural gas is influenced primarily by U. S. demand and supply. Economic growth in regions like China and India has little bearing on natural gas. In contrast, the price of oil is influenced by growth in Asia.

The deep U. S. recession has taken a heavy toll on natural gas demand. The U. S. Department of Energy expects use of natural gas in U. S. factories to decline 8.6% this year. Steps taken by gas producers in curtailing output have not been adequate in stemming the surge in natural gas inventories. According to the Energy Department, natural gas inventories have bulged to 3.323 trillion cubic feet, a seasonally adjusted high since 1993.

So, what's the right way to play gold and natural gas?

Profiting from Gold Trade GoldGiven the strong run-up in the price of gold and gold-related assets last week, a short pause may be in order here. That said, the fundamentals for gold appear reasonably favorable at least in the near-term. From a technical perspective, the momentum is with the bulls. The seasonal pattern too favors gold. Coming just ahead of the surge in jewelry demand from the wedding season in India, September is often a strong month for gold.

It is conceivable that gold can crack the $1,000 an ounce mark in the near future and stay above this psychologically important level. Where gold goes in the intermediate to long-term depends on the ability of the U. S. dollar to hold up against major world currencies. Gold can thrive if the greenback declines and inflation heats up.

Read: Specific ways to invest in gold

Investing in Natural Gas Invest in Natural GasThe near-term supply-demand balance for natural gas looks pretty depressing. The market is well-supplied... to put it in mild terms. Barring a surprise wave of warm weather that increases air-conditioning demand or a storm that reduces Gulf of Mexico natural gas output, excess inventories are likely to keep natural gas prices in check for sometime.

Natural gas investments are a longer-term play premised on the belief that the U. S. economy will resume growth sometime in the future. The attraction is that natural gas may have substantial upside when the turnaround does occur.

First, natural gas is trading at a material discount to oil on an energy equivalent basis. Second, the price of natural gas delivered in future is much higher than its spot price. Natural gas for January delivery closed at nearly $4.79 per million BTU, an 80% premium (or about $2.13 per million BTU) to the October futures price.

While natural gas investments do not appear particularly timely at present, there are varieties of investments long-term investors can monitor and profit from once the bull market in natural gas ensues.

One can play the natural gas theme by investing in the commodity itself through iPath DJ AIG Natural Gas ETN (GAZ).

Alternatively, one can invest in stocks of companies reasonably leveraged to natural gas. These include Anadarko Petroleum (APC), Chesapeake Energy (CHK), Devon Energy (DVN) and Canada-based EnCana (ECA).

Mutual fund and ETF investors can look at Fidelity Select Natural Gas (FSNGX) and SPDR S&P Oil & Gas Exploration & Production (XOP). While these bundled products are not entirely pure-plays on natural gas, they do offer the benefit of reducing company-specific risk.

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AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios with Fidelity funds and exchange-traded funds. It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won the coveted #1 rank from Hulbert Financial several times.

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AlphaProfit MoneyMatters™ is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any of the investment companies, brokers or entities connected with the securities mentioned herein. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of the AlphaProfit MoneyMatters.





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Is the Housing Recovery for Real?

Sam Subramanian PhD, MBA

The housing market is sending mixed signals. Home sales are rising. Foreclosures are increasing too. Is the worst really over for housing?

Rising Sales of New and Existing HomesSales of existing and new homes are increasing. In July, total sales of new and existing homes rose to a 5.673 million annual rate, the highest since November 2007. The steep decline in home prices, low mortgage rates, and an $8,000 tax credit for first-time buyers have helped to prop up demand.

Foreclosures Show No Signs of AbatingRising unemployment is causing increasing number of homeowners to default on their mortgages. Foreclosures have spiked particularly in states like Nevada, Florida, and California. According to RealtyTrac, 358,471 U. S. properties received a foreclosure notice in August. This represents an 18% increase from August 2008.

Home Prices Tick Up Even though foreclosures are on the rise, strong increases in sales are helping the housing market to stabilize and enabling home prices to stage a modest rebound.

The S&P/Case Shiller Index which tracks home prices advanced 1.4% in June, its second straight monthly gain.

So, are home prices about to rebound?

Getting a handle on leading indicators for supply of and demand for homes can help in assessing where home prices are likely headed.

Supply of Homes The news here is mixed.

Rising foreclosures are a concern. They continually bring distressed properties into the market and add to the inventory of unsold homes. Things can get ugly if unemployment rate ticks up to double-digits and causes foreclosure rates to increase further.

Supply from new construction is not nearly a concern as much. The Commerce Department recently stated that housing starts in July tallied 587,000, down 1% from June.

Building permits, an indication of future construction activity, too declined 1.8% to a seasonally adjusted annual rate of 560,000 in July. Number of building permits issued in July 2008 is nearly 40% lower than a year-ago prior to the financial meltdown.

New Homes Building Permits Chart

Demand for Homes It is useful to look at a leading indicator like pending home sales that track contract signings.

The National Association of Realtors recently announced that pending home sales gained 3.2% in July. This follows a 3.6% increase in June. Such strength in contract signings augurs well for home sales going forward.

Existing Home Sales Up Despite Foreclosures

Buyers are however turning frugal with their home purchases. The Commerce Department's data show that sales of new homes costing less than $200,000 accounted for nearly half of all sales in the first half of 2009. The average size of new homes is down to 2,065 square feet.

All said, the housing market appears to have stabilized. As long as the job market doesn�t get much worse and mortgage rates don't rise too much, home sales should continue to trend upward and help home prices to recover further.

The strength of the recovery is likely to be subdued and drawn-out as high levels of foreclosures offset restraint on new construction.

The investment implications of this analysis are discussed in a separate article titled 3 Housing Investments Best Suited for a Recovery.

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AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios with Fidelity funds and exchange-traded funds. It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won the coveted #1 rank from Hulbert Financial several times.

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AlphaProfit MoneyMatters™ is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any of the investment companies, brokers or entities connected with the securities mentioned herein. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of the AlphaProfit MoneyMatters.





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3 Piers for Building Your Housing Investments

Housing Investments - Home Builders - Home ImprovementHome page Company name and slogan

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Sam Subramanian3 Housing Investments Best Suited for a RecoverySam Subramanian PhD, MBA

The housing market is showing signs of stabilization. The free fall in home prices appears to have ended. Even though foreclosures are on the rise, strong increases in sales are enabling home prices to stage a modest rebound.

Home prices as measured by the S&P/Case-Shiller index advanced 1.4% in June. This marks the second straight monthly gain for the battered housing market.

With home prices showing signs of turning around, it pays to look at leading indicators of supply of and demand for homes to assess whether the bottom can be enduring.

Supply of HomesNew construction as well as foreclosure contributes to the supply of homes.

Issuance of building permits is a leading indicator of new construction activity. There is ample evidence that construction activity is slack. Number of building permits is down nearly 40% on a year-over-year basis.

Foreclosures are however a point of concern. The U. S. foreclosure rate shows no signs of abating. The foreclosure rate could also increase materially if forecasts for a double-digit unemployment rate come true.

Demand for Homes Pending home sales are a useful leading indicator since they track contract signings. Here the picture is encouraging.

Housing Investments: S and P Case Shiller Home Price Index TrendA turnaround in the S&P/Case-Shiller index augurs well for housing investments and homebuilders.The National Association of Realtors recently announced that pending home sales gained 3.2% in July. Coming on the heels of a 3.6% increase in June, this marks the sixth straight monthly gain in pending home sales.

With frugality being the new norm for consumers, purchases of smaller sized homes are becoming more common. The average size of new homes is down to 2,065 square feet. The Commerce Department's data show that sales of new homes costing less than $200,000 accounted for nearly half of all sales in the first half of 2009.

What This Means for Home Prices As long as the job market doesn't get much worse and mortgage rates don't rise too much, home sales should continue to trend upward and help home prices recover further. The strength of the recovery is likely to be subdued and the duration drawn-out as high levels of foreclosures offset restraint on new construction.

Given the above outlook, it is right to get into housing-related investments... but selectively. We believe new starter home builders, home improvement companies, and selected home furnishings makers can prosper as home prices recover.

First Time Homebuilders Housing Investments: First Time Home BuildersMortgage availability is less abundant than in the go-go days. Added to this, uncertainty on the job front is running high. These factors are working to curb consumers' appetite for large mortgages. Against this backdrop, the lower-end of the house price spectrum appears more appealing than the higher end.

Shares of lower-end homebuilders offer one way to play the housing recovery. D. R. Horton (DHI) and KB Homes (KBH) are examples of homebuilders catering to first-time buyers.

Housing Investments: Home Improvement CompaniesHome Improvement Companies The backdrop of modestly rising home prices and lower mobility from a slack job market is likely to encourage homeowners to upgrade their homes. Home improvement companies like Home Depot (HD) and Lowe's (LOW) can fare well in this milieu and offer another means to play the housing recovery.

Home Furnishings Housing Investments: Home FurnishingsTeeing off the potential for homeowners to upgrade their homes, makers of home furnishings that help to increase the value of homes look appealing as well. Masco (MAS) a maker of cabinets, plumbing products, and paints is an example that fits this bill. Floor covering product maker Mohawk Industries (MHK) is another company that can benefit.

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Popular How-To GuidesSecrets to Boosting Your No Load Mutual Fund ReturnsRollover IRA: A Booster Rocket for 401k Retirement PlansBest ETFs to Build Your ETF PortfolioConstructing a Top Mutual Fund Portfolio Selecting Stodgy Stocks to Grow Your PortfolioDiversified Portfolios with a Knock-Out PunchSelect Sector SPDRs: Maximize Return and Minimize RiskA Guide to Analyzing Mutual Fund ReturnsLooking at Mutual Fund Fees the Right WayInside Scoop on Morningstar Fiduciary GradesAre PowerShares ETFs Right for You? @import url(http://www.google.com/cse/api/branding.css); Google Custom Search Recent MoneyMatters ArticlesContrarian Investors: Best Stock InvestmentHow to Invest in the Stock MarketContrarian Investing: Two Top StocksMINDX: Matthews India Fund ReviewFidelity Enters the Alternative Energy Fray with FSLEXBest Way to Invest in Energy StocksSector Funds: Best, Worst, and Mid-Year Market OutlookChoosing the Best Fidelity Money Market FundsJAOSX - A Worthy International Mutual Fund?3 Good Stocks to Buy When Correction EndsHas the Dow Jones Industrial Average Topped? More from Investing BlogSign Up for Free e-letter

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AlphaProfit MoneyMatters is a free e-letter distributed to registered users of AlphaProfit's website. The e-letter analyzes the economy, markets, and sectors and provides money-making insights on stocks, exchange-traded funds, and mutual funds.AlphaProfit MoneyMatters is edited by Dr. Sam Subramanian acclaimed for his financial acumen and analytical skills.

AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios with Fidelity funds and exchange-traded funds. It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won the coveted #1 rank from Hulbert Financial several times.

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