The day before I wrote “Spend your Gold on Wheat and Oil,” gold futures closed at $837.40 / troy oz, oil at $39.31 / barrel and wheat at $211.69 per metric ton. That was December 19th, 2008. In the short time that has passed since then, both oil and agricultural commodities experienced a significant rally (and an almost corresponding correction) while gold mostly trended down.
Today, wheat and oil futures are again gaining some ground, unable to break below their short term support levels. At my last check gold futures were changing hands at $826.40, oil at $40.23 and wheat at $218.40. This looks like an inflection point on the graphs for wheat and oil and agricultural commodities and oil should resume their longer term trend up vs. gold from here.
I see this as a great opportunity to get into agriculture and the most convenient way I found to do so is via PowerShares DB Agriculture Fund (DBA) - an ETF with approximately equal weightings (exact daily weightings are available here) in four agricultural commodities – wheat, sugar, soybeans and corn (maize).
As I reported in “Spend your Gold on Wheat and Oil,” gold was 52% more expensive vs. wheat, than the monthly average over the previous 25 years. Based on the past 25 years of monthly data, it was also trading at a 52% premium vs. soybeans, 56% premium vs. corn and a whopping 65% premium vs. sugar. Turned out that on historical basis, the weighted average of DBA assets was at this point 56% undervalued vs. something made of gold, such as SDPR Gold Trust ETF (GLD).
Today, after an ag commodity mini rally and a correction, DBA assets are 47% undervalued vs. gold, if you use the 25 year monthly average as the gauge. Wheat, sugar and especially soybeans have made great strides towards parity, but the DBA weighted average of commodities has only appreciated by 6% vs. gold so far. In the meantime DBA itself moved up 4% from the December 19th closing price of $23.72 / share up above $27 / share a weak ago, only to retreat back down to $24.66 / share, where I picked it up today.
If, by some miracle, DBA should revisit the early December lows, while gold stays within its current trading range, I will be looking to add to this position.
Jake Berzon
www.stockvalues.org
Today, wheat and oil futures are again gaining some ground, unable to break below their short term support levels. At my last check gold futures were changing hands at $826.40, oil at $40.23 and wheat at $218.40. This looks like an inflection point on the graphs for wheat and oil and agricultural commodities and oil should resume their longer term trend up vs. gold from here.
I see this as a great opportunity to get into agriculture and the most convenient way I found to do so is via PowerShares DB Agriculture Fund (DBA) - an ETF with approximately equal weightings (exact daily weightings are available here) in four agricultural commodities – wheat, sugar, soybeans and corn (maize).
As I reported in “Spend your Gold on Wheat and Oil,” gold was 52% more expensive vs. wheat, than the monthly average over the previous 25 years. Based on the past 25 years of monthly data, it was also trading at a 52% premium vs. soybeans, 56% premium vs. corn and a whopping 65% premium vs. sugar. Turned out that on historical basis, the weighted average of DBA assets was at this point 56% undervalued vs. something made of gold, such as SDPR Gold Trust ETF (GLD).
Today, after an ag commodity mini rally and a correction, DBA assets are 47% undervalued vs. gold, if you use the 25 year monthly average as the gauge. Wheat, sugar and especially soybeans have made great strides towards parity, but the DBA weighted average of commodities has only appreciated by 6% vs. gold so far. In the meantime DBA itself moved up 4% from the December 19th closing price of $23.72 / share up above $27 / share a weak ago, only to retreat back down to $24.66 / share, where I picked it up today.
If, by some miracle, DBA should revisit the early December lows, while gold stays within its current trading range, I will be looking to add to this position.
Jake Berzon
www.stockvalues.org
