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Interview: Got to Eat, Want to Glitter: Commodities Still Shine

02/16/2008 12:00 am EST


John Carter

Author, Mastering the Trade

Commenting on the metals markets, John Carter,, said that while gold topped, then recently pulled back, he thinks it will consolidate for awhile before continuing to rise. He noted that traders can look at other metals, such as platinum and silver as leading indicators for gold, both of which are still in a bullish cycle.

(Editor’s note: John’s interview was taped on 2/16 and April Gold closed the prior day at $906.10. It broke out to the upside two days later and knowing his style there is a good chance he moved back to the long side.)

As for investing, Carter prefers futures, although investors may also invest in gold and silver via exchange-traded funds, the streetTRACKS Gold Shares (NYSE: GLD) and iShares Silver Trust (AMEX: SLV), respectively. Or they may buy the metals outright.

To gauge the pricing direction for metals, Carter suggested keeping an eye on the US dollar, as it generally correlates with gold, although not as much as it used to. A factor that may cause the currency to appreciate against the dollar is the rise of the Chinese currency. And for depreciation, traders and investors can watch for an abundance of currency printing, which will devalue all currencies, including gold.

Carter thinks there are strong, fundamental reasons for buying gold, but he looks for specific signals before doing so.

He also likes the agricultural commodities, noting the appreciation in the price of wheat, soybeans, and corn. Concerns about droughts around the world, as well as the increasing population, are the primary drivers. To study price direction, Carter suggested that traders watch reports on acres planted, weather, and government data.

To trade, Carter looks for pullbacks, not consolidations and said the secret to position trading futures is to buy wheat futures long and buy slightly out-of-the-money puts as a hedge. That way, you won’t need stops.

Asked whether traders should play both the long and short sides of the market, Carter acknowledged the common fear of shorting, but agreed that it is important to utilize this important strategy. Fortunately, if you don’t want to short directly, you can buy the UltraShort QQQ ProShares (Amex: QID), a reverse ETF that goes up if the market goes down.

And lastly, Carter addressed the fundamental vs. technical analysis question in this volatile, uncertain market. He noted that in such markets, fundamental analysis can lead you astray, and that right now a focus on technical analysis and money management would be helpful in establishing your position as well as in determining how much money you will risk.

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