Two Commodities To Earn Some "Greece"

Commodities skidded on news from Greece last week as the apparent bailout “deal” hit yet more difficulties and the outcome remained in doubt heading into the weekend.

Of course all last week we were continually feeling a sense of deja vu after Greek officials continually pushed the debt talks to “tomorrow,” all for a final debt deal only to immediately be shot down when it finally reached EU officials.

Essentially, we are back to square one with Greece, as their “deal” must be further refined and global markets and ETFs lie in wait for that uneasy feeling of deja vu to go away.  Add on the fact that this is the 2^nd time in six months that Greece has caused heartburn, and one might feel a permanent sense of unease and fear that a global heart attack could come next.

Furthermore, our faithful commodities such as gold and oil have been suffering from the volatility, as well, as investors do not know whether to invest in the “safe haven” gold or the “economy's fuel,” oil.  Gold ETFs and oil ETFs both have flirted with three week highs recently, despite their dramatic plunge last Friday.

Since commodities are “real” and “tangible” investments compared to currencies or bonds, how do investors play a volatile market influenced by a constant threat of bailouts and default?  Specifically, what is today's “Greece” for Gold and Oil ETFs?

Let's start with basics:  typically gold and gold ETFs go up when currencies appear weak.  If Greece defaults or exits the Eurozone, the Euro dollar will likely take a sudden decline and the U.S. Dollar will become the safe haven for global investors, rising in price and temporarily sapping gold's recent uptrend.  Markets are never quite this simple, but barring a Greek heart attack, one can look at the SPDR Gold Trust ETF below and conclude that the overall uptrend in Gold since the beginning of the year could continue:

Chart courtesy www.stockcharts.com.

Our friend oil does well when economies are growing since they consume more oil, thus raising demand and prices. So, let's apply this basic concept to oil ETFs and Greece: if indeed Greece and the EU manage to resolve their differences and save Greece and the Euro from destruction, then the European economy will be on sounder footing and oil prices will likely rise.  When one looks at the United States Oil Fund LP ETF USO below, you can see the overall downtrend in oil since the fear of economic contraction and volatility began in Europe for the 2^nd time at the beginning of the year:

Chart courtesy of stockcharts.com.

The Greek problem has been in our faces for quite some time and will likely not disappear soon.  Furthermore, Greece is the least or our worries as Italy, Spain, or Portugal could be next up in line to heat up and threaten worldwide financial destruction regardless of the Greek outcome.  In the meantime, two of the world's hottest commodities will likely remain volatile as headline news from Europe continues driving world equities and commodities markets.  Technical indicators, as always, can show us the way to go with gold and oil no matter where Greece goes and so the current crisis can provide an opportunity for profits whether Greece survives or not.

Bottom line: Gold and oil are two “super sectors,” as outlined in my book, “Super Sectors,” that have enormous long term, upside potential.  Greece and the European debt crisis have the potential to upset global economic and financial markets, including gold oil, but if this situation is resolved, gold and oil have great potential to offer investors more “Greece” ahead.

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Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.