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Commodity Review: Is There Reason For Renewed Optimism?

Commodities rallied elsewhere in the world in part due to Europe throwing Spanish banks a lifeline but mostly due to better than expected data out of China plus Goldman Sachs issued an optimistic forecast for commodities. Specifically, the Chinese released data that showed that Chinese copper imports rose nearly 12% from April to 419,741 tones.

Of course, it should be remembered that Chinese copper demand remains lackluster. However, China still needs to import copper and restock supplies after running down inventories for some time. Traders have also noted that a global buyer is expecting higher copper prices in China in coming months and had shipped a large supply of refined copper from the United States to Shanghai in late March. That shipment may have arrived in May.

Otherwise, it should be noted that China 6 million barrels per day of crude oil, a record high, along with more iron ore in May but analysts are also warning about drawing overly optimistic conclusions. After all, actual demand from users remains weak and the bulk of oil and copper shipments could easily have been moved into storage.

Nevertheless and in early commodities trading in Asia and Europe, commodities were rallying but its worth noting that the S&P GSCI Enhanced Commodity Index fell 13% in May and is still down about 9.1% since the start of 2012 with the biggest declines being in coffee, natural gas, cotton and crude oil.

Meanwhile, Goldman Sachs (NYSE:GS) issued a bullish commodities forecast saying that it expects a 29% return from the Standard & Poor's GSCI Enhanced Commodity Index over the next 12 months. Specifically, Goldman Sachs (GS) expects energy investments to rise 41%, base metals to rise 23% and precious metals to rise 18% while agriculture will loose 14%. Jeffrey Currie, the head of commodities research in New York, also noted in the report that despite macroeconomic uncertainties, the current sell-off in commodities is probably overdone with the price risks shifting to the upside.

Hence, investors and traders alike who want to take advantage of any coming overall upswing in commodity prices might want to take a closer look at the iShares S&P GSCI Commodity-Indexed ETF (NYSEARCA:GSG) which attempts to replicate the performance of the S&P GSCI Total Return Index (however, it should be noted that GSG is not registered under the Investment Company Act of 1940 - meaning an investment is highly speculative).

Likewise, investors and traders who want to bet that Monday's rally will be short lived should be looking at some of the commodity short funds offered by ProShares - a provider of leveraged and inverse funds that allow ordinary investors and traders to short the market. Fund offerings from ProShares include the ProShares UltraShort DJ-AIG Commodity (NYSE:CMD), ProShares UltraShort DJ-UBS Crude Oil ETF (NYSEARCA:SCO), ProShares UltraShort DJ UBS Natural Gas (NYSEARCA:KOLD), ProShares UltraShort Gold ETF (NYSEARCA:GLL) and ProShares UltraShort Silver ETF (NYSEARCA:ZSL).

Finally and given just how volatile commodities have been, you might want to add a few of the above commodity ETF funds to your My Portfolio page to keep track of our latest directional predictions and probabilities for them as there is bound to be more volatility in the weeks and months ahead - meaning opportunities for traders to profit.