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Stock Ideas Investors Daily Edge Are the gold, silver, oil, natural gas and uranium plays over?
Stock Ideas Investors Daily Edge Are the gold, silver, oil, natural gas and uranium plays over? 
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| Are the gold, silver, oil, natural gas and uranium plays over? |
| Wednesday, 17 September 2008 | |||
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Page 1 of 2 I wrote an editorial late last May entitled “They’re Giving Away Resource Stocks”. The primary theme of the article was that no one seemed to appreciate resource stocks at that particular time. Commodity prices were significantly higher then and there was a glaring disconnect between commodity prices and resource stock prices. The usual leverage of the shares was absent. How has this played out over the last four months?Not good.I stated in the article… “Either commodity prices must fall or junior miners must rise and close the gap. I don’t see commodity prices falling significantly from present levels. They stand as protection against currency debasement, which happens to be a growth industry these days. The US dollar remains at the epicenter.” First of all, I was dead wrong about commodity prices during the subsequent time frame. They have recently received an historic bashing. Is this the end of the resource bull market or just a glorified correction? Corrections are healthy and normal in long-term bull markets. Corrections don’t signify bear markets though they may feel like it at the time. It is not unusual for gold to drop twenty percent or more in a short period of time. It dropped twenty-one percent in the summer of 2006 and in one month in 1978. It subsequently soared. Silver is more volatile than gold and it’s not unusual to see it fall even further. I have expected and forecast oil to fall to the $90-$100 range. The timing of the gold/silver correction certainly has surprised me. Market fundamentals clearly dictated the opposite movement. Currency debasement has been this year’s major theme. The bailouts are at historic levels. Banks are failing and will continue to do so. Debt is beyond imagination. The dollar based financial system is more fragile by the day. How has this played out? - The dollar has risen more than ten percent. - Commodities have fallen across the board. - Resource stocks have been decimated.
They are no longer just giving away resource stocks they are throwing them away in a complete panic. You’d think the world will never again need gold, silver, platinum, oil, natural gas, uranium, copper, lead or zinc. Let’s look at the mindless carnage: As you can see, the PHLX Gold and Silver Index (XAU) has been trashed. The smaller companies have received a much bigger beating. The shares are supposed to show leverage to the respective commodities. Even with the recent decline in the price of gold, gold stocks are trading at the lowest level in relationship to the price of gold over the last 25 years! All resource stocks have been punished. Why has this happened? First of all, we don’t have honest markets. They are manipulated on an ongoing basis, especially during election seasons. Sad but true. Numerous experts believe the dollar rebound and the commodity take down were artificially induced. Sadly, this possibility has every appearance of being the present American Orwellian nightmare. The current global financial and economic chaos is causing extreme stress to many players. Some hedge funds are failing and others are unwinding all of their leveraged positions. Even the hapless dollar has been the temporary beneficiary. “Hot money” is on the run. There is a mass exodus from all things resource. There is no appetite for speculation. You have likely just witnessed a classic washout bottom. Stocks were down 10-20 percent on a given day. Some were down 50 percent last week. Are the gold, silver, oil, natural gas and uranium plays over? Were they just another bubble as presently described? I don’t believe it for one second. These are real markets with continuing favorable supply and demand fundamentals. Only a widespread global depression is likely to end the bull. Gold, silver and commodities in general are historic safe havens during times of monetary abuse. Maybe Superman now thrives on Kryptonite. Maybe Madonna wears a habit. Perhaps Dick Cheney can shoot straight. You shouldn’t put long-term money on any of these propositions. History is your ally on a long term basis. Let’s look at three possible scenarios as to how resource stocks should perform from this point forward: |
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