Commodities

[Onlyforfun]

After a strong bull run, the inevitable happened and just as the last stragglers got on board the run-away train, prices had a mini-collapse:

Oil $75 - $60
Gas $1.10 - $0.65
Gold $700 -$575
Copper $8500 - $7275

Always remember that tops are reached when everyone agrees prices will go up and bottoms are reached when everyone believes prices will go down.

But has anything really changed? Iran is still a big problem and after the US elections next month, Bush may well decide to resume hostilities. Although there is still a lot of oil in the ground, it can't be pumped out any faster while demand has increased hugely. Despite the high gold price making previously uneconomic projects viable, shortages of geologists and drill rigs, trouble with Unions in S Africa, a fire at one of the worlds biggest mines and environmentalists causing trouble in the developed world, supply is falling while ETF's are buying up huge amounts of physical gold. Not to mention China is using lots of raw materials to build a modern infrastructure and is also constricting the supply of commodities by buying up huge amounts of physical metals and also producers, as they have no qualms about dealing with despots, like we used to until Saint Geldoff came along.

As an aside, does anyone remember our wonderfully fiscally prudent chancellor / PM in waiting selling 25 tons of UK reserves in 1999 at $260 or so, after announcing they were going to do it, driving the price down 10% BEFORE placing the trade. Not to mention his governments move towards starting a war that would help drive prices up by 200%? :splapme

So what would I do? 4 things:

1- Buy near-term producers of gold to take advantage of increases in value as they start to pour bars and bring in cash at high prices. My favourite at the moment is Gold-Ore Resources who are re-opening a mine in Sweden (tectonically and politically as stable as you can get), there are no worries from environmentalists, they are only 4-5 months away from production and they managed to bring in over $1 million from processing the recent bulk-sample. Currently trading at Ca$ 0.51, a real steal considering that gives a market cap of Ca$ 26 million when they should be looking at cash flow something like Ca$ 40 million a year starting 2007. A similar story I also own is Mercator Gold which is opening a mine in Australia and is listed in London.

2- Look to future energy. No, not wind power, that is not all its cracked up to be environmentally, building the damn turbines uses something like 8 times as much raw material and energy per unit of energy produced than a coal or gas generator. Uranium is my second biggest play. With the US announcing the building of more reactors and the UK set to follow, prices have risen from $20 to $50+ and show no sign of slowing despite the general commodity pull back. Again ETF's are buying large amounts of ore, restricting the supply of a scarce resource. As the main producers are in the unstable Africa and the "'Stans" it may pay to look for near-term producers in the more stable Canada.

3- Other metals that buck the trend. Cobalt is strong and with increasing uses in batteries, high strength alloys (used to make the turbines on aero engines), magnets, catalysts for petroleum refining, paints and even dyes, its price has held up around $20. This is a rare metal and there is only one up-coming mine of note in the West. They've had a bit of trouble with environmentalists , but it looks like that hurdle will be cleared very soon. The company itself, Formation Capital, have a 12 month price target of Ca$ 1.35 (currently Ca$ 0.29) and when you consider that these people get the majority of their cash as options, there is a real incentive to make things happen for shareholders. Palladium, which is increasingly used in jewellery is another to consider. Zinc is another I'm interested in ($1000 at end 2004, now holding up well at $3400).

4- I'm taking advantage of the current rise in prices to move away from Copper as the price is vulnerable to a downturn in US house building which seems imminent if not already happening.

[Onlyforfun]

Update:

Gold - looking for another close in the $605 region to signal an upside breakout, support for the dollar is crumbling so this feels imminent. Gold-Ore resource disappointing at Ca$0.53 after reaching Ca$0.59 last week. I expect news of poduction delays.

Uranium - After a rockfall and flooding, Camecos new Cigar Lake mine that was estimated to produce over 10% of world demand from mid 2008 is put back to 2009 at earliest. Holders of U308 will be able to name their price soon as a supply squeeze bites. Crosshair Exploration, my biggest position, is up 20% to Ca$2.33.

[Win2Win]

What about Titanium? Useful to the military & health.

[Onlyforfun]

I don't know a lot about the economics of it, but a quick search shows that it is very abundant, although not so abundant as recoverable resource. It seem sthat the majority of production is as a by-product of the processing of other resources and there is no supply shortage. Interestingly, Boeing and several other aircraft manufacturers and defence companies have a share in one of the biggest producers along with the Russian Govt.

It makes a nice mineral in sphene, one of the easiest minerals to identify both with the naked eye and in thin section as it is almost always occurs as a well developed rhombus and has no cleavage. Got lots of examples in my rock collection, especially in granitoid samples.

On the uranium front, the weekly price announced yesterday was up $5 or 9% to $60/lb.

[Onlyforfun]

Well, Gold has broken above $600/oz and is finding good support at $625. Hedging and forward short contracts are at 2 year lows which bodes well as the dollar coninues to weaken and test 1.28 vs Euro. If the eurozone wasn't such a basket case it would be dropping like a stone, but it's good news for Gold investors that there is no paper currency alternative to the dollar. Gold Ore Resources still lagging slightly at 53 cents, but now known to be caused by the early exercise of warrants increasing the number of shares by around 10% which equates to a pre-exercise price of 58 cents. At current gold prices I am still targetting $6 / share.

Uranium is fizzing along, and with positive stories beginning to appear in the mainstream financial press can only get better long term. I'm considering taking some short term profits (Crosshair Exploration up 40% in 2 weeks) as there may be too much speculative money for now.

As for my Cobalt play, the environmental assesment is done and in 45 days tiem I will know if I am going to make several thousand or lose several thousand!

[Onlyforfun]

A bit of a gloat. I mentioned above that I am interested in Zinc, one of the few base metals that has held its price in the last week. To gain exposure I bought shares in AIM Resources at 6p, a near term producer who are currently building a mine in Burkina Faso (resource is proven and permitted) and have signed an off take agreement for the ore produced (effectively are guaranteed to sell what they dig up). Share price today is 12.25p. :D I still anticipate another 8-10*to over £1/share by the end of next year.

Copper is about to tank and I am out apart from one odd lot position that I can't sell.:splapme

[Onlyforfun]

Last trading day of the month with:

Gold $647 / oz (touched $650 today) +7%
Uranium $64 / lb +14%
Zinc $212 / lb +2.5%

And my new favourite

Cobalt $25 / lb +47%

With the dollar tanking, oil back over $60 / barrel, I'm enjoying myself hugely. AIM Resource, the Zinc stock mentioned above is now at 14.13p, a nice 126% increase since I bought it in September. Crosshair (Uranium) is now Ca$3.73, a 91% increase since I bought it in October.

Even my wost ever pick (Ditem Exploration) that I bought around the Ca$0.50 mark and tanked to as low as Ca$0.12 is now back in profit.

[Win2Win]

Shouldn't this be the OFF bragging thread? :)

[Onlyforfun]

Can't accuse me of aftertiming though! :D

[Win2Win]

Nor can Mr Brown for selling our gold!! :doh

[Vic]

Nice going OFF - so what's your No1 earner these days.

1. The monthly salary cheque
2. The racing proceeds
3. The financial trading proceeds
4. The annual bonus

That's what I call a balanced portfolio :D I still think you should run for MP:)

[Win2Win]

Military Police! :doh

[Onlyforfun]

Still number 1 I'm afraid. Got my bonus as shares this year, but can't sell any until next October which rather puts a dampener on it.:(

[Onlyforfun]

My favourites at year end

Gold: $635.7 / oz (+23%) high $721
Uranium: $72 / lb (+100%) high $72
Zinc: $209.36 / lb (+128%) high $222
Cobalt: $25.25 / lb (+71%) high $26.5

Others

Copper: $6080 / tonne (+34%) but 35% off its high of $8200 and falling
Oil: $60.86 / barrell (-2.5%) high $79

My stocks (gain/loss from purchase price) in order of size of holding

Gold Ore Resource C$ 0.66 +27%
Rockwell Ventures (Diamonds) C$ 0.56 -2%
Crosshair Exploration (Uranium): C$ 3.65 +86%
AIM Resource (Zinc) £ 0.1275 +104%
Formation Capital (Cobalt): C$ 0.43 +27%
Ditem Exploration (Uranium): C$ 0.74 +34%
Mercator Gold: £0.79 +15%
Redhawk Resource (Copper) C$ 0.6 -25%
New Island Res (Gold) C$ 0.22 -51%

[Win2Win]

New Island Res (Gold) C$ 0.22 -51%

Did you take advice off Gordon Brown for this one? :)

[Onlyforfun]

Was a shocker, took a speculative position as I thought they might get taken over by one of the neighbouring mines, but looks like it's not going to happen anytime soon. Was only a fifth of the position I took in the top 3 though.

Rockwell are disappointing as they made a mess of their financing and have basically ended up with twice as many shares outstanding as they should have so my position went from 0.2% of teh company to under 0.1% so to only lose 2% of the value isn't the worst result but bring sthe potential upside back to under 50 cents / share I reckon.

[Onlyforfun]

Gold is trying to break out on the upside again, hitting $685/oz and the 1 year future trading above $750. Gold Ore Resource get closer to finalising their mine plan and with a strong gold price in this region I'm looking at Ca$6+/share.

I've taken a big speculative position in Starcore Intl. I owned it at 50 cents and sold at 55 cents last year wherupon it doubled to over $1. But I've bought back in now they have taken over an ex Goldcorp (one of the 5 biggest gold miners) producing mine. Producing 40k ozs year hedged at $750/oz the projected cash flow over the next 2 years is twice the current market cap. I'm expecting a quick double.

Uranium goes from strength to strength, most recent spot price (for physical delivery) is $85/pound from $75. Crosshair continues to ride higher. I'm eyeing a position in Powertech Uranium given it should start generating cash early 2008 and may be ripe for a takeover.

Cobalt is still looking good. Tightening supply is beginning to bite and with more and more rechargeable batteries being made demand continues to increase. There should be a squeeze later this year through 2008. Fortunately I own some Formation Capital, the only primary producer likely to come online in the next few years. Should have their environmental permits within the next 6 months. They also have a nice sting in the tail in the form of a joint venture with Cameco (the worlds biggest Uranium miner) with a 10% stake in a project where drilling is showing extremely high grades.

Gold Ore Resource C$ 0.83 +60%
Starcore Intl C$1.15 +0%
Crosshair Exploration (Uranium): C$ 3.28 +68%
AIM Resource (Zinc) £ 0.1025 +64%
Formation Capital (Cobalt): C$ 0.54 +59%

[Onlyforfun]

Something is brewing and it won't be good!

Alan Greenspan ex Fed President says US may tip into recession by the end of the year, the dollar is under pressure from all sides be it inflation, stagflation or unprecedented debt levels. Basically the Fed are between a rock and a hard place. If inflation picks up and they raise rates it may cause a mortgage meltdown (the US property market isn't as mature as our own) spreading into other consumer credits. If inflation eases and they cut rate, the dollar will "retreat" in the face of aggressive restructuring of central bank reserves.

Equity indices are at all time highs on the back of hedge fund and private equity cash. This is mostly leveraged finance, i.e., the money doesn't actually exist. Aslo, companies are sitting on wads of cash but crucially aren't making much now. Add this to the everybody be happy financial press and you have a recipe for disaster.

Today the markets have plunged as the Chinese threaten to crack down on hedge fund style speculation and Greenspans comments. The chgarts are suddenly pointing down. I know I've said it before and been wrong, but the reasons I put forward are even mor ecompelling now. I just underestimated the gullibility of investors who have bought into the boom with no bust message.

The tipping point / day of reckoning will be a US confrontation with Iran, perhaps sparked by renewed Hezbollah attacks on Israel.

[Win2Win]

The tipping point / day of reckoning will be a US confrontation with Iran

Yep, America sowing the seeds of it's own financial death :splapme

Still, it helps keep the £-$ at great value, so purchasing from the US, including postage & customs is still usually cheaper. Or just get a cheap flight out here & BUY BUY BUY :)

[Onlyforfun]

Gold Ore Resource issued their pre-feasibility reports yesterday and the price has broken the $1 mark. Test mining begins in May and they continue to expand the size of the reserves and resource. On a conservative basis should be around $3 by the end of the year, with massive upside potential in the next 18-24 months as long as gold remains strong.

Formation Capital is boosted to 75 cents as the public consultation on the Environmental Impact Statement draws to a close and cobalt itself continues to rise. I can't stress enough what a good punt this is. Basically, there is only 1 other primary cobalt producer in the world and it is a strategic metal with increasing usage, especially if hybrid cars, fuel cells etc take off in a meaningful way. It is so important that even in the 80's the US had it listed as the no.1 strategic metal. There is even talk of the US govt guaranteeing a minimum purchase price.

[Onlyforfun]

Interesting times in the Gold market with record net commercial short positions equal to some 22 million ounces. To put that in perspective, each $10 increase in the price puts them a further $220 million into the red and most have a strike under $750, so the notional losses currently stand at over $1billion. If the price continues to move up, that is going to mean a frenzy of short covering and a further boost to prices. $850 anyone?

My trades are simple at the moment, short the dollar vs Canadian, long gold, long oil, very long Gold Ore Resource.

[Onlyforfun]

:yikes: Net shorts increased by over 10,000 lots (or 100,000 ozs) last week just before the Chinese Finance Minister talked again of diversifying currency reserves, propelling us to $843. Best estimates the commercial traders are now sitting on losses of a minimum $2.2 billion, almost certainly closer to $3 billion. What will they do? Will the US Govt intervene in the markets? Do they have enough physical gold left in their reserves to intervene anyway?

All very interesting, but if they do start to close out these positions $1000/oz looks a very real possibility.

On the down side, any intervention by the US and Europe may be taken advantage of by China / Gulf States to offload dollars at a higer rate offsetting any negative impact.

I've gone long Aussie Dollar vs US$ aswell. Another rate rise last night and another expected before Xmas.

[Win2Win]

Just print more money, sod the reserves :)

By the way, you heard of 'Forex Killer' software, trying to decide whether to review it or not, I can't really find anything bad about it on the Net.

[Jonny2621]

I need to buy a hefty sum of dollars over the next three months OFF, would you consider the current $2.06-$2.08 to be a good price or is the dollar headed to $2.20 or higher ?

[presto]

i am no OFF but the $ dosn't look like improving soon, $2.10 for the £ now - worst it's been for 26 years.

a few years back i funded my poker accounts with $1.54 on the £ :headbange

[Onlyforfun]

I need to buy a hefty sum of dollars over the next three months OFF, would you consider the current $2.06-$2.08 to be a good price or is the dollar headed to $2.20 or higher ?

$2.10 today, there may be a short term correction, but I wouldn't like to back the dollar short, medium or long term as the momentum and the fundamentals are definately against it.

Long term Sterling is subject to similar problems as the Dollar but short to medium term the interest rate differential should keep sterling appreciating. Will it get to $2.20? Possibly. But if I was you I would buy the dollars in bits and pieces over the 3 months rather than make a call on Sterling. Or alternatively, buy Canadian or Aussie dollars now to convert into US in 3 months.

[Onlyforfun]

Gold finally reaches it's all time nominal high of $850 and pushes through to $858.74.

In "real terms" there is still another few thousand bucks to go!

:happyboun

[Onlyforfun]

$1025 / oz. :thumbs

Gold shares not being dragged along though. Best explanation I've seen is that with so many easy ways to participate directly in the gold price such as ETF's and spread betting, not so much money is flowing into what are still shares. Bound to change sooner or later though, witnes steh madnes sin Uranium shares last year where companies were changing their names to such and such Uranium and watching their share prices quadruple overnight even though they had no exposure top Uranium at all!

[Win2Win]

$1025 / oz. :thumbs

:D :thumbs Not that I have an interest :rolleyes:

How much is Titanium.....I don't want the wife killing me to get her hands on my jaw :yikes:

[Onlyforfun]

Still only $8.50 per gram. You should be safe for now, but if you have gold fillings.... :ooo