Gold and Oil Peak – Dollar Slumps

October 27, 2007 | By | Reply More

Spot gold hit a high of $785.00, the highest price seen since its all time high of $875 an ounce on January 21st 1980. Other precious metals closed higher on the back of gold.

Oil closed at $91.86 a barrel as the week ended looking far from healthy for the dollar as the sub prime debacle and its spin-offs show every sign of gathering pace.

It can come as no surprise as the market turns ever more to gold, the traditional hedge against the dangers of a currency that shows many of the signs of being in terminal decline.

More and more investors are ensuring that their portfolios are ready to endure as the storm gathers and are looking to diversify away from those asset classes that have given them rich pickings during the last five or so years.

Lets face it using a pin to pick winners would have landed a profit during these times.

But times are a changing

Any portfolio without an allocation of around 15% gold bullion in one form or another and a good spread amongst other conservative asset classes is asking for trouble.

History tells us that however bad things may get there are always opportunities to profit for the shrewd investor.

Uranium soared then came back down with a bump over the last few months. Investors were relieved at last to see a rise of $3 a lb. to break the downward spiral at last.

The question is why did the price drop so rapidly despite the encouraging news of China et al planning so many new nuclear generating plants and the seeming acceptance of nuclear energy as the most acceptable alternative to carbon based fossil fuels.

Add this to reported supply and demand imbalances the future for uranium investors looked rosy.

We believe that it is a reasonable bet that the speculative interest, particularly from hedge funds caused the surge in price, after all it was hardly likely that any fund manager that was even half awake could fail to be aware of the Chinese plans and the US governments attempts to encourage utilities to go nuclear.

Then as the nuclear news died down and pressure mounted on the bottom lines of many funds and other speculative interests as volatility increased in the stock markets so the temptation to realize their big profits in uranium and related stocks grew without sufficient long term money taking up the slack.

At the same time 200 tons of Uranium Hexafluoride was sold of by the US Dept. of Energy for over $40 million. Without warning a scarcity turned into a glut.

Coupled to this it is reported that some uranium producers had been starving the market by retaining supplies. That became a principal driver in initially forcing the price up and so catching the attention of the wider investment market.

When at last supplies rushed back to the market to pay their bills, the upward momentum became reversed and justifiably many took their profits with the result that we now see. Good old market forces always win in the end!

So have we reached the bottom for now?

We have an opinion but our judgement is based on little more than an educated guess but we will go out on a limb and say that we are there or thereabouts and some equilibrium seems to have been restored.

Incidentally we have kept our positions in uranium producers, and Comeco is our favorite, throughout the sell off and believe that despite missing out on some short term profitable trading opportunities our faith in the long term, two years plus, will be justified.

That’s it for this week. We think there will be some more fireworks next week with plenty of opportunities to profit from astute short term trading. Our preferred in and out trades in these volatile times are put options but we stay clear of the precious metal market, they are like my wife – to have and to hold.

 

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