Sorry there has not been a post for a few days I have been away most of the week and was not able to access my PC. I wanted to have a quick look at Oil and also Gold.Both of these are some of the most well known commodities and if played correctly can give some real long term upsides to a portfolio. Those of you who have visited before will know that I am a commodity bull and am heavily invested in Natural Resources and the Precious Metals.Oil and Gold however have not had the most auspicious starts to 2007 with Gold bobbing up and down in a fairly narrow range and Oil being hammered, down 13% in January.Is this the end of the commodities bull run ? Absolutely not, in my view. I think we are seeing some tremendous bargains and opportunities for those of you looking for some medium term 2-3 yrs investment for your portfolio's.
Let's look at Oil-there are a no of reasons I am still bullish on oil namely :
- Growth in economies such as India and China-economic growth in these countries will drive the need for oil for a great many years.When you factor in we are not really discovering much more and the developed countries such as the US and in Europe are using more not less then that can only mean one thing. Increased demand and limited supply= higher prices
- Institutional Investors, the big hedge funds particularly have been dumping oil contracts all of this month. These guys are trend and momentum traders and they all rush for the exits at once-this exacerbates any movement up or down and we have to factor this in to the big moves we see these days.
- Warm Weather in the US-particularly in the North East of the Country-the minute we get the first dump of snow and temperatures drop in New York and Boston we should see Oil start to climb
- Geopolitical tensions, Iran and North Korea are still at the sabre rattling and other oil hotspots like Venezuelan and Nigeria are anything but stable. I do not think it will be too long before we see some geopolitical confrontations rearing their heads again.
One of the best values in the Oil sector just now are I believe the Oil drilling stocks, this sector is also ripe for take overs or mergers.
Currently it is almost impossible to get a drilling rig in the Gulf of Mexico or anywhere else-and if you can get one then rental fees are sky high.The best way to play the sector is to look at the iShares Dow Jones Oil Equipment and Services ETF (NYSE-IEZ).
This ETF gives you a broad exposure to the major drillers like Baker Hughes (BHI), Schlumberger and Halliburton.If you are looking for a higher risk but potentially higher reward play then cast your eye over the Russian Giant Lukoil (OTC-LUKOY).There may still be some downside in oil and the oil sectors but for me the upside potential far outweighs the downside risk at this stage of the game.
In terms of Gold, the main driver of the precious metals still remains supply and demand, supplies of Gold are tight and with the increased geopolitical tensions it may also have some safe haven status as well.
If you are looking for an individual company Goldcorp (NYSE:GG) is still one of my favorite plays or the iShares Comex Gold Trust (Amex-IAU) will track the gold price.
In the short term expect some volatility in these sectors but the mid to long term outlook for them both is in my opinion very positive indeed.
Best Wishes and Good Trading
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