The commodity arena is looking green today, with markets around the world following through on the rally that took place in the US after the housing numbers. We are still cautious here, but still long and considerably so. It must be noted that the Dow was unable to hold the 13,000 level once again and we do expect a pullback at some point.
Taking a quick glance around the world, we see Asian markets up, lead by the Hang Seng up 1.65% and the Nikkei 225 is also up 0.92%. Europe is also green today, although less so than Asia. The CAC 40 is up 0.26% and the DAX is up 0.22%.
With the economic news showing that housing is hanging in there and improving, China appears to be doing what it takes to avoid a hard landing and the effects of the Quantitative Easing programs really starting to come in commodities should be ready for another leg up after this next correction we see.
Taking a look around today we notice a few interesting points.
Early morning trading has oil down for the second straight day on concerns that at these 9 month highs, the economic recovery will be destroyed. Many oil companies were pressured yesterday, but we still like our US 'oily' shale plays. They will gain pricing power as new pipelines are built and all of this will simply increase margins and go straight to the bottom line. The news cycle seems to have left Iran and the nuclear issue, but the focus will shift back when either Iran or Israel start the rhetoric up again. We remain bullish oil via our previously mentioned picks, and all have shown considerable strength recently.
We highlighted Freeport-McMoRan (FCX) last week as a play on both copper and gold. We were not playing it for one or the other, we simply liked that it had two 'outs' as they say in the poker world with their exposure to copper and gold. Both would do well in a strong economy, copper due to economic activity and gold on the inflation trade. Well we read today that copper is at a two week high, see article here, and stockpiles at the warehouses are down since the beginning of this year.
Gold and Silver
Both rallied strongly in New York trading yesterday only to give up gains in later trading around the world. We find ourselves near the same levels as yesterday in New York trading this morning, as we wrote yesterday the markets were bouncing off of the lows. We also must point out that silver held above the $35/ounce level a few times yesterday and received a lot of coverage regarding its tradeability from the talking heads yesterday. People are finally remembering that silver is a precious metal with industrial uses, and when that happens, silver has a history of putting together strong runs.
It appears that the rains have come a bit late for Brazil and the soybean crop will come in under expectations. Brazil is one of the world's breadbaskets, and this event is severely depleting supplies. Bloomberg reports that this may lead to the largest drop in reserves in 16 years as the world's largest exporter faces these issues (article here). With grains rising, we still believe that they will pull potash prices higher on increased demand from farmers planting more acreage and needing to replenish their soil after cutting back in some parts of the world. Potash (POT) and Mosaic (MOS) continue to be our favorite plays, and we should have news regarding a new contract with China in a week.
Still waiting for a bit of a pullback, but on Wednesday we should know what the U3O8 price did over the previous week. If we can get the spot price rolling again, and it is a rather easy thing to do with the size of the market being so small and a single hedge fund being able to really drive the market, the juniors will come back roaring. Cameco (CCJ) is still near 3-month highs and leading the way, but we do expect to see Uranerz Energy (URZ) come to life in the near future as it appears to already have had its pullback.