As we stated yesterday, commodities have been one of the poorest performers as of late. That all changed once Bernanke gave his speech and markets came to the realization that the Federal Reserve will probably keep rates lower than previously thought for longer than markets had been betting on. We saw precious metals rally on the news and commodities in general follow suit as the US dollar was weaker.
Chesapeake Energy (CHK) announced yesterday that it would do a few deals over the next few quarters in order to close the cash flow deficit it has. This includes joint ventures, and selling off ownership interests it owns in companies via IPOs. One piece we found interesting is that the company is looking to sell outright the Permian Basin assets even though this is the oily stuff that CHK is targeting. None of this is really new news, but it is confirmation and an update on what the company is doing to advance its properties.
It seems that speculation of a takeover of Sandridge Energy (SD) has died down a bit as these unconfirmed takeover rumors usually do. There is tremendous value here for someone who had deep pockets or the cash flow to develop the assets. We highly doubt that the company is being actively shopped, but do buy into the fact that the company will have further asset sales to fund development moving forward. Whether that is a joint venture or outright sale on some of their acreage we do not know, but the CEO has stated numerous times they have too high of an inventory for themselves and will look to offload some of this inventory to fund needs for drilling.
Gold & Silver
Gold is still trading strongly today, and yesterday's news may have been the turning of the tide for the bulls. We would like to see gold trade through the $1700/ounce level and then hold. Although it has had some problems, with the recent news from Bernanke, if the five Fed speakers today follow Ben's lead we would be interested in Freeport-McMoRan (FCX) for the gold and copper exposure, even though it has issues in Asia and Africa at the moment.
Silver is also higher, and has moved through the $33/ounce level. We have long been in favor of owning more silver than gold due to its industrial uses and believe that 2012 will see silver outpace gold in terms of returns.
Molycorp (MCP) remains in the $30/share range and seems to have begun to set up a base. Risk-on seems to be coming back into the market, however that capital has been gravitating towards technology stocks and not the resource stocks as of late. We would expect this to change, especially with all indications now pointing to a weaker US dollar rather than a stronger one. In the industry we still like Rare Element Resources (REE) as the play for day traders due to its liquidity and share structure. The stock can get red hot and move quickly. The stock is now trading at the $6/share level which we believe is an area which is attractive to initiate a position.