Commodities Today: Oil And Gold Continue To Power Higher

Includes: GDX, GLD, HES, HK, NUGT
by: Matthew Smith

Oil, in WTI terms, briefly rose above the $110/barrel level we discussed yesterday as a level which would provide resistance. We were a bit taken aback by the price movement this morning, especially considering how insignificant Syria is as it relates to crude production. It is now obvious that the real fear is that the President authorizes missile attacks from the U.S. Navy ships in the region and the fallout goes beyond the borders of Syria.

The uncertainty has pushed both crude and gold higher, which has carried over into today, and now we are seeing gasoline prices rise once again. An important point we would make to traders is that gasoline usually declines after big holiday driving seasons and dates and after Labor Day we would expect to see prices at the pump deflate...assuming of course the conflict in Syria remains in Syria.

Chart of the Day:

This five day chart of oil, WTI complex, shows the big rally we have seen. Can it continue? Most certainly, especially if there is further trouble in Syria. Our guess is that we hold around these levels at least until missiles begin to fly.

(Click to enlarge)

Source: CNBC

Commodity prices this morning are as follows:

  • Gold: $1421.30/ounce, up by $1.10/ounce
  • Silver: $24.405/ounce, down by $0.246/ounce
  • Oil: $109.89/barrel, up by $0.88/barrel
  • RBOB Gas: $3.0717/gallon, up by $0.0376/gallon
  • Natural Gas: $3.51/MMbtu, down by $0.024/MMbtu
  • Copper: $3.3035/pound, down by $0.025/pound
  • Platinum: $1522.30/ounce, down by $9.80/ounce

Oil & Natural Gas

Yesterday Wunderlich came out with some bullish comments on Halcon Resources (NYSE:HK) which mirror our long-term thinking on the company's prospects. The Utica is going to be a major driver for growth going forward and the company has assets that it can sell-off in the future rather than returning to the equity market to raise capital. This will probably mark the last time the company issues stock to raise capital as production should increase dramatically from current levels as the company increases production in their key target areas. Investors should look for continued improvement in operations and cost reductions in places such as the Bakken and Utica over the next 12-18 months and this should improve results and drive increased returns for shareholders. This is a small position of ours, but we remain committed to our long position.

Speaking of names with Bakken exposure, Hess (NYSE:HES) has been doing quite well in recent trading sessions as the stock has hit numerous new 52-week highs. Shares hit a fresh 52-week high yesterday of $76.38/share before backing off by the close, but the momentum here clearly indicates that one should be bullish as the stock is outperforming and so too is oil. Syria is helping drive speculation here, but the company has a lot going for it as it looks to create more of a focused E&P play with the planned divestiture of assets deemed to be 'noncore'. There is a lot in the pipeline here in regards to positive news that shall come out over the next 6-12 months and that is reason enough to be involved. This name is geared more towards conservative investors looking for predictability which names like Halcon cannot necessarily provide at this point.

Shareholder activism has helped Hess reverse its fortunes and we think further gains lie ahead.

(Click to enlarge)

Source: Yahoo Finance

Precious Metals

We had a few questions yesterday from readers with questions relating to the physical gold price and the price action in the gold miners. There was a bit of confusion as to why the prices were not moving in tandem. The short answer is that in times of war and uncertainty one does not seek to benefit from gold miners' exposure to precious metals but rather the safety offered by precious metals themselves. In instances such as this one is far better served buying physical silver or a name such as the SPDR Gold Shares (NYSEARCA:GLD) than the miners or any of the miner ETFs, notably the Market Vectors Gold Miners ETF (NYSEARCA:GDX) and the Direxion Gold Miners Bull 3x (NYSEARCA:NUGT). It is important to remember that these securities are not always necessarily intertwined and more often than one would believe they 'decouple' during times of duress. Keep this in mind over the next few weeks and so long as the situation in the Middle East remains at the forefront of investors' concerns.

Disclosure: I am long HK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.