Markets were up impressively yesterday after a batch of good economic news. The job market appears to be getting healthier, consumer confidence continues to improve, and manufacturing plants are seeing rising utilization. This is all good news for the economy as a whole and commodities specifically.
A look around at foreign markets this morning shows the Nikkei 225 up 1.58%, Hang Seng up 1.01%, Seoul up 1.3% and Shanghai lagging as it is up only 0.01%. In Europe, the DAX is up 0.98%, the FTSE 100 up 0.33% and the CAC 40 and ATX both up 1.22%. The strength in US markets yesterday has certainly carried over to trading today around the world.
Gold and Silver
We saw a significant rally yesterday on the economic news with gold rising from about 1707 to 1728.80 at the close in New York. It is basically flat from yesterday's close as it trades now, and it appears that traders playing the inflation game will take this higher next. Silver traded much like gold yesterday, rallying on the economic news, which is doubly bullish for silver because it is a play both on inflation due to it being a precious metal but also because it is such a valuable industrial metal. From 32.70ish yesterday it closed at 33.52 in New York, like gold it is up marginally this morning. John Paulson also stated that investors should buy gold as a play on inflation, so that is making the news rounds today as well.
Oil has remained strong, and oil stocks as well. Prices are moving up across the board, we are now seeing gasoline at the pump approach and pass $3.50/gallon in some of the states known for cheap gas. It is a young year, but Bloomberg has an article saying we are poised for the biggest move in oil over a week's time for this week should things hold up today. We continue to like American plays that are increasing production and have little exposure to natural gas via dry gas shale plays. Kodiak Oil & Gas (NYSE:KOG) finished at $9.99 in after-hours trading and will be interesting to watch move through $10/share. We briefly mentioned the company yesterday, and continue to like the Bakken area plays as we see this continuing to play out positively.
Another name to throw out there this morning which we do own in our portfolios and have recommended to clients is Gulfport Energy (NASDAQ:GPOR). The stock took out $36/share yesterday, and has now surpassed where they were before announcing the secondary not long ago. The company has exposure to Canada's oil sands and American shale plays - most notably the Utica in Ohio. We still maintain this is a $50 stock masquerading as a $30-something dollar stock. We have gains of over 50% in the portfolio at this time and will continue to ride out winners - this one is a bit more volatile than some of our MLPs, but it has more upside as well.
One of two things is happening here, and thinking that natural gas prices have bottomed because of some shut-ins is not the side of the trade you want to be on. Think dead cat bounce, things hardly go down continuously without a few upticks. We are staying away. If you shut down a gas field to drive up prices, our shale plays in the oil windows and natural gas liquids windows are still going to produce dry natural gas to fill that void, as they cannot not produce it. That is a bit of a tongue twister there, but as long as shale plays are being drilled, natural gas supplies will increase unless there is a major catalyst to increase consumption - and today there is no indication that anything is on the horizon. Refrain from becoming bullish here, the numbers just don't add up for that case at this time.
Uranerz Energy (NYSEMKT:URZ) had a strong day yesterday, carrying over gains from the previous day. We could see this pop to $3/share with day traders walking up to that level to test some resistance in the neighborhood. This is a favorite among them, and where we would recommend going to place a trade if you were so inclined due to the volume.
If the US is coming out of the recession this strongly, overseas markets should perform better over the coming months as well, and that should bode well for grain prices and meat prices and potash prices. It is a trade that has worked the past two bull markets, and one we are intimately familiar with. We like Potash Corp of Saskatchewan (POT) here and would even play Mosaic (NYSE:MOS) now that they could potentially be in play with all of the shares which have been sold by the controlling family. This will be one of the later commodities to move in our view, but with China's appetite for food increasing and India's as well, their need for potash supplies will be interesting to watch during this next round of negotiations for their contract renewals. Increased demand coupled with slower growth than expected in supplies should only add to the speculative juices next go around.
Disclosure: I am long GPOR.