Before us commodity crazed investors pop the champagne now that oil has crossed $100 per barrel and gold $1410 an ounce, let’s take a step back. While all of us who hold long positions in producers of black and shiny gold are happy, we should be cautious.
Chances are if you’re long oil producers, you’re likely long either gold and/or silver producers too (well at least I am). If your portfolio is balanced in such a manner, be thankful your oil stocks are going to enjoy this ride, so long as the price remains above $90 for another 4 to 6 weeks. However, don’t get too excited because other commodity producers’ costs are about to rise substantially.
My point with this quick blog is simple. If you're long gold producers (I use gold as an example; the same applies to silver and other commodity producers), their cost of production has just gone up (so long as oil prices remain above $90 per barrel for another 4-6 weeks). Oil’s rise in value will erase the gains they would have otherwise profited from due to the rise in gold prices. I own a few of the major gold producers and despite their solid performance of late, if oil prices remain this high (or close to), I expect disappointing quarterlies. If you’re a trader, this is a very important piece of information.
Watch closely to see if gold is able to match oil’s meteoric rise (percentage). If it can’t match oil’s rise, this will hurt gold producers’ bottom line.
This article represents solely the opinions of Aaron Hoddinott and not of PinnacleDigest.com nor Maximus Strategic Consulting Inc. Aaron Hoddinott is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information is of an impersonal nature and should not be construed as individualized advice or investment recommendations.