Monday, October 30, 2006

Gold, Uranium Breakout

First of all, because of my sporadic updates, I am focusing more on long term plays as opposed to short term trades, even though I am still actively trading options. My short term plays aren't really that useful because I'm in and out so fast, that by the time I post, most of the move is over.

Gold broke above 600 today, a level it has been trying to break for the past 2 months. If this breakout is real, gold could begin a new leg towards new highs. Making it more impressive is the fact that other commodities are still consolidating (ie. oil), giving gold a chance to become the leader.

Historically, the gold/oil ratio has been about 15 (I think). This means is that it takes 15 barrels of oil to buy 1 ounce of gold. Currently, the ratio is 10, hinting that gold might outperform oil if this historical ratio holds.

Look for Silver to outperform Gold. During the last gold craze, silver rose much more than gold in terms of percentages. With real industrial demand for silver, I think silver will again outperform gold again during this cycle.

Nice to see small cap uranium stocks breaking out (thanks to Cameco's Cigar Lake flooding). Cigar lake was expected to produce 10% of the world's supply of uranium. With this delay, the uranium market will be squeezed even more (demand already exceeds supply by approx 100%). With the uranium obtained from decommissioned russian weapons ending, uranium could really shoot up vertically in a huge buying panic.

Also, I have turned neutral on oil, because it is too manipulated politically. The reason why oil is consolidating around this region is because OPEC cut production by 1 million barrels. However, as production increases from non-opec sources, OPEC will find it harder and harder to restrain oil supply. Although I expect oil to stay above 50 (prob. hover near 60's), I think oil will underperform other commodities.

Here is my long term portfolio update:

Mega Uranium (TSX: MGA)
Internation Uranium Corp (TSX: IUC)
Paladin Resources (TSX: PDN)
Royal Bank of Canada (TSX: RY)
Silver Wheaton (TSX: SLW)
Fording Coal (TSX: FDG.UN)

Notice I sold Cameco (CCO), Yamana Resources (YRI) and Baytex Energy (BTE.UN) and bought Royal Bank (RY), Silver Wheaton (SLW) and Paladin Resources (PDN) since the last update. I bought PDN basically from its chart pattern (because I was too lazy to research all the uranium plays).

Other small cap uranium stocks include: UEX, IUC, FRG, MGA, PDN, SXR. Check out Uranium Mining Stocks for more uranium coverage.

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