Group 1. Overweight. These are our top choices. Long term holds that we believe will provide secure profits within the present investment environment. Prices are good and general sentiment is positive.
Group 2. Underweight. This is where we see a trend occurring and the sector is oversold. Underweight accumulation only and a long term hold.
Group 3. Speculative/Watch list. Suspects rather than prospects we follow the sector to see if a positive pattern is taking shape. A little bit like chasing tornado's, we consider the environment around the sector to be more important than the asset at this stage. No purchase will be made as yet, but this group is followed very carefully.
Group 4. Bucket List. These assets have been relegated from a higher group and are being either sold or a sale is being considered.
Presently, the groups are composed of the following assets:
Group 1. Gold Bullion ETF (GLD) Double Gold ETF (DGP) or more interestingly HBU.TO. HBU is leveraged (so be careful) but is also denominated in Canadian dollars which I believe are a good buy. The great inflation is coming and as it does, the dollar will drop in value and gold will benefit.
The case for gold has now strengthened. This is what I believe could happen:
Gold will trade in a range over $1,000 per oz, and then break out beyond $1500 per oz before the end of the Summer with a possibility of $2000 within one year.
This is why it is our number 1 asset.
Group 2. Silver ETF (SLV) and Silver Wheaton (SLW). Despite gold's stellar performance, silver has returned growth of 25% YTD reducing the gold/silver ratio to less than 70. Whilst I feel positive about silver as a precious metal, I still have reservations about it as an industrial metal with worldwide demand continuing to slow.
Silver Wheaton is a company which buys silver from mines that have it as a byproduct. They pay for the mining company to dig it out and then buy it from them at a maximum price of $3.90 per ounce. Its a great business plan and in a rising market SLW will outperform SLV.
NUCL, Cameco. The nuclear industry has been devastated over the last year. Uranium (UX308) hit a peak of $138 per pound in a speculative bubble and has now fallen to $47. But at this price the right uranium assets are good value. The industry has a secure and expanding future as demand for cheaper, cleaner power grows globally. Like the oil price, the cost of uranium is inevitably heading north. NUCL offers diverse access to the sector with miners, services and power companies.
Cameco is the worlds largest uranium mining company nicknamed the "Saudi Arabia of uranium". From a previous high above $55, this massive corporation has seen its stock drop to just over $14. It is Barrick Gold and Freeport McMoran rolled into one.
Remember, Group 2 is about underweight holdings for accumulation.
It is also more speculative. We have recently bought UltraShort ETF's. These are for the Russell 2000 Index (TWM) and Basic Materials (SMN). Basic materials includes chemical companies, miners and metals corporations such as Alcoa. The Russell 2000 Ultrashort targets the midcap index.
SMN has gained more than 59% and TWM just under 27% over a one year period. They are both 2xleveraged.
We expect both of these equity market indices to continue to fall over the medium term, providing our clients with excellent returns.
Group3. KOL. The coal sector has been ravaged during the slump. But it is America's primary source of power for its electricity and steel furnaces. America will begin generating more power in the next few years and 'King Coal' will be back in demand. At these prices with a longer term view, coal offers a real opportunity. However, the global slump is continuing and inventory is high.
USO/OIL. The two primary oil ETF's are futures based and can thus benefit from the present oil contango. However, this is a bubble that we think may burst with a possible fall into the
mid-twenties. There could be more severe cuts made by OPEC but we think that the oil speculators best friend (as ever) will be the weaker dollar.
These are great opportunities but not for now. Circumstances will provide me with greater context to purchase in the not too distant future.
Group 4. Nothing here at the moment. Maybe JPY could be a candidate, because it is extraordinarily strong versus dollar compared to AUD and CAD. These two currencies have a strong commodity component and have been given a good kicking by the USD over the last 5 months. These will be a buy and probably at the expense of JPY.
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