Commodities hit a record July 3, 2008, and have plunged over 50% since that time as shown by the CRB. There is complete carnage in the sector as well as vast opportunity. It’s time for a review of my preferred commodities.

I’ve previously listed my five favorite commodities as gold, silver, uranium, oil and natural gas. The rationales for gold, silver and uranium have been explained. Oil was spiking last summer and I shied away from it while so many were discussing oil and the potential for it to hit $200 per barrel. Oil at $90- $100 seemed more reasonable at the time, but the global financial crisis has halved it even from that point.

Here’s a quick review of my declared Fave 5:

Gold- You likely know where I stand here. Gold represents honest money, honest markets as well as freedom. It is ideally suited for the present crisis and it will continue to appreciate accordingly. New highs are on the horizon. Gold mining is one of the few ventures that are actually helped by lower energy and labor costs. Homestake Mining performed spectacularly during the Great Depression. My emphasis now is on the larger mining companies as opposed to explorers. The bigger companies will come back first, but the explorers will still have their day. Silver- Silver is a monetary metal that will appreciate alongside gold. Less will be used in industry as economic contractions continue. Silver is getting harder and harder to suppress and sells locally at premiums to the NY market, which sets the global price. The COMEX silver market is under extreme scrutiny. Big players are removing product. Silver represents tangible value and should remain in bull market mode with possible spikes to the upside. Three fourths of silver production comes from base metal mining as a secondary product. Base metal mines are shutting down en mass in the current economic contraction. Silver supply will suffer accordingly.Uranium- Long term fundamentals remain very sound. The stocks are exceedingly beaten up. There will be huge profits made in this sector though the time line has likely been postponed. This is the time to look for a consolidator in the sector that can kick butt as this plays out. Bigger is better right now with uranium also. IDE’s Ted Peroulakis brought up some key points about the uranium market in a recent editorial. Oil- The global contraction has really hit the oil market, but it looks quite overdone. Again, the stocks have been trashed. Oil fundamentals remain strong and we could easily see a 50% rise to $60 or so. The world is running out of cheap oil and it just happens to be the globe’s most important commodity. This is the time to seize obvious opportunities. We will look at the oil case in further detail shortly.Natural Gas- We have very limited exposure to natural gas in my Resource Windfall Speculator portfolio, even though I’ve labeled natural gas as a favorite. The natural gas bull market wasn’t imminent and nothing struck my fancy. That is fortunate. Natural gas is now priced very low, as it has been hit quite hard by the economic contraction. Manufacturing uses a lot of natural gas. I’m not particularly bullish on the natural gas price at present, even though it should rise longer term. On the other hand, there is a clear opportunity to seek out large natural gas companies that can really reap the benefits in this arena. Companies with cash and expertise to consolidate the field could be huge winners.

As you can see, resource investing is a dynamic field. The global landscape is particularly different than it was a mere year ago. You have to flex accordingly and scrap for every dollar.

There are presently 30 positions within our portfolio, with 24 of the companies representing gold, silver or uranium. Half of these positions are gold focused, as gold is easily the number one favorite right now. Gold stocks have done very well since the October ‘08 lows. They are just getting warmed up.

IDE editorials are typically focused on general commentary as opposed to stock picks. International Royalty Corp and Riverside Resources were highlighted in an editorial around Christmas 2008. Here’s another stock pick for your consideration:

Endeavor Financial Corporation (EDV:Toronto) is a merchant bank with expertise and focus on gold companies. They assist with mergers, capital funding, development and consultations. Endeavor has been the primary advisor on $27 billion of merger and

acquisition deals since 2001. Their hand was in $1.8 billion in debt funding and $3.5 billion in stock financings. There is no exploration risk with this company as they are more of a financial company.

Endeavor is a big fish in the overall gold pond. They have deep pockets and world-class connections. The company is positioned to be a consolidator on the very best deals available in a decimated field. They sit in the catbird seat. You can evaluate the company’s Corporate Presentation at their website if you want more details. Endeavor was recently put in our portfolio. They have even been paying a very attractive monthly dividend. This is a high-class company with a fantastic track record and great potential.

Back to my favorite 5 … how about oil stocks? The first thing to consider is that oil was very likely taken down last summer by the Feds. There were clearly excesses in the market that made it prone to a plug pulling. The oil plug got pulled.

We only have three oil stocks in the portfolio with one a recent addition. Buying oil stocks with oil at $140 was a risky proposition. There was way too much speculation in oil and the market ran too high. Much better to put them in now after the sector has been uniformly trashed.

That qualifies as a trashing. Does oil still have profitable possibilities? Absolutely.

I am a proponent of peak oil. The easiest oil to find and produce has clearly been discovered. We’re not running out of oil, but large and mature fields are clearly in decline. The Mexican Cantarell field in the Gulf of Mexico is one of the world’s largest oil fields. It is in severe decline and production will end within a year or so. North American oil dynamics will change accordingly.

Oil is nothing if not cyclical. The globe may be in depression mode but we still use more oil than can be produced. Alternative energies have just been dealt a severe blow with oil being cheap once again. Decades of shortsightedness in energy policies or downright greed by the oil lobby continue to put us at the mercy of foreigners. Oil remains a hotly contested commodity across the world. Securing “strategic” energy supplies leads to adventurism.

Oil is also intricately linked to the US dollar, which has severe problems. Oil prices will go considerably higher as the dollar breaks down.

I will delve more thoroughly into oil in a coming article. This is an excellent time to buy the better capitalized oil companies. They are selling at distressed prices still, but that won’t last. Buy them on a very selective basis and wait patiently for the cycle to turn back upwards.

Invest Resourcefully,

Rusty

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