Recovery in Commodities = Profitable Opportunities

Robert Hsu, November 03, 2009

In this Issue:

Robust Chinese Demand Driving Commodities Recovery
A Bullish Outlook on Gold
A Recovery in the Steel Industry
Profiting from a Rebound in Steel Demand

A Bullish Outlook on Gold

For much of my career as a professional investor, I regarded gold as a barbaric relic of antiquity. But in the summer of 2004, when oil broke through $40 a barrel, I realized that we'd entered a new era -- a multi-year commodity bull market driven by emerging economies and led by China. My perception of gold changed.

As a result, I recommended my China Strategy readers buy SPDR Gold Trust (NYSE: GLD) back in March of 2006. Then, I predicted that, "over the next two years, gold prices will challenge the all-time high of $831 an ounce."

Sure enough, that record was broken quite some time ago, in early 2008. And now, gold has reached new heights -- breaking above $1087 today!

And SPDR Gold Trust is the best way to take advantage of this rally. Each unit of GLD represents a little less than 1/10 of an ounce of gold -- and unlike many other gold plays, each share is actually backed by physical bullion stored in a vault in London, so it very closely correlates with the spot price of gold. In fact, SPDR Gold Trust is up about 80% from three years ago, and nearly 50% year-on-year!

Though prices are high, I am very bullish for gold in the near term and believe that the yellow metal is ready for the next leg up. A combination of strong demand from China and continued weakness in the dollar will continue to drive commodity prices higher -- especially gold as an ideal inflation hedge. Since gold is priced and traded in U.S. dollars, it surges in value when the greenback falls.

In fact, I expect gold to hit $1,200 sometime next year -- giving us significant upside left with our investment. And, of course, holding gold is a valuable diversification strategy that benefits any portfolio. Gold has a history as an effective hedge against both inflation and weakness in the dollar, as well as a safe-haven in times of geopolitical or financial pressure.

Equally significant, in a year of record-setting volatility in the equity markets like 2008, gold's volatility was reassuringly low. And November is typically one of the strongest-performing months for gold due to the holiday season and demand for jewelry -- especially Christmas and the Chinese New Year, which has grown increasingly important in gold's rising seasonality demand.

So, though my China Strategy readers are up about 83% with this diversification strategy since March 2006, I remain bullish on the precious metal and expect further upside in the near future.

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