7 Ways to Play the Post-Election Resource Market
[Ed. Note: The mainstream media’s post-midterm election coverage is focusing on the obvious: the Republicans’ trouncing of the Democrats. But Matt Insley looks past that… at how these results are likely to impact the resource market. Read on…]
Right now, the mainstream media is pouncing on this midterm election like a backwoods puma. Now that the GOP took the Senate (which is arguably the biggest, best storyline for the mainstream), there’s a lot of meat on the bone for the CNNs, WSJs and ABCs…
But we’re not going to follow any mainstream storylines. Instead, we’ve got some investing to do.
Let’s start by looking at the price of gold. We’ve been keeping tabs on the Midas metal in these pages, but the outlook hasn’t been rosy.
“A move below $1,200 will be ugly” I told you a few weeks ago.
…if you’re trying to trade the upside of the gold market today, buyer beware.
Here we are 14 trading days from that message and the price of gold is $100 cheaper — breaking well below the $1,200-mark. That’s one way to save $100 per ounce, eh? Plus, with the GOP winning the Senate I’m sure there’s plenty more strong-dollar talk headed our way — expect added pressure on the price per ounce in the days to come.
I’ll reiterate my warning from a few weeks ago: if you’re trying to trade the upside of the gold market today, buyer beware.
Lately we’ve taken a step back from gold. Cutting back on our precious metals exposure was the right thing to do. Today, we still see a handful of quality names in the precious metals space — Agnico-Eagle (NYSE:AEM), Freeport-McMoRan Copper & Gold (NYSE:FCX), GoldCorp (NYSE:GG), Silver Wheaton (NYSE:SLW), to name a few. But expect these precious metal shares to remain under siege until the price of gold and silver catch a bid.
Also, arguably much more important, remember to keep your head screwed on straight in this post-election world. Just because gold is under pressure here doesn’t mean our representatives in Washington have it all figured out.
You and I both know that the fools elected in Washington, whether red or blue, aren’t going to make any notable changes to government spending. Instead of spending on “this” now the new squad will spend on “that.”
It’s only a matter of time before some fundamental reasoning returns to the resource market. But before going long and strong on gold, let’s wait for those fundamentals to take shape.
Let’s switch gears and talk upside opportunity — notably in the energy sector.
Last week Saudi Arabia cut its crude prices again, signaling to the market that a lower price strategy may be the way of the future.
Remember, an oil cartel like OPEC only works if there’s a coordinated measure by all member nations to control prices and production. The action we’ve seen out of Saudi Arabia points to a breakdown in that relationship.
That said, we’re seeing continued pressure on oil prices — there’s a lot of “cheaper” oil to go around these days.
But my experience in the resource market — specifically the energy sector — leads me to believe that this “cheaper” oil won’t be around for long. Indeed, we’ve seen a short-term glut of global oil — what with the increased production from the Middle East along with booming supply growth here in the U.S. But this short-term phenomenon won’t last long.
In my experience when oil and gas are cheap it’s not long before buyers come out of the woodwork. Here in the U.S. industrial uses will ramp up, and drivers will embrace cheap gas with more driving.
On a global scale we’ll see the same phenomenon. Sure, cheaper oil will spur more buyers from emerging markets like China and India. But it will also encourage a rebound in the struggling Eurozone, leading to more demand from the region.
…gasoline prices only stay low for so long. [UGA] gives you direct exposure to the upside of gasoline prices.
Add it all up and I think we’re still on the cusp of a big opportunity for hand-picked energy shares.
From an industrial side, take a look at Dow Chemical (NYSE:DOW). With each passing day of cheap energy here in the U.S., this company continues to sparkle. In less than a month shares are up 10% — which could be the start of a big move higher.
I’ll also remind you of a play I suggested last week, the United States Gasoline Fund (NYSE:UGA). History has shown that gasoline prices only stay low for so long. This fund gives you direct exposure to the upside of gasoline prices. With oil’s latest dip in prices, you’ve still got a fine opportunity to “get your gas money back” here.
The last play I’ve got for you is a little more speculative, given today’s falling market. But if you’ve ever wanted to pick up shares of oil service provider Halliburton (NYSE:HAL), on sale, now’s your chance. Shares are down 27% in a little over three months. The oil service sector is due for decades of work here in the U.S. — that’s money in the bank for a company like Halliburton.
Once the dust settles on this mid-term election we’ll be sure to keep you posted on what you need to know. For now, “buyer beware” in the metals market and keep deal hunting in the U.S. energy sector…
Keep your boots muddy,
Ed. Note: Ever wonder how you can make a lot of money from oil without owning a well? Or whether or not you should buy gold and silver? Or is fracking just a flash in the pan? Get insight, insider scoops and actionable investment tips twice a week with Daily Resource Hunter? Just click here for a FREE subscription!