More from Money Morning:

Market conditions are also setting the scene for the next leg up of the commodity supercycle.

There are three things that are happening today that will guarantee higher prices for commodities in the future, once the current jitters have started to ease.

In a bull market people get away with some shocking things.

A few years ago I met a 21-year old geography student. He had been investing in the stock market for years. He had seen some success, so now his biggest ambition was to get rich. Very rich.

He wrote for a few publications and through this work got to meet some interesting City players. They told him that the biggest game in town was floating companies on Aim, talking them up. This would make him rich, he believed. So, he decided to join the game. He formed a uranium mining company, installed a geologist to give it some credibility and listed the company on Aim. His stake in the company was worth tens of thousands of pounds. He was laughing all the way to the bank, he thought.

Not bad for a 21-year old. But the problem was that the company was never going to work. It held licenses for some scraps of land that might or might not have contained uranium, but the nature of the market meant that this did not matter.

However, reality eventually hit home, the uranium price slid and the company’s valuation was dragged down as well. Eventually the company was wound up.

I saw this sort of thing happen a number of times. Nothing that went on was illegal; I just found it all very distasteful. Shareholders who had passed over their cash in good faith were the biggest losers.

Perhaps one positive thing to come from the credit crunch is that the number of spivvy miners on Aim will decrease and we will be left with some quality companies. My young geography student chum would have no success in this market. This is a good thing.

Market conditions are also setting the scene for the next leg up of the commodity supercycle. There are three things that are happening today that will guarantee higher prices for commodities in the future, once the current jitters have started to ease.

Firstly, prices of virtually all base metals have fallen below the cost of production. This means one thing: closed mines. This will hit the supply side hard.

According to Ambrian Capital all base metals prices except copper have fallen close to their cost of production. If prices fall any further mines will be closed, which will cause supply to tighten and prices will rise. Let’s have a look at some figures. The marginal cost of zinc production is around about $1,900 per tonne. The price of zinc is now $1149.75 per tonne.

The marginal cost of production for lead is around $1,800 per tonne. The lead price is now at $1,352.

The marginal cost of production for nickel is around $17,000 per tonne. The nickel price is now at $10,620

Then we have to consider gold. The gold price is also supported by its production costs, particularly for small, early-stage producers.

Take Uruguay Minerals (CVE:UME). Last week the company said that the cash cost for each ounce of gold production was $792. Today, the gold price is at $807. If the price was any lower, the company would have to close its operations.

The credit crunch has made access to capital to fund new mines difficult to come by. This will also tighten the supply side.

Then there’s the maths companies did on new projects last year. The calculations are now all wrong.

To develop new projects, miners had worked out the costs using higher commodity prices in these calculations. Many of these projects will now be uneconomic at lower prices. They will not get off the ground. Yet again this tightens the supply side.

So, the economics of commodity production means that prices cannot fall much further. If they do, new production will be crimped and scarcity will lead to price rises.

I also do not believe that China is going to stop developing. New developments in the cash-rich Middle East also continue to soak up materials. Despite concerns of a global slowdown, the world will continue to develop.

The commodities supercycle is far from over; we are now in the intermediate stage before the second leg.

This will be the best time to pick up commodity stocks in years. When the market settles, you should be ready to pounce on quality players. To find out more about Smart Commodities UK click here.

Source: Why The Commodity Supercycle Is Far From Over

But Smart Commodities UK editor Garry White says a number of nuclear power projects are already underway in other parts of the world. India plans to build between 18 to 20 new nuclear plants over the next 15 years. Even the Middle East is shifting to the atom for its future energy needs.

Nuclear plants are also proven to be effective at water desalination. This will be vital in emerging markets, where populations are rising rapidly.

This is from Fleet Street Daily:

He [Bodman] made the comments on the same day as the US senate signed off the nuclear co-operation deal with India. It was also a few days after Russia agreed to help Hugo Chavez with a nuclear programme. But if you want to feel assured about the prospect for nuclear power, just have a look at what is going on in the Middle East. A place awash with petrodollars.

There are two main reasons for the rush to nuclear power in Iran and Saudi Arabia. And neither of them is the pursuit of nuclear weapons.

The first of these is the fact that they don’t have as much oil as everybody thinks. The second is water.

Let’s take a look at Iran’s reserve situation.

The simple fact is that Iran HAS to develop nuclear power because the country is running out of oil. Iran’s “massive” oil reserves are a big, fat lie.

One of the people who made that reality crystal clear to Iran’s leaders a few years ago was Dr Ali Morteza Samsam Bakhtiari.

Dr Bakhtiari started working for the National Iranian Oil Company back when the Shah was in power. For 36 years he worked for the company in a variety of senior positions until he retired.

This is what he told President Mahmoud Ahmadinejad:

“As for Iran, the usually accepted official 132 billion barrels is almost 100 billion barrels over any realistic assay.”

The current estimate of Iran’s reserves is 136 billion barrels. That’s the second highest oil reserves in the Middle East after Saudi Arabia. Dr Bakhtiari thinks this should be closer to 36 billion barrels.

I believe that Ahmadinejad needs to go nuclear because his country’s oil industry is struggling to keep its oil production at close to 4 million barrels per day. And it’s only going to get worse.

That’s why Iran needs nuclear – and that’s why Ahmadinejad will never give up his nuclear programme.

The second reason is water.

The population in the Middle East is set to soar in the next 15 years. In Saudi Arabia, almost 40% of the population is under the age of 14. It has a fertility rate of 5 children per woman. The country is set for a massive population explosion at a time when its infrastructure is creaking.

The Kingdom is already the world’s largest producer of desalinated water. It currently has 27 desalination plants which provide 70% of its drinking water requirement. But it will need more. Much more.

That’s where nuclear power comes in.

Desalination is an extremely energy-intensive process, but nuclear plants can be used for the duel purpose of producing electricity and desalinating water.

Nuclear desalination is a proven technology. Kazakhstan produced water by nuclear desalination for almost 30 years until its reactor was decommissioned in 1999.

The country’s BN-350 fast reactor at Aktau successfully produced up to 135 MW of electricity and 80,000 m3/day of potable water over 27 years. Around 60% of its power was used for desalination.

Then there’s Japan…

It has ten desalination facilities linked to pressurised water reactors operating for electricity production. They have yielded 1000-3000 m3/day each of potable water.

India has also got in on the act. In 2002 it set up a demonstration plant coupled to twin 170 MWe nuclear power reactors at its Madras Atomic Power Station.

So, Mr Bodman needs to be a little less US-centric when talking about the future of nuclear power. The world’s going nuclear whether the US does or not. There’s plenty of money in the Middle East, in Venezuela, in India and in China.

Source: Iran Needs Nuclear because it’s Running Out of Oil

It’s not only Wall Street that is being bailed out by the US taxpayer. They’re going to have to find another $25bn to save Detroit too.

This is another nail in the dollar’s coffin. And it will be fantastic for gold.

The House of Representatives is in the final stages of agreeing a $25bn package of low-cost loans to carmakers. It’s virtually a done deal.

This loan is separate from $700bn bailout for the banking sector, which is still being debated in Congress. The bailout plan is growing bigger by the day.

This is another industry that has brought about its own demise. It failed to invest in fuel efficient cars – and now people can’t afford to drive their gas guzzlers. Corporate America screws up. US taxpayers pick up the pieces. It spells doom for the dollar.

The recent revival in the dollar’s fortunes appears to be over. Once the fall starts, it’s going to gather significant momentum.

In an interview with Bloomberg yesterday, Barrick Gold founder and Chairman Peter Munk said he now expects a move away from the dollar and into gold. I agree.

He was talking about what he called “major, major” holders of dollars. By this he means foreign governments and sovereign wealth funds.

Gold has added around 20% since the collapse of Lehman Brothers (NYSE:LEHMQ). As governments holding dollars all over the world see the scale of structural problems in the US economy, they will seek to diversify. They are likely to become strong buyers of gold.

It is now more likely that the Fed will have to cut interest rates at its October meeting. US interest rate futures show that traders now see an 80% chance that the Fed will cut rates. On 23 September, futures contracts were implying a 58% chance of a rate cut.

The banking bailout plan will erode the appeal of US Treasuries for foreigners. Government figures show that investors outside the US own 56% of the $4.8 trillion in marketable Treasuries outstanding, up from 42% of the $3.4 trillion five years ago.

The countries holding the most US debt are Japan, China, the UK and all the oil exporting nations.

Both China and Japan hold more than $500bn of US debt. With the Fed printing money to bailout out Wall Street and Detroit, US bond holders will be nervous.

Expect a rush of capital out of US Treasuries and a rotation into gold. To discover more ways to profit from natural resources click here.

Source: The Dollar is Being Destroyed – Buy Gold

There’s no two ways of looking at it. Wall Street is on its knees. If you have exposure to US stocks, you’ve probably been seriously burnt.

“But there’s one positive thing that you can say for commodity investors,” says Smart Commodities UK editor Garry White, “The dollar rally looks likely to run out of steam.”

This from British contrarian investing website Fleet Street Invest:

The main reason for the recent bear market in commodity process has been the resurgence of the dollar. Of course falling demand as the economy slows has contributed to this, but the main cause has been the dollar rally. This simply cannot last. The collapse of Lehman shows this.

The dollar is rising despite overwhelmingly negative fundamentals. Traders have been bullish on the dollar because they have taken the view that the eurozone is going to fall into a recession. The US started the downturn first, therefore it will recover first.

I am sceptical of this view.

The US is the nation worst affected by the credit crisis. This is plain to see.

One of the most important names in global investment banking has imploded under the weight of toxic debt. The name Merrill Lynch (NYSE:MER) is also set to disappear for good, as Bank of America (NYSE:BAC) moves in for the kill.

More banks will go the same way – and the precedent has been set with Lehman. The US government is prepared to let banks fail. This is the right thing to do.

Owner occupation of homes in the major economies of the eurozone is than in the UK or the US. Let’s take a look of the figures from 2007.

– UK 69.8%
– US 69%
– Australia 70%
– France 56%
– Germany 45%

This means that a housing market slump will hit us the UK, the US and Australia the hardest. France and German will escape relatively lightly.

The collapse of Lehman is likely to make a cut in US interest rates happen sooner rather than later. On Friday, US short-term interest rate moves to indicate a 34% chance of an interest rate cut by December, compared with the 28% chance seen on Thursday.

The American economy is also going to be hit hard by a rising dollar as its exports get more expensive. In fact, manufacturing for export has kept the US economy afloat for years because of its weak currency policy. A strong dollar will hit the only bright spot. It won’t last.

I have been slightly bemused by the rising dollar over the last few months. It appears to have defied logic. This dollar resurgence has hit commodities hard. But when the dollar starts falling again – as I believe it certainly will – commodities will snap back much better than equities, so it is important to hold your positions.

PS: Garry’s Smart Commodities UK newsletter concentrates on long-term plays in the commodities sector. Click here to discover more.

Source: Lehman’s Failure Is Positive for Commodities

But Smart Commodities UK editor Garry White says there is no reason to panic.

Gold prices are falling with crude oil as the dollar stages an impressive rally. But Garry says this trend can’t last. A broken US economy will not support the currency in the long term. High mining costs, meanwhile, will keep gold supply tight going forward.

In this light, investors should view gold’s new lows as a great buying opportunity.

This from Fleet Street Invest:

One of the most important questions for the performance of gold going forward is the outlook of the US currency. Is the dollar going to carry on gaining? Or is this just a temporary blip.In the short term, the answer is probably yes. The dollar will maintain its recent relative strength against major currencies. But I don’t expect it will last for long.

The US economy is not out of the woods. Far from it.

The dollar has risen because the market has taken the view that US economic woes are not quite so horrendous as those in Europe and the UK.

It is also down to the falling oil price. The US is the most oil-dependent economy on Earth. Recent falls in the oil price help the US economy more than any other in the world. It is a sigh of relief.

However, I do not expect these trends to last. I expect that the oil price will rise again and the dollar will resume its plunge.

The US economy is broken

The US is swimming in debt and people’s net wealth is falling. Unemployment is rising and the country’s balance sheet would make even the bravest hedge fund manager have palpitations. This will not be fixed any time soon.

Longer-term, the outlook for the dollar is even worse. What will happen when oil is no longer priced in dollars? Next week, finance ministers from Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates are expected sign a deal to set up a Gulf Monetary Authority. This is a precursor to the formation of a Central bank for the oil-rich states surrounding the Gulf.

Plans are to launch a single currency in 2010, but this may be an ambitious targets. But you can be sure this will happen relatively soon. Iran and Iraq already sell their oil in currencies other than the dollar. Once the central bank is formed it is likely that there would be a rapid move to pricing oil in the new Gulf currency.

The longer-term outlook for the oil price is also bullish. There have been no significant new oil finds for decades, with any new finds likely to be in deepwater or the Arctic. This is very expensive to get out of the ground.

Gold’s fundamentals are also a reason for confidence

The eurozone and UK economies are in or near recession, but this is not the case in the Asian gold-buying nations. The dollar is likely to continue to decline compared with the Indian rupee and Chinese renminbi. These are gold buying economies.

The falling price has definitely brought Asian buyers back into the market. The Financial Times reported last week that bullion imports in Abu Dhabi surged 300% in August on a year-on-year basis.

Turkey saw the highest ever monthly imports last month, while the past five weeks have seen the busiest gold demand from India in 20 years.

Then there’s the supply side to consider. Global gold mine output has been falling for the last nine or ten years. And it’s still falling.

Output at major mines in Peru, South Africa and the US are slowing. It’s also never been tougher to permit, build and finance a new gold mine. These rising costs are an important factor to consider.

These costs will give the gold price a floor — and it’s not far from where we are now. According to research from Investec, a price below $750 would force mines to close as their operation will become economically unviable.

So, all in all I think that the long-term bull case is still sound. Dollar strength is a temporary phenomenon and rising costs to actually dig the stuff out of the ground will provide a supply-side floor.

I don’t expect gold will fall much further. In fact, it’s probably a good time to buy.

Source: Don’t Panic: Gold Won’t Fall Much Further

I had a bet in one of our morning meetings about six months ago.

I bet everyone in the room that when British Energy was sold, it would go to Electricite de France SA. If it didn’t happen, I’d eat my hat.

Then, at the start of June, the deal with EDF fell through. It looked like I’d made the wrong call. My colleagues are uncharitable folks, I’m afraid. They laughed at me.“You were so categorical,” they said, “But you were wrong.”

Well, it looks like I might be about to have the last laugh. And it’s all down to one man. His name is John Hutton.

It seems odd praising a member of the current Labour government, but John Hutton is that rare breed of politician… a man doing the right thing.

On Thursday last week, he risked the ire of the Guardianistas by saying that getting our energy strategy right was more important than pandering to the whims of every green organisation in the country.

Well done him.

We must defeat dogma

The environmentals have already cost us vital time and damaged our prosperity. They have delayed our new energy strategy in the courts and at places like Kingsnorth power station. We can’t let them win.

“The government repeatedly tells us climate change is the biggest threat we face and this seems to suggest that he (Hutton) doesn’t even get the basics,” said Friends of the Earth climate campaigner Dave Timms.

Sorry Dave. It’s you that doesn’t get the basics. You are just blindly following an unthinking dogma.

By 2012, the last of our Magnox nuclear reactors will be closed. A number of older coal-fired stations may also have been shut down – especially if people keep listening to people like Dave.

Demand is expected to overtake supply somewhere between 2012 and 2015, creating a serious generation gap. There is a real chance that the lights could go out within the next 5 years. Unless we do something about it.

Coal and nuclear is the answer

To fill the energy gap we will need more coal-fired power plants. If we don’t, we are going to be at the mercy of the Russians because we need their gas. That would be a disaster.

We also need to start building the next-generation of nuclear power stations right now. When these are ready, we can decommission the dirtier coal plants.

Of course, coal burning will put extra emissions into the atmosphere, but I am afraid that is something we will have to live with. The alternative is far scarier.

An economy without energy is a dead economy. It brings strife, political turmoil and poverty. This is where Friends of the Earth and Greenpeace are trying to lead us.

They oppose coal power. They oppose nuclear power. But they don’t have any reasonable alternatives.

They have various flowery theories about developing alternative power, but they have no plans that could produce the amount of energy an economy the size of Britain needs.

If we listen to them, we are on a one-way track to an energy poor future. Energy poverty will generate real poverty.

So, Hutton is starting to put the greens in their place. Well done him.

He’s also right about British Energy, owner of all our nuclear power stations. We need to sell it to the French – and sell it soon.

We should sell British energy to the French because they have the skills and we do not. It’s that simple.

France generates 79% of its energy from nuclear power and has some of the best nuclear engineers in the world. We have a skills shortage that is getting more acute by the day.

Despite the opening of a nuclear skills academy in Cumbria and new plans for a National Nuclear Laboratory, we don’t have enough engineers.

On 12 August, Bill Macdonald of the Health & Safety Executive Nuclear Directorate said:

“We have a real demographic problem because 40% of our staff are over the age of 60. We are struggling to get enough specialists; you can’t train them from nothing. If it takes longer, it takes longer. The [nuclear] programme will be put back; the government don’t like it.”

That’s why we need the French… and why we need them now.

John Hutton also said that a deal between EDF and British Energy could be done in the next fortnight. There is light at the end of the tunnel.

Let’s hope the deal goes through. For all our sakes.

P.S. To discover how you could profit from out looming energy crisis click here.

Source: We Might Have a Future in Two Weeks’ Time

“Are you mad – it’s the start of a new cold war”

This was the response from a reader last week when I said that in the scheme of things, what is going on in Russia was just a skirmish.

Since then rhetoric from both sides has increased. The usual hawks have been calling the Russians names and Russia has threatened to protect its interests.

Despite all this, I have not changed my view. I think a buy opportunity has been created for stocks with Russian exposure.

So, my answer to that email is as follows:

No, I am not mad. And no, we are not entering a new Cold War. Let me explain why.

Russia and the west are inextricably linked by a massive financial web. The Russians need the West and the West needs Russia.

The Russians are very upset by the reaction to the situation in South Ossetia. For a start, the Georgians were the first ones to attack – against all sensible advice.

The Russians also draw parallels with Kosovo. As far as the average Russian is concerned, the supporting of the breakaway of South Ossetia from Georgia is identical to the breakaway of Kosovo. It’s just that the breakaway of Kosovo was in the interests of the US and the breakaway of Ossetia is not.

Rightly or wrongly, they feel they are being criticised for acting in exactly the same way that the Americans did six months ago.

The missile shield announcement by Poland was also needlessly inflammatory. I don’t blame the Russians for being annoyed.

The shield is an outrageous proposition from a Russian point of view. In fact, I think it is quite outrageous too.

America is being provocative

Imagine the reaction if Russia declared it was building a radar and missile shield around Cuba in order to protect its interests from rogue South American states… it would be the 1962 Missile Crisis all over again. The US would certainly threaten military action. Just as Russia has done.

Russia is involved in a game of chess.

It is asserting its strength and is seeking border security. It is not in Russia’s interest to let this situation carry on for much longer. It is not in our interest either.

The most obvious financial hit seen by Russia has been in its stock market. But this contagion has spread to all aspects of business and finance.

The amount of debt raised by Russian companies in August slumped 87% from July to $1.18bn. Equity market issuance has almost vanished, with $3m raised in August compared with $933m in July.

Russia is no longer a self-contained entity trying to spread an ideology. It is a fully paid up member of the global capitalist world.

The Russians have had a taste of financial freedom and they love it. They have a lot to lose. They care more about cold hard cash than a new cold war.

Russia is helping to fund the US deficit. It is one of the world’s largest holders of US Treasury Bills. In fact, it has doubled its holding of US debt over the last year. It holds $65.3bn worth of US debt as of the end of June.

The only countries that hold more US government debt than Russia are Japan, China, the UK, Brazil and Luxembourg.

Then there’s energy

Russia’s economic development has been based on soaring energy costs. It still needs those rubles… and we need their gas.

The biggest gas importer from Russia is Ukraine. A massive 66% of the gas used in the country comes from Russia. The second largest importer of Russian gas is Germany, where 36% of domestic gas consumption comes from Russia.

In Italy, Russia supplies 25% of all gas used. For France the figure is 20%. We all need their gas – and they need our gas dollars. For this reason alone any further escalation is likely to be avoided. Light would go out across Europe and ordinary Russians would see the wealth they have built up start to collapse.

America also needs Russian oil.

Oil exports to the U.S. have almost doubled since 2004, rising to over 400,000 barrels per day in 2007. In total, Russia exports around 7 million barrels per day. This generates around $826m in cold hard cash each and every day.

If this flow of this money stopped, Russia would be financially doomed.

It’s not just oil and gas

Russia is also essential to the US economy.

Commerce Department figures show that US exports to Russia in the year to date were worth $4.659bn. Imports from Russia to the US were worth $13.332bn.

To get an idea of the importance of Russia for US businesses just take a look at results from Ford Europe, which were released last Tuesday.

The US auto sector is collapsing, but Russia is helping to ease the pain.

Ford’s sales in its 51 European markets were down 4.7% in July to 149,800 units, compared with the same month in 2007. Russia bucked this trend. Sales of new vehicles in the country rose 26% in July.

So far, more than three million vehicles have been sold in Eastern Europe this year, a staggering 40% increase. With American carmakers racking up the losses, sales in Russia and Eastern European nations are essential.

Russia continues to help prop up the failing US economy. Last week, Russia finance minister Alexei Kudrin confirmed that the country was still buying debt issued by Fannie Mae and Freddie Mac, albeit on a smaller scale. That’s something that I would not do.

Cold war certainties have been removed.

The West and Russia are no longer competing ideologies throwing massive amounts of cash at plans to defeat each other.

Russia is now a competitor, not an opponent.

We need Russia to help fight terrorism and also to reign in Iran. Russia no longer wants to win a war with us. It wants to win influence and generate cash. Russian people want bank accounts in the West so they can do business here. They just don’t want to be humiliated on the global stage… which is what the world reaction to the South Ossetian crisis did.

Russians feel bullied.

I believe that these tensions will be short lived because there is too much at stake for everyone. It is not in anyone’s interest to escalate them to a critical level. The US does not have the soldiers or the funds to get involved in any more conflicts.

I expect the Russian market will recover. There are two shares in my portfolio that I expect to recover once this current situation has resolved itself.

It may take some time for the present game of chess to get to its stalemate situation, but after that Russian markets will recover.

This is NOT the start of a new Cold War. Anyone who thinks that should take a look at history. Then buy Russia.

Source: Buy Russia: This is NOT a New Cold War

Falls in the copper price are almost at an end. A profit opportunity is approaching.

I expect the market will bottom over the next two months… so you need to be ready to pounce.

I will tell you what to buy and when.

The copper price is continuing to slide – despite the fact that global stockpiles are down by almost a fifth this year.
This defies logic.

Miners are not discovering enough copper to meet the world’s insatiable demand. It is getting scarcer by the day.

Some analysts believe that current reserves of the metal will run out in less than 30 years.

As things get scarcer, prices soar. This is what I expect will happen to the copper price… no matter what the dollar does.

The fundamentals for the copper market are so stunning that Lakshmi Mittal reckons that the copper market offers his next chance to make big money. And you don’t get to be Britain’s richest man by not being able to spot a money-making opportunity, do you?

Here’s our opportunity

The company I am looking at is developing one of the largest copper deposits in the world. It is right on the doorstep of those key Asian markets. I had the opportunity to speak to its chief executive a couple of months ago. He was very impressive.

The company has 22.3 billion pounds of copper in the ground and 9 million ounces of gold. And that’s just a conservative assessment.

The value of the company’s copper in the ground is $78 billion at today’s prices… and the gold is worth $7.3 billion. The company is valued a fraction of this amount.

I’ll give you more details about the specific investment soon. But first, I want to explain why the copper price may be about to hit a bottom.

The biggest sign that a bottom is approaching is last week’s movements in the spot market. It’s all down to the “copper spread”.

There was a significant price move on the London Metal Exchange over the course of last week. The difference between copper for immediate sale and the price for copper to be delivered in November jumped by 33% to $105.

This is an indication of a tightening market.

The jump came after four weeks of declines. The premium hit a six-month low of $12.50 on 11 August.

Copper stockpiles have actually risen by 15% at the London Metal Exchange in August. But this needs to be taken in context. These gains are seasonal… and they are about to be reversed.

The copper market is usually weak in August. European holidays means many factories are closed in France and Italy — and copper stockpiles have risen by 15% at the London Metal Exchange this month.

This trend has been compounded by China.

Factories were closed to cut pollution ahead of the Olympics. This stifled demand for copper. Now the party is over, these factories are going to start producing goods again… and copper demand will rise.

Despite the seasonal rise in inventories this month, total stockpiles of copper have fallen 17% so far this year. Demand still outstrips supply… and I expect it will for the foreseeable future.

The reason I expect that copper demand will rise significantly is because of Mr Gore and his hybrid cars.

Double the amount of copper

The average new car contains 27.6kg of copper. Hybrid cars contain twice as much because they also have an electric motor as well as an engine.

Hybrid car use is going to soar. Governments are encouraging the use of hybrids as a way to cut emissions. It’s starting to make financial sense to buy a hybrid car.

If you have a hybrid, you don’t pay the London congestion charge. I expect this will be the same in Manchester when their scheme starts in 2012 and in other countries currently looking at introducing similar schemes such as New York and Tokyo.

On Australia’s Gold Coast, hybrid-only car parks have started to open already… all of them at plum locations. The best parking spots at IKEA in Houston, Texas are all reserved for hybrid vehicles. The charge towards green vehicles is unstoppable… and the outlook for copper is brighter than ever.

Because of this political will, sales of hybrids are expected to rise 400% over the next seven years. By 2013 hybrids are expected to make up around 6% of annual US auto sales… that’s more than a million hybrid vehicles per year. All with twice as many copper components than the average car.

High fuel costs will also accelerate the move to hybrids. So I expect demand for copper is about to go through the roof over the next few years… at a time when global stockpiles are falling rapidly.

All this means that copper is about to rise again… and I am about to reveal what I believe is the best way to play this trend. Click here to sign up for Smart Commodities and get into the stock when the time is right.

Watch this space.

Source: Copper Is Your Next Profit Opportunity

Crude oil prices plunged 5.4% despite a rising dollar. Light sweet crude for October delivery fell $6.59 to $114.59.

U.S. oil demand has fallen by an average 800,000 barrels per day in the first half of 2008 compared to the same period a year ago. Smart Commodities UK editor Garry White says there two strong reasons why this trend won’t last…

1. It’s Little Prince and Little Princess Time

I’d like to start with an email I received from one of our US readers overnight:

“Not all American kids go to school in big yellow buses, like I did. US schools shut down the first week of June and open first week of Sept. With the big yellow buses and the urban & suburban school run off the roads for three months, you could expect ‘gas’ consumption to drop… till next week.”

Traditionally, gas consumption falls when the summer driving season ends and school starts again. The summer driving season is the normal peak of consumption.

Shortly after Labor Day (the first Monday in September) prices can fall to their lowest point of the year and often remain low all the way to February.

But things have been different this year.

In June 2008 Americans drove 12.2 billion fewer miles than they did in June 2007. This represented a 4.7% decline.

This statistical anomaly has been caused by people staying home over summer. As I explained yesterday, this demand is relatively elastic.

But some trips just can’t be cut out… and the school run is one of them. This type of demand is relatively inelastic.

2. There’s a chill in the air

The Farmers’ Almanac went on sale in the US this week.

The 192-year old publication claims an 80%-85% success rate with its weather predictions. It expects this year to be cold. Very cold.

“Numb’s the word,” was its summary of winter conditions in the US.

The almanac predicted at least two-thirds of the country could expect colder than average temperatures this winter, with only the Far West and Southeast in line for near-average readings.

The almanac’s forecasts are prepared by a reclusive forecaster called Caleb Weatherbee. He uses a “secret formula” based on sunspots and the tidal action of the moon.

Of course, it is impossible to predict the weather, but when the temperatures plunge, people reach for the heater. This type of demand is relatively inelastic as well.

So, should temperatures plummet, heating oil demand will soar.

I think too much has been made about the fall in consumption in the US. It’s easy to go on a diet for a short time.

In order to reduce long-term consumption, American needs to buy more fuel efficient cars, insulate their (generally badly built) homes and switch to appliances that use less power.

This process cannot happen over the course of a few months. It will take years and years to achieve these savings. People are getting too excited far too soon.

So the great summer 2008 consumption story looks like it is about to end… and this has to be bullish for oil prices.

P.S. Garry’s Smart Commodities newsletter looks at investment opportunities in the global resource, energy and infrastructure sectors. Read on here to discover more about profit opportunities in the resources sector.

Source: The Diet Is Over: US Oil Consumption Is About to Surge

Yesterday, gold prices hit a 10-day high at $839 an ounce, crude oil prices soared overnight in their biggest rally for three months to settle at over $120 a barrel and the dollar saw its biggest monthly loss against the euro since mid-July.

These price movements will not come as surprise to Contrarian Profits regulars. Last Thursday, The Sovereign Society’s Eric Roseman urged investors not to abandon gold because he didn’t believe the dollar rally would last. The same day, gold bug Ed Bugos advised readers to load up on cheap gold in anticipation of a rally in prices.

Although a definite trend reversal in gold and oil has not yet emerged, yesterday’s gains could signal further upswing ahead.

Smart Commodities UK editor Garry White says there has been no change in the long-term fundamentals of either asset class…

This is no bursting bubble.

The fall has been caused by a number of factors coming together. We shall consider them one by one.

Firstly, there’s the euro.

The eurozone economy has disappointed. Reality has finally hit home for investors who reckoned that the euro was a safe port in the economic storm.

The truth is that they were wrong. The situation was much worse than most had expected.

This has caused a rally in the dollar over the past four weeks.

This was confirmed by recent GDP data. One week ago it was revealed that eurozone output had fallen by 0.2% in the April-June period. The euro economy had actually contracted for the first time since the single currency was launched in 1999.

Yet despite problems in the continental European and UK markets, I expect the dollar’s recent upward trend will be reversed sometime soon.

The dollar’s comeback will be short lived

The reason that the dollar has strengthened is nothing to do with the strength of the US economy. The country is still in exactly the same mess it was in a couple of months ago.

Freddie Mac (NYSE:FRE) and Fannie Mae (NYSE:FNM) are likely to be bailed out by the US taxpayer. The full implications of the credit bubble have not been played out. The Average American is still swimming in debt… and this debt is getting worse by the day.

In 2005, the US personal savings rate actually went negative. This means that, in total, Americans are borrowing more money than they save.

Then there’s healthcare.

The rise in healthcare costs is also exceeding income growth, which means that fewer people have taken out adequate insurance. This is expected to lead to an increase in medical debt for the average American.

Petrol gas and food prices are also on the up — at the same time as home values are declining. To add to the squeeze on the average family, wage increases have also been capped.

The US economy is still a mess. The respite for the dollar really is a temporary phenomenon.

America can’t stop cutting oil consumption forever

Another factor driving the oil price has been consumption.

Much has been made of falling consumption in the US… but can this continue?

I expect not. This is down to something called the elasticity of demand.

The US has been cutting down on its oil consumption. Logically, individuals and businesses will cut out the most discretionary consumption first. In other words they cut out the least necessary journey’s first.

This has been seen in falling gasoline consumption. As of 15 August, the four-week moving average showed a gasoline demand decline of 4.8% compared with last year.

The remaining consumption is therefore the most valuable to the individual, business or economy. This will be in terms of its contribution to GDP or its hit on a person’s quality of life.

This means that the remaining demand in the economy is much more inelastic. Total consumption cannot carry on shrinking at this rate. There are some journeys that people have to make.

This also leaves the US more exposed to supply disruptions, as its “buffer” has been removed.

I also expect that falling demand in OECD countries will be countered by rising non-OECD demand.

The next issue to consider is supply.

I don’t know if I have missed it, but no massive and easily accessible supplies of gold or oil have been found the past couple of months. This side of the equation remains very tight.

I also expect any new discoveries of oil will be expensive oil. Take the recent news from Iceland, as an example.

Iceland has invited tenders to drill in its offshore territories in the Arctic Circle. Submissions from interested companies are required by January.

Any oil found offshore Iceland will be between 800 metres and 2,000 metres below the surface.

Extracting this oil will be very expensive indeed. Working at the bottom of the ocean in subzero temperatures is no mean feat. This oil will never, ever be cheap.

New gold supplies will also cost more

Finding new gold reserves is also an expensive business.

As anyone who has followed mining juniors will know, funding is a key issue. With the credit markets seized up, mining companies are finding it really hard to raise money for exploration.

This will hit the supply side of the equation well into the future.

Some investors have fled to banks… but how long before they come back?

Another reason for the fall in oil has been sector switching.

Over the last couple of months, many professional and private investors alike have moved their cash away from what they saw as a toppy commodity sector and into bombed out banks.

Money moves where it multiplies best. Good judgment does not always go along with it.

With banking stock trading at a fraction of their traditional valuations, bottom seekers have moved into a sector they saw as a bargain. They have taken cash from commodities to pay for it — adding to the downward momentum in the sector.

But I do not expect this sector switching to continue. I expect it to reverse.

Last week, Merrill Lynch (NYSE:MER) said banks across Europe could be forced to raise an additional $70bn-$120bn in new equity. This is on top of the $120bn already raised.

Former IMF expert Kenneth Rogoff also reckons the failure of one of the big US banks is only months away. If I had any big money in the banking sector now, I’d be taking it off the table.

Political tension never far away

The next factors we have to consider are geopolitical tensions…

The Iran question looms large. Will the Americans or the Israelis bomb it?

I remain utterly convinced that war planes will be dispatched at some point in the not too distant future. It’s just a question of when… my money is on December.

This would send the oil price soaring as supply is cut. It would also send the gold price higher as investors seek a safe haven.
We also have Russia.

The South Ossetia “conflict” is nothing more than a minor skirmish. In my mind it is really an irrelevance.

However, hawkish sabre rattlers on both sides of the Atlantic have made the most of the situation. This has also raised the prospect of an oil and gas supply shock.

Nigeria is another issue.

The Movement for the Emancipation of the Niger Delta (MEND) continues to attack pipelines and disrupt supply. There is no end in sight and the situation is utterly unpredictable.

The global downturn won’t last forever

Finally, there really is light at the end of the tunnel. The global economy will pick up… eventually. Asian growth will save the day.

Investors are being fairly myopic at the moment. This always happens in a crisis. I can’t blame them. They are scared for their future.

But the truth is that the global economy will eventually emerge from it current gloom. It might take some time for it to happen, but happen it will.

Consumption of oil will be once again on the up.

So, I remain unconcerned about the oil and gold price correction — because that’s all I believe it is. I think that there is only one way for both prices to trend… and that’s up. Although, as we are seeing, it will be a bumpy ride.

P.S. Read on here to discover more about Garry’s newsletter, Smart Commodities.

Source: Here’s Why You Need to Be Ready for Oil and Gold to Rise Again