The price of fuel now makes up 35 percent of airline costs compared with 13 percent a decade ago. Capital and Crisis editor Chris Mayer says if oil prices stay where they are and nothing else changes, the airline industry will lose about $6 billion this year, compared with a profit of $5.6 billion last year.

This creates a great ‘hidden’ opportunity for investors. More fuel-efficient engines will require the use of exotic metals that can cope with higher-then-normal engine temperatures – metals like cobalt…

The industry is trying – and will try – lots of different tactics to fend off elimination. One of these is to push for more fuel-efficient aircraft. And that is the opportunity for investors to cash in on this crisis.

It starts with the jet engine. Recently, the Wall Street Journal published “Jet Engine Makers Launch New War” – all about the drive for new fuel-efficient engines. The piece notes that airlines worldwide want to replace their existing fleets with next-generation planes, not the current oil-guzzling models. The goal of the jet engine makers – or rather, the mandate put to them by their customers – is to deliver at least double-digit gains in fuel-efficiency.

As the WSJ reports: “Developing fuel-efficient engines requires the use of exotic alloys and ceramic coatings that can cope with internal engine temperatures that would be above the melting points of untreated metal components.”

Enter cobalt. It’s a tough metal with a high melting point of 2,700 degrees Fahrenheit. This higher melting point allows it to maintain its strength at higher temperatures than other metals can. Cobalt alloys have higher melting points than either nickel or iron alloys.

As a result, one of the main uses of cobalt is in superalloys such as those that jet engine makers need. In fact, the making of superalloys consumed about a quarter of global cobalt production, of which about 75 percent wound up in aircraft.

Cobalt would seem to have a nice backdrop of long-term demand. But it doesn’t stop there. Defense spending is also on the rise globally. A Financial Times report on aerospace notes that India, China, Brazil and certain Middle Eastern countries are all upping their defense spending. India alone may spend $40 billion in 2009.

Cobalt is an important part of all that, too. In fact, the U.S. and the Soviet Union used to stockpile cobalt for defense purposes. Those stockpiles are long gone, but the role cobalt plays in defense still exists.

As exciting as the aerospace angle is, a potentially bigger market could be batteries for hybrid cars. As I pointed out in the last issue, there are 5-10 pounds of cobalt in a typical hybrid car battery. Hybrid car sales will probably hit 500,000 cars this year. And that is growing rapidly.

Kitco recently noted that cobalt holds an electric charge better than almost any other metal. That makes it hard to replace, even at $50 per pound. “And the current electric batteries work so well,” Kitco notes, “[that] there is little incentive to change their structure (and other metal prices have skyrocketed, as well as cobalt — nothing is cheap anymore).”

With the failure of banks and the troubles of big financials such as Fannie Mae (NYSE:FNM), cobalt seems a nice place to be. A while ago, I recommended a “cobalt play” to the readers of my investment service, Mayer’s Special Situations. The name of the stock is OM Group (NYSE:OMG). I should warn you that the stock is a bit speculative. But let me share a few of the particulars…

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OMG carries a seemingly absurd valuation. It’s not often that you find profitable and growing companies with no net debt trading for big discounts to book value. The specialty chemical industry – a tribe to which OMG belongs – is undergoing heavy consolidation. Companies are getting bought out left and right. Dow Chemical (NYSE:DOW) bought Rohm and Haas (NYSE:ROH) for a 74 percent premium. And then Ashland (NYSE:ASH) came along and bought Hercules (NYSE:HPC) for a 38 percent premium.

Companies that make low-margin chemicals are looking to beef up on companies that make high-margin, or specialty, chemicals. Because OMG is cheap and very profitable, it has to be on someone’s radar. I hope that it doesn’t get bought out. I think we’ll do better holding the stock. But the deal-happy scene in the chemical business is another potential backstop of value here.

Hard to believe that anyone could buy all of OMG for anything less than at least book – which is $36 per share. And even that would bring howls of protest. After all, the stock was in the $50s for much of the past year. We will see.

In any event, let’s bring this back around to the aviation crisis. A familiar theme in the pages of my letters over the years has been this Templetonian notion of focusing on the opportunities that problems present. The late great John Templeton made this idea a key component of his investment — and life – philosophy.

The high price of oil is a big problem for many industries.

So if you have a good way to mitigate the high price of oil, you have a business. I think the big winners over the next few years are going to be those companies that have a solution to the high price of oil. Those companies have products that other people will pay up for, because fuel-efficiency is a must. The aerospace industry must become more fuel-efficient.

Cobalt alloys will be a big part of that trend.

Source: Fuel Friendly Skies

Jeff Clark in The Growth Stock Wire says we’re getting close to the ‘mania’ stage phase in gold – fleeing or panic from customary investments that leads to an astounding run-up in price of what is seen as the asset of the day.

Here, Warren Bevan in Penny Sleuth says the technical analysis shows gold solidly in a bull market… 

Gold is ready to fight for another all-time high in the near future, silver looks poised to do it at any second but realistically over a month or two. Platinum is trending within a super bullish formation and palladium is going to give us a further indication within two weeks max. All in all, it’s a great time to be in this sector:

They say a picture is worth a thousand words and in this case it rings true. Gold is solidly in a bull market and while volatile, you can take a look at the platinum chart below, and while it ranged within a $300 range or so while trading above $1,000, it looked volatile and there were times when it seemed it was heading down. Well, it sure didn’t head down but nearly doubled in a matter of months. Expect this from gold in the future…just be patient.

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$850 has held very well and, as far as I can see, will never be seen again although a test of it would be nothing but healthy. Both downtrends from the peak have been broken solidly.

All moving averages are heading steadily higher and are far from any bearish sign such as a bearish crossover. The 50-day MA is passing $850 making that level all but history. This is one healthy market on a longer-term weekly chart.

RSI remains above 50 signifying a strong bull market. MACD is making a bullish crossover from a nice level. Slow STO is crossing 80 and is signalling an up-trending gold market:

Silver is taking off and breaking above resistance just below $19 as indicated on the six-month chart in the newsletter. A solid uptrend is holding nicely and $16.50 is very strong support and has held on the many recent tests.

The 50-day MA is soon to cross the support region at $16.50 making it less likely to ever be seen again. MACD is making a bullish crossover from its long downtrend. MACD does not make many crossovers in silver and when it does it usually signifies a strong up move or a correction, followed by consolidation so look for the up move to take its turn here and now. Slow STO turned up right at the bottom and has been an excellent timing signal on this chart recently. Last time slow STO began an uptrend from recent levels the price of silver ran up nearly $10:

Platinum remains within its bullish triangle formation and should continue to tighten its trading range until the triangle is broken to the upside by early fall at the latest. Strong support lies way down just below $1,400 and will likely not be tested ever or for many years. Fundamentally, platinum is very strongly supported at these levels at least until the Eskom power situation much talked about here is resolved. But it still comes down to supply and demand and while other metals are being experimented with in the catalytic converter arena none have yet proven as effective on gasoline engines which are by far the most widely used worldwide and will remains so for many years to come.

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The moving averages are still pointing north and solidly so. They have a long way to catch up after the explosion in price but are steadily making progress. RSI remains bullish above 50. MACD is heading lower and as with silver is just signalling a consolidation move, which happens to be with a very bullish formation, the triangle. Slow STO is undecided but slightly bearish and not really giving us much to work with, but with all the other indicators, price and moving averages performing as they are, things are positive:

Palladium is making higher highs and higher lows as it consolidates and postures to break through the downtrend at $450. This pattern will resolve itself one way or another within the next two weeks tops and will give us a better indication of the future.

The three moving averages are heading up and the 50-day MA is not lagging far behind the price and should be supportive. RSI is bullish remaining above 50. MACD is slightly bearish but that just signals consolidation during bull markets. Slow STO is bullish but flattening out as the price runs into the downtrend line.

It was a very constructive week for the precious metals and, by the looks of things, we have more positive things to look forward to in the near future.

You can follow my technical analysis and the complete precious metals industry breakdown at my website: www.preciousmetalstockreview.com.

Source: Precious Metals Poised for All-Time Highs

Once again, I’m drawn to palladium.

We first took a look at palladium back in May, when the metal was at $425 per ounce. It rallied as high as $475. And the two stocks I highlighted in my article scored big gains in the days that followed.

Today, palladium is tracing out a horizontal rectangle pattern, similar to what we’ve seen in gold and silver. If it breaks out of this pattern, then palladium could run as high as $525 per ounce.

Here’s the chart…

The biggest gains, however, will once again come in the shares of North American Palladium (PAL) and Stillwater Mining (SWC) – North America’s two largest palladium-mining companies.

Mining stocks are a proxy for the underlying metal. So just as gold stocks rise when gold goes up, and silver stocks rally when silver rallies, palladium stocks climb when palladium moves higher.

But the percentage gains in the stocks are usually much larger than the gains in the metals. Mining companies are sitting on large reserves of gold, silver, or palladium. So a small increase in the price of the metals creates a large windfall for the companies, and an even bigger windfall for investors.

Gold and silver started a renewed up-leg last week. Palladium looks ready to follow in their footsteps. If it does, then shares of PAL and SWC might make for a good speculative trade.

Source: These Two Precious-Metal Stocks Are Ready to Bolt Higher

I think precious metals are a pretty low-risk investment in general right now. We’re on the brink of a global inflation crisis.

I’m no economist, but I know inflation when I see it. The price of oil is incredibly high. Oil affects the price of everything. Plastics are made from oil. Trucks, trains, and boats that move goods from point A to point B burn oil products. No matter what it is, if you bought it, you paid an “oil tax.”

That’s not an American phenomenon, that’s worldwide. High oil prices mean price inflation on a global scale.

Take a look at Asia, where Indonesia’s inflation rate is 10%, the Philippines’ is 10%, and India’s is 12%. Those countries are indicative of much of the developing world, where food and fuel prices have a bigger impact on the economy than in the West.

However, even in places like England, inflation is skyrocketing. The Financial Times reported inflation rose to 3.8% in June alone. The head of the Bank of England forecasts 4% by the end of the year – which now looks like a conservative estimate.

Global inflation is going to drive the price of gold and silver through the roof and into the sky. When inflation raises its ugly head, investors buy gold. Gold and precious metals are impossible to create from thin air (as opposed to paper and ink currencies). So as governments run printing presses night and day, the value of gold and silver soars.

The safest bet for silver bugs is a big silver exchange traded fund like PowerShares DB Silver Fund (DBS) or iShares Silver Trust (SLV). These funds are designed to track changes in the price of silver. Another possibility is the PowerShares DB Precious Metals Fund (DBP), which tracks both gold and silver.

However, I like the big silver miners. The recent market correction clobbered the entire sector. Many big silver stocks are sitting at 52-week lows. Any boost in the silver price will send them flying.

However, mining companies are risky. They can have problems with mines or striking workers. These problems can leave your shares flat while the rest of the sector soars. The best way to avoid this is to own shares of several mining companies. I don’t know of a silver mining ETF, so you’ll have to do it yourself.

Source: Commodity Q&A: The Best Time to Buy Silver is Right Now

Investors looked for a safe haven after the greenback hit a record low versus the euro. Gold prices reached $989.60 an ounce and fell back to $978.70 after a sharp drop crude oil prices.

Gold is not the only precious metal gaining ground, says Brian Hunt. Silver has gained 27 percent this year, against gold’s 17 percent. As long as the US government insists on bailing out the likes of IndyMac (IMB), Fannie Mae (FNM) and Freddie Mac (FRE), investors will turn to precious metals to protect themselves.

Catastrophe insurance is getting more expensive this week. We’re big fans of gold and silver at DailyWealth. We don’t think the world is coming to an end… We simply see precious metals as excellent catastrophe insurance – assets that soar when stocks and bonds are sinking.

Last week’s destruction in Fannie Mae and Freddie Mac counts as a catastrophe… and silver is making good on its “claims.” After trading around $17 per ounce since March, the precious metal has broken out to $19. The chart of gold looks much the same.

Here’s the reason for the strength in gold and silver: Precious metals rise when investors smell serious risks to the financial system. They rise when the government spends too much money and extends too much credit, which stokes inflation. Silver’s breakout is a response to the huge liabilities our government is assuming with Fannie and Freddie.

In “market speak,” silver is telling our officials in Washington, “You’re going to spend all that taxpayer money on a big bailout? This could be bad… and I’m heading higher.”

Source: A New Bull Market in Silver is Starting 

 One company is playing a waiting game… It’s waiting for change in Iran… Gold and copper deposits could be huge…

I don’t know which football ground was described by just-retired John Motson as ‘a football stadium in the truest sense of the word’, but John Teeling might very well be described as an Irishman ‘in the truest sense of the word.’

This twinkling, sixty-two year old serial backer of bold mining ventures stepped off an overnight flight to tell me about one of his mining ventures which has not done too well of late – but only in share price terms.

This is Persian Gold (PNG), which has built a portfolio of mining projects in Iran on the sound principle that ‘while rocks do not change, politics do.’ Teeling is hoping that the west’s political relationship with Iran might change for the better next year when new leaders will be installed both in Iran and the USA. That might persuade to investors to look at the opportunity offered by the geology of Iran rather than take fright at the failed relationship between this major Middle Eastern state and the west.

A more-than-usually-interested observer, too, will be Mike Thomsen, Persian Gold’s geologist who believes that Iran could be host to some of the largest undiscovered gold and copper deposits anywhere in the world.

Formerly the international exploration chief of Newmont Mining, his job then was simply to find gold, and what he noticed was a particular pattern of volcanic rock that hosted major copper and gold deposits in places such as South America, Indonesia and the Philippines. Without going into the exact geological details this pattern is also found in Eastern Europe and runs down from Turkey to western Pakistan – right through the centre of Iran.

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So in 2003 Persian Gold was set up to explore for large gold and copper deposits in this territorial swathe known as the Tethyan belt. As usual the course of exploration has not been entirely smooth and Persian Gold’s first project in the north of the country has been delayed by the presence in the vicinity of a protected species – tortoises. Thomsen, who told me that he ‘has previous experience of dealing with tortoises’ (in the USA) is confident that this obstacle can be overcome but in any case since that first project Persian Gold has signed three others, two of which have progressed with real promise. Resource estimated good The most advanced of these is the Char-e-zard gold project, which is right in the middle of the country. Here two phases of drilling and trenching have been sufficient for Persian Gold to estimate a resource of 160,000 ounces of gold and 1,000,000 ounces of silver. A pre-feasibility study will begin soon and if all goes well – and this is a straightforward open pit mining operation – production should commence in 2010.This will be a small operation, with capital costs of no more than $20m, but according to Thomsen it could ‘clear a profit of three times Persian Gold’s current stock market value’ of just £5m. But it will also provide a valuable lesson in dealing with the local bureaucracy, a lesson that could prove valuable for a second and potentially much larger project at Dalli, which is about 200kms south of Tehran.Here Thomsen has spotted a promising volcanic rock formation, and four drill holes have all encountered copper and gold. Two of these holes were drilled in an area to the north and two to the south, and the latter encountered copper grades of around 0.5%, equivalent to the best grades found at major copper mines in the region – but also the presence of gold.

So this early results indicate sufficient mineralisation to support a mine, and the question now is whether it is sufficiently extensive. Three more holes are now being drilled with results expected before September, but several more will be necessary before Persian Gold can confirm the presence of the sort of world-class deposit that it is looking for.

Last year there was sufficient excitement about Persian Gold’s projects to see the share price bid up to 40p. Today, following months of sabre-rattling between Iran and the USA the price is back down to 7.5p. For those who are prepared to live with the political risks this looks as good a time as any to get into a company that has made some discoveries, and has first mover advantage in a country of undoubted mineral potential.

Source: What Price Iran?

Mining: the latest “wisdom” from Wall Street is that commodities have or are in the process of peaking. Don’t believe it. The 95 percent increase in iron ore prices negotiated between China and Rio Tinto a couple of weeks ago shows how ridiculous that line of thinking is. (My favorite mining-related company: Bucyrus (BUCY)).                 

Energy: with energy prices this high, there has to be some good investments out there and there are, but it’s not in Big Oil. I like a medium sized oil company from South Africa called Sasol (SSL).

Fertilizers: This sector is a little more volatile than I would ideally like. And fertilizer companies have gone up a great deal already. Potash Corp. (POT) seems to be the favorite among analysts, but I like Terra Industries (TRA) better.

Oil support/transport: Some analysts like the pipelines. I like the rig companies better. Helmerich & Payne (HP) is an outstanding one.

Health care: Following the Boomer into their old age can’t be a bad strategy. Medical Properties (MPW) is a real interesting health care REIT with loads of upside.

Alt Energy: Solar rocks. Now that China has had their 50 percent correction, I’m liking Suntech Power (STP) all over again.

Precious metals. Gold and silver are going up, baby. The ETF GLD rises with the price of gold. That’s sounds good to me.

Everyone should have a recessionary handbook in their back pocket. This is mine.

Source:  The “Seven Up” Recessionary Handbook 

The value of announced mining takeovers more than tripled to $199 billion in the first five months of 2008 from a year ago – the first time mining mergers have topped Bloomberg’s mergers and acquisitions table since it began 1998.

Meanwhile, gold prices are set to reach record levels, says Mike Caggeso in Money Morning.

Those new catalysts are:

• Inflation.
• Oil prices.
• Fatter wallets in emerging markets.

Inflation and Gold

Global inflation will be a key – if not the key – factor because of gold’s established reputation as an inflation hedge.

Since September, the U.S. Federal Reserve has lowered interest rates seven times – chiefly because of a subprime-mortgage mess that grew into a global financial crisis.

Many foreign central banks have either reduced interest rates in kind, or opted to stand pat, even though inflationary forces in their own markets actually dictated that a rate increase might be a wiser move.

Low worldwide interest rates – arguably an artificial situation, of sorts – has stoked global inflation and caused the greenback to plunge to record lows against other major currencies. And the weak greenback has been a key catalyst behind the escalation of oil prices.

As Money Morning’s Hutchinson has predicted, however, the Fed and other central banks will eventually be forced to start pushing interest rates higher – a stance that even Fed governors are starting to support.

“And during that period, expect speculative demand for gold to intensify and its price to increase steeply,” Hutchinson said. “The longer the period before the Fed is forced to increase interest rates, the higher gold will go.”

“Black Gold” and Gold

There is a very tight correlation between rising oil prices and rising gold prices. While the torrid oil-price advance may moderate at some point – no market goes straight up or down without interruption – the trend in the crude-oil market clearly is toward higher prices, MoneyWeek reported.

And high oil prices tend to support gold prices.

Referring to the “magic relationship” between oil and gold, Moaz Barakat, the managing director of the World Gold Council, said the fluctuations were natural and in accordance with historic price adjustments.

“If you look at the past 100 years, the gold price was always 10 or 12 times that of oil prices,” Barakat told MoneyWeek. “With oil basically around $100 a barrel, gold prices should be at $1,000 or $1,200. That’s the magic relationship between the two.”

[Editor’s Note: Gold investors have made a killing in the past few years, and gold’s meteoric rise is hardly over. Money Morning contributing editor Martin Hutchinson has predicted the precious metal could climb as high as $1,500 in the near future. For additional profit plays on gold - as well as oil, the U.S. dollar, sovereign wealth funds, emerging markets, agriculture, uranium, biotech and much more - check out Money Morning’s just-published global investing guide, The Essential Investors Playbook. It’s Money Morning’s first foray into the investment-book market, but we’re certain you’ll find it worthwhile.]

Asian Wealth

Naturally, as per capita wealth increases in such emerging markets as China, India and Latin America, demand for “American” goods will soar. That holds true both for American “brands,” as well as for so-called “lifestyle goods” – products that foreign consumers identify as being part and parcel of the “American” way of life. Jewelry, gold, gems, other precious metals all will benefit from the growing ability of the newly forming middle classes to spend on wares that aren’t just necessities.

That’s different from past bull markets for gold, which were solely inflation-driven; that is, investors who were seeking to hedge their bets against rising prices caused gold prices to skyrocket.

To be sure, inflation has been a big factor this time around. Gold prices usually move in the opposite direction of the U.S. dollar. With the dollar weak, and interest rates low, an up-tick in inflation could send gold prices higher.

But for gold prices to really zoom, consumer demand will have to act as an adjunct to inflation. And rising demand from increasingly wealthy consumers in China and India may be just the ticket.

Now that the Internet and satellite TV have allowed these aspiring consumers to see what kinds of wares U.S. consumers regularly have, this new group of Asian consumers also want their own houses, cars, appliances, cell phones, computers and jewelry. They are willing to work to get it. And they are all-too-happy to pay the rising asking price.

The upshot: The wealthier this new group of consumers becomes, the more they’ll envy these goods – and the higher the price tags on those products will climb.

This new source of demand could potentially blunt gold’s run toward $1,500. Naturally, demand drives up prices. And, recently, steep prices are to blame for the 11% decline in gold sales during the Hindu holiday of Akshaya Tritiya, where long-term investments such as gold, silver and real estate are religiously merited as purveyors of prosperity.

Like Christmas, Hindus are constantly reminded of Akshaya Tritiya by a bevy of special sales and advertisements from jewelers and real estate companies.

This is important to note because Hindus were curbing the religious tradition of buying gold, which sheds light on “how much is too much?”

Read on here for Mike’s maximum profit plays on gold.

“My ongoing confusion about the current state of our markets tells me one simple thing,” says Merryn Somerset Webb, “that I should hang on to my gold.”

The price of gold has already fallen 14 per cent since its peak of $1,033 back in March, and it also had a bad week as the dollar rose.

But, in uncertain environments, what we all need most is insurance. And gold is the best financial insurance you can get over the long term.

There is a perfectly reasonable fundamental case to be made for holding gold: supply is limited and demand high. However, the real point is that the future is very uncertain and not in a good way.

We could see an inflationary recession. We could see a deflationary recession. But what I think we can be pretty sure we won’t see, over the next few years, is stable growth with stable prices.

Tim Price of PFG Wealth puts the case nicely. “There are few things you can count on in a full-blown economic and financial crisis,” he says.

“Not central banks, politicians or Wall Street banks, and not paper currencies – the dollar lost 98 per cent of its purchasing power during the 20th century.”

“But several thousand years of world history point to an alternative store of value, in the form of this iconic, shiny yellow metal, whose very scarcity is its abiding strength.”

You can get exposure to said iconic metal by buying the ETFS Physical Gold ETF (PHAU).

“I see that Dennis Gartman is talking about gold again,” says Ed Steer in Casey Research.

Here are a few words from his early Thursday morning commentary….”If the governments of the world are now as concerned about inflation as we think they may be, and if they are even more concerned about the prospects for a generic, rising inflationary psychology amongst the public at large, then perhaps a collusive sale of gold to push it down through $865 would be possible…that is, if the (Gold) ‘Bugs’ great fear of collusion amongst the central banks is indeed a reality, and we truly have our doubts.”

Well, Dennis…gold did fall some more on Thursday, but that’s not the end of the world…nor has it been a surprise to the readers of my daily rant. As I’ve always said, the ultimate goal (if the bullion banks could achieve it) would be to take out the 200-day moving averages. They came within an eyelash in both gold and silver on Thursday. The 200-day m.a. has withstood every challenge going back for the last ten years. And when it has been broken, it’s wasn’t for long…and not by a lot. Dennis…if you want some investment advice…I’d seriously think about putting on a long position or two in the next month or so, and letting it ride…as we’re awfully close to the bottom. You can thank me later.

Looking back to Thursday, “the precious metals had a strong day, as well they should have, given soaring oil prices and a declining dollar,” says Doug Casey in Casey Research.

Traders may have even been a little disappointed that the metals’ performance wasn’t a bit better than it was

After acknowledging the buck’s influence on the day’s action, the Hightower Report went on the say that “with a sharp upward explosion in energy prices and a host of physical commodities, it is just as likely that classic inflationary buying was being seen in the gold trade. With the US equity market at times under significant selling pressure as a result of the sharp price gains being registered in the commodity markets, it is also likely that classic flight to quality buying was taking place. While the Dollar Index was weak some traders suggested that without a decline below the Tuesday low of 73.31, the currency influence on gold prices might not intensify. In the end seeing crude oil prices virtually explode during the session Wednesday probably rekindled investment interest for gold from a broad range of angles.”

Looking down the road, wrote James Moore, an analyst at TheBullionDesk.com, “short-term direction is still likely to be dollar-driven.”

But Moore added that “with inflation on the increase, longer-term investors should continue to look favorably towards gold, with the metal likely to carry out further base building ahead of $850 before rallying back towards $1,000 later in the year.”

Crude oil, which remains at nosebleed levels, is a primary driver of inflation, and after oil’s meteoric rise, gold has a lot of catch-up still to play.

And Matt Zeman, a metals trader at LaSalle Futures Group in Chicago believes that the difference between interest rates on euros and dollars is paramount, leading him to conclude that, “Traders are looking at the difference between rates. You’ve got to believe that people are going to step in and buy gold right now.”