commodity

With the Canadian dollar trading near $0.97 U.S., and outperforming many of the world’s major currencies, interest in forex (or foreign exchange) investments has picked up lately. Forex investments involve dealing in foreign currency futures or options. This can make sense for a business that is forced to take on unacceptable currency risk. Futures or options let the business pass that risk on to speculators who wish to accept it.

Investors are typically the biggest losers in forex investments

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The price of uranium rose steadily from $7.10 U.S. a pound in December 2000 to as high as $138 U.S. a pound in June 2007.

China Investment Corp. (CIC) has caught a lot of investors’ attention recently with a string of big purchases of commodity investments in the resource sector. CIC is the Chinese government’s “sovereign wealth fund.” Sovereign wealth funds have been around since the 1950s. They are state-owned investment funds that are usually financed by an economic surplus. Many Middle Eastern sovereign wealth funds, for example, are financed by state oil revenues. CIC is directly funded by the Chinese government, largely with U.S. dollar reserves accumulated through exports.

An impressive string of commodity investments

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PENGROWTH ENERGY TRUST, $10.28, Toronto symbol PGF.UN, fell 7% on Friday after it cut its monthly distribution by 30%, to $0.07 a unit from $0.10. The new annual rate of $0.84 yields 8.2%. Pengrowth wants to conserve cash to pay down its $1.4-billion long-term debt, which is equal to 50% of its $2.8-billion market cap. The distribution cut should save Pengrowth roughly $93 million a year. The trust also wants to spend more on developing its oil and natural-gas properties in western Canada. These have large, proven reserves, so there is little risk in investing in them. The extra cash will also help Pengrowth buy other nearby properties....

Energold Drilling Corp., $2.18, symbol EGD on Toronto (Shares outstanding: 34.1 million; Market cap: $74.3 million), sells contract-drilling services to the mining industry. The company has a fleet of 79 rigs operating in 19 countries. It specializes in highly portable drilling rigs that it believes have a smaller environmental impact than traditional rigs. The company gets the majority of its revenue from developing countries, where labour costs are lower and there is little competition for drilling services. Mexico, the Caribbean and Central America account for roughly 55% of Energold’s revenue, followed by South America (35%) and Africa and Asia (10%). Energold also owns 13.8% of Impact Silver Corp. (symbol IPT on Toronto), which operates silver mines in the Dominican Republic and Mexico. At the current price of Impact’s shares, this investment is worth $6.3 million, or 8% of Energold’s market cap....

When you join my Inner Circle service, you get to ask me your own personal investment questions, plus you get to see what other Inner Circle members have asked. So you can see how the service works, and get a sense of how it might be able to help your portfolio, I’d like to share a recent member question about inflation’s impact on different stock sectors. I hope you enjoy and profit from it. Q: Pat: If an investor is expecting a surge in inflation in the U.S. within the next 12-18 months, which stock sectors should we invest less in, and which sectors would benefit from high inflation? Thank you. A: Governments have dramatically increased spending in order to pull their economies out of recession. Moreover, central banks have cut interest rates to record lows. These moves will likely help solve the financial crisis. But the cost will be much higher inflation, possibly starting in the next decade. This will have an impact on all stock sectors....

Natural-gas prices have recently moved dramatically higher, jumping 57.5% to $3.78 U.S. per thousand cubic feet since early September. That’s when natural gas hit a seven-year low of $2.40 U.S. per thousand cubic feet. Since then, a number of economic reports have pointed to a continued rebound. The resulting increase in industrial activity will lift natural-gas demand.

Production cuts will help lower natural-gas supplies

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STREETTRACKS GOLD SHARES $99.91 (New York symbol GLD; SI Rating: Speculative) (www.streettracksgoldshares.com; 1-866-320-4053; Shares outstanding: 353.1 million; Market cap: $35.3 billion) is an investment trust that aims to reflect the price of gold bullion, less the trust’s expenses. StreetTRACKS Gold Shares only hold gold bullion, and, from time to time, cash. Unlike stocks, commodity investments, such as gold bullion, do not generate income. Instead, they come with a continuing cash drain for management, insurance and so on. Expenses for StreetTRACKS Gold Shares are 0.4% of assets per year....

TECK RESOURCES LTD. $28 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 588.5 million; Market cap: $16.5 billion; Price-to-sales ratio: 1.6; SI Rating: Extra Risk) now gets about half of its revenue from metallurgical coal, which is used for making steel. That’s because Teck bought Fording Canadian Coal Trust for $13.6 billion last October. Fording owns six open-pit coal mines in B.C. and Alberta. At current production rates, these mines have an average reserve life of 23 years. Teck also mines copper, zinc and gold.

Credit crisis came at a bad time

Teck used $9.8 billion U.S. in short-term loans to pay for Fording. It planned to convert these into more manageable long-term loans, but the credit crisis lowered demand for new corporate bonds. Then the recession drove down commodity prices. This hurt Teck’s ability to repay the new debt....

The price of natural gas has fallen to around $2.50 U.S. per thousand cubic feet, a seven-year low. The price decline has been driven by lower industry demand during the recession. As well, consumers have cut their air-conditioner use because of cooler-than-normal summer weather in central Canada and the northeastern U.S. Another major factor is a buildup in gas inventories, to the point that the North American industry is running out of storage. According to the U.S. Energy Information Administration (EIA), natural-gas inventories are at 3.204 trillion cubic feet. That’s 21.3% higher than a year ago....