STRATEGIES

With the dollar weakening and political-economic tensions easing, at least for now, the time might be right to take a look at metals and miners, explains MoneyShow's Jim Jubak, also of Jubak's Picks.

A weaker US dollar, stronger growth in China and the rest of Asia (yes, maybe even Japan), and temporary relief from macro worries over the US fiscal cliff and the Euro debt crisis...could this be time for a commodity rally?

Sure looked that way yesterday. Pretty much everything—with the exception of natural gas—moved up. The Brent crude benchmark price climbed 1.3%. Copper was up 2.2%. Gold rose 0.66%.

A weaker dollar pushes up the price of commodities traded in dollars, since it takes more dollars to buy an ounce of gold or a barrel of oil. The end of worries over the fiscal cliff and the Euro debt crisis, even if only temporary, would reduce demand for dollars and other safe-haven currencies such as the yen (and assets priced in them, such as US Treasuries).

Conversely, investors also feel more comfortable about the risk of owning assets priced in the Brazilian real or the Canadian dollar. (Both the Brazilian and Canadian stock markets were up yesterday, 2.9% and 0.6%, respectively.)

With the twin US fiscal cliff and Euro debt crisis worries out of the way, commodities get another boost as investors are now freer to focus on growth stories in economies such as China. The stories aren’t new, but while investors fretted over the possibility that either of these crises might take down the global economy, relatively few investors felt able to put their money behind these stories.

But now it’s far less risky to put money to work in industrial commodities such as copper, aluminum, or iron ore—and the shares of companies that produce them. You can put commodities and commodity producers into two categories on this basis.

First, there are the commodities that will benefit from weakness in the dollar. I’d put gold in this category and suggest taking a look at lower-cost gold producers that are expanding production, such as Goldcorp (GG) and Yamana Gold (AUY). (Both stocks are members of my Jubak’s Picks portfolio.) Goldcorp was up 1.85% as of 2:30 New York time yesterday, and Yamana Gold was up 0.52%

Second, there are commodities such as copper and iron ore that will benefit from weakness in the dollar and the growth story in Asia. I’d suggest taking a look at Vale (VALE) in Brazil, Thompson Creek Metals (TC) in Canada, Southern Copper (SCCO) in Peru and Mexico, and Jiangxi Copper (358.HK in Hong Kong or a very thinly traded JIXAY in New York) in China.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of September, see the fund's portfolio here.

Tickers Mentioned: Tickers: GG, AUY, VALE, TC, SCCO

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