I was happy to speak recently at the Vancouver Natural Resources Conference in beautiful British Columbia. I also had the pleasure of listening to a variety of presentations by some of the most influential names in the investment world, and met a few new faces along the way.

Here is what I took away from this year’s visit to Vancouver:

1) London’s dirty little secret. My good friend Robert Friedland, executive chairman and founder of Ivanhoe Mines, painted a startling picture of an increasingly polluted London, England, during his speech. Did you know the city’s air pollution is now worse than Beijing’s? Not only that, Paris hit life-threatening pollution levels this year and the World Health Organization even stated that pollution is the world’s single-biggest environmental health risk. Hard to believe, isn’t it?

Friedland says the answer to healthier air is the “new gold,” or platinum group metals (PGMs).

By using PGMs in catalytic convertors, harmful diesel emissions can be better controlled and less carbon monoxide is produced. As urbanization continues, investors should remain aware of inevitable pollution in larger cities, and in turn, that the use of PGMs will help minimize these effects. Demand should rise as supply lowers, pushing the metals’ prices higher.

Earlier this year I wrote that platinum and palladium looked very compelling, and the metals continue to be relevant in both the auto industry and medical industry. 

2) Russia is America’s biggest problem, according to Marin Katusa of Casey Research. Not only does Russia produce more oil and natural gas than any other country, it’s also exerting control over the uranium sector. America has long been the number one consumer of uranium, and at one time was the largest producer, but that’s all changing. The American uranium stockpile has been reduced to an amount that will last roughly three more years.

The U.S. Department of Energy (DOE) used to release a certain amount of uranium into the market each year, but in 2013 the DOE began dumping what little uranium the U.S. does have and selling it to the spot market at a lower cost. President Barack Obama did this in order to raise enough money to pay for previous cleanups.

There isn’t enough uranium left to fulfill our needs if you compare the amount the U.S. produces with the amount the U.S. requires. It’s not only America. Much of the world is looking for sources of uranium to meet demand factors. The World Nuclear Organization shows in the chart below that one reason for the shortfall in uranium supply from mines is that early production went straight into military inventories and civil stockpiles.

We need Russia, whether we like it or not. When it comes to commodities such as uranium, it’s important to be aware of how performance rotates each year, giving you a leg up on finding commodities with upside potential. Looking into 2015, Marin says uranium could make big moves.

3) Energy is the most consistent story of our lifetime. Karim Rahemtulla, Chief Resource Analyst at Wall Street Daily, used this statement to emphasize the ongoing strength we are seeing in the energy sector. He says better technology is leading to new finds from Brazil all the way to the Mediterranean, and even with controversial techniques like fracking, it’s easy to see just how much oil and gas have been recovered across various shale plays in the last few years. The production numbers are unbelievable.

U.S. Global Investors released a Special Energy Report detailing the American energy renaissance we are currently living through, along with ways to benefit from this tremendous growth. Karim says the growth will continue: industrial demand for natural gas is set to increase by 20 percent in the next five years, and consumer demand is increasing annually at a faster pace than oil. The trends we are seeing in this space should continue for another 15 to 20 years, including increased use, new sources of supply, emerging growth and political benefits.

4) One in every 3,000 projects actually becomes a working mine – I visited two of these. The Saturday following the conference I joined other CEOs, hedge fund managers, newsletter writers and curious investors on a special trip to see two open pit mines in Southern British Columbia. What an experience it was. Marin Katusa of Casey Research organized this trip that took our group of around 50 to see gold and copper mines. Elk Project of Gold Mountain Mining Corp.was our first stop.

This type of “boots on the ground” experience helps form the tacit knowledge investors and fund managers need to stay curious about the sectors and companies they invest in. I believe implicit knowledge – sticking simply to data and numbers – can only get you so far. Being able to see the Elk Project up close was remarkable – this company is organized and entrepreneurial, and has reported good potential for open pit mining operations such as this one. The Elk Project plans to expand its existing resources using an aggressive drill program.

5) Innovation and technology at Copper Mountain Mining. The second stop on our trip was the open pits at Copper Mountain Mining’s operations. Copper Mountain processes around 35,000 tonnes a day, requiring the company to use bigger, more innovative and more efficient equipment. During our tour we saw one of the pits, which was 200 meters deep. But what I found most impressive was the infrastructure and equipment the company uses.

Copper Mountain has haul trucks with high-efficiency diesel engines and hydraulic front-loading shovels with 42-cubic-meter buckets. The tires alone have a price tag of $40,000, and are equipped with microchips to measure temperature and pressure data remotely.

The property is also run by a computerized control system, which tracks everything from the crusher to the water system and even the truck traffic on site. 

Companies like Copper Mountain are moving fast, making things happen and using new technology to regenerate life into one of the oldest mines in BC. Investors should pay attention to companies such as this, which are making enormous strides and adding credibility to their names.

These trends all have important implications on where to find investment opportunities. Sometimes you have to dig a little deeper and put yourself in the middle of the action, and other times it’s simply about staying curious to learn about what is going on right in front of you. I encourage my readers and shareholders to stay curious to learn, because with curiosity comes improvement and opportunity.

If you were unable to attend the conference, I invite you to download my presentation, From Asia with Love – The Ups & Downs in the World of Resources.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Fund portfolios are actively managed, and holdings may change daily. Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 06/30/2014:  Ivanhoe Mines Ltd.

War is becoming a major factor as currently armed conflict is spreading to 22 nations, many of them oil producers in the Middle East and Africa. 

The Crisis in Israel is also spreading worldwide as even here in Alberta in two recent rallies “Kill the Jews” and “Heil Hitler” have been chanted by pro-Palestinian muslim groups. 

All this has the potential to explode, dramatically effecting markets. Oil set to soar if the Middle Eastern oil flow stops, others set to crash as money seeks safety during times of Major Crisis. 

Here are two articles that illustrate all of the factors in play. First, The Real Reason for War in Israel and the second a video by Dr. Kent Moors What is Really Going on in Iraq. Dr. Moors explains a great deal and includes some great charts like this one below – Money Talks Editor

Again, the two articles:

The Real Reason for War in Israel 

What is Really Going on in Iraq.

This is both a transcript and the video of an interview at  the Sprott Symposium with Frank Holmes, CEO and Chief Investment Strategist at US Global Investors. Scan to the bottom of this transcript for the entire interview in video. Money Talks Editor 

VC: Now Frank, you’re a big fan of following global indicators. What are you seeing right now?

FH: One of the most important indicators when looking at resources as a whole, is what they call the Purchasing Manufacturer’s Index – the PMI – and the PMI is a forecasting tool, it’s what is anticipated 6 months out – and each month it is updated. It’s highly correlated to the demand for commodities. When you look back – it’s industrial production- it’s where money is being spent. So with that, PMI’s have turned positive. They were positive, they faltered with Japan, in April, in May, now they’ve turned positive for the world. That’s very powerful for underlying a belly of demand for resources.

VC: And why is that?

FH: Because the Purchasing Manufacturer’s Index is basically a high paying jobs that manufacture various goods and products and services. And that means there is global economic trade. 

VC: So you are seeing the PMI’s rising, and recovering, globally. Are we seeing a global recovery?

FH: Yes we are, and it’s important – what we like to look at is the one month- for the global PMI, versus three months. So when the averages – the trend is your friend – when the one month is above the three months, usually, the mathematical models say copper is up, oil is up, it’s all apart of that global economic activity.

VC: So what does this all relate to gold?

FH: Well with gold, it comes to the love trade. Because what is so important, what took gold to $1900, half of that whole move, is the rising & GDP per capita of emerging countries. And they have a cultural affinity to give gold for weddings, graduations, etc.

VC: So we just kicked off the seasonal, love trade in gold.

FH:Yes.

VC: And that continues from now until Christmas ?

FH: It’s Chinese New Year. So it starts with Ramadan, then we have Indian wedding season, and then we’ll go into the season of lights in India, then we will have another wedding season, then we’ll have Christmas, then we’ll have Chinese New Year. Until February.

VC: And how are you seeing it play out this year compared to other years?

FH: Well last year there was a big import duty imposed in India, to try to get everything to slow down gold and all it did is make it go illegal – and smuggling took place. They’ve laxed those and we just witnessed last week, a 65% increase on a year over year basis of gold imports going into India.

VC: I mean a lot of people have been watching and waiting, for this new Prime Minister coming into office in India, and people have been waiting for him to reverse this 10% gold import duty. So did we see a change, is that what you’re saying, last week? Has any announcement been made?

FH: Well, there are some – making it easier for the banks to facilitate the movement of gold and distribute gold. So that is in place – the exact 5%, 10%, 20% – that is not put in place – but the ability just to move gold.

VC: Now you’ve said that this year platinum and palladium are your favorites. Are they still your favorites?

FH: They are – because you if you have rising PMI’s – That’s highly correlated to car sales. And now we are seeing China with car sales, and now they are imposing North American standards for platinum and palladium to be in cars, so there is a pent up demand taking place there. And in North America, with the higher energy process, and the cheapest prices in history to borrow money – you can borrow money inexpensively to buy a brand new car – and it helps offset the higher energy prices because the new cars have much better mileage – 30% more than what a car ten years ago would deliver.

VC: Right and with this incredible urbanization happening in China, for example, a lot of people are buying their cars for the first time.

FH: They are.

VC: And more than in the US actually– the numbers are higher in China than the US with annual car sales?

FH:  Correct. And as fast as they build highways, they start packing them with cars.

VC: Now what is going on in South Africa with the strikes there?

FH:  What we have seen in the past, since 2011, when there are blocks in the supply of any commodity then we get a big rise in them. So the problems in South Africa are causing a supply situation, a constraint, for platinum and palladium. SO the two big issues with platinum and palladium are Russia, Putin, is a big supplier of the world’s palladium, and South Africa is for platinum. I think the global economic activity will remain, and that will both see platinum and palladium trade higher.

VC: And is that why palladium recently hit a 13 year high?

FH: We did. Every time there are problems in Russia, it can be a supply restriction for palladium.

VC: Now you’ve said that people should hold about 10% of their portfolio in gold? Can you elaborate?

FH: Well, looking back on studies, it is just prudent to have insurance – I like to call it portfolio insurance. It’s like car insurance- you don’t go and have an accident so you can collect. So you want to always have gold in your portfolio, and having 10% seems to be just a prudent process. So last year the stock market was vibrant, up spectacularly well, so you would have taken profits because gold was down and bought gold at a discount, and year to date, gold has had a wonderful run. So this idea of having 10% helps balance your overall portfolio against currency volatility, and also participates in the huge consumer demand that is taking place in the Middle East, India and Asia.

VC: Right. Now are you buying gold right now, gold stocks? Are you excited about the sector? You have said in your sector rotation model the peak of the last bull market in metals was December 2010 – and it is very unusual for any sector to be in for more than 2 or 3 years – and we are now in our 4^th year? 

FH: Three years – so it’s only 3 times in thirty years that you have had gold stocks fall 3 years in a row. And what took place in 2011, that peak, was GDP globally. We look at GDP as the world’s – flying at 50,000 feet, watching it rotate and spin, we will see that real global GDP peaked at 5.4% and fell to 3%. So if it has fallen almost 50%, guess what happens to the metals stocks – and even energy stocks – they are off dramatically. So you are seeing great value in this space. 

VC: So you are seeing a lot of value right now in maybe some of the companies that are here at the Sprott Symposium or that you are looking at right now? 

FH: Yes. And it not just gold stocks, or base metals stocks, copper stocks which we love, it’s also oil – I mean it is remarkable that oil stocks are priced  at where they were when oil was $12 a barrel. It’s hard to fathom that. And junior oil stocks – they were trading at $120,000 per barrel of oil production, they fell down to $20,000, now they are back to $30,000 on takeovers that are worth $50-60,000 – so I think there’s many wonderful small cap energy companies – in Colombia in particular, they’re just going to get bought out because we are seeing these roll-ups -and when the M&A activity takes place, there are 100% lifts in these stock prices.

VC: What are some of the other drivers behind that? We’ve looked at some of the drivers behind gold – gold purchases coming from India and China- what are some of the drivers for the oil sector?

FH: Just global GDP – the correlation is so high with PMI- Purchasing Manufacturer’s Index – when it’s rising, oil demand picks up- – and they are just not finding enough production to come on-stream. In particular, in North America we have been blessed with fracking as an innovative process – but they do not have this in Russia – or Eastern Europe. And Russia has done everything to prevent – one of the biggest funders for anti-fracking comes from Putin’s regime – comes from Gasprom. And they’ve been sponsoring movies – same thing with Qatar, they’ve been sponsoring this disinformation about fracking – because it impacts their sales.

VC: Well yes and Gasprom has all of Europe dependent on it – they have a monopoly.

FH: But let’s say America – Canada has cheap gas prices and makes oil sands more attractive – also chemical companies because to make chemicals you need gas as an input, and then you have refineries – so the input of natural gas being so inexpensive relative to Europe is helping boom – and so last year we saw refineries up 70%- the year before up 60% – so there are these wonderful pockets of opportunity.

VC: So that is where you are seeing a lot of opportunity right now– excellent. Well thank you so much for joining us again Frank, it was great having you here.

FH: It was great being here, and hopefully everyone is buying some of that nice gold jewelry for that love trade.

VC:  Fantastic.  

-End-

qwe

*Note: I’ve included this because it highlights the thinking of a significant portion of the public urged on by the mainstream media into believing in the whole Global Warming scenario. Despite overwhelming evidence that it is solely based on computer models that at best are shakey, at worst outright unscientific, or used data that was manipulated.

Take for example the whole 97% of scientists claim.

Dr. Paul Ehrlich was the author of the 1970’s The Population Bomb began with this statement: The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate  – Forty Six years later, as with the Global Warming/Climate Change scenario, Ehrlich’s scenario that warned of the mass starvation of humans in 1970s and 1980s did not happen nor has the world warmed –  Editor Money Talks 

Pack your portfolios with agricultural plays like Potash (POT), Mosaic (MOS), and Agrium (AGU) if Dr. Paul Ehrlich is just partially right about the impending collapse in the world’s food supply. You might even throw in long positions in wheat, corn, soybeans, and rice. 

The never dull and often controversial Stanford biology professor told me he expects that global warming is leading to significant changes in world weather patterns that will cause droughts in some of the largest food producing areas, causing massive famines.

Food prices will skyrocket, and billions could die. At greatest risk are the big rice producing areas in South Asia, which depend on glacial run off from the Himalayas. If the glaciers melt, this will be gone.

California faces a similar problem if the Sierra snowpack disappears. Rising sea levels displacing 500 million people in low-lying coastal areas is another big problem.

One of the 78-year-old professor’s early books “The Population Bomb” was required reading for me in college in 1970, and I used to drive up from Los Angeles to hear his lectures (followed by the obligatory side trip to the Haight-Ashbury).

Other big risks to the economy are the threat of a third world nuclear war caused by population pressures, and global plagues facilitated by a widespread growth of intercontinental transportation and globalization. And I won’t get into the threat of a giant solar flare frying our electrical grid. “Super consumption” in the US needs to be reined in where the population is growing the fastest.

If the world adopts an American standard of living, we need four more Earths to supply the needed natural resources. We need to raise the price of all forms of carbon, preferably through taxes, but cap and trade will work too.

Population control is the answer to all of these problems, which is best achieved by giving women an education, jobs, and rights, and has already worked well in Europe and Japan.

All sobering food for thought.

About John Thomas

John Thomas is one of the leading and most seasoned analysts in international finance, he conducts exhaustive on the ground research supported by personal contacts accumulated during 40 years in the industry. He offers a mentoring program which includes trading instructions and macro analysis. 

It’s been a summer of open windows and dormant air conditioners in the Eastern U.S. as the mercury has failed to break 85 degrees on most days and night-time lows fall down to the mid-50s in much of New England.

And that partially explains why natural gas prices are plunging to seven-month lows. Gas-fueled power plants are operating at a low hum as electricity demand has been unusually tepid. When you consider that late July typically represents a turning point for summer temperatures, this may turn out to be a year without any major heat waves. Good news indeed for residents in the Eastern U.S. after enduring an unusually dispiriting frigid winter.

As demand for gas remains subpar, gas storage facilities are re-filling at a rapid rate, turning gas back into a buyer’s market. That’s a quick change from six months ago when gas was being consumed at a faster-than-normal rate. And the resulting price collapse has left many to wonder: Will gas prices keep plunging, or have they hit bottom?

The answer to that question: Gas prices are likely to keep falling.

Tepid demand is likely to lead to more increases in the amount of gas in storage, and with each weekly update from the Energy Information Administration (EIA), gas prices will likely move down another leg. A commodity needs a catalyst to reverse direction, and natural gas prices have no positive l catalysts on the near-term horizon. Also, recall that gas prices were historically closer to $3 per thousand cubic feet (MCF) before last winter’s polar vortex, so there’s no reason to think that the current $4 per MCF price range represents any sort of bottom.

But the continued erosion in gas prices means that you should now be monitoring this commodity. Because when a bottom is in, there could be a solid snapback in prices. That’s because the supply side of the equation continues to be a question mark for some investors. Though exploration for oil and gas in the nation’s shale regions remains robust, geologists will tell you that such deposits are at their production peak in the first few years of drilling before a steady rate of depletion takes place. And many productive gas wells have already been gushing output for several years now. Looked at another way, the most promising shale segments have already been staked and newer areas of gas development hold lesser output potential than the first wave.

As it stands, falling gas prices are likely to deter gas producers from tapping more wells. According to Baker Hughes, the number of rigs dedicated solely to gas production in North America has fallen from 369 a year ago to a recent 311. That’s down from 1,500 in 2008 and represents the lowest figure since 1993. To be sure, today’s wells are more productive, but the laws of depletion argue against maintaining their pace of prodigious output. Thus far in the shale gas revolution, we have yet to see a sharp drop in depletion rates. But as news of depletion rates starts to trickle in, sentiment toward this issue could shift quickly.

Pivoting back to the other end of the equation, when will demand rebound for natural gas? We’ll find out as we approach the coming winter season. One of my favorite indicators is the Siberian ice pack. Last autumn, this indicator again showed an uncanny ability to predict temperature patterns in North America over the ensuing winter. If you are looking at natural gas as a commodity investment, or natural-gas related stocks, then I encourage you to repeatedly monitor this website beginning in early October.

Taken together, both the supply and demand side of the equation portend a further drop in gas prices. So avoid the temptation to start bottom fishing. As an example, several analysts gave recently sung the praises of Rice Energy (NYSE:RICE), a fast-growing gas producer. “Rice’s Marcellus well designs achieve the best reservoir drainage of the group currently,” note analysts at Cannacord Genuity, who see shares doubling to $51. But as this company’s stock price chart shows, investors are paying more attention to gas prices right now than company-specific outlooks.

Risks to Consider: If you directly invest in natural gas producers, you need to keep an eye on their balance sheets. Some of these firms are counting on firm natural gas prices to support their capital spending programs and debt burdens and falling gas prices may imperil their cash flow.

Action to Take — The outlook for a further drop in gas prices suggest you should start gathering a watch list of favorite gas names. Some of them like Rice Energy are steadily sinking. But when a floor is in, such stocks will represent solid upside potential again. And as I noted in my follow-up look at the polar vortex theme key commodity-specific exchange-traded funds (ETFs) represent better leverage to prices than the underlying gas producers.

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