The recent pulldown in commodity prices has not convinced me to reduce allocation in gold/energy. Investors bought into the “demand destruction” theory while the US Dollar went up in response to problems in the European Union.  In herd-like fashion, hedge funds and institutions exited in tandem, triggering stop loss orders and heralding the “end of the commodities boom”.

I will say, that the technicals for gold look horrible, but given that the fundamentals are still intact (inflation, credit crisis, energy price pressures), I am still bullish.

1) Precious metals and other commodities will rise in value in response to inflation. (Gold, silver, platinum, base metals). The expectation of Wall Street is that the headline 5.0% inflation is going to relax due to falling oil prices, and lessening demand. Along with the previous mentioned gold miners in The Case for Gold: Part 2, the following growth-oriented companies are now selling at the same price when gold was $650 an ounce: Goldcorp (GG), Agnico Eagle (AEM), Yamana Gold (AUY).

2) The Euro will continue its slide in value due to widening bond yields between EU countries (Italy, Spain). Morgan Stanley offers a vehicle to double short the Euro (DRR).

3) Keep an eye on the bond market. If headline inflation is running at 5% while 30 year bonds are yielding 4.5%, no one in their right mind is going to lock up their money to lose 0.5% of purchasing power. There are even comments by PIMCO, stating that their allocation is going away from bonds and into securities because they realize this discrepancy.  Powershares allows you to short the 30 year Treasury Bond (TBT).

4) International Infrastructure plays are an excellent long-term investment strategy. Countries like China will need to invest massive amounts of capital in order to accommodate population shifts from rural to urban areas. Roads, schools, and hospitals all need to be constructed to provide the basic services for a city.  As a side note, even the United States needs to put money into their aging bridges and transportation system that are in dire need of upgrades.  Macquerie has a global infrastructure fund (MGU) that sports a 7% dividend.