Gold (AUY) and Oil (SU)

Over the weekend I wrote that Suncor Energy (NYSE:SU) was looking good, that stock is up 15% since Monday.  The Masters and Flav have been pimping gold since it dove under $800. Yamana (NYSE:AUY) is up 11% over the last 5 days, Oil and Gold people, the end.

Case and point, it pays to read our lame news.

The U.S. dollar is falling, time to exit the UUP, and back into Gold and Oil for at least a few days.  But oil is back for sure, it always has been.

Oil rose above $116 a barrel on Thursday, a third straight day of gains, on supply concerns after Russia expressed its displeasure over a U.S.-Poland missile shield pact.

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Que the Canadian talking heads for Yamana: http://www.financialpost.com/story.html?id=737724

Yamana Gold Inc. (YRI/TSX) is one of many gold names that has fallen out of favour with the plunge in gold prices lately, hitting lows that were last seen last fall, when gold was trading at roughly US$725 per ounce.

But analysts say that Yamana, along with other gold stocks, should benefit as the weak summer period for gold demand comes to a close and gold prices regain upward momentum for the rest of 2008.

The "summer doldrums for gold and gold equities may be over," said RBC Capital Markets analyst Michael Curran, adding that many names offer attractive entry points ahead of a rally in the fall or later in 2008.

After climbing close to the US$1000 mark in early July, bullion has experienced some seasonal weakness, recently dipping below the US$800 mark.

However, Credit Suisse analyst Anita Soni said in a research note she sees the global and U. S. economic picture supporting higher gold prices, along with healthy investment demand. As well, prices will be driven higher thanks to climbing demand for jewellery ahead of India's wedding and festival season, which starts in late August.

Whether or not the recent sell-off in gold equities proves to be a low for the summer, analysts are seeing opportunity in gold stocks, and are putting Yamana on the top of their lists.

Ms. Soni said Yamana is making the move from growth-by-acquisition to organic growth, positioning itself to become the next Tier I gold producer in 2009. It offers investors the lowest costs among near-senior gold producers. And the company's interest in selling assets that do not meet the cost standards of its core assets may make it even more attractive.

She rates the shares as "outperform" with a $18.50 price target, which represents upside of roughly 66%.

Yamana's recent share price weakness has also led Mr. Curran at RBC to upgrade Yamana stock, saying it is undervalued.

He moved his recommendation to "outperform" from "sector perform" with a US$17 price target based on his positive outlook for gold.

He noted that Yamana trades at a slight premium to its Tier II gold-producing peers, but said this is warranted given its above-average growth, lower cost gold production and copper exposure.

"Yamana has quickly seen its brand recognition rise over the past two years as a new Tier II gold producer."

Mr. Curran also pointed out the company's strong growth plans and the fact that it is one of the most liquid gold equities has made the stock more highly levered to bullion prices than other large cap producers. This "beta-to-bullion" leverage showed up in the last rally for gold, from a summer low of US$655 per ounce in 2007 to the March 2008 high of US$1,030.

He also upgraded Goldcorp Inc. (G/TSX) to "top pick" with a US$47 price target. He said it too has higher-than-average leverage to the price of gold, climbing 57% as bullion rose 28% during the same period. The stock closed yesterday at $34.35, down significantly from its July high of $52.48, but still higher than the $22.53 low it was at in August, 2007.

Mr. Curran said the Penasquito gold, silver, lead and zinc mine in Mexico -- Goldcorp's next core asset -- will drive earnings and cash flow growth. He expects the stock will outperform many of its Tier I gold producing peers.

Oil and Gold Masters, plain and simple, the recipe for success, at least until Friday.

Discliamer: Author is long AUY.