Airlines: A Great Gold and Silver Hedge

6/7 - "While financial stocks are a great way to hedge a portfolio of gold and silver stocks, I believe I have found another sector that can be used as a more efficient hedge...The inflationary effect of rising oil is positive for gold and silver investors, but negative for sectors like airlines where on average 1/3 of the cost of operating an airline is tied to the price of jet fuel...As speculation grows over the price of oil, airline stocks have come under pressure and have approached heavily oversold territory."

"The airline sector is very cyclical and prone to high volatility. Airlines have been so oversold, that any good news that comes out can cause the entire sector to rally. In the event that oil continues to rise we should see major positive performance from gold and silver stocks. This may be especially true going into the fall which is the traditional season high for physical gold and silver prices...With everything in favor of a falling dollar and an inflationary environment, I would be surprised not to see gold over $1000 again and silver over $20. My own price target for gold is $1100 and silver at $19 by the end of 2008.

If the opposite trend were to occur and oil prices were to drop, easing inflation, I would expect airline stocks to experience a major rally due to the oversold conditions in the entire sector...In the short-term as you build a hedge using either financial stocks or airlines, there is likely additional room to drop. In the long-term the likelihood of a rally and making money from buying into today’s prices is higher than the probability of sustained lower prices. Looking at the historical charts for C, Citigroup Inc., UBS, UBS AG, AMR and CAL confirms this. The resulting rally out of all the recessions the U.S. has faced has resulted in higher prices."