We're officially in crazy town, and as expected, now we are seeing sentiment change.

I've already shot all of my currently available capital on this precious metal investment, and of course, it's fallen even lower from my initial buy price.

In an age of extreme uncertainty on the stock market, low-volatility ETFs are becoming increasingly popular.

I've done some research on platinum and found that - as with silver - much of the world's mined platinum gets consumed by industry.

What should long-term investors do during a period like this where trading ranges, not an extended trend, dominates? I suggest using inverse and leveraged ETFs.

It's always tough to buy stocks when you should - just like it takes guts to be the first person to jump into the ocean after a shark attack, even in places where those are rare events.

I'm not saying all precious metals ETFs are baloney, I'm just telling you that I have a strong preference to keep my gold and silver close and secure.

As the Chief Investment Strategist for an investment research firm, I'm frequently asked two questions about gold. 1 - Can gold really keep going up in price? And 2 - What's the best way to invest in gold today?

Don't let Wall Street tell you that you're too stupid.

Professional options traders are a different breed. We take a statistical, mathematical, rational approach to the marketplace. We add another layer of probability and risk control that could not be possible with stocks alone.

Something very unusual is happening this month - and it could mean that we'll be in for some extreme market volatility over the next few weeks.

Just over a year ago in mid-August of 2010 I helped my boss Ian Wyatt put together a research report for a small group of subscribers to our commodity letter: the Global Commodity Investor.

On Monday I proposed an income-based options trade using the Russell 2000 proxy ETF (IWM).

With IWM trading at $70.86 I placed the following credit spread:

• Sell to open IWM Sep11 78 call
• Buy to open IWM Sep11 80 call for a total net credit of $0.24

To briefly recap: a credit spread is when you perform two or more options transactions simultaneously and collect up front income - or a credit - for your account.

A debit spread would be the opposite: two or more options transactions that you pay up front - or debit - your account...

As a great options trader once told me - professional options traders are a different breed. We take a statistical, mathematical, rational approach to the marketplace. We add another layer of probability and risk management that is not possible with stocks alone.

We make investments on things like volatility and don't always care which way a stock or ETF moves. Everything we do is at least partially hedged, which reduces the need for Maalox, Prozac and heavy drinking, which many of my stock-trading buddies rely on almost daily.

The best performing "World ETF" over the past 52-weeks is the iShares MSCI South Korea Index (NYSE: EWY). The return? An impressive 36.7 percent.

However, year-to-date it has been the lesser known IQ South Korea Small Cap ETF (Nasdaq: SKOR) that has outperformed. The return - 23.2 percent.

Another day, and still no agreement on a 2011 budget in Congress. Surprisingly though, the stock market is not really being affected by the impasse. Sure, the major indices are down slightly again today, but I think we can all imagine that it could be much worse.

Treasury bond prices have been choppy, with big $3 price swings on the chart of the iShares Barclays 20+ Year Treasury Bond ETF (TLT) in July. But overall, bonds are holding up well, and this tells us clearly that no one expects the U.S. government to default on its bond payments.

I'm forcing myself to turn away from the obvious debt ceiling story that's playing out right now.

For the record, I don't believe that the debt ceiling will have any long term effects that won't be completely superseded by the fact that our debts are already much too high. We'll default sooner or later. The debt ceiling is an imaginary line that will be crossed regardless of how politicians vote. Interest rates will rise. Social Security will go unfunded.

All of these things will happen - not because our leaders failed to act to raise taxes or to cut spending - but because our debts are so incredibly large and our leaders so clueless that they can't even conceive of how to solve the problem.

On Thursday I discussed one of my favorite options strategies for making consistent income. Today, Ian and I have put together Part II of this series.

My favorite options strategy is a vertical bull and bear credit spread. Essentially, this strategy lets you make money even if a security goes nowhere - in fact, you make money BECAUSE the security stays within an upper and lower price. Most securities tend to stay in a price channel over short term periods, so using this strategy lets you make a low-risk bet that nothing extremely bad or good will happen to the underlying investment in the short term.

It is also one used heavily by most options professionals.

If you've been following the gold markets, you know that something strange has happened over the past year or so.

In short, gold prices rose from about $1,200 an ounce this time last year, to a new record high price of $1,579 as I type.

That's a 31.6% gain.

To wrap up this week, I decided to respond to some reader mail…

Cato asked: For a while I have been loading up on Bakken companies like BEXP. I was surprised about 6 - 8 weeks ago when oil price went up and BEXP went down. How can it be? I think a lot of your readers are puzzled so perhaps you could explain it in your newsletter?

Let me start by saying I am bullish on Bakken oil companies. Especially the small ones that are still ramping up their production.

The most important thing to remember about oil stocks, and oil in general, is that they are seasonal. Institutional investors buy them at certain times of the year, and sell them at others, regardless of what's going on with oil prices.

The Russell 2000 proxy ETF (NYSE: IWM) has pushed 6.8 percent lower since its closing high back on April 29th. And according to InsiderScore, the world’s leading insider trading, institutional ownership and stock buyback research and analytics firm, corporate insiders have been consistently selling shares since the correction began.

However, as the correction progresses, corporate insiders, particularly insiders of small cap stocks are buying more of their own stock. This is not out of the ordinary to see an increase in buying during a market correction, but not to this degree.

InsiderScore calculates a sentiment level for insiders of small cap stocks and as it stands “the score” has just pushed into bullish territory.

I’m always looking for unique ways to invest in gold, and legendary investor Dennis Gartman recently discussed a way to build a gold position in other currencies…

What do I mean by other currencies? Well, as Mr. Gartman says, “If you buy gold, by definition you have gone short of the U.S. dollar.”

Now, I’m as bearish on the dollar as anyone over the long term, but just like no bull market goes up in a straight line, no bear market drops straight through the floor.

And right now, the dollar is absolutely in the gutter – even relative to other at-least-as-crappy currencies like the Euro or the Yen.

Here’s a one year chart of the dollar index – which plots the exchange rate of the dollar against a basket of other (fiat) currencies.

Practically no one is talking about it, but one of the most commonly used commodities nearly doubled in price between the middle of May 2010 to the middle of May this year.

Of course, Ben Bernanke will tell you that such price swings don’t necessarily hit the consumer – which would then trigger a boost in consumer price inflation.

But my wife pointed out that prices for this commodity are starting to now rise for the consumer.

Still groggy from a lack of sleep and not enough coffee, I hadn’t noticed an obvious sign that prices for this commodity are now hitting home.

Literally…

One of my favorite ways for regular investors to invest in the agriculture commodity boom is to buy the Market Vectors Agriculture ETF (NYSE: MOO).

This fund is liquid, meaning that anyone can easily buy shares at or near the prevailing ask price. With average volume of nearly 2 million units traded daily, you won’t ever have a problem buying or selling a large block of shares. This type of liquidity can be a problem for some stocks and ETFs. More on liquidity issues in a minute…

On August 6, 2010, I recommended this ETF to readers of Global Commodity Investing, a research service I help write and edit.

Since then it’s returned a respectable 26%, which is about twice as good as the return you would have received from just buying a broad market index fund like the SPDR S&P 500 ETF (NYSE: SPY).

There are long stretches of time when stocks outperform commodities, and conversely, long stretches when commodities outperform stocks.

There’s also a tendency for world governments to spend beyond their means.

Right now, these two trends are occurring all at once. Commodities have outperformed stocks for at least a decade. World governments are actively devaluing their currencies as fast as they can.

Being a commodity investor today means that you have the wind at your back. Demand for real assets will not diminish, and at the same time, supplies of nearly ever commodity are dwindling. Central banks exacerbate the problem by throwing ever-greater amounts of money at these problems. It’s slowly but surely becoming a perfect storm.

And the only lifeboat that shows any signs of surviving is the 'SS' Commodity.

The point is that it’s tough to get excited about buying stocks on a fundamental basis when they’re much more expensive than they were a year or two ago. With unemployment near multi-decade highs, the price of nearly every commodity on the rise, and a concerted effort to devalue the dollar, the American consumer is getting pinched on all sides. It’s only a matter of if, not when, stocks will correct.

We know that when the broad market falls, many other un-related sectors get creamed as well. Junior gold mining stocks, for instance, typically fall dramatically when the broad market dips.

That’s because many investors pull their riskiest capital out the market soonest. They’ll let the money ride on blue chips, but not on risky micro-cap resource companies.

If Exxon Mobil (NYSE: XOM) catches a cold, you can bet that tiny oil exploration companies will get pneumonia and some will die.

But government can’t abide higher prices on food. So President Obama will institute price controls. If you think that we couldn’t possibly have food riots here in the United States, then you probably also believe that we couldn’t possibly have price controls in the United States.

But you’d be wrong on the second count, at least.

In 1971, President Nixon enacted wage and price controls - and the biggest reason he gave for these price controls was rising food prices. He also capped oil prices.

You might remember oil shortages during this time - that was a direct result of Nixon’s price controls.

A story by Robert Lenzner in Forbes Magazine today outlined the potential for silver to go as high as $50 an ounce in the near future.

With silver on the march from year to date lows of just over $15 an ounce all the way up to recent highs of over $30 an ounce, it's been one of the best performing asset classes of the past year - and even the past decade.

It’s not enough to pick the right investment class- you also have to pick the right investment. And money that’s paid unnecessarily in expenses might as well be flushed down the toilet.

So I thought I’d do some digging and find the cheapest gold ETFs in the market.

And I was pretty surprised at what I found.

Before I get started, I want to remind you that I’m not a huge fan of owning gold in an ETF. I prefer either the safety of physical gold, OR the upside of owning gold stocks. The ETFs I talk about today are strictly physical gold proxies. I understand that taking delivery of physical gold is not convenient or attractive for everybody.

And I recognize that for some investors, these types of ETFs make sense.

After my last article about my predictions for the price of silver I’ve received dozens of emails asking about buying precious metals in a variety of tax-sheltered accounts.

Most questions were about IRAs.

And while I AM NOT a tax accountant, or even a regular accountant, or even especially well versed in the labyrinthine intricacies of tax-law, I did some research, and I think I have a helpful answer.

But you might not like what you have to hear.

First - I advise you to speak to a tax attorney before making any big decisions regarding your IRA.

The first thing you need to know about adding gold or silver to your IRA is that not all IRA custodians are set up to do so.

At $1,390 an ounce, gold prices are at an all time. Silver is at a 30-year high. Agricultural commodities like fertilizer are also moving toward new highs.

Economists are warning that these commodities could continue to move higher in price for several months. And the stocks of companies selling these commodities have been surging in the past few trading sessions.

According to a recent report by the United Nations Food and Agriculture Organization, the world will require a 70% increase in food production in the coming years.

In order to grow food production fast enough to match population growth, agriculture markets will require an average of $209 billion in additional investment.

In difficult economic environments, when the stock market seems to move with little rhyme or reason, investors will sometimes say "it's a stock pickers market."

The idea of a "stock picker's market" is that of a trendless market, but one where you can still buy quality, undervalued stocks and make money.

But according to the Wall Street Journal, that's not what we have right now. And investors who are relying simply on a company's fundamentals to invest are not being rewarded with profits.

For some industries - like shipping - oil prices are one of the biggest cost inputs. Other industries, like...oh say, online publishing, are somewhat less dependent on oil.

But every sector of the economy does have an oil cost input.

That's why I'm extremely worried about oil prices, and where we all know they're going.

For a small taste of what's in store, Charles Maxwell, senior energy analyst for Weeden & Co. - a man with 50 years experience in the field - recently predicted that we'll see $150/barrel oil within the next five years, and $300 oil by 2020.

I'm a bit less optimistic - because I think we could easily break the $150 barrier in the next 18 months. It was only 24 months ago that we saw similar prices - so it's not out of the question.

For the past two years, silver has traded at a discount to gold. Typically, gold sells for 55 times the price of silver, but since August of 2008, the ratio has tilted heavily in the favor of gold. The chart below shows this ratio which is calculated by simply dividing the spot price of gold by the spot price of silver.

I've written about this ratio frequently, and I've pointed out that it is "mean-reverting" which is just a fancy way of saying that it eventually returns to the average. It's returned back to the average hundreds of times in the past 120 years - and it's one of the most reliable mean reverting ratios out there. It's the Old Faithful of the investment world.

Okay, it's not news that Jim Rogers likes agriculture. He's taken every opportunity to tell anyone who will listen that he likes farmland, corn, wheat, rice - and just about every other agriculture commodity.

But unless you have a margin account on a commodity futures exchange, you probably can't follow his advice to a T.

In other words, if Jim shows up on CNBC and says he likes rice (as he did on August 28^th - you can watch the video by clicking here) it's frustrating to sit on the sidelines if you don't have a futures account.

And I'm not recommending that you should open a futures account and simply follow Mr. Roger's advice every time he's on TV. Even if you have a futures account, you know that it's almost a full-time job keeping track of the complicated options and futures contract strategies that would be considered entry-level for most traders.

But I do think your portfolio should have some exposure to agriculture, for reasons so simple that a kindergartner can understand them:

The biggest reason is population growth. According to a 2004 study from the United Nations, "World population is projected to grow from 6.1 billion in 2000 to 8.9 billion in 2050, increasing therefore by 47 per cent."

I firmly believe that Ben Bernanke and I share a common viewpoint. We both have no idea what he's going to do four months from now.

There's simply too much uncertainty. We don't know what's going to happen with the multitude of economic indicators and whether they'll spell success or failure for his policies.

So let's back up and look elsewhere for certainties. I think I've found some bullish news for commodity investments.

Why?

As of this writing, there seems to be little chance that President Obama and his colleagues in the Senate and Congress will extend the Bush Administration's tax cuts.

Personally I think taxes as well as government, both state and Federal, should be cut to the bone.

I've been receiving a steady barrage of questions from readers wanting to know about buying gold and silver.

While I've been answering many of these questions in a piecemeal fashion throughout issues of the Resource Prospector, I thought I'd once and for all cobble the information together in one place.

Like anything, if you're just getting started in buying gold and silver it can be a somewhat daunting process.

That's because there are about as many different precious metal vendors as there are types of coins, and it can be a bit of a minefield if you don't know EXACTLY what you're looking for, how much you should be paying, and perhaps most importantly, why you're buying precious metals in the first place.

I recently received a question from reader David W. which seems to encapsulate just about every possible angle of this topic:

On paper, I love socialism, the United Nations and ETFs. On paper, socialism is paradise where we all take equal advantage of each other and enjoy the fruits of the world's labor for free! The UN is the friendly world-policeman making sure that no one shoplifts or performs acts of mass-genocide, and ETFs are easy, convenient baskets of investments that every day investors can choose from to match their needs.

But in practice, all three are about as bad as it gets. Socialism is responsible for more death and destruction than any other form of government. The UN is an ineffectual collection of world improvers who can't manage to do the simplest of things right. And ETFs are baskets of investments typically launched at the peak of their popularity, which as we know, is the worst time to buy any investment.

So whenever I see a new commodity ETF coming over the horizon, my first instinct is to short it, if not completely ignore it.

Of course there are exceptions, and for the morbidly curious, I'm putting together a report about the ONLY three commodity ETFs that I like. It will be available sometime in the next week or so. Watch your inboxes.

In the meantime, let's look at one group of ETFs launched by one firm - most of these are based on commodities.

Below, I've posted a table of ETFs launched by Global X Funds.

I'm going to write today's issue under the rash assumption that we're already experiencing a double dip recession. I think such a recession has important implications for gold and gold investments, for the simple fact that severe downward trends in the broad market usually have deleterious effects on every asset class - at least for the short term.

If it happens again, we'll get another great opportunity to load up on gold stocks as they get temporarily dragged to hell by the broad market.

So, before I tell you what to look for, here's my brief reasoning for why I think we're in a double-dip recession.

Q2 of 2010 is in the books, and the broad market is down nearly 12% over that 3 month period. I'm using the S&P 500 as a proxy for GDP. Typically, stocks in the S&P 500 are a leading indicator for GDP, so it's not a perfect system, but it's good enough for today's discussion.

I know - the usual definition of a recession is: "a decline in GDP for two consecutive quarters" - but if you look at a chart of the S&P 500 over the past two quarters, that definition is small consolation:

If you were wise enough to buy stocks during the lows of 2009, you're probably feeling pretty good about your decision. Even if you just bought the S&P 500 SPDR (NYSE: SPY), which precisely tracks the total return of the S&P 500 index, you're up over 20% over the past year. That's huge.

Ask any mutual fund manager if they can replicate 20% annual gains in their fund and they might have you forcibly removed from their office. And we've all been told by the folks in the mainstream media that you can expect between 5% and 9% average gains just by being a diligent long-term buy and hold investor.

It's a nice sentiment - but it also assumes that stocks always go up over a long period of time, and that's just not a certainty. Putting all of your eggs into one asset class - even one with a good track record - is not an advisable move.

I'm going to recycle a chart I've shown several times now - for the simple reason that it details the exact reasons why you should not throw all of your net worth in one asset class. This chart is courtesy of Barry Bannister, Strategist for Stifel Nicolaus & Co.

I’ve been teasing a full write up on why I think the United States Natural Gas ETF (NYSE: UNG) may have been designed to lose money. If you’ve had the misfortune of owning this ETF, you are keenly aware of this tendency. In the past 9 months, the price of natural gas climbed off the floor of $2.75 per thousand cubic feet up to nearly $4.25 today. That’s a 55% gain. In that same time period, UNG lost 27%.

As a reminder, UNG is NOT a double inverse ETF, but you wouldn’t know it from looking at those results. That brings me to crux of why this ETF does not perform the way you might expect it to, and how you can avoid making investments in similar ETFs that are more tar-pit than gold-mine. After all, the first rule of investing is “Don’t lose money.”

Investors typically think of ETFs as baskets of equities, with performance naturally reflect the rise or fall of the value of those stocks. The United States Natural Gas Fund (UNG) ETF is structured a bit differently than other ETFs available to the public. According to the United States Natural Gas fund website:

It’s been really hot in Vermont this week. It scratched into the 90s yesterday, and it looks like it’ll do it again today. I usually try to get outside for some exercise, either some bike riding, tennis or golf, but at this point I’m just not acclimated to summer weather.

You might remember just a couple weeks ago when I talked about the snow we were getting. There’s a saying in Vermont that goes something like, “if you don’t like the weather, wait 10 minutes.”

So yesterday I took it easy and just decided to shoot some empty beer cans with my Ruger .357 magnum single action revolver. While not as strenuous as a few sets of tennis or a 10 mile bike ride, throwing some lead down range is at least as therapeutic, even if I only managed to hit two of the four cans with a full box of ammo at 50 yards.

In the meantime, some of you sent in some great commentary about silver stocks for me to peruse. And, not surprisingly, many of you hit the nail on the head.

I received some great emails from readers yesterday – notably a message from Mark I. who suggested buying puts as a way to profit from the tendency for the United States Natural Gas Fund (NYSE: UNG) to do nothing but lose money.

(For those readers unfamiliar with options, a put is a type of option that, to put it simply, goes up in value as the underlying asset decreases in value.)

It’s hard to argue with a strategy that could have yielded greater than 100% percent gains, month after month for the past year. I’m not exaggerating either. Options prices can surge by multiples as they approach the strike price.

Take a look at this table showing put prices for July expiration on UNG.

If you’ve been a reader for very long, you might have noticed that I’m not a huge fan of the exchange traded fund Spidershares Gold Trust (NYSE: GLD). Each share of this ETF corresponds to 1/10 of an ounce of gold, kept in the fund’s vault in London.

I should point out up front: I’m both long-term and short-term bullish on gold prices. I think as long as governments around the world treat their currencies like their own private piggy banks to inflate at will, gold will remain a good place to put your money.

So why don’t I like GLD? I’ve glossed over these reasons before, but I think you deserve the benefit of some research and facts before you put my theories into practice in your own portfolio.

But first, all of my reasoning assumes that you are bullish on gold. If you’re not bullish on gold, please PLEASE drop me an email at editorial@resourceprospector.com and tell me why.