This past week I covered my short positions in Yahoo (NASDAQ:YHOO) at $27.65, Dick’s Sporting Goods (NYSE:DKS) at $28.29, and HOLDRs Retail ETF (AMEX:RTH) at $93.26. I am no longer shorting any stocks. I covered these positions not because I don’t believe they could fall further, but due to my eagerness to increase my already massive exposure to gold and to start new positions in Canadian junior natural gas stocks, Quest Capital (TSX:QC, AMEX:QCC), and PICO Holdings (NASDAQ:PICO). Since my cash was fully invested I needed to free up some margin, hence the short covering.

It may seem that my buying of gold investments amounting to more than 100% of the equity in my portfolio is risking financial death (which I concede), but especially so after gold has moved up from $650 to $832, a 26% gain in less than 3 months. But as a Canadian resident I am more concerned about the Canadian dollar gold price than the US dollar gold price. In Canadian dollar terms, the gold price has increased by only 10% since mid-August. The Canadian dollar has been extraordinarily strong recently, but in my opinion is wildly over-priced against gold given that the Bank of Canada has been as proficient with the money printing presses as the Federal Reserve.

But despite the 10% rise in the Canadian dollar gold price since August, the TSX Venture Exchange listed junior explorers haven’t seen much of a rise in their share prices, although an environment of higher gold prices increases the likelihood of making a discovery. While the majors have rallied along with the gold price, the juniors have underperformed and I don’t expect this to continue. I bought some more shares of my favorite juniors and plan to continue accumulating them if they become cheaper.

I also decided to buy shares of some mining companies who would immediately and directly benefit from a rising gold price. Miners have struggled to contain costs due to lower grades being extracted, higher energy prices, rising wages, and strengthening foreign currencies. Thus, despite an increasing gold price, margins have not been expanding. But recent developments in the US credit markets lead me to believe that we will see accelerating worldwide monetary inflation which will cause gold to outperform just about anything else in the next couple of years.

I purchased shares of Agnico-Eagle Mines (TSX:AEM, NYSE:AEM) at C$50.78, Royal Gold (TSX:RGL, NASDAQ:RGLD) at C$27.89, Vista Gold (TSX:VGZ, AMEX:VGZ) at C$5.82, and Silver Standard (TSX:SSO, NASDAQ:SSRI) at C$41.80. Mining is a lousy business and these stocks aren’t cheap, but I suspect that they will be the first to benefit from a rising gold price, followed by the juniors. My investment in theses stocks represents a tiny portion of my overall portfolio, so I am hoping they correct in the short-term so that I can add to my positions at lower prices.

As a believer that we are in a secular bull market in commodities that still has another few years to run, I am constantly on the prowl for investment opportunities in the sector. At the same time, my contrarian style has discouraged me from making any investments at a time when commodity funds have recently been some of the best performers. However, I think I may have found a couple of commodities that are still cheap.

Natural gas is cheap based on historical inflation-adjusted terms and when compared to the price of oil. Also, there are strong fundamental reasons to believe that natural gas prices will double within the next few years. I will discuss these reasons in a future post. Canadian junior natural gas stocks have been pummeled in the last couple of years due to falling gas prices and a Canadian government ruling which eliminates the favorable tax treatment enjoyed by income trusts who were aggressive acquirers of junior gas companies in recent years. But the market is overlooking the fact that as Alberta oil sands production ramps up, the natural gas assets owned by the juniors will become attractive once again.

I am currently accumulating Canadian natural gas stocks, but since they are microcap penny stocks I am reluctant to mention them in this blog. One company I will reveal, due to its $1.2 billion market cap, is AltaGas Income Trust (TSX:ALA.UN) which I purchased at C$ 25.53 two weeks ago. Altagas doesn’t actually have any natural gas properties, but rather owns an expansive network of gas gathering lines and transmission pipelines in Alberta. If the desperate scramble for natural gas assets plays out as I envision, then Altagas’ infrastructure will become much more valuable.

Another commodity which I think is still cheap is water. Currently, there aren’t many avenues for water investing (which reminds me of uranium several years ago, before the uranium price skyrocked and uranium companies sprouted like weeds in a neglected lawn). There are several publicly-traded water technology and treatment companies, but the most direct way to benefit from water scarcity is to own water rights. PICO Holdings (NASDAQ:PICO) is the largest private owner of water rights in Nevada, which is probably the best place in the world to own water rights. Due to global warming, the occurrence of a catastrophic drought is a question of when, not if, and at that time the value of water will go through the roof.

In addition, I purchased Quest Capital, an asset-backed lender, at C$2.61 which I had previously owned, but sold because I was afraid of the possibility of turmoil in the credit markets which might unfairly punish the company’s shares. It turned out to be the right move and I feel more comfortable buying back the stock now that the credit crunch has become front page news. Last week, I also added to my position in Altius Minerals (TSX:ALS) at $23.61. I already own a boatload of Altius stock and it is by far my largest holding. I am confident Altius will complete its mission of building the first new refinery in North America in decades. I will post a more detailed write up on both Quest and Altius in the future.