Now as prices have been creeping back " a little each week " I sense that readers might not have the resolve to hang tough. So the report I am going to make available here " as well as my comments " will hopefully go a long way to put your concerns to rest.

This is a commodities cycle. Make no mistake about it.

Commodity prices rise when short-term interest rates rise " make no mistake about that either. In fact, short rates rise because commodity prices are rallying and that means the prices of soft assets (financial assets like money) are in decline at the time.

In order to bloom, soft assets need an increasing slope to the bond yield curve. Soft assets, in effect, need a "carry trade" so that the issuers of debt can make money by carrying the spread. They profit by borrowing at low rates, short-term, and lending at higher rates long term.

In the business, it's called "no-brainer".

Today, in fixed income markets, the spread between the U.S. Treasury 10-year and 2-year debt is negative. The yield slope is negative. That means that "soft" money loses and "hard" money (precious metals for instance) wins.

Now, the yield curve will not always be inverted, but as short term interest rates continue to rally, and the money supply grows rapidly, but the pace of economic growth cannot keep up, then hard money will always win in the tug-of-war between commodities and financial assets.

Which hard assets are to be favored? Well, today there seems to be more interest in the energy and metals than in the soft commodities like the agri complex of food stuffs. In part this is a play on the USD, rather than a typical commodities play.

The assets that myself and even more notable Wall Street luminaries like Banc of America's Tom McManus and BMO Harris's Don Coxe have been favoring are oil, oil sands, thermal coal, uranium, alternative energy, gold, silver, platinum, copper, zinc and iron ore.

I happen to respect these people because they have a track record of intellectual honesty in their careers that I hold in high regard. These are not people who dress up in clown suits " ever. As an aside, I watched the Kudlow show tonight " while treadmilling it " and saw four of those.

All of this preamble is leading up to a very long (and long to download) report that is as important for you to read as any I have made available this month. Download UBS July 27 report on Q3 commodities.

I really have to thank UBS research analyst Daniel Brebner for producing such an excellent piece of work.

I don't agree with all the conclusions Brebner makes " for instance, he recommends under-weighting bonds, which I find may better suit his thesis than match up to market conditions today. I think bonds have reached an Accumulation zone.

That means of course that the other side of the equation " high commodity prices " is also going to be less "inflated" than says Brebner. But we are talking a matter of degree. I generally accept the Brebner thesis, and I am encouraging you to do the same.

Brebner's team at UBS is forecasting an average price of $750 gold for 2007. I accept that. My range is $700 on the low side to a peak of $825. I am guessing obviously, but those numbers are well inside my comfort zone.

UBS is also forecasting an average of $15 for silver for 2007, and I think that might be a bit low. My range is more like $13 to $18, with an average of $16.

Part of the UBS thesis behind the higher commodity prices to come is " what else " China. I agree. The stories of China's economy for 2007 being squeezed by the monetary authorities to say +6 pct annual growth rate are just not believable, as I see it.

Another theme of the UBS report that I like is that governments in many countries are building nuclear power plants. The demand for uranium is relentless. You see, governments in the West can control the production of uranium, at fairly low cost, but they cannot control the supplies of oil needed to power the Western economies. Even the Canadian oil sands is getting so costly to yield oil that inflation is the limiting factor. So the uranium story continues to be a no-brainer.

In this UBS report there is a terrific chart on page 52, which shows the comparison of base metal prices to the spread between U.S. Treasury 10-year and 3-month securities. Please review it.

There is also a discussion of stagflation that warrants a second read.

And the note that zinc is likely to come under a considerable supply squeeze through 2007 ought to be a valuable insight to many of you.

Finally, the pages from p.76 through 98 ought to be printed out and re-read a few times. For those of you who trade gold and gold-backed securities and who lack the resolve I have been writing about, I recommend it.

Wall Street bankers would prefer you listen to their stories that the USD is strong, and so forth. What in effect you would be doing should you accept that story is to discount the value of this particular report.

I say this seriously; from this point on, the USD is headed for the depths that U.S. politicians have scripted by their continuous over-spending, under taxing and their constant meddling into the domestic affairs of other countries. All Americans are going to pay for that exercise in terms of higher commodity prices, and higher than otherwise necessary interest rates. Compared to several other major nations, the standard of living will drop.

Geopolitical circumstances have, admittedly, caused the U.S. Administration to go down a certain road. But there was no reason to mislead anybody about the true cost. And now the people and their children and grandchildren are going to pay for it.

In Canada, which shares with America, the longest undefended border in the world, there has been eight consecutive years of economic prosperity. That started before the commodity cycle, and perhaps because of it will likely last at least another five years into the future.

It must be disappointing to Americans to have to hope that maybe one year in the next five will produce a true budget surplus. And for that reason, I say that traders must take the "yellow brick road" instead of the path that Washington would have you take.

Please read the UBS report that I have made available here. It will serve you well.