How Investors Can Play the Dollar and Oil

A tumbling US dollar and surging oil prices are bad news for consumers. But for smart investors, there are opportunities to profit.

The mad dash from the dollar has helped fuel huge gains in commodities prices--not only for oil but precious metals like gold and platinum. Agricultural futures also have shown sharp increases on what many consider purely speculative buying.

Though there looms the almost inevitable popping of the commodities bubble, some analysts grudgingly believe that the commodities run can last a while longer.

"We've been really agnostic on gold and have only missed about $300 in the move," laments Jack Crooks, investment adviser at Weiss Research. "It really is that fear dynamic. Where else do you put money? That didn't make sense to us before but it's starting to make some sense now."

Crooks is among those who think there still is some life left in both the oil and gold trades, as long as the Fed keeps cutting rates.

The most common way for average investors to play oil is through energy companies, or by buying the iPath exchange-traded fund . Gold, though, either can be traded through futures contracts or the streetTRACKS ETF .

"If we see a spike low in the dollar you've got to think that gold will continue, and oil too," Crooks says. "It's one of those stages that people realize there's a lot of speculative froth on the commodities side of the fence, but if the dollar does spike down there's good risk-reward there."

From a currency standpoint, Crooks advises in the "World Currency Alert" and "World Currency Options" newsletters he edits to buy the yen and the Australian dollar, or aussie .

While oil majors like ExxonMobil and Chevron continue to roll up record profits, analysts are less bullish on them as sentiment grows that oil may be due for a pullback.

Instead, the preference is towards companies that are more growth oriented and especially those that are involved in the Canadian oil sands projects.

"Short-term I think it's probably a safe bet to take some profits off the table," says Brian Hicks, energy analyst and editor of a new book, "Profit From the Peak: The End of Oil and the Greatest Investment Event of the Century."

"However, the long-term outlook for oil is still extremely bullish," he adds. "I've been a longtime bull on energy and oil for five years. Demand is still outpacing supply and I don't see that ending anytime soon."

Hicks recommends Suncor as well as PetroBank, which trades on the Toronto exchange under the symbol PBG.

Also, Manny Weintraub, of Integre Advisors, said on CNBC that he likes Occidental Petroleum and also favors staying away from the bigger producers.

The sentiment, though, is far from universal when it comes to energy stocks.

AIG Sun America recently has switched its rating on energy from overweight to underweight and is instead recommending consumer staples and technology as its best plays in the current climate.

"The reason we have done that is we feel that the commodities market is way ahead of itself, largely due to the weakness in the dollar and speculation in the commodities market in general," said Steve Neimeth, senior vice president and portfolio manager at AIG. "Energy and commodities have been seen as safe havens in an environment of increasing inflation, but with the credit markets tightening and global economies slowing, it is likely that demand for commodities will wane, which we believe will prick the bubble in the commodities market."

AIG recommends consumer staples Philip Morris , Anheuser-Busch and General Mills , as well as tech stocks Intel , Microsoft and Oracle .

Michael Kresh, president of M.D. Kresh Financial Services, also favors a more cautious approach in playing the surge in commodities.

"Anybody that's jumping onto the oil bandwagon or gold bandwagon right now, they're taking on an enormous amount of risk for a limited return," Kresh says.

© 2009 CNBC.com