Is it time to jump into resources shares?

With commodities prices recovering, oil prices rising nearer to US$40 a barrel and iron ore at US$55 a tonne, Australia’s ASX-listed resources companies have gone for a decent run over the past month.

Diversified miner South32 Ltd (ASX: S32) is up 49% to $1.60 in the past month.

Companies servicing both the resources and energy sectors have also seen strong gains in their share prices with Worleyparsons Limited (ASX: WOR) up nearly 70% in the past month alone to trade at $5.35.

Junior oil and gas producers have also posted strong gains, including AWE Limited (ASX: AWE) up 63% to 64.7 cents and Beach Energy Ltd (ASX: BPT) up 60% to 71.2 cents. Former market darling Liquefied Natural Gas Ltd (ASX: LNG) is up 24%.

Larger companies like Santos Ltd (ASX: STO), Iluka Resources Limited (ASX: ILU), BHP Billiton Limited (ASX: BHP) and Western Areas Limited (ASX: WSA) have also posted double-digit gains in their share prices.

By comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up just under 6% over the past 30 days.

Yesterday we wrote that the International Energy Agency (IEA) said it was seeing signs that oil prices had bottomed, but the IEA is not the first to call a bottom for the oil price, with all previous callers obviously getting their forecast wrong. However, the IEA did say risks still lay to the downside, as demand has yet to catch up to falling supply.

We also note that several participants in the iron ore market, including China’s Iron and Steel Association, BHP and Rio Tinto Limited (ASX: RIO), along with a number of analysts and fund managers forecasting that the current iron ore price can’t be maintained. I believe they may be right in this instance, with iron ore falling for five consecutive trading days now, following the massive 18% overnight surge last Monday.

Foolish takeaway

The rise in commodity prices could prove to be a false dawn – in which case the gains by many of the companies mentioned above could turn out to be temporary. As I’m not a short-term trader, I’ll continue to focus on high quality industrial companies that don’t have to rely as much on external factors for their growth.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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