The hype about the #SilverShortSqueeze continues, but it’s uranium stocks that are going through the roof.
At one level, I can understand. I’m very bullish on uranium myself. The speculative investment thesis is simple:
- Uranium is necessary for the generation of about 20% of the electricity in the US. It’s about 80% in France (which exports to Germany, a country that pretends not to need nuclear power). It varies elsewhere, but as hated as nuclear power is by so many people, it’s currently an essential source of power to a large chunk of the world’s population.
- The World Nuclear Association reports that globally, more power plants are being built than are being decommissioned. China alone has dozens on tap.
- There are ideas for new designs, but there is no substitute for uranium in today’s power plants.
- There’s a growing realization—from climate-change street warriors to heads of state—that there’s no way the world is going to meet its carbon emission goals without nuclear power.
- Even Secretary of State John Kerry has turned pro-nuclear, saying: “Given this challenge we face today, and given the progress of fourth generation nuclear: go for it. No other alternative, zero emissions.”
- At around $29 per pound, uranium prices remain well below that average cost of production, which is estimated at $40/lb.
- The “incentive” price used in uranium mine feasibility studies ranges largely from around $60–$70 per pound.
- Absent a major nuclear accident, higher uranium prices are a “when” and not an “if” question—and I don’t think that “when” is far off in the future.
Despite this compelling case, uranium prices have been retreating since last summer. The five-year trend remains upward, but the current downturn in the face of growing demand is striking.
What’s even more striking is that many uranium stocks have been soaring even as the metal itself has been retreating. Strange as it may seem, uranium miners, as represented by the Global X Uranium ETF (URA), have taken on an almost inverse relationship with uranium prices since the beginning of 2018. Perhaps not coincidentally, that’s when the Section 232 Saga began.
Point 1 on this chart is January 2018, when two US uranium producers filed their now-famous Section 232 petition, asking the US government to require US utilities to buy at certain minimum amount of uranium from US sources. At first, this didn’t have much impact and share prices continued falling, even when uranium prices had a significant breakout that year.
Point 2 on the chart is when President Trump ignored the US Department of Commerce’s support for the petition and shot it down. It’s no surprise that uranium miners’ share prices dropped, but it is interesting that uranium was rising at that time.
Point 3 is when it became clear that a “blue wave” was heading for Washington, DC. It’s hard for me to call this anything but manic.
I understand that candidate Biden had come out in favor of “advanced nuclear” power. I understand that establishment of a US uranium reserve was included in the fiscal “stimulus” bill signed into law by Trump before he left office. And I know that uranium prices did blip up a bit last month.
But uranium prices have been falling hard since last summer—they’re down sharply this month—and uranium stocks keep rising. Just yesterday, many uranium stocks leapt again, even though the broker price index for uranium dropped another $0.15 to $28.73.
Could the “smart money” know something I don’t? maybe uranium stocks are rising while prices for the metal itself continue losing altitude for some good reason I’m unaware of?
Well, if so, it’s a reason even the most well-informed uranium bulls I know are unaware of. They’re all cheering the rally on, of course. Many point to the same, positive fundamentals I do. But those fundamentals have been positive for years. There’s no reason I can see for the fundamentals to drive uranium stocks nuts while uranium prices are falling.
But I am bullish on uranium, so… what to do?
- Those who own uranium stocks already should prepare for a sudden reversal if uranium prices don’t start rallying soon. I already own several of what I consider to be the best uranium stocks on the market today, so this is what I’m doing. One of my biggest winners in The Independent Speculator portfolio right now is a uranium stock. I don’t want that win to slip through my claws if share prices correct sharply, so I’ve put an Upside Maximizer on the position. If this happens, I’d love to take my profits and rotate them into some great uranium stocks that got away from me before. What if there’s no reversal? Super! We enjoy the ride without having sold too soon.
- If I was new to uranium, I’d ignore the FOMO. I’d hold out for lower share prices or wait for uranium to turn upward before buying. Yes, I might have to pay more if uranium breaks out again without any correction in company share prices first. But if that happens, those stocks will have a clear path to much higher prices, with much less risk of reversal. In my view, it’d be worth paying more to have that greater clarity. If I didn’t think I could resist the FOMO, I’d only buy a stock I could honestly be happy buying more of for 50% less in the weeks ahead.
In short, I’m not telling anyone to stay away from uranium. I’m just saying that the stocks can’t be called a “buy low, sell high” opportunity at this time. That argues for patience among buyers.
I do look forward to buying more uranium stocks when the conditions are right.
Oddly enough, the spot price of a pound of uranium is pretty close to that of an ounce of silver at the moment.
I could see both prices spiking to $100 over the next two years—sending related stocks even higher on a percentage-gained basis.
So which do I like better?
- On one paw, silver is relatively scarce and there seem to be new industrial uses for it every week. In contrast, uranium isn’t scarce at all. As with OPEC, the world’s biggest uranium miners have scaled back production in response to a supply glut—and that output can be restored relatively quickly.
- On the other paw, silver can be mined profitably at lower prices than we have today. Most of it is mined as a byproduct. So, for instance, higher copper prices could create an oversupply in the silver market. In contrast, even the lowest-cost uranium producer in the world, Kazatomprom, has cut production back and is buying uranium on the spot market rather than depleting mines at low prices.
- On the third paw, silver stocks can’t be cut off at the knees overnight by a nuclear accident.
- On the fourth paw—while I do not think it’s so—it’s possible we gold and silver bugs are wrong and monetary metals peaked for this cycle last summer.
In short, there’s risk in speculating in stocks in either space, but the potential to make a lot of money in both.
Honestly, I like both. I own shares in what I think are some of the best companies on both spaces.
But—for the present—I’d rather put more money into silver stocks than uranium stocks.
Remember this chart from last week?
Unlike uranium stocks, silver stocks are still relatively cheap compared to the metal itself.
So that’s where I’m looking to deploy cash now.
That’s my take,
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