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March 28, 2019 | Uranium Correction: Problem or Opportunity?

Lobo Tiggre, aka Louis James, is the founder and CEO of Louis James LLC, and the principal analyst and editor of the Independent Speculator. He researched and recommended speculative opportunities in Casey Research publications from 2004 to 2018, writing under the name “Louis James.” While with Casey Research, he learned the ins and outs of resource speculation from the legendary speculator Doug Casey. Although frequently mistaken for one, Mr. Tiggre is not a professional geologist. However, his long tutelage under world-class geologists, writers, and investors resulted in an exceptional track record. The average of the yearly gains published for the flagship Casey publication, the International Speculator, was 18.5% per year during Tiggre’s time with the publication. A fully transparent, documented, and verifiable track record is a central feature of IndependentSpeculator.com services going forward. Another key feature is that Mr. Tiggre will put his own money into the speculations he writes about, so his readers will always know he has “skin in the game” with them

Uranium prices dropped sharply this week, putting in a new low for the year. As you can see in the chart below, this isn’t any kind of new low, and the overall trend since early 2017 remains upward.

 

 

Now, I’m not a technical analyst, but if I were, the series of higher lows would be an important thing to watch. I might draw a line under the recent lows, and say that as long as uranium prices don’t drop below around $22 per pound, the upward trend remains intact. By this measure, I wouldn’t be worried about uranium prices—yet.

 

 

My problem with this view is that uranium is a small, highly volatile market by nature. Imagine that a Japanese utility in urgent need of some cash—despite plans to restart more nuclear reactors in the future—decided to dump a large amount of refined uranium on the market. That could push prices below the previous low near $20 without changing the market. It would be a one-off event, not a change in the supply fundamentals.

Further, uranium is not like gold and silver. Its quoted price is not set by high-frequency trades of futures contracts. It’s set by actual contracts between suppliers and buyers. And because the cost of fuel is a tiny part of the cost of operating a nuclear power plant, those buyers are largely price-insensitive. That means they buy as needed, not as triggered by any technical analysis becoming a self-fulfilling prophecy. In other words, uranium breaking below “support” or above “resistance” makes no difference to the buyers, and hence to what happens next.

The reality is that a single player making a big move contrary to others could send a very unrealistic price signal to the market. This could be exactly what’s happening this week.

On the other hand, the reality is also evident that the world is not actually suffering a shortage of uranium. Prices have improved due to voluntary production cuts—and those can be reversed. That would take time, so I’m not worried about uranium prices over the next year, but unless we see permanent supply destruction, I would be wary of betting on higher uranium prices after 2020.

Fortunately, that leaves us plenty of time to profit from higher uranium prices in the near term. A tailwind from a positive Section 232 outcome in the US could give uranium a big boost, but I think uranium will trend higher this year even without that. No market goes up in a straight line, of course, but the corrections don’t change the market fundamentals and should not be treated with greater alarm than they deserve.

Personally, I see the current dip as a buying opportunity, and I’ve alerted subscribers to The Independent Speculator as to exactly what I’m hoping to buy in the weeks ahead, and at what price.

Uranium speculators are welcome to go it alone, of course, but now you have my take. If I turn out to be right about where this market is going this year, I hope you’ll remember what I said.

Caveat emptor,

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March 28th, 2019

Posted In: Louis James

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