Uranium to US$100?
A flood in uranium producer Cameco’s Cigar Lake mine has driven uranium prices back up, closing around $56. This proves that though some resources may be technically abundant, getting them out of the earth in a cost-effective manner that meets with demand for them is a very real physical challenge. In theory, resources should get cheaper over time as extraction methods improve and substitutes are found. In fact, supply and demand are rarely in equilibrium, creating the booms and busts that characterize commodity cycles.
“With commodities” our friend Rick Rule is fond of saying, “you’re either a victim or a contrarian.” Rick was explaining the essential psychology/rationality behind resource investing. You have to buy things when no one wants them (when they’re hated) and sell them when everyone wants them (when they are loved).
our friend Rick Rule is fond of saying, “.” Rick was explaining the essential psychology/rationality behind resource investing. You have to buy things when no one wants them (when they’re hated) and sell them when everyone wants them (when they are loved).That puts today’s resource investors in a tough spot. Do you buy zinc stocks when zinc is making new highs? Copper stocks? Gold stocks? Oil stocks? Uranium stocks? Isn’t your risk that you buy the popular stuff because its popular and buy at that top? It’s not a very contrarian strategy. Which means you run the risk of becoming a victim.
We think Rick is almost always right. And we think the commodity super-cycle is not just beginning. But we don’t think it’s over either. There is geopolitical risk. There is growing demand. And there are constraints in supply. Like gold, for instance. It cannot be managed like the money supply. It is simply money in the ground, nature’s currency, which, if it could, would probably laugh at the attempts of government to imitate it. Gold, being chemically inert, just sits there. And as inflation rises, the dollar price of gold will go with it.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). Dan draws on his network of global contacts from his base in Melbourne. He’s the managing editor of resource newsletter Diggers and Drillers and the editor of The Daily Reckoning Australia.