The Longest Bear Market Turns into a Raging Bull!
Who would have imagined that the longest bear market we’ve seen would turn so quickly into a raging bull market!
You might think I’m talking about gold or precious metals.
But that can’t be right…
Gold is grinding lower the last year and every rally is short-lived.
Silver looks like the ugly stick has beaten it to the ground.
Platinum is like Cinderella, all dressed up with nowhere to go.
Palladium had its run and is now retreating.
And rhodium, that crashed hard.
So what am I talking about? Uranium. This metal went through a bear market that lasted almost 10 years.
Fukushima causes nuclear winter for uranium
The chart below shows the spot price of uranium in USD per pound since 2007:
Source: Business Insider
You can see how the price of uranium experienced a nuclear winter.
Uranium bubbled in 2007 and then crashed along with the subprime crisis of 2008/09. The metal staged a recovery in 2010 as China, India, Russia, and certain European nations planned to build many nuclear power plants to generate low-cost and high-baseload electricity.
This came to an abrupt halt on 11 March 2011, when the Tōhoku earthquake off the coast in northeast Japan devastated a large part of the region. Most prominently, the earthquake and ensuing tsunami threatened to bring the Fukushima Daiichi nuclear power plant into a full meltdown.
This nuclear disaster is the 21st century’s Chernobyl — but more complicated and has a lasting environmental impact.
The nuclear power plant is still leaking radioactive wastewater deep into the ground and the Pacific Ocean.
Fears of another Fukushima-type incident caused many countries to review whether to continue building nuclear reactors and even retire older ones just in case. This created a glut in the supply of uranium in the market and caused the price to plunge.
And plunge it did. The spot price of uranium traded at just under US$80 a pound before the Fukushima incident. Less than six years later, uranium scraped below US$20 a pound and stayed in the $20–30 range for another three years. The average price of uranium producers is around US$60 per pound.
Even the most robust of the uranium producers like Cameco and Paladin Energy suspended their operations as the uranium price remained stubbornly low. Paladin Energy shareholders (myself included) suffered a 98% loss in late 2017 when the creditors agreed to convert their debt into equity. They effectively took control of 98% of the company’s equity capital and left shareholders naked except for a fig leaf, figuratively speaking.
So bad was this bear market that even mining investment legends — most prominently Doug Casey and Rick Rule — appeared like permabulls who kept getting it wrong as they talked for years (since 2012) about how uranium stocks were excellent opportunities. And those who agreed with them experienced painful losses as uranium continued to grind lower.
Now, let me make myself clear. I did not write the last paragraph to take a gratuitous swipe at them. I agreed with their view and even held tight onto some of my uranium stocks, adding to them thinking that it was going to turn around.
Trouble is, it was wiser to have let go earlier and come back just a bit later. Because these experts were right.
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Sprott buying sparks the uranium raging bull market
Rick Rule has a couple of famous statements, one of which is ‘Bear markets are the author of bull markets and bull markets are the author of bear markets.’
Well, uranium may turn out as an author of a masterpiece.
Take a look at how sharp the uranium run has been since May this year:
Source: Business Insider
The steep rally comes off of news that Eric Sprott’s uranium investment fund is buying uranium metal in the spot market. This spans from Sprott’s belief in the future of nuclear energy as a clean and efficient source of power.
Some say that he is trying to achieve what the Hunt brothers attempted with silver in the early 1980s. The buying is to limit the supply of uranium to corner the market.
Many claim that it is literally a fool’s errand to corner a commodity market. This is because many leading investment banks hold large metal stockpiles that they can dump into the market to push prices back down. This is how the Hunt brothers came undone back then with silver.
Uranium may turn out different this time. Global production in uranium literally dried up in the longest bear market we have seen. Governments hold stockpiles of weapons-grade uranium but they’re unlikely to put those into the market due to security risks.
Eric Sprott may possibly make a name for himself if he can do what the Hunt brothers failed to do, outsmart the investment banks and call their bluff.
A trading opportunity awaits you!
The bull market in uranium has gotten off in a big way. Take a look at key uranium companies on the ASX like Boss Energy Ltd [ASX:BOE], Deep Yellow Ltd [ASX:DYL], Lotus Resources Ltd [ASX:LOT], Paladin Energy Ltd [ASX:PDN], and Vimy Resources Ltd [ASX:VMY]. They have rallied as much as 10-fold over the last year.
They may still have room to rally going forward.
However, playing this market is not for the fainthearted or the buy-and-hold crowd.
At times like these, you’d do well with my colleagues who have a strong track record of identifying great trading opportunities. Look no further than my colleague, Ryan Dinse, and his subscriber service, Small-Cap Momentum Alert.
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.