Uranium $50/lb Assessed by Chief of TradeTechMost of us who invest in uranium believe that both the spot price and long term price of U3O8 has ways to go. Many eloquent analyses have been done, but I'd like to draw attention to a interesting essay written up by the Chief Executive of TradeTech, Gene Clark.
People should be familiar with TradeTech, as they are one of the few services who monitor everything about uranium without losing objectivity. In his own words,
"we derive our income wholly from reporting and analyzing the market's events and prices, rather than uranium brokering and trading or investing in nuclear companies. For that reason, our success lies in the ability to provide unbiased, accurate and detailed market information to our clients--those buyers, sellers, and investors."
Now that I've tried to establish his credibility, I will republish Mr. Clark's conclusions and words of advice to uranium investors. (The rest of the essay is too long to be reprinted here, but is a very insightful read on uranium supply and demand fundamentals)
What does all this mean for investors in uranium companies? One risk factor to consider is that the uranium speculator market segment is currently quite active, and that its purchase activities are effectively diverting uranium from the supply chain, even though that uranium is currently needed in the market.
That situation has been a major determinant of rapidly increasing price levels, after a period in which the market price was adjusting to meet the need for new production capacity. For a certain length of time, the speculators' goals and actions are self-perpetuating. They want (and need) rising prices, and their market volume is creating much of the upward pressure on the spot price and, by historical linkage, on the long-term base price.
But, there is one simple rule to keep in mind: Secondary Demand + Time = Secondary Supply Since the speculators cannot "consume" uranium, eventually those pounds of uranium will have to be sold to realize any market gain. And, the more active the speculators have been in buying up material, the more active they are likely to be in selling the same material, with obvious implications on price pressure.
In conclusion, one should be careful to recognize how much the uranium market is being driven by fundamentals (primary demand) versus non-fundamental factors (like secondary demand) and make one's investment decisions accordingly. A major portion of spot market purchasing is currently coming from secondary demand. Although the fundamentals appear to have justified the transition to some new level of higher price, the problem may be how "we get there from here." We may be in for a roller coaster ride before the market is able to sort things out.
Spelunca, uranium blog writer