In recent weeks, most of the attention in metals markets has focused on gold and silver – and for good reason.
Even with today’s $10/oz pullback in the gold market, the price of gold is up:
- $52/oz in the last month (+3.25%)
- $271/oz in the last 6 months (+19%)
- $468/oz in the last year (+38%)
The price of silver has made a much more muted move, until recently.
After bottoming at ~$11.50 on March 18th, silver has spiked by almost 50% in the last two months, currently trading at just over $17 per ounce.
Meanwhile, another metals market has caught fire: uranium. A May 5th article from Financial News Arena
sums up the recent picture.
Uranium Week: Biggest Price Surge In Thirty Years
In the month of April, the spot uranium price rose almost 24% to mark the largest monthly increase in almost thirty years. In six weeks, the spot price has risen 41%, being the fastest rise since 2007.
That’s a more rapid rate of increase than even in the silver market. Why is uranium so hot?
Strong demand. Weak supply.
There is a Nuclear Renaissance underway. Increasing consensus is emerging that the only economically viable means of achieving global carbon emissions targets is via increased reliance on nuclear power.
Consequently, the nuclear power industry is in the process of a long-term doubling in nuclear power generation and the total number of reactors.
The International Atomic Energy Agency (IAEA) made this projection as far back as August 2017.
Nuclear capacity could more than double by 2050, says IAEA
The long-term potential of nuclear power remains high, according to the International Atomic Energy Agency's latest high case projection, which sees global nuclear generating capacity increasing 123% by 2050 compared with its current level.
Despite this, uranium prices have remained in their trough…until April 2020.
Much like precious metals, this was an undervalued commodity waiting for a catalyst. Much like precious metals, the current pandemic represents that catalyst – although with much different dynamics at work.
Nuclear reactors can’t simply be switched on and switched off. They operate 24/7, regardless of pandemics or lockdowns.
Conversely, uranium mines are not deemed to be “essential services”. The current health crisis has resulted in mine supply coming offline.
These are supply cuts in addition to a major voluntary reductions in mine supply that came before this. The previous Financial News Arena
article provides additional details.
Low prices then forced rolling supply curtailments across the globe. While those curtailments did result in slightly higher prices, it wasn’t until the virus hit that prices really began to take off, as the last of major operations shut down, this time for safety reasons.
An already-tight market experiences a sudden supply shock, in an industry where demand is strong and growing (55 new nuclear reactors are currently under construction
) and supply had already been reduced. The price spikes as a result of that shock.
How do investors capitalize on this rising market?
With so much mine capacity offline, higher U3
prices may do more to restart mothballed mines rather than stimulate new construction – at least over shorter-term horizons.
There is a long timeline to bring a new uranium mine online (including permitting issues). This means that recommissioning shuttered operations is the path of least resistance in increasing mine supply.
This may also mean that investing in larger, established producers is the most reliable means of generating portfolio gains at present.
Investors can stock-pick among the bigger names. Another option is the North Shore Global Uranium Mining ETF
URNM’s current holdings
include 11 uranium producers, two large-cap miners with exposure to uranium, exposure to the commodity itself (via Uranium Participation Corp
(CAN:U / US:URPTF)), and a 3.3% holding in Barrick Gold Corp
(US:GOLD / CAN:ABX).
Broad exposure to the uranium miners, a 10% commodity holding (Uranium Participation Corp), and some additional exposure (8.5%) to diversified large-cap miners.
After getting sucked down with the rest of the market in the March panic, URNM has started making fresh highs. It is currently trading at $27.51 and is approaching its 52-week high of $29.02.
As gold and silver give back some of their recent gains today, many investors may be pressing the “buy” button today on gold and silver mining stocks.
However, for investors looking for additional opportunities in mining in 2020, the stealth bull market in uranium is currently outperforming precious metals.
More importantly, for investors looking for an additional investment hedge against future pandemic-related economic shocks
, the uranium sector offers some relative security.