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Wednesday, October 17, 2012
To make huge gains in natural resources... you have to buy assets when nobody wants them.
But timing is everything.
And right now, the timing is off...
This summer, I showed you a huge opportunity developing in uranium.
The price of uranium – which fuels nuclear reactors – was hitting new lows. But, I argued, future supply looked uncertain... and demand was picking up. That would add up to higher prices down the road.
Today, though, things have changed.
Take a look at the chart below. It shows Uranium Participation Corp., a holding company that tracks the price of physical uranium. As you can see, Japan's Fukushima Daiichi disaster in March 2011 devastated the price...
It's continued to drift lower ever since. And despite the small turn higher in June and July, prices are hitting new four-year lows.
Japan was the world's third-largest nuclear power producer after the U.S. and France. But last month, the country announced it would try to phase out nuclear power by 2040.
That's a huge change from its pre-Fukushima days, when it planned to increase its production to meet 50% of its energy needs. Shutting down its nuclear plan takes a huge amount of demand off the market. And there simply aren't any new sources of demand that can replace Japan's consumption anytime soon.
China, for example, has big plans to build out nuclear capacity. But with China's economy slowing, those new plants are less likely than they were a couple years ago.
This hit to demand comes just as new supplies are coming to the fore...
From 1981 to 2005, resource companies spent between $5 billion and $7 billion exploring for uranium. But from 2005 to 2011, exploration budgets exploded, exceeding $16 billion last year. And the efforts were successful.
Companies used that money to find another 6 million metric tons of uranium resources... literally doubling the existing volume in just six years. Suddenly, there is an enormous amount of potential supply, just as demand takes a huge hit.
Keep in mind... this situation won't last forever. Commodities are cyclical. They boom and bust. At some point, when absolutely everyone has given up on uranium, this bust will end.
That will be the time to buy... not today.
If you are looking to put money to work in the resource sector right now, consider one of Matt's favorite ways to play rising gold prices. Shares of this elite gold stock have soared since May, but the brief pullback Matt predicted has arrived... and he says now is a good opportunity to buy. Get the details here: Checking in on One of the World's Greatest Gold Companies.
Earlier this week, Matt told readers about a must-use tool for every natural resource trader. He says this tool is an excellent reference point for investors… And if you ever trade small commodity stocks, you need to know how to use it. Read more about it here.
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