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Renowned gold money manager, John Hathaway (formerly of Tocqueville Asset Management now with Sprott) wrote a seminal essay about gold entitled, A boiling pot worth watching, around the turn of the millennium. Gold was mired in the $200’s, and gold investors were fatigued from years of price malaise. Professional investors like Hathaway saw all the cumulative fundamental elements of the next bull market, but had to constantly answer his investors posing the “when” question. I see the current stage of the uranium market possessing many similarities to the gold market at the turn of the century. The fundamentals are there for all to see but the overwhelming number of investors’ respond to “price action," not narratives.
Much like Pavlov’s dogs, the vast majority of investors’ "animal spirits" are not ignited until they see price movement. Our sector has experienced a couple of false dawns over the past several years, and the uninitiated no doubt probably bought these breakouts and then flushed themselves out on the subsequent share price breakdowns. All the while, the worldwide mobile inventories of U308 were being whittled away – aided much by producer curtailments – and the rest by utilities remaining complacent and consuming standing inventories in what they continue to perceive as an inert market.
Earlier in the year when U308 spiked above $34.00/lb. in the wake of Cameco shutting down Cigar Lake, we heard that utilities felt it was an artificial price spike. To an extent, they have been proven correct, now that the price of U308 has drifted back to having a “29” handle. But that sense of security is almost certainly misplaced. It is clear as we stated in last month’s newsletter that the utilities – because of the myriad of “one off” Covid-19 circumstances during the course of 2020 – have largely pushed the procurement issue off until 2021.
But, the stock market is a peculiar beast...because stocks typically start to reflect conditions 6-9 months in the future resulting in share price movement that starts amidst a seeming period of quiescence. This action oftentimes leaves many investors’ scratching their heads. It’s not until months later that the reaction of “Oh, I see why they were moving” occurs. In truth that is the whole nature of technical analysis: paying particular attention to price action, rather than focusing solely on the current headlines.
We believe 2021 is going to be a particularly strong year for our sector. The price movement we have witnessed over the past 7-10 days we believe is the start of a move that only the most astute followers of this sector understand before most others do. That is to say, while the uranium spot price is “flatlining,” the price charts of the quality uranium shares are turning up. The “long winter” is ending. We don’t know, of course, if the angle of ascent will be as steep as the 2004-2007 period as depicted in the chart below, but we do feel very strongly that it will be moving northward. Quality uranium shares still offer excellent value. Stare at the chart below for a moment………“early days”………..
