Commodity inflation has expanded well beyond the agricultural and metals market and into uranium, which is enjoying the most robust price gains since 2007. Global X Uranium ETF (URA) has emerged as a popular way to play the uptrend, with the fund gaining more than 430% since the March 2020 low. Better yet, the rally has just mounted September resistance in the upper 20s, opening the door to continued gains that could reach the $40 level in 2022.
A push towards renewable energy sources is bringing nuclear power back into consideration, causing hedge funds to place bullish bets on uranium.
“Funds such as Ben Melkman’s New York-based Light Sky Macro, Anchorage Capital and Tribeca Investment Partners have been positive on the outlook for the raw material, as a global energy crunch highlights the role of nuclear power in a transition away from fossil fuels,” a Financial Times article notes.
In the meantime, uranium prices are rising to levels not seen since almost a decade ago. The World Uranium Index is up 41% year-to-date, and more gains could be had through the rest of 2021.
“The price of raw uranium, known as yellowcake, rose to its highest level since 2012 at $50 a pound last month,” the Financial Times article says further. “The move has attracted new investors into the market for the first time since before the financial crisis, when buying by investors drove the price from $20 a pound to a record high of $136 a pound in June 2007.”
Those kinds of gains are opening the eyes of hedge funds, bringing institutional money to uranium price speculation.
Ciampaglia noted that Sprott Physical Uranium Fund (U.U) has long been interested in uranium, seeing value in a substance that has enormous energy potential but had previously been out of favor due to disasters like Fukushima and its association with nuclear warheads. With the 444 reactors requiring around 180 million pounds of uranium per year to operate and primary supply only able to meet 130–140 million pounds, uranium has long coasted on a rapidly dwindling secondary supply.
Japan plans to put 30 reactors back online to meet emissions goals, and some new reactors are being built around the world. 30–40 million additional pounds of uranium will be needed to meet the increased demand, and that’s assuming energy needs remain static. McDonald’s and Ciampaglia think they’ll increase, pointing to the electric car revolution and growing energy demands of countries like India and China.
McDonald also noted that “In the United States, we have a power grid that’s 50 years old. We have a company named Tesla that’s now worth $1 trillion. The entire uranium industry, all the stocks, is only worth $30 billion. So let me get this straight — you got every idiot on Wall Street upgrading Tesla, OK — raising their price targets. Has anybody done the math as to if they hit these targets of auto sales, what happens to the US power grid? How does the 50-year-old power grid support that kind of demand? We’re supposed to go from 7 million electric vehicles this year globally to 145 million — so think of the impact on the power grid.”
McDonald sees global events aligning for a long uranium bull market, saying, “this whole situation of Glasgow and this Green Revolution coming out of the Biden team with this new piece of legislation, the attention is going to be off the charts, I think, the next five months on the uranium and nuclear.
Global X Uranium ETF Long (Buy)
Enter at: 30.52