Uranium was in a bear trend for 10 years. As you can see it on the following charts, most of the mining companies’ stocks lost more than 90% in value from their top.
A few mining company stocks and ETF’s have been showing signs of accumulation from a technical perspective. And today, we are going to zoom in and take a closer look at the Global X Uranium ETF (URA).
As we can see it on the chart, URA has been ranging since late 2015. Setting the low of the range around $11.70 and the high around $16.
Fundamentally, 2 essential factors can be taken into consideration:
- Nuclear power generation has increased since 2010 (especially for world electricity production).
- Price has been suppressed pushing miners, who couldn’t afford to mine at a loss, to cut the production
These factors send us back to the basic law of Supply and Demand:
we currently have an excess of demand with a decreasing supply (production has decreased by 16% for 2 years) while the price does not reflect it yet on the chart.
Common sense would lead us to think this commodity is currently undervalued and that the range, which has been forming since late 2015, is indeed an accumulation phase where the “big players” are loading for a potential breakout leading to an extended bull market.
Of course this cannot solely determine whether this is a great opportunity or not. 11% of the world’s electricity is generated from Uranium. 90% of the supply is used for power generation purpose. Which means that it is highly dependent on world’s electricity needs. Thus, if we managed to find an alternative to electricity generated from Uranium, the demand would drastically drop.
This scenario is very unlikely especially since Uranium is a more efficient source of energy than solar, wind or coal. Powerful countries like China, USA or Russia continue to rely on nuclear power. Regarding the current growth in demand, the equilibrium between supply and demand will not be reached anytime soon. Figures suggest that more than 80,000 tonnes should be necessary to cover the needs by 2020 while it is estimated that miners will be able to provide barely 75,000 tonnes.
For these reasons, Uranium as a speculative investment has regained more interest among investors and traders.