Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Monday, May 07, 2007

Over or Under on Uranium Futures

Uranium future start trading on the NYMEX today. Shares of uranium miners and the Uranium Participation Corp (the Canadian uranium ETF) have sold off in anticipation, because most traders expect futures to herald greater transparency in uranium prices and that should bring prices down in the short term.

The last uranium auction set the price at $113 per pound. Bids have dried up in anticipation of the start of uranium futures trading -- that is, utilities believe they can get a better deal through futures rather than auctions.

Also, historically speaking, the introduction of a new contract has usually meant an intermediate high in prices.

I think one thing a lot of people could be watching is if the near-term uranium futures contract closes above or below $100 per pound today. If it's above, that may signal that we won't see much more of a pullback in uranium mining shares. In other words, a short-term dip in prices is already priced in. If uranium stays in triple digits, that shows pent-up demand is very strong.

If the uranium contract closes below $100, that may tell us the long-anticipated price pullback is here. For me, that has buying opportunity written all over it. It could be our best chance to buy near-term uranium producers for the rest of this year. The fact remains that longer-term, the fundamentals driving the price of uranium are strong and getting stronger. A short-term dip is a gift to investors.

There is a third alternative no one is talking about -- that uranium prices may immediately go higher and not look back. While it doesn't seem likely, in the futures market anything is possible.

The good news is my subscribers are well-prepared no matter what happens. I've recommended taking gains in Red-Hot Asian Tigers and Red-Hot Canadian Small-Caps recently, so that means plenty of cash onhand to buy miners on the cheap. Both portfolios are bristling with great uranium stocks. And the subscribers who bought my two uranium reports have open gains AND the potential to add to positions if opportunities present themselves.

It's going to be a wild day. Check back tonight and I'll post uranium's closing price.


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