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Tuesday, June 26, 2007

Are Uranium Prices Headed Lower?

That seems to be the view over at – a great site, by the way – where they analyze the latest news from Nuclear Market Review in the following story:

Uranium Demand Showing Price Weakness

TradeTech's Nuclear Market Review reports, "Two sellers that were evaluating bids in response to their auctions have concluded their evaluations and have decided not to sell at this time."

Stock Interview does more digging: In an eye-opening interview with Joe McCourt on May 21st, we learned about his company's proprietary Blended Fuel Value (BFV). McCourt told us, "The BFV calculates the weighted average price of uranium held by all publicly traded funds as a function of the fund share price. The upward and downward price movement of the BFV reflects North American and European investors' sentiments on the current spot price of physical uranium."

Until this past April, the BFV has traded well above the weekly spot uranium price indicators, published by either TradeTech or Ux Consulting. For the week, the BFV has traded a whopping $19/pound BELOW the price indicators.

According to Joe McCourt, who writes in this week's FreshFUEL, "The value of the BFV should be about $6 higher than spot U3O8 to account for the cost of underwriting and distributing the shares of the fund. Currently, the BFV is about triple that amount lower than the spot price." [XX emphasis added]

So, going by this, McCourt's indicator points to a correction of about $18 in the spot price of uranium oxide. Now, that's not more than a hill of beans for a metal that started 2007 with a spot price just above $70 and is now at $136 to $138, depending on your source. But it would be the first correction in the spot price of uranium in years … since this big bull market began.

On the bright side …

Traders have backed off the past few weeks. General discontent through the utility industry suggests spot U3O8 needs to take a breather. In an April 12th interview with Dr. Robert Rich, he warned of a 'price adjustment.' But, he also told us at the time, "The minute buyers see things go down, they are going to flock back into the market, and say, 'Okay, we knew this was going to happen. Now, we buy.' The utility consumers will come back into the market like lemmings, and buy up anything available. The next thing you know, there's another spike."

XX My view – the best metaphor I can give for the uranium bull market is that we're in the third inning of a nine-inning game. We have a long way to go. And I've been telling you that a pullback would be a great buying opportunity. Indeed, uranium stocks have been selling off for weeks, so the smart money may be anticipating a pullback already. Is the pullback already priced in? I can tell you that some great stocks look darned cheap right now.


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