Tuesday, December 18, 2007 at 03:26AM
There is an underlying expectancy among uranium bugs for the price of uranium to surge back to its old highs taking uranium stocks along for the ride. However, what we have now is uranium stabilising around the $93/lb which some bugs find disappointing, but not us, we find it quite encouraging. When we reflect on the excitement and euphoria of uranium rising from say, $40/lb to $45/lb, we should not be too disappointed with uranium at twice that price unless you bought at the very top. If that's the case then you can cut and run and suffer the loss or try and muster up some patience and stick with it.
The disappointment is not so much with uranium itself but with the performance of the uranium stocks. In general they are lagging behind the metal having been recently sold off over the month of November and then behaving in a sluggish manner ever since then. It could be that the stocks don't trust uranium at the moment and are telling us that a price reversal in the metal is on the way. We don't see it this way though, we believe that uranium is consolidating and building a base before attempting to climb its lofty heights once again. We could be camped at this juncture for some time which wont make the headlines but it is a healthy place to be if you have invested in quality uranium stocks as they will turn a handsome profit at these price levels and still be there tomorrow. However this does not explain the lacklustre performance of this market sector at the moment. We need to take into the consideration a number of other factors that conspire to buffet our stocks from pillar to post. The first that comes to mind is the size of this market which we have mentioned in the past, as it is extremely small and your stocks can gain or loose 10% in a single day. It is nice to report the gains and put a smile on someone's face but the losses have us digging around for that piece of negative news that caused the sell off. Most of the time you don't see that negative piece of data because it is not there. Instead a number of sell orders arrived at the same time and down you go. The larger companies with a market capitalisation of $1 billion plus can move dramatically on moderate volume, so the smaller fledgling companies can oscillate violently. All of these stocks are at the mercy of speculators, day traders, newsletter writers, the media, international and local politics, weather predictions, environmental issues, green campaigners, floods, et al. These variables should form a part of your 'risk register' as any one of them can knock your investment off course.
If this is all too much for you then the alternative is to place your hard earned money somewhere safe and be satisfied with a return of 5% or so. Can we suggest a 'safe' place? No we cant. Years of mickey mouse schemes, creative accounting, political intervention, smoke and mirrors have left us a little cynical. No matter how good an investment appears to be do not charge into it, go gently and build your portfolio slowly.
As for us we are currently observers of the whole energy scene at the moment. We may use this time to edit our portfolio for balancing purposes but we will, as always post any transaction here as we go forward. There are times when sitting tight with what you have is the best course to steer and we see this as one of them for us. Our strategy is not a one style fits all strategy and you may be in an acquisitive mood at the moment which is fine. However we would not advise anyone to sell at this point in time.
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Have a good one.