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Wednesday
Sep202017

Market Alert: An Opportunity in the "King Contrarian" Commodity

 

 

In our post bag this morning we received this post from Sprott Global Resource Investments and it is the first bit of good news that we have had for some time in this battered sector of the market.

Summary:
  • The current setup in the uranium market is about as "contrarian" as it gets, with spot prices down over 80% from their 2007 peak, over a decade ago.
  • The current pricing structure means almost all uranium producers would be losing at least $20 to $30 per pound of uranium they are producing if they sold at the current spot price.
  • We see a high probability that we've seen a bottom to the cycle (at least in terms of price) and now view the main investment risk as being opportunity cost, should the next uranium bull market take some time to emerge.
  • The current technical (charting) setup looks promising, hence we see now as being a good time to initiate or top up your uranium allocation.
Dear clients and friends,

Over the past month or so, I've been doing the rounds covering the various markets that I saw breaking out through key resistance levels (first base metals, then precious metals), giving us a signal that there was a reasonable chance of these markets moving higher in the near term.

Since those alerts, both those markets have confirmed their respective breakouts and went on to make very nice short term gains. Some of these metals (and associated miners) are now experiencing short term price pulls backs, which is not unexpected given it is common for breakouts to be followed by shallow retracements that retest the original breakout level.

We believe these pullbacks are likely to represent good buying opportunities.
However, the main reason for this update is to briefly touch on a commodity that remains probablythe single most contrarian of the natural resource market. It's also a metal we haven't touched on for a while AND one that a lot of our client portfolio's are underweight in, hence we feel it's a good time to bring this opportunity to your attention.

A key measure of the contrarian nature of this metal is that its currently trading at a spot price that we believe is well over 50% below the industry average cost of production (based on the currentspot price - more on this later).

That is quite simply unsustainable and simple mathematics dictate that in the long run, either two things have to happen - either a) the industry dies (extremely unlikely, given its importance) or b)prices have to rise, probably substantially.

As I'm sure a lot of you have figured out by now, I'm talking about uranium - a sector I think any investor with a contrarian philosophy should be paying close attention to right now.

read more at sprottGlobal.com

Timing is everything so for now I will watch and wait.

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