The ever-increasing demand for uranium has been well documented with the price rising accordingly, so why are the uranium stocks dropping at a time like this?

When the value of a commodity rises as fast as the price of uranium it would be reasonable to expect the uranium stocks to follow suit. However these stocks are being sold off along with every other stock as this global correction continues. The value of gold and silver has dropped considerably in this sell off and so it is expected that the HUI and XAU would follow with a logical down turn.

This is not the case for uranium, which increased by 5% this week partly due the flood at the Ranger Mine in Australia and partly due to its scarcity. This increase follows a whopping 13% increase only a few short weeks ago. Yet the producers of uranium are seeing their stocks sold down just like everybody else’s stock.

Just what can we attribute this anomaly to? Firstly, when the market turns negative those who have borrowed money to make an investment run for the door as margin calls come thick and fast. These speculators have to make decisions under pressure, which is not an ideal situation to make a decision. So they examine all of their holdings and decide which stocks to unload in order to meet those margin calls. Instead of closing the position that is in trouble they will do whatever it takes to raise cash even if it means selling stocks, which were showing a profit. We find this strange behaviour but each investor has to make the best decision for his particular situation.

We can only conclude that this disparity will not last long and that the uranium stocks will close the gap on uranium metal when common sense prevails.

Buy now while stocks last.

15 March 2007