Uranium prices are spiking – and conditions look ripe for a longer-term bull market

Plenty of commodities are getting close to or are already at record highs. But one perennial laggard has enjoyed rather a spike in the last week.

The price of uranium rose by around 15%, with the price hitting more than $40 a pound for the first time in six years.

That’s the sort of gain not seen since before the Fukushima disaster in Japan in 2011, which led to nuclear shutdowns in both Japan and Germany.

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So today we ask: what on earth is going on in the uranium market?

Why is the uranium price spiking?

Uranium had been ambling gently higher over the past year or so, but it’s not exactly been tin or nickel.

Instead, what’s happened is that a big fund has entered a small market and has been buying the stuff up. According to the FT and Bloomberg, the spike has been driven by a new investment trust from Canadian commodities-focused asset manager Sprott.

The new fund – the Physical Uranium Trust – was launched in July. It has been buying uranium every since, and now owns more than 24 million pounds of the stuff. (By comparison, Yellow Cake – a similar London-listed vehicle – holds about 16 million pounds).

That’s a lot for this market. And some commentators are now talking about uranium like it’s a meme stock or a cryptocurrency. A big player wading into a market with a small supply? Whoopee.

The thing is, I know that here at Money Morning, you’re all sensible long-term investors. Yes, even you at the back there. So what you want to know is: OK, uranium might have GameStop-py aspirations, but is there anything actually underpinning this?

To my mind, the answer is yes.

The long-term outlook for uranium is really only tied to one thing – the long-term outlook for nuclear power.

Conditions look ripe for a nuclear resurgence

Nuclear power is a tricky old business. We’re in the midst of an attempted energy transition right now. We are trying to go from dirty fuels (coal, natural gas, and oil) to clean ones (wind, solar and hydro).

Capacity is one issue. To an extent, that’s just a matter of time and money. You build more turbines, more solar panels, more electric car chargers – brute force can make that happen.

But a bigger problem is that the renewable fuels are mostly intermittent, whereas the dirty fuels are reliable. This is one reason (though by no means the only one) why electricity prices are shooting up to record highs across Europe right now, even as we speak. Wind generation has been weaker than expected.

You can burn coal when you like and you’ll get energy out of it. But you can’t switch the wind on and off. So your need for power and the turbine’s inclination to generate it may well not match up.

This then leads to all sorts of problems with electricity grids which I won’t go into but suffice to say, intermittency is a massive issue.

If we’re going to achieve all these “green” goals as quickly as governments have decided on, without sending energy prices through the roof or even rationing the stuff, then what we really need is a source of energy that is “always on” and yet which doesn’t emit any carbon.

Hmm. What could that be? Surely if we had a source of energy like that, we’d already have rolled it out, as it’s clearly the most logical thing to do?

And yet, nuclear power – which is always on, and which emits no carbon – is still not seen as the go-to option. This of course, is because of the politics around it and the high-profile nature of the few disasters that have happened.

As Dylan Grice wrote in MoneyWeek a few years ago, the anxieties around nuclear don’t really match up to the reality, but unfortunately it’s the anxieties that drive the policies.

The good news for uranium investors is that we do seem to be heading into one of the more pro-nuclear phases. There is now a significant pro-nuclear environmental lobby made up of people who actually care about the practicalities of hitting zero-carbon, rather than just using it as another excuse to shout about capitalism.

That – alongside surging energy prices – might make it easier for politicians to grasp the nuclear nettle.

For example, Taro Kono, one of the main contenders to be the next Japanese prime minister, and someone who has opposed nuclear in the past, has said that nuclear plants will be needed “to some degree for the country to achieve its pollution-curbing goals”, reports Bloomberg. Another possible candidate said she would “make small modular reactors a national project.”

All in all – and what with other commodities rocketing and energy prices doing the same – I suspect there’s further to go in this uranium bull market.

We’ve mentioned uranium on several occasions in the past and although it’s a relatively obscure metal there are actually quite a few ways to play it. My colleague David Stevenson wrote about them in MoneyWeek magazine earlier this year.

Hopefully you picked up a bit of exposure then. But if you didn’t, I very much doubt that it’s too late to do so yet. And to avoid missing out in future, why not subscribe to MoneyWeek now and get your first six issues free?

Until tomorrow,

John Stepek

Executive editor, MoneyWeek