There are several good fundamental reasons why uranium is poised to move higher. It’s all about an unfolding supply/demand imbalance. And there are 2 excellent ways to play the trend, including the Global X Uranium ETF (NYSE: URA), which I will also tell you is poised for a ride higher.
But at the moment, there’s more at play than just the fundamentals of supply and demand. There’s politics … and the threat of a new Crimean war.
In a war footing, Russia has more than conventional weapons to deploy. It has financial weapons, too. Natural gas is one. Russia’s Gazprom supplies a quarter of Europe’s natural gas needs, and it’s not hard to imagine Russia shutting off the supplies. That wouldn’t ripple through U.S. gas markets because U.S. gas is trapped in the domestic market and has no way out at the moment.
Uranium, however, is a different story. It’s a fungible, global commodity. And it, too, could push higher in a Crimean war. It’s the silent winner in a war.
Depending on who’s measuring, Russia is the No. 5 or No. 6 uranium producer in the world. However, it has big influence over Kazakhstan, a former Soviet state and still closely allied with Russia … and Kazakhstan is the world’s No. 1 producer by a long shot. As with natural gas, it’s not hard to see Russia locking down uranium supplies, or at least severely crimping availability. That would rip through the uranium market, putting upward pressure on prices.
The West faces a real dilemma with the Ukraine, and so does Russia.
The West – and by that, I largely mean NATO – has no protection treaties with the Ukraine, so rushing to Ukraine’s defense becomes politically charged. Yet, the West definitely wants Ukraine in its orbit. So, it would have to do something to aid the country or risk disappointing West-leaning Ukrainians to such a degree that they grow dispirited and the entire country falls under the sway of Moscow.
Russia, meanwhile, wants stronger trade ties to the West, particularly Western Europe, where it wants access to freer trade. A war in the Ukraine would be very problematic in achieving that.
At the same time, though, Russia is finally in a position politically and financially where it can throw its weight around – a drastic change from the 1990s and early-2000s, when Russia was struggling to find itself after the Soviet collapse and the defection of so many former Soviet states. As such, Russia today does not want to lose a majority-Russian territory, such as Crimea – especially one with a warm-water port Russia is desperate to own. That would be a big blow to the reinvigorated Russian psyche … and particularly the psyche of Vladimir Putin, who fashions himself a larger-than-life father figure for Russians.
That makes figuring out this particular chess board so difficult.
But you don’t have to see the future to make money in this situation.
Taking the Path to Profit
One path to success as an investor comes from using upheaval to your advantage.
In moments like this, where the next step could be forward or backward, the savvy investor prepares for either option.
For me, if the next step is war, then I’m looking to jump into uranium because of the high risk that Russia uses its commodity leverage as a weapon against the West. And uranium is crucial to the West, particularly the U.S., where domestic production doesn’t begin to meet domestic demand. Indeed, Russian uranium has accounted for roughly 40% of the fuel American nuclear plants consume annually. Thus, a war in the Ukraine could create economic woes here at home because cutting off uranium supplies would impact U.S. communities where utility companies rely on nuclear power to light local homes and business. Don’t think Russia isn’t aware of that.
If nothing else, uranium has very little downside at current prices, so it’s not like you’re taking a big gamble with this position. As Evaldo noted yesterday, the metal’s price has been deeply depressed since the Fukushima disaster in Japan … but even that’s a catalyst for higher uranium prices, since Japan announced last week that it’s restarting its fleet of nuclear power plants that it closed after the earthquake/tsunami/nuclear meltdown.
That, however, is a story for another day.
Until next time, stay Sovereign …
Jeff D. Opdyke, Editor, "Profit Seeker"