This is a chart I have posted several times over the last couple months. It just wasn't ready to move. Is it now?? I have no idea but one could buy a small position as I believe this stock will be much higher over the coming years.
Today’s Sprott’s Thoughts relate comments made by Sprott USA Chairman Rick Rule in the May 2013 issue of Bonner & Partner’s Family Office Strategic Review (www.bonnerfamilyoffice.com).
“Natural resource speculators know that past uranium bull markets offered some ’explosive’ (pun intended) upside. I have been fortunate enough to experience two uranium bull markets: the 1970s bull market, which saw a tenfold increase in the uranium price and a hundredfold increase in some uranium equities, and the bull market of the last decade, which saw a repeat of the earlier performance. If past is prologue, the stage may be set for a third uranium bull run.
“Conditions have changed so completely since the 1970s that a thorough examination of that market teaches us little that is relevant today. But one thing about the 1970s bull market is instructive -the market collapse was partially caused by two catastrophic plant failures: at Chernobyl and Three Mile Island.
The bull market of the 2000s, he says, gives fodder to the case for higher uranium, because the bear market that preceded it is similar to conditions we experience today:
“An examination of the last uranium bull market is more instructive, particularly because many readers were participants. This great bull market had its origins (as almost all natural resource bull markets do) in the preceding bear market. In that 20-year-long bear market, the nominal (non inflation adjusted) spot uranium price declined from over $30 per pound in 1980 to $8 per pound in 2001. The costs of producing uranium began to exceed the spot price for many miners.
“By the turn of the millennium, the stage was set for a dramatic rebound. Uranium producers had total production costs exceeding $20 per pound. They sold their product on spot markets for $8 – losing $12 per pound on sales. There was little incentive to increase or maintain production.
“Of course, these low prices were beneficial to power generators and power users. So uranium’s utility to consumers was high. As a consequence of this extraordinary utility, declining US demand was more than offset by increased demand elsewhere – particularly from France, Japan, South Korea and Taiwan.
This is just a quick update. If you are in the trade I would consider placing your stop just above 143 area. Once it breaks 137 to the downside, I would move your stop to around 140 so you cannot lose on the trade.
Original Trade Below....
A strong stomach and a tremendous amount of patience are required for gold stock investors these days, as miners have been exhibiting their typical volatility pattern.
That’s why I often say to anticipate before you participate, because gold stocks are historically twice as volatile as U.S. stocks. As of March 31, 2013, using 10-year data, the NYSE Arca Gold BUGS Index (HUI) had a rolling one-year standard deviation of nearly 35 percent. The S&P 500’s was just under 15 percent.
I believe the drivers for the yellow metal remain intact, so for investors who can tolerate the ups and downs, gold stocks are a compelling buy. Here are three reasons:
1. Gold Companies are Cheap.
According to research from RBC Capital Markets, Tier I and Tier II producers are inexpensive on historical measures. Based on a price-to-earnings basis, RBC finds that “shares are currently trading not far from the recent trough valuations observed during the 2008 global financial crisis.”
And on a price-to-cash-flow basis, gold stocks are trading at bargain basement prices. The chart below shows that average annual cash flow multiples for North American Tier I gold companies have fallen to lows we haven’t seen in years. Since January 2000, forward price-to-cash-flow multiples have climbed as high as 26 times. This year, we see multiples at the high end that are less than half of that.
On the low end, today’s price-to-cash-flow of 6.5 times hasn’t been seen since 2001.
Tier I and Tier II companies “offer investors an attractive entry point from an absolute valuation perspective with respect to the broader market,” says RBC.