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Uranium: An Attractive Long-Term Contrarian Play

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If you are a contrarian investor, then you should have a look at Uranium. In 2011, Uranium hit a high of $73 a pound, which itself was about 50% below the highs of around $140 per pound reached in 2007. At the current levels of $20.5 per pound, Uranium is down more than 85% from the highs.

Key Findings

  • Uranium prices are in a long-term downtrend since the Fukushima incident in 2011
  • Demand is likely to pick up in the next few years with new plants under construction
  • Supply is constrained with world’s top producer Kazakhstan reducing its output by 10%
  • Uranium has strong fundamentals, however, price realization might take some time
  • Use a staggered approach of investment. Buy only for the long-term
  • High risk – High reward investors can buy URA ETF, while the risk-averse can buy NLR ETF

So, Uranium prices are low – that’s established. But, what has changed now that qualifies Uranium as a buy? Read on.

What was the Reason for the Collapse in Prices?

The first commercial reactor in Japan was commissioned in mid-1966. Since then, Japan added around 50+ reactors by 2011 that supplied about 30% of the nation’s electricity, which was expected to increase to 41% by 2017 and 50% by 2030.

However, after the 2011 Fukushima accident, which was one of the worst nuclear disasters since the Chernobyl incident in 1986, nuclear adoption took a back seat and all nuclear reactors in Japan were shut. Post the accident, new stringent tests are undertaken before allowing any nuclear facility to start operations. The status of the Japanese reactors is shown in the image below.

The World Nuclear Association said:

Currently, 42 reactors are operable and potentially able to restart, and 24 of these are in the process of restart approvals. The first two restarted in August and October 2015, with three more since.

However, it wasn’t Japan alone that shut its reactors. The Fukushima incident led Germany to shut eight of its 17 reactors with the remaining to be phased out by 2022. Spain, Belgium, Switzerland are also moving away from nuclear power.

A few other nations that had planned or were in the process of constructing nuclear plants have abandoned them and others have pledged to remain nuclear free. This led to a massive drop in demand and painted a bleak picture for the future. As a result, Uranium prices nosedived.

What has Changed Since then?

The current Japanese Prime Minister Shinzo Abe is a supporter of Nuclear technology for meeting Japanese electricity requirements.

Our resource-poor country cannot do without nuclear power to secure the stability of energy supply while considering what makes economic sense and the issue of climate change..

Abe told a press conference back in 2016.

Hence, expectations that Japan will again restart at least part of its operable Nuclear plants is a positive.

Additionally, a number of developing nations like China, India, and others are turning towards Nuclear technology to feed the increasing electricity requirement of the rising middle class. Using fossil fuels has led to huge pollution problems, which can only be tackled either by nuclear technology or other clean energy resources. Hence, these nations are turning away from fossil fuels and nuclear technology is likely to be one of the major beneficiaries along with natural gas and renewables.

As of May 1st, 2017, there were 447 nuclear reactors in operation globally and 59 reactors under construction. However, World Nuclear Association says that 170 reactors are planned while 372 have been proposed. These will boost Uranium demand in the future as and when they get commissioned. Readers can read the details and the countrywide breakup here.

Demand Likely to Increase in the Next Three Years

There are various estimates by different organizations, for high, mid and low levels of demand, as shown in the chart above – sourced from the IAEA. Demand is likely to increase in the next three years, beating production during the same period, because the world’s top uranium producer Kazakhstan has planned to cut its output by 10% in 2017.

State-owned uranium company and global production leader, Kazatomprom Chairman Askar Zhumagaliyev said in a statement:

These strategic [uranium] assets are far more valuable to our shareholders and stakeholders being left in the ground for the time being, rather than adding to the current oversupply situation.

Source: Mining.com

This is a major development because Kazakhstan has been increasing its production in the last few years. Its production increased from 19451 tonnes U (tu) in 2011 to 24575 tU in 2016. A 10% cut will reduce its production by 2457 tU, which is equal to what the nation had produced way back in 2013.

In 2016, the total global production was 62027 tU. For 2017, the total demand projection according to the World Nuclear Association is about 67,867 tU. Though the demand is higher than the supply, in the last six years, there has been a huge inventory build-up due to the absence of Japanese consumption. Hence, this inventory will act as a secondary source of supply for the next few years.

Nevertheless, lower supply and higher demand will push prices higher in the next few years.

Analysts are also Getting Bullish on Uranium

We expect global uranium demand to rise roughly 40% by 2025, a staggering amount for a commodity that saw next to zero demand growth in the past 10 years…

said Morningstar analyst David Wang. He has a target of $37 a pound for this year and $65 by 2019, reports Market Watch.

From a fundamentals standpoint it’s pretty clear that demand for uranium is going to rise given what we know of nuclear power construction activity over the next 10 years,” said John Robertson, executive director at EIS Capital Management. “It might be a little while before there’s a noticeable improvement in the fundamentals of the uranium market but I think that the downside risk from an equity point of view has been greatly reduced…

reports The Australian.

Risks to our Analysis

With different options like wind, solar, natural gas, etc. available, chances are that the countries will opt for them over the riskier nuclear energy. Any untoward incident in any nuclear plant will signal the end of nuclear energy and Uranium prices will sink further.

What do the Charts Forecast?

The weekly chart shows that Uranium futures are clearly in a downtrend, however, there is a bottom formation in progress. We will get our first indication when Uranium prices breakout of the downtrend line and move above it, which should be close to 24 or 25 levels. A confirmation of a likely double bottom will be signaled when price breaks out of the recent swing high of 27.5. The pattern target of the double bottom is 37.5.

On the daily charts, we find that price has broken out of the 20-day EMA and the downtrend line and is approaching the 50-day EMA. Uranium prices are showing first signs of bottoming out.

How do we Play This uptrend in Uranium?

There are two ETFs that focus on the uranium market. The Global X Uranium ETF (NYSEARCA: URA) and the VanEck Vectors Uranium+Nuclear Energy ETF (NYSEARCA: NLR).

While URA consists of uranium mining companies, its portfolio contains a number of penny stocks, making it the riskier of the two. It has a five-year return of negative 18.67%. Also, among its top 10 holdings, it has five stocks that are quoting under a dollar and its top two holdings make up 33.54% of its assets. This ETF can be a good play when uranium prices gain momentum, as then the penny stocks will jump higher.

For now, we believe that NLR is a better and safer option for the investor. It has a five-year return of 7.39% and a year-to-date return of 7.54%. The ETF has better quality stocks in its portfolio. However, the risk involved is the low assets under management of only $31.39 million and a large bid-ask ratio. It is also skewed with companies listed in the US and Japan. It, therefore, misses out on the companies from France, Canada, and others.

Therefore, investors who want a high reward for their investment but are willing to take a higher risk should buy URA, whereas, investors who are risk averse should buy NLR. We expect a 40-50% return on investment in the next two to three years.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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2 Comments

2 Comments

  1. gullyfoyle

    July 2, 2017 at 4:15 pm

    Thanks for the analysis, was interested in uranium about a year ago. Thanks for bringing back to my attention.

  2. GRACE88

    July 3, 2017 at 12:23 am

    Thanks for the update.

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Analysis

Crypto Update: Bitcoin Touched $4000 as Broad Rally Continues

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Yesterday’s break-out to new short-term highs continued today in the cryptocurrency segment, with Bitcoin’s push towards the $4000 making headlines in the segment. The most valuable coin surged past the $3850 level, dragging most of the majors higher, but Ethereum and most of yesterday’s leaders lagged behind BTC during today’s session.

That said, the short-term trend remains positive in case of the majority of the coins, and even though some of the top currencies are overbought, the counter-trend move could continue. In light of the increased activity, trading volumes, and volatility in the market, the majors might be in for a more sustained bullish, move, and as now only Ripple is showing clear signs of relative weakness, despite today’s rally, the leadership of the short-term move looks healthy.

While the long-term picture is still clearly negative in the segment, until the newly established short-term uptrends remain intact, traders could still play the move, sticking to strict risk management rules and relatively small position sizes.

BTC/USD, 4-Hour Chart Analysis

While Bitcoin left behind the initial resistance level near $3850, and quickly rallied up to the strong longer-term zone between $4000 and $4050, it might need to consolidate before another push higher. BTC is slightly overbought from a short-term perspective, and given the significance of the resistance, traders could exit a part of their positions here.

The $4000-$4050 zone stopped the year-end rally (outside of a brief, failed break-out), and a move above it could open up the road towards the $4250 and the crucial $4450 levels. Below $3850, further support is found near $3600 and just above $3450, and our trend model remains on a short-term buy signal and long-term sell signal.

ETH/USD, 4-Hour Chart Analysis

Ethereum continues to trade near the $145 resistance level following yesterday’s surge, and bulls are still eyeing a test of the next major resistance zone near $160, which marked the top of the previous counter-trend move in the coin.

While the coin is still overbought form a short-term perspective, given the momentum if its recent move, the rally could continue after a brief consolidation period. The newly-established uptrend is intact in ETH, and traders could enter new positions should the overbought readings got cleared, with support levels found near $130 and $112.

XRP/USDT, 4-Hour Chart Analysis

Although Ripple continues to be relatively weak compared its major peers, today it spiked to a new 5-week high, riding the market-wide trend and testing a strong declining trendline in the process. The coin triggered a short-term buy signal in our trend model by topping its January swing high, but given its relative weakness, traders should focus on the more bullish coins during the current counter-trend move.

The long-term setup remains negative, and from a broader perspective, odds still favor the test of the key long-term $0.28 and $0.26 levels, with further support levels found near $0.32 and $0.30, and with short-term targets being ahead near $0.3550, and $$0.3750.

EOS Continues to Lead but Litecoin Struggles to Gain Ground

LTC/USD, 4-Hour Chart Analysis

LTC continues to trade slightly above last week’s highs but compared to the leaders of the current leg of the rally it remained relatively weak today. With that and the still negative long-term setup in mind, traders should exit a part of their positions here, even as the short-term uptrend is intact and a push towards the next major resistance level near $51 is still possible. Our trend model is still on a buy signal, as a failed break-out is not yet confirmed, with support levels still found near $44, $38, and $34.50.

EOS/USD, 4-Hour Chart Analysis

EOS remained relatively strong today, spiking above the $3.80 level after leaving behind the $3.50 resistance. Now, the coin is clearly overbought from a short-term perspective, and that led to a downgrade in our trend model as a pullback is now likely.

The short-term trend remains bullish despite the correction risks, and should the coin clear the overbought momentum readings traders could reenter their position following strict risk management rules. Support is now found near $3.50, $3, and $2,80 while strong resistance is ahead near $4.50 and $5.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 466 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

XRP Price Analysis: Explosive Breakout from Pennant Confirmed; SBI Holdings CEO Bullish on XRP

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  • XRP/USD is enjoying three consecutive sessions of gains, having jumped around 17%.
  • SBI Holdings CEO believes XRP market capitalization will be higher than bitcoin’s.

Ripple’s XRP price has been enjoying a decent move to the north over the past few sessions, as life flows back into the bulls. XRP/USD is currently running at a third consecutive session in the green, having gained around 17% within this period. The explosion of buying pressure came after the price managed to escape a bullish pennant pattern.

XRP/USD: Price Recap

XRP/USD had initially been cooling since the big bull run at the back end of 2018. The price rallied on 24th December up to a high of around $0.4670, before quickly losing upside momentum. It was then forced to trade within the confinements of a descending wedge pattern. XRP lost over 30% in value before it was able to break out from the wedge.

On 8th February a chunky push higher from the bulls was observed, resulting in a breach of the upper acting trend line. XRP/USD jumped around 10% on this day but then eased south to retest the trend line for a few sessions. During the cooling period, price action has formed a pennant structure which saw an eventual big breakout to the upside, as described earlier.

SBI Holdings CEO Bullish on XRP

The SBI Holdings CEO, Yoshitaka Kitao, was recently speaking on XRP and said this year is a significant one for the so-called banker’s cryptocurrency. He believes that the market capitalization of XRP is likely to dwarf bitcoin’s at some point in the future. Kitao has firm belief in the future sucess of XRP and can see it being adopted on a global scale. He was quoted saying:

“Because XRP is already beginning to become international, xRapid will be used for fund transfers in 2019. By increasing the so-called XRP’s plastic use, we anticipate that the XRP market capitalization will easily exceed the market capitalization of bitcoin.”

SBI has many joint ventures set up with Ripple across the blockchain industry; it’s therefore not too surprising to see such comments. The organization will also be launching its very own cryptocurrency exchange called VCTRADE, scheduled for March. Deposits and withdrawals for bitcoin, XRP, and Ethereum (ETH) are already available on the platform.

Technical Review – XRP/USD

XRP/USD daily chart.

Given current upside, eyes must now be on the next likely barriers of resistance for the bulls. A supply area noted from $0.3450 up to $0.3600 is the next target; XRP has not traded comfortably above this region since 10th January. A break above this zone should put the bulls in an excellent position to retest the $0.4000 area. On several occasions, this price territory has caused issues for the bulls in their attempts to push further north. In terms of support, this is seen back down at the psychological $0.3000 mark. If that fails to hold, then there is a demand which runs from $0.3000 down to $0.2500.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 124 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

3 Things You Need to Know About the Market Today: New High in Gold, Dow 26,000?, Euro Weakness

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1, Gold Jumps to 9-Month High, $1360 in Sight

Gold Futures, 4-Hour Chart Analysis

We have been following the resurrection of gold in the past few months, and since fundamentals just got better for the precious metal, the current technical strength is great news for long-term investors. Today, gold quietly reached a new 9-month high, despite the still ongoing risk rally and the relative strength of the US Dollar.

The metal topped the $1330 level, and with the next major resistance level being found near $1360, a quick surge to the vicinity is in the cards in the coming days. We continue to advise holding gold for the long run, and for now, the short-term technicals also remain bullish. Should the risk rally finally roll over, the uptrend could even accelerate, with longer-term targets being found near $1400 and $1550.

2, US Stocks Drift Lower After Long Weekend as Trade Talks Resume

Dow 30 Futures, 4-Hour Chart Analysis

US stocks are having a quiet start for the day, with the major indices drifting slightly lower following the long weekend. The US economic calendar is empty today, and all eyes will be on the trade talks with China which are set to resume today in Washington in the wake of the unexpected extension of last week’s round of negotiations in Beijing.

The Dow, which approached the 26,000 level last week during the Friday surge to new 9-week highs, is lower today, in-line with the market-wide trends. The mega-cap index could get a lift in early trading thanks to the better-than-expected quarterly report by Walmart (WMT). The firm’s holiday-quarter sales topped estimates, despite the reports regarding the widening growth-gap between online and brick-and-mortar stores, and in light of the positive guidance by the company, the pre-market surge in the stock is no surprise.

With the week’s main economic releases coming in the second half of the period, today we could be in for another choppy session on Wall Street. That said, the momentum of the recovery-rally continues to be suspicious, and especially given the weakness in the Nasdaq, investors should pay close attention to the Volatility Index (VIX), market internals and other under-the-hood indicators for signs of negative divergences.

3, Euro Under Pressure Again, Despite Sentiment Beat

EUR/USD, 4-Hour Chart Analysis

While the Dollar’s break-out to new multi-year highs still didn’t happen last week, technicals continue to agree that the long-term uptrend in the reserve currency will continue. The Euro, on the other hand, is still showing signs of broad weaknes, drifing lower against the Dollar and the Pound today, despite the better-than-expected German Zew Economic Sentiment report.

The indicator is still deep in negative territory, and together with the recent weakness in the Eurozone PMIs and industrial production, recessionary fears seem to be legit in Europe.

We will have a new batch of PMIs coming out tomorrow, and together with the Fed minutes a huge day could be ahead for forex markets and especially for the EUR/USD pair. The 1.12 level could be tested in the case of another negative surprise in the PMIs, while the Fed minutes will be under scrutiny even more than usual following the sharp dovish shift by the Central Bank.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 466 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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