Editor's note: Today, we're featuring Part 2 of Crisis Investing editor Nick Giambruno's new essay. You can read Part 1 right here.
Below, Nick discusses the hated commodity that is handing us a massive opportunity right now. As you'll see, if history is any indication, this commodity is currently setting up for the next major boom…
By Nick Giambruno, editor, Crisis Investing
“It was the single most important financial event of my career.”
That’s what my friend Rick Rule of Sprott Global recently told me of his experience in the uranium market.
Rick was referring to Paladin Energy, a uranium company that leaped from one penny to $10 per share during uranium’s last bull market. That’s a 1,000-fold increase.
In other words, a $10,000 investment could have exploded into $10 million.
Even the worst-performing companies in the uranium sector delivered 20-to-1 returns.
Uranium can deliver these almost unbelievable returns because of unique supply-and-demand quirks that create colossal bull and bear markets.
1950s Uranium Bull Market
Uranium cycled through its first bull market in the 1950s. This bull was mainly driven by the nuclear arms race between the US and the Soviet Union. Back then, the only practical way an investor could get exposure was through uranium exploration companies trading on small regional stock exchanges, like the one in Salt Lake City (which closed in 1986). Those who did made a bundle.
The Late 1970s Uranium Bull Market
The uranium price increased more than tenfold during this bull market… from $3 to $43. Some uranium stocks shot up by a factor of 100. Greater nuclear power use was the main driver. It was a cheap alternative to high-priced oil.
Disastrous power plant failures ended this bull market—first Three Mile Island and then Chernobyl, the final nail in the coffin. New production also came online and flooded the market just as demand was decreasing. The resulting bear market lasted for 20 years.
The 2001–2010 Uranium Bull Market
This bull market originated with the preceding 20-year bear market, where the uranium price decreased over 70%. It bottomed at $8 per pound in 2001.
For many companies, the cost of producing uranium was higher than the spot price. Miners were producing uranium for around $18 per pound, but they could only sell it for about $9 per pound. So there was little incentive to increase or maintain production.
Miners simply stopped producing. Production capacity plummeted. This sowed the seeds for another uranium bull market.
The market didn’t just settle into equilibrium. The supply destruction and increasing demand were so great that, eventually, uranium overshot the price needed to balance the market. After bottoming at $8 per pound in 2001, it skyrocketed to $130 in 2007.
That alone is impressive. But uranium stocks had an even greater meteoric rise. This is when Paladin Energy, the company Rick Rule was talking about, soared from one penny to $10.
A nuclear catastrophe ushered in a new bear market, just as it had with previous uranium runs. In 2011, a tsunami caused a nuclear meltdown at the Fukushima power plant in Japan. It was the worst nuclear disaster since Chernobyl. Afterward, Japan took all 52 of its nuclear power plants offline and switched to importing liquefied natural gas (LNG).
A major source of demand in the global uranium market was gone. And a global supply glut followed.
The uranium price crashed from around $85 to under $30. Then it continued sliding to around $18 per pound, where it sits today.
Now, once again, the spot price of uranium is less than the cost of production. This is great news for us. The current uranium supply/demand imbalance has a lot in common with the last market cycle. It’s setting the stage for the next uranium boom.
Now is the time to get positioned for the same kind of explosive returns we’ve seen in previous uranium bull markets.
The Next Uranium Bull Run
I can’t think of a commodity with more upside and less downside than uranium right now. While many commodities have bounced off their lows, uranium hasn’t. It’s still at or near the moment of maximum pessimism.
The situation is screaming, “Bargain!”
Psychology plays a big part here…
People don’t like uranium. It’s yucky. It’s politically incorrect. Some hear “uranium” and think “cancer.” Many get emotional because of its association with Hiroshima, Nagasaki, Chernobyl, Three Mile Island, and of course Fukushima.
Besides that, investors are terrified that uranium prices have fallen over 85% from previous highs. It’s hard to think of a market where the sentiment is worse.
This is why we’re excited. Crises and extreme sentiment don't scare us. They attract our interest.
Editor's note: Right now, Doug and Nick are closely watching another crisis opportunity…and it may end up being the biggest event in modern financial history. It will all go down on December 4. And you’ll want to take specific steps ahead of time to get ready—to protect your portfolio, your savings, and your retirement nest egg. Then, once you’ve got the protection angle covered, you can prepare to take historic profits…
We'll explain more about this event later this week in the Dispatch.