From one yellow metal to another
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Gold Rocks
...And Rolls Over

Gold soared on Friday, but gives up all of those gains and more today.

Meanwhile, a major development in the “other yellow metal” spells opportunity.

Dear John,

I’ve been predicting weaker gold prices up to next month’s Fed meeting.

But I never expected the roller-coaster ride we’ve seen over the last couple of trading sessions.

To recap, gold unexpectedly leaped about $15 on Friday. The reason was anybody’s guess.

Today, the metal lost all of that and more, dropping about $17 at last check. Once again, there was no obvious reason for the decline.

However, it’s reasonable to assume that, with many traders having bet against a gold rally by placing short bets, a moderate rise in the price probably set off numerous sell-stops just above the market.

Traders rushed to cover those shorts, and that buying probably sent the price spiking going into the weekend.

Today, we saw that the collapse of a coalition government in Germany over the weekend had softened the euro somewhat.

More importantly, it seems that the bears renewed their attack on gold with more shorts — at one point early on, over $2 billion-worth of gold contracts were dumped onto the market over a span of less than 10 minutes.

That started a slide that continued throughout the session.

What to make of all this noise? I continue to believe that we’ll see gold trade sideways to down until the Fed meeting. In fact, there’s the potential for a considerable sell-off similar to those that occurred around this time the last two years.

But there is some good news for “gold bugs” of all sorts, however, thanks to a dramatic development in another yellow metal.

The Uranium Market Heats Up

As you know, I’ve been bullish on uranium for some time.

Well, the bullish case for the energy metal got a big lift the other day when major producer Cameco announced it was shutting down its McArthur River mine.

This was a stunning development: McArthur River is the world’s largest uranium mine, responsible for about 11% of global production all by itself.

While it’s hard to determine in the slow-moving spot uranium market, it seemed as if the news gave a quick boost to the commodity’s price. Easier to determine was the effect on uranium juniors: Their prices spiked immediately.

Now, the long-term investment case for uranium revolves around the demand side of the equation. Rising demand and limited supply response means higher prices, eventually.

What we have here is a shock on the supply side of the price equation. The persistently low uranium price has been eating away at supplies for some time, but not too severely since most uranium production today is being sold at much higher, contracted prices.

So the news that Cameco was shutting down one of its major sources of production, while not surprising, was somewhat unexpected.

Over the coming weeks, I do expect the uranium price to rebound in response to Cameco’s mine closure. The first and most significant reaction has been to junior producers and near-producers, begging the question of how much more upside there may be to this move.

While our Gold Newsletter readers have already benefited from this development as our recommended uranium juniors have jumped higher, I think there’s more to come. We shouldn’t chase the current price spikes, however, but wait for pull backs, which could come as we enter the year-end slack period.

And for now, I recommend that investors focus on the companies with resources and production capability, and wait for a confirmed move higher in uranium before shifting to the explorers.

Remember that this development isn’t the long-term move that we’ve been waiting for.

Our long-term view is based upon the utilities being forced to return to the market to enter into new contracts as their current supply contracts increasingly expire. This mine closure may prompt some of these utilities to begin moving, but the big shift toward re-supply should occur over the next two years.

In other words, the big move higher is coming, and that’s the real reason to own these uranium stocks. The current supply constraint created by Cameco’s mine closure may not spark the big, secular price rally we’ve been betting upon, but it is a sign that the lows are likely behind us.

And that spells huge profit potential. The last time we had rising uranium prices, more than 400 new uranium juniors suddenly sprouted up, and many of these multiplied in price as a result of the investor euphoria.

If we see a similar outburst of bullishness, all of that investor money will be focused on the dozen or so remaining high-quality uranium juniors.

The result would be truly explosive gains in these companies.

In short, this is a good time to take a look at the other yellow metal...and the best-positioned, uranium-focused junior companies.

All the best,


Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference

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