The first chart clearly demonstrates the sell off that took place last year with the Industrial stocks. The sell off started in May and lasted until August when the recovery started; by October the Industrial stocks had recovered to their May levels.
The second chart depicts the hammering that Gold took in May followed by violent oscillations until October when a more orderly recovery commenced with Silver following in a similar fashion to gold. The index of un-hedged gold and silver mining companies, the HUI, shows that it too followed the gold and silver down in May with a recovery commencing in October.
The third chart shows that Uranium was not affected by this sell off and continued to rise oblivious to the markets oscillations. However when we examine the performance of individual uranium stocks we can ascertain that they too were also sold off in the general market decline.
Now with a month or so to go before the merry month of May descends upon us we need to face up to the possibility of another May sell off. It could be argued that we have just had a major correction caused by the Shanghai wobble so maybe spring came early this year and negated the need for another correction in May. Well that’s a view that would suit the super optimistic investor but not us. We believe that there is a good possibility that the market will sell off again this coming May which in turn will take the precious metals of Gold and Silver and there associated mining shares down too. At best the sell off will cap or at least hamper the rise of these metals as traders scramble to close their long positions and try to raise cash for various derivative based plays.
Uranium is the exception here, as we believe we are now on the verge of hitting and then breaking through the $100.00 per pound price level. When this happens it will become a news worthy event and generate a little for ‘air time’ within the main stream media. Add to this the possibility that the situation with Iran would appear to be approaching a difficult impasse with the threats of further ‘actions’ against Iran by the outside world regarding Iran’s nuclear program. The front page of The Sunday Times newspaper leads with “Iran to try Britons for espionage” for which the penalty is death by the way and the situation is starting to turn ugly. What has this got to do with uranium you ask? Well if the situation gets out of hand in that part of the world and the oil supplies are disrupted the price of oil will rise dramatically, once again raising the profile of nuclear energy as an alternative source of fuel that is not dependent upon the middle east.
To conclude, our view is that it will be normal to lighten up on Gold and Silver and their associated stocks in May, but to try and trade within the short time frame of the summer doldrums against a background of an edgy geopolitical situation is just too risky for us, so we will stay fully invested. As for uranium, the stage is set for it to rise further and any sell off in uranium stocks should be short lived, presenting those who have not yet established a position with an unbelievable opportunity to enter the market.
Disclosure: We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.