In my SeekingAlpha article entitled "The Most Promising Investments for 2012," I cited uranium as one of the best opportunities in store for this year. Uranium stocks have surpassed even my own very bullish estimates thus far, as the (URA) ETF that is up over 22% in the first three weeks of 2012.
The reason for this is simple: the world needs nuclear power and there is no effective substitute in sight; fossil fuels are declining in availability and unpopular due to CO2 emissions, while solar and wind simply do not meet the four imperatives that energy sources must meet (which basically mean energy sources need to be cheap and scalable).
And from the perspective of supply and demand, China continues to play the role of "smart money" aggressively acquiring uranium and uranium mines to ensure it has the fuel for its ambitious nuclear power agenda. Given the geopolitical conditions -- which give China an incentive to attempt to corner the uranium market or at least stockpile aggressively because of concerns regarding potential trade barriers -- as well as the notion that nuclear power bears no real rival regarding the future energy source and is most easily fueled by uranium, the rise in the price of uranium is high probability scenario.
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The chart above reflects the current spot price of uranium. The consolidation we've been seeing around $50 suggests buyers are accumulating in this price area; I would be surprised if uranium drops below $40. As the price of uranium escalates, uranium stocks will increase significantly over time as well -- especially the right stocks, with my favorite being those utilizing ISR mining techniques, as such processes will result in lower cost operations.
Ultimately, I think a move past the parabolic highs reached in 2007 is likely. Inflationary monetary policy and the sovereign debt crisis are paving the way for a flow of funds from bonds into stocks, and the conditions in the uranium market outlined thus far suggest the demand is there to drive uranium to all-time highs. When one considers that the Megatons to Megawatts Program, which enabled the US to buy uranium from Russia at a low price, is coming to an end in 2013, the possibility of a sharp rise in uranium in the very near future becomes even more likely.
Given that most uranium stocks are still trading in the bottom quarter of their 52 week range, the buying opportunity is fantastic. But as the sharp rise in uranium stocks to kick off 2012 suggests, this may not last much longer. Personally, the bulk of my investing focus for Q1 2012 will most likely be in securing uranium. I believe all the ingredients are in place for a remarkable rise over the next five years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.