Gold, Uranium and Nickel Poised for Blast-Off!
Commodities / Metals & Mining Jun 07, 2007 - 08:48 AM GMT
Sean Brodrick writes A funny thing is happening on the way to the next U.S. recession — the rest of the world is forgetting to come along.
Sure, the U.S. economy may be slowing down precipitously — gross domestic product expansion was just revised down to 0.6% for the first quarter. But the global economy is expected to grow at a 4.7% pace in 2007, and may accelerate in 2008.
And this global growth is powering massive consumption in many emerging markets: People in India are sick of sweating their days away in shacks so they're buying air conditioners … Chinese citizens are tired of riding bicycles so they're buying cars … and both groups love showing off their newfound wealth with jewelry.
So you can see why all kinds of metals will continue to be in hot demand. Heck, more air conditioners mean more energy consumption (uranium) … more cars, buildings, and consumer goods mean more stainless steel (nickel) … and more jewelry means more precious metals (gold).
Today, I want to tell you why I think now is a great time to take a closer look at investing in these three metals …
Gold: The Shine Is Back On
We've seen gold pull back over the last two months, and no wonder — the European Central Bank (ECB) was selling it like hotcakes. The bank issued a statement saying, "Over the past two months, the ECB has conducted gold sales amounting to 37 tonnes of gold."
Now, however, the ECB says it is done selling. And other banks should be in no rush to sell, either. According to figures from the International Monetary Fund (IMF), gold holdings by central banks and other government organizations declined for the eighth straight year in 2006 to a 60-year low!
Meanwhile …
Global demand is ramping up! Demand for the yellow metal increased 4% in the first quarter from a year earlier, even though the spot price of gold increased 17% during the same time. Those numbers are from the World Gold Council.
The big mover: Chinese demand. Consumer demand for gold in China was up 31% vs. the same quarter last year, as the Chinese flocked to buy gold jewelry and commemorative "lucky balls", particularly around Chinese New Year in mid-February.
Demand in India, the world's largest gold market, also surged in the first quarter, rising 50% from a year earlier. Strong economic growth and the onset of the wedding season played a role.
And this intense demand from Asia is coming on top of an existing supply/demand squeeze for the yellow metal. Unfortunately …
Global gold production is falling! Around the world last year, global mine production fell by more than 3% to 2,471 metric tonnes. In certain gold-producing countries, the situation is much worse …
For example, just a few days ago, Peru's Energy and Mines Ministry reported that gold production in the country was down 14% in March (year over year). Peruvian production has fallen by double-digit percentages for months now.
South Africa's gold production also fell in March (10.8% vs. the same month last year).
It's important to remember that gold production is falling even in the face of higher prices. The big gold miners would love to produce more gold … they simply don't have the resources. The only way they can get more is by exploration (which takes a lot of time and money) or buying up smaller producers.
This is where going global really pays off. There are great undervalued miners around the world, and the big miners know it. By buying stocks of those small producers, you not only can ride the rising price of gold, you can get a potential rocket launch if the stock is snapped up by one of the big boys.
Of course, gold's not the only area where this is happening …
White-Hot Uranium About to Get Even Hotter
Uranium has been a standout performer for the past couple years, and the price of the metal has only gone up. But in the last few months, we've seen uranium stocks move lower as investors take mega-sized profits. I don't think the disconnect will last long. Why?
Well,uranium demand is going to double by 2030. That's the view of the World Nuclear Association (WNA), which has a pretty good handle on these things. The WNA expects a lot of the demand to come from China, India, Russia and other countries that are cranking up their nuclear programs.
Plus, global demand is just one part of the equation. U.S. utilities have a lot of catching up to do!
In its annual uranium marketing report, the U.S. Energy Information Administration determined a total of 276 million pounds of unfilled uranium contracts exist for the period from now through 2016.
Holy smokes! And that's just for existing reactors — there are a bunch more in the planning stages. They'll all need to be fueled as well.
In fact, a typical 1-gigawatt nuclear reactor requires around 200 metric tonnes of natural uranium per year. But during start-up, a new plant can use triple its normal requirements.
Too bad the supply/demand squeeze is already python-tight. According to UX consulting, in 2006, there was a 70-million-pound gap between the amount of mined uranium and the amount demanded by the market.
And an ever-more frantic feeding frenzy is taking place as uranium miners snap each other up for resources and personnel — there are so few trained personnel that a trained uranium geologist is worth his weight in … well, uranium!
You can see why I believe the price of uranium could easily double in the next 12 to 18 months. And why some uranium stocks are dirt-cheap when you take into account the rapidly growing value of their pounds in the ground.
Now, here's one last metal that you might not be hearing much about, even though it's gone absolutely gangbusters …
Nickel: The Base Metal Bonanza
Nickel is used to make stainless steel, so it's found in everything from cutlery to microwaves to skyscrapers. Plus, it can be found in a range of other products like batteries, coins, and magnets.
Nickel has jumped more than sixfold in the past five years as supply failed to keep up with demand. Recently, there was less than two days of global consumption in stockpiles!
Again, China is behind much of the nickel story — the country's stainless steel production soared 68% last year! In fact, China overtook Japan as the world's largest producer of stainless steel and the biggest consumer of nickel.
So have we missed the nickel boom? Hardly! Remember, China's consumers are just starting their shopping sprees. They'll probably use up all the nickel the world can produce.
Zhang Mei, a researcher at China's Ministry of Land and Resources information center, recently told a conference in Shanghai that demand for nickel in China may rise 62% by the end of the decade.
And research firm Canaccord Adams recently forecast a nickel supply deficit of 13,000 tonnes this year, a deficit of 28,000 tonnes in 2008, and a shortage of 17,000 tonnes in 2009.
In short, the market should be able to absorb any new supply for at least the next three years. So, yeah, I'm bullish on nickel! And I'm especially bullish on the small-but-growing nickel producers in Canada and Australia that are going to feed China's ravenous demand.
That leads me to perhaps the most important point …
Many of the World's Most Attractive Natural Resource Investments Are Global Concerns
Indeed, I find some of the best bargains for gold, uranium and nickel stocks are overseas.
While I've recommended some great U.S. companies, I also think outside the U.S., too. In my Red-Hot Asian Tigers and Red-Hot Canadian Small-Caps services, I focus on stocks that will feed the raw material hunger of the growing economies of China and India. It's a strategy that has worked very well.
And to take it one step further, I think the biggest rewards are found in small-cap foreign stocks. I encourage you to investigate some of the possibilities that are out there.
But at the very least, you can at least use mutual funds or ETFs to get a stake in the action surrounding the metals I told you about today:
For gold, check out U.S. Global Investors' World Precious Mineral fund (UNWPX). This no-load fund returned 52% in 2006 and is outperforming its benchmark, the Amex Gold Bugs Index, by a wide margin.
For uranium, there's always the Uranium Participation Corp., a Canadian fund that tracks uranium. The symbol up in Canada on the Toronto Exchange is U. In the U.S., the symbol is URPTF on the Pink Sheets. (On Yahoo, that would be URPTF.PK.)
Nickel is a little bit trickier … I'm not aware of any pure-play nickel funds. However, the new Market Vectors-Russia ETF (RSX) has 7% of its portfolio invested in Norilsk Nickel. That company is the world's largest producer of nickel and palladium, as well as Russia's largest gold producer.
Yours for trading profits,
By Sean Brodrick
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