The best way to hedge against this volatility is precious metals and commodities. Accumulate during a bear market when these real assets are on sale. A turnaround and V shaped reversal could be right around the corner.
Contrarian value investors should be looking at emerging junior producers and explorers that are still trading for pennies on the dollar. Keep a close eye on nuclear.
The uranium spot price has made a dramatic move higher as Japan begins turning back on nuclear reactors and large producers such as Cameco announce production declines. There is a lot of buying in the spot market and it should be soon reflected in the performance of the junior uranium miners (URA). Look for a breakout past $37 on the U3O8 spot price.
A town in southwest Japan approved the restart of a nuclear power station. This is a sign that if Japan who suffered greatly from the Fukushima disaster can turn back on reactors then the rest of the world should continue to build newer and safer next generation nuclear reactors. Japan turned off the nuclear reactors following Fukushima in March of 2011. However, nuclear reactors may start coming back online in 2015. Japan’s economy can no longer handle importing expensive oil and gas. Nuclear is vital to Japan’s economy and used to supply close to one-third of their overall energy needs.
Don’t forget that the U.S. is the largest consumer of nuclear power yet produces less than 10% of what it demands every year. For decades, America relied on Russia to supply cheap uranium in the megatons to megawatts program. This deal concluded at the end of 2013 and Russia could continue tightening its control on uranium as a bargaining chip against economic sanctions from the West.
Smart money is buying small emerging junior uranium producers in the United States, where demand far outpaces supply. There are very few conventional uranium mills in the United States. I am continuing to search for beaten down uranium assets in the Southwest United States that have been ignored because of the artificially low spot price. If the uranium price rebounds, this area could become quite valuable. Right now a little money goes a long way and large historical producing properties can be bought for pennies on the dollar. In the previous uranium boom, the value of these assets soared. This region could be a major supplier of uranium to U.S. utilities and help with the current supply shortfall in the United States.
Despite this painful market selloff due to the parabolic move in the U.S. dollar, some junior miners are breaking out of downtrends and breaking out on relative strength charts versus its peers in the Junior Gold Miner ETF (GDXJ) or compared to the TSX Venture.
I have found for my premium subscribers companies with a lot of insider buying with smart billionaire investors. These are the type of companies who can quickly change the landscape either through exploration or M&A growth.
The junior gold miners have all been hit hard for the past two months as investors fear the end of Quantitative Easing will bring about deflation. This irrational panic combined with tax loss selling may mark a major bottom over the next 6-8 weeks. We may see a bounce off these levels after the panic gaps down. Watch 150 on the HUI and 750 on TSX Venture. I feel we may be near a major turning point in the entire resource sector. When you see some of the smartest value investors buying stock in a junior gold miner, it makes one question the record short position on the sector.