Silver, gold, and oil have skidded. Commodities have suffered a correction. And already we hear the same old voices proclaiming that “the mega-run for commodities has run its course.â€
Why they’re wrong: Some of the most commodity-hungry economies in the world are doing just great. In fact, they’re sizzling!
China’s economy accelerated 11.3% in the second quarter. So is now the time to double-down and bet against commodities? Heck no!
In a moment, I’ll tell you about my favorite natural resource. But first, more about how …
Commodity-Consuming Countries
Continue Crushing Estimates
Not only is China’s GDP growing at 11.3% … India’s GDP is rising at more than 8%. In fact, the country’s industrial production probably increased in July at the fastest pace in a decade!
Between them, India and China have 2.3 billion people, or a third of the world’s population. Never forget that this combined power is a tremendous economic force.
It’s so strong, in fact, that the International Monetary Fund is expected to raise its forecast for 2006 global economic growth to 5.1% — up from the 4.9% forecast it made in April.
If the IMF’s forecast holds true, 2006 would mark the fourth year of growth above 4%, the strongest global economic performance since 1973.
Do you remember what commodities did in 1973? They zoomed higher. Heck, gold’s price nearly doubled that year!
Can the same thing happen again? Well, the underlying supply and demand picture sure looks positive …
Metal Inventories Scraping
The Bottom of the Barrel
Demand from these booming countries is exhausting the world’s supply of metals.
Owen Hegarty, Managing Director of Oxiana, an Australia-based copper-gold-zinc miner, recently told reporters:
“We haven’t seen any slowing in demand from China. You just can’t see the end of the freeways and the power lines and infrastructure that is being built up there, certainly in western China. So the demand for energy, for copper materials, for steel and zinc and all of those commodities that we produce here, looks like being strong and long.â€
Mr. Hegarty isn’t just blowing smoke. Look at the latest numbers:
- Copper inventories are getting very low! Stockpiles monitored by the London Metals exchange are equal to less than three days of global consumption. In the most recent measure, they dropped 2.9% to 121,525 tons. That’s the largest one-day decline since June 20.
- Zinc inventories fell to a little more than six days supply. As recently as June, there was enough for 10 days. So far this year, zinc stockpiles have dropped 57%.
- Nickel inventories are even tighter — less than two days worth of global consumption is available to the market, according to a recent report. Nickel inventories have fallen 84% this year.
If the commodity boom is waning, why can’t suppliers keep copper, zinc, nickel, and other metals on the shelves?
My take: The commodity bull is not dead. If it were, inventories would be going up, not down!
Listen, nothing — including bull markets — goes up in a straight line. Even in the best and biggest bull markets, we’re bound to have corrections along the way.
So, unless there’s some monster change in trends lurking out there, this is just an ordinary pullback in a commodity bull market.
And by the way, even if the global economy does slow down, I think one of my favorite resources is especially well insulated …
A Natural Resource
For All Times …
And A Long Time
I’m talking about uranium. While other metals have pulled back since May, uranium prices have only gone higher.
I’m halfway through writing my new uranium report, and my research has been very fruitful. One thing I’ve become convinced of is that uranium is pretty much recession-proof.
Demand for nuclear power essentially shrugs off economic ups and downs.
Think about it — once you start a nuclear reactor, it must be fed. You can’t stop, not unless you want to shut the whole thing down (a very expensive process).
Plus, global generation of electricity from nuclear power is gaining momentum like a freight train. Just look at the chart!
Now, there are some forces lining up that could accelerate uranium even faster …
- A typical one-gigawatt nuclear reactor requires around 200 tons of natural uranium per year. As of June, there were 442 nuclear plants in operation worldwide. There are 28 others being built, 38 on order, and 115 proposed. And the U.S. and Britain haven’t even started building new nuke plants yet.
- Demand for uranium is far outstripping supply. Production from world uranium mines now supplies only 62% of the requirements of power utilities (the rest comes from stockpiles and old warheads). I expect the supply/demand squeeze to worsen over the next few years!
- And despite the surge we’ve seen in uranium prices, adjusted for inflation, uranium prices are still 63% below their peak in 1976. Add in a few concepts like peak oil and the need to find fuels that don’t contribute to global warming, and you can see how uranium could easily go much higher than its old inflation-adjusted peak.
There are plenty of companies looking for new uranium resources. But it takes time — up to 20 years — to bring those new resources online. I believe anyone who can bring a new mine online in the next decade is in the sweet spot of uranium profit potential. Those are the companies I’ll be targeting in my report.
In the meantime, you can always invest in physical uranium. One way is through Uranium Participation Corp., a Canadian fund that buys physical uranium. It’s very similar to the way that the streetTRACKS Gold ETF (GLD) gives investors a stake in gold.
The Uranium Participation Corp. trades on the Toronto Exchange under ticker symbol U. In the U.S., the symbol is URPTF on the Pink Sheets. (On Yahoo, that would be URPTF.PK).
Yours for trading profits,
Sean Brodrick
P.S. If you’re really interested in uranium, you should read the uranium report that I’ll be publishing on September 25, with stocks and funds that should do very well as the uranium bull market really starts to roar.
I’ll be selling this report — which includes three updates — for $199. And I think it would be cheap at triple that price. But if you contact us at 1-800-400-6916, and mention my name, you can reserve a copy before it comes off the press at the low pre-publication price of $99. And we’ll email you a PDF copy so you can jump on those red-hot recommendations right away.
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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