If I understand you correctly, you are suggesting that if one is convinced that the price of uranium is going to increase, then why not have a splurge on the U3O8 futures market?
After all, the CME Group link that you provided (thanks) offers quotes to 2019; 5 years down the track… and they look pretty cheap. I am sorely tempted to plunge into the futures market and place a few orders in the 2018/19 time-frame.
I do have a few concerns, however:
1. The first relates to my possible investment return, measured on settlement day, for whichever futures contract I choose. Suppose I go for March 2018, for which I could buy U3O8 for $US35.50. In that example, come settlement day if U3O8 is trading for $US71 a pound, say, then I would have doubled my money (ignoring FX movements between now and then and a few other things). Nonetheless, about 100% return over about 4 years isn't bad.
But what if I chose to stick with PEN shares and U3O8 is $US71 per pound in March 2018? Would I have doubled my return, or would it likely be more or less?
2. Remembering that widely quoted remark by Warren Buffett:
"I never met a man who could predict the markets.",
I wonder how stable the quotes in the futures markets are over time-scales out to 5 years?
What would the array of quotes have looked like back in 2002, say, or in January 2011? I don't know, but I am prepared to wager a large sum that in 2002, there were few quotes for settlement in 2007 that exceeded $US140 per pound U3O8. Similarly, I am prepared to wager that in January 2011 there would have been few quotes lower than $US30 for June 2014 delivery, which happens to be now.
3. If the futures market truly indicates the price of uranium over the next five years, why doesn't Exelon (or any other nuclear generating utility) go into the futures and order ALL of its uranium needs there for all of its 23 reactors? I hesitate to say that, if they did, the quotes may be quite a bit higher than they currently appear.
So… in summary, rather than go out to my garage and clear a spot for a few million pounds of U3O8 for delivery in March 2018, I think I will just stick with PEN shares for a bit longer. After all, I stand to make a lot more doing so (in my judgement), if the price of U goes up significantly and, in any case, it would probably take me more than four years to clean out my garage!
;-)
Cheers
PEN Price at posting:
3.0¢ Sentiment: LT Buy Disclosure: Held
