Why the price of uranium has gone radioactive
(Fortune Magazine) -- Uranium has always been a hot commodity - literally. But in the past year the cost of the raw material inside nuclear reactors - and atomic bombs - has jumped nearly 100%.
1 What's the trend behind the gains?
Two words: nuclear power. After years of disfavor following the Three Mile Island and Chernobyl accidents, it's back in vogue - especially in countries like China and Russia. That has hedge funds and other investors jumping into the thinly traded uranium market.
2 So is it a hedge-fund-driven boom?
The hedgies have certainly taken a big position. According to Jeff Combs, president of UX Consulting, which tracks the uranium market, investors bought eight million pounds of the metal this year, or nearly one-third of the total spot market.
3 Is this another bubble?
It feels like it. The price of uranium has gone from $7 a pound in 2000 to $60 today. Combs thinks it could pass $70 by early 2007. However, another accident - or a turnaround by speculators - could send prices skidding.
4 How can retail investors get in?
The best strategy is to buy shares of a big, diversified mining company with some exposure to the hot metal, such as Rio Tinto or BHP Billiton. Those willing to risk getting burned can invest in a uranium pure play, like Canada's Cameco.
From the November 27, 2006 issue