Will Uranium Prices Rise in 2022?
By Jason McIntosh | Published 11 April 2022
Will uranium prices rise in 2022?
I believe the best way to judge the timing of price movements is on the charts.
Here’s a weekly chart for the uranium price:
Uranium is trading at its the highest level since 2008. And it’s recently had a strong upwards surge and is gaining momentum. The above chart is a weekly chart to help put the latest price action into perspective.
Let me explain…
You’ll see prices went through a large boom and then a bust to the left of the chart. It was then a long sideways consolidation that eventually led to a rounding bottom formation on the chart.
A lot of people lost interest during this period and uranium came off many people’s radars. And that’s so often how commodity markets, and also stock markets generally, bottom out with disinterest. And what we’ve been seeing over the last couple of years is the price ratcheting higher. We’d have big rallies, followed by sizable pullbacks.
And since about mid-last year, the uranium price really started to launch higher off its large rounding bottom formation. And this is quickly becoming very interesting.
At uranium’s current levels, I’m looking at where the price is relative to its moving averages. I’m still on a weekly chart, so this is a 50-week moving average and a 100-week moving average. And the thing with moving averages is that they act a little bit like gravity. Whether it be a stock or a commodity, as the price moves away from the moving averages, the moving averages have this gravitational pull back to it.
So, the further it gets away from those averages, the more likely it is that we’re going to have a return move. And it just keeps that rally in check. This ebb and flow around the averages is a good thing. This is where we are now. We’re well extended above the averages. So, it comes down to what do you do here?
When I look at this chart, I think it’s a really bullish chart. It’s always hard with the timing and the timeframes of these things. But I think that over the next maybe two to three years, I think uranium can exceed its all-time high.
But the question is, how do you get in if you aren’t already on this rally? If you’re already in, it’s quite simple. If you’re in the uranium market at the moment, it’s simply a case of hold on to your positions. The momentum is on your side, and all is going well. If you’re not in yet, and you want to establish position, it gets trickier because you need to assess the risk and reward.
I look at the current set-up and it’s not a particularly asymmetric entry point. By that, I want a situation where I have a relatively small risk for the potential of an oversized gain. And it’s tricky here because where do you put your exit stop on a move which is moving so quickly and does have the potential to pull back to the moving averages?
There are a couple of scenarios that could play out over the next month or two. We could see the uranium price move higher, and then that gravitational pool kicks in and we do get a pullback over several months. And what that would do, that would allow moving averages time to catch up. And then once they catch up, it allows the market to start another move up. And that’s a standard bull market. It’s constructive price action. It’s breathing. It’s doing all the right things when you see a market doing that. That’s entirely possible.
So, if you’re not in at the moment, it’s a case of do we get a move like that? Does that set up another entry opportunity where you do have points where establish a good risk/return entry. That would be a great way if you don’t have a position, or also if you want to add to positions.
A risk for some people is that they see the current gains and they take profit. Many people try to trade in and out of an uptrend. They sell with the aim of buying back in on a pullback. And so many people do this. There’s a risk with this, though. There’s a risk that uranium goes into a move like what we saw in 2006 and 2007, where it just accelerates to the upside. That’s not my base case. I don’t think that’s going to happen.
But the thing to remember with uranium is that, on a global scale, it’s a small market. It’s much smaller than the gold market. And if we saw significant money flow coming into the sector, it could really ramp the price upwards quickly. So, there’s always a potential that we get a sharp move upwards like that from current levels. This is why I wouldn’t be exiting any positions. At this point, I would be letting the trend run.
And this is a thing with trend following. Trend following is such an interesting strategy because the way it works is with trend following, you get lots of relatively small losses along the way. That’s just part of doing business as a trend follower. You get into lots of trends which go a small way, a modest way, maybe lower double digits, nothing very exciting. Then you get a whole host of losses with trends which just fall short of what they could have done, and they basically roll over and fail and you end up with 10% and 20% losses.
That’s all okay. They often net themselves out. Where the trend followers really make the big money… where they kick their goals is when they get into either a big trend or a mega-trend. A big trend is like a triple-digit gain, 100%, 200%. They come along reasonably frequently. But then occasionally you get the mega-trend. That’s what makes the portfolio. That’s what makes trend followers so successful over the medium to longer-term. So, I’d be hesitant to buy at these current levels, but I’d very much be sticking to my positions if I had them on board. I think the outlook for uranium is very good medium to longer term.
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I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.