Uranium is a radioactive element used in nuclear fuel. According to Britannica, one pound of uranium produces the same amount of energy as three million pounds of coal.
Cory Mitchell, an analyst with Trading.biz said, that the long-term rally may still have lots of room to run. “The weekly charts of the uranium ETFs are turning higher out of rounded bottom formations which have been forming for more than a year. Uranium prices have already broken to new highs and the ETFs will likely follow.
“Another uptrend leg may be starting now as prices push toward short-term highs following a brief pullback.”
The rounded bottom is a technical analysis pattern where a price decline shallows (selling slows) and then begins to trend to the upside. The pattern can form over weeks, months, or years. The uptrend starts slowly or choppily, like it did in late 2022 and early 2023. It then accelerates into a more pronounced uptrend. Longer-term patterns generally lead to longer-term or larger up trends.
The Sprott Uranium Miners ETF (URNM), and other uranium ETFs, accelerated to the upside in August and September of this year. The price pulled back and has formed a smaller rounded bottom since then. The price is now starting to move out of that smaller pattern signalling the next leg of the uptrend could be underway.
With uranium prices having already hit multi-year highs this month, the nearest target for uranium ETFs is their own highs from 2021. For URNM that is $51.75, 9% above the current price of $47.51.
Based on the rally from earlier this year, a more aggressive upside target is $62, 31% above the current price. Using prior rallies at a template, such as the late 2020 and early 2021 rally, $72 is the next target, 51% above current levels. These prior rallies provide a baseline for how far prices can run.
Note that uranium ETFs can be volatile and experience regular 10% to 15% drops even during uptrends. If investing, position size according to risk tolerance and set exit points both to the downside and upside.
The targets are based on prior patterns, but none were as big as the rounded bottom playing out over the last two years.
These uranium ETFs were all established within the last few years so they have a limited trading history. Yet in other markets, such as gold, the junior miners tend to increase more than larger miners when uptrends unfold, and the juniors fall more during downtrends.
While the Sprott Uranium Miners ETF (URNM) is slightly outperforming the Sprott Junior Uranium Miners ETF (URNJ) currently, that could change as the uptrend progresses. Potentially, there could be larger percentage gains in the junior miner ETF. This is based on general occurrences, and may not occur this time.
For investors looking to invest directly in uranium, there is the Sprott Physical Uranium Trust (SRUF), which is a closed-end fund trading over the counter in the United States. There is also the Sprott Physical Uranium Trust (TSX:U.UN) that trades on the Toronto Stock Exchange in Canada.