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Chart In Focus

Uranium and Gold, Part II

 
Chart In Focus
 
June 04, 2015


Last week, I wrote about the relationship between gold prices and uranium prices, and how looking at it a certain way there might be a bearish message for uranium prices.  I received a few emails, first notifying me that you actually can trade uranium on the Toronto exchange, under the symbol U.TO.  That is for the Uranium Participation Corp, which invests directly in uranium oxides.  It is like CEF or GLD for gold bullion, only for uranium. 

But a much more interesting message came from a longtime reader who is a financial advisor in Alberta who has a lot of experience investing in uranium related businesses, and who prefers to remain anonymous for these purposes.  He offered that I might have been looking at the relationship between gold and uranium in the wrong way, and that instead there might be a leading indication relationship there. 

That intrigued me, and so I started looking at the data again.  That led to this week’s chart, which reveals that the gentleman from Alberta might be onto something.  For the record, he had never thought to look at the two items together before either, but he has seen enough of the Liquidity Wave relationships that I talk so much about that he has learned to look for these leading indication relationships. 

When I adjusted by shifting the uranium price plot forward, the real relationship became more clear.  It took some tweaking, but a forward offset of 7 months brought the best correlation between the two price plots.  It is still not perfect, and uranium prices do not explain all of the movements of gold prices, but it is nevertheless a really interesting correlation.

The implication is that one can watch what uranium prices do and thereby get an indication of what gold prices are going to do up to 7 months later.  Such relationships are really fun to find.  I like getting the answers ahead of time. 

So far, gold prices (in dollars) have not yet responded to the mini-rally in uranium prices which occurred in late 2014.  So the message from uranium is that there should be an upside bias for gold prices.  And if the forecasts are correct about rising uranium demand for new nuke plants in China and India, not to mention Japan bringing its own nuke plants back online, then that should mean continued upward pressure on gold prices in the years ahead. 

But we have seen instances as highlighted in the chart when uranium prices zigged upward, and gold did not follow suit.  Each of those led to a further decline for both uranium and gold prices. 

Tom McClellan
Editor, The McClellan Market Report


 
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